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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER: 1-13115
EQUITY OFFICE PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
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<S> <C>
MARYLAND 36-4151656
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization) 60606
TWO NORTH RIVERSIDE PLAZA, (Zip Code)
SUITE 2200, CHICAGO, ILLINOIS
(Address of principal executive offices)
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(312) 466-3300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Shares of Beneficial Interest,
$.01 par value per share ("Common Shares") New York Stock Exchange
8.98% Series A Cumulative Redeemable
Preferred Shares of Beneficial Interest,
liquidation preference $25.00 per share New York Stock Exchange
5.25% Series B Convertible, Cumulative
Redeemable Preferred Shares of Beneficial Interest,
liquidation preference $50.00 per share New York Stock Exchange
8.625% Series C Cumulative Redeemable
Preferred Shares of Beneficial Interest,
liquidation preference $25.00 per share New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
(None)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (of for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ] Yes [ ] No
The aggregate market value of the Common Shares held by non-affiliates of
the registrant as of March 12, 1999 was $6,642,224,418.
On March 12, 1999, 260,083,420 of the registrant's Common Shares were
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for the annual shareholders'
meeting to be held in 1999 are incorporated by reference into Part III.
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EQUITY OFFICE PROPERTIES TRUST
TABLE OF CONTENTS
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PAGE
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PART 1.
Item 1. Business.................................................... 4
Item 2. Properties.................................................. 33
Item 3. Legal Proceedings........................................... 43
Item 4. Submission of Matters to a Vote of Security Holders......... 44
PART II.
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters......................................... 45
Item 6. Selected Financial Data..................................... 48
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 51
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 76
Item 8. Financial Statements........................................ 78
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 116
PART III.
Item 10. Directors and Executive Officers of the Registrant.......... 117
Item 11. Executive Compensation...................................... 117
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 117
Item 13. Certain Relationships and Related Transactions.............. 117
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 118
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PART I
ITEM 1. BUSINESS.
THE COMPANY
As used herein, the terms "we," "us," "our," " Equity Office" or the
"Company" refer to Equity Office Properties Trust, a Maryland real estate
investment trust, individually or together with its subsidiaries, including EOP
Operating Limited Partnership, a Delaware limited partnership (sometimes called
the "Operating Partnership" or "EOP Operating"), and our predecessors. With EOP
Operating, we were formed as a REIT to continue and expand the national office
property business organized by Mr. Samuel Zell, our Chairman of the Board, and
to complete the consolidation of our predecessors. We completed our initial
public offering, or "IPO," on July 11, 1997. We are a fully integrated,
self-managed real estate company engaged in acquiring, owning, managing and
leasing office properties and parking facilities. We have elected to be taxed as
a real estate investment trust, or "REIT," for federal income tax purposes and
generally will not be subject to federal income tax if we distribute 100% of our
taxable income and comply with a number of organizational and operational
requirements.
As of December 31, 1998, we owned or had an interest in 284 office
properties containing approximately 75.1 million rentable square feet of office
space and owned 19 stand-alone parking facilities containing approximately
18,059 parking spaces. The weighted average occupancy for our office properties
at December 31, 1998 was approximately 95.0%. Our office properties are located
in 80 submarkets in 36 markets in 24 states and the District of Columbia. The
office properties, by rentable square feet, are located approximately 53% in
central business districts, or "CBDs," and 47% in suburban markets. We own all
of our assets and conduct all of our operations through EOP Operating. We own in
excess of 90% of EOP Operating and are its sole managing general partner. To
facilitate maintenance of our qualification as a REIT for federal income tax
purposes, we generally conduct the management of properties that are not wholly
owned by us and our subsidiaries and certain other business activities through
taxable corporations in which we own substantially all of the equity but little
or no voting stock. We refer to these corporations as our "noncontrolled
subsidiaries."
Our executive offices are located at Two North Riverside Plaza, Suite 2200,
Chicago, Illinois 60606, and our telephone number is (312) 466-3300.
ACQUISITION ACTIVITY
During the period from 1987 through 1998, we invested approximately $12.5
billion, averaging $2.7 billion annually for the four years ended December 31,
1998, calculated on a cost basis, in acquisitions of institutional quality
office properties and parking facilities throughout the United States. During
the year ended December 31, 1998, we completed 12 acquisition transactions in
which we acquired 28 office properties, containing an aggregate of approximately
10.4 million square feet of rentable space and two parking facilities containing
1,310 spaces. The aggregate consideration we paid for these acquisitions during
1998 was approximately $2,534.5 million, comprised of $1,923.7 million in cash,
$204.0 million in common shares and units of limited partnership interest in EOP
Operating and $406.8 million in assumed liabilities.
BUSINESS AND GROWTH STRATEGIES
Our primary business objective is to achieve sustainable long-term growth
in cash flow and portfolio value. We intend to achieve this objective by owning
and operating institutional quality office buildings and providing a superior
level of service to tenants across the United States. We intend to supplement
this strategy by owning parking facilities.
INTERNAL GROWTH. We believe that our future internal growth will come from
(i) lease up of vacant space, (ii) tenant roll-over at increased rents where
market conditions permit, (iii) repositioning of certain properties which have
not yet achieved stabilization, (iv) the reduction of various expenses as a
percentage of revenues, and (v) capital market efficiencies.
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As of December 31, 1998, 3.7 million rentable square feet of our office
property space was vacant. During the period from December 31, 1998 through
December 31, 2003, 5,376 leases for 43.3 million rentable square feet of space
are scheduled to expire. As of December 31, 1998, the average rent for this
space was $23.22 per square foot. The actual rental rates at which available
space will be relet will depend on prevailing market factors at the time.
We own various undeveloped land on which office space could be developed,
assuming our receipt of all necessary permits and licenses. Our policy is to
develop land only when market conditions warrant. Although we may develop
certain properties ourselves, a portion of this activity may be conducted with
joint venture partners.
EXTERNAL GROWTH. Assuming that capital is available to us on reasonable
terms, we expect to actively pursue, over the long term, acquisitions of
additional office properties and parking facilities. Properties may be acquired
separately or as part of a portfolio, and may be acquired for cash and/or in
exchange for our equity or debt securities. Such acquisitions may be customary
real estate transactions and/or mergers or other business combinations.
PARKING FACILITIES. We intend to focus any acquisition efforts for parking
facilities on municipal or private parking facilities that have limited
competition, minimal or no rental rate restrictions, and/or a superior location
proximate to or affiliated with airports, CBDs, entertainment projects or
healthcare facilities.
EMPLOYEES
As of December 31, 1998, we had approximately 1,680 employees providing
in-house expertise in:
- property management
- leasing
- finance
- tax
- acquisition
- development
- disposition
- marketing
- accounting
- information systems
- law
Our five most senior executives have an average tenure of 9 years with us
or our affiliates and an average of 23 years experience in the real estate
industry.
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EXECUTIVE AND SENIOR OFFICERS OF THE COMPANY
As of March 12, 1999, the following executive and senior officers of Equity
Office hold the offices indicated until their successors are chosen and
qualified after the next annual meeting of shareholders.
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NAME AGE OFFICE HELD
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Timothy H. Callahan.... 48 President and Chief Executive Officer
Michael A. Steele...... 52 Executive Vice President -- Real Estate Operations and Chief
Operating Officer
Richard D. Kincaid..... 37 Executive Vice President and Chief Financial Officer
Stanley M. Stevens..... 50 Executive Vice President, Chief Legal Counsel and Secretary
Gary A. Beller......... 52 Executive Vice President -- Parking Facilities
Peter H. Adams......... 52 Senior Vice President -- Pacific Region
Sybil J. Ellis......... 45 Senior Vice President -- Acquisitions
Maureen O. Fear........ 42 Senior Vice President -- Treasurer
Debra L. Ferruzzi...... 38 Senior Vice President and Executive Advisor
Frank Frankini......... 44 Senior Vice President -- Design & Construction
David A. Helfand....... 34 Senior Vice President -- New Business Development
Jeffrey L. Johnson..... 39 Senior Vice President -- Investments and Chief Investment
Officer
Peter D. Johnston...... 42 Senior Vice President -- Southwest Region
Kim J. Koehn........... 43 Senior Vice President -- West Region
Frances P. Lewis....... 45 Senior Vice President -- Corporate Communications
Anita A. Loch.......... 50 Senior Vice President -- Human Resources
Gregory S. Mancuso..... 41 Senior Vice President -- Information Systems
Diane M. Morefield..... 40 Senior Vice President -- Investor Relations
Christopher P. Mundy... 37 Senior Vice President -- Northwest Region
David H. Naus.......... 44 Senior Vice President -- Acquisitions
Arvid J. Povilaitis.... 38 Senior Vice President -- Central Region
John C. Schneider...... 40 Senior Vice President -- Legal and Associate General Counsel
for Property Operations
Mark E. Scully......... 40 Senior Vice President -- Southeast Region
Michael E. Sheinkop.... 36 Senior Vice President -- Real Estate Services
</TABLE>
Timothy H. Callahan has been a trustee, Chief Executive Officer and
President of the Company since October 1996. Mr. Callahan served on the Board of
Managers and was the Chief Executive Officer of Equity Office Holdings, L.L.C
("EOH"), and Equity Office Properties, L.L.C. ("EOP LLC"), predecessors of the
Company, from August 1996 until October 1997. Mr. Callahan was Executive Vice
President and Chief Financial Officer of Equity Group Investments, Inc. ("EGI"),
an owner, manager and financier of real estate and corporate investments, from
January 1995 until August 1996, was Executive Vice President of EGI from
November 1994 through January 1995 and was Senior Vice President of EGI from
July 1992 until November 1994. Mr. Callahan was Vice President -- Finance of the
Edward J. DeBartolo Corporation, a developer, owner and operator of shopping
centers, in Youngstown, Ohio, from July 1988 until July 1992. Mr. Callahan was
employed by Chemical Bank, a commercial bank located in New York, New York, from
July 1973 until March 1987.
Michael A. Steele has been Executive Vice President -- Real Estate
Operations and Chief Operating Officer for the Company since March 1998 and was
Executive Vice President -- Real Estate Operations of the Company from October
1996 until February 1998. Mr. Steele was President and Chief Operating Officer
of EOP LLC from July 1995 until October 1997. Mr. Steele was Executive Vice
President of EOH from July 1995 until October 1997. Mr. Steele was President and
Chief Operating Officer of Equity Office Properties, Inc., a subsidiary of EGI
which provided real estate property management services ("EOP, Inc."), from
November 1993 through October 1995. Mr. Steele was President and Chief Executive
Officer of First Office Management, a former division of Equity Property
Management, Inc., that provided real estate property management services
("FOM"), from June 1992 until October 1993. Mr. Steele was Senior Vice
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President and regional director for Rubloff, Inc., a full service real estate
company in Chicago, Illinois, from April 1987 until June 1992.
Richard D. Kincaid has been Executive Vice President and Chief Financial
Officer of the Company since March 1997 and was Senior Vice President and Chief
Financial Officer of the Company from October 1996 until March 1997. Mr. Kincaid
was Senior Vice President and Chief Financial Officer of EOH from July 1995
until October 1997. Mr. Kincaid was Senior Vice President of EGI from February
1995 until July 1995. Mr. Kincaid was Senior Vice President of the Yarmouth
Group, a real estate investment company in New York, New York, from August 1994
until February 1995. Mr. Kincaid was Senior Vice President -- Finance for EGI
from December 1993 until July 1994. Mr. Kincaid was Vice President -- Finance
for EGI from August 1990 until December 1993. Mr. Kincaid was Vice President for
Barclays Bank PLC, a commercial bank located in Chicago, Illinois, from August
1987 until August 1990.
Stanley M. Stevens has been Executive Vice President, Chief Legal Counsel
and Secretary of the Company since October 1996. Mr. Stevens was Executive Vice
President and General Counsel of EOH from September 1996 until October 1997. Mr.
Stevens was a vice president of Rosenberg & Liebentritt, P.C., a law firm in
Chicago, Illinois, from December 1993 until September 1996. Mr. Stevens was a
partner at Rudnick & Wolfe, a national law firm based in Chicago, Illinois, from
October 1987 until December 1993.
Gary A. Beller has been Executive Vice President -- Parking Facilities of
the Company since March 1997. Mr. Beller has been President of Equity Capital
Holdings L.L.C., the general partner of Equity Capital Holdings, L.P., an asset
manager of parking facilities, since August 1997. Mr. Beller was Senior Vice
President -- Redevelopment of Equity Assets Management, Inc., a former
subsidiary of EGI which provided real estate asset management services ("EAM")
from October 1987 until March 1997.
Peter H. Adams has been Senior Vice President -- Pacific Region of the
Company since March 1998 and was Regional Vice President -- Pacific Region of
the Company from March 1997 until February 1998. Mr. Adams was Vice
President -- Group Manager of EOH from July 1994 until July 1995, and Vice
President -- Regional Manager from July 1995 until March 1997. Mr. Adams was
President of Adams Equities, a private real estate consulting firm, from 1990 to
1994.
Sybil J. Ellis has been Senior Vice President -- Acquisitions of the
Company since March 1997. Ms. Ellis was Senior Vice President -- Acquisitions of
EOH from July 1995 until October 1997. Ms. Ellis was Senior Vice
President -- Acquisitions of EOP, Inc. from July 1994 through July 1995 and was
Vice President -- Acquisitions of EOP, Inc. from November 1993 until July 1994.
Ms. Ellis was Vice President -- Acquisitions of EAM from March 1990 until
October 1993.
Maureen O. Fear has been Senior Vice President -- Treasurer of the Company
since November 1998. Ms. Fear was Assistant Treasurer of Comdisco, Inc. from
1992 until November 1998. From 1989 until 1992, Ms. Fear was Cash Manager of
Comdisco, Inc. and from 1984 until 1989, Ms. Fear was Transaction Analyst,
Private Placement Group of Comdisco, Inc.
Debra L. Ferruzzi has been Senior Vice President and Executive Advisor of
the Company since June 1998. Ms. Ferruzzi was Senior Vice President -- Finance
for EGI from December 1995 until June 1998. Ms. Ferruzzi was Vice President of
EAM from December 1992 until December 1995. She was employed by EGI from 1982
until May 1998.
Frank Frankini has been Senior Vice President -- Design and Construction of
the Company since March 1997. Mr. Frankini was Senior Vice President -- Design
and Construction of EOP LLC from July 1995 until October 1997. Mr. Frankini was
Senior Vice President -- Engineering and Operations of EOP, Inc. from November
1993 until July 1995. Mr. Frankini was Senior Vice President -- Engineering and
Operations of FOM from October 1990 until October 1993. Mr. Frankini was
National Director of Engineering and Operations for Rubloff, Inc., a full
service real estate company in Chicago, Illinois, from October 1984 until
October 1990.
David A. Helfand has been Senior Vice President -- New Business Development
of the Company since July 1998. Mr. Helfand was Managing Director of Equity
International Properties, Ltd. from December 1997 until
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July 1998. Mr. Helfand was Chief Executive Officer of Manufactured Home
Communities, Inc. from August 1996 until December 1997 and was President of
Manufactured Home Communities, Inc. from January 1995 until July 1996. From
December 1992 until February 1995, Mr. Helfand was Chief Financial Officer and
from March 1994 until January 1995, he was Vice President of Manufactured Home
Communities, Inc. Since May 1995, Mr. Helfand has been a member of the Board of
Directors of Manufactured Home Communities, Inc.
Jeffrey L. Johnson has been Senior Vice President -- Investments and Chief
Investment Officer for the Company since March 1998 and was Senior Vice
President -- Investments for the Company from March 1997 until February 1998.
Mr. Johnson was Senior Vice President -- Asset Management for EOH from July 1996
until October 1997. Mr. Johnson was Senior Vice President -- Acquisitions for
EOH from July 1995 until July 1996. Mr. Johnson was Senior Vice
President -- Acquisitions of EOP, Inc. from December 1994 until July 1995 and
was Vice President -- Acquisitions of EOP, Inc. from November 1993 until
December 1994. Mr. Johnson was Vice President Acquisitions of EAM from September
1990 until October 1993. Mr. Johnson was an Investor and Asset Manager for
Aldrich Eastman Waltch, Inc., a real estate advisor in Boston, Massachusetts,
from August 1987 until August 1990. Mr. Johnson was Senior Project Manager in
the real estate investment group for First Wachovia, Inc., a commercial bank in
Winston-Salem, North Carolina, from July 1983 until August 1987.
Peter D. Johnston has been Senior Vice President -- Southwest Region of the
Company since March 1998 and was Regional Vice President -- Southwest Region
from January 1998 until February 1998. Mr. Johnston was Senior Vice
President -- National Accounts from April 1993 until February 1998.
Kim J. Koehn has been Senior Vice President -- West Region of the Company
since March 1998 and was Regional Vice President -- West Region from March 1997
until February 1998 and was also Regional Vice President Southwest Region from
March 1997 until December 1997. Mr. Koehn was Senior Vice President -- Asset
Management of EOH from December 1995 to February 1997. Mr. Koehn was a Vice
President of EOH from June 1993 until December 1995.
Frances P. Lewis has been Senior Vice President -- Corporate Communications
of the Company since April 1997. Ms. Lewis was Vice President -- Corporate
Communications of EGI from November 1994 until April 1997. Ms. Lewis was Vice
President -- Publications of EGI from September 1988 until October 1994.
Anita A. Loch has been Senior Vice President -- Human Resources of the
Company since January 1999. Ms. Loch was Vice President of Human Resources of
Moore Corporation, Ltd. from 1997 until December 1998. From 1992 until 1997, Ms.
Loch was Vice President of Human Resources of Continental Can Europe, White Cap,
Inc. Division.
Gregory S. Mancuso has been Senior Vice President -- Information Systems of
the Company since October 1998. Mr. Mancuso was Senior Vice President, Business
Systems Integration Group of ERE Yarmouth from 1997 until September 1998. Mr.
Mancuso was Senior Vice President/CIO of The Yarmouth Group, Inc., from 1994
until 1997, and was Senior Vice President of The Yarmouth Group, Inc. from 1991
until 1994. Mr. Mancuso held various positions at The Yarmouth Group, Inc. from
1982 through 1997.
Diane M. Morefield has been Senior Vice President -- Investor Relations
since January 1999 and was Senior Vice President -- Finance/Capital Markets of
the Company from July 1997 until December 1998. Ms. Morefield was Senior Manager
in the Corporate Finance practice of Deloitte & Touche, a public accounting and
consulting firm, from November 1994 until July 1997. Ms. Morefield was Executive
Vice President of the Fordham Company, a real estate development company located
in Chicago, Illinois, from November 1993 until November 1994. Ms. Morefield was
Vice President and Team Leader for the Real Estate Group division, in the
Midwest, of Barclays Bank PLC from August 1983 until November 1993.
Christopher P. Mundy has been Senior Vice President -- Northeast Region of
the Company since March 1998, and was Regional Vice President -- Northeast
Region from July 1997 until February 1998. Mr. Mundy was Vice
President -- Leasing of EOH from November 1991 until July 1997.
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David H. Naus has been Senior Vice President -- Acquisitions of the Company
since March 1997. Mr. Naus was Senior Vice President -- Acquisitions for EOH
from December 1995 until October 1997. Mr. Naus was Vice
President -- Acquisitions of EOH from July 1995 until December 1995. Mr. Naus
was Vice President -- Acquisitions of EOP, Inc. from November 1993 until July
1995. Mr. Naus was Vice President -- Acquisitions of EAM from November 1992
until November 1993. Mr. Naus was Vice President of EAM from October 1988 until
November 1992.
Arvid A. Povilaitis has been Senior Vice President -- Central Region of the
Company since March 1998 and was Regional Vice President -- Central Region from
March 1997 until February 1998. Mr. Povilaitis was Vice President -- Asset
Management of EOH from August 1994 until February 1997. Mr. Povilaitis was Vice
President Investment Properties of Strategic Realty Advisors, Inc., a real
estate and advisory company, from January 1994 until August 1994. Mr. Povilaitis
was employed at VMS Realty Partners, a sponsor of public and private real estate
limited partnerships, from January 1983 until January 1994, most recently
serving as Second Vice President.
John C. Schneider has been Senior Vice President -- Legal and Associate
General Counsel for Property Operations of the Company since July 1998. From
January 1997 until June 1998, Mr. Schneider was a Vice President of the Company.
From January 1994 until December 1996, Mr. Schneider was a vice president of
Rosenberg & Liebentritt, P.C.
Mark E. Scully has been Senior Vice President -- Southeast Region of the
Company since March 1998 and was Regional Vice President for the Southeast
Region from March 1997 until February 1998. Mr. Scully was Vice
President -- Regional Leasing Director of EOH from January 1995 until February
1997. Mr. Scully was Regional Leasing Director of EOH from September 1991 until
December 1994.
Michael E. Sheinkop has been Senior Vice President -- Real Estate Services
of the Company since January 1999 and was Senior Vice President -- Portfolio
Management of the Company from November 1997 until December 1998. Mr. Sheinkop
was Senior Vice President -- Divisional Manager of EOH from March 1997 until
October 1997 and for the Company from March 1997 through December 1997. Mr.
Sheinkop was Senior Vice President -- Asset Management of EOH from December 1995
until February 1997. Mr. Sheinkop was Vice President -- Asset Management of EOH
from July 1995 until December 1995. Mr. Sheinkop was Vice President -- Asset
Management of EOP, Inc. from November 1993 until July 1995. Mr. Sheinkop was
Vice President of EAM from March 1990 until November 1993.
RISK FACTORS
Set forth below are the risks that we believe are material to investors who
purchase or own our common or preferred shares of beneficial interest or units
of limited partnership interest of EOP Operating, which are redeemable on a
one-for-one basis for common shares or their cash equivalent, at our election.
We refer to the shares and the units together as our "securities," and the
investors who own shares and/or units as our "securityholders."
WE MAY BE UNABLE TO MANAGE EFFECTIVELY OUR RAPID GROWTH AND EXPANSION INTO
NEW MARKETS. We have grown rapidly since our IPO in July 1997. As of December
31, 1998, we owned interests in 284 office properties containing 75.1 million
square feet. We also owned interests in 19 parking facilities containing
approximately 18,059 parking spaces. On a square footage basis, our office
portfolio grew by 133% and our parking portfolio grew by 22%, based on the
number of parking spaces, from the time of our IPO in July 1997 through the end
of 1998. If we do not effectively manage our rapid growth, we may not be able to
make expected distributions to our securityholders.
OUR PERFORMANCE AND SHARE VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE
REAL ESTATE INDUSTRY. If our assets do not generate income sufficient to pay
our expenses, service our debt and maintain our properties, we
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may not be able to make expected distributions to our securityholders. Factors
that may adversely affect the economic performance and value of our properties
include:
- changes in the national, regional and local economic climates;
- local conditions such as an oversupply of office properties or a
reduction in demand for office properties;
- the attractiveness of our properties to tenants;
- competition from other available office properties;
- changes in market rental rates and the need to periodically repair,
renovate and relet space;
- our ability to collect rent from tenants; and
- our ability to pay for adequate maintenance, insurance and other
operating costs, including real estate taxes which may increase over
time as markets stabilize, and which are not necessarily reduced when
circumstances such as market factors and competition cause a reduction
in income from the property.
WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACE AS LEASES EXPIRE. When our
tenants decide not to renew their leases upon expiration, we may not be able to
relet the space. Even if the tenants do renew or we can relet the space, the
terms of renewal or reletting, including the cost of required renovations, may
be less favorable than current lease terms or less favorable than the market has
anticipated in the valuation of our shares. From now through December 31, 2003,
leases will expire on a total of 61% of the currently occupied rentable square
feet at our current properties. If we are unable to promptly renew the leases or
relet this space, or if the rental rates upon such renewal or reletting are
significantly lower than expected rates, then our cash flow and ability to
service debt and make distributions to securityholders would be adversely
affected.
NEW ACQUISITIONS MAY FAIL TO PERFORM AS EXPECTED. Assuming we are able to
obtain capital on commercially reasonable terms, we intend to continue to
actively acquire office and parking properties. Newly acquired properties may
fail to perform as expected. We may underestimate the costs necessary to bring
an acquired property up to standards established for its intended market
position.
COMPETITION FOR ACQUISITIONS COULD RESULT IN INCREASED PRICES FOR
PROPERTIES. We expect other major real estate investors with significant
capital will compete with us for attractive investment opportunities. These
competitors include publicly traded REITs, private REITs, investment banking
firms and private institutional investment funds. This competition could
increase prices for office properties.
BECAUSE REAL ESTATE INVESTMENTS ARE ILLIQUID, WE MAY NOT BE ABLE TO SELL
PROPERTIES WHEN APPROPRIATE. Real estate investments generally cannot be sold
quickly. We may not be able to vary our portfolio promptly in response to
economic or other conditions. This inability to respond to changes in the
performance of our investments could adversely affect our ability to service
debt and make distributions to our securityholders.
SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE. We carry comprehensive
liability, fire, extended coverage and rental loss insurance on all of our
properties. There are, however, certain types of losses, such as lease and other
contract claims, that generally are not insured. Should an uninsured loss or a
loss in excess of insured limits occur, we could lose all or a portion of the
capital we have invested in a property, as well as the anticipated future
revenue from the property. In such an event, we might nevertheless remain
obligated for any mortgage debt or other financial obligations related to the
property.
We carry earthquake insurance on all of our properties, including those
located in California. Our earthquake policies are subject to coverage
limitations. We cannot assure securityholders that material losses in excess of
insurance proceeds will not occur in the future.
SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION. Our business is subject to risks normally associated with debt
financing. If principal payments due at maturity cannot be refinanced, extended
or paid with proceeds of other capital transactions, such as new equity capital,
our cash flow will not be sufficient in all years to repay all maturing debt. If
prevailing interest rates or other factors at the time of refinancing, such as
the possible reluctance of lenders to make commercial real estate loans, result
in higher
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interest rates, increased interest expense would adversely affect cash flow and
our ability to service debt and make distributions to securityholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Debt Financing."
OUR OBLIGATION TO COMPLY WITH FINANCIAL COVENANTS IN OUR DEBT COULD
RESTRICT OUR RANGE OF OPERATING ACTIVITIES. The mortgages on our properties
contain customary negative covenants, including limitations on our ability,
without the prior consent of the lender, to further mortgage the property, to
enter into new leases or materially modify existing leases. In addition, our
credit facilities contain customary restrictions, requirements to and other
limitations on our ability to incur indebtedness, including debt to assets
ratios, secured debt to total assets ratios, debt service coverage ratios and
minimum ratios of unencumbered assets to unsecured debt. The indenture under
which our senior unsecured debt is issued contains financial and operating
covenants including coverage ratios and limitations on our ability to incur
secured and unsecured indebtedness. These covenants reduce our flexibility in
conducting our operations and create a risk of default on our debt if we cannot
satisfy them.
OUR DEGREE OF LEVERAGE COULD LIMIT OUR ABILITY TO OBTAIN ADDITIONAL
FINANCING. Our "debt to market capitalization" ratio, which we calculate as
total debt as a percentage of total debt plus the value of our preferred shares
and the market value of our outstanding common shares and the outstanding units
of EOP Operating, was approximately 44.4% as of December 31, 1998. Our leverage
could have important consequences to securityholders, including affecting our
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, development or other general corporate
purposes and making us more vulnerable to a downturn in business or the economy
generally.
RISING INTEREST RATES COULD ADVERSELY AFFECT OUR CASH FLOW. Advances under
our three credit facilities bear interest at variable rates based upon one-month
and 90-day LIBOR. We may borrow additional money with variable interest rates in
the future, and may enter into other transactions to limit our exposure to
rising interest rates as appropriate and cost effective. Increases in interest
rates, or the loss of the benefits of hedging agreements, would increase our
interest expenses, which would adversely affect cash flow and our ability to
service our debt and make distributions to securityholders.
PROVISIONS OF OUR DECLARATION OF TRUST AND BYLAWS COULD INHIBIT CHANGES IN
CONTROL. Provisions of our Declaration of Trust and bylaws may delay or prevent
a change in control or other transaction that could provide our shareholders
with a premium over the then-prevailing market price of their shares or which
might otherwise be in the best interest of our securityholders. These include a
staggered Board of Trustees and the share ownership limit for REIT tax purposes
described below.
WE COULD ADOPT MARYLAND LAW LIMITATIONS ON CHANGES IN CONTROL. Provisions
of Maryland law prohibit "business combinations," including certain issuances of
equity securities, between a Maryland REIT and any person who beneficially owns
ten percent or more of the voting power of its outstanding shares, or, in other
words, an "Interested Shareholder," or any affiliate of an Interested
Shareholder. Our Board of Trustees elected to opt out of these business
combinations provisions. The Board of Trustees may, however, repeal this
election and cause us to become subject to these provisions in the future,
except with respect to a shareholder who became an Interested Shareholder in
connection with our formation in July 1997.
WE HAVE A SHARE OWNERSHIP LIMIT FOR REIT TAX PURPOSES. Primarily to
facilitate maintenance of our REIT qualification, our Declaration of Trust
generally prohibits ownership by any single shareholder of more than 9.9%, in
value or number of shares, whichever is more restrictive, of any class or series
of our outstanding shares. We refer to this as the "ownership limit." The
federal tax laws include complex stock ownership and attribution rules that
apply in determining whether a shareholder exceeds the ownership limit. These
rules may cause a shareholder to be treated as owning the shares that are
actually owned by others, including family members and entities in which a
shareholder has an ownership interest. In limited circumstances, our Declaration
of Trust permits the Board of Trustees to waive or modify the ownership limit
with respect to certain shareholders. Absent any such modification or waiver,
shares acquired or held in violation of the ownership limit will be transferred
to a trust for the exclusive benefit of a designated charitable beneficiary, and
the shareholder's rights to distributions and to vote would terminate. Also, the
ownership limit could delay
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or prevent a change in control and, therefore, could adversely affect our
shareholders' ability to realize a premium over the then-prevailing market price
for their shares.
WE DO NOT CONTROL OUR MANAGEMENT AND SERVICES BUSINESSES. To facilitate
maintenance of our REIT qualification, we have "noncontrolled subsidiaries" that
provide management and other services for properties that we do not wholly own.
While we generally own from 95% to 99% of the economic interest in the
noncontrolled subsidiaries, their voting stock is owned directly or indirectly
by private companies controlled by Mr. Zell. We therefore do not control the
timing or amount of distributions or the management and operation of the
noncontrolled subsidiaries, and this prevents us from controlling decisions
relating to the declaration and payment of distributions and the business
policies and operations of the noncontrolled subsidiaries. As of December 31,
1998, we had five noncontrolled subsidiaries, including:
- Equity Office Properties Management Corp. and Beacon Property Management
Corporation, which we refer to as the "management companies," which
manage several properties that we do not wholly own;
- Beacon Construction Company, Inc., which provides third-party
construction services; and
- EOP Office Company, which owns a noncontrolling interest in Wright
Runstad Associates Limited Partnership, a provider of third-party
development and management services.
MR. ZELL'S AFFILIATES CONTROL OUR MANAGEMENT COMPANIES AND CERTAIN OF THE
PROPERTIES WE MANAGE BUT DO NOT OWN. The management companies and Beacon
Property Management, L.P. provide property management services and, in most
cases, asset management services to several properties, certain of which are
owned or controlled by affiliates of Mr. Zell. Most of these management
contracts were not negotiated on an arm's length basis. While we believe that
the management fees we receive from these properties are at current market
rates, we cannot assure securityholders that these management fees will equal at
all times those fees that would be charged by an unaffiliated third party. In
this regard, Mr. Zell controls and has a substantial interest in the private
company which has voting control of the management companies. See "We do not
control our management and services businesses" above.
MR. ZELL AND HIS AFFILIATES CONTINUE TO BE INVOLVED IN OTHER INVESTMENT
ACTIVITIES. Although Mr. Zell entered into a noncompetition agreement at the
time of the IPO, he and his affiliates have a broad and varied range of
investment interests, including interests in other real estate investment
companies. Mr. Zell's continued involvement in other investment activities could
result in competition for us as well as management decisions which might not
reflect the interests of our securityholders. Mr. Zell's noncompetition
agreement does not apply to activities outside the United States.
ENVIRONMENTAL PROBLEMS ARE POSSIBLE AND CAN BE COSTLY. Federal, state and
local laws and regulations relating to the protection of the environment may
require a current or previous owner or operator of real estate to investigate
and clean up hazardous or toxic substances or petroleum product releases at such
property. If unidentified environmental problems arise, we may have to make
substantial payments which could adversely affect our cash flow and our ability
to make distributions to our shareholders because:
- the owner or operator may have to pay a governmental entity or third
parties for property damage and for investigation and clean-up costs
incurred by such parties in connection with the contamination;
- such laws typically impose clean-up responsibility and liability without
regard to whether the owner or operator knew or caused the presence of
the contaminants;
- even if more that one person may have been responsible for the
contamination, each person covered by the environmental laws may be held
responsible for all of the clean-up costs incurred; and
- third parties may sue the owner or operator of a site for damages and
costs resulting from environmental contamination emanating from that
site.
Environmental laws also govern the presence, maintenance and removal of
asbestos. Such laws require (1) that owners or operators of buildings containing
asbestos properly manage and maintain the asbestos, (2) that they notify and
train those who may come into contact with asbestos, and (3) that they undertake
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special precautions, including removal or other abatement, if asbestos would be
disturbed during renovation or demolition of a building. Such laws may impose
fines and penalties on building owners or operators who fail to comply with
these requirements and may allow third parties to seek recovery from owners or
operators for personal injury associated with exposure to asbestos fibers.
Independent environmental consultants have conducted Phase I environmental
site assessments at all of our properties. These assessments included, at a
minimum, a visual inspection of the properties and the surrounding areas, an
examination of current and historical uses of the properties and the surrounding
areas and a review of relevant state, federal and historical documents. Where
appropriate, on a property by property basis, these consultants have conducted
additional testing, including sampling for asbestos, for lead in drinking water,
for soil contamination where underground storage tanks are or were located or
where other past site usages create a potential environmental problem, and for
contamination in groundwater.
These environmental assessments have not revealed any environmental
liabilities at the properties that would require us to make payments of amounts
material to our business, nor are we aware of any such material environmental
liability. Asbestos is in a number of the office properties, but most of these
buildings contain only minor amounts. We believe this asbestos is in good
condition and almost none of it is easily crumbled so as to cause the release of
asbestos fibers. We are currently properly managing and maintaining all of the
asbestos and we are following other requirements relating to asbestos. The
presence of asbestos should not present a significant risk as long as compliance
with these requirements continues.
For a few of the properties, the environmental assessments note potential
offsite sources of contamination such as underground storage tanks. For some of
the properties, the environmental assessments note previous uses, such as the
former presence of underground storage tanks. In most of these cases, follow-up
soil and/or groundwater sampling has not identified evidence of significant
contamination. In the few cases where contamination has been found, existing
plans to mitigate and monitor the sites and/or financial commitments from
certain prior owners and tenants to cover costs related to mitigation should
prevent the contamination from becoming a significant liability.
WE ARE DEPENDENT ON OUR KEY PERSONNEL. We depend on the efforts of Mr.
Zell and our executive officers, particularly Mr. Callahan. If they resigned,
our operations could be adversely affected. We do not have employment agreements
with Mr. Zell or our executive officers.
CONTINGENT OR UNDISCLOSED LIABILITIES ACQUIRED IN MERGERS OR SIMILAR
TRANSACTIONS COULD REQUIRE US TO MAKE SUBSTANTIAL PAYMENTS. The properties we
acquired in our formation and in our merger with Beacon Properties Corporation
were acquired subject to liabilities and without any recourse with respect to
unknown liabilities. In addition, we have acquired numerous other properties
where we have only limited recourse with respect to unknown liabilities. As a
result, if liability were asserted against us based upon any of those
properties, we might have to pay substantial sums to settle it. Any such
payments could adversely affect our cash flow and our ability to service debt
and make distributions to securityholders. Unknown liabilities with respect to
properties acquired might include:
- liabilities for clean-up or remediation of undisclosed environmental
conditions;
- unasserted claims of tenants, vendors or other persons dealing with the
former entities of the properties;
- liabilities incurred in the ordinary course of business; and
- claims for indemnification by general partners, directors, officers and
others indemnified by the former owners of the properties.
In the future, we may face additional risks of contingent or undisclosed
liabilities as a result of mergers, other business combinations or similar
transactions.
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OUR EARNINGS AND CASH DISTRIBUTIONS WILL AFFECT THE MARKET PRICE OF OUR
PUBLICLY TRADED SECURITIES. We believe that the market value of a REIT's equity
securities is based primarily upon the market's perception of the REIT's growth
potential and its current and potential future cash distributions, and is
secondarily based upon the real estate market value of the underlying assets.
For that reason, our shares may trade at prices that are higher or lower than
the net asset value per share. To the extent we retain operating cash flow for
investment purposes, working capital reserves or other purposes, these retained
funds, while increasing the value of our underlying assets, may not
correspondingly increase the market price of our shares. Our failure to meet the
market's expectations with regard to future earnings and cash distributions
would likely adversely affect the market price of our publicly traded
securities.
MARKET INTEREST RATES MAY HAVE AN EFFECT ON THE VALUE OF OUR PUBLICLY
TRADED SECURITIES. One of the factors that investors consider important in
deciding whether to buy or sell shares of a REIT is the distribution rate on
such shares, considered as a percentage of the price of such shares, relative to
market interest rates. If market interest rates go up, prospective purchasers of
REIT shares may expect a higher distribution rate.Thus, higher market interest
rates could cause the market price of our shares to go down.
WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL FOR FUTURE GROWTH. To
qualify as a REIT, we must distribute to our shareholders each year at least 95%
of our net taxable income, excluding any net capital gain. For more information,
please refer to "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT -- Annual Distribution Requirements Applicable to
REITs." Because of these distribution requirements, it is not likely that we
will be able to fund all future capital needs, including for acquisitions, from
income from operations. We therefore will have to rely on third-party sources of
capital which may or may not be available on favorable terms or at all. Our
access to third-party sources of capital depends on a number of things,
including the market's perception of our growth potential and our current and
potential future earnings. Moreover, additional equity offerings may result in
substantial dilution of securityholders' interests, and additional debt
financing may substantially increase our leverage.
IF WE FAIL TO QUALIFY AS A REIT OUR SHAREHOLDERS WOULD BE ADVERSELY
AFFECTED. We believe that, since our IPO in July 1997, we have qualified for
taxation as a REIT for federal income tax purposes. We plan to continue to meet
the requirements for taxation as a REIT but we cannot assure shareholders that
we will qualify as a REIT. Many of the REIT requirements are highly technical
and complex. The determination that Equity Office is a REIT requires an analysis
of various factual matters and circumstances that may not be totally within our
control. For example, to qualify as a REIT, at least 95% of our gross income
must come from certain sources that are itemized in the REIT tax laws. We are
also required to distribute to shareholders at least 95% of our REIT taxable
income, excluding capital gains. The fact that we hold our assets through EOP
Operating and its subsidiaries further complicates the application of the REIT
requirements. Even a technical or inadvertent mistake could jeopardize our REIT
status. Furthermore, Congress and the IRS might make changes to the tax laws and
regulations, and the courts might issue new rulings that make it more difficult,
or impossible, for us to remain qualified as a REIT. We do not believe, however,
that any pending or proposed tax law changes would jeopardize our REIT status.
If we fail to qualify as a REIT, we would be subject to federal income tax
at regular corporate rates. Also, unless the IRS granted us relief under
statutory provisions, we would remain disqualified as a REIT for the four years
following the year we first failed to qualify. If we failed to qualify as a
REIT, we would have to pay significant income taxes and would therefore have
less money available for investments or for distributions to shareholders. This
would likely have a significant adverse effect on the value of our securities.
In addition, we would no longer be required to make any distributions to
shareholders. See "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT -- Failure of Equity Office to Qualify as a REIT."
WE PAY SOME TAXES. Even if we qualify as a REIT, we are required to pay
certain federal, state and local taxes on our income and property. In addition,
any net taxable income earned directly by the noncontrolled subsidiaries is
subject to federal and state corporate income tax. See "Federal Income Tax
Considerations -- Other Tax Consequences for Equity Office and Its
Shareholders."
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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes many federal income tax considerations
relating to Equity Office and to the acquisition, ownership and disposition of
common shares. If Equity Office offers one or more additional series of
preferred shares or debt securities, information about any additional federal
income tax considerations for the holders of such preferred shares or debt
securities will be included in the documents pursuant to which such securities
are offered. The following description is for general information only, is not
exhaustive of all possible tax considerations, and is not tax advice. For
example, this summary does not give a detailed discussion of any state, local or
foreign tax consequences. In addition, this discussion is intended to address
only those federal income tax considerations that are generally applicable for
all shareholders in Equity Office. It does not discuss all aspects of federal
income taxation that might be relevant to a specific shareholder in light of its
particular investment or tax circumstances or that might be relevant to
shareholders subject to special treatment under the federal income tax laws,
such as insurance companies, financial institutions or broker-dealers,
tax-exempt organizations or foreign corporations and persons who are not
citizens or residents of the United States.
The information in this section is based on the Internal Revenue Code,
current, temporary and proposed regulations, the legislative history of the
Internal Revenue Code, current administrative interpretations and practices of
the IRS, including its practices and policies as endorsed in private letter
rulings, which are not binding on the IRS, and court decisions, all as of the
date hereof. No assurance can be given that future legislation, regulations,
administrative interpretations and court decisions will not significantly change
current law or adversely affect existing interpretations of current law. Any
such change could apply retroactively to transactions preceding the date of the
change. Except as described below in "-- Requirements for Qualification as a
REIT -- Income Tests Applicable to REITs," Equity Office has not received any
rulings from the IRS concerning the tax treatment of Equity Office or EOP
Operating. Thus no assurance can be provided that the statements set forth
herein will not be challenged by the IRS or will be sustained by a court if so
challenged.
The specific tax attributes of a particular shareholder could have a
material impact on the tax considerations associated with the purchase,
ownership and disposition of common shares. Therefore, it is essential that each
prospective shareholder consult with his own tax advisors with regard to the
application of the federal income tax laws to such shareholder's personal tax
situation, as well as any tax consequences arising under the laws of any state,
local or foreign taxing jurisdiction.
TAXATION OF EQUITY OFFICE AS A REIT
GENERAL. Equity Office has elected to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code, beginning with its taxable year
ended December 31, 1997. Equity Office believes that it is organized and has
operated in such a manner so as to qualify for taxation as a REIT under the
Internal Revenue Code and intends to continue to operate in such a manner.
Qualification and taxation as a REIT depends upon Equity Office's ability to
meet on a continuing basis the various qualification tests imposed on REITs by
the Internal Revenue Code. Given the highly complex nature of the REIT
qualification requirements, the ongoing importance of factual determinations and
the possibility of future changes in circumstances of Equity Office, no
assurance can be given that Equity Office has qualified as a REIT or will
continue to qualify as a REIT.
The sections of the Internal Revenue Code and the corresponding regulations
that govern the federal income tax treatment of a REIT and its shareholders are
highly technical and complex. The following discussion is a summary of the
material aspects of these rules, which is qualified in its entirety by the
applicable Internal Revenue Code provisions, rules and regulations promulgated
thereunder and administrative and judicial interpretations thereof.
So long as Equity Office qualifies for taxation as a REIT, it generally
will not be subject to federal corporate income tax on its net income that is
distributed currently to shareholders. This treatment substantially eliminates
the "double taxation" (i.e., taxation at both the corporate and shareholder
levels) that
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generally results from investment in a regular corporation. However, Equity
Office will be subject to federal income tax as follows:
1. Equity Office will be taxed at regular corporate rates on any
undistributed "REIT taxable income," and on undistributed net capital
gains. REIT taxable income is the otherwise taxable income of the REIT
subject to certain adjustments, including a deduction for dividends
paid.
2. Under certain circumstances, Equity Office may be subject to the
"alternative minimum tax" on its items of tax preference.
3. If Equity Office has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in
the ordinary course of business or other nonqualifying income from
foreclosure property, it will be subject to tax at the highest
corporate rate on such income.
4. Equity Office's net income from "prohibited transactions" will be
subject to a 100% tax. In general, prohibited transactions are certain
sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than foreclosure
property.
5. If Equity Office fails to satisfy the 75% gross income test or the 95%
gross income test discussed below, but nonetheless maintains its
qualification as a REIT because certain other requirements are met, it
will be subject to a tax equal to (1) the gross income attributable to
the greater of the amount by which Equity Office fails the 75% or 95%
test multiplied by (2) a fraction intended to reflect its
profitability.
6. If Equity Office fails to distribute during each calendar year at least
the sum of (1) 85% of its REIT ordinary income for such year, (2) 95%
of its REIT capital gain net income for such year and (3) any
undistributed taxable income from prior periods, Equity Office will be
subject to a 4% excise tax on the excess of such required distribution
over the sum of amounts actually distributed and amounts retained but
with respect to which federal income tax was paid.
7. If Equity Office acquires any asset from a taxable "C" corporation in a
transaction in which the basis of the asset in the hands of Equity
Office is determined by reference to the basis of the asset, or any
other asset, in the hands of the "C" corporation, and Equity Office
recognizes gain on the disposition of such asset during the ten-year
period beginning on the date on which such asset was acquired by Equity
Office (the "Recognition Period"), then, to the extent of the asset's
"built-in gain," such gain will be subject to tax at the highest
regular corporate rate applicable. Built-in gain is the excess of the
fair market value of an asset over Equity Office's adjusted basis in
the asset, determined when Equity Office acquired the asset.
The results described above regarding the recognition of built-in gain
assume that Equity Office has made or will make an election pursuant to IRS
Notice 88-19 with respect to the receipt of any built-in gain assets in any
carryover basis transaction in which assets are acquired from a taxable "C"
Corporation. Generally, a corporation with assets with net built-in gains must
recognize the gain at the time it transfers those assets to a REIT. If Equity
Office did not make an election pursuant to IRS Notice 88-19 with respect to
assets acquired in a tax-free merger with a corporation other than a REIT,
Equity Office would inherit the tax liability of the other corporation on those
built-in gains even though that merger otherwise qualified as a "tax-free
reorganization." Equity Office believes that each of the ZML REITs and Beacon
qualified as a REIT at the time of its merger into Equity Office. However, if
one of the ZML REITs or Beacon (as defined below) did not qualify as a REIT at
the time of its merger into Equity Office, Equity Office would inherit the tax
liability on the built-in gains attributable to the assets acquired in that
merger.
REQUIREMENTS FOR QUALIFICATION AS A REIT. The Internal Revenue Code
defines a REIT as a corporation, trust or association
(1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares,
or by transferable certificates of beneficial interest;
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(3) that would be taxable as a domestic corporation, but for Sections 856
through 860 of the Internal Revenue Code;
(4) that is neither a financial institution nor an insurance company
subject to certain provisions of the Internal Revenue Code;
(5) the beneficial ownership of which is held by 100 or more persons;
(6) during the last half of each taxable year not more than 50% in value
of the outstanding shares of which is owned directly or indirectly by five or
fewer individuals (as defined in the Internal Revenue Code to include certain
entities);
(7) that makes an election to be taxable as a REIT, or has made such
election for a previous taxable year which has not been revoked or terminated,
and satisfies all relevant filing and other administrative requirements
established by the IRS that must be met in order to elect and maintain REIT
status;
(8) that uses a calendar year for federal income tax purposes and complies
with the recordkeeping requirements of the Internal Revenue Code and regulations
promulgated thereunder; and
(9) that meets certain other tests, described below, regarding the nature
of its income and assets and the amount of its distributions.
Conditions (1) to (4) inclusive must be met during the entire taxable year
and condition (5) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
For purposes of determining stock ownership under condition (6), a supplemental
unemployment compensation benefits plan, a private foundation or a portion of a
trust permanently set aside or used exclusively for charitable purposes
generally is considered an individual. However, a trust that is a qualified
trust under Internal Revenue Code Section 401(a) generally is not considered an
individual and beneficiaries of such trust are treated as holding shares of a
REIT in proportion to their actuarial interests in such trust for purposes of
condition (6).
Equity Office believes that it has issued sufficient shares of beneficial
interest with sufficient diversity of ownership to allow it to satisfy the
conditions described in clauses (5)and (6) above. In addition, the Declaration
of Trust contains restrictions regarding the transfer of shares of beneficial
interest that are intended to assist Equity Office in continuing to satisfy the
share ownership requirements described in clauses (5) and (6) above. These
restrictions, however, may not ensure that Equity Office will, in all cases, be
able to satisfy the share ownership requirements described above. If Equity
Office fails to satisfy such share ownership requirements, its status as a REIT
will terminate.
In connection with condition (6), a REIT is required to send annual letters
to its shareholders requesting information regarding the actual ownership of its
shares. For Equity Office's taxable years beginning on or after January 1, 1998,
if Equity Office complies with the annual letters requirement and it does not
know or, exercising reasonable diligence, would not have known of its failure to
meet condition (6), then it will be treated as having met condition (6).
To qualify as a REIT, Equity Office cannot have at the end of any taxable
year any undistributed "earnings and profits" that are attributable to a
non-REIT taxable year. Equity Office has elected to be taxed as a REIT
commencing with its first taxable year. Therefore, Equity Office has not had any
undistributed non-REIT earnings and profits of its own. However, when Equity
Office merged in 1997 with each of the ZML REITs (defined, for these purposes,
as ZML Investors, Inc., ZML Investors II, Inc., Zell/Merrill Lynch Real Estate
Opportunity Partners III Trust and Zell/Merrill Lynch Real Estate Opportunity
Partners IV Trust, collectively) and with Beacon Properties Corporation
("Beacon"), Equity Office inherited any undistributed non-REIT earnings and
profits that those companies might have had at the time of the merger if, for
any reason, any of them had failed to qualify as a REIT at any point. Equity
Office believes that the ZML REITs and Beacon qualified as REITs throughout
their existence and that, in any event, none of the ZML REITs or Beacon had any
undistributed non-REIT earnings and profits at the time of their mergers with
Equity Office. However, the IRS could determine otherwise. If the IRS did
determine that Equity Office inherited undistributed non-REIT earnings and
profits, it appears that Equity Office could keep from being disqualified
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as a REIT by using "deficiency dividend" procedures to distribute the non-REIT
earnings and profits. The deficiency dividend procedures would require Equity
Office to make a distribution to shareholders, in addition to the regularly
required REIT distributions, within 90 days of the IRS determination. In
addition, Equity Office would have to pay to the IRS an interest charge on 50%
of the non-REIT earnings and profits that were not distributed prior to December
31, 1997. However, it is possible that the IRS would determine that the
deficiency dividend procedure is not available to Equity Office, in which case
Equity Office would fail to qualify as a REIT. It is also possible that, even if
the procedure were available, Equity Office would be prohibited from qualifying
as a REIT for 1997, but would be allowed to qualify as a REIT for subsequent
years.
QUALIFIED REIT SUBSIDIARIES. If a REIT owns a corporate subsidiary that is
a "qualified REIT subsidiary" that subsidiary will be disregarded for federal
income tax purposes, and all assets, liabilities and items of income, deduction
and credit of the subsidiary will be treated as assets, liabilities and items of
income, deduction and credit of the REIT itself. Generally, a qualified REIT
subsidiary is a corporation all of the capital stock of which is owned by the
REIT. A qualified REIT subsidiary of Equity Office will not be subject to
federal corporate income taxation, although it may be subject to state and local
taxation in certain states.
OWNERSHIP OF PARTNERSHIP INTERESTS BY A REIT. A REIT that is a partner in
a partnership will be deemed to own its proportionate share of the assets of the
partnership and will be deemed to be entitled to the income of the partnership
attributable to such share. In addition, the character of the assets and gross
income of the partnership retain the same character in the hands of the REIT for
purposes of Section 856 of the Internal Revenue Code, including satisfying the
gross income tests and the asset tests. Thus, Equity Office's proportionate
share of the assets and items of income of EOP Operating, including EOP
Operating's share of such items of any subsidiaries that are partnerships or
LLCs, are treated as assets and items of income of Equity Office for purposes of
applying the requirements described herein. Equity Office has direct control
over EOP Operating, each of the ZML Opportunity Partnerships (which will be
liquidated and dissolved in July 1999), and each partnership or limited
liability company subsidiary of EOP Operating and intends to operate them in a
manner that is consistent with the requirements for qualification of Equity
Office as a REIT.
INCOME TESTS APPLICABLE TO REITS. To qualify as a REIT, Equity Office must
satisfy two gross income tests. First, at least 75% of Equity Office's gross
income, excluding gross income from prohibited transactions, for each taxable
year must be derived directly or indirectly from investments relating to real
property or mortgages on real property, including "rents from real property,"
gains on the disposition of real estate, dividends paid by another REIT and
interest on obligations secured by mortgages on real property or on interests in
real property, or from certain types of temporary investments. Second, at least
95% of Equity Office's gross income, excluding gross income from prohibited
transactions, for each taxable year must be derived from any combination of such
real property investments, dividends, interest, certain payments under hedging
instruments and gain from the sale or disposition of stock or securities and
certain hedging instruments.
Rents received by Equity Office will qualify as rents from real property in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term rents from real property
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. Second, rents received from a "related party tenant" will not qualify
as rents from real property in satisfying the gross income tests. A tenant is a
related party tenant if the REIT, or an actual or constructive owner of 10% or
more of the REIT, actually or constructively owns 10% or more of such tenant.
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property."
Generally, for rents to qualify as rents from real property for the purpose
of satisfying the gross income tests, Equity Office is only allowed to provide
services that are "usually or customarily rendered" in connection with the
rental of real property and not otherwise considered "rendered to the occupant."
Accordingly, Equity
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Office may not operate or manage the property or provide "impermissible
services" to the tenants except through an independent contractor that bears the
expenses of providing the services and from whom Equity Office derives no
revenue. However, Equity Office may provide some impermissible services
directly, provided that the "impermissible service income" at any particular
property for any taxable year does not exceed 1% of Equity Office's total income
from that property. For these purposes, impermissible service income is deemed
to be at least 150% of Equity Office's direct cost of providing the service. If
the impermissible service income does not exceed 1% of Equity Office's total
income from a property, the services will not cause the rent paid by tenants of
that property to fail to qualify as rents from real property, but the
impermissible service income will not qualify as rents from real property. If
the impermissible service income exceeds 1% of Equity Office's total income from
a property, then all of the income from that property will fail to qualify as
rents from real property.
Equity Office will provide directly certain services at some or all of the
properties. However, based upon Equity Office's experience in the office rental
markets in which the properties are located, we believe that all services
provided to tenants by us either are usually or customarily rendered in
connection with the rental of office space for occupancy or, if considered
impermissible services, will not result in impermissible service income in
excess of the 1% threshold described above. However, there can be no assurance
that the IRS will not contend otherwise with respect to either of these
positions. In the past, Equity Office has engaged Tenant Services Corp., which
is owned by affiliates of Mr. Zell and was structured to qualify as an
independent contractor, to perform certain impermissible services that Equity
Office believes are customarily offered in institutional quality office
properties that might not be permissible for a REIT to perform directly. Equity
Office may continue to engage Tenant Services Corp. to perform impermissible
services that, if not performed by an independent contractor, would give rise to
impermissible service income in excess of 1% of the income from any given
property. Equity Office will monitor the activities at its properties to ensure
that the 1% threshold is not exceeded at any property.
Equity Office does not and will not do any of the following:
- charge rent for any property that is based in whole or in part on the
income or profits of any person, except by reason of being based on a
percentage of receipts or sales, as described above, or unless Equity
Office determines that the rent received from a particular tenant under
such an arrangement is not material and will not jeopardize Equity
Office's status as a REIT;
- rent any property to a related party tenant, unless Equity Office
determines that the rent received from such related party tenant is not
material and will not jeopardize Equity Office's status as a REIT;
- derive rental income attributable to personal property other than
personal property leased in connection with the lease of real property,
the amount of which either is less than 15% of the total rent received
under the lease or is such that it will not jeopardize Equity Office's
status as a REIT; or
- perform services considered to be rendered to the occupant of the
property, other than through an independent contractor from whom Equity
Office derives no revenue, except to the extent that the impermissible
service income would not exceed the 1% threshold described above or
Equity Office otherwise determines that the nonqualifying income
resulting therefrom is not material and will not jeopardize Equity
Office's status as a REIT.
Equity Office has obtained a ruling from the IRS to the effect that amounts
received by EOP under agreements with third-party service companies for the
operation of parking facilities that are part of, adjacent to or within the same
complex as an Equity Office building, under which EOP Operating will bear the
expenses incurred in operating the parking facilities, will qualify as rents
from real property for purposes of satisfying the 95% and 75% gross income
tests. Parking facilities that are within one block of an Equity Office building
are considered adjacent for purposes of the ruling. The parking garages are
operated by third-party service companies pursuant to parking management
agreements under which the service companies receive a management fee which may
be a fixed dollar amount or a percentage of gross or net revenues.
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All but one of the stand-alone garages are operated by third party service
companies under lease agreements whereby EOP Operating and the service companies
share the gross receipts from the parking operation and EOP Operating receives
fixed rental payments from the service companies and bears none of the
operational expenses. The income received by EOP Operating from the stand-alone
garages under such agreements should qualify as rents from real properties for
the purposes of the 95% and 75% gross income tests. One stand-alone garage
agreement provides for the receipt of a percentage of net receipts by EOP
Operating and, therefore, results in nonqualifying gross income. However, the
amount of nonqualifying income received under this one agreement is
insignificant relative to the total gross income of Equity Office. Equity Office
believes that the income received under this agreement should not affect its
ability to satisfy the 95% and 75% gross income tests in the future.
In addition, Equity Office may acquire interests in stand-alone parking
facilities that are owned by municipalities. Interests in these municipal
parking facilities may be acquired by entering into either leases or concession
agreements with the municipalities, under which Equity Office would have rights
and obligations that would be substantially similar to those of a ground lessee.
Equity Office would then enter into subconcession agreements, which would be
substantially similar to subleases, pursuant to which third-parties would
operate the parking facilities. Equity Office believes that any income received
pursuant to such subconcession agreements would either be qualifying income for
purposes of the 75% and 95% gross income tests or would be insignificant
relative to the total gross income of Equity Office, and, therefore, would not
affect Equity Office's ability to satisfy the 75% and 95% gross income tests in
the future.
Equity Office has also received a ruling from the IRS to the effect that
revenue received by Equity Office with respect to certain telecommunications
services provided to tenants will qualify as rents from real property for
purposes of the 75% and 95% gross income tests and will not cause the rents
received by Equity Office from these tenants not to qualify as rents from real
property for purposes of the 75% and 95% income tests. The ruling addresses
revenue generated from the provision of telephone and other communications
services, e-mail, video communications, electronic research, internet access,
communication networking, safety and security systems and environmental control
systems, some of which will be provided through business relationships with
telecommunications service providers. Equity Office intends to provide these
telecommunication services only as described in the ruling received from the
IRS.
"Interest" generally will not qualify under the 75% or 95% gross income
tests if it depends in whole or in part on the income or profits of any person.
However, interest will not fail to qualify under the income tests solely by
reason of being based on a fixed percentage or percentages or receipts or sales.
Equity Office does not expect to derive significant amounts of interest that
will not qualify under the 75% and 95% gross income tests. Beacon Property
Management Corporation and Beacon Construction Company, Inc., currently hold
options to acquire loans secured by the Rowes Wharf property. These options
expire on March 31, 1999 and are likely to be exercised prior to their
expiration. Such loans provide for payments of interest based upon cash flow and
might be recharacterized as equity interests. These loans could not be held
directly by Equity Office without jeopardizing our qualification as a REIT and
will continue to be held in a taxable "C corporation."
Equity Office Properties Management Corp. and Beacon Property Management
Corp. conduct third-party management services with respect to properties not
wholly owned by EOP Operating. EOP Office Company, through its interest in
WRALP, provides development services with respect to properties that are not
wholly owned by EOP Operating. These entities collectively, together with Beacon
Construction Company, Inc., which is expected to cease operations upon
completion of its existing contracts, and Beacon Design Corporation, which has
an interest in a development project in Newton, Massachusetts, are referred to
as the noncontrolled subsidiaries. EOP Operating owns 100% of the non-voting
stock of each of the noncontrolled subsidiaries, 1% of the voting stock of
Beacon Property Management Corporation and Beacon Construction Company, Inc. and
none of the voting stock of any of the other noncontrolled subsidiaries. Each of
the noncontrolled subsidiaries is taxable as a regular "C corporation." Equity
Office's share of any dividends received from the noncontrolled subsidiaries
should qualify for purposes of the 95% gross income test but not for purposes of
the 75% gross income test. Equity Office does not anticipate that it will
receive sufficient dividends from the noncontrolled subsidiaries to cause it to
exceed the limit on nonqualifying income under the 75% gross income test.
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In addition to the 75% and 95% gross income tests, Equity Office had to
meet a 30% gross income test for its taxable year ended December 31, 1997. The
30% gross income test required that short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
on the sale or other disposition of real property held for less than four years,
apart from involuntary conversions and sales of foreclosure property, represent
less than 30% of Equity Office's gross income, including gross income from
prohibited transactions. The 30% gross income test is not applicable for taxable
years starting on or after January 1, 1998.
If Equity Office fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Internal
Revenue Code. These relief provisions will generally be available if Equity
Office's failure to meet such tests is due to reasonable cause and not due to
willful neglect, and Equity Office attaches a schedule of the sources of its
income to its federal income tax return and any incorrect information on such
schedule is not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances Equity Office would be entitled
to the benefit of these relief provisions. For example, if Equity Office fails
to satisfy the gross income tests because nonqualifying income that Equity
Office intentionally incurs exceeds the limits on such income, the IRS could
conclude that the failure to satisfy the tests was not due to reasonable cause.
If these relief provisions are inapplicable to a particular set of circumstances
involving Equity Office, Equity Office will fail to qualify as a REIT. As
discussed above in "-- Taxation of Equity Office as a REIT General," even if
these relief provisions apply, a tax would be imposed with respect to the excess
net income. No similar relief provision is available if Equity Office failed the
30% income test for its taxable year ended December 31, 1997.
Any gain realized by Equity Office on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of business, including Equity Office's share of any such gain realized by
EOP Operating, will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. Under existing law, whether property is held as
inventory or primarily for sale to customers in the ordinary course of a trade
or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. EOP Operating intends
to hold the properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing, owning, and operating the
properties, and other properties, and to make such occasional sales of the
properties as are consistent with EOP Operating's investment objectives. There
can be no assurance, however, that the IRS might not contend that one or more of
such sales is subject to the 100% penalty tax.
ASSET TESTS APPLICABLE TO REITS. Equity Office, at the close of each
quarter of its taxable year, must satisfy three tests relating to the nature of
its assets. First, at least 75% of the value of Equity Office's total assets
must be represented by real estate assets. Equity Office's real estate assets
include, for this purpose, its allocable share of real estate assets held by EOP
Operating and the non-corporate subsidiaries of EOP Operating, as well as stock
or debt instruments held for less than one year purchased with the proceeds of a
stock offering, or long-term (at least five years) debt offering of Equity
Office, cash, cash items and government securities. Second, not more than 25% of
Equity Office's total assets may be represented by securities other than those
in the 75% asset class. Third, of the investments included in the 25% asset
class, the value of any one issuer's securities owned by Equity Office may not
exceed 5% of the value of Equity Office's total assets, and, except for REITs or
qualified REIT subsidiaries, Equity Office may not own more than 10% of any one
issuer's outstanding voting securities.
After initially meeting the asset tests at the close of any quarter, Equity
Office will not lose its status as a REIT for failure to satisfy the 25% or 5%
asset tests at the end of a later quarter solely by reason of changes in the
relative values of its assets. If the failure to satisfy the 25% or 5% asset
tests results from an acquisition of securities or other property during a
quarter, including, for example, as a result of Equity Office increasing its
interest in EOP Operating as a result of a merger, the exercise by limited
partners of their right to redeem units in EOP Operating, or an additional
capital contribution of proceeds of an offering of shares of beneficial interest
by Equity Office, the failure can be cured by disposition of sufficient
nonqualifying assets within 30 days after the close of that quarter. Equity
Office intends to maintain adequate records of the value of its assets to ensure
compliance with the asset tests and to take any available actions within 30 days
after the close
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of any quarter as may be required to cure any noncompliance with the 25% or 5%
asset tests. If Equity Office fails to cure noncompliance with the asset tests
within such time period, Equity Office would cease to qualify as a REIT.
Stock interests owned by Equity Office in another REIT are qualifying real
estate assets for purposes of the 75% gross asset test, and, consequently, such
stock interests are not subject to the 10% voting stock limitation described
above. EOP Operating currently owns 51.6% of the outstanding stock of BeaMetFed,
Inc., which has elected to be taxed as a REIT for federal income tax purposes.
As a REIT, BeaMetFed, Inc., is subject to the various REIT qualification
requirements described herein. Equity Office believes that BeaMetFed, Inc. has
been organized and has operated in a manner so as to qualify for taxation as a
REIT for federal income tax purposes and will continue to be organized and to
operate in such a manner. If BeaMetFed, Inc. were to fail to qualify as a REIT,
Equity Office's stock interests in BeaMetFed, Inc. would cease to be qualifying
real estate assets for purposes of the 75% gross asset test and would become
subject to the 10% voting stock limitation generally applicable to Equity
Office's ownership in corporations which are neither REITs nor qualified REIT
subsidiaries. Since Equity Office owns 51.6% of the outstanding stock of
BeaMetFed, Inc., upon any failure of BeaMetFed, Inc. to qualify as a REIT, the
10% voting stock limitation would not be satisfied and Equity Office itself
would fail to qualify as a REIT.
EOP Operating does not own more than 1% of the voting stock of any of the
noncontrolled subsidiaries but it does own 100% of the nonvoting stock of each
of the noncontrolled subsidiaries. EOP Operating also may own nonvoting stock,
representing substantially all of the equity, in other corporate entities that
serve as partners or members in the various entities that hold title to the
properties. Neither Equity Office, EOP Operating, nor any of the non-corporate
subsidiaries of EOP Operating own more than 10% of the voting securities of any
entity that would be treated as a corporation for federal income tax purposes.
In addition, Equity Office and its senior management believe that its pro rata
share of the value of the securities of each of the noncontrolled subsidiaries
does not exceed 5% of the total value of Equity Office's assets. There can be no
assurance, however, that the IRS might not contend either that the value of the
securities of the noncontrolled subsidiaries held by Equity Office through the
ZML Opportunity Partnerships and EOP Operating exceeds the 5% value limitation
or that nonvoting stock of the noncontrolled subsidiaries or another corporate
entity owned by EOP Operating should be considered "voting stock" for this
purpose.
CLINTON ADMINISTRATION'S PROPOSED CHANGES TO REIT QUALIFICATION
REQUIREMENTS. The Clinton Administration's fiscal year 2000 budget proposal,
announced February 1, 1999, includes a proposal that would change the 10% voting
securities test to a 10% vote or value test. Under the proposal, a REIT would
not be able to own more than 10% of the vote or value of the outstanding
securities of any corporation, except for a qualified REIT subsidiary or another
REIT. The proposal also contains an exception to the 5% and 10% asset tests that
would allow a REIT to have "taxable REIT subsidiaries," including both
"qualified independent contractor subsidiaries," which could perform
noncustomary and other currently prohibited services for tenants and other
customers, and "qualified business subsidiaries," which could undertake
third-party management and development activities as well as other non-real
estate related activities. Under the proposal, no more than 15% of a REIT's
total assets could consist of taxable REIT subsidiaries and no more than 5% of a
REIT's total assets could consist of qualified independent contractor
subsidiaries. Under the budget proposal, a taxable REIT subsidiary would not be
entitled to deduct any interest on debt funded directly or indirectly by the
REIT. This proposal would be effective after the date of enactment and a REIT
would be allowed to combine and convert existing corporate subsidiaries into
taxable REIT subsidiaries tax-free prior to a certain date. A transition period
would allow for conversion of existing corporate subsidiaries before the 10%
vote or value test would become effective. For Equity Office's taxable years
after the effective date of the proposal and after any applicable transition
period, the 10% vote or value test would apply to Equity Office's ownership in
any of the noncontrolled subsidiaries not converted into taxable REIT
subsidiaries. It is presently uncertain whether any proposal regarding REIT
subsidiaries, including the budget proposal, will be enacted or, if enacted,
what the terms, including the effective date, of such proposal will be.
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ANNUAL DISTRIBUTION REQUIREMENTS APPLICABLE TO REITS. Equity Office, in
order to qualify as a REIT, is required to distribute dividends, other than
capital gain dividends, to its shareholders in an amount at least equal to
(i) the sum of (a) 95% of Equity Office's REIT taxable income, computed
without regard to the dividends paid deduction and Equity Office's net capital
gain, and (b) 95% of the net income, after tax, if any, from foreclosure
property, minus
(ii) the sum of certain items of noncash income.
In addition, if Equity Office recognizes any built-in gain, Equity Office
will be required, pursuant to IRS regulations which have not yet been
promulgated, to distribute at least 95% of the built-in gain, after tax,
recognized on the disposition of such asset. Such distributions must be paid
either in the taxable year to which they relate, or in the following taxable
year if declared before Equity Office timely files its tax return for such year
and if paid on or before the first regular dividend payment date after such
declaration. See "-- General" above for a discussion of the possible recognition
of built-in gain.
To the extent that Equity Office does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its REIT taxable
income, as adjusted, it is subject to tax thereon at regular ordinary and
capital gain corporate tax rates. Equity Office, however, may designate some or
all of its retained net capital gain, so that, although the designated amount
will not be treated as distributed for purposes of this tax, a shareholder would
include its proportionate share of such amount in income, as capital gain, and
would be treated as having paid its proportionate share of the tax paid by
Equity Office with respect to such amount. The shareholder's basis in its shares
would be increased by the amount the shareholder included in income and
decreased by the amount of the tax the shareholder is treated as having paid.
Equity Office would make an appropriate adjustment to its earnings and profits.
For a more detailed description of the federal income tax consequences to a
shareholder of such a designation, see "-- Taxation of Taxable U.S. Shareholders
Generally."
Equity Office intends to make timely distributions sufficient to satisfy
its annual distribution requirements. In this regard, EOP Operating's
partnership agreement authorizes Equity Office, as managing general partner, to
take such steps as may be necessary to cause EOP Operating to distribute to its
partners an amount sufficient to permit Equity Office to meet these distribution
requirements. It is expected that Equity Office's REIT taxable income will be
less than its cash flow due to the allowance of depreciation and other noncash
charges in computing REIT taxable income. Accordingly, Equity Office anticipates
that it will generally have sufficient cash or liquid assets to enable it to
satisfy the distribution requirements described above. It is possible, however,
that Equity Office, from time to time, may not have sufficient cash or other
liquid assets to meet these distribution requirements. In such event, in order
to meet the distribution requirements, Equity Office may find it necessary to
arrange for short-term, or possibly long-term borrowings to fund required
distributions or to pay dividends in the form of taxable stock dividends.
Under certain circumstances, Equity Office may be able to rectify a failure
to meet the distribution requirement for a year by paying deficiency dividends
to shareholders in a later year, which may be included in Equity Office's
deduction for dividends paid for the earlier year. Thus, Equity Office may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, Equity Office will be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
Furthermore, if Equity Office should fail to distribute during each
calendar year at least the sum of 85% of its REIT ordinary income for such year,
95% of its REIT capital gain income for such year, and any undistributed taxable
income from prior periods, Equity Office would be subject to a 4% excise tax on
the excess of such required distribution over the sum of amounts actually
distributed during the calendar year by the REIT and the amount, if any, on
which the REIT paid income tax for such year.
RECORDKEEPING REQUIREMENTS. Pursuant to applicable IRS regulations, Equity
Office must comply with certain recordkeeping requirements to qualify for
taxation as a REIT.
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FAILURE OF EQUITY OFFICE TO QUALIFY AS A REIT. If Equity Office fails to
qualify for taxation as a REIT in any taxable year and if the relief provisions
do not apply, Equity Office will be subject to tax, including any applicable
alternative minimum tax, on its taxable income at regular corporate rates.
Distributions to shareholders in any year in which Equity Office fails to
qualify will not be deductible by Equity Office nor will they be required to be
made. As a result, Equity Office's failure to qualify as a REIT would
significantly reduce the cash available for distributions by Equity Office to
its shareholders. In addition, if Equity Office fails to qualify as a REIT, all
distributions to shareholders will be taxable as ordinary income, to the extent
of Equity Office's current and accumulated earnings and profits. Subject to
certain limitations of the Internal Revenue Code, corporate distributees may be
eligible for the dividends received deduction with respect to these
distributions. Unless entitled to relief under specific statutory provisions,
Equity Office also will be disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost. It is not
possible to state whether in all circumstances Equity Office would be entitled
to such statutory relief.
TAXATION OF TAXABLE U.S. SHAREHOLDERS GENERALLY
As used herein, the term "U.S. shareholder" means a holder of common shares
who for United States federal income tax purposes (i) is a citizen or resident
of the United States, (ii) is a corporation, partnership, or other entity
treated as a corporation or partnership for federal income tax purposes created
or organized in or under the laws of the United States or of any political
subdivision thereof, (iii) is an estate or trust the income of which is subject
to United States federal income taxation regardless of its source, or (iv) a
trust whose administration is subject to the primary supervision of a United
States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust.
DISTRIBUTIONS BY EQUITY OFFICE. As long as Equity Office qualifies as a
REIT, distributions made by Equity Office out of its current or accumulated
earnings and profits, and not designated as capital gain dividends, constitute
dividends taxable to its taxable U.S. shareholders as ordinary income. Such
distributions are not eligible for the dividends received deduction in the case
of U.S. shareholders that are corporations. To the extent that Equity Office
makes distributions not designated as capital gain dividends in excess of its
current and accumulated earnings and profits, such distributions are treated
first as a tax-free return of capital to each U.S. shareholder, reducing the
adjusted basis which such U.S. shareholder has in its shares for tax purposes by
the amount of such distribution but not below zero, with distributions in excess
of a U.S. shareholder's adjusted basis in its shares taxable as capital gains,
provided that the shares have been held as a capital asset. Dividends declared
by Equity Office in October, November, or December of any year and payable to a
shareholder of record on a specified date in any such month shall be treated as
both paid by Equity Office and received by the shareholder on December 31 of
such year, provided that the dividend is actually paid by Equity Office on or
before January 31 of the following calendar year.
Distributions made by Equity Office that are properly designated by Equity
Office as capital gain dividends are subject to special rules. They are taxed as
gain from the sale or exchange of a capital asset held for more than one year to
the extent that they do not exceed Equity Office's actual net capital gain for
the taxable year, without regard to the period for which a U.S. shareholder has
held its shares. In the event that Equity Office designates any portion of a
dividend as a "capital gain dividend," a U.S. shareholder's share of such
capital gain dividend would be an amount which bears the same ratio to the total
amount of dividends paid to such U.S. shareholder for the year as the aggregate
amount designated as a capital gain dividend bears to the aggregate amount of
all dividends paid on all classes of shares for the year.
On November 10, 1997, the IRS issued Notice 97-64, which provides generally
that Equity Office may classify portions of its designated capital gain dividend
as either a 20% rate gain distribution, which would be taxable to non-corporate
U.S. shareholders, i.e. individuals, estates or trusts, at a maximum rate of
20%, an unrecaptured Section 1250 gain distribution which would be taxable to
non-corporate U.S. shareholders at a maximum rate of 25%, or a 28% rate gain
distribution which would be taxable to non-corporate U.S. shareholders at a
maximum rate of 28%. If no designation is made, the entire designated capital
gain dividend will be treated as a 28% rate gain distribution. Notice 97-64
provides that a REIT must determine the maximum amounts that it may designate as
20% and 25% rate capital gain dividends by performing the
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computation required by the Internal Revenue Code as if the REIT were an
individual whose ordinary income were subject to a marginal tax rate of at least
28%. Notice 97-64 further provides that designations made by the REIT only will
be effective to the extent that they comply with Revenue Ruling 89-91, which
requires that distributions made to different classes of shares be composed
proportionately of dividends of a particular type. On July 22, 1998, as part of
the IRS Restructuring Act, the holding period requirement for the application of
the 20% and 25% capital gain tax rates was reduced to 12 months from 18 months
for sales of capital gain assets on or after January 1, 1998. Although Notice
97-64 will apply to sales of capital gain assets after July 28, 1997 and before
January 1, 1998, it is expected that the IRS will issue clarifying guidance,
most likely applying the same principles set forth in Notice 97-64, regarding a
REIT's designation of capital gain dividends in light of the new holding period
requirements. For a discussion of the capital gain tax rates applicable to
non-corporate U.S. shareholders, see " -- Taxpayer Relief Act and IRS
Restructuring Act Changes to Capital Gain Taxation" below.
Distributions made by Equity Office that are properly designated by Equity
Office as capital gain dividends will be taxable to taxable corporate U.S.
shareholders as long-term capital gain to the extent that they do not exceed
Equity Office's actual net capital gain for the taxable year, at a maximum rate
of 35% without regard to the period for which such corporate U.S. shareholder
has held its shares. Such corporate U.S. shareholders may, however, be required
to treat up to 20% of certain capital gain dividends as ordinary income.
U.S. shareholders may not include in their individual income tax returns
any net operating losses or capital losses of Equity Office. Instead, such
losses would be carried over by Equity Office for potential offset against
future income, subject to certain limitations. Distributions made by Equity
Office and gain arising from the sale or exchange by a U.S. shareholder of
shares will not be treated as passive activity income, and as a result, U.S.
shareholders generally will not be able to apply any "passive losses" against
such income or gain. In addition, taxable distributions from Equity Office
generally will be treated as investment income for purposes of the investment
interest limitations. Capital gain dividends and capital gains from the
disposition of shares, including distributions treated as such, however, will be
treated as investment income for purposes of the investment interest limitation
only if the U.S. shareholder so elects, in which case such capital gains will be
taxed at ordinary income rates. Equity Office will notify shareholders after the
close of Equity Office's taxable year as to the portions of distributions
attributable to that year that constitute ordinary income, return of capital and
capital gain.
Equity Office may designate, by written notice to its shareholders, its net
capital gain so that with respect to retained net capital gains, a U.S.
shareholder would include its proportionate share of such gain in income, as
long-term capital gain, and would be treated as having paid its proportionate
share of the tax paid by Equity Office with respect to the gain. The U.S.
shareholder's basis in its shares would be increased by its share of such gain
and decreased by its share of such tax. With respect to such long-term capital
gain of a U.S. shareholder that is an individual or an estate or trust, the IRS,
as described below in this section, has authority to issue regulations that
could apply the special tax rate applicable generally to the portion of the
long-term capital gains of an individual or an estate or trust attributable to
deductions for depreciation taken with respect to depreciable real property. IRS
Notice 97-64, described above in this Section, did not address the taxation of
noncorporate REIT shareholders with respect to retained net capital gains.
SALES OF SHARES. Upon any sale or other disposition of shares, a U.S.
shareholder will recognize gain or loss for federal income tax purposes in an
amount equal to the difference between (i) the amount of cash and the fair
market value of any property received on such sale or other disposition and (ii)
the holder's adjusted basis in such shares for tax purposes. Such gain or loss
will be a capital gain or loss if the shares have been held by the U.S.
shareholder as a capital asset. In the case of a U.S. shareholder who is an
individual or an estate or trust, such gain or loss will be long-term capital
gain or loss, and any such long-term capital gain shall be subject to the
maximum capital gain rate of 20%. In the case of a U.S. shareholder that is a
corporation, such gain or loss will be long-term capital gain or loss if such
shares have been held for more than one year, and any such capital gain shall be
subject to the maximum capital gain rate of 35%. In general, any loss recognized
by a U.S. shareholder upon the sale or other disposition of shares that have
been held for six months or less, after applying certain holding period rules,
will be treated as a long-term capital loss, to the extent of distributions
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<PAGE> 26
received by such U.S. shareholder from Equity Office that were required to be
treated as long-term capital gains.
TAXPAYER RELIEF ACT AND IRS RESTRUCTURING ACT CHANGES TO CAPITAL GAIN
TAXATION. The Taxpayer Relief Act of 1997 altered the taxation of capital gain
income. Under the Act, individuals, trust and estates that hold certain
investments for more than 18 months may be taxed at a maximum long-term capital
gain rate of 20% on the sale or exchange of those investments. Individuals,
trust and estates that hold certain assets for more than one year but not more
than 18 months may be taxed at a maximum long-term capital gain rate of 28% on
the sale or exchange of those investments. The Taxpayer Relief Act also provides
a maximum rate of 25% for "unrecaptured Section 1250 gain" for individuals,
trusts and estates, special rules for "qualified 5-year gain" and other changes
to prior law. The recently enacted IRS Restructuring Act of 1998, however,
reduced the holding period requirement established by the Taxpayer Relief Act
for the application of the 20% and 25% capital gain tax rates to 12 months from
18 months for sales of capital gain assets after December 31, 1997, and thus
eliminated the 28% rate. The Taxpayer Relief Act allows the IRS to prescribe
regulations on how the Taxpayer Relief Act's capital gain rates will apply to
sales of capital assets by "pass-through entities," including REITs, such as
Equity Office and to sales of interests in pass-through entities. For a
discussion of the rules under the Taxpayer Relief Act that apply to the taxation
of distributions by Equity Office to its shareholders that are designated by
Equity Office as capital gain dividends, see " -- Distributions by Equity
Office" above. Shareholders are urged to consult with their own tax advisors
with respect to the rules contained in the Taxpayer Relief Act and the IRS
Restructuring Act.
BACKUP WITHHOLDING FOR EQUITY OFFICE'S DISTRIBUTIONS
Equity Office will report to its U.S. shareholders and the IRS the amount
of dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a U.S. shareholder may be subject to
backup withholding at the rate of 31% with respect to dividends paid unless such
holder either is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with applicable requirements of the backup withholding rules.
A U.S. shareholder that does not provide Equity Office with a correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding is creditable against the shareholder's income
tax liability. In addition, Equity Office may be required to withhold a portion
of its capital gain distributions to any shareholders who fail to certify their
nonforeign status to Equity Office. See " -- Taxation of Non-U.S. Shareholders"
below.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Provided that a tax-exempt shareholder has not held its common shares as
"debt financed property" within the meaning of the Internal Revenue Code and
such common shares are not otherwise used in a trade or business, the dividend
income from Equity Office will not be unrelated business taxable income ("UBTI")
to a tax-exempt shareholder. Similarly, income from the sale of shares will not
constitute UBTI unless such tax-exempt shareholder has held such shares as debt
financed property within the meaning of the Internal Revenue Code or has used
the shares in a trade or business.
However, for tax-exempt shareholders that are social clubs, voluntary
employee benefit associations, supplemental unemployment benefit trusts, and
qualified group legal services plans exempt from federal income taxation under
Code Sections 501 (c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from
an investment in Equity Office will constitute UBTI unless the organization is
able to properly deduct amounts set aside or placed in reserve for certain
purposes so as to offset the income generated by its investment in Equity
Office. Such shareholders should consult their own tax advisors concerning these
"set aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" are treated as UBTI as to any trust which is described in
Section 401(a) of the Internal Revenue Code, is tax-exempt under Section 501(a)
of the Internal Revenue Code, and holds more than 10%, by value, of the
26
<PAGE> 27
interests in the REIT. Tax-exempt pension funds that are described in Section
401(a) of the Internal Revenue Code are referred to below as "qualified trusts."
A REIT is a pension held REIT if (i) it would not have qualified as a REIT
but for the fact that Section 856(h)(3) of the Internal Revenue Code provides
that stock owned by qualified trusts shall be treated, for purposes of the "not
closely held" requirement, as owned by the beneficiaries of the trust rather
than by the trust itself, and (ii) either (a) at least one such qualified trust
holds more than 25%, by value, of the interests in the REIT, or (b) one or more
such qualified trusts, each of which owns more than 10%, by value, of the
interests in the REIT, hold in the aggregate more than 50%, by value, of the
interests in the REIT. The percentage of any REIT dividend treated as UBTI is
equal to the ratio of the UBTI earned by the REIT, treating the REIT as if it
were a qualified trust and therefore subject to tax on UBTI, to the total gross
income of the REIT. An exception applies where the percentage is less than 5%
for any year. The provisions requiring qualified trusts to treat a portion of
REIT distributions as UBTI will not apply if the REIT is able to satisfy the not
closely held requirement without relying upon the "look-through" exception with
respect to qualified trusts. Based on both the current ownership shares and the
limitations on transfer and ownership of shares contained in the Declaration of
Trust, Equity Office does not expect to be classified as a pension held REIT.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing federal income taxation of the ownership and
disposition of common shares by non-U.S. shareholders are complex, and no
attempt is made herein to provide more than a brief summary of those rules.
Accordingly, this discussion does not address all aspects of federal income tax
and does not address state, local or foreign tax consequences that may be
relevant to a non-U.S. shareholder in light of its particular circumstances. In
addition, this discussion is based on current law, which is subject to change,
and assumes that Equity Office qualifies for taxation as a REIT. Prospective
non-U.S. shareholders should consult with their own tax advisers to determine
the impact of federal, state, local and foreign income tax laws with regard to
an investment in common shares, including any reporting requirements.
DISTRIBUTIONS BY EQUITY OFFICE. Distributions by Equity Office to a
non-U.S. shareholder that are neither attributable to gain from sales or
exchanges by Equity Office of United States real property interests nor
designated by Equity Office as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of Equity Office. Such distributions ordinarily
will be subject to withholding of United States federal income tax on a gross
basis (that is, without allowance of deductions) at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty, unless the
dividends are treated as effectively connected with the conduct by the non-U.S.
shareholder of a United States trade or business. Under certain treaties,
however, lower withholding rates generally applicable to dividends do not apply
to dividends from a REIT, such as Equity Office. Certain certification and
disclosure requirements must be satisfied to be exempt from withholding under
the effectively connected income exemption. Dividends that are effectively
connected with such a trade or business will be subject to tax on a net basis
(that is, after allowance for deductions) at graduated rates, in the same manner
as U.S. shareholders are taxed with respect to such dividends, and are generally
not subject to withholding. Any such dividends received by a non-U.S.
shareholder that is a corporation may also be subject to an additional branch
profits tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. Equity Office expects to withhold United States
income tax at the rate of 30% on any distributions made to a non-U.S.
shareholder unless (i) a lower treaty rate applies and any required form or
certification evidencing eligibility for that reduced rate is filed with Equity
Office or (ii) the non-U.S. shareholder files an IRS Form 4224 with Equity
Office claiming that the distribution is effectively connected income.
Distributions in excess of current or accumulated earnings and profits of
Equity Office will not be taxable to a non-U.S. shareholder to the extent that
they do not exceed the adjusted basis of the shareholder's common shares but
rather will reduce the adjusted basis of such common shares. To the extent that
such distributions exceed the adjusted basis of a non-U.S. shareholder's common
shares, they will give rise to gain from the sale or exchange of its common
shares, the tax treatment of which is described below.
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<PAGE> 28
As a result of a legislative change made by the Small Business Job
Protection Act of 1996, it appears that Equity Office will be required to
withhold 10% of any distribution in excess of its current and accumulated
earnings and profits. Consequently, although Equity Office intends to withhold
at a rate of 30%, or a lower applicable treaty rate, on the entire amount of any
distribution, to the extent that Equity Office does not do so, any portion of a
distribution not subject to withholding at a rate of 30%, or a lower applicable
treaty rate, will be subject to withholding at a rate of 10%. However, a
non-U.S. shareholder may seek a refund of such amounts from the IRS if it
subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of Equity Office, and the amount
withheld exceeded the non-U.S. shareholder's United States tax liability, if
any, with respect to the distribution.
Distributions to a non-U.S. shareholder that are designated by Equity
Office at the time of the distributions as capital gain dividends, other than
those arising from the disposition of a United States real property interest,
generally will not be subject to United States federal income taxation unless
(i) the investment in the common shares is effectively connected with the
non-U.S. shareholder's United States trade or business, in which case
the non-U.S. shareholder will be subject to the same treatment as U.S.
shareholders with respect to such gain, except that a shareholder that
is a foreign corporation may also be subject to the 30% branch profits
tax, as discussed above, or
(ii) the non-U.S. shareholder is a nonresident alien individual who is
present in the United States for 183 days or more during the taxable
year and has a "tax home" in the United States, in which case the
nonresident alien individual will be subject to a 30% tax on the
individual's capital gains.
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"),
distributions to a non-U.S. shareholder that are attributable to gain from sales
or exchanges by Equity Office of United States real property interests, whether
or not designated as a capital gain dividend, will cause the non-U.S.
shareholder to be treated as recognizing such gain as income effectively
connected with a United States trade or business. Non-U.S. shareholders would
thus generally be taxed at the same rates applicable to U.S. shareholders,
subject to a special alternative minimum tax in the case of nonresident alien
individuals. Also, such gain may be subject to a 30% branch profits tax in the
hands of a non-U.S. shareholder that is a corporation, as discussed above.
Equity Office is required to withhold 35% of any such distribution. That amount
is creditable against the non-U.S. shareholder's United States federal income
tax liability.
Although the law is not entirely clear on the matter, it appears that
amounts designated by Equity Office pursuant to the Taxpayer Relief Act as
undistributed capital gains in respect of the common shares held by U.S.
shareholders (see "-- Requirements for Qualification as a REIT -- Annual
Distribution Requirements Applicable to REITs" above) would be treated with
respect to non-U.S. shareholders in the manner outlined in the preceding two
paragraphs for actual distributions by Equity Office of capital gain dividends.
Under that approach, the non-U.S. shareholders would be able to offset as a
credit against their United States federal income tax liability resulting
therefrom their proportionate share of the tax paid by Equity Office on such
undistributed capital gains, and to receive from the IRS a refund to the extent
their proportionate share of such tax paid by Equity Office were to exceed their
actual United States federal income tax liability.
SALE OF COMMON SHARES. Gain recognized by a non-U.S. shareholder upon the
sale or exchange of common shares generally will not be subject to United States
taxation unless such shares constitute a "United States real property interest"
within the meaning of FIRPTA. The common shares will not constitute a United
States real property interest so long as Equity Office is a "domestically
controlled REIT." A "domestically controlled REIT" is a REIT in which at all
times during a specified testing period less than 50% in value of its stock is
held directly or indirectly by non-U.S. shareholders. Equity Office believes
that it is a "domestically controlled REIT" and, therefore, that the sale of
common shares will not be subject to taxation under FIRPTA. However, because the
shares of Equity Office are publicly traded, no assurance can be given that
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<PAGE> 29
Equity Office will continue to be a domestically controlled REIT. In any event,
gain from the sale or exchange of common shares not otherwise subject to FIRPTA
will be taxable to a non-U.S. shareholder if either
(i) the investment in the common shares is effectively connected with the
non-U.S. shareholder's United States trade or business, in which case
the non-U.S. shareholder will be subject to the same treatment as
domestic shareholders with respect to such gain, or
(ii) the non-U.S. shareholder is a nonresident alien individual who is
present in the United States for 183 days or more during the taxable
year and has a tax home in the United States, in which case the
nonresident alien individual will be subject to a 30% tax on the
individual's capital gains.
Even if Equity Office does not qualify as or ceases to be a domestically
controlled REIT, gain arising from the sale or exchange by a non-U.S.
shareholder of common shares still would not be subject to United States
taxation under FIRPTA as a sale of a United States real property interest if:
(i) the class or series of shares being sold is "regularly traded," as
defined by applicable IRS regulations, on an established securities
market such as the New York Stock Exchange, and
(ii) the selling non-U.S. shareholder owned 5% or less of the value of the
outstanding class or series of shares being sold throughout the
five-year period ending on the date of the sale or exchange.
If gain on the sale or exchange of common shares were subject to taxation
under FIRPTA, the non-U.S. shareholder would be subject to regular United States
income tax with respect to such gain in the same manner as a taxable U.S.
shareholder, subject to any applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporations. The purchaser of the common shares would be required to withhold
and remit to the IRS 10% of the purchase price.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING. Backup withholding tax
generally is a withholding tax imposed at the rate of 31% on certain payments to
persons that fail to furnish certain information under the United States
information reporting requirements. Backup withholding and information reporting
will generally not apply to distributions paid to non-U.S. shareholders outside
the United States that are treated as dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, capital gain dividends or
distributions attributable to gain from the sale or exchange by Equity Office of
United States real property interests. As a general matter, backup withholding
and information reporting will not apply to a payment of the proceeds of a sale
of common shares by or through a foreign office of a foreign broker. Generally,
information reporting will apply to a payment of the proceeds of a sale of
common shares by a foreign office of a broker that:
(a) is a United States person,
(b) derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, or
(c) is a "controlled foreign corporation," which, in general, is a foreign
corporation that is controlled by United States shareholders.
If, however, the broker has documentary evidence in its records that the
holder is a non-U.S. shareholder and certain other conditions are met or the
shareholder otherwise establishes an exemption, information reporting will not
apply. Payment to or through a United States office of a broker of the proceeds
of a sale of common shares is subject to both backup withholding and information
reporting unless the shareholder certifies under penalty of perjury that the
shareholder is a non-U.S. shareholder, or otherwise establishes an exemption. A
non-U.S. shareholder may obtain a refund of any amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the
IRS.
The IRS has recently finalized regulations regarding the withholding and
information reporting rules discussed above. In general, these regulations do
not alter the substantive withholding and information reporting requirements but
unify certification procedures and forms and clarify and modify reliance
standards. These regulations generally are effective for payments made after
December 31, 1999, subject to certain
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<PAGE> 30
transition rules. Valid withholding certificates that are held on December 31,
1999, will remain valid until the earlier of December 31, 2000, or the date of
expiration of the certificate under rules currently in effect, unless otherwise
invalidated due to changes in the circumstances of the person whose name is on
such certificate. A non-U.S. shareholder should consult its own advisor
regarding the effect of the new regulations.
TAX ASPECTS OF EQUITY OFFICE'S OWNERSHIP OF INTERESTS IN THE ZML OPPORTUNITY
PARTNERSHIPS, EOP OPERATING AND THE SUBSIDIARY PARTNERSHIPS
GENERAL. Substantially all of Equity Office's investments are held
indirectly through the ZML Opportunity Partnerships (prior to July 1999) and EOP
Operating. The ZML Opportunity Partnerships were the predecessor owners of the
assets transferred to EOP Operating upon the occurrence of Equity Office's IPO
in July 1997). In general, partnerships are "pass-through" entities that are not
subject to federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss, deduction and credit of
a partnership, and are potentially subject to tax thereon, without regard to
whether the partners receive a distribution from the partnership. Equity Office
includes in its income its proportionate share of the foregoing partnership
items for purposes of the various REIT income tests and in the computation of
its REIT taxable income. Moreover, for purposes of the REIT asset tests, Equity
Office includes its proportionate share of assets held through the ZML
Opportunity Partnerships and EOP Operating. See " -- Requirements for
Qualification as a REIT -- Ownership of Partnership Interests by a REIT" above.
ENTITY CLASSIFICATION. Equity Office believes that each of the ZML
Opportunity Partnerships and EOP Operating will be treated as a partnership for
federal income tax purposes and not as an association taxable as a corporation.
If any of the ZML Opportunity Partnerships, EOP Operating, or the Subsidiary
Partnerships were treated as an association, the entity would be taxable as a
corporation and therefore would be subject to an entity level tax on its income.
In such a situation, the character of Equity Office's assets and items of gross
income would change and would preclude Equity Office from qualifying as a REIT
(see " -- Requirements for Qualification as a REIT -- Asset Tests Applicable to
REITs" and " -- Income Tests Applicable to REITs" above). The same result could
occur if any LLC failed to qualify for treatment as a partnership or were not
disregarded for federal income tax purposes.
Prior to January 1, 1997, an organization formed as a partnership or a
limited liability company was treated as a partnership for federal income tax
purposes rather than as a corporation only if it had no more than two of the
four corporate characteristics that the regulations in effect at that time used
to distinguish a partnership from a corporation for tax purposes. These four
characteristics were (i) continuity of life, (ii) centralization of management,
(iii) limited liability and (iv) free transferability of interests. Under final
IRS regulations which became effective January 1, 1997, the four factor test has
been eliminated and an entity formed as a partnership or as a limited liability
will be taxed as a partnership for federal income tax purposes, unless it
specifically elects otherwise. The regulations provide that the IRS will not
challenge the classification of an existing partnership or limited liability
company for tax periods prior to January 1, 1997 so long as:
(1) the entity had a reasonable basis for its claimed classification,
(2) the entity and all its members recognized the federal income tax
consequences of any changes in the entity's classification within the 60 months
prior to January 1, 1997, and
(3) neither the entity nor any member of the entity had been notified in
writing on or before May 8, 1996 that the classification of the entity was under
examination by the IRS.
Pursuant to Section 7704 of the Internal Revenue Code, however, a
partnership that does not elect to be treated as a corporation nevertheless will
be treated as a corporation for federal income tax purposes if it is a "publicly
traded partnership," unless at least 90% of its income consists of "qualifying
income" within the meaning of that section. A publicly traded partnership is any
partnership (i) the interests in which are traded on an established securities
market or (ii) the interests in which are readily tradeable on a "secondary
market or the substantial equivalent thereof." Units of limited partnership
interest in EOP Operating are not and will not be traded on an established
securities market. There is significant risk, however, that after the right to
redeem such units becomes exercisable, such interests would be considered
readily tradable on the substantial
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<PAGE> 31
equivalent of a secondary market. The income requirements generally applicable
to REITs and the definition of qualifying income under Section 7704 of the
Internal Revenue Code are similar in most key respects. There is one significant
difference, however, regarding rent received from related party tenants. For a
REIT, rent from a tenant does not qualify as rents from real property if the
REIT and/or one or more actual or constructive owners of 10% or more of the REIT
actually or constructively own 10% or more of the tenant; under Section 7704 of
the Internal Revenue Code, rent from a tenant is not qualifying income if a
partnership and/or one or more actual or constructive owners of 5% or more of
the partnership actually or constructively own 10% or more of the tenant.
ALLOCATIONS OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTION. Although a
partnership agreement will generally determine the allocation of income and loss
among partners, such allocations will be disregarded for tax purposes if they do
not comply with the provisions of Section 704(b) of the Internal Revenue Code
and the applicable regulations. Generally, Section 704(b) and the applicable
regulations require that partnership allocations respect the economic
arrangement of the partners.
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income and
loss provided for in the ZML Opportunity Partnerships and the EOP Operating
agreements are intended to comply with the requirements of Section 704(b) of the
Internal Revenue Code and the regulations promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. Pursuant to Section 704(c)
of the Internal Revenue Code, income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated in a manner such
that the contributing partner is charged with, or benefits from, respectively,
the difference between the adjusted tax basis and the fair market value of such
property at the time of contribution associated with the property at the time of
contribution. The difference is known as the book-tax difference. Such
allocations are solely for federal income tax purposes and do not affect the
book capital accounts or other economic or legal arrangements among the
partners. Under regulations promulgated under Section 704 of the Internal
Revenue Code, similar rules apply when a partnership elects to "revalue" its
assets in certain situations, such as when a contribution of property is made to
a partnership by a new partner.
EOP Operating's partnership agreement requires that such allocations be
made in a manner consistent with Section 704(c) of the Internal Revenue Code.
IRS regulations under Section 704(c) of the Internal Revenue Code provide
partnerships with a choice of several methods of accounting for book-tax
differences, including retention of the "traditional method" or the election of
certain alternative methods which would permit any distortions caused by a
book-tax difference to be entirely rectified on an annual basis or with respect
to a specific taxable transaction such as a sale. EOP Operating and Equity
Office have determined to use the traditional method of accounting for book-tax
differences with respect to the properties initially contributed to EOP
Operating in connection with its formation or subsequently acquired by merger or
contribution.
In general, if any asset contributed to or revalued by EOP Operating is
determined to have a fair market value that is greater than its adjusted tax
basis, certain partners of EOP Operating including Equity Office will be
allocated lower amounts of depreciation deductions as to certain properties for
tax purposes by EOP Operating and increased taxable income and gain on sale.
Such allocations will tend to eliminate the book-tax difference over the life of
EOP Operating. However, the special allocation rules of Section 704(c) of the
Internal Revenue Code do not always entirely rectify the book-tax difference on
an annual basis or with respect to a specific transaction such as a sale. Thus,
Equity Office may be allocated lower depreciation and other deductions, and
possibly greater amounts of taxable income in the event of a sale of contributed
assets, and such amounts may be in excess of the economic or book income
allocated to it as a result of such sale. Such an allocation might cause Equity
Office to recognize taxable income in excess of cash proceeds, which might
adversely affect Equity Office's ability to comply with the REIT distribution
requirements. In this regard, it should be noted that as the managing general
partner of EOP Operating, Equity Office will
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determine when and whether to sell any given property. See " -- Requirements for
Qualification as a REIT -- Annual Distribution Requirements Applicable to
REITs."
OTHER TAX CONSEQUENCES FOR EQUITY OFFICE AND ITS SHAREHOLDERS
Equity Office and its shareholders are subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of Equity Office
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders of Equity Office should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in Equity Office.
A portion of the cash to be used by Equity Office to fund distributions
comes from the noncontrolled subsidiaries through payment of dividends on the
shares of such corporations held by EOP Operating. The noncontrolled
subsidiaries pay federal and state income tax at the full applicable corporate
rates. To the extent that the noncontrolled subsidiaries are required to pay
federal, state or local taxes, the cash otherwise available for distribution by
Equity Office to shareholders will be reduced accordingly.
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ITEM 2. PROPERTIES.
All capitalized terms used herein and not otherwise defined shall have the
meaning given in the Financial Statements set forth in Item 8.
GENERAL
The Company's portfolio (based on revenue and square footage) is the
largest portfolio of office properties of any publicly traded, full-service
office company in the United States. As of December 31, 1998, the Company owned
or had an interest in 284 Office Properties containing approximately 75.1
million rentable square feet of office space and owned an interest in 19 Parking
Facilities containing approximately 18,059 parking spaces. The Office Properties
are located in 80 submarkets in 36 markets in 24 states and the District of
Columbia. The Office Properties by rentable square feet are located
approximately 53% in central business districts and approximately 47% in
suburban markets. As of December 31, 1998, the Office Properties were, on a
weighted average basis, 95.0% occupied by a total of 6,422 tenants, with no
single tenant accounting for more that 1.7% of the Company's aggregate
annualized rent (except for the U.S. General Services Administration, which
accounted for 3.5% of annualized rent.)
All Property data is as of December 31, 1998.
OFFICE PROPERTIES BY REGION
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE PERCENT OF TOTAL ANNUALIZED
OFFICE RENTABLE SQUARE OFFICE PROPERTIES RENT
PRIMARY MARKET PROPERTIES FEET RENTABLE SQUARE FEET PERCENT OCCUPIED (000'S)(1)
- -------------- ---------- --------------- -------------------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Central......................... 31 13,339,779 17.8% 95.1% $ 297,249
Northeast....................... 90 21,497,179 28.5% 97.1% 604,024
Southeast....................... 47 7,774,199 10.4% 95.5% 140,771
Southwest....................... 32 10,866,482 14.5% 91.4% 177,224
West............................ 40 11,606,805 15.5% 94.3% 220,329
Pacific......................... 44 10,016,283 13.3% 94.8% 230,400
--- ---------- ------ ------ ----------
Total/Weighted Average.......... 284 75,100,727 100.0% 95.0% $1,669,996
=== ========== ====== ====== ==========
<CAPTION>
PERCENT OF ANNUALIZED RENT
PORTFOLIO NUMBER OF PER OCCUPIED
PRIMARY MARKET ANNUALIZED RENT LEASES SQUARE FEET(1)
- -------------- --------------- --------- ---------------
<S> <C> <C> <C>
Central......................... 17.8% 1,196 $23.43
Northeast....................... 36.2% 1,508 $28.90
Southeast....................... 8.4% 577 $18.96
Southwest....................... 10.6% 1,155 $17.85
West............................ 13.2% 1,279 $20.13
Pacific......................... 13.8% 707 $24.26
------ ----- ------
Total/Weighted Average.......... 100.0% 6,422 $23.40
====== ===== ======
</TABLE>
- ---------------
(1) Annualized Rent is the monthly contractual rent under existing leases as of
December 31, 1998, multiplied by 12. This amount reflects total base rent
before any rent abatements, but includes expense reimbursements, which may
be estimates. Total rent abatements for leases in effect as of December 31,
1998, for the 12 months ending December 31, 1999, are approximately $7.1
million.
OFFICE PROPERTY STATISTICS
The following table sets forth certain information relating to each Office
Property as of December 31, 1998.
<TABLE>
<CAPTION>
PERCENT
OF
NUMBER OF APPROXIMATE PERCENT OF TOTAL ANNUALIZED PORTFOLIO
PRIMARY MARKET OFFICE YEAR BUILT/ RENTABLE OFFICE PROPERTIES PERCENT RENT ANNUALIZED
SUB MARKET PROPERTIES RENOVATED SQUARE FEET RENTABLE SQUARE FEET OCCUPIED (000'S)(1) RENT
- -------------- ---------- ----------- ----------- -------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CENTRAL REGION
Chicago
Central Loop
161 N. Clark................ 1 1992 1,010,520 1.3% 98.4% $ 22,103 1.3%
200 West Adams.............. 1 1985/1996 677,222 0.9% 85.7% 12,747 0.8%
30 N. LaSalle Street(2)..... 1 1974/1990 925,950 1.2% 98.6% 21,366 1.3%
One North Franklin.......... 1 1991 617,592 0.8% 98.3% 13,583 0.8%
Lake County
Tri-State International..... 5 1986 546,263 0.7% 96.2% 11,872 0.7%
<CAPTION>
ANNUALIZED
RENT
PER OCCUPIED
PRIMARY MARKET NUMBER OF SQUARE
SUB MARKET LEASES FEET(1)
- -------------- --------- --------------
<S> <C> <C>
CENTRAL REGION
Chicago
Central Loop
161 N. Clark................ 48 $22.22
200 West Adams.............. 59 $21.96
30 N. LaSalle Street(2)..... 125 $23.39
One North Franklin.......... 55 $22.38
Lake County
Tri-State International..... 42 $22.60
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
PERCENT
OF
NUMBER OF APPROXIMATE PERCENT OF TOTAL ANNUALIZED PORTFOLIO
PRIMARY MARKET OFFICE YEAR BUILT/ RENTABLE OFFICE PROPERTIES PERCENT RENT ANNUALIZED
SUB MARKET PROPERTIES RENOVATED SQUARE FEET RENTABLE SQUARE FEET OCCUPIED (000'S)(1) RENT
- -------------- ---------- ----------- ----------- -------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
O'Hare
Presidents Plaza............ 4 1980-1982 815,604 1.1% 97.4% 17,420 1.0%
1700 Higgins................ 1 1986 133,876 0.2% 100.0% 2,585 0.2%
Oak Brook
AT&T Plaza.................. 1 1984 224,847 0.3% 86.6% 4,416 0.3%
Oakbrook Terrace Tower...... 1 1988 772,928 1.0% 89.4% 16,545 1.0%
Westbrook Corporate
Center..................... 5 1985-1996 1,107,372 1.5% 90.0% 27,824 1.7%
West Loop
10 & 30 South Wacker........ 2 1983-1987 2,003,288 2.7% 98.0% 64,766 3.9%
101 N. Wacker............... 1 1980/1990 575,294 0.8% 92.9% 12,294 0.7%
Civic Opera House........... 1 1929/1996 841,778 1.1% 98.2% 14,360 0.9%
Indianapolis
Downtown
Bank One Center/Tower(2).... 2 1990 1,057,877 1.4% 94.8% 19,783 1.2%
Cleveland
Downtown
BP Tower.................... 1 1985 1,242,144 1.7% 97.1% 20,100 1.2%
Columbus
Downtown
One Columbus Building....... 1 1987 407,472 0.5% 86.1% 8,293 0.5%
Suburban
Community Corporate Center.. 1 1987 250,169 0.3% 98.7% 4,976 0.3%
One Crosswoods Center....... 1 1984 129,583 0.2% 97.1% 2,215 0.1%
--- ---------- ------ ------ ---------- ------
CENTRAL REGION TOTAL/WEIGHTED
AVERAGE....................... 31 13,339,779 17.8% 95.1% $ 297,249 17.8%
=== ========== ====== ====== ========== ======
NORTHEAST REGION
Stamford
Shelton
Shelton Point............... 1 1985/1993 159,848 0.2% 96.0% $ 2,688 0.2%
Stamford
177 Broad Street............ 1 1989 187,573 0.2% 96.3% 4,445 0.3%
300 Atlantic Street......... 1 1987/1996 272,458 0.4% 100.0% 7,417 0.4%
Canterbury Green(2)......... 1 1987 224,405 0.3% 99.0% 6,481 0.4%
One Stamford Plaza.......... 1 1986/1994 212,244 0.3% 100.0% 5,479 0.3%
Two Stamford Plaza.......... 1 1986/1994 253,020 0.3% 98.2% 7,104 0.4%
Three Stamford Plaza........ 1 1980/1994 241,575 0.3% 100.0% 5,707 0.3%
Four Stamford Plaza......... 1 1979/1994 260,581 0.3% 100.0% 5,497 0.3%
Washington D.C
CBD
1111 19th Street............ 1 1979/1993 252,014 0.3% 99.5% 7,593 0.5%
1620 L Street............... 1 1989 156,272 0.2% 99.3% 4,490 0.3%
One Lafayette Centre........ 1 1980/1993 314,634 0.4% 99.9% 10,047 0.6%
East End
1333 H Street............... 1 1982 244,585 0.3% 100.0% 6,928 0.4%
Boston
East Cambridge
One Canal Park.............. 1 1987 98,154 0.1% 98.6% 2,570 0.2%
Riverview I & II............ 2 1985-1986 263,892 0.4% 100.0% 7,262 0.4%
Ten Canal Park.............. 1 1987 110,843 0.1% 100.0% 2,208 0.1%
Financial District
100 Summer Street........... 1 1974/1990 1,037,801 1.4% 99.8% 30,186 1.8%
150 Federal Street.......... 1 1988 529,730 0.7% 100.0% 15,109 0.9%
175 Federal Street.......... 1 1977 207,366 0.3% 99.2% 5,338 0.3%
2 Oliver Street-147 Milk
Street..................... 1 1988 270,302 0.4% 96.5% 5,256 0.3%
225 Franklin Street......... 1 1966/1996 916,722 1.2% 100.0% 36,794 2.2%
28 State Street............. 1 1968/1997 570,040 0.8% 100.0% 18,429 1.1%
75-101 Federal Street(4).... 2 1988 811,054 1.1% 96.1% 27,769 1.7%
One Post Office Square(3)... 1 1981 765,780 1.0% 100.0% 24,509 1.5%
Rowes Wharf(2)(3)........... 3 1987 344,698 0.5% 99.2% 12,622 0.8%
Russia Wharf................ 1 1978-1982 312,833 0.4% 98.8% 5,485 0.3%
South Station(2)............ 1 1988 178,959 0.2% 99.9% 6,763 0.4%
Government Center
Center Plaza................ 1 1969 637,069 0.8% 96.7% 17,432 1.0%
<CAPTION>
ANNUALIZED
RENT
PER OCCUPIED
PRIMARY MARKET NUMBER OF SQUARE
SUB MARKET LEASES FEET(1)
- -------------- --------- --------------
<S> <C> <C>
O'Hare
Presidents Plaza............ 66 $21.93
1700 Higgins................ 15 $19.31
Oak Brook
AT&T Plaza.................. 27 $22.67
Oakbrook Terrace Tower...... 60 $23.95
Westbrook Corporate
Center..................... 101 $27.91
West Loop
10 & 30 South Wacker........ 135 $32.98
101 N. Wacker............... 41 $23.00
Civic Opera House........... 216 $17.38
Indianapolis
Downtown
Bank One Center/Tower(2).... 81 $19.72
Cleveland
Downtown
BP Tower.................... 38 $16.67
Columbus
Downtown
One Columbus Building....... 28 $23.64
Suburban
Community Corporate Center.. 41 $20.16
One Crosswoods Center....... 18 $17.60
----- ------
CENTRAL REGION TOTAL/WEIGHTED
AVERAGE....................... 1,196 $23.43
===== ======
NORTHEAST REGION
Stamford
Shelton
Shelton Point............... 12 $17.51
Stamford
177 Broad Street............ 14 $24.60
300 Atlantic Street......... 24 $27.22
Canterbury Green(2)......... 16 $29.16
One Stamford Plaza.......... 11 $25.81
Two Stamford Plaza.......... 20 $28.59
Three Stamford Plaza........ 13 $23.62
Four Stamford Plaza......... 10 $21.10
Washington D.C
CBD
1111 19th Street............ 29 $30.29
1620 L Street............... 18 $28.95
One Lafayette Centre........ 22 $31.98
East End
1333 H Street............... 22 $28.33
Boston
East Cambridge
One Canal Park.............. 7 $26.57
Riverview I & II............ 4 $27.52
Ten Canal Park.............. 1 $19.92
Financial District
100 Summer Street........... 26 $29.14
150 Federal Street.......... 23 $28.52
175 Federal Street.......... 31 $25.95
2 Oliver Street-147 Milk
Street..................... 42 $20.15
225 Franklin Street......... 18 $40.14
28 State Street............. 27 $32.33
75-101 Federal Street(4).... 69 $35.63
One Post Office Square(3)... 63 $32.01
Rowes Wharf(2)(3)........... 45 $36.89
Russia Wharf................ 51 $17.75
South Station(2)............ 31 $37.83
Government Center
Center Plaza................ 86 $28.31
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
PERCENT
OF
NUMBER OF APPROXIMATE PERCENT OF TOTAL ANNUALIZED PORTFOLIO
PRIMARY MARKET OFFICE YEAR BUILT/ RENTABLE OFFICE PROPERTIES PERCENT RENT ANNUALIZED
SUB MARKET PROPERTIES RENOVATED SQUARE FEET RENTABLE SQUARE FEET OCCUPIED (000'S)(1) RENT
- -------------- ---------- ----------- ----------- -------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Northwest
Crosby Corporate Center..... 6 1996 337,285 0.4% 100.0% 5,061 0.3%
Crosby Corporate Center
II......................... 3 1998 257,528 0.3% 54.3% 3,126 0.2%
New England Executive Park.. 9 1970-1985 817,008 1.1% 98.1% 19,101 1.1%
The Tower at New England
Executive Park............. 1 1971/1998 194,911 0.3% 20.4% 961 0.1%
South
Westwood Business Center.... 1 1985 164,985 0.2% 91.8% 3,134 0.2%
West
Wellesley Office Park....... 8 1963-1984 641,793 0.9% 98.1% 16,997 1.0%
New York
Columbus Circle
Worldwide Plaza(5).......... 1 1989 1,704,624 2.3% 98.8% 70,357 4.2%
Park/Lexington
Park Avenue Tower(6)........ 1 1986 550,894 0.7% 99.5% 35,061 2.1%
Third Avenue
850 Third Avenue............ 1 1960/1996 562,567 0.7% 100.0% 16,888 1.0%
Philadelphia
Center City
1601 Market Street.......... 1 1970 681,289 0.9% 93.9% 13,039 0.8%
1700 Market Street.......... 1 1969 841,172 1.1% 93.0% 16,071 1.0%
Conshohocken
Four Falls Corporate
Center(3).................. 1 1988 254,355 0.3% 98.5% 6,211 0.4%
King of Prussia/Valley Forge
Oak Hill Plaza(3)........... 1 1982 164,360 0.2% 100.0% 3,015 0.2%
Walnut Hill Plaza(3)........ 1 1985 149,716 0.2% 99.4% 3,013 0.2%
Main Line
One Devon Square(2)(3)...... 1 1984 73,267 0.1% 65.6% 877 0.1%
Two Devon Square(3)......... 1 1985 63,226 0.1% 100.0% 1,032 0.1%
Three Devon Square(2)(3).... 1 1988 6,000 0.0% 100.0% 171 0.0%
Plymouth Meeting/Blue Bell
One Valley Square(3)........ 1 1982 70,289 0.1% 100.0% 1,285 0.1%
Two Valley Square(3)........ 1 1990 70,622 0.1% 100.0% 1,359 0.1%
Three Valley Square(3)...... 1 1984 84,605 0.1% 100.0% 1,677 0.1%
Four and Five Valley
Square(3).................. 2 1988 68,321 0.1% 100.0% 1,377 0.1%
Norfolk
Norfolk
Dominion Tower(3)........... 1 1987 403,276 0.5% 99.2% 6,817 0.4%
Washington D.C
Alexandria/Old Town
1600 Duke Street............ 1 1985 68,770 0.1% 100.0% 1,667 0.1%
Crystal City
Polk and Taylor Buildings... 2 1970 902,371 1.2% 100.0% 24,589 1.5%
Fairfax/Center
Centerpointe I & II......... 2 1988-1990 407,723 0.5% 97.3% 7,302 0.4%
Fair Oaks Plaza............. 1 1986 177,917 0.2% 92.7% 2,885 0.2%
Herndon/Dulles
Northridge I................ 1 1988 124,319 0.2% 100.0% 3,312 0.2%
Reston
Reston Town Center.......... 3 1990 726,045 1.0% 100.0% 19,755 1.2%
Rosslyn/Ballston
1300 North 17th Street...... 1 1980 380,199 0.5% 98.3% 9,663 0.6%
1616 N. Fort Myer Drive..... 1 1974 292,826 0.4% 100.0% 7,427 0.4%
Tyson's Corner
E.J. Randolph............... 1 1983 164,906 0.2% 100.0% 3,815 0.2%
John Marshall I............. 1 1981 255,558 0.3% 100.0% 5,370 0.3%
--- ---------- ------ ------ ---------- ------
NORTHEAST REGION TOTAL/WEIGHTED
AVERAGE....................... 90 21,497,179 28.5% 97.1% $ 604,024 36.2%
=== ========== ====== ====== ========== ======
SOUTHEAST REGION
Orlando
Central Business District
SunTrust Center............. 1 1988 640,385 0.9% 94.3% $ 14,964 0.9%
<CAPTION>
ANNUALIZED
RENT
PER OCCUPIED
PRIMARY MARKET NUMBER OF SQUARE
SUB MARKET LEASES FEET(1)
- -------------- --------- --------------
<S> <C> <C>
Northwest
Crosby Corporate Center..... 6 $15.01
Crosby Corporate Center
II......................... 4 $22.37
New England Executive Park.. 85 $23.84
The Tower at New England
Executive Park............. 3 $24.15
South
Westwood Business Center.... 18 $20.69
West
Wellesley Office Park....... 83 $27.00
New York
Columbus Circle
Worldwide Plaza(5).......... 22 $41.79
Park/Lexington
Park Avenue Tower(6)........ 25 $63.99
Third Avenue
850 Third Avenue............ 26 $30.03
Philadelphia
Center City
1601 Market Street.......... 77 $20.38
1700 Market Street.......... 60 $20.54
Conshohocken
Four Falls Corporate
Center(3).................. 41 $24.79
King of Prussia/Valley Forge
Oak Hill Plaza(3)........... 4 $18.34
Walnut Hill Plaza(3)........ 22 $20.26
Main Line
One Devon Square(2)(3)...... 8 $18.24
Two Devon Square(3)......... 6 $16.32
Three Devon Square(2)(3).... 1 $28.47
Plymouth Meeting/Blue Bell
One Valley Square(3)........ 6 $18.28
Two Valley Square(3)........ 7 $19.24
Three Valley Square(3)...... 6 $19.83
Four and Five Valley
Square(3).................. 5 $20.16
Norfolk
Norfolk
Dominion Tower(3)........... 54 $17.05
Washington D.C
Alexandria/Old Town
1600 Duke Street............ 9 $24.24
Crystal City
Polk and Taylor Buildings... 9 $27.25
Fairfax/Center
Centerpointe I & II......... 12 $18.40
Fair Oaks Plaza............. 35 $17.49
Herndon/Dulles
Northridge I................ 1 $26.64
Reston
Reston Town Center.......... 82 $27.21
Rosslyn/Ballston
1300 North 17th Street...... 29 $25.86
1616 N. Fort Myer Drive..... 11 $25.36
Tyson's Corner
E.J. Randolph............... 14 $23.13
John Marshall I............. 2 $21.01
----- ------
NORTHEAST REGION TOTAL/WEIGHTED
AVERAGE....................... 1,508 $28.90
===== ======
SOUTHEAST REGION
Orlando
Central Business District
SunTrust Center............. 47 $24.77
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
PERCENT
OF
NUMBER OF APPROXIMATE PERCENT OF TOTAL ANNUALIZED PORTFOLIO
PRIMARY MARKET OFFICE YEAR BUILT/ RENTABLE OFFICE PROPERTIES PERCENT RENT ANNUALIZED
SUB MARKET PROPERTIES RENOVATED SQUARE FEET RENTABLE SQUARE FEET OCCUPIED (000'S)(1) RENT
- -------------- ---------- ----------- ----------- -------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sarasota
Downtown
Sarasota City Center........ 1 1989 247,891 0.3% 97.5% 4,560 0.3%
Atlanta
Central Perimeter
Central Park................ 2 1986 612,733 0.8% 95.8% 12,530 0.8%
Lakeside Office Park........ 5 1972-1978 390,721 0.5% 98.2% 6,101 0.4%
One Perimeter Center........ 4 1972-1986 1,264,027 1.7% 89.3% 21,577 1.3%
Two Perimeter Center........ 11 1971-1985 980,708 1.3% 93.7% 15,096 0.9%
Three Perimeter Center...... 14 1970-1989 557,435 0.7% 94.5% 10,086 0.6%
Four Perimeter Center....... 3 1978-1981 483,796 0.6% 100.0% 9,300 0.6%
Midtown
Promenade II................ 1 1990 770,840 1.0% 98.7% 17,361 1.0%
Northwest
Paces West.................. 2 1988 641,263 0.9% 96.5% 13,084 0.8%
Charlotte
Uptown
Wachovia Center............. 1 1972/1994 581,666 0.8% 100.0% 6,927 0.4%
Raleigh/Durham
South Durham
University Tower............ 1 1987/1992 181,221 0.2% 95.5% 3,375 0.2%
Nashville
Downtown
Nations Bank Plaza.......... 1 1977/1995 421,513 0.6% 98.5% 5,809 0.3%
--- ---------- ------ ------ ---------- ------
SOUTHEAST REGION TOTAL/WEIGHTED
AVERAGE....................... 47 7,774,199 10.4% 95.5% $ 140,771 8.4%
=== ========== ====== ====== ========== ======
SOUTHWEST REGION
New Orleans
CBD
LL&E Tower.................. 1 1987 545,157 0.7% 82.2% $ 7,117 0.4%
Texaco Center 1 1984 619,714 0.8% 87.7% 8,955 0.5%
Metairie/E. Jefferson
One Lakeway Center.......... 1 1981/1996 289,112 0.4% 93.2% 4,259 0.3%
Two Lakeway Center.......... 1 1984/1996 440,826 0.6% 98.3% 7,338 0.4%
Three Lakeway Center........ 1 1987/1996 462,890 0.6% 97.3% 6,927 0.4%
Austin
CBD
Franklin Plaza.............. 1 1987 517,849 0.7% 97.6% 10,353 0.6%
One American Center(2)...... 1 1984 505,770 0.7% 99.0% 10,143 0.6%
San Jacinto Center.......... 1 1987 400,329 0.5% 97.9% 8,222 0.5%
Dallas
Central
Eighty-Eighty Central....... 1 1984/1995 283,707 0.4% 93.6% 4,647 0.3%
LBJ/Quorum
Colonnade I & II............ 2 1983-1985 606,615 0.8% 93.9% 11,152 0.7%
Colonnade III............... 1 1998 377,639 0.5% 60.1% 4,681 0.3%
Four Forest Plaza(3)........ 1 1985 394,324 0.5% 92.5% 6,325 0.4%
Lakeside Square............. 1 1987 397,328 0.5% 82.2% 7,412 0.4%
North Central Plaza Three... 1 1986/1994 346,575 0.5% 82.3% 5,048 0.3%
N. Central Expressway
9400 NCX.................... 1 1981/1995 379,556 0.5% 91.7% 5,408 0.3%
Preston Center
Preston Commons............. 3 1986 418,604 0.6% 84.5% 7,693 0.5%
Sterling Plaza.............. 1 1984/1994 302,747 0.4% 92.6% 5,410 0.3%
Ft. Worth
W/SW Fort Worth
Summitt Office Park......... 2 1974/1993 239,095 0.3% 97.8% 2,928 0.2%
Houston
Galleria/West Loop
San Felipe Plaza(3)......... 1 1984 959,466 1.3% 93.5% 15,846 0.9%
North Loop/Northwest
Brookhollow Central......... 3 1972-1981 797,971 1.1% 86.9% 10,602 0.6%
<CAPTION>
ANNUALIZED
RENT
PER OCCUPIED
PRIMARY MARKET NUMBER OF SQUARE
SUB MARKET LEASES FEET(1)
- -------------- --------- --------------
<S> <C> <C>
Sarasota
Downtown
Sarasota City Center........ 35 $18.88
Atlanta
Central Perimeter
Central Park................ 67 $21.34
Lakeside Office Park........ 38 $15.90
One Perimeter Center........ 128 $19.11
Two Perimeter Center........ 69 $16.43
Three Perimeter Center...... 50 $19.16
Four Perimeter Center....... 8 $19.22
Midtown
Promenade II................ 26 $22.82
Northwest
Paces West.................. 42 $21.14
Charlotte
Uptown
Wachovia Center............. 9 $11.91
Raleigh/Durham
South Durham
University Tower............ 36 $19.50
Nashville
Downtown
Nations Bank Plaza.......... 22 $14.00
----- ------
SOUTHEAST REGION TOTAL/WEIGHTED
AVERAGE....................... 577 $18.96
===== ======
SOUTHWEST REGION
New Orleans
CBD
LL&E Tower.................. 31 $15.89
Texaco Center 30 $16.47
Metairie/E. Jefferson
One Lakeway Center.......... 48 $15.80
Two Lakeway Center.......... 80 $15.98
Three Lakeway Center........ 47 $16.29
Austin
CBD
Franklin Plaza.............. 45 $20.48
One American Center(2)...... 33 $20.25
San Jacinto Center.......... 40 $20.97
Dallas
Central
Eighty-Eighty Central....... 36 $17.49
LBJ/Quorum
Colonnade I & II............ 77 $19.58
Colonnade III............... 8 $20.64
Four Forest Plaza(3)........ 52 $17.35
Lakeside Square............. 22 $22.70
North Central Plaza Three... 33 $17.71
N. Central Expressway
9400 NCX.................... 69 $15.53
Preston Center
Preston Commons............. 68 $21.74
Sterling Plaza.............. 70 $19.31
Ft. Worth
W/SW Fort Worth
Summitt Office Park......... 57 $12.53
Houston
Galleria/West Loop
San Felipe Plaza(3)......... 125 $17.66
North Loop/Northwest
Brookhollow Central......... 50 $15.29
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
PERCENT
OF
NUMBER OF APPROXIMATE PERCENT OF TOTAL ANNUALIZED PORTFOLIO
PRIMARY MARKET OFFICE YEAR BUILT/ RENTABLE OFFICE PROPERTIES PERCENT RENT ANNUALIZED
SUB MARKET PROPERTIES RENOVATED SQUARE FEET RENTABLE SQUARE FEET OCCUPIED (000'S)(1) RENT
- -------------- ---------- ----------- ----------- -------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
North/North Belt
Intercontinental Center..... 1 1983/1991 194,801 0.3% 100.0% 2,881 0.2%
Northborough Tower(3)....... 1 1983/1990 207,908 0.3% 98.5% 3,036 0.2%
West
2500 CityWest............... 1 1982 574,216 0.8% 99.7% 12,156 0.7%
San Antonio
Northwest
Colonnade I................. 1 1983 168,637 0.2% 95.6% 2,589 0.2%
Northwest Center............ 1 1984/1994 241,248 0.3% 94.2% 3,011 0.2%
Union Square................ 1 1986 194,398 0.3% 92.2% 3,086 0.2%
--- ---------- ------ ------ ---------- ------
SOUTHWEST REGION TOTAL/WEIGHTED
AVERAGE....................... 32 10,866,482 14.5% 91.4% $ 177,224 10.6%
=== ========== ====== ====== ========== ======
WEST REGION
Anchorage
Midtown
Calais Office Center(2)..... 2 1975 190,599 0.3% 99.8% $ 3,710 0.2%
Phoenix
Central Corridor
49 East Thomas Road(7)...... 1 1974/1993 18,892 0.0% 61.4% 111 0.0%
One Phoenix Plaza(8)........ 1 1989 586,403 0.8% 100.0% 7,316 0.4%
Denver
Downtown
410 17th Street............. 1 1978 388,953 0.5% 88.1% 5,132 0.3%
Denver Post Tower(2)........ 1 1984 579,999 0.8% 85.6% 7,453 0.4%
Dominion Plaza.............. 1 1983 571,468 0.8% 86.4% 7,206 0.4%
Tabor Center................ 2 1985 674,278 0.9% 84.0% 11,836 0.7%
Trinity Place............... 1 1983 189,163 0.3% 90.0% 2,266 0.1%
Southeast
4949 S. Syracuse............ 1 1982 62,633 0.1% 86.4% 935 0.1%
Denver Corporate Center II &
III........................ 2 1981/93-97 358,357 0.5% 100.0% 6,703 0.4%
Metropoint.................. 1 1987 263,719 0.4% 96.7% 5,164 0.3%
Millennium Plaza............ 1 1982 330,033 0.4% 100.0% 7,808 0.5%
Solarium 1 1982 162,817 0.2% 99.4% 2,952 0.2%
Terrace Building............ 1 1982 115,408 0.2% 83.5% 1,885 0.1%
The Quadrant................ 1 1985 313,302 0.4% 97.2% 6,040 0.4%
Minneapolis
I-494
Northland Plaza............. 1 1985 296,965 0.4% 95.7% 7,042 0.4%
Minneapolis CBD
LaSalle Plaza............... 1 1991 588,908 0.8% 97.5% 15,577 0.9%
St. Louis
Mid County
Interco Corporate Tower..... 1 1986 339,163 0.5% 98.9% 7,337 0.4%
Albuquerque
Downtown
500 Marquette Building...... 1 1985 230,022 0.3% 92.7% 3,357 0.2%
Uptown
One Park Square............. 4 1985 262,020 0.3% 81.8% 3,812 0.2%
Oklahoma City
Northwest
5100 Brookline(3)........... 1 1974 105,459 0.1% 81.1% 832 0.0%
Atrium Towers............... 2 1980/1995 155,865 0.2% 93.2% 1,361 0.1%
Portland
Downtown
1001 Fifth Avenue(2)........ 1 1980 368,138 0.5% 93.9% 6,425 0.4%
Seattle
Bellevue CBD
One Bellevue Center(2)...... 1 1983 344,715 0.5% 98.1% 7,595 0.5%
Rainier Plaza(2)............ 1 1986 410,855 0.5% 99.0% 8,966 0.5%
<CAPTION>
ANNUALIZED
RENT
PER OCCUPIED
PRIMARY MARKET NUMBER OF SQUARE
SUB MARKET LEASES FEET(1)
- -------------- --------- --------------
<S> <C> <C>
North/North Belt
Intercontinental Center..... 12 $14.79
Northborough Tower(3)....... 16 $14.83
West
2500 CityWest............... 26 $21.23
San Antonio
Northwest
Colonnade I................. 28 $16.05
Northwest Center............ 32 $13.25
Union Square................ 20 $17.22
----- ------
SOUTHWEST REGION TOTAL/WEIGHTED
AVERAGE....................... 1,155 $17.85
===== ======
WEST REGION
Anchorage
Midtown
Calais Office Center(2)..... 35 $19.50
Phoenix
Central Corridor
49 East Thomas Road(7)...... 11 $ 9.58
One Phoenix Plaza(8)........ 1 $12.48
Denver
Downtown
410 17th Street............. 72 $14.97
Denver Post Tower(2)........ 30 $15.01
Dominion Plaza.............. 65 $14.59
Tabor Center................ 135 $20.90
Trinity Place............... 41 $13.30
Southeast
4949 S. Syracuse............ 7 $17.27
Denver Corporate Center II &
III........................ 13 $18.71
Metropoint.................. 20 $20.25
Millennium Plaza............ 2 $23.66
Solarium 34 $18.24
Terrace Building............ 18 $19.54
The Quadrant................ 38 $19.84
Minneapolis
I-494
Northland Plaza............. 52 $24.77
Minneapolis CBD
LaSalle Plaza............... 32 $27.14
St. Louis
Mid County
Interco Corporate Tower..... 32 $21.87
Albuquerque
Downtown
500 Marquette Building...... 33 $15.74
Uptown
One Park Square............. 47 $17.79
Oklahoma City
Northwest
5100 Brookline(3)........... 58 $ 9.73
Atrium Towers............... 33 $ 9.37
Portland
Downtown
1001 Fifth Avenue(2)........ 55 $18.60
Seattle
Bellevue CBD
One Bellevue Center(2)...... 34 $22.46
Rainier Plaza(2)............ 60 $22.05
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
PERCENT
OF
NUMBER OF APPROXIMATE PERCENT OF TOTAL ANNUALIZED PORTFOLIO
PRIMARY MARKET OFFICE YEAR BUILT/ RENTABLE OFFICE PROPERTIES PERCENT RENT ANNUALIZED
SUB MARKET PROPERTIES RENOVATED SQUARE FEET RENTABLE SQUARE FEET OCCUPIED (000'S)(1) RENT
- -------------- ---------- ----------- ----------- -------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CBD
1111 Third Avenue........... 1 1980 528,282 0.7% 97.9% 10,171 0.6%
Columbia Seafirst Center.... 2 1985 1,537,932 2.0% 97.0% 35,321 2.1%
First Interstate Center..... 1 1983 915,883 1.2% 96.6% 20,950 1.3%
Nordstrom Medical Tower..... 1 1986 101,431 0.1% 98.5% 2,667 0.2%
Second and Seneca
Buildings.................. 2 1991 480,272 0.6% 100.0% 10,249 0.6%
Second and Spring
Building................... 1 1906/1989 134,871 0.2% 80.6% 2,150 0.1%
--- ---------- ------ ------ ---------- ------
WEST REGION TOTAL/WEIGHTED
AVERAGE....................... 40 11,606,805 15.5% 94.3% $ 220,329 13.2%
=== ========== ====== ====== ========== ======
PACIFIC REGION
Los Angeles
Downtown
550 S. Hope................. 1 1991 566,434 0.8% 82.4% $ 10,235 0.6%
Two California Plaza(2)..... 1 1992 1,329,809 1.8% 88.9% 26,957 1.6%
Pasadena
Pasadena Towers............. 2 1990-91 439,367 0.6% 92.2% 11,369 0.7%
Westwood
10880 Wilshire Boulevard
(2)........................ 1 1970/1992 534,047 0.7% 94.7% 14,863 0.9%
10960 Wilshire Boulevard.... 1 1971/1992 543,804 0.7% 99.4% 15,974 1.0%
Orange County
Airport Office Area
1920 Main Plaza............. 1 1988 305,662 0.4% 97.7% 6,980 0.4%
2010 Main Plaza............. 1 1988 280,882 0.4% 93.6% 6,675 0.4%
Anaheim Stadium Area
500 Orange Tower(9)......... 1 1988 290,765 0.4% 94.3% 5,161 0.3%
Town & Country
1100 Executive Tower........ 1 1987 366,747 0.5% 99.1% 6,542 0.4%
San Diego
UTC
Smith Barney Tower.......... 1 1987 187,999 0.3% 94.6% 3,993 0.2%
The Plaza at La Jolla
Village(3)................. 5 1987-1990 635,419 0.8% 89.9% 13,743 0.8%
San Francisco
Financial District
201 Mission Street.......... 1 1981 483,289 0.6% 99.7% 8,395 0.5%
301 Howard Building......... 1 1988 307,396 0.4% 86.8% 6,736 0.4%
580 California.............. 1 1984 313,012 0.4% 100.0% 8,585 0.5%
60 Spear Street Building.... 1 1967/1987 133,782 0.2% 100.0% 3,487 0.2%
One Maritime Plaza.......... 1 1967/1990 534,878 0.7% 100.0% 16,943 1.0%
One Market(2)............... 1 1976/1995 1,460,081 1.9% 96.9% 40,928 2.5%
San Jose
Mountain View
Shoreline Technology Park... 12 1985-1991 726,508 1.0% 100.0% 13,665 0.8%
Santa Clara
Lake Marriott Business
Park....................... 7 1981 401,402 0.5% 100.0% 5,949 0.4%
Sunnyvale
Sunnyvale Business Center... 3 1990 175,000 0.2% 100.0% 3,219 0.2%
--- ---------- ------ ------ ---------- ------
PACIFIC REGION TOTAL/WEIGHTED
AVERAGE....................... 44 10,016,283 13.3% 94.8% $ 230,400 13.8%
--- ---------- ------ ------ ---------- ------
PORTFOLIO TOTAL/WEIGHTED
AVERAGE....................... 284 75,100,727 100.0% 95.0% $1,669,996 100.0%
=== ========== ====== ====== ========== ======
<CAPTION>
ANNUALIZED
RENT
PER OCCUPIED
PRIMARY MARKET NUMBER OF SQUARE
SUB MARKET LEASES FEET(1)
- -------------- --------- --------------
<S> <C> <C>
CBD
1111 Third Avenue........... 47 $19.67
Columbia Seafirst Center.... 149 $23.67
First Interstate Center..... 66 $23.68
Nordstrom Medical Tower..... 23 $26.71
Second and Seneca
Buildings.................. 30 $21.34
Second and Spring
Building................... 6 $19.79
----- ------
WEST REGION TOTAL/WEIGHTED
AVERAGE....................... 1,279 $20.13
===== ======
PACIFIC REGION
Los Angeles
Downtown
550 S. Hope................. 38 $21.94
Two California Plaza(2)..... 35 $22.81
Pasadena
Pasadena Towers............. 35 $28.07
Westwood
10880 Wilshire Boulevard
(2)........................ 47 $29.38
10960 Wilshire Boulevard.... 32 $29.54
Orange County
Airport Office Area
1920 Main Plaza............. 43 $23.38
2010 Main Plaza............. 27 $25.39
Anaheim Stadium Area
500 Orange Tower(9)......... 47 $18.82
Town & Country
1100 Executive Tower........ 24 $17.99
San Diego
UTC
Smith Barney Tower.......... 21 $22.44
The Plaza at La Jolla
Village(3)................. 84 $24.07
San Francisco
Financial District
201 Mission Street.......... 19 $17.43
301 Howard Building......... 25 $25.24
580 California.............. 27 $27.43
60 Spear Street Building.... 8 $26.07
One Maritime Plaza.......... 42 $31.68
One Market(2)............... 121 $28.91
San Jose
Mountain View
Shoreline Technology Park... 12 $18.81
Santa Clara
Lake Marriott Business
Park....................... 17 $14.82
Sunnyvale
Sunnyvale Business Center... 3 $18.40
----- ------
PACIFIC REGION TOTAL/WEIGHTED
AVERAGE....................... 707 $24.26
----- ------
PORTFOLIO TOTAL/WEIGHTED
AVERAGE....................... 6,422 $23.40
===== ======
</TABLE>
- ---------------
(1) Annualized Rent is the monthly contractual rent under existing leases as of
December 31, 1998, multiplied by 12. This amount reflects total base rent
before any rent abatements, but includes expense reimbursements, which may
be estimates. Total rent abatements for leases in effect as of December 31,
1998, for the 12 months ending December 31, 1999, are approximately $7.1
million.
(2) All or a portion of this Office Property is held subject to a ground lease.
(3) This Office Property is held in a partnership with an unaffiliated third
party and, in the case of San Felipe Plaza, an affiliated party.
38
<PAGE> 39
(4) This Office Property is held in a private real estate investment trust in
which the Company owns 51.6% of the outstanding shares.
(5) The Company's interest in the amenities component of this Office Property is
primarily attributable to its ownership of mortgage indebtedness encumbering
the theatre/plaza, retail, health club and parking facilities associated
therewith.
(6) The Company acquired a $295 million first mortgage note secured by this
Office Property for approximately $244.9 million. In accordance with certain
agreements concerning the first mortgage note, the Company controls
financial and operational decisions for the Property and is entitled to
substantially all cash flow and residual profit. Accordingly, the Company
consolidated the financial position and results of operations of the
Property.
(7) This Office Property was purchased in conjunction with the purchase of One
Phoenix Plaza for the sole purpose of providing additional parking for the
tenants of One Phoenix Plaza.
(8) This Office Property is 100% leased to a single tenant on a triple net
basis, whereby the tenant pays for certain operating expenses directly,
rather than reimbursing the Company. The amounts shown above for annualized
rent include the amounts of reimbursement of expenses paid by the Company
but do not make any adjustments for expenses paid directly by the tenant.
(9) This Office Property is held subject to an interest in the improvements at
the Property held by an unaffiliated third party. In addition, the Company
has a mortgage interest in such improvements.
PARKING FACILITIES
Information concerning the Parking Facilities as of December 31, 1998 is
set forth below.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF MANAGEMENT
REGION NAME PROPERTY NAME STATE CITY SPACES GARAGES COMPANY(1)
- ----------- -------------------------------------- ----- ------------ --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CENTRAL
Adams-Wabash Garage IL Chicago 670 1 Standard Parking
Theater District Garage(2) IL Chicago 1,006 1 Standard Parking
203 North LaSalle Garage(2) IL Chicago 1,172 1 Standard Parking
Capitol Commons Garage(2)(3) IN Indianapolis 950 1 Central Parking
Milwaukee Center Garage(3) WI Milwaukee 876 1 Standard Parking
NORTHEAST
Boston Harbor Garage MA Boston 1,380 1 Standard Parking
1616 Sansom Street Garage PA Philadelphia 240 1 Central Parking
1111 Sansom Street Garage PA Philadelphia 250 1 Central Parking
Juniper/Locust Street Garage PA Philadelphia 541 1 Central Parking
15th & Sansom Street Garage PA Philadelphia 313 1 Central Parking
1602-34 Chancellor Garage PA Philadelphia 416 1 Central Parking
Stanwix Parking Garage PA Pittsburgh 712 1 Standard Parking
Forbes & Allies Garage(4) PA Pittsburgh 1,310 2 Central Parking
SOUTHWEST
601 Tchoupitoulas LA New Orleans 759 1 Central Parking
WEST
St. Louis Parking Garages(5) MO St. Louis 7,464 4 Central Parking
------ ---
TOTAL EOP STAND-ALONE 18,059 19
TOTAL EOP PORTFOLIO 69,497 85
------ ---
GRAND TOTAL 87,556 104
====== ===
</TABLE>
- ---------------
(1) With the exception of Capitol Commons Garage, all of the named Parking
Facilities are operated by the designated third-party service companies
(each, a "Service Company") under a lease agreement whereby the Company and
the Service Company share the gross receipts from the parking operation or
the Company receives a fixed payment from the Service Company, and the
Company bears none of the operational expenses. In the case of Capitol
Commons Garage, the operating agreement provides for the Company's receipt
of a percentage of net receipts and, therefore, results in an insignificant
amount of
39
<PAGE> 40
non-qualifying gross income for REIT qualification purpose relative to the
total gross income of the Company.
(2) Each of these Parking Facilities is held in a partnership with an
unaffiliated third party. The Company or a Subsidiary is the managing
general partner of each such partnership.
(3) This Parking Facility is held subject to a ground lease.
(4) The Company acquired a leasehold interest in these Parking Facilities. The
lease is for a term of 50 years with four five-year options to renew.
Pursuant to the lease, the Company is required to make annual rent payments
of $172,500, and is required to make certain capital improvements to the
garages of approximately $10.0 million during the first ten years of the
lease. The Company has accounted for this transaction as a capital lease.
(5) The Company has a 50% membership interest in a portfolio of four Parking
Facilities serving the St. Louis, Missouri area.
TENANTS
As of December 31, 1998, the Office Properties were leased to 6,422
tenants; no single tenant accounted for more than 1.7% of the Company's
aggregate annualized rent or 1.5% of aggregate occupied square feet (except for
the U.S. General Services Administration, acting on behalf of various agencies
or departments of the U.S. government, which accounted for 3.5% of annualized
rent and 3.2% of occupied square feet).
LEASE EXPIRATIONS BY REGION AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
1999 AND
MONTH TO
MONTH 2000 2001 2002 2003 2004
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CENTRAL REGION TOTALS
Square Feet (1).............. 1,058,880 1,189,236 971,560 1,072,414 1,702,602 964,295
% Square Feet (2)............ 7.9% 8.9% 7.3% 8.0% 12.8% 7.2%
Annualized Rent (3).......... $ 25,806,328 $ 29,143,061 $ 21,965,146 $ 26,531,315 $ 48,716,986 $ 23,280,366
Number of Leases............. 245 179 190 152 144 83
Rent Per Square Foot......... $ 24.37 $ 24.51 $ 22.61 $ 24.74 $ 28.61 $ 24.14
NORTHEAST REGION TOTALS
Square Feet (1).............. 1,451,785 1,766,261 3,286,026 3,208,015 2,124,409 1,299,915
% Square Feet (2)............ 6.8% 8.2% 15.3% 14.9% 9.9% 6.0%
Annualized Rent (3).......... $ 36,618,104 $ 46,553,668 $105,003,832 $ 88,593,793 $ 61,781,333 $ 32,835,283
Number of Leases............. 255 234 236 229 218 87
Rent Per Square Foot......... $ 25.22 $ 26.36 $ 31.95 $ 27.62 $ 29.08 $ 25.26
SOUTHEAST REGION TOTALS
Square Feet (1).............. 1,312,362 1,045,440 1,405,445 772,519 387,564 370,319
% Square Feet (2)............ 16.9% 13.4% 18.1% 9.9% 5.0% 4.8%
Annualized Rent (3).......... $ 21,944,149 $ 21,426,163 $ 25,891,378 $ 16,082,280 $ 8,407,677 $ 5,718,163
Number of Leases............. 149 103 117 101 48 22
Rent Per Square Foot......... $ 16.72 $ 20.49 $ 18.42 $ 20.82 $ 21.69 $ 15.44
SOUTHWEST REGION TOTALS
Square Feet (1).............. 1,315,199 1,876,183 1,438,426 1,398,074 1,424,566 854,365
% Square Feet (2)............ 12.1% 17.3% 13.2% 12.9% 13.1% 7.9%
Annualized Rent (3).......... $ 22,552,831 $ 33,382,204 $ 26,538,168 $ 26,406,887 $ 25,660,899 $ 15,989,205
Number of Leases............. 317 247 181 151 159 46
Rent Per Square Foot......... $ 17.15 $ 17.79 $ 18.45 $ 18.89 $ 18.01 $ 18.71
WEST REGION TOTALS
Square Feet (1).............. 1,332,693 1,462,005 1,732,283 1,220,739 1,513,115 1,188,782
% Square Feet (2)............ 11.5% 12.6% 14.9% 10.5% 13.0% 10.2%
Annualized Rent (3).......... $ 24,150,502 $ 28,220,660 $ 36,282,625 $ 25,090,787 $ 34,992,002 $ 19,184,479
Number of Leases............. 399 220 226 158 148 38
Rent Per Square Foot......... $ 18.12 $ 19.30 $ 20.94 $ 20.55 $ 23.13 $ 16.14
<CAPTION>
2009 AND
2005 2006 2007 2008 BEYOND TOTALS
------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
CENTRAL REGION TOTALS
Square Feet (1).............. 1,296,086 683,110 440,291 1,160,460 2,150,197 12,689,131
% Square Feet (2)............ 9.7% 5.1% 3.3% 8.7% 16.1% 95.1%
Annualized Rent (3).......... $ 28,863,959 $ 14,653,053 $ 9,181,483 $ 21,928,508 $ 47,178,901 $ 297,249,106
Number of Leases............. 61 45 32 34 31 1,196
Rent Per Square Foot......... $ 22.27 $ 21.45 $ 20.85 $ 18.90 $ 21.94 $ 23.43
NORTHEAST REGION TOTALS
Square Feet (1).............. 1,290,649 1,122,132 1,015,868 1,042,912 3,289,966 20,897,938
% Square Feet (2)............ 6.0% 5.2% 4.7% 4.9% 15.3% 97.1%
Annualized Rent (3).......... $ 35,955,383 $ 27,459,285 $ 25,732,532 $ 31,021,301 $112,469,010 $ 604,023,525
Number of Leases............. 72 52 38 47 40 1,508
Rent Per Square Foot......... $ 27.86 $ 24.47 $ 25.33 $ 29.74 $ 34.19 $ 28.90
SOUTHEAST REGION TOTALS
Square Feet (1).............. 465,161 555,370 33,750 346,336 729,800 7,424,066
% Square Feet (2)............ 6.0% 7.1% 0.4% 4.5% 9.4% 95.5%
Annualized Rent (3).......... $ 6,998,489 $ 12,813,908 $ 558,017 $ 8,622,891 $ 12,307,455 $ 140,770,569
Number of Leases............. 14 6 5 7 5 577
Rent Per Square Foot......... $ 15.05 $ 23.07 $ 16.53 $ 24.90 $ 16.86 $ 18.96
SOUTHWEST REGION TOTALS
Square Feet (1).............. 233,304 564,265 256,513 278,707 288,778 9,928,380
% Square Feet (2)............ 2.1% 5.2% 2.4% 2.6% 2.7% 91.4%
Annualized Rent (3).......... $ 3,903,360 $ 9,647,066 $ 4,826,063 $ 6,162,961 $ 2,154,574 $ 177,224,218
Number of Leases............. 20 14 5 10 5 1,155
Rent Per Square Foot......... $ 16.73 $ 17.10 $ 18.81 $ 22.11 $ 7.46 $ 17.85
WEST REGION TOTALS
Square Feet (1).............. 498,332 474,956 540,939 704,254 275,078 10,943,176
% Square Feet (2)............ 4.3% 4.1% 4.7% 6.1% 2.4% 94.3%
Annualized Rent (3).......... $ 11,148,911 $ 9,776,078 $ 11,426,913 $ 18,808,208 $ 1,248,207 $ 220,329,372
Number of Leases............. 29 17 22 17 5 1,279
Rent Per Square Foot......... $ 22.37 $ 20.58 $ 21.12 $ 26.71 $ 4.54 $ 20.13
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
1999 AND
MONTH TO
MONTH 2000 2001 2002 2003 2004
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PACIFIC REGION TOTALS
Square Feet (1).............. 1,268,789 1,322,935 1,682,256 821,437 708,969 436,892
% Square Feet (2)............ 12.7% 13.2% 16.8% 8.2% 7.1% 4.4%
Annualized Rent (3).......... $ 26,644,154 $ 29,575,581 $ 38,500,310 $ 22,728,014 $ 19,700,363 $ 11,274,429
Number of Leases............. 148 118 136 87 81 29
Rent Per Square Foot......... $ 21.00 $ 22.36 $ 22.89 $ 27.67 $ 27.79 $ 25.81
PORTFOLIO TOTALS
Square Feet (1).............. 7,739,708 8,662,060 10,515,996 8,493,198 7,861,225 5,114,568
% Square Feet (2)............ 10.3% 11.5% 14.0% 11.3% 10.5% 6.8%
Annualized Rent (3).......... $157,716,068 $188,301,337 $254,181,460 $205,433,075 $199,259,260 $108,281,926
Number of Leases............. 1,513 1,101 1,086 878 798 305
Rent Per Square Foot......... $ 20.38 $ 21.74 $ 24.17 $ 24.19 $ 25.35 $ 21.17
<CAPTION>
2009 AND
2005 2006 2007 2008 BEYOND TOTALS
------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
PACIFIC REGION TOTALS
Square Feet (1).............. 940,473 599,153 824,068 268,500 623,343 9,496,815
% Square Feet (2)............ 9.4% 6.0% 8.2% 2.7% 6.2% 94.8%
Annualized Rent (3).......... $ 22,111,007 $ 16,915,716 $ 25,901,334 $ 8,722,571 $ 8,326,128 $ 230,399,606
Number of Leases............. 37 23 19 12 17 707
Rent Per Square Foot......... $ 23.51 $ 28.23 $ 31.43 $ 32.49 $ 13.36 $ 24.26
PORTFOLIO TOTALS
Square Feet (1).............. 4,724,005 3,998,986 3,111,429 3,801,169 7,357,162 71,379,506
% Square Feet (2)............ 6.3% 5.3% 4.1% 5.1% 9.8% 95.0%
Annualized Rent (3).......... $108,981,108 $ 91,265,106 $ 77,626,341 $ 95,266,440 $183,684,275 $1,669,996,396
Number of Leases............. 233 157 121 127 103 6,422
Rent Per Square Foot......... $ 23.07 $ 22.82 $ 24.95 $ 25.06 $ 24.97 $ 23.40
</TABLE>
- ---------------
(1) Total net rentable square feet represented by expiring leases.
(2) Percentage of total net rentable feet represented by expiring leases.
(3) Annualized Rent is the monthly contractual rent under existing leases as of
December 31, 1998 multiplied by 12. This amount reflects total base rent
before any rent abatements, but includes expense reimbursements. Total rent
abatements for leases in effect as of December 31, 1998 for the 12 months
ending December 31, 1999 are approximately $7.1 million.
LEASE EXPIRATIONS -- TOTAL PORTFOLIO
The following table sets forth a summary schedule of the lease expirations
for the Office Properties for leases in place as of December 31, 1998, assuming
that none of the tenants exercise renewal options or termination rights, if any,
at or prior to the scheduled expirations:
<TABLE>
<CAPTION>
ANNUALIZED PERCENTAGE
RENT OF OF
PERCENTAGE EXPIRING ANNUALIZED
SQUARE OF TOTAL ANNUALIZED LEASES RENT OF
NUMBER OF FOOTAGE OF OCCUPIED RENT OF PER EXPIRING
YEAR OF LEASE LEASES EXPIRING SQUARE EXPIRING SQUARE LEASES
EXPIRATION EXPIRING LEASES FEET LEASES FOOT (1)
------------- --------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1999(2).................... 1,513 7,739,708 11.0% $ 157,716,068 $20.38 9.4%
2000....................... 1,101 8,662,060 12.3% 188,301,337 21.74 11.3%
2001....................... 1,086 10,515,996 14.8% 254,181,460 24.17 15.3%
2002....................... 878 8,493,198 12.1% 205,433,075 24.19 12.3%
2003....................... 798 7,861,225 11.2% 199,259,260 25.35 11.9%
2004....................... 305 5,114,568 7.3% 108,281,926 21.17 6.5%
2005....................... 233 4,724,005 6.7% 108,981,108 23.07 6.5%
2006....................... 157 3,998,986 5.7% 91,265,106 22.82 5.5%
2007....................... 121 3,111,429 4.4% 77,626,341 24.95 4.6%
2008....................... 127 3,801,169 5.4% 95,266,440 25.06 5.7%
2009....................... 41 2,282,470 3.2% 83,312,753 36.50 5.0%
2010 and beyond............ 62 4,137,495 5.9% 100,371,522 24.26 6.0%
----- ---------- -------- -------------- ------ -----
TOTAL/WEIGHTED AVERAGE..... 6,422 70,442,309 100.0%(3) $1,669,996,396 $23.40 100.0%
===== ========== ======== ============== ====== =====
</TABLE>
- ---------------
(1) Based on currently payable rent.
(2) Represents lease expirations from January 1, 1999 to December 31, 1999 and
month-to-month leases.
(3) Reconciliation of total net rentable square footage is as follows:
41
<PAGE> 42
<TABLE>
<CAPTION>
PERCENTAGE
SQUARE OF
FOOTAGE TOTAL
----------- ----------
<S> <C> <C>
Square footage occupied by tenants.......................... 70,442,309 93.8%
Square footage used for management offices and building use,
and remeasurement adjustments............................. 937,197 1.2%
----------- -----
Total occupied square footage............................... 71,379,506 95.0%
Square footage vacant....................................... 3,721,221 5.0%
----------- -----
Total net rentable square footage........................... 75,100,727 100.0%
=========== =====
</TABLE>
LEASE DISTRIBUTIONS
The following table sets forth information relating to the distribution of
the Office Property leases, based on rentable square feet under lease, as of
December 31, 1998:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
PERCENT PORTFOLIO ANNUALIZED
NUMBER OF OF ALL TOTAL OCCUPIED OCCUPIED RENT PER
SQUARE FEET UNDER LEASE LEASES LEASES SQUARE FEET SQUARE FEET ANNUALIZED RENT SQUARE FOOT
- ----------------------- --------- ------- -------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
2,500 or Less.................. 2,403 37.5% 2,882,846 4.1% $ 61,653,195 21.39
2,501 -- 5,000................. 1,374 21.4% 4,918,011 7.0% 108,101,012 21.98
5,001 -- 7,500................. 730 11.4% 4,469,543 6.3% 97,691,367 21.86
7,500 -- 10,000................ 384 6.0% 3,327,753 4.7% 74,952,238 22.52
10,001 -- 20,000............... 780 12.1% 11,084,179 15.7% 252,474,321 22.78
20,001 -- 40,000............... 425 6.6% 11,599,388 16.4% 276,178,123 23.81
40,001 -- 60,000............... 138 2.1% 6,683,070 9.5% 158,315,153 23.69
60,001 -- 100,000.............. 97 1.5% 7,381,212 10.5% 179,441,485 24.31
100,001 or Greater............. 91 1.4% 18,096,307 25.8% 461,189,502 25.49
----- ------ ---------- ------ -------------- -----
TOTAL/WEIGHTED AVERAGE......... 6,422 100.0% 70,442,309 100.0% $1,669,996,396 23.40
===== ====== ========== ====== ============== =====
<CAPTION>
PERCENTAGE
OF AGGREGATE
PORTFOLIO
SQUARE FEET UNDER LEASE ANNUALIZED RENT
- ----------------------- ---------------
<S> <C>
2,500 or Less.................. 3.7%
2,501 -- 5,000................. 6.5%
5,001 -- 7,500................. 5.8%
7,500 -- 10,000................ 4.5%
10,001 -- 20,000............... 15.1%
20,001 -- 40,000............... 16.5%
40,001 -- 60,000............... 9.5%
60,001 -- 100,000.............. 10.7%
100,001 or Greater............. 27.7%
------
TOTAL/WEIGHTED AVERAGE......... 100.0%
======
</TABLE>
OCCUPANCY
The table below sets forth weighted average occupancy rates, based on
square feet occupied, of the Office Properties owned by the Company at the
indicated date:
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
RENTABLE RENTABLE SQUARE
DATE SQUARE FEET FEET OCCUPIED
- ---- ----------- ---------------
<S> <C> <C>
December 31, 1992........................................... 9,095,684 73%
December 31, 1993........................................... 13,550,553 80%
December 31, 1994........................................... 18,505,591 88%
December 31, 1995........................................... 23,097,222 86%
December 31, 1996........................................... 29,127,289 90%
December 31, 1997........................................... 65,291,790 94%
December 31, 1998........................................... 75,100,727 95%
</TABLE>
42
<PAGE> 43
ITEM 3. LEGAL PROCEEDINGS.
Neither the Company nor any of its Properties is presently subject to
material litigation nor, to the Company's knowledge, is any litigation
threatened against the Company or any of the Properties, other than routine
actions for negligence and other claims and administrative 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 effect on the liquidity, results of operations, or business or
financial condition of the Company.
43
<PAGE> 44
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
44
<PAGE> 45
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Shares are traded on the New York Stock Exchange
("NYSE") under the symbol EOP. On March 12, 1999, the reported closing sale
price per Common Share on the NYSE was $25.813 and there were approximately 737
holders of record. The high and low closing prices for 1998 and 1997 on the NYSE
were as follows:
<TABLE>
<CAPTION>
YEAR QUARTER HIGH LOW CLOSE DIVIDEND
- ---- ------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
1998 Fourth $25.63 $22.94 $24.00 $0.37
Third $28.69 $20.75 $24.50 $0.37
Second $31.00 $24.94 $28.38 $0.32
First $31.88 $28.00 $30.63 $0.32
1997 Fourth $34.69 $29.00 $31.56 $0.30
Third $33.94 $26.06 $33.94 $0.26*
</TABLE>
- ---------------
* Prorated from IPO date of July 11, 1997 based on $.30 for full quarter.
ISSUANCES OF UNREGISTERED SECURITIES. Unless stated otherwise, the Company
received cash consideration in connection with each of the following issuances
of unregistered securities. Any Units issued by the Operating Partnership are
convertible into Common Shares of the Company on a one-for-one basis, or the
cash equivalent thereof, subject to certain restrictions.
In September 1997, the Company purchased two Office Properties and a
Parking Facility from an unaffiliated party for a purchase price of
approximately $140 million. Of this amount, the Operating Partnership issued, in
a private placement of securities in reliance on an exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Section 4(2) and Rule 506 of Regulation D
promulgated thereunder, 1,692,546 Units at a price of $29 per Unit for a total
of approximately $49.1 million.
In September 1997, the Company (through the Operating Partnership) issued
$180 million of unsecured notes (the "$180 Million Notes") in a private
placement to an institutional investor, in reliance on an exemption from the
registration requirements of the Securities Act pursuant to Rule 144A, and used
the proceeds therefrom to repay amounts outstanding under the Company's $600
million unsecured revolving line of credit entered into in July 1997.
In October 1997, the Company sold 9.7 million restricted Common Shares for
$274 million in two separate private placements to institutional investors in
reliance on an exemption from the registration requirements of the Securities
Act pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder, and contributed the proceeds to the Operating Partnership in
exchange for 9.7 million Units.
Also in October 1997, the Company purchased four Office Properties from an
unaffiliated party for a purchase price of $289 million. Of this amount, the
Operating Partnership issued, in a private placement of securities in reliance
on an exemption from the registration requirements of the Securities Act
pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder,
2,900,000 Units at a price of $24.50 per Unit for a total of approximately $71.1
million.
Also in October 1997, the Company purchased interests in nine Office
Properties from an unaffiliated party for a purchase price of approximately
$127.5 million. Of this amount, the Operating Partnership issued, in a private
placement of securities in reliance on an exemption from the registration
requirements of the Securities Act pursuant to Section 4(2) and Rule 506 of
Regulation D promulgated thereunder, 499,977 Units at a price of $28.755 per
Unit for a total of approximately $14.4 million.
45
<PAGE> 46
Also in October 1997, the Company purchased an Office Property from an
unaffiliated party for a purchase price of approximately $81.7 million. Of this
amount, the Operating Partnership issued, in a private placement of securities
in reliance on an exemption from the registration requirements of the Securities
Act pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder, 741,159 Units at a price of $32.975 per Unit for a total of
approximately $24.4 million.
In November 1997, the Company purchased two Office Properties from an
unaffiliated party for a purchase price of $17.2 million. Of this amount, the
Operating Partnership issued, in a private placement of securities in reliance
on an exemption from the registration requirements of the Securities Act
pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder,
124,348 Units at a price of $28.775 per Unit for a total of approximately $3.6
million.
In December 1997, the Company purchased ten Office Properties in the Wright
Runstad Acquisition for a purchase price of $640 million. Of this amount, the
Operating Partnership issued, in a private placement of securities in reliance
on an exemption from the registration requirements of the Securities Act
pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder,
2,615,700 Units at a price of $29.11 per Unit for a total of approximately $76.1
million and the Company issued, also in a private placement of securities in
reliance on an exemption from the registration requirements of the Securities
Act pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder, 3,435,688 Common Shares at a price of $29.11 per Common Share for a
total of approximately $100 million and contributed the proceeds to the
Operating Partnership for 3,435,688 Units. The sellers also received five year
warrants (valued at approximately $15 million) to purchase an additional
5,000,000 Common Shares at an exercise price of $39.375 per share. In addition,
the Company, through a noncontrolled subsidiary, acquired a non-controlling
interest in the management company of the seller for approximately $20 million.
Of this amount, the Operating Partnership issued, in a private placement of
securities in reliance on an exemption from the registration requirements of the
Securities Act pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder, 137,427 Units at a price of $29.11 per Unit for a total of
approximately $4.0 million.
In February 1998, the Company (through the Operating Partnership), in two
private placements to institutional investors in reliance on an exemption from
the registration requirements of the Securities Act pursuant to Rule 144A, sold
$1.25 billion of unsecured notes in four series, ranging in maturities from five
to 20 years, and $250 million of unsecured 6.376% Mandatory Par Put Remarketed
Securities(SM) due 2012 (which are subject to mandatory tender on February 15,
2002). The proceeds of approximately $1.5 billion were used to pay down
borrowings under the Company's existing unsecured credit facility.
Also in February 1998, the Company, in a private placement to institutional
investors in reliance on an exemption from the registration requirements of the
Securities Act pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder, sold 6,000,000 5.25% Series B Preferred Income Equity Redeemable
Shares, at $50 liquidation preference per share (the "Series B Preferred
Shares"). This offering generated net proceeds of approximately $290.3 million
after offering costs of $9.7 million. The net proceeds were used to pay down
borrowings on unsecured credit facilities. The Series B Preferred Shares are
convertible at any time by the holder into Common Shares at a conversion price
of $35.70 per Common Share, equivalent to a conversion ratio of 1.40056 Common
Shares for each Series B Preferred Share. The Series B Preferred Shares are
non-callable for five years with a mandatory call on February 15, 2008. Each
Series B Preferred Share will receive a quarterly distribution of $0.65625.
In April 1998, the Company acquired an Office Property from an unaffiliated
third party for approximately $52.9 million. The acquisition was paid for with a
combination of approximately $52.8 million in cash and $.1 million in Units. The
Units were issued by the Operating Partnership and consisted of 3,368 Units at
$29.70 per Unit. The Units were issued in a private placement of securities in
reliance on an exemption from the registration requirements of the Securities
Act pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder.
In April 1998, the Company sold 1,628,009 restricted Common Shares. This
offering generated gross proceeds of approximately $44.1 million. The proceeds
were used to pay down borrowings on unsecured credit facilities. The shares were
issued in a private placement to an institutional investor in reliance on an
exemption
46
<PAGE> 47
from the registration requirements of the Securities Act pursuant to Section
4(2) and Rule 506 of Regulation D promulgated thereunder, at a price of $28.5625
per Common Share.
In June 1998, the Company (through the Operating Partnership), in a private
placement to institutional investors in reliance on an exemption from the
registration requirements of the Securities Act pursuant to Rule 144A, sold $775
million of unsecured notes and 300,000 warrants to purchase an additional $300
million in unsecured notes at a later date. The notes were issued in three
series, ranging in maturities from six to 30 years. The 300,000 warrants were
issued concurrently with the issue of $300 million, nine-year notes. Each
warrant entitles its holder to purchase a new $1,000 note at par on December 15,
1999 (or in certain circumstances on January 18, 2000) at a stated rate of
6.763%, which will mature on June 15, 2008 and will have other terms
substantially similar to the $300 million, nine-year notes. Total proceeds to
the Company, net of selling commissions, were approximately $768.6 million which
were used to pay down borrowings under the Company's existing unsecured credit
facility.
In July 1998, the Company acquired an Office Property from an unaffiliated
party for approximately $19.7 million. The acquisition was paid for with a
combination of approximately $15.1 million in cash and $4.6 million in Units.
The Units were issued by the Operating Partnership and consisted of 178,976
Units at $25.69 per Unit. The Units were issued in a private placement of
securities in reliance on an exemption from the registration requirements of the
Securities Act pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder.
In October 1998, the Company acquired an Office Property from an
unaffiliated party for approximately $624.6 million. The acquisition was
partially paid for with $171.9 million in Units. The Units were issued by the
Operating Partnership and consisted of 6,861,166 Units at $25.05 per Unit. The
Units were issued in a private placement of securities in reliance on an
exemption from the registration requirements of the Securities Act pursuant to
Section 4 (2) and Rule 506 of Regulation D promulgated thereunder.
47
<PAGE> 48
ITEM 6. SELECTED FINANCIAL DATA.
EQUITY OFFICE PROPERTIES TRUST SELECTED FINANCIAL DATA(1)
The following sets forth selected consolidated and combined financial and
operating information on a historical basis for Equity Office Properties Trust,
together with its subsidiaries including EOP Operating Limited Partnership and
the Company's predecessors ("Equity Office Predecessors") (the "Company"). The
following information should be read in conjunction with the consolidated and
combined financial statements and notes thereto of the Company and Equity Office
Predecessors included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
EQUITY OFFICE PREDECESSORS
EQUITY OFFICE PROPERTIES TRUST (COMBINED HISTORICAL)
------------------------------- ---------------------------------------------------
FOR THE
FOR THE PERIOD PERIOD FROM
FOR THE FROM JULY 11, JANUARY 1,
YEAR ENDED 1997 THROUGH 1997 THROUGH FOR THE YEARS ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, JULY 10, ------------------------------------
1998 1997 1997 1996 1995 1994
------------- --------------- ------------ ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
REVENUES:
Rental, parking and other.............. $ 1,658,420 $ 406,713 $ 327,017 $ 493,396 $ 356,959 $ 230,428
----------- ----------- --------- ---------- ---------- ----------
Total revenues....................... 1,679,699 412,968 339,104 508,124 371,457 240,878
----------- ----------- --------- ---------- ---------- ----------
EXPENSES:
Interest............................... 338,611 76,675 80,481 119,595 100,566 59,316
Depreciation and amortization.......... 305,982 70,346 66,034 96,237 74,156 46,905
Property operating and ground
rent(2).............................. 600,367 155,679 127,285 201,067 151,488 107,412
General and administrative............. 63,564 17,690 17,201 23,145 21,987 15,603
Provision for value impairment......... -- -- -- -- 20,248 --
----------- ----------- --------- ---------- ---------- ----------
Total expenses....................... 1,308,524 320,390 291,001 440,044 368,445 229,236
----------- ----------- --------- ---------- ---------- ----------
Income before allocation to minority
interests, income from investment in
unconsolidated joint ventures, gain on
sales of real estate and extraordinary
items.................................. 371,175 92,578 48,103 68,080 3,012 11,642
Minority interests....................... (38,340) (7,799) (912) (2,086) (2,129) 1,437
Income from investment in unconsolidated
joint ventures......................... 11,267 3,173 1,982 2,093 2,305 1,778
Gain/(loss) on sales of real estate and
extraordinary items.................... 4,927 (16,240) 12,236 5,338 31,271 1,705
----------- ----------- --------- ---------- ---------- ----------
Net income............................... 349,029 71,712 61,409 73,425 34,459 16,562
Preferred distributions.................. (32,202) (649) -- -- -- --
----------- ----------- --------- ---------- ---------- ----------
Net income available for Common Shares... $ 316,827 $ 71,063 $ 61,409 $ 73,425 $ 34,459 $ 16,562
=========== =========== ========= ========== ========== ==========
Net income available per weighted average
Common Share outstanding -- Basic...... $1.25 $0.44
=========== ===========
Net income available per weighted average
Common Share outstanding -- Diluted.... $1.24 $0.43
=========== ===========
Weighted average Common Shares
outstanding -- Basic................... 253,167,037 162,591,477
=========== ===========
Weighted average Common Shares
outstanding -- Diluted................. 283,974,532 180,014,027
=========== ===========
</TABLE>
48
<PAGE> 49
<TABLE>
<CAPTION>
EQUITY OFFICE PREDECESSORS
EQUITY OFFICE PROPERTIES TRUST (COMBINED HISTORICAL)
------------------------------- ---------------------------------------------------
FOR THE
FOR THE PERIOD PERIOD FROM
FOR THE FROM JULY 11, JANUARY 1,
YEAR ENDED 1997 THROUGH 1997 THROUGH FOR THE YEARS ENDED DECEMBER 31,
DECEMBER 31, DECEMBER 31, JULY 10, ------------------------------------
1998 1997 1997 1996 1995 1994
------------- --------------- ------------ ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (at end of period):
Investment in real estate after
accumulated depreciation............... $13,331,560 $10,976,319 -- $3,291,815 $2,393,403 $1,815,160
Total Assets............................. $14,261,291 $11,751,672 -- $3,912,565 $2,650,890 $2,090,933
Mortgage debt, unsecured notes and lines
of credit.............................. $ 6,025,405 $ 4,284,317 -- $1,964,892 $1,434,827 $1,261,156
Total Liabilities........................ $ 6,472,613 $ 4,591,697 -- $2,174,483 $1,529,334 $1,350,552
Minority Interests....................... $ 737,715 $ 754,818 -- $ 11,080 $ 31,587 $ 9,283
Shareholders' Equity/Owners' Equity...... $ 7,050,963 $ 6,405,157 -- $1,727,002 $1,089,969 $ 731,098
OTHER DATA:
General and administrative expenses as a
Percentage of total revenues........... 3.8% 4.3% 5.1% 4.6% 5.9% 6.5%
Number of Office Properties.............. 284 258 -- 84 73 63
Net rentable square feet of Office
Properties (in millions)............... 75.1 65.3 -- 29.2 23.1 18.5
Occupancy of Office Properties........... 95% 94% -- 90% 86% 88%
Number of Parking Facilities............. 19 17 -- 10 3 --
Number of spaces at Parking Facilities... 18,059 16,749 -- 7,321 3,323 --
Funds from Operations(3)................. $ 662,585 $ 163,253 $ 113,022 $ 160,460 $ 96,104 $ 60,372
Property Net Operating Income(4)......... $ 1,065,714 $ 253,418 $ 202,108 $ 294,556 $ 206,341 $ 123,684
EBITDA(5)................................ $ 1,049,577 $ 242,969 $ 197,489 $ 286,128 $ 200,438 $ 121,927
Cash flow from operating activities...... $ 759,151 $ 190,754 $ 95,960 $ 165,975 $ 93,878 $ 73,821
Cash flow used for investing
activities............................. $(2,231,712) $(1,592,272) $(571,068) $ (924,227) $ (380,615) $ (513,965)
Cash flow from financing activities...... $ 1,310,788 $ 1,630,346 $ 245,851 $1,057,551 $ 276,513 $ 514,923
</TABLE>
- ---------------
(1) The selected financial data at December 31, 1998, 1997, 1996 and 1995 and
for the five years ended December 31, 1998 has been derived from the
historical consolidated or combined financial statements of the Company and
Equity Office Predecessors, audited by Ernst & Young LLP, independent
auditors. The selected financial data at December 31, 1994 has been derived
from the historical unaudited combined financial statements of Equity Office
Predecessors.
(2) Property operating expenses includes real estate taxes, insurance, repairs
and maintenance expenses and other property operating expenses.
(3) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 defines Funds from Operations as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring
and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along
with cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of the
Company to incur and service debt, to make capital expenditures and to fund
other cash needs. The Company computes Funds from Operations in accordance
with standards established by NAREIT, which may not be comparable to Funds
from Operations reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than the Company. Funds from Operations does
not represent cash generated from operating activities in accordance with
GAAP, nor does it represent cash available to pay distributions and should
not be considered as an alternative to net income (determined in accordance
with GAAP) as an indication of the Company's financial performance or to
cash flow from operating activities (determined in accordance with GAAP) as
a measure of the Company's liquidity, nor is it
49
<PAGE> 50
indicative of funds available to fund the Company's cash needs, including
its ability to make cash distributions. For a reconciliation of net income
and Funds from Operations, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Funds from Operations".
(4) Property Net Operating Income is defined as rental income including tenant
reimbursements, parking and other income less property operating expenses
including real estate taxes, insurance, repairs and maintenance and other
property operating expenses.
(5) EBITDA is defined as net income excluding interest expense, federal, state
and franchise taxes, depreciation and amortization, minority interest
allocation to the Operating Partnership, gain on sales of real estate,
gains/losses from extraordinary items and income from investment in
unconsolidated joint ventures plus the Company's share of the EBITDA for the
unconsolidated joint ventures.
50
<PAGE> 51
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The following discussion and analysis of the consolidated financial
condition and consolidated and combined results of operations should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Combined Financial Statements of Equity Office Predecessors, and Notes thereto
contained herein. All references to the historical activities of the Company
prior to July 11, 1997, the date of the Company's initial public offering (the
"IPO") contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" refer to the activities of the Equity
Office Predecessors. Terms employed herein as defined terms, but without
definition, shall have the meaning set forth in the financial statements.
Statements contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" including without limitation, the "Market
Risk", "Developments" and "Year 2000" disclosures, which are not historical
facts may be forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 (the "Exchange Act"). The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward looking statements contained in Section 21E of the Exchange Act. Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected or anticipated. Readers
are cautioned not to place undue reliance on these forward-looking statements
which speak only as of December 31, 1998. Among the factors that the Company has
made assumptions about are the following:
- Future economic conditions which may impact upon the demand for office
space and tenant ability to pay rent, either at current or at increased
levels.
- Prevailing interest rates.
- The extent of any inflation in operating expenses.
- The Company's ability to reduce various expenses as a percent of
revenues.
- The Company's continuing ability to pay amounts due to its noteholders
and preferred shareholders prior to any distribution to holders of its
Common Shares.
- The cost to complete and lease-up pending developments.
- The continued availability of the $1.0 Billion Credit Facility.
During 1998, the Company acquired an additional 28 Office Properties (and
the remaining interest in the Polk and Taylor Buildings) containing
approximately 10.4 million square feet and two Parking Facilities. The aggregate
purchase price for these acquisitions was approximately $2.5 billion. Excluded
from these amounts is the 215 Fremont Street Property acquired on April 29,
1998, which contains approximately 265,000 square feet and is currently vacant.
In 1998, the Company disposed of five office properties consisting of
approximately 1.0 million square feet for approximately $132.6 million.
The Company was also active in the capital markets during 1998 as
summarized below:
- Issued $2.3 billion of unsecured notes in three separate offerings with
various tranches maturing between 2002 and 2028 with a weighted average
interest rate of 6.9%.
- Increased its line of credit from $600 million to $1.0 billion maturing
in May 2001.
- Obtained $528.0 million of unsecured credit facilities maturing over the
next two years at varying spreads over LIBOR.
- Issued $415.0 million of preferred shares in two separate offerings with
a weighted average distribution rate of 6.2%.
- Issued 1,628,009 Common Shares for gross proceeds of $44.1 million.
51
<PAGE> 52
RESULTS OF OPERATIONS
GENERAL
The following discussion is based primarily on the Consolidated Financial
Statements of the Company and the Combined Financial Statements of Equity Office
Predecessors, as applicable, as of December 31, 1998 and December 31, 1997 and
for the years ended December 31, 1998, 1997 and 1996.
The Company receives income primarily from rental revenue from the Office
Properties (including reimbursements from tenants for certain operating costs)
and from parking revenue from Office Properties and Parking Facilities.
Below is a summary of the Company's acquisition and disposition activity
since January 1, 1997:
<TABLE>
<CAPTION>
OFFICE PROPERTIES PARKING FACILITIES
------------------------------ -------------------
BUILDINGS TOTAL SQUARE FEET GARAGES SPACES
--------- ----------------- -------- -------
<S> <C> <C> <C> <C>
PROPERTIES OWNED AS OF:
January 1, 1997..................................... 84 29,277,826 10 7,144
Acquisitions...................................... 176 36,549,956 7 9,605
Dispositions...................................... (2) (535,992) -- --
--- ---------- -- ------
December 31, 1997................................... 258 65,291,790 17 16,749
Acquisitions...................................... 28 10,425,595 2 1,310
Developments placed in service.................... 3 257,528 -- --
Dispositions...................................... (5) (986,391) -- --
Building remeasurements........................... -- 112,205 -- --
--- ---------- -- ------
December 31, 1998 ("Total Portfolio")............... 284 75,100,727 19 18,059
=== ========== == ======
</TABLE>
As a result of this rapid growth in the size of the Total Portfolio and the
disposition of properties, the financial data presented shows large changes in
revenues and expenses from period to period. For the foregoing reasons, the
Company does not believe its period to period financial data are comparable.
Therefore, the analysis below shows changes resulting from Properties that were
held during the entire period for the periods being compared (the "Core
Portfolio") and the changes in the Total Portfolio. The 28 State Street
Property, a 570,040 square foot Office Property acquired by the Company on
January 23, 1995, was undergoing major redevelopment until May 1997, therefore,
it has been excluded from the Core Portfolio in both comparisons.
52
<PAGE> 53
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO DECEMBER 31, 1997
The table below represents selected operating information for the Total
Portfolio and for the Core Portfolio consisting of 77 Office Properties and ten
Parking Facilities acquired or placed in service prior to January 1, 1997.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO CORE PORTFOLIO
---------------------------------------------- --------------------------------------------
INCREASE/ % INCREASE/ %
1998 1997 (DECREASE) CHANGE 1998 1997 (DECREASE) CHANGE
---------- -------- ---------- ------ -------- -------- ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property revenues..... $1,658,420 $733,730 $924,690 126.0% $624,598 $587,006 $ 37,592 6.4%
Fees from noncombined
affiliates.......... 9,571 4,950 4,621 93.4 -- -- -- --
Interest/dividend
income.............. 11,708 13,392 (1,684) (12.6) 1,199 1,408 (209) (14.8)
---------- -------- -------- ------ -------- -------- -------- ------
Total revenues.... 1,679,699 752,072 927,627 123.3 625,797 588,414 37,383 6.4
---------- -------- -------- ------ -------- -------- -------- ------
Interest expense...... 338,611 157,156 181,455 115.5 83,296 118,583 (35,287) (29.8)
Depreciation and
amortization........ 305,982 136,380 169,602 124.4 113,005 106,782 6,223 5.8
Property operating
expenses............ 592,706 278,204 314,502 113.0 221,855 217,748 4,107 1.9
Ground rent........... 7,661 4,760 2,901 60.9 4,413 4,611 (198) (4.3)
General and
administrative...... 63,564 34,891 28,673 82.2 334 440 (106) (24.1)
---------- -------- -------- ------ -------- -------- -------- ------
Total expenses.... 1,308,524 611,391 697,133 114.0 422,903 448,164 (25,261) (5.6)
---------- -------- -------- ------ -------- -------- -------- ------
Income before
allocation to
minority interests,
income from
investment in
unconsolidated joint
ventures, gain on
sales of real estate
and extraordinary
items............... 371,175 140,681 230,494 163.8 202,894 140,250 62,644 44.7
Minority interests.... (38,340) (8,711) (29,629) 340.1 (2,026) (1,679) (347) 20.7
Income from investment
in unconsolidated
joint ventures...... 11,267 5,155 6,112 118.6 2,605 2,432 173 7.1
Gain on sales of real
estate and
extraordinary
items............... 4,927 (4,004) 8,931 (223.1) -- (14,971) 14,971 (100.0)
---------- -------- -------- ------ -------- -------- -------- ------
Net income............ $ 349,029 $133,121 $215,908 162.2% $203,473 $126,032 $ 77,441 61.4%
========== ======== ======== ====== ======== ======== ======== ======
Property revenue less
property operating
expenses before
depreciation and
amortization,
general and
administrative,
ground rent and
interest expense.... $1,065,714 $455,526 $610,188 134.0% $402,743 $369,258 $ 33,485 9.1%
========== ======== ======== ====== ======== ======== ======== ======
</TABLE>
Property Revenues
The increase in rental revenues, tenant reimbursements, parking income and
other income ("Property Revenues") in the Core Portfolio resulted from a
combination of occupancy and rental rate increases. The weighted average
occupancy of the Core Portfolio increased from approximately 91.9% at January 1,
1997 to
53
<PAGE> 54
96.1% as of December 31, 1998. This increase represents approximately 1.2
million square feet of additional occupancy in the Core Portfolio between
January 1, 1997 and December 31, 1998.
Property Revenues for the Total Portfolio include lease termination fees of
approximately $15.5 million and $3.9 million for the years ended December 31,
1998 and 1997, respectively, and Property Revenues for the Core Portfolio
include lease termination fees of approximately $3.7 million and $3.8 million
for the years ended December 31, 1998 and 1997, respectively, (included in the
"other revenue" category on the consolidated and combined statements of
operations). These fees are related to specific tenants who have paid a fee to
terminate their lease obligations before the end of the contractual term of
their leases. Although the Company has historically experienced similar levels
of such termination fees, there is no way of predicting the timing or amounts of
future lease termination fees.
The straight-line rent adjustment included in rental revenues for the Total
Portfolio for the years ended December 31, 1998 and 1997 was approximately $68.1
million and $27.7 million, respectively. The straight-line rent adjustment
included in rental revenues for the Core Portfolio for the years ended December
31, 1998 and 1997 was approximately $26.2 million and $23.4 million,
respectively.
Fees from Noncombined Affiliates
The increase in fees from noncombined affiliates for the Total Portfolio is
mainly due to lease commissions received of approximately $2.8 million at a
single property and the addition of several fee managed properties. As of
December 31, 1998, the Company managed 18 properties.
Interest/Dividend Income
Interest/dividend income for the Total Portfolio decreased mainly as a
result of less cash and cash equivalents on deposit during 1998 partially offset
by dividend income earned during the year ended December 31, 1998 of
approximately $1.7 million on the Company's $48.5 million investment in 50,000
shares of Capital Trust's 8.25% Step-Up Convertible Trust Preferred Securities
acquired in July 1998.
Interest Expense
Interest expense increased for the Total Portfolio as a result of having
more debt outstanding during 1998 than 1997. The increase in total debt and the
related increase in interest expense were directly attributable to Property
acquisitions. The Company's total debt as a percentage of total assets increased
from approximately 36.5% of total assets at December 31, 1997 to 42.3% of total
assets at December 31, 1998. Although the Company's total debt has increased,
the weighted average interest rate on the Company's debt decreased from
approximately 7.2% at December 31, 1997 to approximately 7.1% at December 31,
1998 and the Company's interest coverage ratio increased from approximately 2.8
times in 1997 to 3.0 times in 1998. The decrease in interest expense in the Core
Portfolio is primarily due to the pay down of outstanding indebtedness with the
IPO proceeds and the replacement of secured debt with unsecured debt, which has
not been allocated to the Core Portfolio.
Depreciation and Amortization
Depreciation and amortization expense for the Total Portfolio increased as
a result of Properties acquired and capital and tenant improvements made during
1998 and 1997. Depreciation and amortization expense for the Core Portfolio
increased as a result of capital and tenant improvements. In addition, a portion
of the increase in the depreciation and amortization expense for the Total and
Core Portfolio was due to recording substantially all the Company's assets and
liabilities at their fair market value in connection with the Consolidation and
the IPO.
Property Operating Expenses
Real estate taxes, insurance, repairs and maintenance and other property
operating expenses ("Property Operating Expenses") increased for the Core
Portfolio mainly as a result of real estate taxes. Real estate taxes
54
<PAGE> 55
increased approximately $4.6 million from the prior period of which
approximately $2.3 million related to higher property tax assessments in certain
markets and $2.3 million related to lower real estate tax refunds. Insurance
expense decreased approximately $1.6 million from the prior period as the
Company's ability to achieve economies of scale on its insurance coverage
resulted in lower premiums in 1998.
General and Administrative Expenses
The primary reasons for the increase in general and administrative expenses
are the significant increase in the size of the Company's portfolio and
increased expenses associated with becoming a public company. While general and
administrative expenses will continue to increase as the size of the Company's
portfolio increases, it is currently anticipated that the Company's general and
administrative expenses as a percentage of total revenues will remain stable
with future growth. General and administrative expense was approximately 3.8%
and 4.6% of total revenues for the years ended December 31, 1998 and 1997,
respectively.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO DECEMBER 31, 1996
The table below represents selected operating information for the Total
Portfolio and for the Core Portfolio consisting of 70 Office Properties and
three Parking Facilities acquired or placed in service prior to January 1, 1996.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO CORE PORTFOLIO
----------------------------------------- -----------------------------------------
INCREASE/ % INCREASE/ %
1997 1996 (DECREASE) CHANGE 1997 1996 (DECREASE) CHANGE
-------- -------- ---------- ------ -------- -------- ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property revenues.......... $733,730 $493,396 $240,334 48.7% $458,968 $427,936 $ 31,032 7.3%
Fees from noncombined
affiliates............... 4,950 5,120 (170) (3.3) -- -- -- --
Interest income............ 13,392 9,608 3,784 39.4 1,056 1,882 (826) (43.9)
-------- -------- -------- ------ -------- -------- -------- -----
Total revenues......... 752,072 508,124 243,948 48.0 460,024 429,818 30,206 7.0
-------- -------- -------- ------ -------- -------- -------- -----
Interest expense........... 157,156 119,595 37,561 31.4 93,606 110,566 (16,960) (15.3)
Depreciation and
amortization............. 136,380 96,237 40,143 41.7 85,999 84,411 1,588 1.9
Property operating
expenses................. 278,204 198,840 79,364 39.9 177,069 175,529 1,540 0.9
Ground rent................ 4,760 2,227 2,533 113.7 903 903 -- --
General and
administrative........... 34,891 23,145 11,746 50.7 -- -- -- --
-------- -------- -------- ------ -------- -------- -------- -----
Total expenses......... 611,391 440,044 171,347 38.9 357,577 371,409 (13,832) (3.7)
-------- -------- -------- ------ -------- -------- -------- -----
Income before allocation to
minority interests,
income from investment in
unconsolidated joint
ventures, gain on sales
of real estate and
extraordinary items...... 140,681 68,080 72,601 106.6 102,447 58,409 44,038 75.4
Minority interests......... (8,711) (2,086) (6,625) 317.6 (1,679) (1,986) 307 (15.5)
Income from investment in
unconsolidated joint
ventures................. 5,155 2,093 3,062 146.3 2,432 2,093 339 16.2
Gain on sales of real
estate and extraordinary
items.................... (4,004) 5,338 (9,342) (175.0) (16,311) -- (16,311) --
-------- -------- -------- ------ -------- -------- -------- -----
Net income................. $133,121 $ 73,425 $ 59,696 81.3% $ 86,889 $ 58,516 $ 28,373 48.5%
======== ======== ======== ====== ======== ======== ======== =====
Property revenues less
property operating
expenses before
depreciation and
amortization, general and
administrative, ground
rent and interest
expense.................. $455,526 $294,556 $160,970 54.6% $281,899 $252,407 $ 29,492 11.7%
======== ======== ======== ====== ======== ======== ======== =====
</TABLE>
55
<PAGE> 56
Property Revenues
The increase in rental revenues, tenant reimbursements, parking income and
other income ("Property Revenues") in the Core Portfolio resulted from a
combination of occupancy and rental rate increases. The weighted average
occupancy of the Core Portfolio increased from approximately 88.5% at January 1,
1996 to 94.8% as of December 31, 1997. This increase represents approximately
1.4 million square feet of additional occupancy in the Core Portfolio between
January 1, 1996 and December 31, 1997.
Included in Property Revenues for the Core Portfolio are lease termination
fees of approximately $3.7 million and $5.6 million for 1997 and 1996,
respectively (included in the "other revenue" category on the consolidated and
combined statements of operations). These fees are related to specific tenants
who have paid a fee to terminate their lease obligations before the end of the
contractual term of the lease. Although the Company has historically experienced
similar levels of such termination fees, there is no way of predicting the
timing or amounts of future lease termination fees.
The straight-line rent adjustment included in rental revenues for the Core
Portfolio for 1997 and 1996 was approximately $14.6 million and $13.9 million,
respectively. The straight-line rent adjustment included in rental revenues for
the Total Portfolio for 1997 and 1996 was approximately $27.7 million and $18.4
million, respectively. Other income for 1996 also includes approximately $8.8
million relating to the Company's share of a litigation settlement.
Fees from Noncombined Affiliate
Fees from noncombined affiliates decreased in 1997 from approximately $5.1
million in 1996 to $4.9 million in 1997 mainly as a result of properties sold.
Fee income for the years ended December 31, 1997 and 1996, of approximately $0.4
million and $1.3 million, respectively, was related to properties which have
been sold.
Interest Income
Interest income for the Total Portfolio increased primarily due to having a
greater amount of cash reserves invested in short term investments pending
investment in property acquisitions prior to the IPO. Prior to the
Consolidation, each of the entities involved in the Consolidation needed to
maintain separate cash reserves which in the aggregate were higher than the cash
reserves the Company anticipates maintaining going forward. Due to the
availability of borrowings under the credit facilities, the Company currently
maintains lower cash reserves which are targeted to be between $25 million and
$50 million (although the cash balance may at times be more or less in
anticipation of pending acquisitions or other transactions). Although the lower
cash balance will result in lower interest income in future periods, this loss
in income is expected to be offset by savings on interest expense on the credit
facilities.
Interest Expense
Interest expense for the Total Portfolio increased as a result of having
more debt outstanding in 1997. The increase in total debt and the related
increase in interest expense were directly related to Property acquisitions.
While the Company's total debt and total interest expense have increased due to
acquisition activity, the total debt as a percentage of total assets decreased
from 50% of total assets at December 31, 1996 to 36.5% of total assets at
December 31, 1997, and the Company's interest coverage ratio increased from 2.4
times in 1996 to 2.8 times in 1997. In addition, the weighted average interest
rate on the Company's debt decreased from approximately 7.7% at December 31,
1996 to approximately 7.2% at December 31, 1997. The decrease in interest
expense in the Core Portfolio was primarily due to the replacement of secured
debt with unsecured debt, which has not been allocated to the Core Portfolio.
Depreciation and Amortization
Depreciation and amortization expense increased for the Total Portfolio as
a result of Properties acquired during 1997 and the recording of substantially
all the Company's assets and liabilities at their fair market value
56
<PAGE> 57
in connection with the Consolidation and the IPO. The increase in depreciation
in the Core Portfolio resulted from the recording of substantially all the
Company's assets and liabilities at their fair market value in connection with
the Consolidation and the Company's IPO. The decrease in amortization in the
Core Portfolio resulted from the write-off of deferred financing and leasing
costs at the time of the Consolidation and the IPO.
Property Operating Expenses
The increase in real estate taxes, insurance, repairs and maintenance and
other property operating expenses ("Property Operating Expenses") in the Core
Portfolio relates primarily to increases in real estate taxes due to higher
property valuations partially offset by real estate tax refunds recorded in
1997.
General and Administrative Expenses
The primary reasons for the increase in general and administrative expenses
are the significant increase in the size of the Company's portfolio and
increased expenses associated with becoming a public company. While general and
administrative expenses will continue to increase as the size of the Company's
portfolio increases, it is anticipated that general and administrative expenses
as a percentage of total revenue will initially remain stable or decrease with
future growth. General and administrative expenses were approximately 4.6% of
total revenues for the years ended December 31, 1997 and 1996.
57
<PAGE> 58
PARKING OPERATIONS
The Total Portfolio and Core Portfolio selected operating information for
1998, 1997 and 1996 presented above includes results of operations from the
Parking Facilities. Summarized information for the Parking Facilities is
presented below.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO DECEMBER 31, 1997
The Total Portfolio and Core Portfolio consists of 19 and ten Parking
Facilities, respectively.
<TABLE>
<CAPTION>
TOTAL PARKING PORTFOLIO CORE PARKING PORTFOLIO
--------------------------------------- ----------------------------------------
INCREASE/ % INCREASE/ %
1998 1997 (DECREASE) CHANGE 1998 1997 (DECREASE) CHANGE
------- ------- ---------- ------ ------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property revenues.......... $30,539 $22,577 $7,962 35.3% $23,467 $20,669 $2,798 13.5%
Interest income............ 140 249 (109) (43.8) 139 249 (110) (44.2)
------- ------- ------ ------ ------- ------- ------ -------
Total revenues........ 30,679 22,826 7,853 34.4 23,606 20,918 2,688 12.9
------- ------- ------ ------ ------- ------- ------ -------
Interest expense........... 5,496 5,427 69 1.3 5,490 5,426 64 1.2
Depreciation and
amortization............. 5,880 4,031 1,849 45.9 4,628 3,755 873 23.2
Property operating
expenses................. 8,353 5,023 3,330 66.3 6,401 4,613 1,788 38.8
Ground rent................ 50 46 4 8.7 50 46 4 8.7
General and
administrative........... 72 55 17 30.9 53 55 (2) (3.6)
------- ------- ------ ------ ------- ------- ------ -------
Total expenses........ 19,851 14,582 5,269 36.1 16,622 13,895 2,727 19.6
------- ------- ------ ------ ------- ------- ------ -------
Income before allocation to
minority interests and
income from investment in
unconsolidated joint
ventures................. 10,828 8,244 2,584 31.3 6,984 7,023 (39) (0.6)
Minority interests......... (360) (323) (37) 11.5 (360) (323) (37) 11.5
Income from investment in
unconsolidated joint
ventures................. 1,884 2,461 (577) (23.4) -- -- -- --
------- ------- ------ ------ ------- ------- ------ -------
Net income................. $12,352 $10,382 $1,970 19.0% $ 6,624 $ 6,700 $ (76) (1.1)%
======= ======= ====== ====== ======= ======= ====== =======
Property revenues less
property operating
expenses before
depreciation and
amortization, general and
administrative, ground
rent and interest
expense.................. $22,186 $17,554 $4,632 26.4% $17,066 $16,056 $1,010 6.3%
======= ======= ====== ====== ======= ======= ====== =======
</TABLE>
58
<PAGE> 59
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO DECEMBER 31, 1996
The Total Portfolio and Core Portfolio consists of 17 and three Parking
Facilities, respectively.
<TABLE>
<CAPTION>
TOTAL PARKING PORTFOLIO CORE PARKING PORTFOLIO
--------------------------------------- ----------------------------------------
INCREASE/ % INCREASE/ %
1997 1996 (DECREASE) CHANGE 1997 1996 (DECREASE) CHANGE
------- ------- ---------- ------ ------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property revenues.......... $22,577 $10,203 $12,374 121.3% $10,238 $ 9,873 $ 365 3.7%
Interest income............ 249 141 108 76.6 239 141 98 69.5
------- ------- ------- ------ ------- ------- ------ -------
Total revenues........ 22,826 10,344 12,482 120.7 10,477 10,014 463 4.6
------- ------- ------- ------ ------- ------- ------ -------
Interest expense........... 5,427 1,814 3,613 199.2 2,724 1,645 1,079 65.6
Depreciation and
amortization............. 4,031 1,432 2,599 181.5 1,708 1,359 349 25.7
Property operating
expenses................. 5,023 3,102 1,921 61.9 2,573 3,031 (458) (15.1)
Ground rent................ 46 50 (4) (8.0) 46 50 (4) (8.0)
General and
administrative........... 55 -- 55 -- -- -- -- --
------- ------- ------- ------ ------- ------- ------ -------
Total expenses........ 14,582 6,398 8,184 127.9 7,051 6,085 966 15.9
------- ------- ------- ------ ------- ------- ------ -------
Income before allocation to
minority interests and
income from investment in
unconsolidated joint
ventures................. 8,244 3,946 4,298 108.9 3,426 3,929 (503) (12.8)
Minority interests......... (323) (252) (71) 28.2 (323) (252) (71) 28.2
Income from investment in
unconsolidated joint
ventures................. 2,461 -- 2,461 -- -- -- -- --
------- ------- ------- ------ ------- ------- ------ -------
Net income................. $10,382 $ 3,694 $ 6,688 181.1% $ 3,103 $ 3,677 $ (574) (15.6)%
======= ======= ======= ====== ======= ======= ====== =======
Property revenues less
property operating
expenses before
depreciation and
amortization, general and
administrative, ground
rent and interest
expense.................. $17,554 $ 7,101 $10,453 147.2% $ 7,665 $ 6,842 $ 823 12.0%
======= ======= ======= ====== ======= ======= ====== =======
</TABLE>
59
<PAGE> 60
PROPERTY DISPOSITIONS
The Company disposed of the following five office properties in November
1998: First Union Center, One Clearlake Centre, Tampa Commons and Westshore
Center, all located in Florida, and the Walker Building located in Washington,
D.C. These properties consisted of approximately 986,391 net rentable square
feet. The Company will continue managing the properties in Florida for one year
after the disposal date for a fee as defined in the management agreement. In
addition, Equity Office Predecessors sold Barton Oaks Plaza II in January 1997
and 8383 Wilshire in May 1997. These properties consisted of approximately
535,992 net rentable square feet. In January 1996, Equity Office Predecessors
sold the condominium portion of Three Lakeway, a mixed-use property. Below is a
summary of the operations of these office properties through their respective
disposition dates:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Property revenues........................................... $18,075 $21,711 $31,383
Interest income............................................. 9 77 96
------- ------- -------
Total revenues......................................... 18,084 21,788 31,479
------- ------- -------
Interest expense............................................ 428 2,051 6,111
Depreciation and amortization............................... 2,603 4,176 7,839
Property operating expenses................................. 6,700 9,335 13,477
General and administrative.................................. 2 4 --
------- ------- -------
Total expenses......................................... 9,733 15,566 27,427
------- ------- -------
Income before gain on sales of real estate and extraordinary
items..................................................... 8,351 6,222 4,052
Gain on sales of real estate and extraordinary items........ 12,433 11,740 5,338
------- ------- -------
Net income.................................................. $20,784 $17,962 $ 9,390
======= ======= =======
Property revenues less property operating expenses before
depreciation and amortization, general and administrative
and interest expense...................................... $11,375 $12,376 $17,906
======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Net cash provided from operations represents the primary source of
liquidity to fund distributions, debt service, recurring capital costs and
non-revenue enhancing tenant improvements. The Company currently intends to
continue to make, but has not contractually bound itself to make, regular
quarterly distributions to holders of Series A Preferred Shares, Series B
Preferred Shares, Series C Preferred Shares, Common Shares and Units. The
Company has established annual distribution rates as follows: 8.98% per annum
($2.245 per share) for each Series A Preferred Share, 5.25% per annum ($2.625
per share) for each Series B Preferred Share, 8.625% per annum ($2.15625 per
share) for each Series C Preferred Share and $1.48 per annum per Common Share
and Unit. The Company increased its Common Share and Unit distribution from
$1.28 per annum to $1.48 per annum effective for the quarter ended September 30,
1998.
The Company intends to continue to fund distributions, debt service,
recurring capital costs and non-revenue enhancing tenant improvements from cash
from operations and draws under the $1.0 Billion Credit Facility. The Company
also expects that the $1.0 Billion Credit Facility will provide for temporary
working capital, the funding of capital improvements and revenue enhancing
tenant improvements, unanticipated cash needs and funding of acquisitions and
development costs.
Since the anticipated size of the Company's distributions will not allow
the Company, using only cash from operations, to retire all of its debt as it
comes due, the Company will be required to repay maturing debt with funds from
debt and/or equity financing.
60
<PAGE> 61
DEBT FINANCING
The table below summarizes the mortgage debt, unsecured notes and lines of
credit indebtedness outstanding at December 31, 1998 and 1997, including a net
premium on mortgage debt and unsecured notes (net of accumulated amortization of
approximately $2.7 million and $2.1 million) of approximately $17.8 million and
$1.2 million, respectively, recorded in connection with the Company's
Consolidation, debt assumed in connection with certain of the Company's
acquisitions, and unsecured notes.
<TABLE>
<CAPTION>
DECEMBER 31,1998 DECEMBER 31, 1997
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
DEBT SUMMARY:
Balance
Fixed rate................................................ $4,739,018 $2,219,496
Variable rate............................................. 1,286,387 2,064,821
---------- ----------
Total.................................................. $6,025,405 $4,284,317
========== ==========
Percent of total debt:
Fixed rate................................................ 78.7% 51.8%
Variable rate............................................. 21.3% 48.2%
---------- ----------
Total.................................................. 100.0% 100.0%
========== ==========
Weighted average interest rate at end of period:
Fixed rate................................................ 7.3% 7.5%
Variable rate............................................. 6.4% 6.9%
---------- ----------
Weighted average....................................... 7.1% 7.2%
========== ==========
</TABLE>
A majority of the variable rate debt shown above bears interest at an
interest rate based on LIBOR.
MORTGAGE FINANCING
As of December 31, 1998, the Company's total mortgage debt (excluding the
Company's share of unconsolidated debt of approximately $124.3 million)
consisted of approximately $2.3 billion of fixed rate debt with a weighted
average interest rate of approximately 7.6% and $70.4 million of variable rate
debt based on various spreads over LIBOR. The Company's mortgage debt at
December 31, 1998 will mature as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
1999........................................................ $ 116,346
2000........................................................ 185,888
2001........................................................ 488,968
2002........................................................ 78,398
2003........................................................ 298,014
Thereafter.................................................. 1,168,957
----------
Subtotal............................................... 2,336,571
Net premium (net of accumulated amortization of $3.0
million).................................................. 13,517
----------
Total.................................................. $2,350,088
==========
</TABLE>
In the first quarter of 1999, the Company repaid approximately $257.0
million of mortgage debt (of which approximately $90.7 million was scheduled to
mature in 1999) and anticipates repaying an additional $240.0 million with
proceeds from the Company's $1.0 billion unsecured notes offering in January
1999.
The instruments encumbering the Properties restrict transfer of the
mortgaged Properties subject to the terms of the mortgage indebtedness, prohibit
additional liens and require payment of taxes on the mortgaged
61
<PAGE> 62
Properties, maintenance of the mortgaged Properties in good condition,
maintenance of insurance on the mortgaged Properties and obtaining lender
consent to leases with material tenants.
CREDIT FACILITIES
Lines of Credit
On May 29, 1998, the Company amended and restated the $600 Million Credit
Facility to a $1.0 billion unsecured revolving credit facility (the "$1.0
Billion Credit Facility"). The $1.0 Billion Credit Facility matures on May 29,
2001. The Company incurred fees of approximately $2.5 million at the closing of
the $1.0 Billion Credit Facility which will be amortized over the term along
with approximately $1.0 million of unamortized deferred financing costs on the
$600 Million Credit Facility. The interest rate is based on the Company's
investment grade credit rating on its unsecured debt and is currently LIBOR plus
60 basis points with a facility fee equal to 20 basis points in respect to the
entire facility, payable quarterly. In addition, a competitive bid option,
whereby the lenders participating in the facility bid on the interest rate to be
charged, is available for up to $350 million of the facility. The outstanding
balance on the $1.0 Billion Credit Facility was $688.0 million as of December
31, 1998. Subsequent to December 31, 1998, the Company repaid $663.0 million on
the $1.0 Billion Credit Facility.
Term Loan Facilities
On August 14, 1998, the Company closed on the $328 Million Credit Facility.
The facility is priced at 90-day LIBOR plus 80 basis points and is prepayable on
any interest payment date. The facility matures on August 15, 2000. The proceeds
from the facility were used to pay down the $1.0 Billion Credit Facility.
On September 22, 1998, the Company closed on the $200 Million Credit
Facility. Interest accrues under the $200 Million Credit Facility at an initial
rate of LIBOR plus 50 basis points with a facility fee equal to 20 basis points
per annum. Pricing for the first twelve months is based on a matrix tied to the
Company's credit rating and may be reset after the first twelve months for an
additional six months and again after eighteen months for an additional six
months for a ten basis point fee. The proceeds from the facility were used to
paydown the $1.0 Billion Credit Facility.
UNSECURED NOTES
$180 Million Notes Offering
In September 1997, the Company issued the $180 Million Notes. The $180
Million Notes were issued in four tranches with maturities from seven to ten
years.
$1.25 Billion Notes Offering
In February 1998, the Company issued the $1.25 Billion Notes. The $1.25
Billion Notes were issued in four tranches with maturities of five to twenty
years.
$250 MandatOry Par Put Remarketed Securities Offering
Also in February 1998, the Company issued the $250 Million MOPPRS which are
subject to mandatory tender on February 15, 2002.
$775 Million Notes and 300,000 Warrants Offering
In June 1998, the Company issued the $775 Million Notes in three tranches
with maturities of six to thirty years, along with 300,000 warrants to purchase
an additional $300 million in unsecured notes at a later date. Each warrant
entitles the holder thereof to purchase a new $1,000 note at par on December 15,
1999 (or in certain circumstances on January 18, 2000) at a stated rate of
6.763%, which will mature on June 15, 2008 and will have other terms
substantially similar to the $300 million nine year notes due 2007.
62
<PAGE> 63
$1.0 Billion Unsecured Notes Offering
In January 1999, the Company issued the $1.0 Billion Notes in three
tranches with maturities of three to ten years and will use the net proceeds of
approximately $990.1 million to repay $497.0 million of mortgage debt, $16.0
million in prepayment penalties and $477.1 million of amounts outstanding on the
$1.0 Billion Credit Facility.
The table below summarizes the Company's unsecured notes as of February 28,
1999:
<TABLE>
<CAPTION>
AMOUNT STATED EFFECTIVE
TRANCHE (IN THOUSANDS) RATE RATE(1)
------- -------------- ------ ---------
<S> <C> <C> <C>
3 Year Notes due 2002...................................... $ 200,000 6.4% 6.6%
4 Year MOPPRS due 2002(2).................................. 250,000 6.4% 6.3%
5 Year Notes due 2003...................................... 300,000 6.4% 6.8%
5 Year Notes due 2004...................................... 300,000 6.5% 6.7%
6 Year Notes due 2004...................................... 250,000 6.5% 6.7%
7 Year Notes due 2004...................................... 30,000 7.2% 7.3%
7 Year Notes due 2005...................................... 400,000 6.6% 7.0%
8 Year Notes due 2005...................................... 50,000 7.4% 7.7%
9 Year Notes due 2006...................................... 50,000 7.4% 7.7%
9 Year Notes due 2007...................................... 300,000 6.8% 6.8%
10 Year Notes due 2007..................................... 50,000 7.4% 7.7%
10 Year Notes due 2008..................................... 300,000 6.8% 7.0%
10 Year Notes due 2009..................................... 500,000 6.8% 6.9%
20 Year Notes due 2018..................................... 250,000 7.3% 7.6%
30 Year Notes due 2028..................................... 225,000 7.3% 7.3%
---------- ---- ----
Subtotal................................................. 3,455,000 6.7% 6.9%
==== ====
Net premium (net of accumulated amortization of $.3
million)................................................. 992
----------
Total.................................................... $3,455,992
==========
</TABLE>
(1) Includes the cost of the terminated interest rate protection agreements,
offering and transaction costs, the premium on the warrants and the discount
on unsecured notes.
(2) The MOPPRS are subject to mandatory redemption in 2002 but do not mature
until 2012.
The Company filed a registration statement, which was declared effective on
June 18, 1998, relating to an offer to exchange the privately offered $180
Million Notes, the $1.25 Billion Notes and the $250 Million MOPPRS for
registered and, therefore, tradeable securities of the Company with terms
identical in all material respects to the terms of the previously issued
securities. This exchange offer expired on July 30, 1998 and a majority of the
holders exchanged their notes for registered notes of the Company.
The Company filed a shelf registration statement, which was declared
effective on July 22, 1998, relating to the potential issuance from time to time
of up to $2.0 billion of unsecured debt securities and warrants exercisable for
debt securities in amounts, at initial prices and on terms to be determined at
the time of offering. The securities may be issued separately or together, in
separate series and in amounts, at prices and on terms to be described in one or
more supplements to the prospectus. The Company sold $1.0 billion of unsecured
notes in January 1999 under this registration statement.
The Company filed a shelf registration statement, which was declared
effective on September 4, 1998, relating to an offer to exchange (a) the $775
Million Notes; (b) 300,000 warrants to purchase an additional $300 million in
unsecured notes at a later date; and (c) portions of the $1.25 Billion Notes and
$250 Million MOPPRS for registered securities of the Company with terms
identical in all material respects to the terms of the existing securities. This
exchange offer expired on October 27, 1998 and a majority of the holders
exchanged their restricted securities for registered notes and warrants of the
Company.
63
<PAGE> 64
Restrictions and Covenants
Agreements or instruments relating to the unsecured notes and lines of
credit contain certain restrictions and requirements regarding total debt to
assets ratios, secured debt to total assets ratios, debt service coverage
ratios, minimum ratio of unencumbered assets to unsecured debt and other
limitations.
EQUITY SECURITIES
Below is a summary of the equity securities issued in connection with
various transactions occurring since January 1, 1998:
- In February 1998, the Company issued the Series B Preferred Shares which
are convertible at any time at the option of the holder to Common Shares
at a conversion price of $35.70 per Common Share (equivalent to a
conversion ratio of 1.40056 Common Shares for each Series B Preferred
Share). The Series B Preferred Shares are non-callable for five years
with a mandatory call in year 2008. Proceeds from the Series B Preferred
Share Offering were used to pay down amounts outstanding under the line
of credit.
- In April 1998, the Company privately placed 1,628,009 restricted Common
Shares at $28.5625 per share for net proceeds of approximately $44.1
million which were used to pay down the credit facilities.
- The Company filed a shelf registration statement which was declared
effective on July 22, 1998, relating to the registration of $1.5 billion
of Common Shares, preferred shares of beneficial interest and warrants
to be issued at prices and on terms to be determined at the time of
offering. The Company may or may not issue the securities separately or
together, in separate series, in amounts, at prices and on terms
described in one or more supplements to the prospectus. The Series C
Preferred Shares were issued under this registration statement in
December 1998.
- In December 1998, the Company issued the Series C Preferred Shares. The
shares are non-redeemable for five years, and after five years may be
redeemed by the Company at par plus accumulated distributions. This
offering generated net proceeds of approximately $111.4 million after
offering costs of $3.6 million. The net proceeds were used to pay down
the $1.0 Billion Credit Facility. Each share will be entitled to receive
an annual distribution of $2.15625 to be paid quarterly.
- During 1998, there were 809,653 share options exercised, 380,000
restricted Common Shares issued, 7,043,510 Units issued in connection
with property acquisitions, 7,556,332 Units redeemed into Common Shares
on a one-for-one basis, and 1,167 Units converted into cash.
- Effective as of August 13, 1998, the Company amended a pre-existing put
option agreement with certain sellers of the Wright Runstad Properties
(the "WR Holders"). The WR Holders have the option on August 13, 1999 to
require the Company to purchase all or a portion of the 3,435,688 Common
Shares, issued at acquisition, at a price equal to $31.50 per Common
Share. Prior to August 13, 1999, if the WR Holders sell all or a portion
of their Common Shares to a third party for a price less than $29.10625
per Common Share, then the Company shall pay to the WR Holders an amount
equal to the difference between such sale price and $29.10625 multiplied
by the number of Common Shares sold, not to exceed $3.00 per Common
Share. Any amounts paid by the Company as a result of such sales,
calculated as the difference between the sale price and $29.10625 not
exceeding $3.00 per Common Share, shall be recorded as a reduction of
shareholders' equity. For options exercised on August 13, 1999, any
amounts paid up to $29.10625 per Common Share would be reflected as a
reduction to shareholders' equity; the portion of any amounts paid in
excess of $29.10625 per Common Share (not to exceed $31.50 per Common
Share) would be expensed by the Company. The portion expensed would not
exceed $2.39375 per Common Share.
- Effective as of September 3, 1998, the Company amended its pre-existing
put option agreement with the seller of the Columbus America Properties
(the "CA Holder") related to 1,692,546 Units issued at acquisition. The
CA Holder has the option at any time after January 1, 1999 until the
earlier of
64
<PAGE> 65
a) September 3, 2000 or b) the date the CA Holder has converted all of
its Units to Common Shares, to require the Company to purchase the Units
at a price equal to $29.00 per Unit. Under the terms of the agreement,
prior to September 3, 1999, the option shall be limited to an aggregate
of 846,273 Units. In the event of any option exercise, the Company will
recognize any cash paid as a reduction of minority interest.
- In connection with the acquisition of Worldwide Plaza on October 1,
1998, the Company issued a transferable put option on Units exercisable
only on the third anniversary of closing with an estimated fair value of
approximately $27.4 million. This option entitles its holder to
additional Common Shares, the number of which shall be determined using
a formula based on the extent, if any, that the Common Shares are then
trading at less than $29.05 per share.
MARKET RISK
The Company's future earnings, cash flows and fair values relevant to
financial instruments are dependent upon prevalent market rates. Market risk is
the risk of loss from adverse changes in market prices and interest rates. The
Company manages its market risk by matching projected cash inflows from
operating activities, financing activities and investing activities with
projected cash outflows to fund debt payments, acquisitions, capital
expenditures, distributions and other cash requirements. The majority of the
Company's outstanding debt (maturing at various times through 2028) has a fixed
interest rate, which minimizes the interest rate risk. The Company also utilizes
certain derivative financial instruments at times to limit market risk. Interest
rate protection agreements are used to convert floating rate debt to a fixed
rate basis or to hedge anticipated financing transactions. Derivatives are used
for hedging purposes rather than speculation. The Company does not enter into
financial instruments for trading purposes.
The Company has total outstanding debt of approximately $6.0 billion at
December 31, 1998, of which approximately $1.3 billion, or 21%, is variable rate
debt. If market rates of interest on the Company's variable rate debt increase
by ten percent (or approximately 64 basis points), the increase in interest
expense on the Company's variable rate debt would decrease future earnings and
cash flows by approximately $8.2 million. If market rates of interest increase
by ten percent, the fair value of the Company's total outstanding debt would
decrease by approximately $141.0 million. If market rates of interest on the
Company's variable rate debt decrease by ten percent (or approximately 64 basis
points), the decrease in interest expense on the Company's variable rate debt
would increase future earnings and cash flows by approximately $8.2 million. If
market rates of interest decrease by ten percent, the fair value of the
Company's total outstanding debt would increase by approximately $146.0 million.
At December 31, 1998, the Company has put option agreements outstanding in
connection with the acquisition of the Wright Runstad Properties and Columbus
America Properties. On August 13, 1999, the holders of Wright Runstad options
(the "WR Holders"), can require the Company to purchase all or a portion of the
3,435,668 Common Shares issued at acquisition at a price equal to $31.50 per
Common Share. Prior to August 13, 1999, if the WR Holders sell all or a portion
of their Common Shares to a third party for a price less than $29.10625, then
the Company is obligated to pay to the WR Holders an amount equal to the
difference between such sale price and $29.10625 multiplied by the number of
Common Shares sold, not to exceed $3.00 per Common Share. Any amounts paid by
the Company as a result of such sales, calculated as the difference between the
sale price and $29.10625 not exceeding $3.00 per Common Share, shall be recorded
as a reduction of shareholders' equity. For options exercised on August 13,
1999, any amounts paid up to $29.10625 per Common Share would be reflected as a
reduction to shareholders' equity; the portion of any amounts paid in excess of
$29.10625 per Common Share (not to exceed $2.39375 per Common Share up to an
aggregate of approximately $8.2 million) would be expensed by the Company. The
Company will not incur any loss on this transaction if the put option is not
exercised.
The Company's cash flows could decrease by up to $10.3 million if, prior to
August 13, 1999, the WR Holders sell all their Common Shares to third parties.
Cash flows of the Company may decrease by up to approximately $108 million if
the WR Holders exercise their rights under the put option agreement on August
13, 1999. There will be no impact on cash flows from this transaction if the put
option is not exercised.
65
<PAGE> 66
The Company has a put option agreement outstanding with the seller of the
Columbus America Properties (the "CA Holder") related to 1,692,546 Units issued
at acquisition. The CA Holder has the option at any time after January 1, 1999
until the earlier of September 3, 2000 or the date the CA Holder has converted
all of its Units to Common Shares, to require the Company to purchase the Units
at a price equal to $29.00 per Unit. Under the terms of the agreement, prior to
September 3, 1999, the option shall be limited to an aggregate of 846,273 Units.
In the event of any option exercise the Company will recognize any cash paid as
a reduction in minority interest. Cash flows of the Company may decrease by up
to approximately $49.1 million if the CA Holders exercise their rights under the
put option agreement. There will be no impact on cash flows from this
transaction if the put option is not exercised.
These amounts were determined by considering the impact of hypothetical
interest rates and equity prices on the Company's financial instruments. These
analyses do not consider the effects of the reduced level of overall economic
activity that could exist in such an environment. Further, in the event of a
change of such magnitude, management would likely take actions to further
mitigate its exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, these analyses
assumes no changes in the Company's financial structure.
CASH FLOWS
For discussion purposes, the cash flows for 1997 combined the cash flows of
Equity Office Predecessors for the period January 1, 1997 through July 10, 1997
and the cash flows of the Company for the period July 11, 1997 through December
31, 1997. The cash flows for 1996 represent solely the cash flows of Equity
Office Predecessors. Consequently, the comparison of the periods provides only
limited information regarding the cash flows of the Company.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Cash and cash equivalents decreased by approximately $161.8 million to
$67.1 million at December 31, 1998, from $228.9 million at December 31, 1997.
This decrease was the result of approximately $759.1 million provided by
operating activities, $2,231.7 million used for investing activities and
$1,310.8 million provided by financing activities. Net cash provided by
operating activities increased by approximately $472.4 million from $286.7
million primarily due to the additional cash flow generated by the increase in
the number of Properties owned. Net cash used for investing activities increased
by approximately $68.4 million from $2,163.3 million mainly due to an increase
in the amount of cash used for real estate assets purchased during 1998 compared
to 1997. Net cash provided by financing activities decreased by approximately
$565.4 million from $1,876.2 million due primarily to a net pay down of the
credit facilities and distributions to common shareholders, unitholders and
preferred shareholders partially offset by proceeds from unsecured notes and the
line of credit.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Cash and cash equivalents decreased by approximately $181.5 million, to
approximately $228.9 million at December 31, 1997, compared to $410.4 million at
December 31, 1996. This decrease was the result of approximately $2.2 billion
invested in new acquisitions, capital and tenant improvements, and payment of
leasing commissions reduced by approximately $286.7 million of cash generated by
operations and $1.9 billion generated from financing activities (including the
$181.1 million contributed by Equity Office Predecessors). Net cash provided by
operating activities increased by approximately $120.7 million to approximately
$286.7 million from $166.0 million primarily due to the additional cash flow
generated by the increase in the number of Properties owned. Net cash used for
investing activities increased by approximately $1.3 billion from $0.9 billion
to $2.2 billion mainly due to an increase in the amount of real estate assets
purchased during 1997 compared to 1996. Net cash provided by financing
activities increased by approximately $0.8 billion from $1.1 billion to $1.9
billion due to net proceeds from the sale of Common Shares, an increase in
proceeds from lines of credit and unsecured notes, partially offset by a
decrease in proceeds from mortgage notes and an increase in principal payments
on mortgage notes and lines of credit.
66
<PAGE> 67
CAPITAL IMPROVEMENTS
The Company has a history of acquiring and repositioning undercapitalized
and poorly managed properties, many of which have required significant capital
improvements due to deferred maintenance and/or required substantial renovation
to enable them to compete effectively. A number of the Properties also have had
significant amounts of shell space requiring build out at the time of
acquisition. The Company takes these capital improvements and revenue enhancing
tenant improvements into consideration at the time of acquisition in determining
the amount of equity and debt financing required to purchase the property and
fund the improvements. Therefore, capital improvements made during the first
five years after acquisition of these Properties are treated separately from
typical recurring capital expenditures, non-revenue enhancing tenant
improvements and leasing commissions required once these Properties have reached
stabilized occupancy, and deferred maintenance and renovations planned at the
time of acquisition have been completed. Capital improvements (including tenant
improvements and leasing commissions for shell space) for the years ended
December 31, 1998, 1997 and 1996 were approximately $44.1 million, $46.8 million
and $53.0 million, respectively or $0.59, $.72 and $1.85 per square foot,
respectively. These amounts exclude capital and tenant improvements of
approximately $70.0 million, $31.2 million and $47.3 million incurred for the
years ended December 31, 1998, 1997 and 1996, respectively for developments.
The Company considers capital expenditures to be recurring expenditures
relating to the ongoing maintenance of the Office Properties. The table below
summarizes capital expenditures (excluding Properties disposed of) for the years
ended December 31, 1998, 1997 and 1996. The capital expenditures set forth below
are not necessarily indicative of future capital expenditures.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Number of Office Properties................................. 284 258 82
Rentable square feet (in millions).......................... 75.1 65.3 28.7
Annual capital expenditures per square foot................. $0.17 $0.08 $0.16
</TABLE>
67
<PAGE> 68
TENANT IMPROVEMENTS AND LEASING COMMISSION COSTS
The Company distinguishes its tenant improvements and leasing commissions
between those that are revenue enhancing (i.e., required for space which is
vacant at the time of acquisition or that has been vacant for nine months or
more) and non-revenue enhancing (i.e., required to maintain the revenue being
generated from currently leased space). The table below summarizes the revenue
enhancing and non-revenue enhancing tenant improvements and leasing commissions
(excluding Properties disposed of) for the years ended December 31, 1998, 1997
and 1996 excluding amounts attributable to developments in process. The tenant
improvement and leasing commission costs set forth below are presented on an
aggregate basis and do not reflect significant regional variations and, in any
event, are not necessarily indicative of future tenant improvements and leasing
commission costs:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 (1) 1997 (1) 1996 (1)
-------- -------- --------
<S> <C> <C> <C>
Number of Office Properties................................. 284 258 82
Rentable square feet (in millions).......................... 75.1 65.3 28.7
Revenue enhancing tenant improvements and leasing
Commissions:
Amounts (in thousands).................................... $42,817 $18,272 $31,534
Per square foot improved.................................. $ 16.33 $ 19.74 $ 30.26
Per total square foot..................................... $ 0.57 $ 0.27 $ 1.10
Non-revenue enhancing tenant improvements and leasing
commissions:
Renewal space:
Amounts (in thousands).................................... $27,176 $ 8,334 $15,486
Per square foot improved.................................. $ 7.74 $ 5.73 $ 6.79
Per total square foot..................................... $ 0.36 $ 0.12 $ .54
Retenanted space:
Amounts (in thousands).................................... $33,324 $14,806 $31,987
Per square foot improved.................................. $ 16.97 $ 15.10 $ 20.64
Per total square foot..................................... $ 0.44 $ 0.22 $ 1.11
------- ------- -------
Total non-revenue enhancing (in thousands).................. $60,500 $23,140 $47,473
Per square foot improved.................................... $ 11.05 $ 9.50 $ 12.39
Per total square foot....................................... $ 0.80 $ 0.35 $ 1.65
</TABLE>
- ---------------
(1) The per square foot calculations as of December 31, 1998, 1997 and 1996 are
calculated taking the total dollars anticipated to be incurred on tenant
improvements for tenants taking occupancy during the year ended December 31,
1998 and 1997, and tenant improvements in process at December 31, 1996,
divided by the total square footage being improved or total building square
footage. The actual amounts incurred as of December 31, 1998, 1997 and 1996
for revenue enhancing, non-revenue enhancing renewal and retenanted space
are summarized below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Actual Amounts Expended:
Revenue enhancing....................................... $ 39.0 $ 18.4 $ 30.6
Non-revenue enhancing renewal........................... $ 33.2 $ 12.4 $ 14.0
Non-revenue enhancing retenanted........................ $ 51.9 $ 33.5 $ 20.8
</TABLE>
68
<PAGE> 69
DEVELOPMENT
In connection with the Beacon Merger and other acquisitions, the Company
acquired certain Properties that are currently in various stages of development
or pre-development. The Company funds these developments with proceeds from
working capital and the credit facilities. Specifically identifiable direct and
indirect acquisition, development and construction costs are capitalized
including, where applicable, salaries and related costs, real estate taxes,
interest and certain pre-construction costs essential to the development of a
property. As of December 31, 1998, the Company had incurred approximately $268.4
million of costs in connection with the Properties being developed. The
Properties under development as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
PLACE RENTABLE TOTAL
IN SERVICE PERCENT SQUARE COSTS ESTIMATED
PROPERTY LOCATION DATE(1) LEASED FOOTAGE INCURRED COST(1)
- -------- ----------------- ---------- ------- --------- -------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Developments in Service:
Tower at New England Executive Park Burlington, MA 3/98 22% 194,911 $ 31,102 $ 41,000
Colonnade III Dallas, TX 9/98 70% 377,639 64,044 68,000
Crosby Corporate Center II Bedford, MA 10/98 69% 257,528 34,886 42,000
------- -------- --------
Total 830,078 $130,032 $151,000
======= ======== ========
Developments:
Reston Town Center Garage Reston, VA 4Q/1999 N/A (2) $ 2,937 $ 13,000
150 California San Francisco, CA 1Q/2000 0% 201,554 16,938 66,000
John Marshall III McLean, VA 1Q/2000 100% 180,000 18,081 46,000
Riverside Center Newton, MA 2Q/2000 0% 494,710 33,635 112,000
Other Projects (3) -- -- -- -- 66,127 --
------- -------- --------
Total 876,264 $137,718 $237,000
======= ======== ========
</TABLE>
In addition, the Company has entered into agreements to acquire the
following properties upon completion:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
PLACE IN RENTABLE TOTAL
SERVICE PERCENT SQUARE COSTS ESTIMATED
PROPERTY LOCATION DATE(1) LEASED FOOTAGE INCURRED COST(1)
- -------- --------------- --------- ------- --------- -------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Rand Tower Garage Minneapolis, MN 2Q/1999 N/A (4) $ 71 $ 19,000
Prominence (5) Atlanta, GA 3Q/1999 1% 425,706 535 87,000
World Trade Center Seattle, WA 1Q/2000 100% 186,787 17 39,000
------- ---- --------
Total 612,493 $623 $145,000
======= ==== ========
</TABLE>
The above transactions are contingent upon certain terms and conditions as
set forth in their respective purchase agreements. There can be no assurance
that these transactions will be consummated as described above.
In addition, the Company has entered into separate joint ventures to
develop the following properties:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
PLACE IN RENTABLE TOTAL
SERVICE PERCENT SQUARE COSTS ESTIMATED
PROPERTY LOCATION DATE(1) LEASED FOOTAGE INCURRED COST(1)
- -------- ------------ --------- ------- --------- -------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Metropoint II (6) Denver, CO 1Q/1999 19% 150,181 $ 7,676 $ 17,000
Sunset North Corporate Campus(7) Bellevue, WA 4Q/1999 41% 460,663 27,861 81,000
Three Bellevue Center (8) Bellevue, WA 1Q/2000 0% 471,635 4,501 72,000
--------- ------- --------
Total 1,082,479 $40,038 $170,000
========= ======= ========
</TABLE>
69
<PAGE> 70
- ---------------
(1) The Estimated Place in Service Date represents the date the certificate of
occupancy has been or is anticipated to be obtained. Subsequent to obtaining
the certificate of occupancy, the Property will undergo a lease up period.
The Total Estimated Cost includes amounts attributable to tenanting the
Property.
(2) This property is a parking facility that will consist of approximately 530
parking spaces and 34,700 square feet of retail space.
(3) These projects are in various stages of development or pre-development. The
Company has taken the necessary steps to continue the development process
while it evaluates its alternatives with respect to these projects.
(4) This property is a parking facility that will consist of approximately 589
parking spaces.
(5) The estimated cost of this property excludes a vacant land parcel valued at
approximately $7.0 million, that will be purchased with the building.
(6) The Cost Incurred and Total Estimated Cost reflect the Company's 70%
interest in this project. The total cost of the project including the joint
venture partner's share is approximately $24.0 million.
(7) The Cost Incurred and Total Estimated Cost reflect the Company's 80%
interest in this project including the Company's pro-rata share of the
development loan. The total cost of the project including the joint venture
partner's share is approximately $101.0 million of which up to $68.0 million
will be funded by a development loan. The Company's share of the development
loan outstanding at December 31, 1998 is approximately $3.1 million.
(8) The Cost Incurred and Total Estimated Cost reflect the Company's 80%
interest in this project including the Company's pro-rata share of the
development loan. The total cost of the project including the joint venture
partner's share is approximately $90.0 million of which up to $60.0 million
will be funded by a development loan. The Company's share of the development
loan outstanding at December 31, 1998 is approximately $.3 million.
In addition to the properties described above, the Company owns various
land parcels available for development. However, no significant development
activity is taking place on these sites at this time.
YEAR 2000
OVERVIEW OF Y2K PROBLEM
The Year 2000 or "Y2K" problem refers to the inability of many existing
computer programs to properly recognize a year that begins with "20" instead of
the familiar "19". If left uncorrected, many computer programs having
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. The failure to accurately recognize the year 2000 and other
key dates could result in a variety of problems from data miscalculations to the
failure of entire systems. Among the assumptions the Company has made in the
course of this discussion are the following:
- The Company's ability to accurately determine its Y2K readiness on a
cost effective basis.
- The availability of personnel and systems as required to correct any Y2K
problems known to the Company.
- The continued availability of such personnel and systems on a
commercially reasonable basis throughout 1999.
THE YEAR 2000 PROGRAM
In the early months of 1998, the Company formed a Year 2000 committee for
the purpose of creating a program (the "Program") to identify, understand and
address the myriad of issues associated with the Y2K problem. Such committee is
comprised of representatives from senior management and various departments at
the home and regional offices, including the legal, engineering,
telecommunications, information systems
70
<PAGE> 71
and office services departments. Due to the wide ranging implications of the Y2K
problem, management decided to carry out the Program in multiple phases during
1998 and the remainder of 1999. What follows is a description of the activities
that have been or are expected to be conducted in each phase of the Program,
including a summary of the results obtained to date and a time table for
completion. Although many of the phases of the Program are being carried out
simultaneously, the various phases will be discussed separately.
PHASE ONE -- ASSESSING THE COMPANY'S Y2K READINESS
The initial step in assessing the Company's Y2K readiness consists of
conducting a study to identify any systems that are date sensitive and,
accordingly, could have potential Y2K problems. The study includes an
examination of information technology and non-information technology systems at
the Company's home and regional offices and at the Company's Properties. For the
most part, the initial step of identifying potentially problematic systems has
been completed by the Company's information services department and building
engineers through a combination of physical inspections and informational
interviews with Company employees. However, the initial study of the Company's
secondary systems (described below) remains to be completed and is being handled
with the assistance of an outside consultant.
After identifying systems that could have a potential Y2K problem, the
Company is attempting to determine which of the systems actually have a Y2K
problem. Much of the required information is within the exclusive control of the
Company's vendors and manufacturers, who are being contacted through standard
form letters and telephone calls requesting information. In addition to
examining the Company's systems for compliance, the Company continues to assess
the progress of the Building Owners and Managers Association ("BOMA"), the
General Services Administration ("GSA") and other industry leaders that are
monitoring the compliance efforts of the major utility and telecommunications
companies. The following is a summary of the Phase One results obtained to date.
BUILDING MANAGEMENT SYSTEMS
The Company has identified six categories of building management systems in
which it has the most exposure to potential Y2K problems. These categories
include:
- Building automation (e.g. energy management, HVAC)
- Security card access
- Fire and life safety
- Elevator
- Garage revenue control
- Office equipment
In January 1999, the Company completed a preliminary Y2K compliance study
of the building management systems outlined above at each of the Company's
Properties. Based upon this study, the Company will upgrade or replace specific
building management systems that were determined not to be compliant. The
estimated cost of such upgrades and replacements is described in the Phase Two
summary that follows.
INFORMATION SYSTEMS
The Company's information systems falls into four general categories:
accounting and property management, network operating systems, desktop software
and secondary systems.
71
<PAGE> 72
ACCOUNTING AND PROPERTY MANAGEMENT
Management has determined the Company's exposure with respect to the
Company's accounting and property management software. Specifically, although
the general ledger system is compliant, the accounts payable and property
management systems are not. The Company's current expected schedule for
compliance is as follows:
- Test software upgrades -- In Progress
- Begin installation of upgrades -- First Quarter 1999
- Full Y2K compliance -- Second Quarter 1999
NETWORK OPERATING SYSTEMS
Management believes that the network operating servers are currently
approximately 50% compliant. The non-compliant servers require a software patch
that is being acquired from the software manufacturer in order to become
compliant. Upgrades of the Company's network operating systems are expected to
be installed in the first and second quarters of 1999, bringing the network
operating servers into full compliance. Management believes that testing of this
new software will not be necessary, as it has already been proven in the
industry to be Y2K compliant.
DESKTOP SOFTWARE
Management believes that all of the Company's desktop systems and software
applications have been reviewed. Management has identified those that are not in
compliance and compiled a list of necessary upgrades. The efforts to ready the
Company's desktop systems for Y2K are being directed towards a broader Company
initiative referred to as EO 2000. As part of the EO 2000 program, the Company
currently intends to install Windows 98 and Microsoft Office 97 in all field and
home office desktop systems.
The Company's timeframe for EO 2000 is expected to be as follows:
- Systems (hardware and software) testing for Y2K compliance -- Complete
- Install updated software that will also provide Y2K compliance -- In
Progress
- Complete installation/full compliance -- October 1999
SECONDARY INFORMATION SYSTEMS
The Company's "secondary" information systems include, but are not limited
to: payroll, human resources, fixed-asset system, forecasting modeling software,
and all types of internally developed software, such as the Company's budget
program and tenant-services system. As discussed above, the Company has retained
a third party consultant to assist in identifying and assessing the compliance
of the secondary systems. The initial step of identifying any non-compliant
secondary systems should be completed by the end of the first quarter 1999 at a
cost of approximately $300,000. Thereafter, a budget and timetable for the
replacement or upgrade of any non-compliant secondary systems will be developed.
TELECOMMUNICATION SYSTEMS
Management generally believes that the Company's internal telephone systems
are not date sensitive and should not be materially affected by Y2K problems.
Although there could be some convenience issues such as inaccurate voice-mail
message date stamps, such problems are not expected to be material and, in large
part, should be corrected prior to the year 2000.
PHASE TWO -- DETERMINING THE COST OF ACHIEVING Y2K READINESS AND IMPLEMENTING
THE Y2K ACTION PLAN
Except as described above with respect to the secondary systems, the work
to date on Phase One of the Program has been performed by the Company's
employees without additional cost. Based upon the
72
<PAGE> 73
preliminary studies that were completed in January 1999, the Company has
budgeted approximately $7.4 million for the upgrade and replacement of building
management systems having potential Y2K related problems. This amount equates to
an average of approximately $.10 per rentable square foot at each of the
Company's Properties. It is management's belief that a large part of the cost of
bringing the building management systems into compliance will be considered to
be reimbursable to the Company under most tenant leases or is being incurred as
part of a broader initiative to improve building operating systems. The
estimated cost of the EO 2000 initiative is $1.7 million. Most of the work
related to EO 2000 is not Y2K related. The Company is still in the process of
completing Phases One and Two of the Program with respect to Information
Systems. Upon completion, the Company will prepare a budget and action plan for
bringing the Information Systems into compliance.
PHASE THREE -- ASSESSING THE RISKS TO THE COMPANY OF NON-COMPLIANCE
Management does not currently believe that the impact of the Y2K problem
will have a material adverse effect on the Company's financial condition and
results of operations. Such belief is based on management's analysis of the
risks to the Company related to the Company's own potential Y2K problems
discussed above, as well as its assessment of the Y2K problems of the Company's
vendors, suppliers and customers.
FAILURE OF BUILDING MANAGEMENT SYSTEMS
Management believes that the Y2K risks to the Company's financial condition
and operation associated with a failure of building management systems is
immaterial due to the fact that most building management systems can be operated
in a manual or by-pass mode, thereby negating the Y2K problem until it can be
corrected. In addition, each of the Company's Properties has, for the most part,
separate building management systems. Accordingly, a Y2K problem that is
experienced at one Property should have no effect on other Properties. In
addition, based upon the study results received to date, management believes
that the Company will have sufficient time to correct those system problems
within its control before the year 2000. The Company has previously begun
preliminary testing of building systems at several of its buildings sites,
including Westbrook Corporate Center, Two California Plaza and State Street Bank
Building. Testing of essential building management systems will continue
throughout 1999.
In the event the Company does experience a failure of essential building
management systems at one or more of the Company's buildings, whether due to a
failure of one of its systems or an interruption of utilities, management
believes that the individual tenant leases will protect the Company from claims
of constructive eviction or other remedies that could result in a termination of
lease rights. It is also management's belief that most of its leases eliminate,
limit or quantify the rights of a tenant to receive an abatement under such
circumstances. Although there is always a risk of claims being brought on a
non-contractual basis (e.g. in tort), it is the Company's belief that its
efforts to identify and solve Y2K problems will minimize such risk. The Company
has also attempted to allocate the risk of non-compliance to the vendors and
manufacturers of the building management and information systems by establishing
standard riders and addenda to be attached to new contracts for systems using
time sensitive data.
FAILURE OF INFORMATION SYSTEMS
Since the Company's major source of income is rental payments under long
term leases, the failure of key information systems is not expected to have a
material adverse effect on the Company's financial condition and results of
operations. Even if the Company were to experience problems with its information
systems, the payment of rent under the leases would not be excused. In addition,
the Company expects to correct those information system problems within its
control before the year 2000, thereby minimizing or avoiding the increased cost
of correcting problems after the fact.
THE Y2K PROBLEMS OF THE COMPANY'S VENDORS
The success of the Company's business is not closely tied to the operations
of any one manufacturer, vendor or supplier. Accordingly, if any of the
Company's manufacturers, vendors or suppliers ceases to
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<PAGE> 74
conduct business due to Y2K related problems, the Company expects to be able to
contract with alternate providers without experiencing any material adverse
effect on the Company's financial condition and results of operations.
THE Y2K PROBLEMS OF THE COMPANY'S CUSTOMERS
Due to our broad customer/tenant base, the success of the Company's
business is not closely tied to the success of any particular tenant.
Accordingly, management believes that there should not be a material adverse
effect on the Company's financial condition and results of operations if any one
of its tenants ceased to conduct business (and pay rent) due to Y2K related
problems. This would not necessarily be the case, however, were Y2K problems
sufficiently pervasive as to affect the financial conditions of a material
number of the Company's tenants. As part of its efforts to keep its tenants
advised as to the steps the Company is taking to address potential Y2K problems,
the Company has also requested that its tenants provide it with periodic updates
as to their Y2K readiness.
DOOMSDAY SCENARIO
The Company is aware that it is generally believed that the world's Y2K
problem, if uncorrected, may result in an economic crisis of global proportions.
The Company is unable to determine whether such predictions are true or false.
As mentioned above, the Company expects that the nature of its income (rent from
good credit tenants under long term leases) should serve as a hedge against any
short term disruptions of business. However, if the doomsday scenarios prove
true, all companies (including Equity Office Properties Trust) will experience
the effects.
PHASE FOUR -- DEVELOPING CONTINGENCY PLANS
The Company currently does not have a contingency plan in place. Once the
Company has proceeded further in the completion of the initial phases of the
Program, contingency plans are expected to be developed.
INFLATION
Substantially all of the office leases require the tenant to pay, as
additional rent, a portion of any increases in real estate taxes (except, in the
case of certain California leases, which limit the ability of the landlord to
pass through to the tenants the effect of increased real estate taxes
attributable to a sale of real property interests) and operating expenses over a
base amount. In addition, many of the office leases provide for fixed increases
in base rent or indexed escalations (based on the Consumer Price Index or other
measures). The Company believes that inflationary increases in expenses will be
offset, in part, by the expense reimbursements and contractual rent increases
described above.
FUNDS FROM OPERATIONS
Management of the Company believes Funds from Operations, as defined by the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"), to be an
appropriate measure of performance for an equity REIT. While Funds from
Operations is a relevant and widely used measure of operating performance of
equity REITs, it does not represent cash flow from operations or net income as
defined by generally accepted accounting principles ("GAAP"), and it should not
be considered as an alternative to these indicators in evaluating liquidity or
operating performance of the Company.
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<PAGE> 75
The following table reflects the calculation of the Company's and Equity
Office Predecessors' combined Funds from Operations for the years ended December
31, 1998, 1997 and 1996 on a historical basis:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997(1) 1996
----------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income before allocation to minority interests,
income from investment in unconsolidated joint
ventures, gains on sales of real estate and
extraordinary items:............................. $ 371,175 $ 140,681 $ 68,080
Add back (deduct):
(Income) allocated to minority interests for
partially owned properties.................... (2,114) (1,701) (2,086)
Income from investment in unconsolidated joint
ventures...................................... 11,267 5,155 2,093
Depreciation and amortization (real estate
related)...................................... 313,519 130,465 92,373
Net amortization of net premium on mortgage
debt.......................................... 940 2,324 --
Preferred dividends.............................. (32,202) (649) --
----------- ----------- ----------
Funds from Operations before effect of adjusting
straight-line rental revenue and expense included
in Funds from Operations to a cash basis(2)...... 662,585 276,275 160,460
Deferred rental revenue.......................... (68,107) (27,740) (18,427)
Deferred rental expense.......................... 2,613 2,206 788
----------- ----------- ----------
Funds from Operations excluding straight-line
rental revenue and expense adjustments........... $ 597,091 $ 250,741 $ 142,821
=========== =========== ==========
Cash Flow Provided By (Used For):
Operating Activities............................. $ 759,151 $ 286,714 $ 165,975
Investing Activities............................. $(2,231,712) $(2,163,340) $ (924,227)
Financing Activities(3).......................... $ 1,310,788 $ 1,876,197 $1,057,551
Ratio of earnings to combined fixed charges and
preferred share distributions................. 1.8 1.8 1.5
</TABLE>
- ---------------
(1) Represents the combined results of Equity Office Predecessors for the period
from January 1 through July 10, 1997 and the Company from July 11 through
December 31, 1997.
(2) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 defines Funds from Operations as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring
and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along
with cash flow from operating activities, financing activities and investing
activities, it provides investors with an indication of the ability of the
Company to incur and service debt, to make capital expenditures and to fund
other cash needs. The Company computes Funds from Operations in accordance
with standards established by NAREIT which may not be comparable to Funds
from Operations reported by other REITs that do not define the term in
accordance with the current NAREIT definition or that interpret the current
NAREIT definition differently than the Company. Funds from Operations does
not represent cash generated from operating activities in accordance with
GAAP, nor does it represent cash available to pay distributions and should
not be considered as an alternative to net income (determined in accordance
with GAAP) as an indication of the Company's financial performance or to
cash flow from operating activities (determined in accordance with GAAP) as
a measure of the Company's liquidity, nor is it indicative of funds
available to fund the Company's cash needs, including its ability to make
cash distributions.
(3) For the year ended December 31, 1997, cash flow provided by financing
activities includes approximately $181.1 million in cash contributed from
Equity Office Predecessors in connection with the Consolidation.
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<PAGE> 76
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's future earnings, cash flows and fair values relevant to
financial instruments are dependent upon prevalent market rates. Market risk is
the risk of loss from adverse changes in market prices and interest rates. The
Company manages its market risk by matching projected cash inflows from
operating activities, financing activities and investing activities with
projected cash outflows to fund debt payments, acquisitions, capital
expenditures, distributions and other cash requirements. The majority of the
Company's outstanding debt (maturing at various times through 2028) has a fixed
interest rate, which minimizes the interest rate risk. The Company also utilizes
certain derivative financial instruments at times to limit market risk. Interest
rate protection agreements are used to convert floating rate debt to a fixed
rate basis or to hedge anticipated financing transactions. Derivatives are used
for hedging purposes rather than speculation. The Company does not enter into
financial instruments for trading purposes.
The Company has total outstanding debt of approximately $6.0 billion at
December 31, 1998, of which approximately $1.3 billion, or 21%, is variable rate
debt. If market rates of interest on the Company's variable rate debt increase
by ten percent (or approximately 64 basis points), the increase in interest
expense on the Company's variable rate debt would decrease future earnings and
cash flows by approximately $8.2 million. If market rates of interest increase
by ten percent, the fair value of the Company's total outstanding debt would
decrease by approximately $141.0 million. If market rates of interest on the
Company's variable rate debt decrease by ten percent (or approximately 64 basis
points), the decrease in interest expense on the Company's variable rate debt
would increase future earnings and cash flows by approximately $8.2 million. If
market rates of interest decrease by ten percent, the fair value of the
Company's total outstanding debt would increase by approximately $146.0 million.
At December 31, 1998, the Company has put option agreements outstanding in
connection with the acquisition of the Wright Runstad Properties and Columbus
America Properties. On August 13, 1999, the holders of Wright Runstad options
(the "WR Holders"), can require the Company to purchase all or a portion of the
3,435,668 Common Shares issued at acquisition at a price equal to $31.50 per
Common Share. Prior to August 13, 1999, if the WR Holders sell all or a portion
of their Common Shares to a third party for a price less than $29.10625, then
the Company is obligated to pay to the WR Holders an amount equal to the
difference between such sale price and $29.10625 multiplied by the number of
Common Shares sold, not to exceed $3.00 per Common Share. Any amounts paid by
the Company as a result of such sales, calculated as the difference between the
sale price and $29.10625 not exceeding $3.00 per Common Share, shall be recorded
as a reduction of shareholders' equity. For options exercised on August 13,
1999, any amounts paid up to $29.10625 per Common Share would be reflected as a
reduction to shareholders' equity; the portion of any amounts paid in excess of
$29.10625 per Common Share (not to exceed $2.39375 per Common Share up to an
aggregate of approximately $8.2 million) would be expensed by the Company. The
Company will not incur any loss on this transaction if the put option is not
exercised.
The Company's cash flows could decrease by up to $10.3 million if, prior to
August 13, 1999, the WR Holders sell all their Common Shares to third parties.
Cash flows of the Company may decrease by up to approximately $108 million if
the WR Holders exercise their rights under the put option agreement on August
13, 1999. There will be no impact on cash flows from this transaction if the put
option is not exercised.
The Company has a put option agreement outstanding with the seller of the
Columbus America Properties (the "CA Holder") related to 1,692,546 Units issued
at acquisition. The CA Holder has the option at any time after January 1, 1999
until the earlier of September 3, 2000 or the date the CA Holder has converted
all of its Units to Common Shares, to require the Company to purchase the Units
at a price equal to $29.00 per Unit. Under the terms of the agreement, prior to
September 3, 1999, the option shall be limited to an aggregate of 846,273 Units.
In the event of any option exercise the Company will recognize any cash paid as
a reduction in minority interest. Cash flows of the Company may decrease by up
to approximately $49.1 million if the CA Holders exercise their rights under the
put option agreement. There will be no impact on cash flows from this
transaction if the put option is not exercised.
These amounts were determined by considering the impact of hypothetical
interest rates and equity prices on the Company's financial instruments. These
analyses do not consider the effects of the reduced level of
76
<PAGE> 77
overall economic activity that could exist in such an environment. Further, in
the event of a change of such magnitude, management would likely take actions to
further mitigate its exposure to the change. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, these
analyses assumes no changes in the Company's financial structure.
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<PAGE> 78
ITEM 8. FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees and Shareholders of Equity Office Properties Trust
We have audited the accompanying consolidated balance sheets of Equity
Office Properties Trust (the "Company") as of December 31, 1998 and 1997, and
the related consolidated statements of operations, shareholders' equity and cash
flows of the Company for the year ended December 31, 1998 and the period from
July 11, 1997 to December 31, 1997, and the related combined statements of
operations, owners' equity and cash flows of the Equity Office Predecessors, as
defined in Note 1, for the period from January 1, 1997 to July 10, 1997, and for
the year ended December 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Equity Office
Properties Trust at December 31, 1998 and 1997, the consolidated results of
Equity Office Properties Trust's operations and cash flows for the year ended
December 31, 1998 and the period from July 11, 1997 to December 31, 1997, and
the combined results of the Equity Office Predecessors', as defined in Note 1,
operations and cash flows for the period from January 1, 1997 to July 10, 1997
and for the year ended December 31, 1996 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Chicago, Illinois
February 9, 1999, except for Note 23,
as to which the date is February 16, 1999
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<PAGE> 79
EQUITY OFFICE PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
ASSETS:
Investment in real estate................................. $13,349,627 $10,746,424
Developments in process................................... 268,373 259,718
Land available for development............................ 65,819 34,872
Accumulated depreciation.................................. (352,259) (64,695)
----------- -----------
13,331,560 10,976,319
Cash and cash equivalents................................. 67,080 228,853
Tenant and other receivables (net of allowance for
doubtful accounts of $1,013 and $675, respectively)..... 36,193 32,531
Deferred rent receivable.................................. 87,115 20,050
Escrow deposits and restricted cash....................... 159,576 25,772
Investment in unconsolidated joint ventures............... 378,534 387,332
Deferred financing costs (net of accumulated amortization
of $6,242 and $1,855,
respectively)............................................. 53,181 5,090
Deferred leasing costs (net of accumulated amortization of
$9,714 and $1,473,
respectively)............................................. 65,090 26,994
Prepaid expenses and other assets......................... 82,962 48,731
----------- -----------
Total Assets............................................ $14,261,291 $11,751,672
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Mortgage debt (including a net premium of $13,517 and
$1,157, respectively)................................... $ 2,350,088 $ 2,063,017
Unsecured notes (including a net premium of $4,317 and $0,
respectively)........................................... 2,459,317 180,000
Lines of credit........................................... 1,216,000 2,041,300
Accounts payable and accrued expenses..................... 347,970 260,401
Due to affiliates......................................... 1,136 733
Dividend/distribution payable............................. 5,080 1,191
Other liabilities......................................... 93,022 45,055
----------- -----------
Total Liabilities....................................... 6,472,613 4,591,697
----------- -----------
Commitments and contingencies (Note 22)...................
Minority Interests:
Operating Partnership................................... 709,355 725,206
Partially owned properties.............................. 28,360 29,612
----------- -----------
Total Minority Interests................................ 737,715 754,818
----------- -----------
Shareholders' Equity:
Preferred Shares, 100,000,000 authorized:
8.98% Series A Cumulative Redeemable Preferred Shares,
liquidation preference $25.00 per share, 8,000,000
issued and outstanding................................. 200,000 200,000
5.25% Series B Convertible, Cumulative Redeemable
Preferred Shares, liquidation preference $50.00 per
share, 6,000,000 issued and outstanding................ 300,000 --
8.625% Series C Cumulative Redeemable Preferred Shares,
liquidation preference $25.00 per share, 4,600,000
issued and outstanding................................. 115,000 --
Common Shares, $0.01 par value; 750,000,000 shares
authorized, 259,901,657 and 250,030,403 issued,
259,901,657 and 249,527,663 outstanding................. 2,599 2,495
Additional paid in capital................................ 6,483,569 6,219,511
Dividends in excess of accumulated earnings............... (50,205) (16,849)
----------- -----------
Total Shareholders' Equity.............................. 7,050,963 6,405,157
----------- -----------
Total Liabilities and Shareholders' Equity.............. $14,261,291 $11,751,672
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE> 80
EQUITY OFFICE PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS
AND EQUITY OFFICE PREDECESSORS COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EQUITY OFFICE PROPERTIES TRUST EQUITY OFFICE PREDECESSORS
------------------------------------------ ------------------------------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM
FOR THE YEAR ENDED JULY 11, 1997 THROUGH JANUARY 1, 1997 FOR THE YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 THROUGH JULY 10, 1997 DECEMBER 31, 1996
------------------ --------------------- --------------------- ------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Rental................................ $ 1,299,044 $ 314,233 $256,146 $386,481
Tenant reimbursements................. 239,390 63,196 43,241 62,036
Parking............................... 94,241 25,960 21,091 27,253
Other................................. 25,745 3,324 6,539 17,626
Fees from noncombined affiliates...... 9,571 2,440 2,510 5,120
Interest / dividends.................. 11,708 3,815 9,577 9,608
------------ ------------ -------- --------
Total revenues...................... 1,679,699 412,968 339,104 508,124
------------ ------------ -------- --------
Expenses:
Interest:
Expense incurred.................... 338,611 76,675 80,481 119,595
Amortization of deferred financing
costs............................. 6,404 4,178 2,771 4,275
Depreciation.......................... 291,213 64,695 57,379 82,905
Amortization.......................... 8,365 1,473 5,884 9,057
Real estate taxes..................... 203,805 47,579 34,000 52,182
Insurance............................. 7,736 3,196 3,060 4,863
Repairs and maintenance............... 191,588 50,285 45,540 71,156
Property operating.................... 189,577 52,235 42,309 70,639
Ground rent........................... 7,661 2,384 2,376 2,227
General and administrative............ 63,564 17,690 17,201 23,145
------------ ------------ -------- --------
Total expenses...................... 1,308,524 320,390 291,001 440,044
------------ ------------ -------- --------
Income before allocation to minority
interests, income from investment in
unconsolidated joint ventures, gain on
sales of real estate and extraordinary
items................................. 371,175 92,578 48,103 68,080
Minority Interests:
Operating Partnership................. (36,226) (7,010) -- --
Partially owned properties............ (2,114) (789) (912) (2,086)
Income from investment in unconsolidated
joint ventures........................ 11,267 3,173 1,982 2,093
Gain on sales of real estate............ 12,433 126 12,510 5,338
------------ ------------ -------- --------
Income before extraordinary items....... 356,535 88,078 61,683 73,425
Extraordinary items..................... (7,506) (16,366) (274) --
------------ ------------ -------- --------
Net income.............................. 349,029 71,712 61,409 73,425
Preferred distributions................. (32,202) (649) -- --
------------ ------------ -------- --------
Net income available for Common
Shares................................ $ 316,827 $ 71,063 $ 61,409 $ 73,425
============ ============ ======== ========
Net income available per weighted
average Common Share outstanding --
Basic................................. $ 1.25 $ 0.44
============ ============
Weighted average Common Shares
outstanding -- Basic.................. 253,167,037 162,591,477
============ ============
Net income available per weighted
average Common Share outstanding --
Diluted............................... $ 1.24 $ 0.43
============ ============
Weighted average Common Shares
outstanding -- Diluted................ 283,974,532 180,014,027
============ ============
</TABLE>
See accompanying notes.
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<PAGE> 81
EQUITY OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY AND EQUITY OFFICE PREDECESSORS
COMBINED STATEMENTS OF CHANGES IN OWNERS' EQUITY
<TABLE>
<CAPTION>
EQUITY OFFICE PROPERTIES TRUST EQUITY OFFICE PREDECESSORS
------------------------------------------ --------------------------------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE YEAR ENDED
FOR THE YEAR ENDED JULY 11, 1997 THROUGH JANUARY 1, 1997 THROUGH DECEMBER 31,
DECEMBER 31, 1998 DECEMBER 31, 1997 JULY 10, 1997 1996
------------------ --------------------- ----------------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
PREFERRED SHARES:
Balance, beginning of period.......... $ 200,000 $ -- $ -- $ --
8.98% Series A Cumulative
Redeemable......................... -- 200,000 -- --
5.25% Series B Convertible Cumulative
Redeemable......................... 300,000 -- -- --
8.625% Series C Cumulative
Redeemable......................... 115,000 -- -- --
----------- ----------- ----------- -----------
Balance, end of period................ $ 615,000 $ 200,000 $ -- $ --
=========== =========== =========== ===========
COMMON SHARES, $0.01 PAR VALUE:
Balance, beginning of period.......... $ 2,495 $ -- $ -- $ --
Issuance of Common Shares for IPO.... -- 287 -- --
Contribution of net assets from
Consolidation at fair value in
exchange for Common Shares......... -- 1,230 -- --
Issuance of Common Shares for
acquisitions....................... -- 34 -- --
Issuance of Common Shares through
exercise of options................ 8 -- -- --
Issuance of Common Shares in exchange
for Units.......................... 76 -- -- --
Sale of Common Shares, net........... 16 97 -- --
Issuance of Common Shares for Beacon
Merger............................. -- 844 -- --
Common Shares issued for restricted
shares and trustee fees............ 4 3 -- --
----------- ----------- ----------- -----------
Balance, end of period................ $ 2,599 $ 2,495 $ -- $ --
=========== =========== =========== ===========
ADDITIONAL PAID IN CAPITAL:
Balance, beginning of period.......... $ 6,219,511 $ -- $ -- $ --
Net proceeds from IPO................ -- 564,219 -- --
Contribution of net assets from
Consolidation at fair value in
exchange for Common Shares......... -- 2,580,259 -- --
Issuance of Common Shares and
Warrants for acquisitions.......... 27,445 114,966 -- --
Amortization of restricted share
awards............................. 3,129 -- -- --
Issuance of Common Shares through
exercise of options................ 15,460 -- -- --
Issuance of Common Shares in exchange
for Units.......................... 197,627 -- -- --
Preferred shares and other offering
costs.............................. (14,631) -- -- --
Sale of Common Shares, net........... 43,967 273,853 -- --
Issuance of Common Shares for Beacon
Merger............................. -- 2,652,726 -- --
Common Shares issued for restricted
shares and trustee fees............ (4) 162 -- --
Adjustment for minority interests
ownership in Operating
Partnership........................ (8,935) 33,326 -- --
----------- ----------- ----------- -----------
Balance, end of period................ $ 6,483,569 $ 6,219,511 $ -- $ --
=========== =========== =========== ===========
DISTRIBUTIONS IN EXCESS OF ACCUMULATED
EARNINGS:
Balance, beginning of period.......... $ (16,849) $ -- $ -- $ --
Net income........................... 349,029 71,063 -- --
Preferred distributions.............. (32,202)
Dividends to Common Shares........... (350,183) (87,912) -- --
----------- ----------- ----------- -----------
Balance, end of period................ $ (50,205) $ (16,849) $ -- $ --
=========== =========== =========== ===========
OWNERS' EQUITY:
Balance, beginning of period.......... $ -- $ -- $ 1,727,002 $ 1,089,969
Contributions........................ -- -- 285,542 661,265
Offering expenses.................... -- -- -- (1,157)
Distributions........................ -- -- (189,752) (96,500)
Net income........................... -- -- 61,409 73,425
Contribution of Owners' Equity to the
Company in connection with the
Consolidation...................... -- -- (1,884,201) --
----------- ----------- ----------- -----------
Balance, end of period................ $ -- $ -- $ -- $ 1,727,002
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
81
<PAGE> 82
EQUITY OFFICE PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS AND EQUITY
OFFICE PREDECESSORS COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
EQUITY OFFICE PROPERTIES TRUST EQUITY OFFICE PREDECESSORS
------------------------------------------ ------------------------------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM
FOR THE YEAR ENDED JULY 11, 1997 THROUGH JANUARY 1, 1997 FOR THE YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 THROUGH JULY 10, 1997 DECEMBER 31, 1996
------------------ --------------------- --------------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income before preferred
distributions....................... $ 349,029 $ 71,712 $ 61,409 $ 73,425
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 305,982 70,202 66,034 96,237
Amortization of premiums/discounts
on unsecured notes and terminated
interest rate protection
agreements........................ 2,898 144 -- --
Compensation related to restricted
shares issued to employees........ 2,829 -- -- --
(Income) from unconsolidated joint
ventures............................ (11,267) (3,173) (1,982) (2,093)
(Gain) on sales of real estate........ (12,433) (126) (12,510) (5,338)
Extraordinary items................... 7,506 16,366 274 --
Provision for doubtful accounts....... 890 1,686 1,175 2,284
Allocation to minority interests...... 38,340 7,799 912 2,086
Changes in assets and liabilities:
(Increase) decrease in rents
receivable........................ (4,552) 2,064 2,664 (1,550)
(Increase) in deferred rent
receivables{...................... (67,065) (21,421) (8,061) (20,421)
Decrease (increase) in prepaid
expenses and other assets......... 10,756 (29,551) (8,839) (9,747)
Increase in accounts payable and
accrued expenses.................. 87,569 54,076 2,916 19,241
Increase (decrease) in due to
affiliates........................ 403 (898) (722) 1,235
Increase (decrease) in other
liabilities....................... 48,266 21,874 (7,310) 10,616
----------- ----------- --------- ---------
Net cash provided by operating
activities..................... 759,151 190,754 95,960 165,975
----------- ----------- --------- ---------
INVESTING ACTIVITIES:
Property acquisitions................. (1,930,172) (1,508,928) (531,968) (768,906)
Proceeds from sales of real estate.... 130,123 -- 72,078 14,502
Payments for capital and tenant
improvements........................ (207,093) (99,586) (59,511) (129,485)
Cash received from Beacon Merger...... -- 79,786 -- --
Payment of Beacon Merger costs........ -- (62,069) -- --
Distributions from unconsolidated
joint ventures...................... 46,122 4,571 -- 1,688
Investments in unconsolidated joint
ventures............................ (42,019) -- (44,260) --
Payments of lease acquisition costs... (46,337) (15,043) (9,260) (29,793)
Investment in preferred securities.... (48,532) -- -- --
(Increase) decrease in escrow deposits
and restricted cash................. (133,804) 8,997 1,853 (12,233)
----------- ----------- --------- ---------
Net cash (used for) investing
activities..................... (2,231,712) (1,592,272) (571,068) (924,227)
----------- ----------- --------- ---------
</TABLE>
See accompanying notes.
82
<PAGE> 83
EQUITY OFFICE PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS AND EQUITY
OFFICE PREDECESSORS COMBINED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
EQUITY OFFICE PROPERTIES TRUST EQUITY OFFICE PREDECESSORS
------------------------------------------ ------------------------------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM
FOR THE YEAR ENDED JULY 11, 1997 THROUGH JANUARY 1, 1997 FOR THE YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 THROUGH JULY 10, 1997 DECEMBER 31, 1996
------------------ --------------------- --------------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds from Common Shares, net of
offering costs...................... 43,983 838,456 -- --
Proceeds from exercise of options..... 15,435 68,191 -- --
Dividends/distributions to
shareholders/unit holders........... (388,954) (95,569) -- --
Capital contributions................. -- -- 287,949 661,265
Capital distributions................. -- -- (288,652) (12,508)
Payments for offering expenses........ (117) -- -- (1,157)
Payment of preferred distributions.... (29,581) -- -- --
Proceeds from sale of preferred
shares, net of offering costs....... 400,487 -- -- --
(Distributions to) minority interest
in partially owned properties....... (3,366) (371) (3,401) (22,593)
Cash contributed from net assets at
the IPO............................. -- 181,138 -- --
Proceeds from mortgage debt........... 10,865 84,466 154,090 640,953
Proceeds from unsecured notes......... 2,279,572 180,000 -- --
Proceeds from lines of credit......... 4,922,500 2,530,425 218,000 216,943
Principal payments on mortgage debt... (38,370) (838,354) (47,472) (254,104)
Principal payments on lines of
credit.............................. (5,841,197) (1,294,750) (72,500) (165,818)
Payments of loan costs................ (22,192) (7,039) (1,889) (5,430)
Termination of interest rate
protection agreements............... (38,277) -- -- --
Prepayment penalties on early
extinguishments of debt............. -- (16,247) (274) --
----------- ----------- --------- ---------
Net cash provided by financing
activities..................... 1,310,788 1,630,346 245,851 1,057,551
----------- ----------- --------- ---------
Net (decrease) increase in cash and
cash equivalents.................... (161,773) 228,828 (229,257) 299,299
Cash and cash equivalents at the
beginning of the period............. 228,853 25 410,420 111,121
----------- ----------- --------- ---------
Cash and cash equivalents at the end
of the period....................... $ 67,080 $ 228,853 $ 181,163 $ 410,420
=========== =========== ========= =========
SUPPLEMENTAL INFORMATION:
Interest paid during the period,
including capitalized interest of
$15,077, $1,890, $3,669 and $4,640,
respectively........................ $ 302,415 $ 70,658 $ 82,969 $ 121,813
=========== =========== ========= =========
</TABLE>
See accompanying notes.
83
<PAGE> 84
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND FORMATION OF THE COMPANY
As used herein, "Company" means Equity Office Properties Trust, a Maryland
real estate investment trust, together with its subsidiaries including EOP
Operating Limited Partnership, a Delaware limited partnership (the "Operating
Partnership"), and the predecessors thereof ("Equity Office Predecessors"). The
Company was formed on October 9, 1996 to continue and expand the national office
property business organized by Mr. Samuel Zell, Chairman of the Board of
Trustees of the Company, and to complete the consolidation of the Equity Office
Predecessors (the "Consolidation"). The Company completed its initial public
offering (the "IPO") on July 11, 1997. The Company is a fully integrated,
self-administered and self-managed real estate company engaged in acquiring,
owning, managing, leasing and renovating office properties and parking
facilities. The Company elected to be taxed as a real estate investment trust
("REIT") for federal income tax purposes and generally will not be subject to
federal income tax if it distributes 100% of its taxable income and complies
with a number of organizational and operational requirements. As of December 31,
1998, the Company owned or had an interest in 284 office properties (the "Office
Properties") containing approximately 75.1 million rentable square feet of
office space and owned 19 stand-alone parking facilities (the "Parking
Facilities" and, together with the Office Properties, the "Properties")
containing approximately 18,059 parking spaces. The weighted average occupancy
for the Office Properties at December 31, 1998 was approximately 95.0%. The
Office Properties are located in 80 submarkets in 36 markets in 24 states and
the District of Columbia. The Office Properties, by rentable square feet, are
located approximately 53% in central business districts ("CBDs") and 47% in
suburban markets.
On July 11, 1997, the Company consummated the IPO having sold 28,750,000 of
its common shares of beneficial interest, $0.01 par value per share ("Common
Shares") at $21.00 per Common Share generating gross proceeds of approximately
$603.8 million. The Company contributed the net proceeds from the IPO of
approximately $564.5 million to the Operating Partnership in exchange for
28,750,000 units of partnership interest in the Operating Partnership ("Units").
The Company used the net proceeds of the IPO and available cash reserves to
repay debt of approximately $678.4 million, of which $598.4 million was mortgage
debt and $80 million was a revolving line of credit.
Concurrent with the IPO, the Company also completed the following formation
transactions which resulted in the Consolidation of the Equity Office
Predecessors into the Company:
- Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership,
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership
II, Zell/Merrill Lynch Real Estate Opportunity Partners Limited
Partnership III and Zell/Merrill Lynch Real Estate Opportunity Partners
Limited Partnership IV (collectively the "ZML Opportunity
Partnerships"), the predecessor owner of the Properties, contributed
their interest in the Properties to the Operating Partnership in
exchange for 126,419,397 Units.
- ZML Investors Inc., ZML Investors II, Inc., Zell/Merrill Lynch Real
Estate Opportunity Partners III Trust and Zell/Merrill Lynch Real Estate
Opportunity Partners IV Trust (collectively "ZML REITs") merged into the
Company, with the Company succeeding to their interest in, and becoming
the managing general partners of each of the ZML Opportunity
Partnerships. Shareholders of the ZML REITs received 122,900,572 Common
Shares of the Company in exchange for their interests in the ZML REITs.
- Equity Group Investments, Inc. an Illinois corporation ("EGI"), and
Equity Office Holdings, L.L.C., a Delaware limited liability company
("EOH" and together with EGI, the "Equity Group") contributed
substantially all of their interests in their office property and asset
management business and parking facilities management business
(collectively the "Management Business") to the Operating Partnership in
exchange for 8,358,822 Units.
84
<PAGE> 85
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- BUSINESS AND FORMATION OF THE COMPANY -- (CONTINUED)
- The Operating Partnership transferred a portion of the office property
management business of EOH, the office property asset management
business and the parking asset management business of the Equity Group
that relates to the property management of the properties owned by the
Equity Group, together with the 18 properties then held in partnerships
or subject to participation agreements with unaffiliated parties (the
"Joint Venture Properties") (collectively, the "Managed Property
Business") to Equity Office Properties Management Corp., a Delaware
corporation (the "EOP Management Company"), in exchange for 95% of the
economic value in the EOP Management Company and EOH contributed
$150,000 to the EOP Management Company in exchange for 5% of the
economic value of the EOP Management Company.
- ZML Partners Limited Partnership, ZML Partners Limited Partnership II,
ZML Partners Limited Partnership III and ZML Partners Limited
Partnership IV (the "ZML Partners"), each of which is the general
partner of one of the ZML Opportunity Partnerships, each transferred its
5% interest in certain corporations which owned a 1% general partnership
interest in certain of the property title holding entities to a newly
formed qualified REIT subsidiary in exchange for 26,458 Common Shares.
- The Operating Partnership transferred its 95% interest in certain
corporations which owned a 1% general partner interest in certain of the
property title holding entities to a subsidiary of the Company in
exchange for 502,740 Common Shares. Such Common Shares have been treated
as treasury stock in the accompanying financial statements as of
December 31, 1997 and were retired in 1998.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company's assets, which include investments in joint ventures, are
primarily owned by, and its operations are substantially conducted through, the
Operating Partnership. The Company is the managing general partner of the
Operating Partnership. Due to the Company's ability as managing general partner
to control the Operating Partnership and various other property holding
subsidiaries, each such entity has been consolidated with the Company for
financial reporting purposes.
The Consolidation and the Beacon Merger (as described in Note 4) were
accounted for as purchases in accordance with Accounting Principles Board
Opinion No. 16. Accordingly, the fair value of the consideration given by the
Company was used as the valuation basis for these transactions. The assets
acquired and liabilities assumed by the Company were recorded at their fair
values as of the closing dates of the Consolidation and the Beacon Merger and
the excess of the purchase price over the related historical basis of the net
assets acquired was allocated primarily to investment in real estate.
The combined financial statements of Equity Office Predecessors prior to
the Consolidation and the IPO included interests in the properties of the ZML
Opportunity Partnerships together with their limited and general partners
(collectively, the "ZML Funds" which includes ZML Fund I, ZML Fund II, ZML Fund
III and ZML Fund IV) and the Management Business. The financial statements of
Equity Office Predecessors are presented on a combined basis, at historical
cost, because the ZML Funds and the Management Business were under common
control. All intercompany transactions and balances have been eliminated in
combination.
Minority interests have been recorded for those entities that were not
wholly owned by the ZML Funds. Where controlling interests were not held by the
ZML Funds, the entities were accounted for as investments in unconsolidated
joint ventures utilizing equity accounting.
85
<PAGE> 86
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Investment in Real Estate
Rental property and improvements, including interest and other costs
capitalized during construction, are included in investment in real estate and
are stated at cost. Expenditures for ordinary maintenance and repairs are
expensed to operations as they are incurred. Significant renovations and
improvements which improve or extend the useful life of the assets are
capitalized. Except for amounts attributed to land, rental property and
improvements are depreciated over their estimated useful lives using the
straight-line method. The estimated useful lives by asset category are:
<TABLE>
<CAPTION>
ASSET CATEGORY ESTIMATED USEFUL LIFE
- -------------- ---------------------
<S> <C>
Building.................................................... 40 years
Building improvements....................................... 4 -- 40 years
Tenant improvements......................................... Term of lease
Furniture and fixtures...................................... 3 -- 12 years
</TABLE>
Deferred Leasing and Financing Costs
Deferred leasing and financing costs are recorded at cost. The deferred
leasing costs are amortized over the terms of the respective leases and the
deferred financing costs are amortized over the terms of the respective
financings on a straight-line basis, which approximates the effective yield
method.
Rental Income
Certain leases provide for tenant occupancy during periods for which no
rent is due or where minimum rent payments increase during the term of the
lease. The Company records rental income for the full term of each lease on a
straight-line basis. Accordingly, the Company records a receivable from tenants
that the Company expects to collect over the remaining lease term rather than
currently ("Deferred Rent Receivable"). When the Company acquires a property the
term of existing leases is considered to commence as of the acquisition date for
purposes of this calculation. The amounts included in rental income for the year
ended December 31, 1998, the period from July 11, 1997 through December 31,
1997, the period from January 1, 1997 through July 10, 1997 and the year ended
December 31, 1996, which were not currently collectible as of such dates, were
approximately $68.1 million, $20.0 million, $7.7 million and $18.4 million,
respectively. Deferred Rent Receivable is not recognized for income tax
purposes.
Cash Equivalents
The Company considers cash equivalents to be all highly liquid investments
purchased with a maturity of three months or less at the date of purchase.
Escrow Deposits and Restricted Cash
Escrow deposits primarily consist of amounts held by lenders to provide for
future real estate tax expenditures and tenant improvements, earnest money
deposits on acquisitions and net proceeds from dispositions (see Note 5).
Restricted cash represents amounts committed for various utility deposits and
security deposits. Certain of these amounts may be reduced upon the fulfillment
of certain obligations.
Fair Value of Financial Instruments
Management believes that the carrying basis of the Company's long-term debt
consisting of secured and unsecured borrowings and an interest rate protection
agreement approximate their respective fair market values as of December 31,
1998 and 1997, respectively. The current value of debt was computed by
86
<PAGE> 87
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
discounting the projected debt service payments for each loan based on the
spread between the market rate and the effective rate, including the
amortization of loan origination costs, for each year. In addition, the carrying
values of cash and cash equivalents, restricted cash, escrow deposits, tenant
and other rents receivable, accounts payable and accrued expenses are reasonable
estimates of their fair value.
Interest Rate Protection Agreements
The Company periodically enters into certain interest rate protection
agreements to effectively convert or cap floating rate debt to a fixed rate
basis, as well as to hedge anticipated future finance transactions. Net amounts
paid or received under these agreements are recognized as an adjustment to
interest expense when such amounts are incurred or earned. Settlement amounts
paid or received in connection with terminated interest rate protection
agreements are deferred and amortized as an adjustment to interest expense over
the term of the related financing transaction on the straight-line method, which
approximates the effective yield amount.
Derivatives and Hedging Activities
In June 1998, the FASB issued Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities." The statement requires recording all
derivative instruments as assets or liabilities, measured at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. This standard is effective for fiscal years
beginning after June 15, 1999. The Company is planning to adopt the standard
effective January 1, 2000 and does not anticipate that the adoption will have a
material impact on the Company's financial condition and results of operations.
Income Taxes
The Office Properties and Parking Facilities are primarily owned by limited
partnerships or limited liability companies, which are substantially
pass-through entities. Some of the pass-through entities have corporate general
partners or members, which are subject to federal and state income and franchise
taxes. In addition, the Management Business is owned by a corporation and is
subject to federal and state income taxes. The Company incurred federal and
state income and franchise taxes of approximately $1.7 million, $0.2 million,
$0.9 million and $1.4 million for the year ended December 31, 1998, the period
from July 11, 1997 through December 31, 1997, the period from January 1, 1997
through July 10, 1997 and the year ended December 31, 1996, respectively, which
are included in general and administrative expenses.
The Company elected to be taxed as a REIT, under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the
Company generally will not be subject to federal income tax if it distributes
100% of its taxable income for each tax year to its shareholders. REITs are
subject to a number of organization and operational requirements. If the Company
fails to qualify as a REIT in any taxable year, the Company will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate tax rates. Even if the Company qualifies for
taxation as a REIT, the Company may be subject to state and local income taxes
and to federal income tax and excise tax on its undistributed income. The
aggregate cost of land and depreciable property for federal income tax purposes
as of December 31, 1998 and 1997 was approximately $9.7 billion and $7.5
billion, respectively.
87
<PAGE> 88
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Minority Interests
Operating Partnership
Net income is allocated to minority interests based on their respective
ownership percentage of the Operating Partnership. The ownership percentage is
calculated by dividing the number of Units held by the minority interests by the
total Units held by both the minority interests and the Company. Issuance of
additional Common Shares and Units changes the ownership interests of both the
minority interests and the Company. Such transactions and the proceeds therefrom
are treated as capital transactions.
Partially Owned Properties
The Company reflects minority interests in partially owned properties on
the balance sheet for the portion of properties consolidated by the Company that
are not wholly owned by the Company. The earnings or losses from these
properties attributable to the minority interests are reflected as minority
interests in partially owned properties in the statement of operations.
Use of Estimates
The preparation of the consolidated financial statements of the Company and
the combined financial statements of Equity Office Predecessors in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the previously reported 1997
and 1996 statements in order to provide comparability with the 1998 statements
reported herein. These reclassifications have not changed the 1997 or 1996
results, shareholders' equity or owners' equity.
NOTE 3 -- INVESTMENT IN REAL ESTATE
Investment in real estate, including Office Properties, Parking Facilities,
properties under development and vacant land was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 1,343,308 $ 1,026,801
Land available for development.............................. 65,819 34,872
Building.................................................... 11,729,616 9,621,345
Building improvements....................................... 76,631 19,956
Tenant improvements......................................... 191,936 74,408
Furniture and fixtures...................................... 8,136 3,914
Developments in process..................................... 268,373 259,718
----------- -----------
Gross investment in real estate........................... 13,683,819 11,041,014
Accumulated depreciation.................................... (352,259) (64,695)
----------- -----------
Net investment in real estate............................. $13,331,560 $10,976,319
=========== ===========
</TABLE>
88
<PAGE> 89
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- INVESTMENT IN REAL ESTATE -- (CONTINUED)
During the year ended December 31, 1998, the Company acquired the
Properties listed below. Each Property was purchased from an unaffiliated party
and was funded from credit facilities, working capital, assumption of mortgage
debt, issuance of promissory notes and/or issuance of Common Shares/Units. In
addition, during 1997 the Company acquired 176 Office Properties and seven
Parking Facilities, including those acquired in connection with the Beacon
Merger (see Note 4), for a total cost of approximately $6.6 billion.
<TABLE>
<CAPTION>
DATE RENTABLE TOTAL
ACQUIRED PROPERTY LOCATION SQUARE FEET ACQUISITION COST(1)
- -------- ----------------------------------- ----------------- ----------- ----------------------
(DOLLARS IN THOUSANDS)
<C> <S> <C> <C> <C>
1/29/98 BP Tower Garage Cleveland, OH -- $ 10,227
3/18/98 100 Summer Street Boston, MA 1,037,801 222,710
3/31/98 The Tower at New England Executive Burlington, MA 194,911 27,929
Park (2)
4/2/98 Westbrook Corporate Center Vacant Westchester, IL -- 3,973
Land
4/21/98 Denver Post Tower Denver, CO 579,999 52,937
4/29/98 301 Howard Street and 215 Fremont San Francisco, CA 572,396 90,015
Street(3)
4/30/98 410 17th Street Denver, CO 388,953 44,737
4/30/98 Tabor Center (4) Denver, CO 674,278 144,485
4/30/98 Trinity Place Denver, CO 189,163 19,034
5/14/98 Dominion Plaza Denver, CO 571,468 59,901
5/19/98 Millennium Plaza Englewood, CO 330,033 46,071
5/22/98 Polk and Taylor Buildings (5) Arlington, VA 902,371 153,463
6/1/98 Walker Building Washington, D.C. 75,456 8,624
6/26/98 Columbia Seafirst Center Seattle, WA 1,537,932 401,750
7/2/98 Northland Plaza Bloomington, MN 296,965 47,051
7/15/98 4949 S. Syracuse Denver, CO 62,633 8,223
7/15/98 Metropoint I and Metropoint III Denver, CO 263,719 45,749
vacant land
7/15/98 One Park Square Albuquerque, NM 262,020 36,343
7/15/98 Park Avenue Tower (6) New York, NY 550,894 244,880
7/15/98 Terrace Building Englewood, CO 115,408 15,464
7/15/98 The Solarium Englewood, CO 162,817 19,511
7/29/98 Second and Spring Seattle, WA 134,871 19,684
9/30/98 Colonnade I, II and III (7) Dallas, TX 984,254 151,958
10/1/98 Worldwide Plaza (8) New York, NY 1,704,624 624,595
11/3/98 Central Park vacant land Atlanta, GA -- 3,975
12/17/98 Forbes Garage and Allies Garages Pittsburgh, PA -- 31,251
(9)
---------- ----------
Total 11,592,966 $2,534,540
========== ==========
</TABLE>
- ---------------
(1) Total acquisition cost includes the purchase price specified in the purchase
contract, closing costs, acquisition costs and accounting adjustments
recorded in accordance with GAAP.
(2) The Tower at New England Executive Park is currently undergoing a
significant renovation in an effort to re-tenant the Property.
(3) 215 Fremont Street is currently vacant.
89
<PAGE> 90
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- INVESTMENT IN REAL ESTATE -- (CONTINUED)
(4) The total acquisition cost of Tabor Center includes a $15.0 million vacant
land parcel and a 1,694 space parking facility.
(5) The total acquisition cost of the Polk and Taylor Buildings represents the
cost to acquire the remaining 90% limited partnership interest in the
Properties.
(6) The Company acquired a $295.0 million first mortgage note secured by Park
Avenue Tower for approximately $244.9 million. In accordance with certain
agreements concerning the first mortgage note, the Company controls the
financial and operational decisions for the Property and is entitled to
substantially all cash flow and residual profit. Accordingly, the Company
consolidated the financial position and results of operations of the
Property.
(7) Colonnade III was acquired from an unaffiliated party upon substantial
completion and is approximately 70.0% leased as of December 31, 1998. The
seller may be entitled to receive an earnout payment for leases executed in
accordance with terms outlined in the purchase agreement. The maximum
earnout payment is approximately $2.5 million.
(8) The $578.0 million purchase price specified in the purchase contract was
adjusted to $624.6 million for the following: (1) the assumption of a $268.6
million first mortgage with an estimated mark to market adjustment of $11.2
million; (2) the assumption of a deferred real estate tax liability (a
portion of which is expected to be recovered from tenants) with a present
value of $31.2 million; (3) the issuance of 6,861,166 Units with an
estimated fair value of $171.9 million based on a fair value of $25.05 per
Unit; (4) a cash payment of approximately $110.1 million; (5) closing and
transaction costs of approximately $4.2 million; and (6) the issuance of a
transferable put option on Units exercisable only on the third anniversary
of closing with an estimated fair value of approximately $27.4 million. This
option entitles its holder to additional Common Shares, the number of which
shall be determined using a formula based on the extent, if any, that the
Common Shares are then trading at less than $29.05 per share. The office
building consists of approximately 1,575,445 square feet of office space and
approximately 20,788 square feet of retail space. The acquisition also
includes a controlling financial interest in an amenities component that
consists of approximately 108,391 square feet of retail space, a health club
and movie theaters, and a 473-space parking garage. The complex also
includes a residential condominium tower that was not acquired by the
Company.
(9) The Company acquired a leasehold interest in Forbes Garage and Allies Garage
for approximately $31.3 million. The lease is for a term of 50 years with
four five-year options to renew. Pursuant to the lease, the Company is
required to make annual rent payments of $172,500, and is required to make
certain capital improvements to the garages of approximately $10.0 million
during the first ten years of the lease. The Company has accounted for this
transaction as a capital lease.
NOTE 4 -- BEACON MERGER
On December 19, 1997, the Company, the Operating Partnership, Beacon
Properties Corporation, a Maryland corporation ("Beacon") and Beacon Partnership
L.P. ("Beacon Partnership") consummated the merger of Beacon with and into the
Company and Beacon Partnership with and into the Operating Partnership (the
"Beacon Merger") at a cost of approximately $4.3 billion. In the Beacon Merger,
(i) the Company issued 80,596,117 Common Shares in exchange for all of the
outstanding Beacon common shares, (ii) the Company exchanged its 8,000,000
Series A Preferred Shares for all of the outstanding Beacon preferred shares,
(iii) the Operating Partnership issued 8,570,886 Units in exchange for the
outstanding common partnership units of Beacon Partnership exclusive of those
held by Beacon, and (iv) the Operating Partnership issued to the Company
80,596,117 Units underlying the Common Shares issued in exchange for the Beacon
common shares and 8,000,000 Series A preferred units underlying the Series A
Cumulative Redeemable Preferred Shares were exchanged for the Beacon preferred
shares. In addition, the Company assumed the
90
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EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- BEACON MERGER -- (CONTINUED)
obligation to issue 4,732,822 Common Shares, of which 773,599 and 3,829,739 had
been issued as of December 31, 1998 and 1997, respectively, upon the exercise of
certain outstanding Beacon employee stock options. The $4.3 billion purchase
price is comprised of the following: (1) based on a share price of $31.30, the
Common Shares, including Common Shares issued for stock options, and Units were
valued at approximately $2.853 billion (which is net of a reduction for cash
received or to be received upon exercise of the stock options of $86 million);
(2) 8,000,000 Series A Cumulative Redeemable Preferred Shares valued at their
liquidation value of $200 million; (3) the assumption of approximately $627
million of secured debt and $533 million of unsecured debt; (4) merger costs of
approximately $85 million; and (5) net of the receipt of approximately $8
million of net assets.
As a result of the Beacon Merger, the Company acquired an interest in 130
Beacon properties containing approximately 20.9 million rentable square feet of
office space. The Beacon properties are located in 22 submarkets in six markets:
Boston, Atlanta, Chicago, Los Angeles, San Jose and Washington, D.C. The Beacon
properties, by rentable square feet, are located 65% in suburban markets and 35%
in CBDs, primarily Boston.
NOTE 5 - DISPOSITIONS
During 1998, the Company disposed of four office properties located in
Florida and one office property located in Washington, D.C. The combined square
footage of these office properties was approximately 986,391 square feet. These
office properties were sold for approximately $132.6 million generating a gain
on sale of approximately $12.4 million. The net proceeds of approximately $119.9
million from the sale of the office properties located in Florida were held in
an escrow account at December 31, 1998. The Company used the entire net proceeds
plus accrued interest income in the escrow account to partially fund the
acquisition of three Office Properties in January 1999 (see Note 23).
During 1997, the Company disposed of one office property located in
California and one office property located in Texas. These office properties
were sold for approximately $72.5 million generating a gain on sale of
approximately $12.6 million. The combined square footage of these office
properties was approximately 535,992 square feet.
During 1996, the Company disposed of a mixed-use property that included a
210-room hotel and an 18-story office complex located in Louisiana. This
property was sold for approximately $14.8 million generating a gain on sale of
approximately $5.3 million.
91
<PAGE> 92
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The following is a summary of the Company's ownership in the unconsolidated
joint ventures:
<TABLE>
<CAPTION>
COMPANY'S OWNERSHIP
ENTITY PROPERTY AS OF DECEMBER 31, 1998
- ------ ----------------------------- -----------------------
<S> <C> <C>
EOP -- Orange, L.L.C and EOP -- Ramlessview
Investors, L.L.C.(1)..................... 500 Orange Tower 100%
Civic Parking, L.L.C(2).................... St. Louis Parking Garages 50%
Wright Runstad Associates Limited
Partnership(3)........................... N/A 28.5%
One Post Office Square Associates(4)....... One Post Office Square 50%
BeaMetFed, Inc.(5)......................... 75-101 Federal Street 52%
Rowes Wharf Associates(6).................. Rowes Wharf 50%
Lehndorff Four Oaks Place Associates(7).... Four Oaks Place 2.55%
Metropoint II Associates(8)................ Metropoint II 70%
WRC Sunset North, L.L.C.(9)................ Sunset North Corporate Campus 80%
Three Bellevue, L.L.C(10).................. Three Bellevue Center 80%
</TABLE>
- ---------------
(1) The Company owns a mortgage note receivable secured by the property and land
underlying and adjacent to the property.
(2) The Company owns a 50% membership interest.
(3) The Company owns a 28.5% non-controlling interest in this property
management and development company, Wright Runstad Associates Limited
Partnership ("WRALP"), (see Note 22).
(4) The Company is a 50% general partner in this joint venture.
(5) The Company is a shareholder in the corporation (a private REIT) which owns
the property.
(6) The Company owns a 50% equity interest in the property and, subject to a
subparticipation which the Company expects to redeem for approximately
$500,000, 50% of a first mortgage note.
(7) The Company owns a 3% general partner interest in this general partnership
which owns an 85% general partnership interest in the property.
(8) In July 1998, the Company entered into a joint venture agreement with an
unaffiliated party to develop Metropoint II, a 150,181 square foot office
building, which is under construction in Denver, CO. The total cost of the
project, including the joint venture partner's share, is approximately $24.0
million. The completion of this project is scheduled for the first quarter
1999. The Company acquired a 70% interest in this joint venture, while the
unaffiliated party retained a 30% interest and will continue as the
developer of the project. The Company has invested approximately $7.7
million in this project as of December 31, 1998. A buy/sell option may be
exercised to acquire the other venturer's interest by either the Company or
its joint venture partner if certain conditions are met as defined in the
joint venture agreement.
(9) In July 1998, the Company entered into a joint venture agreement with WRALP,
an affiliated party, to develop Sunset North Corporate Campus, a three
building, 460,663 square-foot office complex in Bellevue, WA. The total cost
to develop the campus is estimated to be approximately $101.0 million, of
which up to $68.0 million is anticipated to be funded by a development loan.
The completion of this project is scheduled for the fourth quarter 1999. The
Company will own 80% of the project during its development and will have the
option to acquire the remaining 20% interest once stabilized occupancy has
been achieved. The Company has incurred costs of approximately $27.9
million, which includes the Company's share of the development loan, in this
project as of December 31, 1998. A buy/sell option may be exercised to
acquire the other venturer's interest by either the Company or its joint
venture partner if certain conditions are met as defined in the joint
venture agreement.
92
<PAGE> 93
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES -- (CONTINUED)
(10) In December 1998, the Company entered into a joint venture agreement with
WRALP to develop Three Bellevue Center, a 471,635 square foot office
building in Bellevue, WA. Completion of the 22-story office building is
scheduled for the first quarter 2000. The total cost to develop the project
is estimated to be approximately $90.0 million, of which up to $60.0
million is anticipated to be funded by a development loan. The Company has
an 80% interest in this joint venture and will have an option to acquire
the remaining 20% interest at a later date from WRALP. The Company has
incurred costs of approximately $4.5 million, which includes the Company's
share of the development loan, in this project as of December 31, 1998.
These investments are accounted for utilizing the equity method of
accounting except for the Company's investment in Lehndorff Four Oaks Place
Associates, which is accounted for utilizing the cost method of accounting.
Under the equity method of accounting, the net equity investment of the Company
is reflected on the consolidated balance sheets, and the consolidated and
combined statements of operations include the Company's share of net income or
loss from the unconsolidated joint ventures. Any difference between the carrying
amount of these investments on the balance sheet of the Company and the
underlying equity in net assets is amortized as an adjustment to income from
unconsolidated joint ventures over 40 years.
Combined summarized financial information of the unconsolidated joint
ventures is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance Sheets:
Real estate, net....................................... $488,997 $523,670
Other assets........................................... 78,623 73,450
-------- --------
Total Assets........................................ $567,620 $597,120
======== ========
Mortgage debt.......................................... $243,096 $344,427
Other liabilities...................................... 16,059 15,271
Partners' and shareholders' equity..................... 308,465 237,422
-------- --------
Total Liabilities and Partners' and Shareholders'
Equity............................................ $567,620 $597,120
======== ========
Company's share of equity.............................. $159,092 $155,522
Excess of cost of investments over the net book value
of underlying net assets, net of accumulated
depreciation of $5,854 and $99, respectively........ 219,442 231,810
-------- --------
Carrying value of investments in unconsolidated joint
ventures............................................ $378,534 $387,332
======== ========
Company's share of unconsolidated mortgage debt........ $124,282 $ 92,400
======== ========
</TABLE>
93
<PAGE> 94
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Statement of Operations:
Revenues.................................................. $107,617 $16,687 $4,775
-------- ------- ------
Expenses:
Operating expenses..................................... 37,489 4,638 1,852
Interest expense....................................... 17,004 793 --
Depreciation and amortization.......................... 18,916 2,752 830
-------- ------- ------
Total expenses....................................... 73,409 8,183 2,682
-------- ------- ------
Net income................................................ $ 34,208 $ 8,504 $2,093
======== ======= ======
Company's share of net income............................. $ 11,267 $ 5,155 $2,093
======== ======= ======
Company's share of interest expense....................... $ 8,580 $ -- $ --
======== ======= ======
Company's share of depreciation and amortization (real
estate related)........................................ $ 14,412 $ 1,524 $ 830
======== ======= ======
</TABLE>
NOTE 7 -- MORTGAGE DEBT
The Company had outstanding mortgage indebtedness of approximately $2.4
billion and $2.1 billion as of December 31, 1998 and 1997, respectively. The
historical cost, net of accumulated depreciation of encumbered properties at
December 31, 1998 and 1997 was approximately $5.3 billion and $4.3 billion,
respectively. During the years ended December 31, 1998 and 1997, the Company (a)
repaid approximately $38.4 million and $885.8 million, respectively, of mortgage
debt with proceeds from the IPO, the credit facilities, available cash reserves,
and proceeds from property disposition; (b) assumed approximately $313.4 million
and $890.5 million, respectively, of mortgage debt in connection with the
acquisition of certain Properties; and (c) obtained proceeds from the financing
of certain Properties and draws on existing mortgages totaling $10.9 million and
$238.6 million, respectively.
A summary of the Company's fixed and variable rate mortgage debt is as
follows:
Fixed Rate Mortgage Debt
As of December 31, 1998 and 1997, the Company had outstanding fixed rate
mortgage indebtedness of approximately $2.3 billion and $2.0 billion,
respectively. Payments on fixed rate mortgage debt are generally due in monthly
installments of principal and interest or interest only. As of December 31, 1998
and 1997, fixed interest rates ranged from 6.88% to 9.06% and 6.67% to 8.63%,
respectively. The weighted average fixed interest rate was approximately 7.61%
and 7.53% as of December 31, 1998 and 1997, respectively. The Company entered
into an interest rate swap agreement in 1995 which effectively fixed the
interest rate on a $93.6 million variable rate mortgage loan at 6.94% through
the maturity of the loan on June 30, 2000.
Variable Rate Mortgage Debt
As of December 31, 1998 and 1997, the Company had outstanding variable rate
mortgage indebtedness of approximately $70.4 million and $23.5 million,
respectively. Payments on variable rate mortgage debt are generally due in
monthly installments of principal and interest or interest only. The variable
interest rates are based on a variety of options including LIBOR-based interest
rates. As of December 31, 1998 and 1997, the weighted average variable interest
rate was 6.35% and 6.94%, respectively.
94
<PAGE> 95
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- MORTGAGE DEBT -- (CONTINUED)
Equity Office Predecessors sold several interest rate protection agreements
(aggregating $173.0 million of LIBOR -- based agreements) in June 1997 at a cost
of approximately $1.1 million.
Repayment Schedule
Scheduled payments of principal on mortgage debt for each of the next five
years and thereafter as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
1999........................................................ $ 116,346
2000........................................................ 185,888
2001........................................................ 488,968
2002........................................................ 78,398
2003........................................................ 298,014
Thereafter.................................................. 1,168,957
----------
Subtotal.................................................... 2,336,571
Net premium (net of accumulated amortization of $3,002)..... 13,517
----------
Total..................................................... $2,350,088
==========
</TABLE>
NOTE 8 -- LINES OF CREDIT
Lines of Credit
The Company assumed $533 million in unsecured debt in connection with the
Beacon Merger. The Company repaid $95 million prior to December 31, 1997 and
repaid the remaining balance in February 1998 with the proceeds from the $1.25
Billion Notes Offering, the $250 Million MOPPRS Offering and the Series B
Preferred Share Offering.
On May 29, 1998, the Company completed a revolving credit agreement to
provide the Company a $1.0 billion unsecured line of credit (the "$1.0 Billion
Credit Facility"). This agreement amended the Company's previous unsecured line
of credit of $600 million. (The $600 million line of credit was obtained in July
1997 as an amendment to the $475 million line of credit, which was obtained in
April 1997 as an amendment to the $275 million line of credit). The $1.0 Billion
Credit Facility matures on May 29, 2001. The Company incurred fees of
approximately $2.5 million at the closing of the $1.0 Billion Credit Facility.
These fees are being amortized over the term along with approximately $1.0
million of unamortized deferred financing costs on the previous $600 million
line of credit. The interest rate is based on the Company's investment grade
rating on its unsecured debt and is currently LIBOR plus 60 basis points with a
facility fee equal to 20 basis points per annum. In addition, a competitive bid
option, whereby the lenders participating in the line of credit bid on the
interest rate to be charged, is available for up to $350 million of the $1.0
Billion Credit Facility. As of December 31, 1998 there was approximately $688.0
million outstanding on the $1.0 Billion Credit Facility.
Term Loan Facilities
In October 1997, the Company obtained a $1.5 billion unsecured credit
facility (the "$1.5 Billion Credit Facility"). The $1.5 Billion Credit Facility
was available for the acquisition of properties and general corporate purposes.
The $1.5 Billion Credit Facility carried an interest rate equal to LIBOR plus
100 basis points subject to an increase or decrease upon receipt of an
investment grade unsecured debt rating. The Company received an investment grade
rating in December 1997 resulting in a reduction in the interest rate to LIBOR
plus 80 basis points. The Company paid an underwriting fee on the $1.5 Billion
Credit Facility at closing of
95
<PAGE> 96
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- LINES OF CREDIT -- (CONTINUED)
approximately $4.9 million. In addition, an unused commitment fee of .15% to
.25% was payable quarterly in arrears based upon the unused amount of the $1.5
Billion Credit Facility. In October 1997, the Company used approximately $236
million of proceeds from the $1.5 Billion Credit Facility to repay the majority
of the variable rate property mortgage indebtedness outstanding as of September
30, 1997. The Company repaid $150 million on the $1.5 Billion Credit Facility
with the proceeds from the $200 million private placement of Common Shares in
October 1997. In addition, amounts were drawn from the $1.5 Billion Credit
Facility for property acquisitions and general corporate purposes. As of
December 31, 1997, the outstanding balance on the $1.5 Billion Credit Facility
was approximately $1.044 billion. The $1.5 Billion Credit Facility was repaid
and terminated in May 1998 with amounts borrowed from the $1.0 Billion Credit
Facility.
On August 14, 1998, the Company completed a term loan agreement with
various financial institutions to provide the Company a $328 million unsecured
term loan facility (the "$328 Million Credit Facility"). The term loan is priced
at 90-day LIBOR plus 80 basis points and is prepayable on any interest payment
date. The term loan matures on August 15, 2000. The proceeds were used to pay
down the $1.0 Billion Credit Facility.
On September 22, 1998, the Company completed a term loan to provide the
Company a $200 million unsecured term loan facility (the "$200 Million Credit
Facility"). Interest accrues under the term loan at an initial rate of LIBOR
plus 50 basis points with a facility fee equal to 20 basis points per annum.
Pricing for the first twelve months is based on a matrix tied to the Company's
credit rating and may be reset after the first twelve months for an additional
six months and again after eighteen months for an additional six months for a
ten basis point fee. The proceeds were used to pay down the $1.0 Billion Credit
Facility.
NOTE 9 -- UNSECURED NOTES
$180 Million Notes Offering
On September 3, 1997, the Company privately placed (the "$180 Million Notes
Offering") $180 million of unsecured notes (the "$180 Million Notes"). The notes
consist of four tranches with maturities from seven to ten years, which were
priced at an interest rate spread over the corresponding U.S. Treasury rate. The
Company used the proceeds to repay a portion of its credit facilities. In
connection with the offering, the Company terminated $150 million of hedge
agreements at a cost of approximately $3.9 million which is being amortized over
the terms of the respective tranches as an adjustment to interest expense.
$1.25 Billion Notes Offering
In February 1998, the Company privately placed (the "$1.25 Billion Notes
Offering") $1.25 billion of unsecured notes (the "$1.25 Billion Notes"). The
notes consist of four tranches with maturities of five to 20 years priced at an
interest rate spread over the corresponding U.S. Treasury rate. The notes were
issued as a discount of approximately $2.0 million, which is being amortized
over the terms of the respective tranches as an adjustment to interest expense.
$250 Million Mandatory Par Put Remarketed Securities Offering
Also in February 1998, the Company privately placed $250 million of 6.376%
Mandatory Par Put Remarketed Securities due February 15, 2012 ("MOPPRS"), which
are subject to mandatory tender on February 15, 2002 (the "$250 Million MOPPRS
Offering"). The MOPPRS are unsecured obligations of the Company. The MOPPRS were
issued at a premium of approximately $6.5 million which is being amortized over
the terms of the MOPPRS as an adjustment to interest expense.
The proceeds to the Company from the $1.25 Billion Notes Offering and the
$250 Million MOPPRS Offering, net of offering costs, were approximately $1.5
billion. The Company terminated $700 million of hedge agreements in connection
with the issuance of the $1.25 Billion Notes and the MOPPRS at a cost of
96
<PAGE> 97
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- UNSECURED NOTES -- (CONTINUED)
approximately $31.3 million which is being amortized as an adjustment to
interest expense. The net proceeds were used to pay down the line of credit and
other unsecured borrowings.
$775 Million Notes and 300,000 Warrants Offering
In June 1998, the Company privately placed $775 million of unsecured notes
(the "$775 Million Notes") and 300,000 warrants to purchase an additional $300
million in unsecured notes at a later date (the "$775 Million Notes Offering").
The notes consist of three tranches with maturities of six to 30 years. The $775
Million Notes and warrants were issued at a net premium of $119,250, which is
being amortized over the terms of the respective tranches as an adjustment to
interest expense. Each of the 300,000 warrants entitles its holder to purchase a
new $1,000 note at par on December 15, 1999 (or in certain circumstances on
January 18, 2000) at a stated rate of 6.763%, which will mature on June 15, 2008
and will have other terms substantially similar to the $300 million, nine-year
notes due 2007. In exchange for issuing the warrants, the Company received a
$2.4 million premium (80 basis points) at closing. Total proceeds to the
Company, net of selling commissions, were approximately $768.6 million and were
used to pay down borrowings under the $1.0 Billion Credit Facility.
A summary of the terms of the unsecured notes outstanding as of December
31, 1998 is presented below:
<TABLE>
<CAPTION>
EFFECTIVE
TRANCHE AMOUNT STATED RATE RATE (1)
- ------- -------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
4 Year MOPPRS due 2002 (2)............................. $ 250,000 6.4% 6.3%
5 Year Notes due 2003.................................. 300,000 6.4% 6.8%
6 Year Notes due 2004.................................. 250,000 6.5% 6.7%
7 Year Notes due 2004.................................. 30,000 7.2% 7.3%
7 Year Notes due 2005.................................. 400,000 6.6% 7.0%
8 Year Notes due 2005.................................. 50,000 7.4% 7.7%
9 Year Notes due 2006.................................. 50,000 7.4% 7.7%
9 Year Notes due 2007.................................. 300,000 6.8% 6.8%
10 Year Notes due 2007................................. 50,000 7.4% 7.7%
10 Year Notes due 2008................................. 300,000 6.8% 7.0%
20 Year Notes due 2018................................. 250,000 7.3% 7.6%
30 Year Notes due 2028................................. 225,000 7.3% 7.3%
---------- ---- ----
Subtotal............................................. 2,455,000 6.8% 7.0%
==== ====
Net premium (net of accumulated amortization of $0.3
million)............................................. 4,317
----------
Total................................................ $2,459,317
==========
</TABLE>
- ---------------
(1) Includes the cost of the terminated interest rate protection agreements,
offering and transaction costs, the premium on the warrants and the discount
on unsecured notes.
(2) The MOPPRS are subject to mandatory redemption in 2002, but do not mature
until 2012.
The Company filed a registration statement, which was declared effective on
June 18, 1998, relating to an offer to exchange the $180 Million Notes, the
$1.25 Billion Notes and the $250 million MOPPRS for registered securities of the
Company with terms identical in all material respects to the terms of the
existing notes and MOPPRS. This exchange offer expired on July 30, 1998 and a
majority of the holders exchanged their notes for registered notes of the
Company.
The Company filed a shelf registration statement, which was declared
effective on July 22, 1998, relating to the issuance from time to time of up to
$2.0 billion of unsecured debt securities and warrants exercisable for
97
<PAGE> 98
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- UNSECURED NOTES -- (CONTINUED)
debt securities in amounts, at initial prices and on terms to be determined at
the time of offering. The securities may be issued separately or together, in
separate series and in amounts, at prices and on terms to be described in one or
more supplements to the prospectus. The Company sold $1.0 billion of unsecured
notes in January 1999 under this registration statement.
The Company filed a registration statement, which was declared effective on
September 4, 1998, relating to an offer to exchange (a) the $775 Million Notes;
(b) the 300,000 warrants to purchase an additional $300 million in unsecured
notes at a later date; and (c) portions of the $1.25 Billion Notes and MOPPRS
for registered securities of the Company with terms identical in all material
respects to the terms of the existing securities. This exchange offer expired on
October 27, 1998 and a majority of the holders exchanged their notes for
registered securities of the Company.
NOTE 10 -- MINORITY INTERESTS IN PARTIALLY OWNED PROPERTIES
The following Properties are controlled and partially owned by the Company
but have partners with minority interests. The Company has included 100% of the
financial condition and results of operations of these properties in the
consolidated financial statements of the Company and the combined financial
statements of Equity Office Predecessors. The equity interests of the
unaffiliated partners are reflected as minority interests:
<TABLE>
<CAPTION>
COMPANY'S OWNERSHIP AS OF
PROPERTY DECEMBER 31, 1998 AND 1997
- -------- --------------------------
<S> <C>
5100 Brookline (CIGNA Center)............................... 95%(1)
The Plaza at La Jolla Village............................... 66.67%(1)
San Felipe Plaza............................................ 35%(2)
Capitol Commons Garage...................................... 50%(3)
Acorn Properties............................................ 89%(4)
</TABLE>
- ---------------
(1) The Company owns a controlling interest and is the managing general partner.
(2) The Company is the managing general partner and receives preferential
allocations resulting in the Company receiving 100% of the economic
benefits. Prior to the IPO, an affiliate of the Company was the managing
general partner.
(3) The Company owns a controlling interest and receives preferential
allocations. The unaffiliated partner is entitled to receive 50% of the
remaining cash flow after the Company receives its preferential allocations.
(4) The Company has an 89% managing general partner interest in 11 Office
Properties and receives preferential allocations entitling the Company to
99% of the economic benefits. The Company has the option of purchasing the
remaining interest in the 11 Office Properties, exercisable for a designated
period commencing three years after the respective closing dates on the
initial purchases, for additional consideration in the amount of
approximately $2.1 million, all payable in Units valued at $28.775 per Unit.
NOTE 11 -- SHAREHOLDERS' EQUITY
Common Shares
During the period from July 11, 1997 through December 31, 1997, in the
course of acquiring 28 Office Properties, one Parking Facility and an interest
in a management company, the Operating Partnership issued 8,711,157 Units and
the Company issued 3,435,688 Common Shares for a total of approximately $342.7
million. The total acquisition cost of these Properties and the interest in the
management company was approximately $1,315.4 million. In addition, the
Operating Partnership issued 8,570,886 Units and the
98
<PAGE> 99
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- SHAREHOLDERS' EQUITY -- (CONTINUED)
Company issued 84,425,856 Common Shares in connection with the Beacon Merger
(see Note 4). In July 1998, the Company filed a Form S-3 shelf registration
statement with the SEC, which was declared effective on September 4, 1998, to
register the resale of 20,210,129 Common Shares which may be sold by the holders
of previously privately issued Common Shares and/or certain Common Shares issued
in exchange for Units.
In December 1998, the Company filed a Form S-3 shelf registration statement
with the SEC to register 137,427 Common Shares which may be sold by the holders
thereof after the issuance of such Common Shares in exchange for Units.
In October 1997, the Company completed two private placements for a total
of 9,685,034 restricted Common Shares for a total value of approximately $273.9
million and subsequently registered a portion of the shares with the SEC.
In April 1998, the Company privately placed 1,628,009 Common Shares at
$28.5625 per share for net proceeds of approximately $44.1 million (the "UIT
Offering"). The Company used the net proceeds to fund property acquisitions.
These shares were subsequently registered with the SEC.
During 1998, the Company issued 7,043,510 Units at a weighted average price
of $25.07 per Unit for a total of approximately $176.6 million in connection
with the separate acquisition of three Office Properties located in Denver, CO.,
Seattle, WA. and New York, NY. These Units represented a portion of the total
acquisition cost of these Office Properties of approximately $697.2 million. In
September 1998, the Company filed a Form S-3 shelf registration statement with
the SEC to register the resale of 6,854,451 Common Shares which may be sold by
the holders thereof or by holders of Units upon the issuance of Common Shares in
exchange for such Units.
In July 1998, the Company filed a Form S-3 shelf registration statement
with the SEC, which was declared effective on July 22, 1998, to register the
issuance of $1.5 billion of Common Shares, preferred shares of beneficial
interest and warrants to be issued at prices and on terms to be determined at
the time of offering. The Company may issue the securities separately or
together, in separate series, in amounts, at prices and on terms described in
one or more supplements to the prospectus. The Series C Preferred Shares were
issued under this registration statement in December 1998.
The following table presents the changes in the Company's issued and
outstanding Common Shares since the Consolidation and IPO (excluding Units of
28,645,699 and 29,159,690 outstanding at December 31, 1998 and 1997
respectively, which are convertible into Common Shares on a one-for-one basis,
or the cash equivalent thereof, subject to certain restrictions):
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
OUTSTANDING AT JANUARY 1,............................... 249,527,663 --
Issued through UIT Offering............................. 1,628,009 --
Outstanding upon completion of the Consolidation and the
IPO................................................... -- 152,180,770
Issued in exchange for Properties....................... -- 3,435,688
Restricted share awards................................. 380,000 298,000
Issued as trustee compensation.......................... -- 5,055
Sale of Common Shares................................... -- 9,685,034
Issued for Beacon Merger (including 3,829,739 of Beacon
options exercised).................................... -- 84,425,856
Issued through exercise of options...................... 809,653 --
Issued through redemption of Units...................... 7,556,332 --
Held in treasury (1).................................... -- (502,740)
----------- -----------
OUTSTANDING AT DECEMBER 31,............................. 259,901,657 249,527,663
=========== ===========
</TABLE>
99
<PAGE> 100
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- SHAREHOLDERS' EQUITY -- (CONTINUED)
- ---------------
(1) There were 502,740 Common Shares held by the Operating Partnership as of
December 31, 1997. During 1998 these shares were retired.
Ownership of Operating Partnership
The Company's ownership in the Operating Partnership was approximately
90.1% and 89.5% as of December 31, 1998 and 1997, respectively.
Warrants
In connection with the December 1997 acquisition of 10 Office Properties,
the Company issued warrants that expire in December 2002 to purchase an
aggregate of 5,000,000 Common Shares at an exercise price of $39.375 per Common
Share. The warrants were valued at $3.00 per warrant utilizing the Black-Scholes
valuation model at the time of issuance, and are reflected as a component of
additional paid in capital.
Preferred Shares
On December 19, 1997, the Company exchanged its 8,000,000 8.98% Series A
Cumulative Redeemable Preferred Shares, liquidation preference of $25.00 per
share for the Beacon Series A Preferred Shares in connection with the Beacon
Merger. Holders of the shares are entitled to receive, when and as authorized by
the Company, cumulative preferential cash distributions at the rate of 8.98% of
the $25.00 liquidation preference per annum (equivalent to a fixed annual amount
of $2.245 per share). Such distributions are cumulative from December 19, 1997
and are payable quarterly in arrears of $.56125 per share on or before March 15,
June 15, September 15 and December 15 of each year. Holders of the shares have
no other voting rights except as provided by law and have no preemptive rights.
On and after June 15, 2022, the Company, at its option and upon not less than
30, nor more than 60 days written notice, may redeem the shares, in whole or in
part, at any time or from time to time, for cash at a redemption price of $25.00
per share, plus all accrued and unpaid distributions thereon to the date fixed
for redemption.
In February 1998, the Company privately placed (the "Series B Preferred
Share Offering") 6,000,000 of its 5.25% Series B Convertible, Cumulative
Redeemable Preferred Shares, $50 liquidation preference per share (the "Series B
Preferred Shares"). This offering generated net proceeds of approximately $290.3
million after offering costs of $9.7 million. The net proceeds were used to pay
down the line of credit. The Series B Preferred Shares are convertible at any
time by the holder into Common Shares at a conversion price of $35.70 per Common
Share, equivalent to a conversion ratio of 1.40056 Common Shares for each Series
B Preferred Share. The Series B Preferred Shares are non-callable for five years
with a mandatory call on February 15, 2008. Each Series B Preferred Share will
receive a quarterly distribution of $0.65625 per share.
The Company filed a registration statement, which was declared effective on
September 4, 1998, relating to the resale of the Series B Preferred Shares. The
shares were required to be registered under the terms of a registration rights
agreement entered into at the time of the original private placement.
In December 1998, the Company completed the offering (the "Series C
Preferred Share Offering") of 4,600,000 of its 8.625% Series C Cumulative
Redeemable Preferred Shares, $25 liquidation preference per share (the "Series C
Preferred Shares"). This offering generated net proceeds of approximately $111.4
million after offering costs of $3.6 million. The net proceeds were used to pay
down the $1.0 Billion Credit Facility. On and after December 8, 2003, the
Company may redeem the shares, in whole or in part, at any time or from time to
time, for cash at a redemption price of $25.00 per share, plus all accrued and
unpaid distributions thereon to the date fixed for redemption. Each Series C
Preferred Share will receive a quarterly distribution of $0.5390625 per share
which will commence in 1999.
100
<PAGE> 101
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- SHAREHOLDERS' EQUITY -- (CONTINUED)
Dividends/Distributions
The following table summarizes the dividends/distributions paid to Common
Share/Unit holders and Preferred Share holders related to the period from July
11, 1997 through December 31, 1997 and the year ended December 31, 1998.
<TABLE>
<CAPTION>
FOR THE QUARTER
DIVIDEND/ DISTRIBUTION DATE OR PERIOD RECORD
AMOUNT PAID ENDED DATE
---------------------- -------- --------------- --------
<S> <C> <C> <C> <C>
Common Share/Unit holders (1)...... $ 0.26(2) 10-9-97 9-30-97 9-29-97
$ 0.30 12-19-97 12-31-97 12-10-97
$ 0.32 4-10-98 3-31-98 3-31-98
$ 0.32 7-10-98 6-30-98 6-30-98
$ 0.37 10-9-98 9-30-98 9-30-98
$ 0.37 12-29-98 12-31-98 12-15-98
Series A Preferred Share holders... $ 0.56125 3-15-98 3-31-98 3-9-98
$ 0.56125 6-15-98 6-30-98 6-1-98
$ 0.56125 9-15-98 9-30-98 9-1-98
$ 0.56125 12-15-98 12-31-98 12-1-98
Series B Preferred Share holders... $0.619792(3) 5-15-98 6-30-98 5-1-98
$ 0.65625 8-17-98 9-30-98 8-3-98
$ 0.65625 11-16-98 12-31-98 11-2-98
</TABLE>
- ---------------
(1) For federal income tax purposes, 4.3% (unaudited) of the dividends paid in
1998 represented a non-taxable return of capital and the remaining 95.7%
(unaudited) represented ordinary income. In addition, 19.03% (unaudited) of
the dividends paid in 1997 represented a non-taxable return of capital and
the remaining 80.97% (unaudited) represented ordinary income.
(2) Prorated from IPO date of July 11, 1997 based on $.30 for the full quarter.
(3) Partial distribution of $0.619792 covers the period from February 19 through
May 15, 1998.
NOTE 12 -- FUTURE MINIMUM RENTS
Future minimum rental receipts due on noncancelable operating leases at the
Office Properties and Parking Facilities as of December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
1999........................................................ $1,384,661
2000........................................................ 1,288,011
2001........................................................ 1,129,233
2002........................................................ 940,647
2003........................................................ 754,906
Thereafter.................................................. 2,635,815
----------
Total..................................................... $8,133,273
==========
</TABLE>
The Company is subject to the usual business risks associated with the
collection of the above scheduled rents. The future minimum rents from the
Company's investment in unconsolidated joint ventures have not been included in
the above schedule.
101
<PAGE> 102
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- FUTURE MINIMUM LEASE PAYMENTS
As of December 31, 1998, the Company's ownership of 16 Office Properties
and four Parking Facilities are subject to ground leases. Certain of these
leases are subject to rental increases based upon the appraised value of the
Property at specified dates or certain financial calculations of the respective
Property. As disclosed in Note 19, the Company leases its office space from an
affiliate. Future minimum lease obligations under these noncancelable leases as
of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
1999........................................................ $ 8,379
2000........................................................ 8,593
2001........................................................ 8,498
2002........................................................ 8,324
2003........................................................ 5,665
Thereafter.................................................. 499,368
--------
Total..................................................... $538,827
========
</TABLE>
Rental expense for the year ended December 31, 1998, the period from July
11, 1997 through December 31, 1997, the period from January 1, 1997 through July
10, 1997, and the year ended December 31, 1996 was approximately $11.1 million,
$3.4 million, $3.8 million and $4.5 million, respectively.
NOTE 14 -- EXTRAORDINARY ITEMS
The Company incurred an extraordinary loss of approximately $7.5 million
during the year ended December 31, 1998. This loss consisted of approximately
$7.0 million of fees charged upon the termination of $300 million of interest
rate protection agreements in connection with the Series B Preferred Share
Offering and approximately $0.5 million of unamortized deferred financing costs
related to the termination of the $1.0 Billion Credit Facility.
In addition, the Company and Equity Office Predecessors reported an
extraordinary loss of approximately $16.4 million and $0.3 million, for the
period July 11 through December 31, 1997 and January 1 through July 10, 1997,
respectively, related to pre-payment penalties on debt retired prior to maturity
during the respective periods with net proceeds from the IPO and available cash
reserves.
102
<PAGE> 103
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per Common Share:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR ENDED JULY 11, 1997 THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ ---------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
NUMERATOR:
Net income available to Common Shares before gain on sales
of real estate and extraordinary items.................. $ 311,900 $ 87,303
Gain on sales of real estate.............................. 12,433 126
Extraordinary items....................................... (7,506) (16,366)
----------- -----------
Numerator for basic earnings per share -- income available
to Common Shares........................................ 316,827 71,063
Minority interest in Operating Partnership................ 36,226 7,010
----------- -----------
Numerator for diluted earnings per share -- income
available to Common Shares.............................. $ 353,053 $ 78,073
=========== ===========
DENOMINATOR:
Denominator for basic earnings per share -- weighted
average Common Shares................................... 253,167,037 162,591,477
----------- -----------
Effect of dilutive securities:
Redemption of Units to Common Shares.................... 28,947,306 16,056,085
Share options and put options........................... 1,860,189 1,366,465
----------- -----------
Dilutive potential Common Shares.......................... 30,807,495 17,422,550
----------- -----------
Denominator for diluted earnings per share -- adjusted
weighted average shares and assumed conversions......... 283,974,532 180,014,027
=========== ===========
BASIC EARNINGS AVAILABLE TO COMMON SHARES PER WEIGHTED
AVERAGE COMMON SHARE:
Net income before gain on sales of real estate and
extraordinary items..................................... $ 1.23 $ 0.54
Gain on sales of real estate.............................. 0.05 --
Extraordinary items....................................... (0.03) (0.10)
----------- -----------
Net income per Common Share............................... $ 1.25 $ 0.44
=========== ===========
DILUTED EARNINGS AVAILABLE TO COMMON SHARES PER WEIGHTED
AVERAGE COMMON SHARE:
Net income before gain on sales of real estate and
extraordinary items..................................... $ 1.23 $ 0.52
Gain on sales of real estate.............................. 0.04 --
Extraordinary items....................................... (0.03) (0.09)
----------- -----------
Net income per Common Share............................... $ 1.24 $ 0.43
=========== ===========
</TABLE>
For additional disclosures regarding the employee stock options and the
restricted shares see Note 21.
Options to purchase 2,969,608 Common Shares at a weighted average exercise
price of $30.27 per Common Share, warrants to purchase 5,000,000 Common Shares
at an exercise price of $39.375 per Common Share and the Series B Preferred
Shares at a conversion price of $35.70 per Common Share were outstanding during
the year ended December 31, 1998, and were not included in the computation of
diluted earnings per share for the year ended December 31, 1998, since they
would have an antidilutive effect. In addition, options to purchase 726,500
Common Shares at a weighted average exercise price of $32.93 per Common Share
and warrants to purchase 5,000,000 Common Shares at an exercise price of $39.375
per Common Share were outstanding during 1997 and were not included in the
computation of diluted earnings per share for the period from July 11, 1997
through December 31, 1997 since they would have an antidilutive effect.
103
<PAGE> 104
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- SEGMENT INFORMATION
As discussed in Note 1, the Company's primary business is the ownership and
operation of Office Properties. The Company's long-term tenants are in a variety
of businesses and no single tenant is significant to the Company's business.
Information related to this segment for the years ended December 31, 1998, 1997
and 1996 is below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------
OFFICE PROPERTIES CORPORATE AND OTHER TOTAL CONSOLIDATED
----------------- ------------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Property Operating Revenues............................. $ 1,627,881 $ 30,539 $ 1,658,420
Property Operating Expenses............................. (584,353) (8,353) (592,706)
----------- --------- -----------
Net operating income.................................. 1,043,528 22,186 1,065,714
----------- --------- -----------
Adjustments to arrive at net income:
Other revenues........................................ 1,879 19,400 21,279
Interest expense (1).................................. (144,989) (193,622) (338,611)
Depreciation and amortization......................... (294,308) (11,674) (305,982)
Ground rent........................................... (7,611) (50) (7,661)
General and administrative............................ (415) (63,149) (63,564)
----------- --------- -----------
Total adjustments to arrive at net income........... (445,444) (249,095) (694,539)
----------- --------- -----------
Income before allocation to minority interests, income
from investment in unconsolidated joint ventures, gain
on sales of real estate and extraordinary items....... 598,084 (226,909) 371,175
Minority interests...................................... (1,755) (36,585) (38,340)
Income from investment in unconsolidated joint
ventures.............................................. 7,832 3,435 11,267
Gain on sales of real estate and extraordinary items.... 12,433 (7,506) 4,927
----------- --------- -----------
Net income............................................ $ 616,594 $(267,565) $ 349,029
=========== ========= ===========
Capital and tenant improvements......................... $ 200,033 $ 7,060 $ 207,093
=========== ========= ===========
Total Assets............................................ $13,633,546 $ 627,745 $14,261,291
=========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------
OFFICE PROPERTIES CORPORATE AND OTHER TOTAL CONSOLIDATED
----------------- ------------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Property Operating Revenues............................. $ 711,153 $ 22,577 $ 733,730
Property Operating Expenses............................. (273,181) (5,023) (278,204)
----------- --------- -----------
Net operating income.................................. 437,972 17,554 455,526
----------- --------- -----------
Adjustments to arrive at net income:
Other revenues........................................ 1,236 17,106 18,342
Interest expense(1)................................... (114,122) (43,034) (157,156)
Depreciation and amortization......................... (128,137) (8,243) (136,380)
Ground rent........................................... (4,714) (46) (4,760)
General and administrative............................ (955) (33,936) (34,891)
----------- --------- -----------
Total adjustments to arrive at net income........... (246,692) (68,153) (314,845)
----------- --------- -----------
Income before allocation to minority interests, income
from investment in unconsolidated joint ventures, gain
on sales of real estate and extraordinary items....... 191,280 (50,599) 140,681
Minority interests...................................... (1,376) (7,335) (8,711)
Income from investment in unconsolidated joint
ventures.............................................. 2,432 2,723 5,155
Gain on sales of real estate and extraordinary items.... (3,278) (726) (4,004)
----------- --------- -----------
Net income............................................ $ 189,058 $ (55,937) $ 133,121
=========== ========= ===========
Capital and tenant improvements......................... $ 156,419 $ 2,678 $ 159,097
=========== ========= ===========
Total Assets............................................ $11,352,556 $ 399,116 $11,751,672
=========== ========= ===========
</TABLE>
104
<PAGE> 105
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------
OFFICE PROPERTIES CORPORATE AND OTHER TOTAL CONSOLIDATED
----------------- ------------------- ------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Property Operating Revenues............................. $ 483,193 $ 10,203 $ 493,396
Property Operating Expenses............................. (195,738) (3,102) (198,840)
----------- --------- -----------
Net operating income.................................. 287,455 7,101 294,556
----------- --------- -----------
Adjustments to arrive at net income:
Other revenues........................................ 1,954 12,774 14,728
Interest expense (1).................................. (112,500) (7,095) (119,595)
Depreciation and amortization......................... (92,077) (4,160) (96,237)
Ground rent........................................... (2,177) (50) (2,227)
General and administrative............................ (281) (22,864) (23,145)
----------- --------- -----------
Total adjustments to net income..................... (205,081) (21,395) (226,476)
----------- --------- -----------
Income before allocation to minority interests, income
from investment in unconsolidated joint ventures, gain
on sales of real estate and extraordinary items....... 82,374 (14,294) 68,080
Minority interests...................................... (1,733) (353) (2,086)
Income from investment in unconsolidated joint
ventures.............................................. 2,093 -- 2,093
Gain on sales of real estate and extraordinary items.... 5,338 -- 5,338
----------- --------- -----------
Net income............................................ $ 88,072 $ (14,647) $ 73,425
=========== ========= ===========
</TABLE>
- ---------------
(1) Interest expense for the Office Properties does not include allocation of
interest expense on corporate unsecured debt.
NOTE 17 -- PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
The pro forma data presented below is included to illustrate the effect on
the Company's operations as a result of the transactions described below.
The accompanying unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1998, reflects the following
transactions as if they had occurred on January 1, 1998: (a) the acquisition of
28 Office Properties, and two Parking Facilities, acquired during 1998; (b) the
disposition of five office properties; (c) the purchase of the remaining
partnership interests in one of the Company's unconsolidated joint ventures; (d)
the February 1998 $1.5 Billion Notes Offering; (e) the Series B Preferred
Offering and the Series C Preferred Offering; (f) the increase in the $600
Million Credit Facility to $1.0 billion; (g) the UIT Offering in April 1998, (h)
the June 1998 $775 Million Notes Offering and (i) the $48.5 million investment
in preferred shares of Capital Trust.
The accompanying unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1997 reflects the following
transactions as if they had occurred on January 1, 1997: (a) the acquisition of
66 Office Properties, including 20 Office Properties acquired by Beacon prior to
the Beacon Merger, and seven Parking Facilities, including an interest in four
Parking Facilities, acquired during the year ended December 31, 1997; (b) the
disposition of eight office properties; (c) the $180 Million Notes Offering
which closed on September 3, 1997; (d) the transactions that occurred in
connection with the Consolidation of Equity Office Predecessors and the IPO
which closed on July 11, 1997, and the decrease in interest expense resulting
from the use of the net proceeds for the repayment of mortgage debt; (e) the net
change in interest expense from draws on the $1.5 Billion Credit Facility used
to refinance existing mortgage debt; (f) the Beacon Merger; (g) the acquisition
of 28 Office Properties and two Parking Facilities acquired during 1998; (h) the
purchase of the remaining partnership interest in one of the Company's
unconsolidated joint ventures; (i) the February 1998 $1.5 Billion Notes
Offering; (j) the Series B Preferred Offering and the Series C Preferred
Offering; (k) the increase in the $600 Million Credit Facility to $1.0 billion;
(l) the UIT
105
<PAGE> 106
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED) -- (CONTINUED)
Offering; (m) the June 1998 $775 Million Notes Offering and (n) the $48.5
million investment in preferred shares of Capital Trust.
The accompanying unaudited pro forma condensed combined financial
statements have been prepared by management of the Company and do not purport to
be indicative of the results which would actually have been obtained had the
transactions described above been completed on the dates indicated or which may
be obtained in the future.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997
-------------- --------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
Total Revenues.............................................. $ 1,812,898 $ 1,705,598
=========== ===========
Income before extraordinary items........................... $ 348,202 $ 279,715
=========== ===========
Net income available for Common Shares...................... $ 296,800 $ 220,894
=========== ===========
Net income per Common Share -- Basic........................ $ 1.14 $ .86
=========== ===========
Common Shares outstanding -- Basic.......................... 259,902,000 257,203,000
=========== ===========
Net income per Common Share -- Diluted...................... $ 1.14 $ .85
=========== ===========
Common Shares outstanding -- Diluted........................ 290,824,000 289,136,000
=========== ===========
</TABLE>
NOTE 18 -- QUARTERLY DATA (UNAUDITED)
The quarterly data for the last three years are presented in the tables
below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------------
12/31/98 9/30/98 6/30/98 3/31/98
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
Total revenues.............................. $ 469,002 $ 436,933 $ 399,944 $ 373,820
=========== =========== =========== ===========
Income before allocation to minority
interests, income from investment in
unconsolidated joint ventures, gain on
sales of real estate and extraordinary
items..................................... $ 92,789 $ 96,176 $ 97,879 $ 84,331
=========== =========== =========== ===========
Net income.................................. $ 97,938 $ 89,423 $ 88,926 $ 72,742
=========== =========== =========== ===========
Net income available for Common Shares...... $ 88,866 $ 80,996 $ 80,494 $ 66,471
=========== =========== =========== ===========
Net income available per weighted average
Common Shares outstanding -- Basic........ $ 0.34 $ 0.32 $ 0.32 $ 0.27
=========== =========== =========== ===========
Net income available per weighted average
Common Share outstanding -- Diluted....... $ 0.34 $ 0.32 $ 0.32 $ 0.27
=========== =========== =========== ===========
Weighted average Common Shares outstanding
-- Basic.................................. 259,384,934 252,241,995 251,179,221 249,766,440
=========== =========== =========== ===========
Weighted average Common Shares outstanding
-- Diluted................................ 291,437,262 281,929,910 281,200,962 280,327,761
=========== =========== =========== ===========
</TABLE>
106
<PAGE> 107
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 -- QUARTERLY DATA (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------------
12/31/97 9/30/97(1) 6/30/97 3/31/97
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Total revenues.............................. $ 248,400 $ 183,886 $ 165,219 $ 154,567
=========== =========== =========== ===========
Income before allocation to minority
interests, income from investment in
unconsolidated joint ventures, gain on
sales of real estate and extraordinary
items..................................... $ 46,704 $ 45,736 $ 23,331 $ 24,910
=========== =========== =========== ===========
Net income.................................. $ 40,208 $ 31,290 $ 30,853 $ 30,769
=========== =========== =========== ===========
Net income available for Common Shares...... $ 39,559 $ 31,290 $ 30,853 $ 30,769
=========== =========== =========== ===========
Net income available per weighted average
Common Shares outstanding -- Basic........ $ 0.23 $ 0.21 -- --
=========== =========== =========== ===========
Net income available per weighted average
Common Shares outstanding -- Diluted...... $ 0.22 $ 0.21 -- --
=========== =========== =========== ===========
Weighted average Common Shares outstanding
-- Basic.................................. 172,307,010 151,691,121 -- --
=========== =========== =========== ===========
Weighted average Common Shares outstanding
-- Diluted................................ 193,055,145 165,384,651 -- --
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------------
12/31/96 9/30/96 6/30/96 3/31/96
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Total revenues.............................. $ 154,887 $ 126,117 $ 116,970 $ 110,150
=========== =========== =========== ===========
Income before allocation to minority
interests, income from investment in
unconsolidated joint ventures, gain on
sale of real estate and extraordinary
items..................................... $ 29,688 $ 11,015 $ 14,543 $ 12,834
=========== =========== =========== ===========
Net income.................................. $ 30,383 $ 11,024 $ 14,040 $ 17,978
=========== =========== =========== ===========
</TABLE>
- ---------------
(1) This column includes the operations of Equity Office Predecessors from July
1 through July 10, 1997 and the operations of the Company from July 11
through September 30, 1997. The earnings per share disclosures pertain only
to the operations of the Company from July 11 through September 30, 1997.
107
<PAGE> 108
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 - RELATED PARTY TRANSACTIONS
Affiliates provide various services to the Company. Fees and reimbursements
paid by the Company to affiliates for the years ended December 31, 1998, 1997
and 1996 and payable as of December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
PAYABLE AS OF
PAID IN YEAR ENDED DECEMBER 31, DECEMBER 31,
-------------------------------- -------------
1998 1997 1996 1998 1997
--------- -------- --------- ------ ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Legal fees and expenses(1)....................... $ 3,507 $3,006 $ 3,481 $ 978 $550
Insurance reimbursements and brokerage fees(2)... 3,323 2,279 1,868 (139) 32
Development, management and leasing fees(3)...... 4,405 434 702 -- --
Office rent(4)................................... 1,792 1,068 777 128 79
Administrative, accounting and consulting
services(5).................................... 750 1,373 1,893 169 72
Acquisition Fees(6).............................. -- 777 3,068 -- --
Organization and offering expenses(7)............ -- 106 778 -- --
Disposition fees................................. -- -- 124 -- --
------- ------ ------- ------ ----
Total....................................... $13,777 $9,043 $12,691 $1,136 $733
======= ====== ======= ====== ====
</TABLE>
- ---------------
(1) Represents amounts primarily paid to Rosenberg & Liebentritt, P.C., a law
firm, for legal fees and expenses incurred in connection with acquisition,
corporate and leasing activity. A trustee of the Company was a principal of
this law firm until September 1, 1997.
(2) Represents amounts paid to EGI Risk Services Inc. for reimbursement of
property insurance premiums to an affiliated company and fees for risk
management services including reviewing, obtaining and/or researching
various insurance policies. EGI Risk Services, Inc. is a wholly owned
subsidiary of the Equity Group, of which Samuel Zell is the Chairman of the
Board
(3) In December 1997, the Company acquired ten office properties from an entity
affiliated with Wright Runstad & Company for approximately $640 million. Mr.
Runstad, a principal of the Wright Runstad & Company, is a trustee of the
Company. In addition, the Company and an affiliate of the Equity Group
acquired a 30% non-controlling interest in WRALP, a subsidiary of Wright
Runstad & Company, which provides property management, leasing and
development services. The Company has agreed to make available to WRALP up
to $20 million in additional financing or credit support for future
development. As of December 31, 1998, no amounts have been funded. The
Company recorded income of approximately $1.3 million from it's investment
in WRALP for the year ended December 31, 1998.
WRALP serves as co-property manager with the Company for the properties
acquired from its affiliates in December, 1997 in addition to two properties
acquired during 1998. WRALP also serves as the developer on two projects
under construction, Sunset North Corporate Campus and Three Bellevue Center.
The Company has an 80% interest in each development project, and WRALP owns
the remaining 20% interest. WRALP is the developer of The World Trade in
Seattle, Washington. The Company has agreed to acquire that building after
its completion and occupancy by a third party tenant which is scheduled for
the first quarter of 2000.
The amounts for 1997 and 1996 represent development fees paid to an
affiliate of the Equity Group to manage the renovation project at the 28
State Street Office Building.
(4) The Company leases its corporate office space from an affiliate of the
Equity Group.
(5) Administrative services include fees paid to EGI for consulting services
such as economic and demographic research for possible acquisitions and real
estate tax consulting. In 1997 and 1996, administrative services also
includes fees paid to EGI for centralized services such as payroll
processing, employee benefits and telecommunications.
108
<PAGE> 109
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 - RELATED PARTY TRANSACTIONS -- (CONTINUED)
(6) Represents amounts paid by Equity Office Predecessors to Merrill Lynch, a
limited partner of the general partner of the ZML Funds.
(7) Affiliates of the Equity Group were reimbursed for reasonable costs incurred
in connection with the organization and the offering of units in the ZML
Funds, including legal and accounting fees and expenses, printing costs and
filing fees.
An affiliate of the Equity Group has an indirect minority interest in
Standard Parking Limited Partnership ("SPLP"). An affiliate of SPLP manages the
parking operations at certain Properties owned by the Company. Management
believes that amounts paid to SPLP's affiliate are equal to market for such
services.
On July 28, 1998, the Company completed the purchase of 50,000 shares of
Capital Trust 8.25% Step Up Convertible Trust Preferred Securities, $1,000
liquidation preference per share, for $48.5 million, in a private placement. Mr.
Zell, Chairman of the Board of Trustees of the Company, is also Chairman of the
Board of Capital Trust. The preferred shares are convertible at any time by the
holders into common shares of Capital Trust at a conversion price of $11.70,
reflecting a 30% conversion premium over Capital Trust's common share price at
the close of business on July 24, 1998. The preferred shares are non-callable
for five years, and have a 20-year maturity. The Company earned approximately
$1.7 million in dividends in 1998. The dividend is payable each calendar
quarter; commencing in year seven, the dividend will increase by 75 basis points
per annum. In connection with the investment, Capital Trust has granted the
Company and other investors the right to participate in certain strategic
lending opportunities. The Company classified this investment with other assets
on the balance sheet.
Amounts Received from Affiliates
Affiliates of the Company leased space in certain of the Office Properties
owned by the Company. The provisions of the leases are consistent with terms of
unaffiliated tenants' leases. Total rents and other amounts paid by affiliates
under the terms of their respective leases were approximately $0.3 million, $3.0
million and $3.5 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
The Company entered into various lease agreements with affiliates of SPLP
whereby such affiliates leased certain of the Company's stand-alone Parking
Facilities. Certain of these lease agreements provide such lessees with annual
successive options to extend the term of the lease through various dates. The
rent paid in the years ended December 31, 1998, 1997 and 1996 under these lease
agreements was approximately $13.1 million, $11.0 million and $3.2 million,
respectively. In addition, the Company may receive additional rent based upon
actual gross revenues generated by these Parking Facilities. In accordance with
certain of these leases, the Company may be obligated to make an early
termination payment if agreement is not reached as to rent amounts to be paid
for future periods.
109
<PAGE> 110
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- NON-CASH INVESTING AND FINANCING ACTIVITIES
Additional supplemental disclosures of non-cash investing and financing
activities of the Company are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR ENDED JULY 11, 1997 THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mortgage loans and lines of credit assumed through
Beacon Merger........................................ $ -- $1,160,451
======== ==========
Net liabilities assumed through Beacon Merger.......... $ -- $ 72,034
======== ==========
Common Shares and Units issued through Beacon Merger
(assuming exercise of 4,732,822 Options)............. $ -- $2,853,266
======== ==========
8.98% Series A Cumulative Redeemable Preferred Shares
exchanged in the Beacon Merger....................... $ -- $ 200,000
======== ==========
Common Shares, Units and put options issued through
property acquisitions (including warrants valued at
$15.0 million in 1997)............................... $204,008 $ 357,672
======== ==========
Mortgage loans assumed/promissory notes issued through
property acquisitions................................ $406,837 $ 263,048
======== ==========
Mortgage loans and line of credit assumed in the
Consolidation........................................ $ -- $2,196,708
======== ==========
Net liabilities assumed in the Consolidation........... $ -- $ 62,706
======== ==========
Common Shares and Units issued in the Consolidation.... $ -- $2,830,918
======== ==========
</TABLE>
In addition, Equity Office Predecessors assumed mortgage debt through
property acquisitions of $92.1 million for the year ended December 31, 1996.
NOTE 21 -- SHARE OPTION PLAN AND SHARE AWARD PLAN
In July 1997, the Company adopted the 1997 Share Option and Share Award
Plan, as amended, (the "Employee Plan"). The purpose of the Employee Plan is to
attract and retain highly qualified executive officers, trustees, employees and
consultants. Through the Employee Plan, certain officers, trustees, certain
employees and consultants of the Company are offered the opportunity to acquire
Common Shares pursuant to grants of (i) options to purchase Common Shares
("Options"); and (ii) Share Awards. The Employee Plan is administered by the
Compensation and Option Committee (the "Compensation Committee") which is
appointed by the Board of Trustees of the Company. The Compensation Committee
determines those officers, trustees, key employees and consultants to whom, and
the time or times of which, grants of Options and Share Awards will be made. The
Compensation Committee interprets the Employee Plan, adopts rules relating
thereto and determines the terms and provisions of Options. In 1997 and 1998,
the Common Shares subject to Options and Share Awards under the Employee Plan
were limited to 11,121,786. The maximum aggregate number of Common Shares that
may be granted for all rights under the Plan shall not exceed 6.8% of the
outstanding shares, calculated on a fully diluted basis and determined annually
on the first day of each calendar year. No more than one-half of the maximum
aggregate number of Common Shares shall be granted as Share Awards. To the
extent that Options expire unexercised or are terminated, surrendered or
canceled, the Common Shares allocated to such Options shall become available for
future grants under the Plan, unless the Plan has terminated. The Employee Plan
will terminate at such times as it issues all of the unissued Common Shares
reserved for the Plan. The Board of Trustees may at any time amend or terminate
the
110
<PAGE> 111
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 21 -- SHARE OPTION PLAN AND SHARE AWARD PLAN -- (CONTINUED)
Employee Plan, but termination will not affect Options and Share Awards
previously granted. Any Options or Share Awards which had vested prior to such
termination would remain exercisable by the holder thereof.
The Compensation Committee determines the vesting schedule of each Option
and the term, which term shall not exceed ten years from the date of the grant.
As to the Options that have been granted through December 31, 1998, the vesting
schedules range from the entire option grant being exercisable as of the grant
date, to one-third of the Options being exercisable as of the first anniversary
of the grant date, an additional one-third being exercisable as of the second
anniversary of the grant date and the remaining one-third of the Options being
exercisable as of the third anniversary of the grant date. The exercise price
for all Options under the Employee Plan shall not be less than the fair market
value of the underlying Common Shares at the time the Option is granted.
In addition, the Employee Plan permits the Company to issue Share Awards to
executive officers, other key employees and trustees upon such terms and
conditions as shall be determined by the Compensation Committee in its sole
discretion. A share award is an award of Common Shares which (i) may be fully
vested upon issuance ("Share Awards") or (ii) may be subject to risk of
forfeiture under Section 83 of the Internal Revenue Code ("Restricted Share
Award"). Generally, for 1997 and 1998, members of the Board of Trustees have
been granted Share Awards pursuant to the Employee Plan as payment of their
board fees. In addition, certain senior officers were issued Share Awards as
part of their bonus for fiscal year 1998. In each case, the number of Share
Awards granted to trustees and senior officers was equal to the dollar value of
the fees or bonus earned divided by the fair market value of the shares on the
date the fee or bonus would have been paid. In addition to these Share Awards,
Restricted Share Awards were granted to certain senior officers in 1997 and
1998. The Restricted Share Awards vest over a five year period as follows: (i)
fifty percent of the restricted Share Awards vest on the third anniversary of
the initial grant date; (ii) an additional twenty-five percent of the restricted
Share Awards vest on the fourth anniversary of the initial grant date; and (iii)
the remaining twenty-five percent of the restricted Share Awards vest on the
fifth anniversary of the initial grant date.
The Company has elected to apply the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25")
in the computation of compensation expense. Under APB No. 25's intrinsic value
method, compensation expense is determined by computing the excess of the market
price of the shares over the exercise price on the measurement date. For the
Company's Options, the intrinsic value on the measurement date (or grant date)
is zero, and no compensation expense is recognized. Financial Accounting
Standards Board No. 123 ("FASB No. 123") requires the Company to disclose pro
forma net income and income per share as if a fair value based accounting method
had been used in the computation of compensation expense. The fair value of the
Options computed under FASB No. 123 would be recognized over the vesting period
of the Options. The fair value for the Company's Options granted in 1998 and
1997 was estimated at the time the Options were granted using the Black-Scholes
option pricing model with the following weighted average assumptions for 1998
and 1997, respectively: risk-free interest rate of 5.4% and 5.6%; dividend
yields of 5.8% and 4.0%; volatility factors of the expected market price of the
Company's Common Shares of 0.30 and 0.24; and a weighted average expected life
of the Options of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's Options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its Options.
111
<PAGE> 112
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 21 -- SHARE OPTION PLAN AND SHARE AWARD PLAN -- (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
Options is amortized to expense over the Options' vesting period. The following
is the unaudited pro forma information for the year ended December 31, 1998 and
the period from July 11, 1997 through December 31, 1997:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR ENDED JULY 11, 1997 THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Pro forma net income available to Common Shares before
gain on sales of real estate and extraordinary
items................................................. $310,051 $ 85,654
Gain on sales of real estate and extraordinary items.... 4,927 (16,240)
-------- --------
Pro forma net income available to Common Shares......... $314,978 $ 69,414
======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR ENDED JULY 11, 1997 THROUGH
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ -----------------------
BASIC DILUTED BASIC DILUTED
------ -------- ----- -------
EARNINGS PER SHARE
<S> <C> <C> <C> <C>
Pro forma net income available to Common Shares before
gain on sales of real estate and extraordinary
items................................................ $1.22 $1.22 $ .53 $ .51
Gain on sales of real estate and extraordinary items... .02 .02 (0.10) (0.09)
----- ----- ----- -----
Pro forma net income per weighted average Common Share
outstanding.......................................... $1.24 $1.24 $ .43 $ .42
===== ===== ===== =====
</TABLE>
The table below summarizes the Option activity of the Employee Plan for the
year ended December 31, 1998 and the period from July 11, 1997 through December
31, 1997:
<TABLE>
<CAPTION>
COMMON SHARES SUBJECT TO WEIGHTED AVERAGE EXERCISE
OPTIONS OR AWARDS PRICE PER COMMON SHARE
------------------------ -------------------------
<S> <C> <C>
Balance at July 11, 1997...................... -- $ --
Options granted............................... 5,814,583 22.22
Options cancelled............................. (67,275) 21.16
--------- ------
Balance at December 31, 1997.................. 5,747,308 22.23
Options granted............................... 4,695,072 26.38
Options cancelled............................. (93,145) 25.54
Options exercised............................. (916,451) 19.74
--------- ------
Balance at December 31, 1998.................. 9,432,784 $24.50
========= ======
</TABLE>
As of December 31, 1998, there were 2,678,831 Options under the Employee
Plan that were exercisable and 6,753,953 Options that were not exercisable.
Exercise prices for the 9,432,784 Options outstanding as of December 31, 1998
ranged from $12.09 to $33.00, with a weighted average exercise price of $24.50.
Expiration dates ranged from July 11, 2007 to December 31, 2008. The remaining
weighted average contractual life of Options was 9.06 years. The weighted
average grant date fair value of Options granted during 1998 and 1997 was $4.88
and $4.44, respectively. In addition, there were 380,000 and 298,000 Restricted
Shares issued during 1998 and 1997, respectively, which vest over three to five
years.
112
<PAGE> 113
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 22 -- COMMITMENTS AND CONTINGENCIES
Concentration of Credit Risk
The Company maintains its cash and cash equivalents at financial
institutions. The combined account balances at each institution periodically
exceed FDIC insurance coverage and, as a result, there is a concentration of
credit risk related to amounts on deposit in excess of FDIC insurance coverage.
Management of the Company believes that the risk is not significant. The Company
from time to time enters into interest rate protection agreements to effectively
convert floating rate debt to a fixed rate basis, as well as to hedge
anticipated financing transactions. The Company believes it has limited exposure
to the extent of non-performance by the swap counterparties since each
counterparty is a major U.S. financial institution, and management does not
anticipate its non-performance. Currently, the Company has one interest rate
protection agreement which effectively fixed the interest rate on a $93.6
million loan at 6.94% through the maturity of the loan on June 30, 2000.
Environmental
The Company, as an owner of real estate, is subject to various
environmental laws of federal and local governments. Compliance by the Company
with existing laws has not had a material adverse effect on the Company's
financial condition and results of operations, and management does not believe
it will have such an impact in the future. However, the Company cannot predict
the impact of new or changed laws or regulations on its current Properties or on
properties that it may acquire in the future.
Litigation
The Company has become a party to various legal actions resulting from the
operational activities transferred to the Operating Partnership in connection
with the Consolidation and the Beacon Merger. These actions are incidental to
the transferred business and management does not believe that these actions will
have a material adverse effect on the Company.
Neither the Company nor any of the Properties is presently subject to any
material litigation nor, to the Company's knowledge, is any litigation
threatened against the Company or any of the Properties, other than actions
which the Company does not believe to be material, or routine actions for
negligence and other claims and administrative 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 effect on the liquidity, business, results of operations or
financial condition of the Company.
Geographical
The Company carries earthquake insurance on all of the Properties,
including those located in California, subject to coverage limitations which the
Company believes are commercially reasonable. In light of the California
earthquake risk, California building codes since the early 1970s have
established construction standards for all new buildings. The current and
strictest construction standards were adopted in 1987. Of the 44 Properties
located in California, 13 have been built since January 1, 1988 and the Company
believes that all of the Properties were constructed in full compliance with the
applicable standards existing at the time of construction. No assurance can be
given that material losses in excess of insurance proceeds will not occur in the
future.
Commitments
In February 1998, the Company entered into a contract to purchase the Rand
Tower Garage in Minneapolis, Minnesota upon completion of the parking structure.
The purchase price for this 589 space parking facility will be approximately
$19.0 million and is scheduled for completion in the second quarter of
113
<PAGE> 114
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 22 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
1999. This transaction is contingent upon certain terms and conditions as set
forth in the purchase agreement. There can be no assurance that this transaction
will be consummated as described above.
In March 1998, the Board of Trustees of the Company approved the purchase
of Prominence, an office building development in Atlanta, Georgia. The property
will consist of approximately 425,706 square feet of office space and 1,350
parking spaces, and is expected to be acquired upon its completion in the third
quarter of 1999. The purchase price for the described assets and amounts to be
incurred for tenanting the property is expected to be approximately $87.0
million. The purchase price does not include the acquisition of an 11.88-acre
site that may be used to develop Phase II of Prominence. This transaction is
contingent upon certain terms and conditions as set forth in the purchase
agreement. There can be no assurance that this transaction will be consummated
as described above.
In July 1998, the Company entered into an agreement to purchase the World
Trade Center project in Seattle, Washington. The property will consist of
approximately 186,787 square feet of office space, is scheduled for shell
completion in the first quarter of 2000 and is 100% preleased to a single
tenant. After the tenant takes full occupancy in early 2000, the Company is
expected to purchase the building for approximately $39.0 million. This
transaction is contingent upon certain terms and conditions as set forth in the
purchase agreement. There can be no assurance that this transaction will be
consummated as described above.
In accordance with the agreement governing the Company's investment in
WRALP (see Note 6), the Company agreed to make available to WRALP up to $20.0
million in additional financing or credit support for future development. As of
December 31, 1998, no amounts have been funded pursuant to this agreement.
Contingencies
Effective as of August 13, 1998, the Company amended a pre-existing put
option agreement with certain sellers of the Wright Runstad Properties (the "WR
Holders"). The WR Holders have the option on August 13, 1999 to require the
Company to purchase all or a portion of the 3,435,688 Common Shares, issued at
acquisition, at a price equal to $31.50 per Common Share. Prior to August 13,
1999, if the WR Holders sell all or a portion of their Common Shares to a third
party for a price less than $29.10625 per Common Share, then the Company shall
pay to the WR Holders an amount equal to the difference between such sales price
and $29.10625 multiplied by the number of Common Shares sold, not to exceed
$3.00 per Common Share. Any amounts paid by the Company as a result of such
sale, calculated as the difference between the sales price and $29.10625 not
exceeding $3.00 per Common Share, shall be recorded as a reduction of
shareholders' equity. For options exercised on August 13, 1999, any amounts paid
up to $29.10625 per Common Share would be reflected as a reduction to
shareholders' equity; the portion of any amounts paid in excess of $29.10625 per
Common Share (not to exceed $31.50 per Common Share) would be expensed by the
Company. The portion expensed would not exceed $2.39375 per Common Share.
Effective as of September 3, 1998, the Company amended its pre-existing put
option agreement with the seller of the Columbus America Properties (the "CA
Holder") related to 1,692,546 Units issued at acquisition. The CA Holder has the
option at any time after January 1, 1999 until the earlier of a) September 3,
2000 or b) the date the CA Holder has converted all of its Units to Common
Shares, to require the Company to purchase the Units at a price equal to $29.00
per Unit. Under the terms of the agreement, prior to September 3, 1999, the
option shall be limited to an aggregate of 846,273 Units. In the event of any
option exercise, the Company will recognize any cash paid as a reduction of
minority interest.
In connection with the acquisition of Worldwide Plaza on October 1, 1998,
the Company issued a transferable put option on Units exercisable only on the
third anniversary of closing with an estimated fair value of approximately $27.4
million. This option entitles its holder to additional Common Shares, the number
of which shall be determined using a formula based on the extent, if any, that
the Common Shares are then trading at less than $29.05 per share.
114
<PAGE> 115
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 23 -- SUBSEQUENT EVENTS
1) On January 7, 1999, the Company acquired Texas Commerce Tower located
in Irving, Texas from an unaffiliated party for approximately $55.2
million in cash. The office building contains approximately 357,121
square feet of office space and approximately 12,013 square feet of
retail space and was approximately 96.8% occupied as of December 31,
1998.
2) On January 7, 1999, the Company acquired Computer Associates Tower
located in Irving, Texas from an unaffiliated party for approximately
$51.2 million in cash. The office building contains approximately
345,539 square feet of office space and approximately 15,276 square
feet of retail space and was approximately 97.5% occupied as of
December 31, 1998.
3) On January 15, 1999, the Board of Trustees of the Company declared a
first quarter distribution for the Series B Preferred Shares of
$0.65625 per share. The distribution was paid on February 16, 1999 to
holders of record as of February 1, 1999.
4) On January 26, 1999, the Company issued $1.0 billion of unsecured
notes (the "1.0 Billion Notes") in an offering to institutional
investors (the "1.0 Billion Notes Offering"). The offering consisted
of three tranches: $200 million of 6.375% notes due 2002, $300 million
of 6.5% notes due 2004, and $500 million of 6.8% notes due 2009. Total
proceeds to the Company, net of discounts and selling commissions,
were approximately $990.1 million. The net proceeds were used to pay
down certain secured debt and borrowings under the $1.0 Billion Credit
Facility. Including amortized offering expenses, the weighted average
interest cost of the notes is 6.8%.
5) On January 28, 1999, the Company acquired City Center Bellevue located
in Bellevue, Washington from an unaffiliated party for approximately
$115.3 million in cash. The office building contains approximately
448,881 square feet of office space and approximately 23,706 square
feet of retail space and was approximately 99.0% occupied as of
December 31, 1998.
6) On February 16, 1999, the Board of Trustees of the Company declared a
first quarter dividend for the Series A Preferred Shares and the
Series C Preferred Shares of $0.56125 and $0.580989583, respectively.
The Series A distribution will be paid on March 15, 1999 to holders of
record as of March 1, 1999. The Series C distribution represents a pro
rata distribution from December 8, 1998 through March 14, 1999 and
will be paid on March 15, 1999 to holders of record as of March 1,
1999.
115
<PAGE> 116
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
116
<PAGE> 117
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information about Trustees of the Company is incorporated by reference from
the discussion under Proposal 1 of our Proxy Statement for the 1999 Annual
Meeting of Shareholders. The balance of the response to this item is contained
in the discussion entitled Executive and Senior Officers of the Company in Part
I of this report.
ITEM 11. EXECUTIVE COMPENSATION.
Information about executive compensation is incorporated by reference from
the discussion under the heading Executive Compensation in our Proxy Statement
for the 1999 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information about security ownership of certain beneficial owners and
management is incorporated by reference from the discussion under the heading
Equity Office Common Share and Unit Ownership by Trustees and Executive Officers
in our Proxy Statement for the 1999 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information about certain relationships and transactions with related
parties is incorporated herein by reference from the discussion under the
heading Certain Relationships and Related Transactions in our Proxy Statement
for the 1999 Annual Meeting of Shareholders.
117
<PAGE> 118
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (2) Financial Statements and Schedules:
FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheets of Equity Office Properties Trust as of
December 31, 1998 and 1997
Consolidated Statements of Operations of Equity Office Properties Trust for
the year ended December 31, 1998 and the period from July 11, 1997 through
December 31, 1997, and the Combined Statements of Operations of Equity Office
Predecessors for the period from January 1, 1997 through July 10, 1997 and the
year ended December 31, 1996
Consolidated Statements of Shareholders' Equity of Equity Office Properties
Trust for the year ended December 31, 1998 and the period from July 11, 1997
through December 31, 1997, and the Combined Statements of Owners' Equity of
Equity Office Predecessors for the period from January 1, 1997 through July 10,
1997 and the year ended December 31, 1996
Consolidated Statements of Cash Flows of Equity Office Properties Trust for
the year ended December 31, 1998 and the period from July 11, 1997 through
December 31, 1997, and the Combined Statements of Cash Flows of Equity Office
Predecessors for the period from January 1, 1997 through July 10, 1997 and the
year ended December 31, 1996
Notes to Consolidated and Combined Financial Statements
SCHEDULES
Schedule III -- Real Estate and Accumulated Depreciation
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO DESCRIPTION
- ------- -----------
<C> <S> <C>
3.1 Articles of Amendment and Restatement of Declaration of Trust of the
Company (incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Forms S-11 (Reg. No. 333-26629)
3.2* Articles Supplementary of the Company, dated December 15, 1997 and
filed with the Maryland State Department of Assessments and Taxation on
December 17, 1997
3.3* Articles Supplementary of the Company, dated February 18, 1998 and
filed with the Maryland State Department of Assessments and Taxation on
February 19, 1998
3.4 Articles Supplementary of the Company, dated December 1, 1998 as filed
with the Maryland State Department of Assessments and Taxation on
December 4, 1998 (incorporated herein by reference to Exhibit 4.3 of
the Company's Registration Statement on Form 8-A dated December 1,
1998)
3.5 Bylaws of the Company (incorporated herein by reference to Exhibit 3.2
of the Company's Current Report on Form 8-K filed with the SEC on June
30, 1998.)
4.1* Indenture, dated as of September 2, 1997, between the Operating
Partnership and State Street Bank and Trust Company
</TABLE>
118
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NO DESCRIPTION
- ------- -----------
<C> <S> <C>
4.2* First Supplemental Indenture, dated as of February 9, 1998, between the
Operating Partnership and State Street Bank and Trust Company
4.3 Form of 6.375% Note due 2003 (incorporated herein by reference to
Exhibit 4.10 of the Operating Partnership's Registration Statement on
Form S-4 (Reg. No. 333-61469))
4.4 Form of 6.625% Note due 2005
4.5 Form of 6.750% Note due 2008 (incorporated herein by reference to
Exhibit 4.11 of the Operating Partnership's Registration Statement on
Form S-4 (Reg. No. 333-61469))
4.6 Form of 7.250% Note due 2018
4.7 Form of 6.376% Mandatory Par Put Remarketed Securities due 2012
(incorporated herein by reference to Exhibit 4.12 of the Operating
Partnership's Registration Statement on Form S-4 (Reg. No. 333-61469))
4.8 $30,000,000 7.24% Senior Note due 2004
4.9 $50,000,000 7.36% Senior Note due 2005
4.10 $50,000,000 7.44% Senior Note due 2006
4.11 $50,000,000 7.41% Senior Note due 2007
4.12 Form of 6.50% Notes due 2004 (incorporated herein by reference to
Exhibit 4.3 of the Operating Partnership's Registration Statement on
Form S-4 (Reg. No. 333-61469))
4.13 Form of 6.763% Notes due 2007 (incorporated herein by reference to
Exhibit 4.4 of the Operating Partnership's Registration Statement on
Form S-4 (Reg. No. 333-61469))
4.14 Form of 7.25% Notes due 2028 (incorporated herein by reference to
Exhibit 4.5 of the Operating Partnership's Registration Statement on
Form S-4 (Reg. No. 333-61469))
4.15 Debt Warrant Agreement, dated as of June 15, 1998 between the Company
and the Warrant Agent (incorporated herein by reference to Exhibit 4.8
of the Operating Partnership's Registration Statement on Form S-4 (Reg.
No. 333-61469))
4.16 Form of Global Debt Warrant Certificate (incorporated herein by
reference to Exhibit 4.9 of the Operating Partnership's Registration
Statement on Form S-4 (Reg. No. 333-61469))
4.17 Form of 6.375% Note due 2002 (incorporated herein by reference to
Exhibit 4.1 of the Operating Partnership's Current Report on Form 8-K
filed with the SEC on January 25, 1999)
4.18 Form of 6.5% Note due 2004 (incorporated herein by reference to Exhibit
4.2 of the Operating Partnership's Current Report on Form 8-K filed
with the SEC on January 25, 1999)
4.19 Form of 6.8% Note due 2009 (incorporated herein by reference to Exhibit
4.3 of the Operating Partnership's Current Report on Form 8-K filed
with the SEC on January 25, 1999)
4.20 Term Loan Agreement for $328,000,000 Term Credit Facility dated as of
August 14, 1998
4.21 Term Loan Agreement for $200,000,000 Term Credit Facility dated as of
September 22, 1998
10.1* Agreement of Limited Partnership of the Operating Partnership, dated as
of July 3, 1997, as amended
10.2* Registration Rights Agreement, dated as of July 11, 1997, among the
Company and the persons named therein
10.3* Noncompetition Agreement between the Company and Samuel Zell
10.4* Contribution Agreement, dated as of April 30, 1997, among the Company
and the persons named therein
10.5* Merger Agreement, dated as of April 30, 1997, among the Company and the
persons named therein
</TABLE>
119
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NO DESCRIPTION
- ------- -----------
<C> <S> <C>
Each member of the Company's Board of Trustees and each Executive
10.6* Officer of the Company has entered into an Indemnification Agreement
with the Company. These Indemnification Agreements are identical in all
material respects. The schedule below sets forth the terms of each
Indemnification Agreement not filed which differ from the copy of the
example Indemnification Agreement (between the Company and Samuel Zell,
dated as of October 9, 1996), which is filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997, as amended:
NAME DATE AS OF
------------------------------------------------------------ ----------
Timothy H. Callahan......................................... 10/9/96
Richard D. Kincaid.......................................... 3/14/97
Sheli Z. Rosenberg.......................................... 3/12/97
Thomas E. Dobrowski......................................... 7/11/97
James D. Harper, Jr......................................... 7/11/97
Jerry M. Reinsdorf.......................................... 7/11/97
William M. Goodyear......................................... 7/11/97
David K. McKown............................................. 7/11/97
H. Jon Runstad.............................................. 12/18/97
Edwin N. Sidman............................................. 12/24/97
D.J. Andre de Bock.......................................... 5/15/98
Michael A. Steele........................................... 10/9/96
Stanley M. Stevens.......................................... 10/9/96
Jeffrey L. Johnson.......................................... 3/14/97
10.7 Agreement and Plan of Merger, dated September 15, 1997, as amended,
among the Company, the Operating Partnership, Beacon and Beacon
Partnership (incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated September 15, 1997)
12.1 Statement Regarding Computation of Ratios
21.1 List of Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
24.1 Power of Attorney (included in signature page)
27.1 Financial Data Schedule
99.1 Equity Office Properties Trust 1997 Non-Qualified Employee Share
Purchase Plan Financial Statements as of and for the year ended
December 31, 1998.
</TABLE>
- ---------------
* Incorporated herein by reference to the same-numbered exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, as amended
(b) Reports on Form 8-K:
-- Dated December 8, 1998 including Item 5 (Other Events)
(c) Exhibits
See Item 14(a)(3) above.
(c) Financial Statement Schedules:
None
120
<PAGE> 121
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Chicago, Illinois, as of the 16th day of March, 1999.
EQUITY OFFICE PROPERTIES TRUST
/s/ TIMOTHY H. CALLAHAN
By:
--------------------------------------
Timothy H. Callahan
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated as of the 16th day of March, 1999.
Each person whose signature appears below hereby constitutes and appoints
Samuel Zell and Timothy H. Callahan, and each of them, his attorney-in-fact and
agent, with full power of substitution and resubstitution for him in any and all
capacities, to sign any or all amendments to this annual report on Form 10-K for
the fiscal year ended December 31, 1998, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto such attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that such attorney-in-fact or his substitutes may do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<C> <S>
/s/ TIMOTHY H. CALLAHAN President, Chief Executive Officer and Trustee
- ------------------------------------------------ (principal executive officer)
Timothy H. Callahan
/s/ RICHARD D. KINCAID Chief Financial Officer (principal financial
- ------------------------------------------------ officer and principal accounting officer)
Richard D. Kincaid
/s/ SAMUEL ZELL Chairman of the Board of Trustees
- ------------------------------------------------
Samuel Zell
/s/ D.J.A. DE BOCK Trustee
- ------------------------------------------------
D.J.A. de Bock
/s/ THOMAS E. DOBROWSKI Trustee
- ------------------------------------------------
Thomas E. Dobrowski
/s/ WILLIAM M. GOODYEAR Trustee
- ------------------------------------------------
William M. Goodyear
/s/ JAMES D. HARPER, JR. Trustee
- ------------------------------------------------
James D. Harper, Jr.
</TABLE>
121
<PAGE> 122
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<C> <S>
/s/ DAVID K. MCKOWN Trustee
- ------------------------------------------------
David K. McKown
/s/ JERRY M. REINSDORF Trustee
- ------------------------------------------------
Jerry M. Reinsdorf
/s/ SHELI Z. ROSENBERG Trustee
- ------------------------------------------------
Sheli Z. Rosenberg
Trustee
- ------------------------------------------------
H. Jon Runstad
/s/ EDWIN N. SIDMAN Trustee
- ------------------------------------------------
Edwin N. Sidman
</TABLE>
122
<PAGE> 123
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
--------------
ENCUMBRANCES
DESCRIPTION NOTES LOCATION AT 12/31/98 NOTES LAND
----------- ------ -------- -------------- ------ --------------
<C> <S> <C> <C> <C> <C> <C>
Office Properties:
1 60 Spear Street Building....................... (3) San Francisco, CA $ -- $ 2,125,200
2 San Felipe Plaza............................... (3) Houston, TX 52,306,400 13,471,300
3 5100 Brookline................................. (3) Oklahoma City, OK -- 570,700
4 Summit Office Park............................. (3) Ft. Worth, TX -- 1,421,100
5 Intercontinental Center........................ (3) Houston, TX -- 1,752,200
6 Four Forest.................................... (3) Dallas, TX -- 4,767,900
7 Dominion Tower................................. (3) Norfolk, VA -- 4,643,700
8 Northborough Tower............................. (3) Houston, TX -- 1,705,400
9 500 Marquette Building......................... (3) Albuquerque, NM -- 2,219,800
10 Atrium Towers.................................. (3) Oklahoma City, OK -- 749,100
11 Community Corporate Center..................... (3) Columbus, OH 16,675,100 3,018,900
12 Sarasota City Center........................... (3) Sarasota, FL -- 2,239,600
13 Denver Corporate Center II and III............. (3) Denver, CO -- 6,059,400
14 University Tower............................... (3) Durham, NC -- 2,085,100
15 Shelton Pointe................................. (3) Shelton, CT -- 1,513,900
16 San Jacinto Center............................. (3) Austin, TX -- 5,074,500
17 1111 19th Street............................... (3) Washington, D.C. -- 5,024,000
18 Bank One Center / Tower........................ (3) Indianapolis, IN -- 14,608,200
19 North Central Plaza Three...................... (3) Dallas, TX -- 3,632,100
20 The Quadrant................................... (3) Englewood, CO -- 4,357,300
21 Canterbury Green............................... (3)(4) Stamford, CT 19,070,700 --
22 Three Stamford Plaza........................... (3) Stamford, CT 16,594,500 3,956,600
23 Union Square................................... (3) San Antonio, TX -- 2,368,500
24 One North Franklin............................. (3) Chicago, IL -- 9,830,500
25 1620 L Street.................................. (3) Washington, DC -- 2,708,200
26 300 Atlantic Street............................ (3) Stamford, CT -- 4,632,300
27 One & Two Stamford Plaza....................... (3) Stamford, CT -- 8,267,700
28 Sterling Plaza................................. (3) Dallas, TX -- 3,810,600
29 1700 Higgins................................... (3) Des Plaines, IL 3,298,100 (5) 1,323,100
30 Franklin Plaza................................. (3) Austin, TX 33,265,100 (5) 6,502,400
31 Northwest Center............................... (3) San Antonio, TX 6,309,000 (5) 1,948,000
32 One Columbus Building.......................... (3) Columbus, OH 28,677,500 (5) 4,956,300
33 One Crosswoods Center.......................... (3) Columbus, OH 3,366,000 (5) 1,058,900
34 One Lakeway.................................... (3) Metairie, LA 9,463,500 (5) 2,803,900
35 Three Lakeway.................................. (3) Metairie, LA 16,608,000 (5) 4,695,000
36 Two Lakeway.................................... (3) Metairie, LA 14,338,100 (5) 4,643,500
37 NationsBank Plaza.............................. (3) Nashville, TN -- 3,049,200
38 The Plaza at La Jolla Village.................. (3) San Diego, CA 57,575,400 11,838,900
39 Interco Corporate Tower........................ (3) Clayton, MO 21,809,200 4,688,400
40 9400 NCX....................................... (3) Dallas, TX -- 3,570,000
41 Four Stamford Plaza............................ (3) Stamford, CT 15,855,600 4,470,900
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO GROSS AMOUNT CARRIED AT
IAL COST TO COMPANY
------------------- ------------------------- --------------------------------
BUILDING AND BUILDING AND BUILDING AND ACCUMULATED
IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL(1) DEPRECIATION
- --------------- ---------- ------------ -------------- --------------- --------------- -------------
<C> <C> <C> <C> <C> <C> <C> <C>
1 $ 19,126,500 $ -- $ 228,100 $ 2,125,200 $ 19,354,600 $ 21,479,800 $ (700,500)
2 117,984,000 -- 3,185,600 13,471,300 121,169,600 134,640,900 (4,805,000)
3 4,236,500 -- 317,700 570,700 4,554,200 5,124,900 (193,300)
4 12,789,700 -- 770,300 1,421,100 13,560,000 14,981,100 (561,300)
5 14,420,200 -- 264,600 1,752,200 14,684,800 16,437,000 (536,500)
6 42,911,400 -- 882,300 4,767,900 43,793,700 48,561,600 (1,709,600)
7 41,091,200 -- 733,900 4,643,700 41,825,100 46,468,800 (1,577,000)
8 12,198,900 7,000 429,800 1,712,400 12,628,700 14,341,100 (504,300)
9 19,978,600 -- 771,600 2,219,800 20,750,200 22,970,000 (850,100)
10 6,741,600 -- 540,000 749,100 7,281,600 8,030,700 (351,400)
11 27,169,800 -- 693,200 3,018,900 27,863,000 30,881,900 (1,103,100)
12 20,156,700 -- 530,400 2,239,600 20,687,100 22,926,700 (782,100)
13 36,534,300 -- 821,900 6,059,400 37,356,200 43,415,600 (1,383,000)
14 18,766,100 -- 650,800 2,085,100 19,416,900 21,502,000 (748,900)
15 13,625,200 -- 378,300 1,513,900 14,003,500 15,517,400 (531,800)
16 45,670,600 -- 1,545,500 5,074,500 47,216,100 52,290,600 (1,871,300)
17 45,216,000 -- 410,000 5,024,000 45,626,000 50,650,000 (1,699,200)
18 131,473,600 -- 2,376,500 14,608,200 133,850,100 148,458,300 (5,025,200)
19 32,689,300 -- 679,500 3,632,100 33,368,800 37,000,900 (1,387,400)
20 39,215,300 -- 1,306,100 4,357,300 40,521,400 44,878,700 (1,567,900)
21 41,987,100 -- 1,319,800 -- 43,306,900 43,306,900 (1,614,100)
22 35,609,800 -- 372,500 3,956,600 35,982,300 39,938,900 (1,366,200)
23 14,236,000 -- 624,300 2,368,500 14,860,300 17,228,800 (609,900)
24 88,474,400 -- 880,700 9,830,500 89,355,100 99,185,600 (3,303,100)
25 24,374,000 -- 812,000 2,708,200 25,186,000 27,894,200 (1,087,100)
26 41,690,900 -- 644,400 4,632,300 42,335,300 46,967,600 (1,613,600)
27 74,409,300 -- 2,020,400 8,267,700 76,429,700 84,697,400 (2,967,700)
28 34,295,500 -- 984,500 3,810,600 35,280,000 39,090,600 (1,384,900)
29 11,907,900 -- 97,500 1,323,100 12,005,400 13,328,500 (449,100)
30 58,521,300 -- 2,153,000 6,502,400 60,674,300 67,176,700 (2,495,000)
31 17,531,900 -- 448,300 1,948,000 17,980,200 19,928,200 (672,900)
32 44,606,400 -- 782,900 4,956,300 45,389,300 50,345,600 (1,699,900)
33 9,529,800 -- 497,600 1,058,900 10,027,400 11,086,300 (422,400)
34 25,235,500 -- 1,105,800 2,803,900 26,341,300 29,145,200 (1,058,700)
35 43,517,200 59,300 1,567,600 4,754,300 45,084,800 49,839,100 (1,885,800)
36 41,791,800 49,200 1,594,200 4,692,700 43,386,000 48,078,700 (1,709,800)
37 27,443,100 -- 318,600 3,049,200 27,761,700 30,810,900 (1,045,400)
38 98,243,100 19,300 629,700 11,858,200 98,872,800 110,731,000 (3,638,500)
39 42,195,200 83,900 1,232,400 4,772,300 43,427,600 48,199,900 (1,652,700)
40 32,129,700 -- 2,578,800 3,570,000 34,708,500 38,278,500 (1,466,100)
41 40,237,900 24,500 577,900 4,495,400 40,815,800 45,311,200 (1,519,700)
<CAPTION>
DATE OF DATE DEPRECIABLE
CONSTRUCTION ACQUIRED LIVES(2)
------------ ------------------ -----------
<C> <C> <C> <C>
1 1967 09/29/87 40
2 1984 09/29/87 40
3 1974 03/01/89 40
4 1974 03/01/89 40
5 1983 06/28/89 40
6 1985 06/29/89 40
7 1987 07/25/89 40
8 1983 08/03/89 40
9 1985 08/15/89 40
10 1980 12/15/89 40
11 1987 06/14/90 40
12 1989 09/28/90 40
13 1981/93-97 12/20/90 40
14 1987 10/16/91 40
15 1985 11/26/91 40
16 1987 12/13/91 40
17 1979 12/18/91 40
18 1990 03/24/92 40
19 1986 04/21/92 40
20 1985 12/01/92 40
21 1987 12/15/92 40
22 1980 12/15/92 40
23 1986 12/23/92 40
24 1991 12/31/92 40
25 1989 02/05/93 40
26 1987 03/30/93 40
27 1986 03/30/93 40
28 1984 06/25/93 40
29 1986 11/12/93 40
30 1987 11/12/93 40
31 1984 11/12/93 40
32 1987 11/12/93 40
33 1984 11/12/93 40
34 1981 11/12/93 40
35 1987 11/12/93 40
36 1984 11/12/93 40
37 1977 12/01/93 40
38 1987-1990 03/10/94 40
39 1986 05/27/94 40
40 1981 06/24/94 40
41 1979 08/31/94 40
</TABLE>
<PAGE> 124
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
--------------
ENCUMBRANCES
DESCRIPTION NOTES LOCATION AT 12/31/98 NOTES LAND
----------- ------ -------- -------------- ------ --------------
<C> <S> <C> <C> <C> <C> <C>
42 1920 Main Plaza................................ (3) Irvine, CA -- 5,480,600
43 Paces West..................................... (3) Atlanta, GA -- 12,833,700
44 One Market..................................... (3) San Francisco, CA 149,374,800 34,814,400
45 2010 Main Plaza................................ (3) Irvine, CA -- 5,197,100
46 1100 Executive Tower........................... (3) Orange, CA -- 10,121,800
47 28 State Street................................ (3) Boston, MA -- 9,512,600
48 850 Third Avenue............................... (3) New York, NY -- 9,605,900
49 161 North Clark................................ (3) Chicago, IL 124,843,200 15,881,800
50 Wachovia Center................................ (3) Charlotte, NC 26,026,800 5,061,000
51 Central Park................................... (3) Atlanta, GA 55,284,600 9,162,600
52 One American Center............................ (3) Austin, TX -- --
53 Pasadena Towers................................ (3) Pasadena, CA 47,056,900 7,087,500
54 580 California................................. (3) San Francisco, CA 29,518,400 7,491,200
55 1601 Market Street............................. (3) Philadelphia, PA -- 5,780,800
56 Promenade II................................... (3) Atlanta, GA 94,479,400 14,850,000
57 Two California Plaza........................... (3) Los Angeles, CA -- --
58 BP Tower....................................... (3) Cleveland, OH 84,983,900 17,402,500
59 Sun Trust Center............................... (3) Orlando, FL -- 11,023,600
60 Reston Town Center............................. (3) Reston, VA 90,568,000 21,482,600
61 Colonnade I.................................... (3) San Antonio, TX -- 1,413,600
62 One Phoenix Plaza.............................. (3) Phoenix, AZ -- 6,191,900
63 49 East Thomas Road............................ (3) Phoenix, AZ -- 65,300
64 177 Broad Street............................... (3)(6) Stamford, CT -- 3,941,200
65 Preston Commons................................ (3) Dallas, TX -- 5,723,400
66 Oakbrook Terrace Tower......................... (3) Oakbrook Terrace, IL -- 11,950,200
67 One Maritime Plaza............................. (3) San Francisco, CA -- 11,530,700
68 Smith Barney Tower............................. (3) San Diego, CA -- 2,657,700
69 201 Mission Street............................. (3) San Francisco, CA -- 8,870,700
70 30 N. LaSalle Street........................... (3) Chicago, IL -- 12,489,000
71 LL&E Tower..................................... New Orleans, LA 37,500,000 (7) 6,185,800
72 Texaco Center.................................. New Orleans, LA 42,500,000 (7) 6,686,300
73 Prudential Portfolio........................... (8) Various -- 28,463,400
74 550 South Hope Street.......................... Los Angeles, CA -- 10,016,200
75 10 & 30 South Wacker........................... Chicago, IL -- 48,411,300
76 Four and Five Valley Square.................... Blue Bell, PA -- 865,700
77 Four Falls Corporate Center.................... Conshohocken, PA -- 4,938,900
78 Oak Hill Plaza................................. King of Prussia, PA -- 2,208,200
79 One Devon Square............................... Wayne, PA -- 1,024,900
80 Three Devon Square............................. Wayne, PA -- 412,500
81 Two Devon Square............................... Wayne, PA -- 659,200
82 Two Valley Square.............................. Blue Bell, PA -- 879,000
83 Walnut Hill Plaza.............................. King of Prussia, PA 14,566,500 2,045,000
84 One Lafayette Centre........................... Washington, D.C. -- 8,262,400
85 One Valley Square.............................. Blue Bell, PA -- 717,200
86 Three Valley Square............................ Blue Bell, PA -- 1,012,100
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO GROSS AMOUNT CARRIED AT
IAL COST TO COMPANY
------------------- ------------------------- --------------------------------
BUILDING AND BUILDING AND BUILDING AND ACCUMULATED
IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL(1) DEPRECIATION
- --------------- ---------- ------------ -------------- --------------- --------------- -------------
<C> <C> <C> <C> <C> <C> <C> <C>
42 47,525,800 -- 1,293,700 5,480,600 48,819,500 54,300,100 (2,048,600)
43 75,024,500 -- 2,095,200 12,833,700 77,119,700 89,953,400 (3,153,400)
44 313,329,700 -- 22,827,000 34,814,400 336,156,700 370,971,100 (14,258,400)
45 46,773,700 -- 606,000 5,197,100 47,379,700 52,576,800 (1,816,400)
46 41,598,600 -- 586,100 10,121,800 42,184,700 52,306,500 (1,639,500)
47 85,613,100 -- 40,315,400 9,512,600 125,928,500 135,441,100 (4,963,000)
48 86,453,200 -- 2,487,600 9,605,900 88,940,800 98,546,700 (3,504,100)
49 142,936,100 -- 18,625,600 15,881,800 161,561,700 177,443,500 (6,737,200)
50 45,548,900 -- 678,200 5,061,000 46,227,100 51,288,100 (1,695,700)
51 82,463,000 -- 1,343,100 9,162,600 83,806,100 92,968,700 (3,210,400)
52 70,811,600 -- 2,118,400 -- 72,930,000 72,930,000 (2,742,400)
53 63,787,500 -- 2,067,700 7,087,500 65,855,200 72,942,700 (2,645,700)
54 67,420,900 -- 2,276,900 7,491,200 69,697,800 77,189,000 (2,862,700)
55 52,027,500 -- 2,103,400 5,780,800 54,130,900 59,911,700 (2,059,900)
56 133,650,200 -- 4,701,100 14,850,000 138,351,300 153,201,300 (5,486,400)
57 156,197,000 -- 15,563,600 -- 171,760,600 171,760,600 (9,509,000)
58 157,260,200 -- 2,187,600 17,402,500 159,447,800 176,850,300 (5,716,300)
59 99,212,300 -- 2,074,100 11,023,600 101,286,400 112,310,000 (3,802,800)
60 154,576,300 18,500 766,500 21,501,100 155,342,800 176,843,900 (5,713,100)
61 12,725,200 82,800 558,100 1,496,400 13,283,300 14,779,700 (565,900)
62 55,726,900 -- -- 6,191,900 55,726,900 61,918,800 (2,029,400)
63 587,900 -- 10,400 65,300 598,300 663,600 (21,500)
64 35,470,800 -- 514,600 3,941,200 35,985,400 39,926,600 (1,186,200)
65 51,510,300 5,100 1,986,800 5,728,500 53,497,100 59,225,600 (2,077,300)
66 107,551,700 485,700 2,384,300 12,435,900 109,936,000 122,371,900 (4,076,900)
67 103,776,000 -- 6,222,100 11,530,700 109,998,100 121,528,800 (4,041,500)
68 23,919,400 -- 1,767,800 2,657,700 25,687,200 28,344,900 (1,246,800)
69 79,836,500 -- 473,900 8,870,700 80,310,400 89,181,100 (2,976,800)
70 112,400,700 -- 2,016,200 12,489,000 114,416,900 126,905,900 (4,271,500)
71 55,672,200 46,000 1,521,400 6,231,800 57,193,600 63,425,400 (1,860,400)
72 60,177,000 9,500 1,430,600 6,695,800 61,607,600 68,303,400 (2,053,800)
73 256,216,100 -- 12,142,500 28,463,400 268,358,600 296,822,000 (8,663,800)
74 90,146,000 -- 262,500 10,016,200 90,408,500 100,424,700 (2,758,800)
75 435,701,300 -- 1,984,600 48,411,300 437,685,900 486,097,200 (13,267,300)
76 7,793,200 -- 105,800 865,700 7,899,000 8,764,700 (238,800)
77 44,458,300 55,000 302,900 4,993,900 44,761,200 49,755,100 (1,387,600)
78 19,878,500 -- 161,200 2,208,200 20,039,700 22,247,900 (606,700)
79 9,226,700 -- 111,200 1,024,900 9,337,900 10,362,800 (286,500)
80 3,712,600 -- -- 412,500 3,712,600 4,125,100 (111,900)
81 5,935,000 -- 216,900 659,200 6,151,900 6,811,100 (215,000)
82 7,913,300 -- 264,700 879,000 8,178,000 9,057,000 (252,400)
83 18,409,900 -- 200,600 2,045,000 18,610,500 20,655,500 (561,100)
84 74,362,000 -- 171,600 8,262,400 74,533,600 82,796,000 (2,257,000)
85 6,456,900 -- 147,700 717,200 6,604,600 7,321,800 (185,900)
86 9,111,300 -- 107,600 1,012,100 9,218,900 10,231,000 (256,600)
<CAPTION>
DATE OF DATE DEPRECIABLE
CONSTRUCTION ACQUIRED LIVES(2)
------------ ------------------ -----------
<C> <C> <C> <C>
42 1988 09/29/94 40
43 1988 10/31/94 40
44 1976 11/22/94 40
45 1988 12/13/94 40
46 1987 12/15/94 40
47 1968/1997 01/23/95 40
48 1960 03/20/95 40
49 1992 07/26/95 40
50 1972 09/01/95 40
51 1986 10/17/95 40
52 1984 11/01/95 40
53 1990-1991 12/14/95 40
54 1984 12/21/95 40
55 1970 01/18/96 40
56 1990 06/14/96 40
57 1992 08/23/96 40
58 1985/1989 09/04/96, 01/29/98 40
59 1988 09/18/96 40
60 1990 10/22/96 40
61 1983 12/04/96 40
62 1989 12/04/96 40
63 1974 12/11/96 40
64 1989 01/29/97 40
65 1986 03/21/97 40
66 1988 04/16/97 40
67 1967 04/21/97 40
68 1987 04/28/97 40
69 1981 04/30/97 40
70 1974 06/13/97 40
71 1987 09/03/97 40
72 1984 09/03/97 40
73 Various 10/01/97 40
74 1991 10/06/97 40
75 1983-1987 10/07/97 40
76 1988 10/07/97 40
77 1988 10/07/97 40
78 1982 10/07/97 40
79 1984 10/07/97 40
80 1985 10/07/97 40
81 1985 10/07/97 40
82 1990 10/07/97 40
83 1985 10/07/97 40
84 1980 10/17/97 40
85 1982 11/21/97 40
86 1984 11/21/97 40
</TABLE>
<PAGE> 125
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
--------------
ENCUMBRANCES
DESCRIPTION NOTES LOCATION AT 12/31/98 NOTES LAND
----------- ------ -------- -------------- ------ --------------
<C> <S> <C> <C> <C> <C> <C>
87 1600 Duke Street............................... Alexandria, VA -- 1,105,600
88 Fair Oaks Plaza................................ Fairfax, VA -- 2,412,000
89 Lakeside Square................................ Dallas, TX -- 8,262,200
90 LaSalle Plaza.................................. Minneapolis, MN -- 9,680,600
91 1001 Fifth Avenue.............................. Portland, OR 20,515,000 (9) 5,383,300
92 1111 Third Avenue.............................. Seattle, WA 30,567,300 (9) 9,899,900
93 Calais Office Center........................... Anchorage, AK 8,513,700 (9) --
94 First Interstate............................... Seattle, WA 83,085,700 (9) 21,360,700
95 Nordstrom Medical Tower........................ Seattle, WA 9,949,800 (9) 1,763,600
96 One Bellevue Center............................ Bellevue, WA 23,489,600 (9) --
97 Rainer Plaza................................... Bellevue, WA 29,541,600 (9) --
98 Second and Seneca.............................. Seattle, WA 40,517,100 (9) 10,922,500
99 101 N. Wacker.................................. Chicago, IL -- 10,067,600
100 10880 Wilshire Boulevard....................... Los Angeles, CA -- --
101 10960 Wilshire Boulevard....................... Los Angeles, CA -- 16,841,300
102 1300 N. 17th Street............................ Rosslyn, VA -- 9,810,700
103 1333 H Street.................................. Washington, D.C. -- 6,715,400
104 150 Federal Street............................. Boston, MA 56,080,000 14,131,400
105 1616 N. Fort Myer Drive........................ Rosslyn, VA -- 6,960,700
106 175 Federal Street............................. Boston, MA -- 4,893,900
107 2 Oliver Street - 147 Milk Street.............. Boston, MA -- 5,017,400
108 200 West Adams................................. Chicago, IL -- 11,723,300
109 225 Franklin Street............................ Boston, MA -- 34,607,800
110 AT&T Plaza..................................... Oak Brook, IL -- 4,834,200
111 Center Plaza................................... Boston, MA 59,917,700 18,942,300
112 Centerpointe I and II.......................... Fairfax, VA 30,099,900 8,837,800
113 Civic Opera House.............................. Chicago, IL 31,237,400 12,771,300
114 Crosby Corporate Center........................ Bedford, MA -- 5,957,800
115 EJ Randolph.................................... McLean, VA 15,939,600 (10) 3,936,600
116 EJ Randolph II vacant land..................... McLean, VA -- 5,770,000
117 John Marshall I and II......................... McLean, VA 20,637,100 5,216,400
118 Lake Marriott Business Park.................... Santa Clara, CA -- 9,090,800
119 Lakeside Office Park........................... Atlanta, GA -- 4,792,500
120 New England Executive Park..................... Burlington, MA -- 15,636,600
121 Northridge I................................... Herndon, VA 14,452,600 (10) 3,224,900
122 One Canal Park................................. Cambridge, MA -- 2,006,000
123 Perimeter Center............................... Atlanta, GA 215,715,100 65,886,100
124 Presidents Plaza............................... Chicago, IL -- 13,435,500
125 Riverview I and II............................. Cambridge, MA -- 5,937,600
126 Russia Wharf................................... Boston, MA -- 3,891,500
127 Shoreline Technology Park...................... Mountain View, CA -- 31,575,400
128 South Station.................................. Boston, MA -- --
129 Sunnyvale Business Center...................... Sunnyvale, CA -- 4,890,000
130 Ten Canal Park................................. Cambridge, MA -- 2,383,100
131 Tri-State International........................ Lincolnshire, IL -- 10,925,300
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO GROSS AMOUNT CARRIED AT
IAL COST TO COMPANY
------------------- ------------------------- --------------------------------
BUILDING AND BUILDING AND BUILDING AND ACCUMULATED
IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL(1) DEPRECIATION
- --------------- ---------- ------------ -------------- --------------- --------------- -------------
<C> <C> <C> <C> <C> <C> <C> <C>
87 9,950,000 -- 59,300 1,105,600 10,009,300 11,114,900 (279,700)
88 21,707,600 29,000 122,100 2,441,000 21,829,700 24,270,700 (615,100)
89 47,368,800 -- 1,274,700 8,262,200 48,643,500 56,905,700 (1,423,000)
90 87,125,100 -- 1,477,800 9,680,600 88,602,900 98,283,500 (2,559,100)
91 48,633,700 -- 576,800 5,383,300 49,210,500 54,593,800 (1,324,800)
92 89,570,700 -- 1,122,700 9,899,900 90,693,400 100,593,300 (2,469,700)
93 16,630,800 -- 881,400 -- 17,512,200 17,512,200 (539,400)
94 193,528,600 -- 909,200 21,360,700 194,437,800 215,798,500 (5,068,200)
95 16,026,200 -- 4,400 1,763,600 16,030,600 17,794,200 (418,300)
96 56,223,100 -- 557,800 -- 56,780,900 56,780,900 (1,562,500)
97 79,928,100 -- 428,000 -- 80,356,100 80,356,100 (2,124,800)
98 98,927,300 -- 710,300 10,922,500 99,637,600 110,560,100 (2,711,600)
99 90,608,800 -- 172,600 10,067,600 90,781,400 100,849,000 (2,361,300)
100 149,841,200 -- 3,486,800 -- 153,328,000 153,328,000 (3,954,700)
101 151,573,900 -- 4,048,400 16,841,300 155,622,300 172,463,600 (4,034,200)
102 88,295,900 -- 73,800 9,810,700 88,369,700 98,180,400 (2,310,800)
103 60,438,200 -- 253,400 6,715,400 60,691,600 67,407,000 (1,581,800)
104 127,182,200 -- 8,439,500 14,131,400 135,621,700 149,753,100 (3,672,700)
105 62,646,300 -- 544,700 6,960,700 63,191,000 70,151,700 (1,633,200)
106 44,045,200 -- 1,119,800 4,893,900 45,165,000 50,058,900 (1,180,200)
107 45,157,000 -- 1,040,900 5,017,400 46,197,900 51,215,300 (1,248,100)
108 105,509,500 -- 594,400 11,723,300 106,103,900 117,827,200 (2,841,300)
109 311,470,600 -- 1,561,800 34,607,800 313,032,400 347,640,200 (8,300,000)
110 43,507,900 36,000 437,400 4,870,200 43,945,300 48,815,500 (1,196,600)
111 170,480,400 -- 1,952,100 18,942,300 172,432,500 191,374,800 (4,525,300)
112 79,540,200 344,700 (204,900) 9,182,500 79,335,300 88,517,800 (2,077,900)
113 114,941,900 -- 1,597,700 12,771,300 116,539,600 129,310,900 (3,166,200)
114 53,620,400 49,800 507,900 6,007,600 54,128,300 60,135,900 (1,403,100)
115 35,429,100 7,000 164,100 3,943,600 35,593,200 39,536,800 (927,100)
116 -- -- 136,400 5,770,000 136,400 5,906,400 --
117 46,814,100 16,900 52,200 5,233,300 46,866,300 52,099,600 (1,225,200)
118 84,967,100 -- 1,616,400 9,090,800 86,583,500 95,674,300 (1,641,500)
119 43,132,300 -- 236,900 4,792,500 43,369,200 48,161,700 (1,148,200)
120 140,729,200 102,400 4,002,100 15,739,000 144,731,300 160,470,300 (3,397,200)
121 29,024,400 -- -- 3,224,900 29,024,400 32,249,300 (755,800)
122 18,054,000 -- 44,600 2,006,000 18,098,600 20,104,600 (485,500)
123 429,131,000 114,600 3,128,200 66,000,700 432,259,200 498,259,900 (11,847,400)
124 120,919,200 -- 1,241,200 13,435,500 122,160,400 135,595,900 (3,269,400)
125 53,438,100 6,300 310,100 5,943,900 53,748,200 59,692,100 (1,394,500)
126 35,022,800 -- 731,600 3,891,500 35,754,400 39,645,900 (1,419,100)
127 190,894,500 -- 180,400 31,575,400 191,074,900 222,650,300 (4,648,000)
128 31,073,800 -- 458,300 -- 31,532,100 31,532,100 (809,800)
129 44,010,000 -- 11,600 4,890,000 44,021,600 48,911,600 (1,146,100)
130 21,447,900 -- 18,700 2,383,100 21,466,600 23,849,700 (558,600)
131 98,327,300 141,200 1,557,400 11,066,500 99,884,700 110,951,200 (2,762,600)
<CAPTION>
DATE OF DATE DEPRECIABLE
CONSTRUCTION ACQUIRED LIVES(2)
------------ ------------------ -----------
<C> <C> <C> <C>
87 1985 11/24/97 40
88 1986 11/24/97 40
89 1987 11/24/97 40
90 1991 11/25/97 40
91 1980 12/17/97 40
92 1980 12/17/97 40
93 1975 12/17/97 40
94 1983 12/17/97 40
95 1986 12/17/97 40
96 1983 12/17/97 40
97 1986 12/17/97 40
98 1991 12/17/97 40
99 1980 12/19/97 40
100 1970 12/19/97 40
101 1971 12/19/97 40
102 1980 12/19/97 40
103 1982 12/19/97 40
104 1988 12/19/97 40
105 1974 12/19/97 40
106 1977 12/19/97 40
107 1988 12/19/97 40
108 1985 12/19/97 40
109 1966 12/19/97 40
110 1984 12/19/97 40
111 1969 12/19/97 40
112 1998/1990 12/19/97 40
113 1929 12/19/97 40
114 1996 12/19/97 40
115 1983 12/19/97 40
116 N/A 12/19/97 40
117 1981 12/19/97 40
118 1981 12/19/97 40
119 1972-1978 12/19/97 40
120 1970-1985 12/19/97 40
121 1988 12/19/97 40
122 1987 12/19/97 40
123 1970-1989 12/19/97 40
124 1980-1982 12/19/97 40
125 1985-1986 12/19/97 40
126 1978-1982 12/19/97 40
127 1985-1991 12/19/97 40
128 1988 12/19/97 40
129 1990 12/19/97 40
130 1987 12/19/97 40
131 1986 12/19/97 40
</TABLE>
<PAGE> 126
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
--------------
ENCUMBRANCES
DESCRIPTION NOTES LOCATION AT 12/31/98 NOTES LAND
----------- ------ -------- -------------- ------ --------------
<C> <S> <C> <C> <C> <C> <C>
132 Wellesley Office Park.......................... Wellesley, MA 55,193,300 16,492,700
133 Westbrook Corporate Center..................... Westchester, IL 109,619,300 24,896,800
134 Westwood Business Center....................... Wellesley, MA -- 2,719,600
135 100 Summer Street.............................. Boston, MA -- 22,271,000
136 Westbrook Corporate Center vacant land......... Westchester, IL -- 3,972,800
137 Denver Post Tower.............................. Denver, CO -- --
138 301 Howard Street.............................. San Francisco, CA -- 7,050,800
139 410 17th Street................................ Denver, CO -- 4,473,700
140 Tabor Center................................... Denver, CO 47,810,600 27,948,500
141 Trinity Place.................................. Denver, CO -- 1,903,400
142 Dominion Plaza................................. Denver, CO -- 5,990,100
143 Millennium Plaza............................... Englewood, CO -- 7,757,100
144 Polk and Taylor Buildings...................... Arlington, VA -- 16,942,500
145 Columbia SeaFirst Center....................... Seattle, WA -- 40,175,000
146 Northland Plaza................................ Bloomington, MN -- 4,705,100
147 4949 S. Syracuse............................... Denver, CO -- 822,300
148 Metropoint I................................... Denver, CO -- 4,374,900
149 Metropoint III vacant land..................... Denver, CO -- 2,000,000
150 One Park Square................................ Albuquerque, NM -- 3,634,300
151 Park Avenue Tower.............................. New York, NY -- 48,976,000
152 Terrace Building............................... Englewood, CO -- 1,546,400
153 The Solarium................................... Englewood, CO -- 1,951,100
154 Second and Spring.............................. Seattle, WA -- 1,968,400
155 Colonnade I and II............................. Dallas, TX -- 9,043,800
156 Worldwide Plaza................................ New York, NY 263,620,300 124,919,000
157 Central Park vacant land....................... Atlanta, GA -- 3,975,400
-------------- --------------
Subtotal Office Properties..................... $2,278,417,400 $1,384,586,100
-------------- --------------
Development Properties:
158 Reston Town Center Garage...................... (11) Reston, VA $ -- $ 1,942,500
159 150 California................................. (11) San Francisco, CA -- 12,566,800
160 175 Wyman Street............................... (11) Walthan, MA -- 16,871,000
161 Crosby Corporate Center II..................... (11) Bedford, MA -- 9,384,600
162 John Marshall III.............................. (11) McLean, VA -- 9,950,000
163 Media Center................................... (11) Burbank, CA -- 15,000,000
164 Riverside Center............................... (11) Newton, MA -- 24,000,000
165 Tower at New England Executive Park............ (11) Burlington, MA -- 2,792,900
166 215 Fremont Street............................. (11) San Francisco, CA -- 2,404,400
167 Colonnade III.................................. (11) Dallas, TX -- 6,152,000
168 Prominence..................................... (12) Atlanta, GA -- --
169 World Trade Center............................. (12) Seattle, WA -- --
170 Rand Tower Garage.............................. (12) Minneapolis, MN -- --
-------------- --------------
Subtotal Development Properties................ $ -- $ 101,064,200
-------------- --------------
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO GROSS AMOUNT CARRIED AT
IAL COST TO COMPANY
------------------- ------------------------- --------------------------------
BUILDING AND BUILDING AND BUILDING AND ACCUMULATED
IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL(1) DEPRECIATION
- --------------- ---------- ------------ -------------- --------------- --------------- -------------
<C> <C> <C> <C> <C> <C> <C> <C>
132 148,434,200 20,400 1,155,900 16,513,100 149,590,100 166,103,200 (3,917,900)
133 224,071,100 30,100 2,780,200 24,926,900 226,851,300 251,778,200 (6,026,700)
134 24,476,300 -- 250,800 2,719,600 24,727,100 27,446,700 (653,900)
135 200,439,300 -- 1,787,900 22,271,000 202,227,200 224,498,200 (4,000,400)
136 -- -- -- 3,972,800 -- 3,972,800 --
137 52,937,200 -- 1,393,600 -- 54,330,800 54,330,800 (993,300)
138 58,920,400 -- 1,005,600 7,050,800 59,926,000 66,976,800 (1,066,100)
139 40,263,700 -- 673,000 4,473,700 40,936,700 45,410,400 (731,800)
140 116,536,200 -- 832,600 27,948,500 117,368,800 145,317,300 (2,082,300)
141 17,130,400 -- 419,700 1,903,400 17,550,100 19,453,500 (323,400)
142 53,911,200 -- 1,881,700 5,990,100 55,792,900 61,783,000 (874,900)
143 38,313,800 -- 18,700 7,757,100 38,332,500 46,089,600 (600,400)
144 152,482,800 -- 2,803,900 16,942,500 155,286,700 172,229,200 (2,673,600)
145 361,574,800 -- 2,176,400 40,175,000 363,751,200 403,926,200 (4,910,200)
146 42,346,000 -- 219,900 4,705,100 42,565,900 47,271,000 (486,400)
147 7,400,800 -- 12,600 822,300 7,413,400 8,235,700 (85,300)
148 39,374,500 -- 174,500 4,374,900 39,549,000 43,923,900 (454,900)
149 -- -- -- 2,000,000 -- 2,000,000 --
150 32,708,700 -- 174,800 3,634,300 32,883,500 36,517,800 (378,200)
151 195,903,900 -- 635,000 48,976,000 196,538,900 245,514,900 (2,273,400)
152 13,917,900 -- 142,000 1,546,400 14,059,900 15,606,300 (159,800)
153 17,560,100 -- 196,400 1,951,100 17,756,500 19,707,600 (207,600)
154 17,715,700 -- 14,100 1,968,400 17,729,800 19,698,200 (203,100)
155 81,394,100 -- 143,600 9,043,800 81,537,700 90,581,500 (595,900)
156 499,676,100 -- -- 124,919,000 499,676,100 624,595,100 (2,602,500)
157 -- -- -- 3,975,400 -- 3,975,400 --
--------------- ---------- ------------ -------------- --------------- --------------- -------------
$11,485,232,700 $1,844,200 $265,076,100 $1,386,430,300 $11,750,308,800 $13,136,739,100 $(342,895,500)
--------------- ---------- ------------ -------------- --------------- --------------- -------------
158 $ -- $ -- $ 994,700 $ 1,942,500 $ 994,700 $ 2,937,200 $ --
159 -- -- 4,370,900 12,566,800 4,370,900 16,937,700 --
160 -- -- 3,129,400 16,871,000 3,129,400 20,000,400 --
161 -- -- 25,501,300 9,384,600 25,501,300 34,885,900 --
162 -- -- 8,131,200 9,950,000 8,131,200 18,081,200 --
163 -- -- 4,899,500 15,000,000 4,899,500 19,899,500 --
164 -- -- 9,635,000 24,000,000 9,635,000 33,625,000 --
165 25,136,500 -- 3,172,700 2,792,900 28,309,200 31,102,100 (266,500)
166 21,639,200 -- 2,183,300 2,404,400 23,822,500 26,226,900 --
167 55,367,700 -- 2,524,500 6,152,000 57,892,200 64,044,200 (611,800)
168 534,700 -- -- -- 534,700 534,700 --
169 17,400 -- -- -- 17,400 17,400 --
170 70,700 -- -- -- 70,700 70,700 --
--------------- ---------- ------------ -------------- --------------- --------------- -------------
$ 102,766,200 $ -- $64,542,500 $ 101,064,200 $ 167,308,700 $ 268,372,900 $ (878,300)
--------------- ---------- ------------ -------------- --------------- --------------- -------------
<CAPTION>
DATE OF DATE DEPRECIABLE
CONSTRUCTION ACQUIRED LIVES(2)
------------ ------------------ -----------
<C> <C> <C> <C>
132 1963-1984 12/19/97 40
133 1985-1996 12/19/97 40
134 1985 12/19/97 40
135 1974/1990 03/18/98 40
136 N/A 04/02/98 40
137 1984 04/21/98 40
138 1988 04/29/98 40
139 1978 04/30/98 40
140 1985 04/30/98 40
141 1983 04/30/98 40
142 1983 05/14/98 40
143 1982 05/19/98 40
144 1970 05/22/98 40
145 1985 06/26/98 40
146 1985 07/02/98 40
147 1982 07/15/98 40
148 1987 07/15/98 40
149 N/A 07/15/98 40
150 1985 07/15/98 40
151 1986 07/15/98 40
152 1982 07/15/98 40
153 1982 07/15/98 40
154 1906/1989 07/29/98 40
155 1983-1985 09/30/98 40
156 1989 10/01/98 40
157 N/A 11/03/98 40
158 N/A 10/22/96 N/A
159 N/A 12/19/97 N/A
160 N/A 12/19/97 N/A
161 1998 12/19/97 40
162 N/A 12/19/97 N/A
163 N/A 12/19/97 N/A
164 N/A 12/19/97 N/A
165 1971/1998 03/31/98 40
166 N/A 04/29/98 N/A
167 1998 09/30/98 40
168 N/A N/A N/A
169 N/A N/A N/A
170 N/A N/A N/A
</TABLE>
<PAGE> 127
<TABLE>
<CAPTION>
INITIAL COST TO COMPANY
--------------
ENCUMBRANCES
DESCRIPTION NOTES LOCATION AT 12/31/98 NOTES LAND
----------- ------ -------- -------------- ------ --------------
<C> <S> <C> <C> <C> <C> <C>
Parking Facilities:
1 203 North LaSalle Garage....................... (3) Chicago, IL $ 32,661,500 (13) $ 3,784,600
2 Theatre District Garage........................ (3) Chicago, IL -- 3,372,300
3 Capitol Commons Garage......................... (3) Indianapolis, IN 4,368,800 --
4 Boston Harbor Garage........................... (3) Boston, MA 34,640,100 6,087,300
5 Milwaukee Center............................... (3) Milwaukee, WI -- --
6 1111 Sansom Street Garage...................... (3) Philadelphia, PA -- 1,476,500
7 15th & Sansom Streets Garage................... (3) Philadelphia, PA -- 726,400
8 1602-34 Chancellor Garage...................... (3) Philadelphia, PA -- 735,900
9 1616 Sansom Street Garage...................... (3) Philadelphia, PA -- 432,900
10 Juniper/Locust Streets Garage.................. (3) Philadelphia, PA -- 574,400
11 Adams-Wabash Garage............................ Chicago, IL -- 2,525,000
12 601 Tchoupitoulas Garage....................... New Orleans, LA -- (7) 1,180,000
13 Stanwix Garage................................. Pittsburgh, PA -- 1,794,500
14 Forbes and Allies Garages...................... Pittsburgh, PA -- --
-------------- --------------
Subtotal Parking Facilities.................... $ 71,670,400 $ 22,689,800
-------------- --------------
Management Business -- Furniture, fixtures and
equipment...................................... $ -- $ --
-------------- --------------
Investment in Real Estate...................... $2,350,087,800 $1,508,340,100
============== ==============
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO GROSS AMOUNT CARRIED AT
IAL COST TO COMPANY
------------------- ------------------------- --------------------------------
BUILDING AND BUILDING AND BUILDING AND ACCUMULATED
IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL(1) DEPRECIATION
- --------------- ---------- ------------ -------------- --------------- --------------- -------------
<C> <C> <C> <C> <C> <C> <C> <C>
1 $ 34,061,500 $ -- $ 652,500 $ 3,784,600 $ 34,714,000 $ 38,498,600 $ (1,295,500)
2 30,326,400 -- 102,600 3,372,300 30,429,000 33,801,300 (1,112,300)
3 14,428,500 -- 1,200 -- 14,429,700 14,429,700 (526,500)
4 54,785,300 -- 1,446,200 6,087,300 56,231,500 62,318,800 (2,251,100)
5 7,798,800 -- 289,600 -- 8,088,400 8,088,400 (312,000)
6 -- 6,800 -- 1,483,300 -- 1,483,300 (700)
7 6,537,600 -- 11,300 726,400 6,548,900 7,275,300 (237,300)
8 6,622,700 -- 441,300 735,900 7,064,000 7,799,900 (240,100)
9 3,896,200 -- (3,000) 432,900 3,893,200 4,326,100 (91,900)
10 5,169,900 -- 242,600 574,400 5,412,500 5,986,900 (188,800)
11 22,725,300 -- 215,500 2,525,000 22,940,800 25,465,800 (784,500)
12 10,619,800 -- 1,300 1,180,000 10,621,100 11,801,100 (342,700)
13 16,160,000 -- 650,300 1,794,500 16,810,300 18,604,800 (462,000)
14 31,250,900 -- -- -- 31,250,900 31,250,900 --
--------------- ---------- ------------ -------------- --------------- --------------- -------------
$ 244,382,900 $ 6,800 $ 4,051,400 $ 22,696,600 $ 248,434,300 $ 271,130,900 $ (7,845,400)
--------------- ---------- ------------ -------------- --------------- --------------- -------------
$ -- $ -- $ 7,576,400 $ -- $ 7,576,400 $ 7,576,400 $ (639,600)
--------------- ---------- ------------ -------------- --------------- --------------- -------------
$11,832,381,800 $1,851,000 $341,246,400 $1,510,191,100 $12,173,628,200 $13,683,819,300 $(352,258,800)
=============== ========== ============ ============== =============== =============== =============
<CAPTION>
DATE OF DATE DEPRECIABLE
CONSTRUCTION ACQUIRED LIVES(2)
------------ ------------------ -----------
<C> <C> <C> <C>
1 1985 06/09/95 40
2 1987 06/09/95 40
3 1987 06/29/95 40
4 1972 12/10/96 40
5 1988 12/18/96 40
6 N/A 12/27/96 40
7 1950/1954 12/27/96 40
8 1945/1955 12/27/96 40
9 1950 12/27/96 40
10 1949/1952 12/27/96 40
11 1990 08/11/97 40
12 1982 09/03/97 40
13 1989 11/25/97 40
14 1954 12/17/98 40
</TABLE>
<PAGE> 128
- ---------------
The initial costs to the Company for certain properties acquired in connection
with the Beacon merger on 12/19/97 have been reallocated as a result of
finalizing purchase price allocation based on relative fair value and include
adjustments for additional acquisitions costs incurred in 1998.
(1) The aggregate cost for Federal Income Tax purposes as of December 31, 1998
was approximately $9.7 billion.
(2) The life to compute depreciation on building is 40 years. The life to
compute depreciation on building improvements is 4-40 years.
(3) The date acquired represents the date these Properties were acquired by
Equity Office Predecessors. The acquisition of the Properties, or interest
therein, by the Company from Equity Office Predecessors in connection with
the Consolidation on July 11, 1997, was accounted for using the purchase
method of accounting in accordance with Accounting Principles Board Opinion
No. 16. Accordingly, the assets were recorded by the Company at their fair
values.
(4) This Property contains 106 residential units in addition to 224,405 square
feet of office space.
(5) These loans are subject to cross default and collateralization provisions.
(6) This Property contains 161 residential units in addition to 187,573 square
feet of office space.
(7) These loans are subject to cross default and collateralization provisions.
(8) The Prudential Portfolio consists of six Office Buildings located in
Philadelphia, PA, Dallas, TX, and Houston, TX. These Office Buildings were
constructed between 1969 and 1984.
(9) These loans are subject to cross default and collateralization provisions.
(10) These loans are subject to cross default and collateralization provisions.
(11) These properties are in various development stages. During the development
period certain operating costs, including real estate taxes together with
interest incurred during the development stages will be capitalized.
(12) During 1998, the Company committed to acquire these properties upon their
completion. The costs reflected above include legal and other professional
fees incurred in connection with the Company's potential acquisition of
these projects. These transactions are contingent upon certain terms and
conditions as set forth in their respective purchase agreements. There can
be no assurance that these transactions will be consummated.
(13) The encumbrance on the 203 North LaSalle Garage is also secured by a first
lien on the Theatre District Garage.
<PAGE> 129
A SUMMARY OF ACTIVITY OF INVESTMENT IN REAL ESTATE AND ACCUMULATED DEPRECIATION
IS AS FOLLOWS:
The changes in investment in real estate for the year ended December 31,
1998, the period from July 11, 1997 through December 31, 1997, the period from
January 1, 1997 through July 10, 1997 and for the year ended December 31, 1996
are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM FROM
JULY 11, 1997 JANUARY 1, 1997
THROUGH THROUGH
DECEMBER 31, DECEMBER 31, JULY 10, DECEMBER 31,
1998 1997 1997 1996
------------ -------------- --------------- ------------
<S> <C> <C> <C> <C>
Balance, beginning of the
period........................ $11,041,014,100 $ 0 $3,549,707,600 $2,571,851,300
Additions during period:
Acquisitions............... 2,556,978,300 10,941,428,100 531,968,000 860,995,000
Improvements............... 207,093,000 99,586,000 59,511,000 129,485,300
Deductions during period:
Properties disposed of..... (121,266,100) (67,193,400) (9,633,600)
Write-off of fully
depreciated assets which
are not longer in
service.................. 0 (2,990,400)
--------------- --------------- -------------- --------------
Balance, end of period.......... $13,683,819,300 $11,041,014,100 $4,073,993,200 $3,549,707,600
=============== =============== ============== ==============
</TABLE>
The changes in accumulated depreciation for the year ended December 31,
1998, the period from July 11, 1997 through December 31, 1997, the period from
January 1, 1997 through July 10, 1997 and for the year ended December 31, 1996
are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE PERIOD
FROM FROM
JULY 11, 1997 JANUARY 1, 1997
THROUGH THROUGH
DECEMBER 31, DECEMBER 31, JULY 10, DECEMBER 31,
1998 1997 1997 1996
------------ -------------- --------------- ------------
<S> <C> <C> <C> <C>
Balance, beginning of the
period........................ $ (64,695,100) $ -- $ (257,893,300) $ (178,448,600)
Additions during period:
Depreciation............... (291,213,400) (64,695,100) (57,379,300) (82,905,300)
Deductions during period:
Properties disposed of..... 3,649,700 -- 8,517,200 470,200
Write-off of fully
depreciated assets which
are not longer in
service.................. -- -- 2,990,400
--------------- --------------- -------------- --------------
Balance, end of period.......... $ (352,258,800) $ (64,695,100) $ (306,755,400) $ (257,893,300)
=============== =============== ============== ==============
</TABLE>
<PAGE> 1
EXHIBIT 4.4
EOP OPERATING LIMITED PARTNERSHIP
6.625% NOTES DUE 2005
NO. 001 PRINCIPAL AMOUNT
CUSIP NO. 268766 AF 9 $___________
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
UNLESS AND UNTIL THIS NOTE IS EXCHANGED IN WHOLE OR IN PART FOR NOTES
IN CERTIFICATED FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY DTC
TO A NOMINEE THEREOF OR BY A NOMINEE THEREOF TO DTC OR ANOTHER NOMINEE OF DTC OR
BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR OF DTC OR A NOMINEE OF SUCH SUCCESSOR.
THIS NOTE WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN MINIMUM
DENOMINATIONS OF $1,000 AND INTEGRAL MULTIPLES OF $1,000 IN EXCESS THEREOF.
EOP Operating Limited Partnership, a Delaware limited partnership (the
"Issuer," which term includes any successor under the Indenture hereinafter
referred to), for value received, hereby promises to pay to Cede & Co. or
registered assigns, the principal sum of ______________________ Dollars on
February 15, 2005 (the "Stated Maturity Date"), (or any Redemption Date (as
defined on the reverse hereof) or any earlier date of acceleration of maturity,
(each such date being referred to as the "Maturity Date" with respect to the
principal repayable on such date) and to pay interest thereon from February 18,
1998 (or from the most recent Interest Payment Date (as defined below) to which
interest has been paid or duly provided for), semiannually in arrears on
February 15 and August 15 of each year, commencing on August 15, 1998 (each, an
"Interest Payment Date"), and on the Maturity Date, at a rate of 6.625% per
annum (together with Liquidated Damages, as defined in the Registration Rights
Agreement hereinafter referred to, that the Issuer may be required to pay, as
described on the reverse hereof), until payment of said principal sum has been
made or duly provided for. Interest on this Note will be computed on the basis
of a 360-day year of twelve 30-day months.
The interest so payable and punctually paid or duly provided for on an
Interest Payment Date will, subject to certain exceptions described below, be
paid to the Holder in whose name this Note (or one or more predecessor Notes) is
registered at the close of business on the "Regular Record Date" for such
payment, which will be the date 15 calendar days (regardless of whether such day
is a Business Day (as defined below)) next preceding such Interest Payment Date.
Any interest not so punctually paid or duly provided for on an Interest Payment
Date ("Defaulted Interest") shall forthwith cease to be payable to the Holder on
such Regular Record Date, and shall be paid to the Holder in whose name this
Note (or one or more predecessor Notes) is registered at the close of business
on a special record date
<PAGE> 2
(the "Special Record Date") for the payment of such Defaulted Interest to be
fixed by the Trustee hereinafter referred to, notice whereof shall be given to
the Holder of this Note by the Trustee not less than 10 calendar days prior to
such Special Record Date or may be paid at any time in any other lawful manner,
all as more fully provided for in the Indenture.
The principal of and Make-Whole Amount, if any, with respect to this
Note payable on the Maturity Date will be paid against presentation and
surrender of this Note at the office or agency of the Issuer maintained for that
purpose in Boston, Massachusetts with a drop facility maintained in New York,
New York. The Issuer hereby initially designates the Corporate Trust Office of
the Trustee in Boston, Massachusetts as the office to be maintained by it where
Notes may be presented for payment, registration of transfer, or exchange and
where notices or demands to or upon the Issuer in respect of the Notes or the
Indenture may be served.
Interest payable on this Note on any Interest Payment Date and on the
Maturity Date, as the case may be, will be the amount of interest accrued during
the applicable Interest Period (as defined below).
An "Interest Period" is each period from and including the immediately
preceding Interest Payment Date (or from and including February 18, 1998, in the
case of the initial Interest Period) to but excluding the applicable Interest
Payment Date or the Maturity Date, as the case may be. If any Interest Payment
Date or Maturity Date falls on a day that is not a Business Day, principal, Make
Whole Amount, if any, and interest payable on such date will be paid on the
succeeding Business Day with the same force and effect as if it were paid on the
date such payment was due, and no interest will accrue on the amount so payable
for the period from and after such date to such succeeding Business Day.
"Business Day" means any day, other than a Saturday or a Sunday on which banking
institutions in New York, New York and Boston, Massachusetts are required or
authorized by law or executive order to close.
Payments of principal, Make Whole Amount, if any, and interest in
respect of this Note will be made by U.S. dollar check or by wire transfer (such
a wire transfer to be made only to a Holder of an aggregate principal amount of
Notes in excess of $10,000,000, and only if such Holder shall have furnished
wire instructions in writing to the Trustee no later than 15 days prior to the
relevant payment date and acknowledged that a wire transfer fee shall be
payable) of immediately available funds in such coin or currency of the United
States of America as at the time of payment is legal tender for the payment of
public and private debts.
Reference is made to the further provisions of this Note set forth on
the reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place. Capitalized terms used herein,
including on the reverse hereof, and not defined herein or on the reverse hereof
shall have the respective meanings given to such terms in the Indenture.
This Note shall not be entitled to the benefits of the Indenture or be
valid or become obligatory for any purpose until the certificate of
authentication hereon shall have been signed by the Trustee.
2
<PAGE> 3
IN WITNESS WHEREOF, the Issuer has caused this Note to be signed
manually or by facsimile by duly authorized officers of the General Partner.
Dated: July 23, 1998 EOP OPERATING LIMITED PARTNERSHIP,
as Issuer
By: EQUITY OFFICE PROPERTIES TRUST, not
individually but as General Partner
By:_______________________________________
Timothy H. Callahan
Its: President and Chief Executive Officer
and By:_______________________________________
Richard D. Kincaid
Its: Chief Financial Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes of the series designated herein referred to in the
within-mentioned Indenture.
Dated: July 23, 1998 STATE STREET BANK AND TRUST COMPANY
By: ______________________________________
Authorized Officer
3
<PAGE> 4
[REVERSE OF NOTE]
EOP OPERATING LIMITED PARTNERSHIP
6.625% NOTES DUE 2005
This Note is one of a duly authorized issue of senior Notes of the
Issuer (hereinafter called the "Notes") of the series hereinafter specified, all
issued or to be issued under and pursuant to an Indenture dated as of September
2, 1997 (herein called the "Indenture"), duly executed and delivered by the
Issuer to State Street Bank and Trust Company, as Trustee (herein called the
"Trustee," which term includes any successor trustee under the Indenture with
respect to the series of Notes of which this Note is a part), to which Indenture
and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties, and
immunities thereunder of the Trustee, the Issuer, and the Holders of the Notes,
and of the terms upon which the Notes are, and are to be, authenticated and
delivered. The Notes may be issued in one or more series, which different series
may be issued in various aggregate principal amounts, may mature at different
times, may bear interest (if any) at different rates, may be subject to
different redemption provisions (if any), and may otherwise vary as provided in
the Indenture. This Note is one of a series designated as the 6.625% Notes due
2005 of the Issuer (the "Notes"), limited in aggregate principal amount to
$400,000,000 subject to the provisions in the Indenture.
In case an Event of Default with respect to the Notes shall have
occurred and be continuing, the principal hereof and Make Whole Amount (if any)
may be declared, and upon such declaration shall become, due and payable, in the
manner, with the effect, and subject to the conditions provided in the
Indenture.
The Issuer may redeem this Note, at any time in whole or from time to
time in part, at the election of the Issuer, at a redemption price equal to the
sum of (i) the principal amount being redeemed plus accrued interest thereon to
the date fixed for redemption (the "Redemption Date") and (ii) the Make-Whole
Amount with respect hereto (the "Redemption Price"); provided, however, that
interest installments due on an Interest Payment Date which is on or prior to
the Redemption Date will be payable to the Holder hereof (or one or more
predecessor Notes) as of the close of business on the Record Date preceding such
Interest Payment Date. If notice has been given as provided in the Indenture and
funds for the redemption of this Note or any part thereof called for redemption
shall have been made available on the Redemption Date, this Note or such part
thereof will cease to bear interest on the Redemption Date referred to in such
notice and the only right of the Holder will be to receive payment of the
Redemption Price. Notice of any optional redemption of any Notes will be given
to the Holder hereof (in accordance with the provisions of the Indenture), not
more than 60 nor less than 30 days prior to the Redemption Date. In the event of
redemption of this Note in part only, a new Note of like tenor for the
unredeemed portion hereof and otherwise having the same terms and provisions as
this Note shall be issued by the Issuer in the name of the Holder hereof upon
the presentation and surrender hereof.
The Indenture contains provisions for defeasance of (i) the entire
indebtedness of the Notes or (ii) certain covenants and Events of Default with
respect to the Notes, in each case upon compliance with certain conditions set
forth therein, which provisions apply to the Notes.
Whenever in this Note there is a reference, in any context, to the
payment of the principal of, or Make-Whole Amount, if any, or interest on, or in
respect of, the Note, such mention shall be deemed to include mention of the
payment Liquidated Damages payable as described above to the extent that, in
such context, Liquidated Damages are, were or would be payable in respect of the
Note.
4
<PAGE> 5
The Indenture contains provisions permitting the Issuer and the
Trustee, with the consent of the Holders of not less than a majority of the
aggregate principal amount of the Notes at the time Outstanding of all series to
be affected (voting as one class), evidenced as provided in the Indenture, to
execute supplemental indentures adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or of any
supplemental indenture or modifying in any manner the rights of the Holders of
the Notes of each series; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Note at the time Outstanding so
affected, (i) change the final maturity of any Note, or reduce the principal
amount thereof or any premium or Make-Whole Amount thereon, if any, or reduce
the rate or extend the time of payment of any interest thereon, or impair or
affect the rights of any Holder to institute suit for the payment on any Note,
or (ii) reduce the percentage in principal amount of Outstanding Notes, the
Holders of which are required to consent to any such supplemental indenture, or
(iii) reduce the percentage in principal amount of Outstanding Notes, the
Holders of which are required to consent to any waiver of compliance with
certain provisions of the Indenture or any waiver of certain defaults
thereunder. It is also provided in the Indenture that, with respect to certain
defaults or Events of Default regarding the Notes of any series, the Holders of
a majority in aggregate principal amount Outstanding of the Notes of such series
(or, in the case of certain defaults or Events of Default, all series of Notes)
may on behalf of the Holders of all the Notes of such series (or all of the
Notes, as the case may be) waive any such past default or Event of Default and
its consequences, prior to any declaration accelerating the maturity of such
Notes, or, subject to certain conditions, may rescind a declaration of
acceleration and its consequences with respect to such Notes. The preceding
sentence shall not, however, apply to a default in or Event of Default relating
to, the payment of the principal of or premium or Make-Whole Amount, if any, or
interest on any of the Notes or in respect of a covenant or provision contained
in the Indenture that cannot be modified or amended without the consent of the
Holders of each Note at the time Outstanding affected thereby. Any such consent
or waiver by the Holder of this Note (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such Holder and upon all future
Holders and owners of this Note and any Notes that may be issued in exchange or
substitution herefor, irrespective of whether or not any notation thereof is
made upon this Note or such other Notes.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and any Make-Whole Amount
and interest (including Liquidated Damages) on this Note in the manner, at the
respective times, at the rate and in the coin or currency herein prescribed.
This Note is issuable only in registered form without coupons in
denominations of U.S.$1,000 and integral multiples of $1,000 thereof. Notes may
be exchanged for a like aggregate principal amount of Notes of this series of
other authorized denominations at the office or agency of the Issuer in Boston,
Massachusetts, in the manner and subject to the limitations provided herein and
in the Indenture, but without the payment of any service charge except for any
tax or other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this Note at the
office or agency of the Issuer in Boston, Massachusetts, one or more new Notes
of authorized denominations in an equal aggregate principal amount will be
issued to the transferee in exchange therefor, subject to the limitations
provided in the Indenture, but without the payment of any service charge except
for any tax or other governmental charge imposed in connection therewith.
This Note is not subject to a sinking fund requirement.
5
<PAGE> 6
No recourse under or upon any obligation, covenant or agreement
contained in the Indenture, or any Note, or because of any indebtedness
evidenced hereby or thereby (including, without limitation, any obligation or
indebtedness relating to the principal of, or premium or Make-Whole Amount or
Liquidated Damages, if any, interest or any other amounts due, or claimed to be
due, on this Note), or for any claim based thereon or otherwise in respect
thereof, shall be had (i) against the General Partner or any other partner, or
any Person which owns an interest, directly or indirectly, in any partner, in
the Issuer, or (ii) against any promoter, as such, or against any past, present
or future shareholder, officer, trustee or partner, as such, of the Issuer or
the General Partner or of any successor, either directly or through the Issuer
or the General Partner or any successor, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any legal
or equitable proceeding or otherwise, all such liability being expressly waived
and released by the acceptance hereof and as part of the consideration for the
issue hereof.
Prior to due presentation of this Note for registration of transfer,
the Issuer, the Trustee, and any authorized agent of the Issuer or the Trustee
may deem and treat the Person in whose name this Note is registered as the
absolute owner of this Note (whether or not this Note shall be overdue and
notwithstanding any notation of ownership or other writing hereon), for the
purpose of receiving payment of, or on account of, the principal hereof and
Make-Whole Amount, if any, and subject to the provisions herein and on the face
hereof, interest hereon, and for all other purposes, and neither the Issuer nor
the Trustee nor any authorized agent of the Issuer or the Trustee shall be
affected by any notice to the contrary, except as required by law.
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
6
<PAGE> 7
ASSIGNMENT FORM AND CERTIFICATE OF TRANSFER
To assign this Note fill in the form below:
(I) or (we) assign and transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's social Note or tax identification number, if any)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
Your signature:
--------------------------------------------------------
(Sign exactly as your name appears on the other side of
this Note)
Date:
-----------------------------------------
Signature Guarantee:*
--------------------------
- --------
* Signature must be guaranteed by a commercial bank, trust company or member
firm or a major stock exchange
7
<PAGE> 1
EXHIBIT 4.6
EOP OPERATING LIMITED PARTNERSHIP
7.250% NOTES DUE 2018
NO. 001 PRINCIPAL AMOUNT
CUSIP NO. 268766 AM 4 $____________
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY NOTE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC, ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
UNLESS AND UNTIL THIS NOTE IS EXCHANGED IN WHOLE OR IN PART FOR NOTES
IN CERTIFICATED FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY DTC
TO A NOMINEE THEREOF OR BY A NOMINEE THEREOF TO DTC OR ANOTHER NOMINEE OF DTC OR
BY DTC OR ANY SUCH NOMINEE TO A SUCCESSOR OF DTC OR A NOMINEE OF SUCH SUCCESSOR.
THIS NOTE WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN MINIMUM
DENOMINATIONS OF $1,000 AND INTEGRAL MULTIPLES OF $1,000 IN EXCESS THEREOF.
EOP Operating Limited Partnership, a Delaware limited partnership (the
"Issuer," which term includes any successor under the Indenture hereinafter
referred to), for value received, hereby promises to pay to Cede & Co. or
registered assigns, the principal sum of _____________________ Dollars on
February 15, 2018 (the "Stated Maturity Date"), (or any Redemption Date (as
defined on the reverse hereof) or any earlier date of acceleration of maturity,
(each such date being referred to as the "Maturity Date" with respect to the
principal repayable on such date) and to pay interest thereon from February 18,
1998 (or from the most recent Interest Payment Date (as defined below) to which
interest has been paid or duly provided for), semiannually in arrears on
February 15 and August 15 of each year, commencing on August 15, 1998 (each, an
"Interest Payment Date"), and on the Maturity Date, at a rate of 7.250% per
annum (together with Liquidated Damages, as defined in the Registration Rights
Agreement hereinafter referred to, that the Issuer may be required to pay, as
described on the reverse hereof), until payment of said principal sum has been
made or duly provided for. Interest on this Note will be computed on the basis
of a 360-day year of twelve 30-day months.
The interest so payable and punctually paid or duly provided for on an
Interest Payment Date will, subject to certain exceptions described below, be
paid to the Holder in whose name this Note (or one or more predecessor Notes) is
registered at the close of business on the "Regular Record Date" for such
payment, which will be the date 15 calendar days (regardless of whether such day
is a Business Day (as defined below)) next preceding such Interest Payment Date.
Any interest not so punctually paid or duly provided for on an Interest Payment
Date ("Defaulted Interest") shall forthwith cease to be payable to the Holder on
such Regular Record Date, and shall be paid to the Holder in whose name this
Note (or one or more predecessor Notes) is registered at the close of business
on a special record date
<PAGE> 2
(the "Special Record Date") for the payment of such Defaulted Interest to be
fixed by the Trustee hereinafter referred to, notice whereof shall be given to
the Holder of this Note by the Trustee not less than 10 calendar days prior to
such Special Record Date or may be paid at any time in any other lawful manner,
all as more fully provided for in the Indenture.
The principal of and Make-Whole Amount, if any, with respect to this
Note payable on the Maturity Date will be paid against presentation and
surrender of this Note at the office or agency of the Issuer maintained for that
purpose in Boston, Massachusetts with a drop facility maintained in New York,
New York. The Issuer hereby initially designates the Corporate Trust Office of
the Trustee in Boston, Massachusetts as the office to be maintained by it where
Notes may be presented for payment, registration of transfer, or exchange and
where notices or demands to or upon the Issuer in respect of the Notes or the
Indenture may be served.
Interest payable on this Note on any Interest Payment Date and on the
Maturity Date, as the case may be, will be the amount of interest accrued during
the applicable Interest Period (as defined below).
An "Interest Period" is each period from and including the immediately
preceding Interest Payment Date (or from and including February 18, 1998, in the
case of the initial Interest Period) to but excluding the applicable Interest
Payment Date or the Maturity Date, as the case may be. If any Interest Payment
Date or Maturity Date falls on a day that is not a Business Day, principal, Make
Whole Amount, if any, and interest payable on such date will be paid on the
succeeding Business Day with the same force and effect as if it were paid on the
date such payment was due, and no interest will accrue on the amount so payable
for the period from and after such date to such succeeding Business Day.
"Business Day" means any day, other than a Saturday or a Sunday on which banking
institutions in New York, New York and Boston, Massachusetts are required or
authorized by law or executive order to close.
Payments of principal, Make Whole Amount, if any, and interest in
respect of this Note will be made by U.S. dollar check or by wire transfer (such
a wire transfer to be made only to a Holder of an aggregate principal amount of
Notes in excess of $10,000,000, and only if such Holder shall have furnished
wire instructions in writing to the Trustee no later than 15 days prior to the
relevant payment date and acknowledged that a wire transfer fee shall be
payable) of immediately available funds in such coin or currency of the United
States of America as at the time of payment is legal tender for the payment of
public and private debts.
Reference is made to the further provisions of this Note set forth on
the reverse hereof. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place. Capitalized terms used herein,
including on the reverse hereof, and not defined herein or on the reverse hereof
shall have the respective meanings given to such terms in the Indenture.
This Note shall not be entitled to the benefits of the Indenture or be
valid or become obligatory for any purpose until the certificate of
authentication hereon shall have been signed by the Trustee.
2
<PAGE> 3
IN WITNESS WHEREOF, the Issuer has caused this Note to be signed
manually or by facsimile by duly authorized officers of the General Partner.
Dated: July 23, 1998 EOP OPERATING LIMITED PARTNERSHIP,
as Issuer
By: EQUITY OFFICE PROPERTIES TRUST, not
individually but as General Partner
By:_______________________________________
Timothy H. Callahan
Its: President and Chief Executive Officer
and By:_______________________________________
Richard D. Kincaid
Its: Chief Financial Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes of the series designated herein referred to in the
within-mentioned Indenture.
Dated: July 23, 1998 STATE STREET BANK AND TRUST COMPANY
By: ______________________________________
Authorized Officer
3
<PAGE> 4
[REVERSE OF NOTE]
EOP OPERATING LIMITED PARTNERSHIP
7.250% NOTES DUE 2018
This Note is one of a duly authorized issue of senior Notes of the
Issuer (hereinafter called the "Notes") of the series hereinafter specified, all
issued or to be issued under and pursuant to an Indenture dated as of September
2, 1997 (herein called the "Indenture"), duly executed and delivered by the
Issuer to State Street Bank and Trust Company, as Trustee (herein called the
"Trustee," which term includes any successor trustee under the Indenture with
respect to the series of Notes of which this Note is a part), to which Indenture
and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties, and
immunities thereunder of the Trustee, the Issuer, and the Holders of the Notes,
and of the terms upon which the Notes are, and are to be, authenticated and
delivered. The Notes may be issued in one or more series, which different series
may be issued in various aggregate principal amounts, may mature at different
times, may bear interest (if any) at different rates, may be subject to
different redemption provisions (if any), and may otherwise vary as provided in
the Indenture. This Note is one of a series designated as the 7.250% Notes due
2018 of the Issuer (the "Notes"), limited in aggregate principal amount to
$250,000,000 subject to the provisions in the Indenture.
In case an Event of Default with respect to the Notes shall have
occurred and be continuing, the principal hereof and Make Whole Amount (if any)
may be declared, and upon such declaration shall become, due and payable, in the
manner, with the effect, and subject to the conditions provided in the
Indenture.
The Issuer may redeem this Note, at any time in whole or from time to
time in part, at the election of the Issuer, at a redemption price equal to the
sum of (i) the principal amount being redeemed plus accrued interest thereon to
the date fixed for redemption (the "Redemption Date") and (ii) the Make-Whole
Amount with respect hereto (the "Redemption Price"); provided, however, that
interest installments due on an Interest Payment Date which is on or prior to
the Redemption Date will be payable to the Holder hereof (or one or more
predecessor Notes) as of the close of business on the Record Date preceding such
Interest Payment Date. If notice has been given as provided in the Indenture and
funds for the redemption of this Note or any part thereof called for redemption
shall have been made available on the Redemption Date, this Note or such part
thereof will cease to bear interest on the Redemption Date referred to in such
notice and the only right of the Holder will be to receive payment of the
Redemption Price. Notice of any optional redemption of any Notes will be given
to the Holder hereof (in accordance with the provisions of the Indenture), not
more than 60 nor less than 30 days prior to the Redemption Date. In the event of
redemption of this Note in part only, a new Note of like tenor for the
unredeemed portion hereof and otherwise having the same terms and provisions as
this Note shall be issued by the Issuer in the name of the Holder hereof upon
the presentation and surrender hereof.
The Indenture contains provisions for defeasance of (i) the entire
indebtedness of the Notes or (ii) certain covenants and Events of Default with
respect to the Notes, in each case upon compliance with certain conditions set
forth therein, which provisions apply to the Notes.
Whenever in this Note there is a reference, in any context, to the
payment of the principal of, or Make-Whole Amount, if any, or interest on, or in
respect of, the Note, such mention shall be deemed to include mention of the
payment Liquidated Damages payable as described above to the extent that, in
such context, Liquidated Damages are, were or would be payable in respect of the
Note.
4
<PAGE> 5
The Indenture contains provisions permitting the Issuer and the
Trustee, with the consent of the Holders of not less than a majority of the
aggregate principal amount of the Notes at the time Outstanding of all series to
be affected (voting as one class), evidenced as provided in the Indenture, to
execute supplemental indentures adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or of any
supplemental indenture or modifying in any manner the rights of the Holders of
the Notes of each series; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Note at the time Outstanding so
affected, (i) change the final maturity of any Note, or reduce the principal
amount thereof or any premium or Make-Whole Amount thereon, if any, or reduce
the rate or extend the time of payment of any interest thereon, or impair or
affect the rights of any Holder to institute suit for the payment on any Note,
or (ii) reduce the percentage in principal amount of Outstanding Notes, the
Holders of which are required to consent to any such supplemental indenture, or
(iii) reduce the percentage in principal amount of Outstanding Notes, the
Holders of which are required to consent to any waiver of compliance with
certain provisions of the Indenture or any waiver of certain defaults
thereunder. It is also provided in the Indenture that, with respect to certain
defaults or Events of Default regarding the Notes of any series, the Holders of
a majority in aggregate principal amount Outstanding of the Notes of such series
(or, in the case of certain defaults or Events of Default, all series of Notes)
may on behalf of the Holders of all the Notes of such series (or all of the
Notes, as the case may be) waive any such past default or Event of Default and
its consequences, prior to any declaration accelerating the maturity of such
Notes, or, subject to certain conditions, may rescind a declaration of
acceleration and its consequences with respect to such Notes. The preceding
sentence shall not, however, apply to a default in or Event of Default relating
to, the payment of the principal of or premium or Make-Whole Amount, if any, or
interest on any of the Notes or in respect of a covenant or provision contained
in the Indenture that cannot be modified or amended without the consent of the
Holders of each Note at the time Outstanding affected thereby. Any such consent
or waiver by the Holder of this Note (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such Holder and upon all future
Holders and owners of this Note and any Notes that may be issued in exchange or
substitution herefor, irrespective of whether or not any notation thereof is
made upon this Note or such other Notes.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and any Make-Whole Amount
and interest (including Liquidated Damages) on this Note in the manner, at the
respective times, at the rate and in the coin or currency herein prescribed.
This Note is issuable only in registered form without coupons in
denominations of U.S.$1,000 and integral multiples of $1,000 thereof. Notes may
be exchanged for a like aggregate principal amount of Notes of this series of
other authorized denominations at the office or agency of the Issuer in Boston,
Massachusetts, in the manner and subject to the limitations provided herein and
in the Indenture, but without the payment of any service charge except for any
tax or other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this Note at the
office or agency of the Issuer in Boston, Massachusetts, one or more new Notes
of authorized denominations in an equal aggregate principal amount will be
issued to the transferee in exchange therefor, subject to the limitations
provided in the Indenture, but without the payment of any service charge except
for any tax or other governmental charge imposed in connection therewith.
This Note is not subject to a sinking fund requirement.
5
<PAGE> 6
No recourse under or upon any obligation, covenant or agreement
contained in the Indenture, or any Note, or because of any indebtedness
evidenced hereby or thereby (including, without limitation, any obligation or
indebtedness relating to the principal of, or premium or Make-Whole Amount or
Liquidated Damages, if any, interest or any other amounts due, or claimed to be
due, on this Note), or for any claim based thereon or otherwise in respect
thereof, shall be had (i) against the General Partner or any other partner, or
any Person which owns an interest, directly or indirectly, in any partner, in
the Issuer, or (ii) against any promoter, as such, or against any past, present
or future shareholder, officer, trustee or partner, as such, of the Issuer or
the General Partner or of any successor, either directly or through the Issuer
or the General Partner or any successor, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any legal
or equitable proceeding or otherwise, all such liability being expressly waived
and released by the acceptance hereof and as part of the consideration for the
issue hereof.
Prior to due presentation of this Note for registration of transfer,
the Issuer, the Trustee, and any authorized agent of the Issuer or the Trustee
may deem and treat the Person in whose name this Note is registered as the
absolute owner of this Note (whether or not this Note shall be overdue and
notwithstanding any notation of ownership or other writing hereon), for the
purpose of receiving payment of, or on account of, the principal hereof and
Make-Whole Amount, if any, and subject to the provisions herein and on the face
hereof, interest hereon, and for all other purposes, and neither the Issuer nor
the Trustee nor any authorized agent of the Issuer or the Trustee shall be
affected by any notice to the contrary, except as required by law.
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
6
<PAGE> 7
ASSIGNMENT FORM AND CERTIFICATE OF TRANSFER
To assign this Note fill in the form below:
(I) or (we) assign and transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's social Note or tax identification number, if any)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
Your signature:
--------------------------------------------------------
(Sign exactly as your name appears on the other side of
this Note)
Date:
-----------------------------------------
Signature Guarantee:*
--------------------------
- --------
* Signature must be guaranteed by a commercial bank, trust company or member
firm or a major stock exchange
7
<PAGE> 1
EXHIBIT 4.8
SENIOR NOTE
NO. 1 PRINCIPAL AMOUNT
CUSIP NO. 268766 BA 9 $30,000,000
EOP OPERATING LIMITED PARTNERSHIP
7.24% Senior Note due 2004 (the "Senior Note")
EOP Operating Limited Partnership, a Delaware limited partnership (the
"Issuer," which term includes any successor under the indenture hereinafter
referred to), for value received, hereby promises to pay to Teachers Insurance
and Annuity Association of America or registered assigns, the principal sum of
Thirty Million Dollars on September 1, 2004 (the "Maturity Date"), and to pay
interest thereon (a) from March 1, 1998 (or from the most recent Interest
Payment Date to which interest has been paid or duly provided for), semiannually
on March 1 and September 1, of each year (each, an "Interest Payment Date"),
commencing on September 1, 1998, and on the Maturity Date, at the rate of 7.24%
per annum, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of interest
and any overdue payment of any Make-Whole Amount (as defined in the indenture
hereinafter referred to) payable as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum from time to time
equal to the Default Rate (as defined in the indenture hereinafter referred to),
in each case, until payment of said principal sum has been made or fully
provided for.
The interest so payable and punctually paid or duly provided for on any
Interest Payment Date and on the Maturity Date will be paid to the holder in
whose name this Senior Note (or one or more predecessor Senior Notes) is
registered at the close of business on the "Record Date" for such payment, which
will be 15 calendar days (regardless of whether such day is a Business Day (as
defined below)) next preceding such Interest Payment Date or the Maturity Date,
as the case may be. Any interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the registered holder on such Record
Date, and shall be paid to the holder in whose name this Senior Note (or one or
more predecessor Senior Notes) is registered at the close of business on a
subsequent record date for the payment of such defaulted interest (which shall
be not less than five Business Days (as defined below) prior to the date of the
payment of such defaulted interest) established by notice given by mail by or on
behalf of the Issuer to the registered holder of this Senior Note (or one or
more predecessor Senior Notes) not less than 15 days preceding such subsequent
record date. Interest on this Senior Note will be computed on the basis of a
360-day year comprised of twelve 30-day months.
Except as otherwise agreed to in writing among the initial registered
holder of this Senior Note, the trustee under the indenture hereinafter referred
to and the Issuer, the principal
<PAGE> 2
of this Senior Note payable on the Maturity Date will be paid against
presentation and surrender of this Senior Note at the office or agency of the
Issuer maintained for that purpose in The Borough of Manhattan, The City of New
York. The Issuer hereby initially designates the Corporate Trust Office of the
trustee in the Borough of Manhattan, The City of New York as the office to be
maintained by it where Senior Notes may be presented for payment and the
Corporate Trust Office of the trustee in Boston, Massachusetts as the office to
be maintained by it where Senior Notes may be presented for registration of
transfer or exchange and where notices or demands to or upon the Issuer in
respect of the Senior Note or in the indenture hereinafter referred to may be
served.
Interest payable on this Senior Note on any Interest Payment Date and
on the Maturity Date, as the case may be, will be the amount of interest accrued
from and including the immediately preceding Interest Payment Date (or from and
including March 1, 1998 in the case of the initial Interest Payment Date) to but
excluding the applicable Interest Payment Date or the Maturity Date, as the case
may be. If any Interest Payment Date other than the Maturity Date would
otherwise be a day that is not a Business Day (as defined below), such Interest
Payment Date will be postponed to the succeeding Business Day. If the Maturity
Date falls on a day that is not a Business Day, principal and interest payable
on the Maturity Date will be paid on the succeeding Business Day with the same
force and effect as if it were paid on the date such payment was due, and no
interest will accrue on the amount so payable for the period from and after the
Maturity Date. "Business Day" means any day, other than a Saturday or Sunday or
other day on which banking institutions in The City of New York, New York or
Boston, Massachusetts are authorized or required by law, regulation or executive
order to close.
Payments of principal and interest in respect of this Senior Note will
be made by wire transfer of immediately available funds in such coin or currency
of the United States of America as at the time of payment is legal tender for
the payment of public and private debts.
Reference is made to the further provisions of this Senior Note set
forth on the reverse hereof. Such further provisions shall for all purposes have
the same effect as though fully set forth at this place.
This Senior Note shall not be entitled to the benefits of the indenture
hereinafter referred to or be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been signed by the trustee
under such indenture.
2
<PAGE> 3
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed
manually or by facsimile by its duly authorized officers.
Dated: July 23, 1998
EOP OPERATING LIMITED PARTNERSHIP,
as Issuer
By: EQUITY OFFICE PROPERTIES TRUST,
its managing general partner
Attest: By:
----------------------- --------------------------
Name: Timothy H. Callahan
-------------------------------------
Its: President and Chief Executive Officer
-------------------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated herein referred to in the
within-mentioned indenture.
STATE STREET BANK AND TRUST COMPANY
By:
-------------------------------------
Authorized Officer
3
<PAGE> 4
[REVERSE OF SENIOR NOTE]
EOP OPERATING LIMITED PARTNERSHIP
7.24% Senior Notes due 2004
This Senior Note is one of a duly authorized issue of debentures,
notes, bonds, or other evidences of the Issuer (hereinafter called the
"Securities") of the series hereinafter specified, all issued or to be issued
under and pursuant to (i) an Indenture dated as of September 2, 1997 (herein
called the "Indenture"), duly executed and delivered by the Issuer to State
Street Bank and Trust Company, as Trustee (herein called the "Trustee", which
term includes any successor trustee under the Indenture with respect to the
series of Securities of which this Senior Note is a part) and (ii) an Officer's
Certificate dated the date hereof (the "Officer's Certificate"), duly executed
by authorized officers of the Issuer, pursuant to Section 301 of the Indenture,
to which Officer's Certificate and Indenture and all Indentures supplemental
thereto reference is hereby made for a description of the rights, limitations of
rights, obligations, duties, and immunities thereunder of the Trustee, the
Issuer, and the holders of the series of Securities of which this Senior Note is
a part, and of the terms upon which this Senior Note is, and is to be,
authenticated and delivered. Securities of the Issuer may be issued under the
Indenture in one or more series, which different series may be issued in various
aggregate principal amounts, may mature at different times, may bear interest
(if any) at different rates, may be subject to different redemption provisions
(if any), and may otherwise vary as provided in the Indenture. This Senior Note
is one of a series of Senior Notes issued pursuant to the Indenture and
designated as the 7.24%-7.44% Senior Notes due 2004-2007, Tranches A-D, limited
in aggregate principal amount to $180,000,000.
In case an Event of Default with respect to the Senior Notes shall have
occurred and be continuing, the principal hereof and Make-Whole Amount, if any,
may be declared, and upon such declaration shall become, due and payable, in the
manner, with the effect, and subject to the conditions provided in the
Indenture.
The Issuer may redeem the Senior Notes comprising the series of
securities under the Indenture referred to above (the "Series A Senior Notes"),
at any time in whole or from time to time in part, at the election of the
Issuer, at a redemption price equal to the sum of (i) the principal amount of
the Series A Senior Notes being redeemed plus accrued interest thereon to the
Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such
Series A Senior Notes (the "Redemption Price") on the terms specified in the
Indenture. Notice of any optional redemption of any Series A Senior Notes will
be given to holders at their addresses, as shown in the Security Register, not
more than 60 nor less than 30 days prior to the date fixed for redemption. The
notice of redemption will specify, among other items, the Redemption
4
<PAGE> 5
Price and the principal amount of the Series A Senior Notes held by such holder
to be redeemed.
The Indenture contains provisions permitting the Issuer and the
Trustee, with the consent of the holders of not less than a majority of the
aggregate principal amount of the Securities at the time Outstanding of all
series to be affected (voting as one class), evidenced as provided in the
Indenture, to execute supplemental Indentures adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
of any supplemental Indenture or modifying in any manner the rights of the
holders of the Securities of such series; provided, however, that no such
supplemental Indenture shall, without the consent of the holder of each Security
so affected, (i) change the final maturity of any Security, or reduce the
principal amount thereof or any premium thereon, or reduce the rate or extend
the time of payment of any interest thereon, or impair or affect the rights of
any holder to institute suit for the payment on any Security, or (ii) reduce the
aforesaid percentage of Securities, the holders of which are required to consent
to any such supplemental Indenture, or (iii) reduce the percentage of
Securities, the Holders of which are required to consent to any waiver of
compliance with certain provisions of the Indenture or any waiver of certain
defaults thereunder. It is also provided in the Indenture that, with respect to
certain defaults or Events of Default regarding the Securities of any series,
the holders of a majority in aggregate principal amount outstanding of the
Securities of such series (or, in the case of certain defaults or Events of
Default, all series of Securities) may on behalf of the holders of all the
Securities of such series (or all of the Securities, as the case may be) waive
any such past default or Event of Default and its consequences, prior to any
declaration accelerating the maturity of such Securities; or, subject to certain
conditions, may rescind a declaration of acceleration and its consequences with
respect to such Securities. Any such consent or waiver by the holder of this
Senior Note (unless revoked as provided in the Indenture) shall be conclusive
and binding upon such holder and upon all future holders and owners of this
Senior Note and any Senior Notes that may be issued in exchange or substitution
herefor, irrespective of whether or not any notation thereof is made upon this
Senior Note or such other Senior Notes.
No reference herein to the Indenture and no provision of this Senior
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and any Make-Whole
Amount and interest on this Senior Note in the manner, at the respective times,
at the rate and in the coin or currency herein prescribed.
This Senior Note is issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof. Series A Senior Notes
may be exchanged for a like aggregate principal amount of Series A Senior Notes
of other authorized denominations at the Corporate Trust Office in Boston,
Massachusetts, in the manner and subject to the limitations provided in the
Indenture, but without the payment of any service charge except for any tax or
other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this Senior Note
at the Corporate Trust Office in Boston, Massachusetts, a new Senior Note or
Senior Notes of the same series
5
<PAGE> 6
of authorized denominations in an equal aggregate principal amount will be
issued to the transferee in exchange therefor, subject to the limitations
provided in the Indenture, without charge except for any tax or other
governmental charge imposed in connection therewith.
The Issuer, the Trustee, and any authorized agent of the Issuer or the
Trustee may deem and treat the Person in whose name this Senior Note is
registered as the absolute owner of this Senior Note (whether or not this Senior
Note shall be overdue and notwithstanding any notation of ownership or other
writing hereon) for the purpose of receiving payment of, or on account of, the
principal hereof and Make-Whole Amount, if any, and subject to the provisions on
the face hereof, interest hereon, and for all other purposes, and neither the
Issuer nor the Trustee nor any authorized agent of the Issuer or the Trustee
shall be affected by any notice to the contrary.
The Indenture and this Senior Note shall be deemed to be a contract
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of such state, except as may otherwise be required
by mandatory provisions of law.
Terms used herein that are defined in the Indenture shall have the
respective meanings assigned thereto in the Indenture, unless otherwise defined
herein.
6
<PAGE> 1
EXHIBIT 4.9
SENIOR NOTE
NO. 2 PRINCIPAL AMOUNT
CUSIP NO. 268766 BB 7 $50,000,000
EOP OPERATING LIMITED PARTNERSHIP
7.36% Senior Note due 2005 (the "Senior Note")
EOP Operating Limited Partnership, a Delaware limited partnership (the
"Issuer," which term includes any successor under the indenture hereinafter
referred to), for value received, hereby promises to pay to Teachers Insurance
and Annuity Association of America or registered assigns, the principal sum of
Fifty Million Dollars on September 1, 2005 (the "Maturity Date"), and to pay
interest thereon (a) from March 1, 1998 (or from the most recent Interest
Payment Date to which interest has been paid or duly provided for), semiannually
on March 1 and September 1, of each year (each, an "Interest Payment Date"),
commencing on September 1, 1998, and on the Maturity Date, at the rate of 7.36%
per annum, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of interest
and any overdue payment of any Make-Whole Amount (as defined in the indenture
hereinafter referred to) payable as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum from time to time
equal to the Default Rate (as defined in the indenture hereinafter referred to),
in each case, until payment of said principal sum has been made or fully
provided for.
The interest so payable and punctually paid or duly provided for on any
Interest Payment Date and on the Maturity Date will be paid to the holder in
whose name this Senior Note (or one or more predecessor Senior Notes) is
registered at the close of business on the "Record Date" for such payment, which
will be 15 calendar days (regardless of whether such day is a Business Day (as
defined below)) next preceding such Interest Payment Date or the Maturity Date,
as the case may be. Any interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the registered holder on such Record
Date, and shall be paid to the holder in whose name this Senior Note (or one or
more predecessor Senior Notes) is registered at the close of business on a
subsequent record date for the payment of such defaulted interest (which shall
be not less than five Business Days (as defined below) prior to the date of the
payment of such defaulted interest) established by notice given by mail by or on
behalf of the Issuer to the registered holder of this Senior Note (or one or
more predecessor Senior Notes) not less than 15 days preceding such subsequent
record date. Interest on this Senior Note will be computed on the basis of a
360-day year comprised of twelve 30-day months.
Except as otherwise agreed to in writing among the initial registered
holder of this Senior Note, the trustee under the indenture hereinafter referred
to and the Issuer, the principal of this Senior Note payable on the Maturity
Date will be paid against presentation and
<PAGE> 2
surrender of this Senior Note at the office or agency of the Issuer maintained
for that purpose in The Borough of Manhattan, The City of New York. The Issuer
hereby initially designates the Corporate Trust Office of the trustee in the
Borough of Manhattan, The City of New York as the office to be maintained by it
where Senior Notes may be presented for payment and the Corporate Trust Office
of the trustee in Boston, Massachusetts as the office to be maintained by it
where Senior Notes may be presented for registration of transfer or exchange and
where notices or demands to or upon the Issuer in respect of the Senior Note or
in the indenture hereinafter referred to may be served.
Interest payable on this Senior Note on any Interest Payment Date and
on the Maturity Date, as the case may be, will be the amount of interest accrued
from and including the immediately preceding Interest Payment Date (or from and
including March 1, 1998 in the case of the initial Interest Payment Date) to but
excluding the applicable Interest Payment Date or the Maturity Date, as the case
may be. If any Interest Payment Date other than the Maturity Date would
otherwise be a day that is not a Business Day (as defined below), such Interest
Payment Date will be postponed to the succeeding Business Day. If the Maturity
Date falls on a day that is not a Business Day, principal and interest payable
on the Maturity Date will be paid on the succeeding Business Day with the same
force and effect as if it were paid on the date such payment was due, and no
interest will accrue on the amount so payable for the period from and after the
Maturity Date. "Business Day" means any day, other than a Saturday or Sunday or
other day on which banking institutions in The City of New York, New York or
Boston, Massachusetts are authorized or required by law, regulation or executive
order to close.
Payments of principal and interest in respect of this Senior Note will
be made by wire transfer of immediately available funds in such coin or currency
of the United States of America as at the time of payment is legal tender for
the payment of public and private debts.
Reference is made to the further provisions of this Senior Note set
forth on the reverse hereof. Such further provisions shall for all purposes have
the same effect as though fully set forth at this place.
This Senior Note shall not be entitled to the benefits of the indenture
hereinafter referred to or be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been signed by the trustee
under such indenture.
2
<PAGE> 3
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed
manually or by facsimile by its duly authorized officers.
Dated: July 23, 1998
EOP OPERATING LIMITED PARTNERSHIP,
as Issuer
By: EQUITY OFFICE PROPERTIES TRUST,
its managing general partner
Attest: By:
----------------------- --------------------------
Name: Timothy H. Callahan
-------------------------------------
Its: President and Chief Executive Officer
-------------------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated herein referred to in the
within-mentioned indenture.
STATE STREET BANK AND TRUST COMPANY
By:
-------------------------------------
Authorized Officer
3
<PAGE> 4
[REVERSE OF SENIOR NOTE]
EOP OPERATING LIMITED PARTNERSHIP
7.36% Senior Notes due 2005
This Senior Note is one of a duly authorized issue of debentures,
notes, bonds, or other evidences of the Issuer (hereinafter called the
"Securities") of the series hereinafter specified, all issued or to be issued
under and pursuant to (i) an Indenture dated as of September 2, 1997 (herein
called the "Indenture"), duly executed and delivered by the Issuer to State
Street Bank and Trust Company, as Trustee (herein called the "Trustee", which
term includes any successor trustee under the Indenture with respect to the
series of Securities of which this Senior Note is a part) and (ii) an Officer's
Certificate dated the date hereof (the "Officer's Certificate"), duly executed
by authorized officers of the Issuer, pursuant to Section 301 of the Indenture,
to which Officer's Certificate and Indenture and all Indentures supplemental
thereto reference is hereby made for a description of the rights, limitations of
rights, obligations, duties, and immunities thereunder of the Trustee, the
Issuer, and the holders of the series of Securities of which this Senior Note is
a part, and of the terms upon which this Senior Note is, and is to be,
authenticated and delivered. Securities of the Issuer may be issued under the
Indenture in one or more series, which different series may be issued in various
aggregate principal amounts, may mature at different times, may bear interest
(if any) at different rates, may be subject to different redemption provisions
(if any), and may otherwise vary as provided in the Indenture. This Senior Note
is one of a series of Senior Notes issued pursuant to the Indenture and
designated as the 7.24%-7.44% Senior Notes due 2004-2007, Tranches A-D, limited
in aggregate principal amount to $180,000,000.
In case an Event of Default with respect to the Senior Notes shall have
occurred and be continuing, the principal hereof and Make-Whole Amount, if any,
may be declared, and upon such declaration shall become, due and payable, in the
manner, with the effect, and subject to the conditions provided in the
Indenture.
The Issuer may redeem the Senior Notes comprising the series of
securities under the Indenture referred to above (the "Series A Senior Notes"),
at any time in whole or from time to time in part, at the election of the
Issuer, at a redemption price equal to the sum of (i) the principal amount of
the Series A Senior Notes being redeemed plus accrued interest thereon to the
Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such
Series A Senior Notes (the "Redemption Price") on the terms specified in the
Indenture. Notice of any optional redemption of any Series A Senior Notes will
be given to holders at their addresses, as
4
<PAGE> 5
shown in the Security Register, not more than 60 nor less than 30 days prior to
the date fixed for redemption. The notice of redemption will specify, among
other items, the Redemption Price and the principal amount of the Series A
Senior Notes held by such holder to be redeemed.
The Indenture contains provisions permitting the Issuer and the
Trustee, with the consent of the holders of not less than a majority of the
aggregate principal amount of the Securities at the time Outstanding of all
series to be affected (voting as one class), evidenced as provided in the
Indenture, to execute supplemental Indentures adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
of any supplemental Indenture or modifying in any manner the rights of the
holders of the Securities of such series; provided, however, that no such
supplemental Indenture shall, without the consent of the holder of each Security
so affected, (i) change the final maturity of any Security, or reduce the
principal amount thereof or any premium thereon, or reduce the rate or extend
the time of payment of any interest thereon, or impair or affect the rights of
any holder to institute suit for the payment on any Security, or (ii) reduce the
aforesaid percentage of Securities, the holders of which are required to consent
to any such supplemental Indenture, or (iii) reduce the percentage of
Securities, the Holders of which are required to consent to any waiver of
compliance with certain provisions of the Indenture or any waiver of certain
defaults thereunder. It is also provided in the Indenture that, with respect to
certain defaults or Events of Default regarding the Securities of any series,
the holders of a majority in aggregate principal amount outstanding of the
Securities of such series (or, in the case of certain defaults or Events of
Default, all series of Securities) may on behalf of the holders of all the
Securities of such series (or all of the Securities, as the case may be) waive
any such past default or Event of Default and its consequences, prior to any
declaration accelerating the maturity of such Securities; or, subject to certain
conditions, may rescind a declaration of acceleration and its consequences with
respect to such Securities. Any such consent or waiver by the holder of this
Senior Note (unless revoked as provided in the Indenture) shall be conclusive
and binding upon such holder and upon all future holders and owners of this
Senior Note and any Senior Notes that may be issued in exchange or substitution
herefor, irrespective of whether or not any notation thereof is made upon this
Senior Note or such other Senior Notes.
No reference herein to the Indenture and no provision of this Senior
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and any Make-Whole
Amount and interest on this Senior Note in the manner, at the respective times,
at the rate and in the coin or currency herein prescribed.
This Senior Note is issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof. Series A Senior Notes
may be exchanged for a like aggregate principal amount of Series A Senior Notes
of other authorized denominations at the Corporate Trust Office in Boston,
Massachusetts, in the manner and subject to the limitations provided in the
Indenture, but without the payment of any service charge except for any tax or
other governmental charge imposed in connection therewith.
5
<PAGE> 6
Upon due presentment for registration of transfer of this Senior Note
at the Corporate Trust Office in Boston, Massachusetts, a new Senior Note or
Senior Notes of the same series of authorized denominations in an equal
aggregate principal amount will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Indenture, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Issuer, the Trustee, and any authorized agent of the Issuer or the
Trustee may deem and treat the Person in whose name this Senior Note is
registered as the absolute owner of this Senior Note (whether or not this Senior
Note shall be overdue and notwithstanding any notation of ownership or other
writing hereon) for the purpose of receiving payment of, or on account of, the
principal hereof and Make-Whole Amount, if any, and subject to the provisions on
the face hereof, interest hereon, and for all other purposes, and neither the
Issuer nor the Trustee nor any authorized agent of the Issuer or the Trustee
shall be affected by any notice to the contrary.
The Indenture and this Senior Note shall be deemed to be a contract
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of such state, except as may otherwise be required
by mandatory provisions of law.
Terms used herein that are defined in the Indenture shall have the
respective meanings assigned thereto in the Indenture, unless otherwise defined
herein.
6
<PAGE> 1
EXHIBIT 4.10
SENIOR NOTE
NO. 3 PRINCIPAL AMOUNT
CUSIP NO. 268766 BC 5 $50,000,000
EOP OPERATING LIMITED PARTNERSHIP
7.44% Senior Note due 2006 (the "Senior Note")
EOP Operating Limited Partnership, a Delaware limited partnership (the
"Issuer," which term includes any successor under the indenture hereinafter
referred to), for value received, hereby promises to pay to Teachers Insurance
and Annuity Association of America or registered assigns, the principal sum of
Fifty Million Dollars on September 1, 2006 (the "Maturity Date"), and to pay
interest thereon (a) from March 1, 1998 (or from the most recent Interest
Payment Date to which interest has been paid or duly provided for), semiannually
on March 1 and September 1, of each year (each, an "Interest Payment Date"),
commencing on September 1, 1998, and on the Maturity Date, at the rate of 7.44%
per annum, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of interest
and any overdue payment of any Make-Whole Amount (as defined in the indenture
hereinafter referred to) payable as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum from time to time
equal to the Default Rate (as defined in the indenture hereinafter referred to),
in each case, until payment of said principal sum has been made or fully
provided for.
The interest so payable and punctually paid or duly provided for on any
Interest Payment Date and on the Maturity Date will be paid to the holder in
whose name this Senior Note (or one or more predecessor Senior Notes) is
registered at the close of business on the "Record Date" for such payment, which
will be 15 calendar days (regardless of whether such day is a Business Day (as
defined below)) next preceding such Interest Payment Date or the Maturity Date,
as the case may be. Any interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the registered holder on such Record
Date, and shall be paid to the holder in whose name this Senior Note (or one or
more predecessor Senior Notes) is registered at the close of business on a
subsequent record date for the payment of such defaulted interest (which shall
be not less than five Business Days (as defined below) prior to the date of the
payment of such defaulted interest) established by notice given by mail by or on
behalf of the Issuer to the registered holder of this Senior Note (or one or
more predecessor Senior Notes) not less than 15 days preceding such subsequent
record date. Interest on this Senior Note will be computed on the basis of a
360-day year comprised of twelve 30-day months.
<PAGE> 2
Except as otherwise agreed to in writing among the initial registered
holder of this Senior Note, the trustee under the indenture hereinafter referred
to and the Issuer, the principal of this Senior Note payable on the Maturity
Date will be paid against presentation and surrender of this Senior Note at the
office or agency of the Issuer maintained for that purpose in The Borough of
Manhattan, The City of New York. The Issuer hereby initially designates the
Corporate Trust Office of the trustee in the Borough of Manhattan, The City of
New York as the office to be maintained by it where Senior Notes may be
presented for payment and the Corporate Trust Office of the trustee in Boston,
Massachusetts as the office to be maintained by it where Senior Notes may be
presented for registration of transfer or exchange and where notices or demands
to or upon the Issuer in respect of the Senior Note or in the indenture
hereinafter referred to may be served.
Interest payable on this Senior Note on any Interest Payment Date and
on the Maturity Date, as the case may be, will be the amount of interest accrued
from and including the immediately preceding Interest Payment Date (or from and
including March 1, 1998 in the case of the initial Interest Payment Date) to but
excluding the applicable Interest Payment Date or the Maturity Date, as the case
may be. If any Interest Payment Date other than the Maturity Date would
otherwise be a day that is not a Business Day (as defined below), such Interest
Payment Date will be postponed to the succeeding Business Day. If the Maturity
Date falls on a day that is not a Business Day, principal and interest payable
on the Maturity Date will be paid on the succeeding Business Day with the same
force and effect as if it were paid on the date such payment was due, and no
interest will accrue on the amount so payable for the period from and after the
Maturity Date. "Business Day" means any day, other than a Saturday or Sunday or
other day on which banking institutions in The City of New York, New York or
Boston, Massachusetts are authorized or required by law, regulation or executive
order to close.
Payments of principal and interest in respect of this Senior Note will
be made by wire transfer of immediately available funds in such coin or currency
of the United States of America as at the time of payment is legal tender for
the payment of public and private debts.
Reference is made to the further provisions of this Senior Note set
forth on the reverse hereof. Such further provisions shall for all purposes have
the same effect as though fully set forth at this place.
This Senior Note shall not be entitled to the benefits of the indenture
hereinafter referred to or be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been signed by the trustee
under such indenture.
2
<PAGE> 3
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed
manually or by facsimile by its duly authorized officers.
Dated: July 23, 1998
EOP OPERATING LIMITED PARTNERSHIP,
as Issuer
By: EQUITY OFFICE PROPERTIES TRUST,
its managing general partner
Attest: By:
----------------------- --------------------------
Name: Timothy H. Callahan
-------------------------------------
Its: President and Chief Executive Officer
-------------------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated herein referred to in the
within-mentioned indenture.
STATE STREET BANK AND TRUST COMPANY
By:
-------------------------------------
Authorized Officer
3
<PAGE> 4
[REVERSE OF SENIOR NOTE]
EOP OPERATING LIMITED PARTNERSHIP
7.44% Senior Notes due 2006
This Senior Note is one of a duly authorized issue of debentures,
notes, bonds, or other evidences of the Issuer (hereinafter called the
"Securities") of the series hereinafter specified, all issued or to be issued
under and pursuant to (i) an Indenture dated as of September 2, 1997 (herein
called the "Indenture"), duly executed and delivered by the Issuer to State
Street Bank and Trust Company, as Trustee (herein called the "Trustee", which
term includes any successor trustee under the Indenture with respect to the
series of Securities of which this Senior Note is a part) and (ii) an Officer's
Certificate dated the date hereof (the "Officer's Certificate"), duly executed
by authorized officers of the Issuer, pursuant to Section 301 of the Indenture,
to which Officer's Certificate and Indenture and all Indentures supplemental
thereto reference is hereby made for a description of the rights, limitations of
rights, obligations, duties, and immunities thereunder of the Trustee, the
Issuer, and the holders of the series of Securities of which this Senior Note is
a part, and of the terms upon which this Senior Note is, and is to be,
authenticated and delivered. Securities of the Issuer may be issued under the
Indenture in one or more series, which different series may be issued in various
aggregate principal amounts, may mature at different times, may bear interest
(if any) at different rates, may be subject to different redemption provisions
(if any), and may otherwise vary as provided in the Indenture. This Senior Note
is one of a series of Senior Notes issued pursuant to the Indenture and
designated as the 7.24%-7.44% Senior Notes due 2004-2007, Tranches A-D, limited
in aggregate principal amount to $180,000,000.
In case an Event of Default with respect to the Senior Notes shall have
occurred and be continuing, the principal hereof and Make-Whole Amount, if any,
may be declared, and upon such declaration shall become, due and payable, in the
manner, with the effect, and subject to the conditions provided in the Indenture
and the Note Purchase Agreement.
The Issuer may redeem the Senior Notes comprising the series of
securities under the Indenture referred to above (the "Series A Senior Notes"),
at any time in whole or from time to time in part, at the election of the
Issuer, at a redemption price equal to the sum of (i) the principal amount of
the Series A Senior Notes being redeemed plus accrued interest thereon to the
Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such
Series A Senior Notes (the "Redemption Price") on the terms specified in the
Indenture. Notice of any optional redemption of any Series A Senior Notes will
be given to holders at their addresses, as shown in the Security Register, not
more than 60 nor less than 30 days prior to the date fixed for redemption. The
notice of redemption will specify, among other items, the Redemption
5
<PAGE> 5
Price and the principal amount of the Series A Senior Notes held by such holder
to be redeemed.
The Indenture contains provisions permitting the Issuer and the
Trustee, with the consent of the holders of not less than a majority of the
aggregate principal amount of the Securities at the time Outstanding of all
series to be affected (voting as one class), evidenced as provided in the
Indenture, to execute supplemental Indentures adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
of any supplemental Indenture or modifying in any manner the rights of the
holders of the Securities of such series; provided, however, that no such
supplemental Indenture shall, without the consent of the holder of each Security
so affected, (i) change the final maturity of any Security, or reduce the
principal amount thereof or any premium thereon, or reduce the rate or extend
the time of payment of any interest thereon, or impair or affect the rights of
any holder to institute suit for the payment on any Security, or (ii) reduce the
aforesaid percentage of Securities, the holders of which are required to consent
to any such supplemental Indenture, or (iii) reduce the percentage of
Securities, the Holders of which are required to consent to any waiver of
compliance with certain provisions of the Indenture or any waiver of certain
defaults thereunder. It is also provided in the Indenture that, with respect to
certain defaults or Events of Default regarding the Securities of any series,
the holders of a majority in aggregate principal amount outstanding of the
Securities of such series (or, in the case of certain defaults or Events of
Default, all series of Securities) may on behalf of the holders of all the
Securities of such series (or all of the Securities, as the case may be) waive
any such past default or Event of Default and its consequences, prior to any
declaration accelerating the maturity of such Securities; or, subject to certain
conditions, may rescind a declaration of acceleration and its consequences with
respect to such Securities. Any such consent or waiver by the holder of this
Senior Note (unless revoked as provided in the Indenture) shall be conclusive
and binding upon such holder and upon all future holders and owners of this
Senior Note and any Senior Notes that may be issued in exchange or substitution
herefor, irrespective of whether or not any notation thereof is made upon this
Senior Note or such other Senior Notes.
No reference herein to the Indenture and no provision of this Senior
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and any Make-Whole
Amount and interest on this Senior Note in the manner, at the respective times,
at the rate and in the coin or currency herein prescribed.
This Senior Note is issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof. Series A Senior Notes
may be exchanged for a like aggregate principal amount of Series A Senior Notes
of other authorized denominations at the Corporate Trust Office in Boston,
Massachusetts, in the manner and subject to the limitations provided in the
Indenture, but without the payment of any service charge except for any tax or
other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this Senior Note
at the Corporate Trust Office in Boston, Massachusetts, a new Senior Note or
Senior Notes of the same series
5
<PAGE> 6
of authorized denominations in an equal aggregate principal amount will be
issued to the transferee in exchange therefor, subject to the limitations
provided in the Indenture, without charge except for any tax or other
governmental charge imposed in connection therewith.
The Issuer, the Trustee, and any authorized agent of the Issuer or the
Trustee may deem and treat the Person in whose name this Senior Note is
registered as the absolute owner of this Senior Note (whether or not this Senior
Note shall be overdue and notwithstanding any notation of ownership or other
writing hereon) for the purpose of receiving payment of, or on account of, the
principal hereof and Make-Whole Amount, if any, and subject to the provisions on
the face hereof, interest hereon, and for all other purposes, and neither the
Issuer nor the Trustee nor any authorized agent of the Issuer or the Trustee
shall be affected by any notice to the contrary.
The Indenture and this Senior Note shall be deemed to be a contract
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of such state, except as may otherwise be required
by mandatory provisions of law.
Terms used herein that are defined in the Indenture shall have the
respective meanings assigned thereto in the Indenture, unless otherwise defined
herein.
6
<PAGE> 1
EXHIBIT 4.11
SENIOR NOTE
NO. 4 PRINCIPAL AMOUNT
CUSIP NO. 268766 BD 3 $50,000,000
EOP OPERATING LIMITED PARTNERSHIP
7.41% Senior Note due 2007 (the "Senior Note")
EOP Operating Limited Partnership, a Delaware limited partnership (the
"Issuer," which term includes any successor under the indenture hereinafter
referred to), for value received, hereby promises to pay to Teachers Insurance
and Annuity Association of America or registered assigns, the principal sum of
Fifty Million Dollars on September 1, 2007 (the "Maturity Date"), and to pay
interest thereon (a) from March 1, 1998 (or from the most recent Interest
Payment Date to which interest has been paid or duly provided for), semiannually
on March 1 and September 1, of each year (each, an "Interest Payment Date"),
commencing on September 1, 1998, and on the Maturity Date, at the rate of 7.41%
per annum, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of interest
and any overdue payment of any Make-Whole Amount (as defined in the indenture
hereinafter referred to) payable as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum from time to time
equal to the Default Rate (as defined in the indenture hereinafter referred to),
in each case, until payment of said principal sum has been made or fully
provided for.
The interest so payable and punctually paid or duly provided for on any
Interest Payment Date and on the Maturity Date will be paid to the holder in
whose name this Senior Note (or one or more predecessor Senior Notes) is
registered at the close of business on the "Record Date" for such payment, which
will be 15 calendar days (regardless of whether such day is a Business Day (as
defined below)) next preceding such Interest Payment Date or the Maturity Date,
as the case may be. Any interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the registered holder on such Record
Date, and shall be paid to the holder in whose name this Senior Note (or one or
more predecessor Senior Notes) is registered at the close of business on a
subsequent record date for the payment of such defaulted interest (which shall
be not less than five Business Days (as defined below) prior to the date of the
payment of such defaulted interest) established by notice given by mail by or on
behalf of the Issuer to the registered holder of this Senior Note (or one or
more predecessor Senior Notes) not less than 15 days preceding such subsequent
record date. Interest on this Senior Note will be computed on the basis of a
360-day year comprised of twelve 30-day months.
Except as otherwise agreed to in writing among the initial registered
holder of this Senior Note, the trustee under the indenture hereinafter referred
to and the Issuer, the principal
<PAGE> 2
of this Senior Note payable on the Maturity Date will be paid against
presentation and surrender of this Senior Note at the office or agency of the
Issuer maintained for that purpose in The Borough of Manhattan, The City of New
York. The Issuer hereby initially designates the Corporate Trust Office of the
trustee in the Borough of Manhattan, The City of New York as the office to be
maintained by it where Senior Notes may be presented for payment and the
Corporate Trust Office of the trustee in Boston, Massachusetts as the office to
be maintained by it where Senior Notes may be presented for registration of
transfer or exchange and where notices or demands to or upon the Issuer in
respect of the Senior Note or in the indenture hereinafter referred to may be
served.
Interest payable on this Senior Note on any Interest Payment Date and
on the Maturity Date, as the case may be, will be the amount of interest accrued
from and including the immediately preceding Interest Payment Date (or from and
including March 1, 1998 in the case of the initial Interest Payment Date) to but
excluding the applicable Interest Payment Date or the Maturity Date, as the case
may be. If any Interest Payment Date other than the Maturity Date would
otherwise be a day that is not a Business Day (as defined below), such Interest
Payment Date will be postponed to the succeeding Business Day. If the Maturity
Date falls on a day that is not a Business Day, principal and interest payable
on the Maturity Date will be paid on the succeeding Business Day with the same
force and effect as if it were paid on the date such payment was due, and no
interest will accrue on the amount so payable for the period from and after the
Maturity Date. "Business Day" means any day, other than a Saturday or Sunday or
other day on which banking institutions in The City of New York, New York or
Boston, Massachusetts are authorized or required by law, regulation or executive
order to close.
Payments of principal and interest in respect of this Senior Note will
be made by wire transfer of immediately available funds in such coin or currency
of the United States of America as at the time of payment is legal tender for
the payment of public and private debts.
Reference is made to the further provisions of this Senior Note set
forth on the reverse hereof. Such further provisions shall for all purposes have
the same effect as though fully set forth at this place.
This Senior Note shall not be entitled to the benefits of the indenture
hereinafter referred to or be valid or become obligatory for any purpose until
the certificate of authentication hereon shall have been signed by the trustee
under such indenture.
2
<PAGE> 3
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed
manually or by facsimile by its duly authorized officers.
Dated: July 23, 1998
EOP OPERATING LIMITED PARTNERSHIP,
as Issuer
By: EQUITY OFFICE PROPERTIES TRUST,
its managing general partner
Attest: By:
----------------------- --------------------------
Name: Timothy H. Callahan
-------------------------------------
Its: President and Chief Executive Officer
-------------------------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated herein referred to in the
within-mentioned indenture.
STATE STREET BANK AND TRUST COMPANY
By:
-------------------------------------
Authorized Officer
3
<PAGE> 4
[REVERSE OF SENIOR NOTE]
EOP OPERATING LIMITED PARTNERSHIP
7.41% Senior Notes due 2007
This Senior Note is one of a duly authorized issue of debentures,
notes, bonds, or other evidences of the Issuer (hereinafter called the
"Securities") of the series hereinafter specified, all issued or to be issued
under and pursuant to (i) an Indenture dated as of September 2, 1997 (herein
called the "Indenture"), duly executed and delivered by the Issuer to State
Street Bank and Trust Company, as Trustee (herein called the "Trustee", which
term includes any successor trustee under the Indenture with respect to the
series of Securities of which this Senior Note is a part) and (ii) an Officer's
Certificate dated the date hereof (the "Officer's Certificate"), duly executed
by authorized officers of the Issuer, pursuant to Section 301 of the Indenture,
to which Officer's Certificate and Indenture and all Indentures supplemental
thereto reference is hereby made for a description of the rights, limitations of
rights, obligations, duties, and immunities thereunder of the Trustee, the
Issuer, and the holders of the series of Securities of which this Senior Note is
a part, and of the terms upon which this Senior Note is, and is to be,
authenticated and delivered. Securities of the Issuer may be issued under the
Indenture in one or more series, which different series may be issued in various
aggregate principal amounts, may mature at different times, may bear interest
(if any) at different rates, may be subject to different redemption provisions
(if any), and may otherwise vary as provided in the Indenture. This Senior Note
is one of a series of Senior Notes issued pursuant to the Indenture and
designated as the 7.24%-7.44% Senior Notes due 2004-2007, Tranches A-D, limited
in aggregate principal amount to $180,000,000.
In case an Event of Default with respect to the Senior Notes shall have
occurred and be continuing, the principal hereof and Make-Whole Amount, if any,
may be declared, and upon such declaration shall become, due and payable, in the
manner, with the effect, and subject to the conditions provided in the Indenture
and the Note Purchase Agreement.
The Issuer may redeem the Senior Notes comprising the series of
securities under the Indenture referred to above (the "Series A Senior Notes"),
at any time in whole or from time to time in part, at the election of the
Issuer, at a redemption price equal to the sum of (i) the principal amount of
the Series A Senior Notes being redeemed plus accrued interest thereon to the
Redemption Date and (ii) the Make-Whole Amount, if any, with respect to such
Series A Senior Notes (the "Redemption Price") on the terms specified in the
Indenture. Notice of any optional redemption of any Series A Senior Notes will
be given to holders at their addresses, as shown in the Security Register, not
more than 60 nor less than 30 days prior to the date fixed for redemption. The
notice of redemption will specify, among other items, the Redemption
4
<PAGE> 5
Price and the principal amount of the Series A Senior Notes held by such holder
to be redeemed.
The Indenture contains provisions permitting the Issuer and the
Trustee, with the consent of the holders of not less than a majority of the
aggregate principal amount of the Securities at the time Outstanding of all
series to be affected (voting as one class), evidenced as provided in the
Indenture, to execute supplemental Indentures adding any provisions to or
changing in any manner or eliminating any of the provisions of the Indenture or
of any supplemental Indenture or modifying in any manner the rights of the
holders of the Securities of such series; provided, however, that no such
supplemental Indenture shall, without the consent of the holder of each Security
so affected, (i) change the final maturity of any Security, or reduce the
principal amount thereof or any premium thereon, or reduce the rate or extend
the time of payment of any interest thereon, or impair or affect the rights of
any holder to institute suit for the payment on any Security, or (ii) reduce the
aforesaid percentage of Securities, the holders of which are required to consent
to any such supplemental Indenture, or (iii) reduce the percentage of
Securities, the Holders of which are required to consent to any waiver of
compliance with certain provisions of the Indenture or any waiver of certain
defaults thereunder. It is also provided in the Indenture that, with respect to
certain defaults or Events of Default regarding the Securities of any series,
the holders of a majority in aggregate principal amount outstanding of the
Securities of such series (or, in the case of certain defaults or Events of
Default, all series of Securities) may on behalf of the holders of all the
Securities of such series (or all of the Securities, as the case may be) waive
any such past default or Event of Default and its consequences, prior to any
declaration accelerating the maturity of such Securities; or, subject to certain
conditions, may rescind a declaration of acceleration and its consequences with
respect to such Securities. Any such consent or waiver by the holder of this
Senior Note (unless revoked as provided in the Indenture) shall be conclusive
and binding upon such holder and upon all future holders and owners of this
Senior Note and any Senior Notes that may be issued in exchange or substitution
herefor, irrespective of whether or not any notation thereof is made upon this
Senior Note or such other Senior Notes.
No reference herein to the Indenture and no provision of this Senior
Note or of the Indenture shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, to pay the principal of and any Make-Whole
Amount and interest on this Senior Note in the manner, at the respective times,
at the rate and in the coin or currency herein prescribed.
This Senior Note is issuable only in registered form without coupons in
denominations of $1,000 and integral multiples thereof. Series A Senior Notes
may be exchanged for a like aggregate principal amount of Series A Senior Notes
of other authorized denominations at the Corporate Trust Office in Boston,
Massachusetts, in the manner and subject to the limitations provided in the
Indenture, but without the payment of any service charge except for any tax or
other governmental charge imposed in connection therewith.
Upon due presentment for registration of transfer of this Senior Note
at the Corporate Trust Office in Boston, Massachusetts, a new Senior Note or
Senior Notes of the same series
5
<PAGE> 6
of authorized denominations in an equal aggregate principal amount will be
issued to the transferee in exchange therefor, subject to the limitations
provided in the Indenture, without charge except for any tax or other
governmental charge imposed in connection therewith.
The Issuer, the Trustee, and any authorized agent of the Issuer or the
Trustee may deem and treat the Person in whose name this Senior Note is
registered as the absolute owner of this Senior Note (whether or not this Senior
Note shall be overdue and notwithstanding any notation of ownership or other
writing hereon) for the purpose of receiving payment of, or on account of, the
principal hereof and Make-Whole Amount, if any, and subject to the provisions on
the face hereof, interest hereon, and for all other purposes, and neither the
Issuer nor the Trustee nor any authorized agent of the Issuer or the Trustee
shall be affected by any notice to the contrary.
The Indenture and this Senior Note shall be deemed to be a contract
under the laws of the State of New York, and for all purposes shall be construed
in accordance with the laws of such state, except as may otherwise be required
by mandatory provisions of law.
Terms used herein that are defined in the Indenture shall have the
respective meanings assigned thereto in the Indenture, unless otherwise defined
herein.
6
<PAGE> 1
EXHIBIT 4.20
TERM LOAN AGREEMENT
for $328,000,000 Term Credit Facility
dated as of August 14, 1998
among
EOP OPERATING LIMITED PARTNERSHIP,
THE FINANCIAL INSTITUTIONS LISTED HEREIN,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Administrative Agent,
AND
J.P. MORGAN SECURITIES INC.,
as Arranger
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS 1
SECTION 1.1. Definitions 1
SECTION 1.2. Accounting Terms and Determinations 20
SECTION 1.3. Types of Borrowings 2
ARTICLE II
THE CREDITS 21
SECTION 2.1. Commitments to Lend 21
SECTION 2.2. Notice of Borrowing 21
SECTION 2.3. Notice to Banks; Funding of Loans 21
SECTION 2.4. Notes 22
SECTION 2.5. Interest Rates 23
SECTION 2.6. Interest Rate Reset Date 23
SECTION 2.7. Maturity Date 24
SECTION 2.8. Optional Prepayments 24
SECTION 2.9. General Provisions as to Payments 24
SECTION 2.10. Funding Losses 25
SECTION 2.11. Computation of Interest and Fees 25
SECTION 2.12. Use of Proceeds 26
ARTICLE III
CONDITIONS 26
SECTION 3.1. Closing 26
SECTION 3.2. Borrowings 27
ARTICLE IV
REPRESENTATIONS AND WARRANTIES 28
SECTION 4.1. Existence and Power 28
SECTION 4.2. Power and Authority 29
SECTION 4.3. No Violation 29
SECTION 4.4. Financial Information 30
SECTION 4.5. Litigation 30
SECTION 4.6. Compliance with ERISA 31
SECTION 4.7. Environmental 31
SECTION 4.8. Taxes 31
SECTION 4.9. Full Disclosure 32
i
<PAGE> 3
SECTION 4.10. Solvency 32
SECTION 4.11. Use of Proceeds 32
SECTION 4.12. Governmental Approvals 32
SECTION 4.13. Investment Company Act; Public Utility Holding
Company Act 32
SECTION 4.14. Principal Offices 32
SECTION 4.15. REIT Status 32
SECTION 4.16. Patents, Trademarks, etc. 33
SECTION 4.17. Judgments 33
SECTION 4.18. No Default 33
SECTION 4.19. Licenses, etc. 33
SECTION 4.20. Compliance With Law 33
SECTION 4.21. No Burdensome Restrictions 33
SECTION 4.22. Brokers' Fees 33
SECTION 4.23. Labor Matters 34
SECTION 4.24. Insurance 34
SECTION 4.25. Organizational Documents 34
SECTION 4.26. Qualifying Unencumbered Properties 34
SECTION 4.27. "Year 2000" Compliance. 34
ARTICLE V
AFFIRMATIVE AND NEGATIVE COVENANTS 35
SECTION 5.1. Information 35
SECTION 5.2. Payment of Obligations 38
SECTION 5.3. Maintenance of Property; Insurance; Leases 38
SECTION 5.4. Maintenance of Existence 38
SECTION 5.5. Compliance with Laws 38
SECTION 5.6. Inspection of Property, Books and Records 38
SECTION 5.7. Existence 39
SECTION 5.8. Financial Covenants 39
SECTION 5.9. Restriction on Fundamental Changes 40
SECTION 5.10. Changes in Business 41
SECTION 5.11. EOPT Status 41
SECTION 5.12. Other Indebtedness 43
SECTION 5.13. Forward Equity Contracts. 43
ARTICLE VI
DEFAULTS 43
SECTION 6.1. Events of Default 43
SECTION 6.2. Rights and Remedies 46
SECTION 6.3. Notice of Default 47
SECTION 6.4. Distribution of Proceeds after Default 47
ii
<PAGE> 4
ARTICLE VII
THE ADMINISTRATIVE AGENT 47
SECTION 7.1. Appointment and Authorization 47
SECTION 7.2. Agency and Affiliates 48
SECTION 7.3. Action by Administrative Agent 48
SECTION 7.4. Consultation with Experts 48
SECTION 7.5. Liability of Administrative Agent 48
SECTION 7.6. Indemnification 48
SECTION 7.7. Credit Decision 49
SECTION 7.8. Successor Administrative Agent 49
SECTION 7.9. Consents and Approvals 50
ARTICLE VIII
INTENTIONALLY OMITTED
ARTICLE IX
MISCELLANEOUS 50
SECTION 9.1. Notices 50
SECTION 9.2. No Waivers 51
SECTION 9.3. Expenses; Indemnification 51
SECTION 9.4. Sharing of Set-Offs 51
SECTION 9.5. Amendments and Waivers 53
SECTION 9.6. Successors and Assigns 53
SECTION 9.7. Collateral 55
SECTION 9.8. Governing Law; Submission to Jurisdiction 55
SECTION 9.9. Counterparts; Integration;. Effectiveness 56
SECTION 9.10. WAIVER OF JURY TRIAL 56
SECTION 9.11. Survival 56
SECTION 9.12. Domicile of Loans 56
SECTION 9.13. Limitation of Liability 56
SECTION 9.14. Recourse Obligation 57
SECTION 9.15. Confidentiality 57
SECTION 9.16. Bank's Failure to Fund 57
SCHEDULE 1.1 Initial Qualifying Unencumbered Properties
SCHEDULE 4.4 (b) Disclosure of Additional Material Indebtedness
SCHEDULE 4.6 Borrower and EOPT ERISA Plans
SCHEDULE 5.11(c)(1)
SCHEDULE 5.11(c)(2)
iii
<PAGE> 5
TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT (this "Agreement") dated as of August 14, 1998
is made among EOP OPERATING LIMITED PARTNERSHIP (the "Borrower"), the FINANCIAL
INSTITUTIONS listed on the signature pages hereof, MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Administrative Agent, and J.P. MORGAN SECURITIES INC., as
Arranger.
For good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. The following terms, as used
herein, have the following meanings:
"Administrative Agent" shall mean Morgan Guaranty Trust
Company of New York in its capacity as Administrative Agent hereunder, and its
permitted successors in such capacity in accordance with the terms of this
Agreement.
"Administrative Questionnaire" means with respect to each
Bank, an administrative questionnaire in the form prepared by the Administrative
Agent and submitted to the Administrative Agent (with a copy to the Borrower)
duly completed by such Bank.
"Agreement" shall mean this Term Loan Agreement as the same
may from time to time hereafter be modified, supplemented or amended.
"Applicable Interest Rate" means (i) with respect to any Fixed
Rate Indebtedness, the fixed interest rate applicable to such Fixed Rate
Indebtedness at the time in question, and (ii) with respect to any Floating Rate
Indebtedness, either (x) the rate at which the interest rate applicable to such
Floating Rate Indebtedness is actually capped (or fixed pursuant to an interest
rate hedging device), at the time of calculation, if Borrower has entered into
an interest rate cap agreement or other interest rate hedging device with
respect thereto or (y) if Borrower has not entered into an interest rate cap
agreement or other interest rate hedging device with respect to such Floating
Rate Indebtedness, the greater of (A) the rate at which the interest rate
applicable to such Floating Rate Indebtedness could be fixed for the remaining
term of such Floating Rate Indebtedness, at the time of calculation, by
Borrower's entering into any unsecured interest rate hedging device either not
requiring an upfront payment or if requiring an upfront payment, such upfront
payment shall be amortized over the term of such device and included in the
calculation of the interest rate (or, if such rate is incapable of being fixed
by entering into an unsecured in-
1
<PAGE> 6
terest rate hedging device at the time of calculation, a fixed rate equivalent
reasonably determined by Administrative Agent) or (B) the floating rate
applicable to such Floating Rate Indebtedness at the time in question.
"Applicable Margin" means, with respect to each Euro-Dollar
Loan: (i) from the Effective Date through and including the Rate Reset Date,
0.8% and (ii) from and after the first day following the Rate Reset Date, the
Revised Applicable Margin.
"Arranger" means J.P. Morgan Securities Inc., in its capacity
as syndication agent hereunder and its permitted successors in such capacity in
accordance with the terms of this Agreement.
"Assignee" has the meaning set forth in Section 9.6(c).
"Balance Sheet Indebtedness" means with respect to any Person
and assuming such Person is required to prepare financial statements in
accordance with GAAP, without duplication, the Indebtedness of such Person which
would be required to be included on the liabilities side of the balance sheet of
such Person in accordance with GAAP. Notwithstanding the foregoing, Balance
Sheet Indebtedness shall include current liabilities and all guarantees of
Indebtedness of any Person.
"Balloon Payments" shall mean with respect to any loan
constituting Balance Sheet Indebtedness, any required principal payment of such
loan which is either (i) payable at the maturity of such Indebtedness or (ii) in
an amount which exceeds fifteen percent (15%) of the original principal amount
of such loan; provided, however, that the final payment of a fully amortizing
loan shall not constitute a Balloon Payment.
"Bank" means each entity listed on the signature pages hereof
(other than Borrower, the Administrative Agent and the Arranger), each of which
is either a "Qualified Institutional Buyer" (as defined in Rule 144A under the
Securities Act) or an institutional "Accredited Investor" (as defined in Rule
501(a)(1), (2), (3), or (7) of the Securities Act of 1933, as amended), and each
Assignee which becomes a Bank pursuant to Section 9.6(c), and their respective
successors.
"Bankruptcy Code" shall mean Title 11 of the United States
Code, entitled "Bankruptcy", as amended from time to time, and any successor
statute or statutes.
"Base Rate" means, for any day, a rate per annum equal to the
higher of (i) the Prime Rate for such day, and (ii) the sum of 0.5% plus the
Federal Funds Rate for such day. Each change in the Base Rate shall become
effective automatically as of the opening of business on the date of such change
in the Base Rate, without prior written notice to Borrower or Banks.
<PAGE> 7
"Benefit Arrangement" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means EOP Operating Limited Partnership, a Delaware
limited partnership.
"Borrower's Share" means Borrower's and EOPT's direct or
indirect share of an Investment Affiliate based upon Borrower's and EOPT's
percentage ownership (whether direct or indirect) of such Investment Affiliate.
"Borrowing" has the meaning set forth in Section 1.3.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York, New York are authorized by law
to close.
"Capital Leases" as applied to any Person, means any lease of
any property (whether real, personal or mixed) by that Person as lessee which,
in conformity with GAAP, is or should be accounted for as a capital lease on the
balance sheet of that Person.
"Cash or Cash Equivalents" shall mean (a) cash; (b) marketable
direct obligations issued or unconditionally guaranteed by the United States
Government or issued by an agency thereof and backed by the full faith and
credit of the United States, in each case maturing within one (1) year after the
date of acquisition thereof; (c) marketable direct obligations issued by any
state of the United States of America or any political subdivision of any such
state or any public instrumentality thereof maturing within ninety (90) days
after the date of acquisition thereof and, at the time of acquisition, having
one of the two highest ratings obtainable from any two of S & P, Moody's, Duff
or Fitch (or, if at any time no two of the foregoing shall be rating such
obligations, then from such other nationally recognized rating services
acceptable to Administrative Agent ); (d) domestic corporate bonds, other than
domestic corporate bonds issued by Borrower or any of its Affiliates, maturing
no more than two (2) years after the date of acquisition thereof and, at the
time of acquisition, having a rating of at least A or the equivalent from any
two (2) of S & P, Moody's, Duff or Fitch (or, if at any time no two of the
foregoing shall be rating such obligations, then from such other nationally
recognized rating services acceptable to Administrative Agent); (e)
variable-rate domestic corporate notes or medium term corporate notes, other
than notes issued by Borrower or any of its Affiliates, maturing or resetting no
more than one (1) year after the date of acquisition thereof and having a rating
of at least AA or the equivalent from two of S & P, Moody's, Duff or Fitch (or,
if at any time no two of the foregoing shall be rating such obligations, then
from such other nationally recognized rating services acceptable to
Administrative Agent); (f) commercial paper (foreign and domestic) or master
notes, other than commercial paper or master notes issued by Borrower or any of
its Affiliates, and, at the time of acquisition, having a long-term rating of at
least A or the equivalent from S & P, Moody's, Duff or Fitch and having a
short-term rating of at least A-1 and P-1 from S & P and Moody's, respectively
(or, if at any time neither S & P nor Moody's shall be rating such obligations,
then the highest rating from
<PAGE> 8
such other nationally recognized rating services acceptable to Administrative
Agent); (g) domestic and Eurodollar certificates of deposit or domestic time
deposits or Eurodollar deposits or bankers' acceptances (foreign or domestic)
that are issued by a bank (I) which has, at the time of acquisition, a long-term
rating of at least A or the equivalent from S & P, Moody's, Duff or Fitch and
(II) if a domestic bank, which is a member of the Federal Deposit Insurance
Corporation; and (h) overnight securities repurchase agreements, or reverse
repurchase agreements secured by any of the foregoing types of securities or
debt instruments, provided that the collateral supporting such repurchase
agreements shall have a value not less than 101% of the principal amount of the
repurchase agreement plus accrued interest.
"Cash Flow" means, for any period, EBITDA for such period, as
adjusted for a normalized recurring level of capital expenditures by Borrower
for such period, which adjustment shall be at the rate of One Dollar and Fifty
Cents ($1.50) per square foot per annum of office space leased as of the
applicable date of determination for (i) all Office Properties of Borrower and
Consolidated Subsidiaries, and (ii) Borrower's Share of each Office Property of
an Investment Affiliate (provided that, as to any Office Property acquired
during such period such $1.50 per square foot adjustment shall be pro-rated for
the period of ownership).
"Closing Date" means the date on or after the Effective Date
on which the conditions set forth in Section 3.1 shall have been satisfied to
the satisfaction of the Administrative Agent.
"Code" shall mean the Internal Revenue Code of 1986, as
amended, and as it may be further amended from time to time, any successor
statutes thereto, and applicable U.S. Department of Treasury regulations issued
pursuant thereto in temporary or final form.
"Commitment" means with respect to each Bank, the amount set
forth under the name of such Bank on the signature pages hereof (and, for each
Bank which is an Assignee, the amount set forth in the Transfer Supplement
entered into pursuant to Section 9.6(c) as the Assignee's Commitment), as such
amount may be reduced from time to time pursuant to Section 2.8 or in connection
with an assignment to an Assignee.
"Consolidated Subsidiary" means at any date any Subsidiary or
other entity which is consolidated with Borrower or EOPT in accordance with
GAAP.
"Consolidated Tangible Net Worth" means, at any time, the
tangible net worth of Borrower, on a consolidated basis, determined in
accordance with GAAP, plus all accumulated depreciation and amortization of
Borrower plus Borrower's Share of accumulated depreciation and amortization of
Investment Affiliates, deducted, in either case, from earnings in calculating
Net Income.
"Contingent Obligation" as to any Person means, without
duplication, (i) any contingent obligation of such Person required to be shown
on such Person's balance sheet in accordance with GAAP, and (ii) any obligation
required to be disclosed in the footnotes to such
<PAGE> 9
Person's financial statements, guaranteeing partially or in whole any
Non-Recourse Indebtedness, lease, dividend or other obligation, exclusive of
contractual indemnities (including, without limitation, any indemnity or
price-adjustment provision relating to the purchase or sale of securities or
other assets) and guarantees of non-monetary obligations (other than guarantees
of completion) which have not yet been called on or quantified, of such Person
or of any other Person. The amount of any Contingent Obligation described in
clause (ii) shall be deemed to be (a) with respect to a guaranty of interest or
interest and principal, or operating income guaranty, the Net Present Value of
the sum of all payments required to be made thereunder (which in the case of an
operating income guaranty shall be deemed to be equal to the debt service for
the note secured thereby), calculated at the Applicable Interest Rate, through
(i) in the case of an interest or interest and principal guaranty, the stated
date of maturity of the obligation (and commencing on the date interest could
first be payable thereunder), or (ii) in the case of an operating income
guaranty, the date through which such guaranty will remain in effect, and (b)
with respect to all guarantees not covered by the preceding clause (a), an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such guaranty is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such
Person is required to perform thereunder) as recorded on the balance sheet and
on the footnotes to the most recent financial statements of Borrower required to
be delivered pursuant to Section 5.1 hereof. Notwithstanding anything contained
herein to the contrary, guarantees of completion shall not be deemed to be
Contingent Obligations unless and until a claim for payment or performance has
been made thereunder, at which time any such guaranty of completion shall be
deemed to be a Contingent Obligation in an amount equal to any such claim.
Subject to the preceding sentence, (i) in the case of a joint and several
guaranty given by such Person and another Person (but only to the extent such
guaranty is recourse, directly or indirectly to Borrower), the amount of the
guaranty shall be deemed to be 100% thereof unless and only to the extent that
such other Person has delivered Cash or Cash Equivalents to secure all or any
part of such Person's guaranteed obligations and (ii) in the case of a guaranty
(whether or not joint and several) of an obligation otherwise constituting
Indebtedness of such Person, the amount of such guaranty shall be deemed to be
only that amount in excess of the amount of the obligation constituting
Indebtedness of such Person. Notwithstanding anything contained herein to the
contrary, "Contingent Obligations" shall be deemed not to include guarantees of
Unused Commitments or of construction loans to the extent the same have not been
drawn. All matters constituting "Contingent Obligations" shall be calculated
without duplication.
"Convertible Securities" means evidences of shares of stock,
limited or general partnership interests or other ownership interests, warrants,
options, or other rights or securities which are convertible into or
exchangeable for, with or without payment of additional consideration, common
shares of beneficial interest of EOPT or partnership interests of Borrower, as
the case may be, either immediately or upon the arrival of a specified date or
the happening of a specified event.
"Debt Restructuring" means a restatement of, or material
change in, the amortization or other financial terms of any Indebtedness of
EOPT, the Borrower or any Subsidiary or Investment Affiliate.
<PAGE> 10
"Debt Service" means, for any period and without duplication,
Interest Expense for such period plus scheduled principal amortization
(excluding Balloon Payments) for such period on all Balance Sheet Indebtedness
of Borrower on a consolidated basis, plus Borrower's Share of scheduled
principal amortization (excluding Balloon Payments) for such period on all
Balance Sheet Indebtedness of Investment Affiliates.
"Default" means any condition or event which with the giving
of notice or lapse of time or both would, unless cured or waived, become an
Event of Default.
"Default Rate" has the meaning set forth in Section 2.5(d).
"Development Activity" means (a) the development and
construction of office buildings and parking facilities by the Borrower or any
of its Financing Partnerships or Joint Venture Subsidiaries excluding Unimproved
Assets, (b) the financing by the Borrower or any of its Financing Partnerships
or Joint Venture Subsidiaries of any such development or construction and (c)
the incurrence by the Borrower or any of its Financing Partnerships or Joint
Venture Subsidiaries of any Contingent Obligations in connection with such
development or construction (other than purchase contracts for Real Property
Assets which are not payable until after completion of development or
construction). For purposes of Section 5.8(j) hereof, the "value" of Development
Activity shall mean (i) in the case of the development and construction by the
Borrower or any of its Financing Partnerships described in clause (a) of this
definition, the full cost budget to complete such development and construction,
(ii) in the case of the development and construction by a Joint Venture
Subsidiary of the Borrower described in clause (a) of this definition, an amount
equal to the product of (AA) the full cost budget to complete such development
and construction, multiplied by (BB) Borrower's Share of such Joint Venture
Subsidiary, (iii) in the case of the financing of any development and
construction by the Borrower or any of its Financing Partnerships described in
clause (b) of this definition, the amount the Borrower or any Financing
Partnership has committed to fund to pay the cost to complete such development
and construction, (iv) in the case of the financing of any development and
construction by a Joint Venture Subsidiary of the Borrower described in clause
(b) of this definition, an amount equal to the product of (AA) the amount such
Joint Venture Subsidiary has committed to fund to pay the cost to complete such
development and construction, multiplied by (B) Borrower's Share of such Joint
Venture Subsidiary, (v) in the case of the incurrence of any Contingent
Obligations in connection with any development and construction by the Borrower
or any of its Financing Partnerships described in clause (c) of this definition,
the amount of such Contingent Obligation of the Borrower or such Financing
Partnership, (vi) in the case of the incurrence of any Contingent Obligations in
connection with any development and construction by a Joint Venture Subsidiary
of the Borrower described in clause (c) of this definition, an amount equal to
the product of (AA) the amount of such Contingent Obligation of such Joint
Venture Subsidiary, multiplied by (BB) Borrower's Share of such Joint Venture
Subsidiary..
"Domestic Lending Office" means, as to each Bank, its office
located at its address in the United States set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its Domestic
Lending Office) or such other office as such Bank
<PAGE> 11
may hereafter designate as its Domestic Lending Office by notice to the Borrower
and the Administrative Agent.
"Duff" means Duff & Phelps Credit Rating Company, or any
successor thereto.
"EBITDA" means, for any period (i) Net Income for such period,
plus (ii) depreciation and amortization expense and other non-cash items
deducted in the calculation of Net Income for such period, plus (iii) Interest
Expense deducted in the calculation of Net Income for such period, plus (iv)
Taxes (net of any Taxes actually paid to, or withheld by, any foreign
jurisdiction with respect to any Real Property Asset located outside of the
United States) deducted in the calculation of Net Income for such period, plus
(v) Borrower's Share of the Investment Affiliate EBITDA for each Investment
Affiliate, minus (vi) the gains (and plus the losses) from extraordinary items
or asset sales or write-ups or forgiveness of indebtedness included (or
deducted) in the calculation of Net Income for such period, all of the foregoing
without duplication.
"Effective Date" means the date this Agreement becomes
effective in accordance with Section 9.9.
"Environmental Affiliate" means any partnership, joint
venture, trust or corporation in which an equity interest is owned directly or
indirectly by the Borrower and, as a result of the ownership of such equity
interest, Borrower may have recourse liability for Environmental Claims against
such partnership, joint venture, trust or corporation (or the property thereof).
"Environmental Claim" means, with respect to any Person, any
notice, claim, demand or similar communication (written or oral) by any other
Person alleging potential liability of such Person for investigatory costs,
cleanup costs, governmental response costs, natural resources damage, property
damages, personal injuries, fines or penalties arising out of, based on or
resulting from (i) the presence, or release into the environment, of any
Materials of Environmental Concern at any location, whether or not owned by such
Person or (ii) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law, in each case (with respect to both (i) and
(ii) above) as to which there is a reasonable possibility of an adverse
determination with respect thereto and which, if adversely determined, would
have a Material Adverse Effect on the Borrower.
"Environmental Laws" means any and all federal, state, and
local statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
licenses, agreements and other governmental restrictions relating to the
environment, the effect of the environment on human health or to emissions,
discharges or releases of Materials of Environmental Concern into the
environment including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern or the clean up or other remediation thereof.
<PAGE> 12
"EOPT" means Equity Office Properties Trust, a Maryland real
estate investment trust, the sole managing general partner of the Borrower.
"EOPT Guaranty" means the Guaranty of Payment, dated as of
even date herewith, executed by and between EOPT and Administrative Agent for
the benefit of the Banks.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary, EOPT and all
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control and all members of an
"affiliated service group" which, together with the Borrower, any Subsidiary or
EOPT, are treated as a single employer under Section 414 of the Code or Section
4001(b)(1) of ERISA.
"Euro-Dollar Lending Office" means, as to each Bank, its
office, branch or affiliate located at its address set forth in its
Administrative Questionnaire (or identified in its Administrative Questionnaire
as its Euro-Dollar Lending Office) or such other office, branch or affiliate of
such Bank as it may hereafter designate as its Euro-Dollar Lending Office by
notice to the Borrower and the Administrative Agent.
"Euro-Dollar Loan" means a Loan to be made by a Bank pursuant
to Section 2.1.
"Euro-Dollar Reference Bank"" means the principal New York
offices of the Administrative Agent.
"Event of Default" has the meaning set forth in Section 6.1.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (i) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding Business
Day, and (ii) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate quoted to the
Administrative Agent on such day on such transactions as determined by the
Administrative Agent.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System as constituted from time to time.
"FFO" means "funds from operations," defined to mean, without
duplication for any period, Net Income, plus (i) Borrower's Share of the Net
Income of any Investment Affiliate (plus Borrower's Share of real estate
depreciation and amortization expenses of Investment Af-
<PAGE> 13
filiates), plus (ii) real estate depreciation and amortization expense for such
period, plus (iii) any amortization of loan discount deducted from the
calculation of Net Income for such period, plus (iv) Taxes deducted from the
calculation of Net Income for such period, minus (v) gains (and plus the losses)
from Debt Restructurings and sales or other dispositions of Property of the
Borrower or any Subsidiary or Investment Affiliate included (or deducted) in the
calculation of Net Income for such period.
"Financing Partnerships" means any Subsidiary which is
wholly-owned, directly or indirectly, by Borrower or by Borrower and EOPT, with
EOPT holding, directly or indirectly other than through its interest in
Borrower, no more than a 2% economic interest in such Subsidiary.
"Fiscal Quarter" means a fiscal quarter of a Fiscal Year.
"Fiscal Year" means the fiscal year of Borrower and EOPT.
"Fitch" means Fitch Investors Services, Inc., or any successor
thereto.
"Fixed Charges" for any Fiscal Quarter period means the sum of
(i) Debt Service for such period, (ii) dividends on preferred units payable by
Borrower for such period, and (iii) distributions made by Borrower in such
period to EOPT for the purpose of paying dividends on preferred shares in EOPT.
"Fixed Rate Borrowing" has the meaning set forth in Section
1.3.
"Fixed Rate Indebtedness" means all Indebtedness which accrues
interest at a fixed rate.
"Floating Rate Indebtedness" means all Indebtedness which is
not Fixed Rate Indebtedness and which is not a Contingent Obligation or an
Unused Commitment.
"Form S-11" means the Form S-11 Registration Statement filed
by EOPT with the Securities and Exchange Commission on May 7, 1997, as amended.
"Funding Date" means the date on or after the date hereof on
which all of the conditions described in Section 3.1 have been satisfied (or
waived) in a manner satisfactory to the Administrative Agent and on which the
Loans are made by the Banks to the Borrower.
"GAAP" means generally accepted accounting principles
recognized as such in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
<PAGE> 14
"Group of Loans" means, at any time, a group of Loans
consisting of all Euro-Dollar Loans having the same Interest Period at such
time.
"Indebtedness" as applied to any Person (and without
duplication), means (a) all indebtedness, obligations or other liabilities of
such Person for borrowed money, (b) all indebtedness, obligations or other
liabilities of such Person evidenced by Securities or other similar instruments,
(c) all Contingent Obligations of such Person, (d) all reimbursement obligations
and other liabilities of such Person with respect to letters of credit or
banker's acceptances issued for such Person's account or other similar
instruments for which a contingent liability exists, (e) all obligations of such
Person to pay the deferred purchase price of Property or services, (f) all
obligations in respect of Capital Leases (including, without limitation, ground
leases to the extent such ground leases constitute Capital Leases) of such
Person, (g) all indebtedness obligations or other liabilities of such Person or
others secured by a Lien on any asset of such Person, whether or not such
indebtedness, obligations or liabilities are assumed by, or are a personal
liability of such Person, (h) all indebtedness, obligations or other liabilities
(other than interest expense liability) in respect of Interest Rate Contracts
and foreign currency exchange agreements (other than Interest Rate Contracts
purchased to hedge Indebtedness), to the extent such liabilities are material
and are reported or are required under GAAP to be reported by such Person in its
financial statements, (i) ERISA obligations currently due and payable and (j)
all other items which, in accordance with GAAP, would be included as liabilities
on the liability side of the balance sheet of such Person.
"Indemnitee" has the meaning set forth in Section 9.3(b).
"Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1/16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
the Euro-Dollar Reference Bank in the interbank market at approximately 11:00
a.m. (New York time) two Business Days before the first day of such Interest
Period in an amount approximately equal to the principal amount of the
Euro-Dollar Borrowing or Group of Loans or portion thereof to be converted into
or continued as Euro-Dollar Loans to which such Interest Period is to apply and
for a period of time comparable to such Interest Period.
"Interest Expense" means, for any period and without
duplication, total interest expense, whether paid, accrued or capitalized of
Borrower, on a consolidated basis determined in accordance with GAAP, plus
Borrower's Share of accrued, paid or capitalized interest with respect to any
Balance Sheet Indebtedness of Investment Affiliates (in each case, including,
without limitation, the interest component of Capital Leases but excluding
interest expense covered by an interest reserve established under a loan
facility such as capitalized construction interest provided for in a
construction loan).
"Interest Period" means with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending 90
days thereafter and each successive 90 day period thereafter; provided that:
<PAGE> 15
(a) any Interest Period which would otherwise end on a day
which is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in another calendar month,
in which case such Interest Period shall end on the next preceding
Business Day;
(b) any Interest Period which begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month; and
(c) no Interest Period may end later than the Maturity Date.
"Interest Rate Contracts" means, collectively, interest rate
swap, collar, cap or similar agreements providing interest rate protection.
"Investment Affiliate" means any Person in whom EOPT or
Borrower holds an equity interest, directly or indirectly, whose financial
results are not consolidated under GAAP with the financial results of EOPT or
Borrower on the consolidated financial statements of EOPT and Borrower.
"Investment Affiliate EBITDA" means, for any period (i) the
net earnings (or loss) of an Investment Affiliate for such period calculated in
conformity with GAAP, plus (ii) depreciation and amortization expense and other
non-cash items of such Investment Affiliate deducted in the calculation of such
net earnings (or loss) for such period, plus (iii) total interest expense,
whether paid, accrued or capitalized, of such Investment Affiliate deducted in
the calculation of such net earnings (or loss) for such period, plus (iv) Taxes
of such Investment Affiliate deducted in the calculation of such net earnings
(or loss) for such period.
"Investment Mortgages" means mortgages securing indebtedness
with respect to Office Properties and Parking Properties directly or indirectly
owed to Borrower or any of its Subsidiaries, including, without limitation,
certificates of interest in real estate mortgage investment conduits.
"Joint Venture Interests" means partnership, limited liability
company or joint venture interests issued by any Person which is an Investment
Affiliate that is not a Subsidiary.
"Joint Venture Parent" means Borrower or one or more Financing
Partnerships of Borrower which directly owns any interest in a Joint Venture
Subsidiary.
"Joint Venture Subsidiary" means any entity (other than a
Financing Partnership) in which (i) a Joint Venture Parent owns at least 50% of
the economic interests and (ii) the sale or financing of any Property owned by
such Joint Venture Subsidiary is controlled by a Joint Venture Parent. For
purposes of this definition, the Borrower shall be deemed to "control" Civic
<PAGE> 16
Parking, L.L.C., a Missouri limited liability company ("Civic") so long as (i) a
Joint Venture Parent owns at least 50% of economic interest therein and (ii)
such Joint Venture Parent's consent shall be required to authorize and approve
the sale or financing of the Property owned by Civic.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind, or any other type
of preferential arrangement, in each case that has the effect of creating a
security interest, in respect of such asset. For the purposes of this Agreement,
the Borrower or any Consolidated Subsidiary shall be deemed to own subject to a
Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
"Loan" means a Euro-Dollar Loan and "Loans" means Euro-Dollar
Loans.
"Loan Documents" means this Agreement, the Notes, and the EOPT
Guaranty.
"Majority Banks" means at any time Banks holding Notes
evidencing at least 51% of the aggregate unpaid principal amount of the Loans.
"Material Adverse Effect" means an effect resulting from any
circumstance or event or series of circumstances or events, of whatever nature
(but excluding general economic conditions), which does or could reasonably be
expected to, materially and adversely (i) impair the ability of the Borrower and
its Consolidated Subsidiaries, taken as a whole, to perform their respective
obligations under the Loan Documents, or (ii) the ability of Administrative
Agent or the Banks to enforce the Loan Documents.
"Material Plan" means at any time a Plan or Plans having
aggregate unfunded liabilities in excess of $5,000,000.
"Materials of Environmental Concern" means and includes
pollutants, contaminants, hazardous wastes, toxic and hazardous substances,
asbestos, lead, petroleum and petroleum by-products.
"Maturity Date" shall mean the date when all of the
Obligations hereunder shall be due and payable which shall be August 15, 2000,
unless accelerated pursuant to the terms hereof.
"Maximum Loan Amount" has the meaning set forth in Section
2.1.
"Moody's" means Moody's Investors Services, Inc. or any
successor thereto.
"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions or has at any time after September 25,
<PAGE> 17
1980 made contributions or has been required to make contributions (for these
purposes any Person which ceased to be a member of the ERISA Group after
September 25, 1980 will be treated as a member of the ERISA Group).
"Negative Pledge" means, with respect to any Property, any
covenant, condition, or other restriction which prohibits or limits the creation
or assumption of any Lien upon such Property to secure any or all of the
Obligations.
"Net Income" means, for any period, the net earnings (or loss)
after Taxes of the Borrower, on a consolidated basis, before the deduction of
minority interests and before the deduction of payment of any preferred
dividends, for such period calculated in conformity with GAAP.
"Net Offering Proceeds" means all cash or other assets
received by EOPT or Borrower as a result of the sale of common shares of
beneficial interest, preferred shares of beneficial interest, partnership
interests, limited liability company interests, Convertible Securities or other
ownership or equity interests in EOPT or Borrower less customary costs and
discounts of issuance paid by EOPT or Borrower, as the case may be.
"Net Price" means, with respect to the purchase of any
Property, without duplication, (i) the aggregate purchase price paid as cash
consideration for such purchase (without adjustment for prorations), including,
without limitation, the principal amount of any note received or other deferred
payment to be made in connection with such purchase (except as described in
clause (ii) below) and the value of any non-cash consideration delivered in
connection with such purchase (including, without limitation, shares or
preferred shares of beneficial interest in EOPT and OP Units or Preferred OP
Units (as defined in Borrower's partnership agreement)) plus (ii) reasonable
costs of sale and non-recurring taxes paid or payable in connection with such
purchase or sale.
"Net Present Value" shall mean, as to a specified or
ascertainable dollar amount, the present value, as of the date of calculation of
any such amount using a discount rate equal to the Prime Rate in effect as of
the date of such calculation.
"Non-Recourse Indebtedness" means Indebtedness with respect to
which recourse for payment is limited to (i) specific assets related to a
particular Property or group of Properties encumbered by a Lien securing such
Indebtedness or (ii) any Subsidiary (provided that if a Subsidiary is a
partnership, there is no recourse to Borrower or EOPT as a general partner of
such partnership); provided, however, that personal recourse of Borrower or EOPT
for any such Indebtedness for fraud, misrepresentation, misapplication of cash,
waste, environmental claims and liabilities and other circumstances customarily
excluded by institutional lenders from exculpation provisions and/or included in
separate indemnification agreements in non-recourse financing of real estate
shall not, by itself, prevent such Indebtedness from being characterized as
Non-Recourse Indebtedness.
<PAGE> 18
"Notes" means the promissory notes of the Borrower,
substantially in the form of Exhibit A hereto, evidencing the obligation of the
Borrower to repay the Loans, and "Note" means any one of such promissory notes
issued hereunder.
"Notice of Borrowing" means a notice from Borrower in
accordance with Section 2.2.
"Obligations" means all obligations, liabilities, indemnity
obligations and Indebtedness of every nature of the Borrower, from time to time
owing to Administrative Agent or any Bank under or in connection with this
Agreement or any other Loan Document.
"Office Property" means any Property which constitutes
primarily commercial office space other than a Parking Property.
"Parking Property" means any Property which is primarily used
for parking.
"Parent" means, with respect to any Bank, any Person
controlling such Bank.
"Participant" has the meaning set forth in Section 9.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Holdings" means Unimproved Assets, Development
Activity, Joint Venture Interests, Investment Mortgages and Securities, but only
to the extent permitted in Section 5.8.
"Permitted Liens" means:
a. Liens for Taxes, assessments or other governmental charges
not yet due and payable or which are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted in
accordance with the terms hereof;
b. statutory liens of carriers, warehousemen, mechanics,
materialmen and other similar liens imposed by law, which are incurred
in the ordinary course of business for sums not more than sixty (60)
days delinquent or which are being contested in good faith in
accordance with the terms hereof;
c. deposits made in the ordinary course of business to secure
liabilities to insurance carriers;
d. Liens for purchase money obligations for equipment;
provided that (i) the Indebtedness secured by any such Lien does not
exceed the purchase price of such equipment, (ii) any such Lien
encumbers only the asset so purchased and the proceeds
<PAGE> 19
upon sale, disposition, loss or destruction thereof, and (iii) such
Lien, after giving effect to the Indebtedness secured thereby, does not
give rise to an Event of Default;
e. easements, rights-of-way, zoning restrictions, other
similar charges or encumbrances and all other items listed on Schedule
B to Borrower's owner's title insurance policies, except in connection
with any Indebtedness, for any of Borrower's Real Property Assets, so
long as the foregoing do not interfere in any material respect with the
use or ordinary conduct of the business of Borrower and do not diminish
in any material respect the value of the Property to which it is
attached or for which it is listed;
f. Liens and judgments which have been or will be bonded or
released of record within thirty (30) days after the date such Lien or
judgment is entered or filed against EOPT, Borrower, or any Subsidiary;
g. Liens on Property of the Borrower or its Subsidiaries
(other than Qualifying Unencumbered Property) securing Indebtedness
which may be incurred or remain outstanding without resulting in an
Event of Default hereunder; and
h. Liens in favor of Borrower against any asset of any
Financing Partnership or Joint Venture Subsidiaries.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including, without
limitation, a government or political subdivision or an agency or
instrumentality thereof.
"Plan" means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Prime Rate" means the rate of interest publicly announced by
the Administrative Agent from time to time as its Prime Rate (it being
understood that the same shall not necessarily be the best rate offered by the
Administrative Agent to customers).
"Pro Rata Share" means, with respect to any Bank, a fraction
(expressed as a percentage), the numerator of which shall be the amount of such
Bank's Commitment and the denominator of which shall be the aggregate amount of
all of the Banks' Commitments, as adjusted from time to time in accordance with
the provisions of this Agreement.
"Property" means, with respect to any Person, any real or
personal property, building, facility, structure, equipment or unit, or other
asset owned by such Person.
<PAGE> 20
"Qualified Institution" means, as established to the
satisfaction of the Administrative Agent, (i) a Bank, or (ii) a Qualified
Institutional Buyer (as defined in Rule 144A under the Securities Act) or (iii)
an Institutional Accredited Investor (as defined in Rule 501(a)(1)(2)(3) or (7)
of the Securities Act).
"Qualifying Unencumbered Property" means any Property
(excluding Unimproved Assets) from time to time which (i) is an operating Office
Property or Parking Property wholly-owned (directly or beneficially) by
Borrower, a Financing Partnership or a Joint Venture Subsidiary, (ii) is not
subject (nor are any equity interests in such Property that are owned directly
or indirectly by Borrower, EOPT or any Joint Venture Parent subject) to a Lien
which secures Indebtedness of any Person other than Permitted Liens, (iii) is
not subject (nor are any equity interests in such Property that are owned
directly or indirectly by Borrower, EOPT or any Joint Venture Parent subject) to
any Negative Pledge (provided that a financial covenant given for the benefit of
any Person that may be violated by the granting of any Lien on any Property to
secure any or all of the Obligations shall not be deemed a Negative Pledge).
"Rate Reset Date" means the last day of the fourth consecutive
Interest Period (which date is expected to occur on or about the first
anniversary of the Closing Date).
"Rate Reset Notice" has the meaning set forth in Section 2.6.
"Real Property Assets" means as to any Person as of any time,
the real property assets (including, without limitation, interests in
participating mortgages in which such Person's interest therein is characterized
as equity according to GAAP) owned directly or indirectly by such Person at such
time.
"Recourse Debt" shall mean Indebtedness that is not
Non-Recourse Indebtedness.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Required Banks" means at any time Banks holding Notes
evidencing at least 66 2/3% of the aggregate unpaid principal amount of the
Loans.
"Revised Applicable Margin" has the meaning set forth in
Section 2.6.
"S&P" means Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc., or any successor thereto.
"Secured Debt" means Indebtedness, the payment of which is
secured by a Lien (other than a Permitted Lien, except for those Permitted Liens
described in clauses (d) and (g) of the definition thereof) on any Property
owned or leased by EOPT, Borrower, or any Consolidated Subsidiary plus
Borrower's Share of Indebtedness, the payment of which is secured by a
<PAGE> 21
Lien (other than a Permitted Lien, except for those Permitted Liens described in
clauses (d) and (g) of the definition thereof) on any Property owned or leased
by any Investment Affiliate.
"Securities" means any stock, partnership interests, shares,
shares of beneficial interest, voting trust certificates, bonds, debentures,
notes or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities," or any certificates of interest, shares, or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire any of the foregoing, but shall not
include Joint Venture Interests or any evidence of the Obligations.
"Securities Act" means the Securities Act of 1933, as amended.
"Solvent" means, with respect to any Person, that the fair
saleable value of such Person's assets exceeds the Indebtedness of such Person.
"Subsidiary" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by the Borrower or EOPT.
"Taxes" means all federal, state, local and foreign income and
gross receipts taxes.
"Term" has the meaning set forth in Section 2.7.
"Termination Event" shall mean (i) a "reportable event", as
such term is described in Section 4043 of ERISA (other than a "reportable event"
not subject to the provision for 30-day notice to the PBGC), or an event
described in Section 4062(e) of ERISA, (ii) the withdrawal by any member of the
ERISA Group from a Multiemployer Plan during a plan year in which it is a
"substantial employer" (as defined in Section 4001(a)(2) of ERISA), or the
incurrence of liability by any member of the ERISA Group under Section 4064 of
ERISA upon the termination of a Multiemployer Plan, (iii) the filing of a notice
of intent to terminate any Plan under Section 4041 of ERISA, other than in a
standard termination within the meaning of Section 4041 of ERISA, or the
treatment of a Plan amendment as a distress termination under Section 4041 of
ERISA, (iv) the institution by the PBGC of proceedings to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or cause a trustee to be appointed to administer, any Plan or (v) any other
event or condition that might reasonably constitute grounds for the termination
of, or the appointment of a trustee to administer, any Plan or the imposition of
any liability or encumbrance or Lien on the Real Property Assets or any member
of the ERISA Group under ERISA or the Code.
"Total Asset Value" means, with respect to Borrower and
without duplication, (i) for any Properties owned by Borrower, any Consolidated
Subsidiary or Investment Affiliate which was neither acquired nor disposed of by
Borrower, a Consolidated Subsidiary or an In-
<PAGE> 22
vestment Affiliate in the Fiscal Quarter most recently ended, the quotient
obtained by dividing (a) (x) EBITDA attributable to such Properties for the
Fiscal Quarter most recently ended multiplied by four (4) less (y) $0.20 per
square foot of leased office space within such Properties which are Office
Properties, by (b) 0.0875, plus (ii) for any Property which was acquired by
Borrower or a Consolidated Subsidiary in the Fiscal Quarter most recently ended,
the Net Price of the Property paid by Borrower or the Consolidated Subsidiary
for such Property, plus (iii) for any Property which was acquired by an
Investment Affiliate in the Fiscal Quarter most recently ended, Borrower's Share
of the Net Price of the Property paid by such Investment Affiliate for such
Property, plus (iv) the value of any Cash or Cash Equivalent owned by Borrower,
plus (v) the value of any Unimproved Assets and any other tangible assets of
Borrower or its Consolidated Subsidiaries (including foreign currency exchange
agreements, to the extent such agreements are material and are reported or are
required under GAAP to be reported by the Borrower or its Consolidated
Subsidiaries in their financial statements), as measured on a GAAP basis, plus
(vi) Borrower's Share of the value of any Unimproved Assets and any other
tangible assets of any Investment Affiliate as measured on a GAAP basis.
"Total Liabilities" means, as of the date of determination and
without duplication, all Balance Sheet Indebtedness of Borrower, on a
consolidated basis, plus Borrower's Share of all Balance Sheet Indebtedness of
Investment Affiliates.
"Treasury Rate" means, as of any date, a rate equal to the
annual yield to maturity on the U.S. Treasury Constant Maturity Series with a
ten year maturity, as such yield is reported in Federal Reserve Statistical
Release H.15 -- Selected Interest Rates, published most recently prior to the
date the applicable Treasury Rate is being determined. Such yield shall be
determined by straight line linear interpolation between the yields reported in
Release H.15, if necessary. In the event Release H.15 is no longer published,
the Administrative Agent shall select, in its reasonable discretion, an
alternate basis for the determination of Treasury yield for U.S. Treasury
Constant Maturity Series with ten year maturities.
"Unencumbered Asset Value" means (i) for any Qualifying
Unencumbered Properties which were neither acquired or disposed of by Borrower,
a Financing Partnership or a Joint Venture Subsidiary in the Fiscal Quarter most
recently ended, the quotient of (a) (x) the aggregate EBITDA for such Fiscal
Quarter attributable to such Qualifying Unencumbered Properties for the Fiscal
Quarter most recently ended multiplied by four (4) less (y) $1.50 per square
foot of leased office space within such Qualifying Unencumbered Properties which
are Office Properties, and less (z) in the case of any Qualifying Unencumbered
Property located outside of the United States, an amount equal to the applicable
withholding taxes imposed by any foreign jurisdiction applicable to the EBITDA
attributable to any such Qualifying Unencumbered Property for the applicable
period, divided by (b) 0.0875, plus (ii) for all Qualifying Unencumbered
Properties owned (directly or beneficially) by Borrower, any Financing
Partnership or any Joint Venture Subsidiary which were acquired (directly or
indirectly) by the Borrower, any Financing Partnership or any Joint Venture
Subsidiary during the Fiscal Quarter most recently ended, the aggregate Net
Price of such Qualifying Unencumbered Properties paid by Borrower or its
Affiliates for such Qualifying Unencumbered Properties; provided, however, that,
unless otherwise
<PAGE> 23
approved by the Majority Banks, (aa) in the event any such Qualifying
Unencumbered Property is owned by a Joint Venture Subsidiary, the amount of the
EBITDA attributable to such Qualifying Unencumbered Property for purposes of
clause (i) above and the Net Price of such Qualifying Unencumbered Property for
the purposes of clause (ii) above shall be reduced to a percentage equal to the
Borrower's percentage ownership interest (whether direct or indirect) in such
Joint Venture Subsidiary, (bb) the portion of the amount of the Unencumbered
Asset Value attributable to any single Qualifying Unencumbered Property which
would cause such amount to exceed twenty-five percent (25%) of the total
Unencumbered Asset Value at such time (after making all adjustments required by
this proviso) will be disregarded in determining Unencumbered Asset Value, (cc)
the portion of the aggregate amount of the Unencumbered Asset Value attributable
to Qualifying Unencumbered Properties that are Parking Properties which would
cause such aggregate amount to exceed twenty-five percent (25%) of the total
Unencumbered Asset Value at such time (after making all adjustments required by
this proviso) will be disregarded in determining Unencumbered Asset Value, (dd)
the portion of the aggregate amount of the Unencumbered Asset Value attributable
to Qualifying Unencumbered Properties that are Qualifying Unencumbered
Properties owned by Joint Venture Subsidiaries (after first taking into account
the adjustment provided in clause (aa) of this proviso) which would cause such
aggregate amount to exceed thirty-five percent (35%) of the total Unencumbered
Asset Value at such time (after making all adjustments required by this proviso)
will be disregarded in determining Unencumbered Asset Value, and (ee) the
portion of the amount of the Unencumbered Asset Value attributable to all
Qualifying Unencumbered Property located outside of the United States (after
first taking into account the adjustment provided in clause (aa) of this
proviso) which would cause such amount to exceed ten percent (10%) of the total
Unencumbered Asset Value at such time (after making all adjustments required by
this proviso) will be disregarded in determining Unencumbered Asset Value.
"Unencumbered Net Operating Income" means, for any period, for
all Qualifying Unencumbered Properties, the aggregate EBITDA attributable to
each such Qualifying Unencumbered Property for such period (provided that as to
any Qualifying Unencumbered Property acquired during such period, only EBITDA
attributable to such period occurring after such acquisition shall be included),
as adjusted for a normalized recurring level of capital expenditures by Borrower
for such period, which adjustment shall be at the rate of One Dollar and Fifty
Cents ($1.50) per square foot per annum of office space leased as of the
applicable date of determination for all Qualifying Unencumbered Properties that
are Office Properties (provided that, as to any Office Property acquired during
such period, such amount per square foot shall be pro-rated for the period of
ownership).
"Unimproved Assets" means Real Property Assets containing no
material improvements.
"United States" means the United States of America, including
the fifty states and the District of Columbia.
<PAGE> 24
"Unsecured Debt" means the amount of Indebtedness for borrowed
money of EOPT Borrower and any Financing Partnership which is not Secured Debt,
including, without limitation, the amount of all then outstanding Loans, plus,
for the purpose of calculating the ratio of outstanding Unsecured Debt to
Unencumbered Asset Value, an amount equal to the Borrower's percentage ownership
interest (whether direct or indirect) in each Joint Venture Subsidiary times any
Indebtedness for borrowed money of such Joint Venture Subsidiary which is not
Secured Debt.
"Unsecured Debt Service" means Debt Service payable in respect
of Unsecured Debt.
"Unused Commitments" shall mean an amount equal to all
unadvanced funds (other than unadvanced funds in connection with any
construction loan) which any third party is obligated to advance to Borrower or
another Person or otherwise pursuant to any loan document, written instrument or
otherwise.
SECTION 1.2 Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with GAAP applied on a basis consistent (except for changes concurred
in by the Borrower's independent public accountants) with the most recent
audited consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Administrative Agent; provided that for purposes
of references to the financial results and information of "EOPT, on a
consolidated basis," EOPT shall be deemed to own one hundred percent (100%) of
the partnership interests in Borrower; and provided further that, if the
Borrower notifies the Administrative Agent that the Borrower wishes to amend any
covenant in Article V to eliminate the effect of any change in GAAP on the
operation of such covenant (or if the Administrative Agent notifies the Borrower
that the Required Banks wish to amend Article V for such purpose), then the
Borrower's compliance with such covenant shall be determined on the basis of
GAAP in effect immediately before the relevant change in GAAP became effective,
until either such notice is withdrawn or such covenant is amended in a manner
reasonably satisfactory to the Borrower and the Required Banks.
SECTION 1.3 Types of Borrowings. The term "Borrowing" denotes
the aggregation of Loans of one or more Banks to be made to the Borrower
pursuant to Article 2 on the same date, all of which Loans are of the same type
(subject to Article 8).
<PAGE> 25
ARTICLE II
THE CREDITS
SECTION 2.1 Commitments to Lend . Each Bank severally and not
jointly agrees, on the terms and conditions set forth in this Agreement, to make
Loans to the Borrower pursuant to this Article as of the Closing Date in an
amount equal to $328,000,000 (the "Maximum Loan Amount"). The full amount of the
Loans shall be made by the Banks and disbursed to the Borrower on the Funding
Date, subject to the terms and conditions set forth in this Agreement.
SECTION 2.2 Notice of Borrowing . With respect to the
Borrowing, the Borrower shall give Administrative Agent notice not later than
11:00 a.m. three (3) Business Days in advance of the Funding Date, specifying:
(i) the date of such Borrowing, which shall be a Business Day and
the Closing Date, and
(i) the aggregate amount of such Borrowing.
SECTION 2.3 Notice to Banks; Funding of Loans.
(a) Upon receipt of the Notice of Borrowing from Borrower in
accordance with Section 2.2 hereof, the Administrative Agent shall, on the date
such Notice of Borrowing is received by the Administrative Agent, notify each
Bank of the contents thereof and of such Bank's share of such Borrowing and of
the interest rate determined pursuant thereto and such Notice of Borrowing shall
not thereafter be revocable by the Borrower, unless Borrower shall pay any
applicable expenses pursuant to Section 2.10.
(b) Not later than 1:00 p.m. (New York, New York time) on the
Closing Date, each Bank shall (except as provided in subsection (d) of this
Section) make available its share of such Borrowing in Federal funds immediately
available in New York, New York, to the Administrative Agent at its address
referred to in Section 9.1.
(c) Unless the Administrative Agent shall have received notice
from a Bank prior to the date of the Borrowing that such Bank will not make
available to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of the Borrowing in accordance with of this
Section 2.3 and the Administrative Agent may, in reliance upon such assumption,
but shall not be obligated to, make available to the Borrower on such date a
corresponding amount on behalf of such Bank. If and to the extent that such Bank
shall not have so made such share available to the Administrative Agent, such
Bank agrees to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
<PAGE> 26
repaid to the Administrative Agent, at the rate of interest applicable to such
Borrowing hereunder. If such Bank shall repay to the Administrative Agent such
corresponding amount, such amount so repaid shall constitute such Bank's Loan
included in such Borrowing for purposes of this Agreement. If such Bank shall
not pay to Administrative Agent such corresponding amount after reasonable
attempts are made by Administrative Agent to collect such amounts from such
Bank, Borrower agrees to repay to Administrative Agent forthwith on demand such
corresponding amounts together with interest thereto, for each day from the date
such amount is made available to Borrower until the date such amount is repaid
to Administrative Agent, at the interest rate applicable thereto one (1)
Business Day after demand. Nothing contained in this Section 2.3(c) shall be
deemed to reduce the Commitment of any Bank or in any way affect the rights of
Borrower with respect to any defaulting Bank or Administrative Agent. The
failure of any Bank to make available to the Administrative Agent such Bank's
share of any Borrowing in accordance with Section 2.3(b) hereof shall not
relieve any other Bank of its obligations to fund its Commitment, in accordance
with the provisions hereof.
(d) Subject to the provisions hereof, the Administrative Agent
shall make available the Borrowing to Borrower in Federal funds immediately
available in accordance with, and on the date set forth in, the Notice of
Borrowing.
SECTION 2.4 Notes.
(a) The Loans of each Bank shall be evidenced by a single Note
payable to the order of such Bank.
(b) Each Bank may, by notice to the Borrower and the
Administrative Agent request that its Loans of a particular type be evidenced by
a separate Note in an amount equal to the aggregate unpaid principal amount of
such Loans. Any additional costs incurred by the Administrative Agent, the
Borrower or the Banks in connection with preparing such a Note shall be at the
sole cost and expense of the Bank requesting such Note. In the event any Loans
evidenced by such a Note are paid in full prior to the Maturity Date, any such
Bank shall return such Note to Borrower. Each such Note shall be in
substantially the form of Exhibit A hereto with appropriate modifications to
reflect the fact that it evidences solely Loans of the relevant type. Upon the
execution and delivery of any such Note, any existing Note payable to such Bank
shall be replaced or modified accordingly. Each reference in this Agreement to
the "Note" of such Bank shall be deemed to refer to and include any or all of
such Notes, as the context may require.
(c) Upon receipt of each Bank's Note pursuant to Section 3.1(a),
the Administrative Agent shall forward such Note to such Bank. Each Bank shall
record the date, amount, type and maturity of each Loan made by it and the date
and amount of each payment of principal made by the Borrower with respect
thereto, and may, if such Bank so elects in connection with any transfer or
enforcement of its Note, endorse on the appropriate schedule appropriate
notations to evidence the foregoing information with respect to each such Loan
then outstanding; provided that the failure of any Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Notes. Each Bank is hereby irrevocably authorized
<PAGE> 27
by the Borrower so to endorse its Note and to attach to and make a part of its
Note a continuation of any such schedule as and when required.
(d) The Loans shall mature, and the principal amount thereof shall
be due and payable, on the Maturity Date.
SECTION 2.5 Interest Rates.
(a) Intentionally Omitted.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during the Interest Period applicable
thereto, at a rate per annum equal to the sum of the Applicable Margin for
Euro-Dollar Loans for such day plus the Interbank Offered Rate applicable to
such Interest Period.
(c) In the event that, and for so long as, any Event of Default
shall have occurred and be continuing, the outstanding principal amount of the
Loans, and, to the extent permitted by applicable law, overdue interest in
respect of all Loans, shall bear interest at the annual rate equal to the sum of
the Base Rate and four percent (4%) (the "Default Rate").
(d) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the Borrower and the Banks of each rate of interest so determined, and
its determination thereof shall be conclusive in the absence of demonstrable
error.
(e) Interest on all Loans shall be payable on the last day of the
Interest Period applicable thereto.
SECTION 2.6 Interest Rate Reset Date . The Borrower shall
deliver written notice to the Administrative Agent on or before the date which
is twenty (20) Business Days prior to the Rate Reset Date to reset the
Applicable Margin for the Loans, which notice shall contain Borrower's tentative
revised Applicable Margin for the Loans. Within five (5) Business Days
thereafter, Borrower, in consultation with the Administrative Agent, shall
determine a final revised Applicable Margin for the Loans and shall, within
fifteen (15) Business Days prior to the Rate Reset Date deliver written notice
(the "Rate Reset Notice") to each of the Banks which Rate Reset Notice shall
contain a revised Applicable Margin for the Euro-Dollar Loans (the "Revised
Applicable Margin"). The Borrower's delivery of the Rate Reset Notice shall be
irrevocable. If the Borrower fails to deliver the Rate Reset Notice to each Bank
on or prior to the date which is fifteen (15) Business Days prior to the Rate
Reset Date, then the Revised Applicable Margin shall be deemed to be equal to
the Applicable Margin. Within five (5) Business Days after Borrower's delivery
of the Rate Reset Notice, or if the Borrower shall fail to deliver the Rate
Reset Notice, on or before the date which is ten (10) Business Days prior to the
Rate Reset Date, each Bank shall deliver written notice to the Borrower and the
Administrative Agent of such Bank's election (which election may be made in each
Bank's sole and absolute discretion): (i) to accept the Revised Applicable
Margin contained in the Rate Reset Notice, in which event, from the first
<PAGE> 28
day following the Rate Reset Date, the Applicable Margin for all Loans made,
continued or maintained by such Bank shall be the Revised Applicable Margin; or
(ii) to reject the Revised Applicable Margin (it being understood that each Bank
shall have the right to reject the Revised Applicable Margin whether the same
shall be the same as, greater than, or less than, the Applicable Margin) , in
which case all Loans (together with accrued interest thereon) made by such Bank
shall be repaid by the Borrower on the Rate Reset Date and such date shall be
deemed to be the Maturity Date with respect to such Bank's Loans. Any Bank which
fails to deliver notice of its election as set forth in the preceding sentence
within five (5) Business Days after Borrower's delivery of the Rate Reset Notice
shall be deemed to have accepted the Revised Applicable Margin. The failure of
the Borrower to repay on or before the Rate Reset Date all amounts due to any
Bank that rejects the Revised Applicable Margin shall constitute an Event of
Default hereunder.
SECTION 2.7. Maturity Date.
The term (the "Term") of the Commitments (and each Bank's
obligations to make Loans hereunder) shall terminate and expire on the Maturity
Date. Upon the date of the termination of the Term, any Loans then outstanding
(together with accrued interest thereon and all other Obligations) shall be due
and payable.
SECTION 2.8. Optional Prepayments.
(a) The Borrower may, upon at least three (3) Business Days' notice to the
Administrative Agent, prepay any Loan, in whole or in part, on the last day of
the Interest Period applicable thereto, in amounts aggregating One Million
Dollars ($1,000,000) or any larger multiple of One Hundred Thousand Dollars
($100,000), by paying the principal amount to be prepaid together with accrued
interest thereon to the date of prepayment. The Borrower may not prepay all or
any portion of the principal amount of any Loan prior to the end of the Interest
Period applicable thereto. Each such optional prepayment shall be applied to
prepay ratably the Loans of the several Banks included in such Group or
Borrowing.
(b) Any amounts so prepaid pursuant to Section 2.8 (a) may not be
reborrowed.
<PAGE> 29
SECTION 2.9. General Provisions as to Payments.
(a) The Borrower shall make each payment of principal of and
interest on the Loans and of fees hereunder, not later than 11:00 a.m. (New
York, New York time) on the date when due, in Federal or other funds immediately
available in New York, New York, to the Administrative Agent at its address
referred to in Section 9.1. The Administrative Agent will promptly (and in any
event within one (1) Business Day after receipt thereof) distribute to each Bank
its ratable share of each such payment received by the Administrative Agent for
the account of the Banks. If and to the extent that the Administrative Agent
shall receive any such payment for the account of the Banks on or before 12:00
Noon (New York, New York time) on any Business Day, and Administrative Agent
shall not have distributed to any Bank its applicable share of such payment on
such Business Day, Administrative Agent shall distribute such amount to such
Bank together with interest thereon, for each day from the date such amount
should have been distributed to such Bank until the date Administrative Agent
distributes such amount to such Bank, at the Federal Funds Rate. Whenever any
payment of principal of, or interest on, the Loans shall be due on a day which
is not a Business Day, the date for payment thereof shall be extended to the
next succeeding Business Day unless such Business Day falls in another calendar
month, in which case the date for payment thereof shall be the next preceding
Business Day. If the date for any payment of principal is extended by operation
of law or otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the Banks
hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent that
the Borrower shall not have so made such payment, each Bank shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
SECTION 2.10. Funding Losses. If the Borrower makes any
payment of principal with respect to any Euro-Dollar Loan (pursuant to Article
VI or otherwise) on any day other than the last day of the Interest Period
applicable thereto, or if the Borrower fails to borrow any Euro-Dollar Loans
after the notice has been given to any Bank in accordance with Section 2.3(a),
the Borrower shall reimburse each Bank within 15 days after certification of
such Bank of such loss or expense (which shall be delivered by each such Bank to
Administrative Agent for delivery to Borrower) for any resulting loss or expense
incurred by it (or by an existing Participant in the related Loan), including,
without limitation, any loss incurred in obtaining, liquidating or employing
deposits from third parties, but excluding loss of margin for the period after
any such payment or failure to borrow, provided that such Bank shall have
delivered to Administrative Agent and Administrative Agent shall have delivered
to the Borrower a certification as to the
<PAGE> 30
amount of such loss or expense, which certification shall set forth in
reasonable detail the basis for and calculation of such loss or expense and
shall be conclusive in the absence of demonstrable error.
SECTION 2.11. Computation of Interest and Fees. All interest
and fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.12. Use of Proceeds. The Borrower shall use the
proceeds of the Loans for general corporate purposes, including, without limita-
tion, the acquisition of real property to be used in the Borrower's existing
business, the refinancing of existing indebtedness, and for general working
capital needs of the Borrower.
1.7.
ARTICLE III
CONDITIONS
SECTION 3.1. Closing. The closing hereunder shall occur on
the date when each of the following conditions is satisfied (or waived in
writing by the Administrative Agent and the Banks), each document to be dated
the Closing Date unless otherwise indicated:
(a) the Borrower shall have executed and delivered to the
Administrative Agent a Note for the account of each Bank dated on or before the
Closing Date complying with the provisions of Section 2.4;
(b) the Borrower, the Administrative Agent and Arranger and each
of the Banks shall have executed and delivered to the Borrower and the
Administrative Agent a duly executed original of this Agreement;
(c) EOPT shall have executed and delivered to the Administrative
Agent a duly executed original of the EOPT Guaranty;
(d) the Administrative Agent shall have received an opinion of
Rosenberg & Liebentritt, P.C., counsel for the Borrower and EOPT, acceptable to
the Administrative Agent, the Banks and their counsel, as well as an opinion of
Skadden, Arps, Slate, Meagher & Flom, LLP, counsel to the Administrative Agent;
(e) the Administrative Agent shall have received all documents the
Administrative Agent may reasonably request relating to the existence of the
Borrower and EOPT, the authority for and the validity of this Agreement and the
other Loan Documents, the incumbency of officers executing this Agreement and
the other Loan Documents and any other matters relevant hereto, all in form and
substance satisfactory to the Administrative Agent. Such documentation shall
include, without limitation, the agreement of limited partnership of the
Borrower, as well as the
<PAGE> 31
certificate of limited partnership of the Borrower, both as amended, modified or
supplemented to the Closing Date, certified to be true, correct and complete by
a senior officer of the Borrower as of a date not more than ten (10) days prior
to the Closing Date, together with a certificate of existence as to the Borrower
from the Secretary of State (or the equivalent thereof) of Delaware, to be dated
not more than thirty (30) days prior to the Closing Date, as well as the
declaration of trust of EOPT, as amended, modified or supplemented to the
Closing Date, certified to be true, correct and complete by a senior officer of
EOPT as of a date not more than ten (10) days prior to the Closing Date,
together with a good standing certificate as to EOPT from the Secretary of State
(or the equivalent thereof) of Maryland, to be dated not more than thirty (30)
days prior to the Closing Date;
(f) the Borrower and EOPT each shall have executed a solvency
certificate acceptable to the Administrative Agent;
(g) the Administrative Agent shall have received all certificates,
agreements and other documents and papers referred to in this Section 3.1 and
the Notice of Borrowing referred to in Section 3.2, if applicable, unless
otherwise specified, in sufficient counterparts, satisfactory in form and
substance to the Administrative Agent in its sole discretion;
(h) the Borrower shall have taken all actions required to
authorize the execution and delivery of this Agreement and the other Loan
Documents and the performance thereof by the Borrower, and EOPT shall have taken
all actions required to authorize the execution and delivery of the
reaffirmation of the EOPT Guaranty and the other Loan Documents and the
performance thereof by EOPT;
(i) the Banks shall be satisfied that neither the Borrower,
EOPT nor any Consolidated Subsidiary is subject to any present or contingent
environmental liability which could have a Material Adverse Effect and the
Borrower shall have delivered a certificate so stating;
(j) the Administrative Agent shall have received all fees due and
payable on or before the Closing Date, and the reasonable fees and expenses
accrued through the Closing Date of Skadden, Arps, Slate, Meagher & Flom LLP
shall have been paid to Skadden, Arps, Slate, Meagher & Flom LLP;
(k) the Borrower shall have delivered copies of all consents,
licenses and approvals, if any, required in connection with the execution,
delivery and performance by the Borrower and EOPT, and the validity and
enforceability, of the Loan Documents, or in connection with any of the
transactions contemplated thereby, and such consents, licenses and approvals
shall be in full force and effect;
(l) no Default or Event of Default shall have occurred; and
(m) the Borrower shall have delivered a certificate in form
acceptable to Administrative Agent showing compliance with the requirements of
Section 5.8 as of the Closing Date.
<PAGE> 32
SECTION 3.2. Borrowings. The obligation of any Bank to make a
Loan on the Funding Date is subject to the satisfaction of the following
conditions:
(a) receipt by the Administrative Agent of a Notice of Borrowing
as required by Section 2.2;
(b) immediately after such Borrowing, the aggregate outstanding
principal amount of the Loans will not exceed the aggregate amount of the
Commitments;
(c) immediately before and after such Borrowing, no Default or
Event of Default shall have occurred and be continuing both before and after
giving effect to the making of such Loans;
(d) the representations and warranties of the Borrower contained
in this Agreement (other than representations and warranties which expressly
speak as of a different date) shall be true and correct in all material respects
on and as of the date of such Borrowing both before and after giving effect to
the making of such Loans;
(e) no law or regulation shall have been adopted, no order,
judgment or decree of any governmental authority shall have been issued, and no
litigation shall be pending, which does or seeks to enjoin, prohibit or
restrain, the making or repayment of the Loans or the consummation of the
transactions contemplated by this Agreement; and
(f) no event, act or condition shall have occurred after the
Closing Date which, in the reasonable judgment of the Administrative Agent or
the Required Banks, as the case may be, has had or is likely to have a Material
Adverse Effect.
Each Borrowing hereunder shall be deemed to be a
representation and warranty by the Borrower on the date of such Borrowing as to
the facts specified in clauses (b), (c), (d), (e) and (f) (to the extent that
Borrower is or should have been aware of any Material Adverse Effect) of this
Section, except as otherwise disclosed in writing by Borrower to the Banks.
Notwithstanding anything to the contrary, no Borrowing shall be permitted if
such Borrowing would cause Borrower to fail to be in compliance with any of the
covenants contained in this Agreement or in any of the other Loan Documents.
<PAGE> 33
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Administrative Agent and each of the
Banks which is or may become a party to this Agreement to make the Loans, the
Borrower makes the following representations and warranties as of the Closing
Date. Such representations and warranties shall survive the effectiveness of
this Agreement, the execution and delivery of the other Loan Documents and the
making of the Loans.
SECTION 4.1. Existence and Power. The Borrower is a limited
partnership, duly formed and validly existing as a limited partnership under the
laws of the State of Delaware and has all powers and all material governmental
licenses, authorizations, consents and approvals required to own its property
and assets and carry on its business as now conducted or as it presently
proposes to conduct and has been duly qualified and is in good standing in every
jurisdiction in which the failure to be so qualified and/or in good standing is
likely to have a Material Adverse Effect. EOPT is a real estate investment
trust, duly formed, validly existing and in good standing as a real estate
investment trust under the laws of the State of Maryland and has all powers and
all material governmental licenses, authorizations, consents and approvals
required to own its property and assets and carry on its business as now
conducted or as it presently proposes to conduct and has been duly qualified and
is in good standing in every jurisdiction in which the failure to be so
qualified and/or in good standing is likely to have a Material Adverse Effect.
SECTION 4.2. Power and Authority. The Borrower has the part-
nership power and authority to execute, deliver and carry out the terms and pro-
visions of each of the Loan Documents to which it is a party and has taken all
necessary partnership action, if any, to authorize the execution and delivery on
behalf of the Borrower and the performance by the Borrower of such Loan
Documents. The Borrower and EOPT each have duly executed and delivered each Loan
Document to which it is a party in accordance with the terms of this Agreement,
and each such Loan Document constitutes the legal, valid and binding obligation
of the Borrower and EOPT, enforceable in accordance with its terms, except as
enforceability may be limited by applicable insolvency, bankruptcy or other laws
affecting creditors rights generally, or general principles of equity, whether
such enforceability is considered in a proceeding in equity or at law. EOPT has
the power and authority to execute, deliver and carry out the terms and
provisions of each of the Loan Documents to which it is a party and has taken
all necessary action to authorize the execution, delivery and performance of
such Loan Documents. EOPT has the power and authority to execute, deliver and
carry out the terms and provisions of each of the Loan Documents on behalf of
the Borrower to which the Borrower is a party and has taken all necessary action
to authorize the execution and delivery on behalf of the Borrower and the
performance by the Borrower of such Loan Documents.
<PAGE> 34
SECTION 4.3. No Violation. (a) Neither the execution,
delivery or performance by or on behalf of the Borrower of the Loan Documents to
which it is a party, nor compliance by the Borrower with the terms and
provisions thereof nor the consummation of the transactions contemplated by the
Loan Documents, (i) will materially contravene any applicable provision of any
law, statute, rule, regulation, order, writ, injunction or decree of any court
or governmental instrumentality, (ii) will materially conflict with or result in
any breach of, any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets of
the Borrower or any of its Consolidated Subsidiaries pursuant to the terms of
any indenture, mortgage, deed of trust, or other agreement or other instrument
to which the Borrower (or of any partnership of which the Borrower is a partner)
or any of its Consolidated Subsidiaries is a party or by which it or any of its
property or assets is bound or to which it is subject (except for such breaches
and defaults under loan agreements which the lenders thereunder have agreed to
forbear pursuant to valid forbearance agreements), or (iii) will cause a
material default by the Borrower under any organizational document of any Person
in which the Borrower has an interest, or cause a material default under the
Borrower's agreement or certificate of limited partnership, the consequences of
which conflict, breach or default would have a Material Adverse Effect, or
result in or require the creation or imposition of any Lien whatsoever upon any
Property (except as contemplated herein).
(b) Neither the execution, delivery or performance by EOPT of the
Loan Documents to which it is a party, nor compliance by EOPT with the terms and
provisions thereof nor the consummation of the transactions contemplated by the
Loan Documents, (i) will materially contravene any applicable provision of any
law, statute, rule, regulation, order, writ, injunction or decree of any court
or governmental instrumentality, (ii) will materially conflict with or result in
any breach of, any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets of
EOPT or any of its Consolidated Subsidiaries pursuant to the terms of any
indenture, mortgage, deed of trust, or other agreement or other instrument to
which EOPT (or of any partnership of which EOPT is a partner) or any of its
Consolidated Subsidiaries is a party or by which it or any of its property or
assets is bound or to which it is subject (except for such breaches and defaults
under loan agreements which the lenders thereunder have agreed to forbear
pursuant to valid forbearance agreements), or (iii) will cause a material
default by EOPT under any organizational document of any Person in which EOPT
has an interest, the consequences of which conflict, breach or default would
have a Material Adverse Effect, or result in or require the creation or
imposition of any Lien whatsoever upon any Property (except as contemplated
herein).
SECTION 4.4. Financial Information. (a) The consolidated
balance sheet of EOPT as of December 31, 1997, and the related statements of
operations and cash flows of EOPT for the period from July 11, 1997 to
December 31, 1997, reported on by Ernst & Young LLP, fairly present, in
conformity with GAAP, the consolidated financial position of EOPT as of such
date and the consolidated results of operations and cash flows for the period
from July 11, 1997 to December 31, 1997.
<PAGE> 35
(b) Since June 30, 1998, (i) except as may have been disclosed in
writing to the Banks, nothing has occurred having a Material Adverse Effect, and
(ii) except as set forth on Schedule 4.4(b), neither the Borrower nor EOPT has
incurred any material indebtedness or guaranty on or before the Closing Date.
SECTION 4.5. Litigation. Except as previously disclosed by the
Borrower in writing to the Banks, there is no action, suit or proceeding pending
against, or to the knowledge of the Borrower threatened against or affecting,
(i) the Borrower, EOPT or any of their Consolidated Subsidiaries, (ii) the Loan
Documents or any of the transactions contemplated by the Loan Documents or (iii)
any of their assets, before any court or arbitrator or any governmental body,
agency or official in which there is a reasonable possibility of an adverse
decision which could, individually, or in the aggregate have a Material Adverse
Effect or which in any manner draws into question the validity of this Agreement
or the other Loan Documents. As of the Closing Date, no such action, suit or
proceeding exists.
SECTION 4.6. Compliance with ERISA. (a) Except as set forth
on Schedule 4.6 attached hereto, neither Borrower nor EOPT is a member of or has
entered into, maintained, contributed to, or been required to contribute to, or
may incur any liability with respect to any Plan or Multiemployer Plan or any
other Benefit Arrangement.
(b) The transactions contemplated by the Loan Documents will not
constitute a nonexempt prohibited transaction (as such term is defined in
Section 4975 of the Code or Section 406 of ERISA) that could subject the
Administrative Agent or any of the Banks to any tax or penalty on prohibited
transactions imposed under Section 4975 of the Code or Section 502(i) of ERISA
and such transactions will not otherwise result in the Administrative Agent or
any of the Banks being deemed in violation of Sections 404 or 406 of ERISA or
Section 4975 of the Code or in the Administrative Agent or any of the Banks
being a fiduciary or party in interest under ERISA or a "disqualified person" as
defined in Section 4975(e)(2) of the Code with respect to an "employee benefit
plan" within the meaning of Section 3(3) of ERISA or a "plan" within the meaning
of Section 4975(e)(1) of the Code. No assets of Borrower constitute "assets"
(within the meaning of ERISA or Section 4975 of the Code, including, but not
limited to, 29 C.F.R. Section 2510.3-101 or any successor regulation thereto)
of an "employee benefit plan" within the meaning of Section 3(3) of ERISA or a
"plan" within the meaning of Section 4975(e)(1) of the Code. In addition to the
prohibitions set forth in this Agreement and the other Loan Documents, and not
in limitation thereof, Borrower covenants and agrees that Borrower shall not
use any "assets" (within the meaning of ERISA or Section 4975 of the Code,
including but not limited to 29 C.F.R. Section 2510.3-101) of an "employee
benefit plan" within the meaning of Section 3(3) of ERISA or a "plan" within
the meaning of Section 4975(e)(1) of the Code to repay or secure the Notes, the
Loan, or the Obligations.
SECTION 4.7. Environmental. The Borrower conducts reviews of
the effect of Environmental Laws on the business, operations and properties of
the Borrower and its Consolidated Subsidiaries when necessary in the course of
which it identifies and evaluates associated
<PAGE> 36
liabilities and costs (including, without limitation, any capital or operating
expenditures required for clean-up or closure of properties presently owned, any
capital or operating expenditures required to achieve or maintain compliance
with environmental protection standards imposed by law or as a condition of any
license, permit or contract, any related constraints on operating activities,
and any actual or potential liabilities to third parties, including, without
limitation, employees, and any related costs and expenses). On the basis of this
review, the Borrower has reasonably concluded that such associated liabilities
and costs, including, without limitation, the costs of compliance with
Environmental Laws, are unlikely to have a Material Adverse Effect.
SECTION 4.8. Taxes. The Borrower, EOPT and their Consolidated
Subsidiaries have filed all United States Federal income tax returns and all
other material tax returns which are required to be filed by them and have paid
all taxes due pursuant to such returns or pursuant to any assessment received by
the Borrower, EOPT or any Consolidated Subsidiary, except such taxes, if any, as
are reserved against in accordance with GAAP, such taxes as are being contested
in good faith by appropriate proceedings or such taxes, the failure to make
payment of which when due and payable will not have, in the aggregate, a
Material Adverse Effect. The charges, accruals and reserves on the books of the
Borrower, EOPT and their Consolidated Subsidiaries in respect of taxes or other
governmental charges are, in the opinion of the Borrower, adequate.
SECTION 4.9. Full Disclosure. All information heretofore
furnished by the Borrower to the Administrative Agent, the Arranger or any Bank
for purposes of or in connection with this Agreement or any transaction
contemplated hereby or thereby is true and accurate in all material respects on
the date as of which such information is stated or certified. The Borrower has
disclosed to the Administrative Agent, in writing any and all facts which have
or may have (to the extent the Borrower can now reasonably foresee) a Material
Adverse Effect.
SECTION 4.10. Solvency. On the Closing Date and after giving
effect to the transactions contemplated by the Loan Documents occurring on the
Closing Date, the Borrower and EOPT will be Solvent.
SECTION 4.11. Use of Proceeds. All proceeds of the Loans will
be used by the Borrower only in accordance with the provisions hereof. Neither
the making of any Loan nor the use of the proceeds thereof will violate or be
inconsistent with the provisions of regulations T, U, or X of the Federal
Reserve Board.
SECTION 4.12. Governmental Approvals. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority, or any subdivision
thereof, is required to authorize, or is required in connection with the
execution, delivery and performance of any Loan Document or the consummation of
any of the transactions contemplated thereby other than those that have already
been duly made or obtained and remain in full force and effect or those which,
if not made or obtained, would not have a Material Adverse Effect;
<PAGE> 37
SECTION 4.13. Investment Company Act; Public Utility Holding
Company Act . Neither the Borrower, EOPT nor any Consolidated Subsidiary is (x)
an "investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended, (y) a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of either a "holding company" or a "subsidiary company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended, or (z)
subject to any other federal or state law or regulation which purports to
restrict or regulate its ability to borrow money.
SECTION 4.14. Principal Offices. As of the Closing Date, the
principal office, chief executive office and principal place of business of the
Borrower is Two North Riverside Plaza, Suite 2200, Chicago, Illinois 60606.
SECTION 4.15. REIT Status. EOPT is qualified and EOPT intends
to continue to qualify as a real estate investment trust under the Code.
SECTION 4.16. Patents, Trademarks, etc. The Borrower has
obtained and holds in full force and effect all patents, trademarks,
servicemarks, trade names, copyrights and other such rights, free from
burdensome restrictions, which are necessary for the operation of its business
as presently conducted, the impairment of which is likely to have a Material
Adverse Effect.
SECTION 4.17. Judgments. As of the Closing Date, there are no
final, non-appealable judgments or decrees in an aggregate amount of Five
Million Dollars ($5,000,000) or more entered by a court or courts of competent
jurisdiction against EOPT or the Borrower or, to the extent such judgment would
be recourse to EOPT or Borrower, any of its Consolidated Subsidiaries (other
than judgments as to which, and only to the extent, a reputable insurance
company has acknowledged coverage of such claim in writing).
SECTION 4.18. No Default. No Event of Default or, to the best
of the Borrower's knowledge, Default exists under or with respect to any Loan
Document and the Borrower is not in default in any material respect beyond any
applicable grace period under or with respect to any other material agreement,
instrument or undertaking to which it is a party or by which it or any of its
property is bound in any respect, the existence of which default is likely to
result in a Material Adverse Effect.
SECTION 4.19. Licenses, etc. The Borrower has obtained and
does hold in full force and effect, all franchises, licenses, permits, certifi-
cates, authorizations, qualifications, accreditation, easements, rights of way
and other consents and approvals which are necessary for the operation of its
businesses as presently conducted, the absence of which is likely to have a
Material Adverse Effect.
SECTION 4.20. Compliance With Law. To the Borrower's knowledge,
the Borrower and each of its Real Property Assets are in compliance with all
laws, rules, regulations, orders,
<PAGE> 38
judgments, writs and decrees, including, without limitation, all building and
zoning ordinances and codes, the failure to comply with which is likely to have
a Material Adverse Effect.
SECTION 4.21. No Burdensome Restrictions. Except as may have been
disclosed by the Borrower in writing to the Banks, Borrower is not a party to
any agreement or instrument or subject to any other obligation or any charter or
corporate or partnership restriction, as the case may be, which, individually or
in the aggregate, is likely to have a Material Adverse Effect.
SECTION 4.22. Brokers' Fees. The Borrower has not dealt with any
broker or finder with respect to the transactions contemplated by this Agreement
or otherwise in connection with this Agreement, and the Borrower has not done
any act, had any negotiations or conversation, or made any agreements or
promises which will in any way create or give rise to any obligation or
liability for the payment by the Borrower of any brokerage fee, charge,
commission or other compensation to any party with respect to the transactions
contemplated by the Loan Documents, other than the fees payable to the
Administrative Agent, the Arranger and the Banks, and certain other Persons as
previously disclosed in writing to the Administrative Agent.
SECTION 4.23. Labor Matters. Except as disclosed on Schedule 4.6,
there are no collective bargaining agreements or Multiemployer Plans covering
the employees of the Borrower or any member of the ERISA Group and neither the
Borrower nor any member of the ERISA Group has suffered any strikes, walkouts,
work stoppages or other material labor difficulty within the last five years.
SECTION 4.24. Insurance. The Borrower currently maintains insurance
at 100% replacement cost insurance coverage (subject to customary deductibles)
in respect of each of its Real Property Assets, as well as commercial general
liability insurance (including, without limitation, "builders' risk" where
applicable) against claims for personal, and bodily injury and/or death, to one
or more persons, or property damage, as well as workers' compensation insurance,
in each case with respect to liability and casualty insurance with insurers
having an A.M. Best policyholders' rating of not less than A-VII in amounts that
prudent owners of assets such as Borrower's directly or indirectly owned Real
Property Assets would maintain.
SECTION 4.25. Organizational Documents. The documents delivered
pursuant to Section 3.1(e) constitute, as of the Closing Date, all of the
organizational documents (together with all amendments and modifications
thereof) of the Borrower and EOPT. The Borrower represents that it has delivered
to the Administrative Agent true, correct and complete copies of each such
documents. EOPT is the managing general partner of the Borrower and each of
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership,
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership II,
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership III, and
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership IV as of
the date hereof. EOPT holds (directly or indirectly) a [89.70%] ownership
interest in the Borrower as of the date hereof.
<PAGE> 39
SECTION 4.26. Qualifying Unencumbered Properties . As of the date
hereof, each Property listed on Schedule 1.1 as a Qualifying Unencumbered
Property (i) is an operating Office Building or Parking Property wholly-owned
(directly or beneficially) by Borrower, a Financing Partnership or a Joint
Venture Subsidiary, (ii) is not subject (nor are any equity interests in such
Property that are owned directly or indirectly by Borrower, EOPT or any Joint
Venture Parent subject) to a Lien which secures Indebtedness of any Person,
other than Permitted Liens, and (iii) is not subject (nor are any equity
interests in such Property that are owned directly or indirectly by Borrower,
EOPT or Joint Venture Parent subject) to any covenant, condition, or other
restriction which prohibits or limits the creation or assumption of any Lien
upon such Property. All of the information set forth on Schedule 1.1 is true and
correct in all material respects.
SECTION 4.27. "Year 2000" Compliance. The Borrower and EOPT have
conducted a review and assessment of the Borrower's and EOPT's computer
applications with respect to the "year 2000 problem" (that is, the risk that
computer applications may not be able to properly perform date-sensitive
functions after December 31, 1999) and, based on that review and inquiry, the
Borrower does not believe that year 2000 problem will result in a Material
Adverse Effect to the Borrower's or EOPT's financial condition or results of
operations, or on its ability to repay the Loan.
ARTICLE V
AFFIRMATIVE AND NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as any Bank has
any Commitment hereunder or any Obligations remain unpaid:
SECTION 5.1. Information. The Borrower will deliver to each of the
Banks:
(a) as soon as available and in any event within five (5) Business
Days after the same is required to be filed with the Securities and Exchange
Commission (but in no event later than 125 days after the end of each Fiscal
Year of the Borrower) a consolidated balance sheet of the Borrower, EOPT and
their Consolidated Subsidiaries as of the end of such Fiscal Year and the
related consolidated statements of Borrower's and EOPT's operations and
consolidated statements of Borrower's and EOPT's cash flow for such Fiscal Year,
setting forth in each case in comparative form the figures for the previous
Fiscal Year (if available), all reported in a manner acceptable to the
Securities and Exchange Commission on Borrower's and EOPT's Form 10K and
reported on by Ernst & Young LLP or other independent public accountants of
nationally recognized standing;
(b) as soon as available and in any event within five (5) Business
Days after the same is required to be filed with the Securities and Exchange
Commission (but in no event later than 80 days after the end of each of the
first three quarters of each Fiscal Year of the Borrower and
<PAGE> 40
EOPT), (i) a consolidated balance sheet of the Borrower, EOPT and their
Consolidated Subsidiaries as of the end of such quarter and the related
consolidated statements of Borrower's and EOPT's operations and consolidated
statements of Borrower's and EOPT's cash flow for such quarter and for the
portion of the Borrower's or EOPT's Fiscal Year ended at the end of such
quarter, all reported in the form provided to the Securities and Exchange
Commission on Borrower's and EOPT's Form 10Q, and (ii) and such other
information reasonably requested by the Administrative Agent or any Bank;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of a senior
officer of the Borrower (i) setting forth in reasonable detail the calculations
required to establish whether the Borrower was in compliance with the
requirements of Section 5.8 on the date of such financial statements; (ii)
certifying (x) that such financial statements fairly present the financial
condition and the results of operations of the Borrower on the dates and for the
periods indicated, on the basis of GAAP, with respect to the Borrower subject,
in the case of interim financial statements, to normally recurring year-end
adjustments, and (y) that such officer has reviewed the terms of the Loan
Documents and has made, or caused to be made under his or her supervision, a
review in reasonable detail of the business and condition of the Borrower during
the period beginning on the date through which the last such review was made
pursuant to this Section 5.1(c) (or, in the case of the first certification
pursuant to this Section 5.1(c), the Closing Date) and ending on a date not more
than ten (10) Business Days prior to the date of such delivery and that (1) on
the basis of such financial statements and such review of the Loan Documents, no
Event of Default existed under Section 6.1(b) with respect to Sections 5.8 and
5.9 at or as of the date of said financial statements, and (2) on the basis of
such review of the Loan Documents and the business and condition of the
Borrower, to the best knowledge of such officer, as of the last day of the
period covered by such certificate no Default or Event of Default under any
other provision of Section 6.1 occurred and is continuing or, if any such
Default or Event of Default has occurred and is continuing, specifying the
nature and extent thereof and, the action the Borrower proposes to take in
respect thereof. Such certificate shall set forth the calculations required to
establish the matters described in clauses (1) and (2) above;
(d) (i) within five (5) Business Days after any officer of the
Borrower obtains knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer, or other executive officer of the
Borrower setting forth the details thereof and the action which the Borrower is
taking or proposes to take with respect thereto; and (ii) promptly and in any
event within five (5) Business Days after the Borrower obtains knowledge
thereof, notice of (x) any litigation or governmental proceeding pending or
threatened against the Borrower or its directly or indirectly Real Property
Assets as to which there is a reasonable possibility of an adverse determination
and which, if adversely determined, is likely to individually or in the
aggregate, result in a Material Adverse Effect, and (y) any other event, act or
condition which is likely to result in a Material Adverse Effect;
(e) promptly upon the mailing thereof to the shareholders of EOPT
generally, copies of all financial statements, reports and proxy statements so
mailed;
<PAGE> 41
(f) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) (other than the exhibits thereto, which exhibits will be provided
upon request therefor by any Bank) which EOPT shall have filed with the
Securities and Exchange Commission;
(g) promptly and in any event within thirty (30) days, if and when
any member of the ERISA Group (i) gives or is required to give notice to the
PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with
respect to any Plan which might constitute grounds for a termination of such
Plan under Title IV of ERISA, or knows that the plan administrator of any Plan
has given or is required to give notice of any such reportable event, a copy of
the notice of such reportable event given or required to be given to the PBGC;
(ii) receives notice of complete or partial withdrawal liability under Title IV
of ERISA or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice; (iii) receives notice
from the PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies
for a waiver of the minimum funding standard under Section 412 of the Code, a
copy of such application; (v) gives notice of intent to terminate any Plan under
Section 4041(c) of ERISA, a copy of such notice and other information filed with
the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063
of ERISA, a copy of such notice; or (vii) fails to make any payment or
contribution to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement or makes any amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a Lien or the posting of a bond or
other security, and in the case of clauses (i) through (vii) above, which event
could result in a Material Adverse Effect, a certificate of a senior officer of
the Borrower setting forth details as to such occurrence and action, if any,
which the Borrower or applicable member of the ERISA Group is required or
proposes to take;
(h) promptly and in any event within ten (10) days after the Borrower
obtains actual knowledge of any of the following events, a certificate of the
Borrower, executed by an officer of the Borrower, specifying the nature of such
condition, and the Borrower's or, if the Borrower has actual knowledge thereof,
the Environmental Affiliate's proposed initial response thereto: (i) the receipt
by the Borrower, or any of the Environmental Affiliates of any communication
(written or oral), whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Borrower, or any of the
Environmental Affiliates, is not in compliance with applicable Environmental
Laws, and such noncompliance is likely to have a Material Adverse Effect, (ii)
the existence of any Environmental Claim pending against the Borrower or any
Environmental Affiliate and such Environmental Claim is likely to have a
Material Adverse Effect or (iii) any release, emission, discharge or disposal of
any Material of Environmental Concern that is likely to form the basis of any
Environmental Claim against the Borrower or any Environmental Affiliate which in
any such event is likely to have a Material Adverse Effect;
(i) promptly and in any event within five (5) Business Days after
receipt of any notices or correspondence from any company or agent for any
company providing insurance cover-
<PAGE> 42
age to the Borrower relating to any loss which is likely to result in a Material
Adverse Effect, copies of such notices and correspondence; and
(j) from time to time such additional information regarding the
financial position or business of the Borrower, EOPT and their Subsidiaries as
the Administrative Agent, at the request of any Bank, may reasonably request in
writing, so long as disclosure of such information could not result in a
violation of, or expose the Borrower, EOPT or their Subsidiaries to any material
liability under, any applicable law, ordinance or regulation or any agreements
with unaffiliated third parties that are binding on the Borrower, EOPT or any of
their Subsidiaries or on any Property of any of them.
SECTION 5.2. Payment of Obligations. The Borrower, EOPT and their
Consolidated Subsidiaries will pay and discharge, at or before maturity, all
their respective material obligations and liabilities including, without
limitation, any obligation pursuant to any agreement by which it or any of its
properties is bound, in each case where the failure to so pay or discharge such
obligations or liabilities is likely to result in a Material Adverse Effect, and
will maintain in accordance with GAAP, appropriate reserves for the accrual of
any of the same.
SECTION 5.3. Maintenance of Property; Insurance; Leases .
(a) The Borrower will keep, and will cause each Consolidated
Subsidiary to keep, all property useful and necessary in its business, including
without limitation its Real Property Assets (for so long as it constitutes Real
Property Assets), in good repair, working order and condition, ordinary wear and
tear excepted, in each case where the failure to so maintain and repair will
have a Material Adverse Effect.
(b) The Borrower shall maintain, or cause to be maintained, insurance
comparable to that described in Section 4.24 hereof with insurers meeting the
qualifications described therein, which insurance shall in any event not provide
for less coverage than insurance customarily carried by owners of properties
similar to, and in the same locations as, Borrower's Real Property Assets. The
Borrower will deliver to the Administrative Agent upon the reasonable request of
the Administrative Agent from time to time (i) full information as to the
insurance carried, (ii) within five (5) days of receipt of notice from any
insurer a copy of any notice of cancellation or material change in coverage from
that existing on the date of this Agreement and (iii) forthwith, notice of any
cancellation or nonrenewal of coverage by the Borrower.
SECTION 5.4. Maintenance of Existence. The Borrower and EOPT each
will preserve, renew and keep in full force and effect, its partnership and
trust existence and its respective rights, privileges and franchises necessary
for the normal conduct of business unless the failure to maintain such rights
and franchises does not have a Material Adverse Effect.
SECTION 5.5. Compliance with Laws. The Borrower and EOPT will,
and will cause their Subsidiaries to, comply in all material respects with all
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities (including, without limitation,
<PAGE> 43
Environmental Laws, and all zoning and building codes with respect to its Real
Property Assets and ERISA and the rules and regulations thereunder and all
federal securities laws) except where the necessity of compliance therewith is
contested in good faith by appropriate proceedings or where the failure to do so
will not have a Material Adverse Effect or expose Administrative Agent or the
Banks to any material liability therefor.
SECTION 5.6. Inspection of Property, Books and Records. The
Borrower will keep proper books of record and account in which full, true and
correct entries shall be made of all dealings and transactions in relation to
its business and activities in conformity with GAAP, modified as required by
this Agreement and applicable law; and will permit representatives of any Bank
at such Bank's expense to visit and inspect any of its properties, including
without limitation its Real Property Assets, and so long as disclosure of such
information could not result in a violation of, or expose the Borrower, EOPT or
their Subsidiaries to any material liability under, any applicable law,
ordinance or regulation or any agreements with unaffiliated third parties that
are binding on the Borrower, EOPT or any of their Subsidiaries or on any
Property of any of them, to examine and make abstracts from any of its books and
records and to discuss its affairs, finances and accounts with its officers and
independent public accountants, all at such reasonable times during normal
business hours, upon reasonable prior notice and as often as may reasonably be
desired. Administrative Agent shall coordinate any such visit or inspection to
arrange for review by any Bank requesting any such visit or inspection.
SECTION 5.7. Existence . The Borrower shall do or cause to be done,
all things necessary to preserve and keep in full force and effect its, EOPT's
and their Consolidated Subsidiaries' existence and its patents, trademarks,
servicemarks, tradenames, copyrights, franchises, licenses, permits,
certificates, authorizations, qualifications, accreditation, easements, rights
of way and other rights, consents and approvals the nonexistence of which is
likely to have a Material Adverse Effect.
SECTION 5.8. Financial Covenants.
(a) Total Liabilities to Total Asset Value. Borrower shall not permit
the ratio of Total Liabilities to Total Asset Value of Borrower to exceed 0.50:1
at any time.
(b) EBITDA to Interest Expense Ratio. Borrower shall not permit the
ratio of EBITDA for the then most recently completed Fiscal Quarter to Interest
Expense for the then most recently completed Fiscal Quarter to be less than
2.00:1.
(c) [Intentionally Omitted.]
(d) Cash Flow to Fixed Charges Ratio. Borrower shall not permit the
ratio of Cash Flow for the then most recently completed Fiscal Quarter to Fixed
Charges for the then most recently completed Fiscal Quarter to be less than
1.5:1.
<PAGE> 44
(e) Secured Debt to Total Asset Value. Borrower shall not permit the
ratio of Secured Debt to Total Asset Value of Borrower to exceed 0.40:1 at any
time.
(f) Unencumbered Pool. Borrower shall not permit the ratio of the
outstanding Unsecured Debt to Unencumbered Asset Value to exceed 0.55:1 at any
time.
(g) Unencumbered Net Operating Income to Unsecured Debt Service.
Borrower shall not permit the ratio of Unencumbered Net Operating Income for the
then most recently completed Fiscal Quarter to Unsecured Debt Service for the
then most recently completed Fiscal Quarter to be less than 2.0:1.
(h) Minimum Tangible Net Worth. The Consolidated Tangible Net Worth
of the Borrower determined in conformity with GAAP will at no time be less than
the sum of (i) $5,500,000,000, and (ii) seventy percent (70%) of all Net
Offering Proceeds received by EOPT or Borrower after December 31, 1997.
(i) Dividends. The Borrower will not, as determined on an aggregate
annual basis, pay any partnership distributions in excess of 90% of the
Borrower's FFO for such year. During the continuance of a monetary Event of
Default, Borrower shall only pay partnership distributions that are necessary to
enable EOPT to make those dividends necessary to maintain EOPT's status as a
real estate investment trust.
(j) Permitted Holdings. Borrower's primary business will be the
ownership, operation and development of Office Properties and Parking Properties
and any other business activities of Borrower and its Subsidiaries will remain
incidental thereto. Notwithstanding the foregoing, Borrower and its Subsidiaries
may acquire or maintain Permitted Holdings if and so long as the aggregate value
of Permitted Holdings, whether held directly or indirectly by Borrower does not
exceed, at any time, fifteen percent (15%) of Total Asset Value of Borrower
unless a greater percentage is approved by the Majority Banks (which approval
shall not be unreasonably withheld, conditioned or delayed), provided, however,
Borrower and its Subsidiaries may not acquire or maintain Unimproved Assets if
and to the extent that the aggregate value of Unimproved Assets, whether held
directly or indirectly by Borrower exceeds, at any time, ten percent (10%) of
Total Asset Value of Borrower unless a greater percentage is approved by the
Majority Banks (which approval shall not be unreasonably withheld, conditioned
or delayed). For purposes of calculating the foregoing percentage the value of
Unimproved Assets shall be calculated in the manner that Total Asset Value is
determined.
(k) No Liens. Borrower and EOPT shall not, and shall not allow
any of their Subsidiaries, Financing Partnerships or Joint Venture Subsidiaries
to, allow any Qualifying Unencumbered Property (or any equity interests in such
Property that are owned directly or indirectly by Borrower, EOPT or any Joint
Venture Parent), that is necessary to comply with the provisions of Sections
5.8(f) and (g) hereof, to become subject to a Lien that secures the Indebtedness
of any Person, other than Permitted Liens.
<PAGE> 45
(l) Calculation. Each of the foregoing ratios and financial
requirements shall be calculated as of the last day of each Fiscal Quarter.
SECTION 5.9. Restriction on Fundamental Changes. (a) Neither the
Borrower nor EOPT shall enter into any merger or consolidation without obtaining
the prior written consent thereto in writing of the Majority Banks, which
consent shall not be unreasonably withheld, conditioned or delayed, unless (i)
the Borrower or EOPT is the surviving entity, (ii) the entity which is merged
into Borrower or EOPT is predominantly in the commercial real estate business,
(iii) the creditworthiness of the surviving entity's long term unsecured debt or
implied senior debt, as applicable, is not lower than Borrower's or EOPT's
creditworthiness two months immediately preceding such merger, and (iv) the then
fair market value of the assets of the entity which is merged into the Borrower
or EOPT is less than twenty-five percent (25%) of the Borrower's or EOPT's then
Total Asset Value following such merger. Neither the Borrower nor EOPT shall
liquidate, wind-up or dissolve (or suffer any liquidation or dissolution),
discontinue its business or convey, lease, sell, transfer or otherwise dispose
of, in one transaction or series of transactions, all or substantially all of
its business or property, whether now or hereafter acquired. Nothing in this
Section shall be deemed to prohibit the sale or leasing of portions of the Real
Property Assets in the ordinary course of business.
(b) The Borrower shall not amend its agreement of limited
partnership or other organizational documents in any manner that would have a
Material Adverse Effect without the Majority Banks' consent, which shall not be
unreasonably withheld. Without limitation of the foregoing, no Person shall be
admitted as a general partner of the Borrower other than EOPT and Zell/Merrill
Lynch Real Estate Opportunity Partners Limited Partnership II. EOPT shall not
amend its declaration of trust, by-laws, or other organizational documents in
any manner that would have a Material Adverse Effect without the Majority Banks'
consent, which shall not be unreasonably withheld. The Borrower shall not make
any "in-kind" transfer of any of its property or assets to any of its
constituent partners.
(c) Subject to the provisions of clause (b) above, the Borrower shall
deliver to Administrative Agent copies of all amendments to its agreement of
limited partnership or to EOPT's declaration of trust, by-laws, or other
organizational documents no less than ten (10) days after the effective date of
any such amendment.
SECTION 5.10. Changes in Business . (a) Except for Permitted
Holdings, neither the Borrower nor EOPT shall enter into any business which is
substantially different from that conducted by the Borrower or EOPT on the
Closing Date after giving effect to the transactions contemplated by the Loan
Documents. The Borrower shall carry on its business operations through the
Borrower, its Consolidated Subsidiaries and its Investment Affiliates.
(b) Except for Permitted Holdings, Borrower shall not engage in any
line of business other than ownership, operation and development of Office
Properties and Parking Properties and the provision of services incidental
thereto, whether directly or through its Consolidated Subsidiaries and
Investment Affiliates.
<PAGE> 46
SECTION 5.11. EOPT Status.
(a) Status. EOPT shall at all times (i) remain a publicly traded
company listed for trading on the New York Stock Exchange, and (ii) maintain its
status as a self-directed and self-administered real estate investment trust
under the Code.
(b) Indebtedness. EOPT shall not, directly or indirectly, create,
incur, assume or otherwise become or remain directly or indirectly liable with
respect to, any Indebtedness, except:
(1) the Obligations; and
(2) Indebtedness of Borrower for which there is recourse to EOPT
which, after giving effect thereto, may be incurred or may remain
outstanding without giving rise to an Event of Default or Default under
any provision of this Article V.
(c) Restriction on Fundamental Changes.
(1) EOPT shall not have an investment in any Person other than (i)
Borrower, (ii) directly or indirectly in Financing Partnerships, and
(iii) the interests identified on Schedule 5.11(c)(1) as being owned by
EOPT.
(2) EOPT shall not acquire an interest in any Property other than
securities issued by Borrower and Financing Partnerships and the
interests identified on Schedule 5.11(c)(2) attached hereto.
(3) None of Zell/Merrill Lynch Real Estate Opportunity Partners
Limited Partnership, Zell/Merrill Lynch Real Estate Opportunity
Partners Limited Partnership II, Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership III or Zell/Merrill Lynch Real
Estate Opportunity Partners Limited Partnership IV shall have any
investments or own any assets other than in their respective
partnership interests in Borrower.
(4) Neither of EOP-QRS Trust nor EOP-QRS LaJolla Trust shall have any
investments or own any assets other than their permitted ownership
interests Financing Subsidiaries.
(d) Environmental Liabilities. Neither EOPT nor any of its Subsidiaries
shall become subject to any Environmental Claim which has a Material Adverse
Effect, including, without limitation, any arising out of or related to (i) the
release or threatened release of any Material of Environmental Concern into the
environment, or any remedial action in response thereto, or (ii) any violation
of any Environmental Laws. Notwithstanding the foregoing provision, EOPT shall
have the right to contest in good faith any claim of violation of an
Environmental Law by appropriate legal proceedings and shall be entitled to
postpone compliance with the obligation being
<PAGE> 47
contested as long as (i) no Event of Default shall have occurred and be
continuing, (ii) EOPT shall have given Administrative Agent prior written notice
of the commencement of such contest, (iii) noncompliance with such Environmental
Law shall not subject EOPT or such Subsidiary to any criminal penalty or subject
Administrative Agent or any Bank to pay any civil penalty or to prosecution for
a crime, and (iv) no portion of any Property material to Borrower or its
condition or prospects shall be in substantial danger of being sold, forfeited
or lost, by reason of such contest or the continued existence of the matter
being contested.
(e) Disposal of Partnership Interests. EOPT will not directly or
indirectly convey, sell, transfer, assign, pledge or otherwise encumber or
dispose of any of its partnership interests in Borrower or any of its equity
interest in any of the partners of the Borrower as of the date hereof (except in
connection with the dissolution or liquidation of such partners of the
Borrower), except for the reduction of EOPT's interest in the Borrower arising
from Borrower's issuance of partnership interests in the Borrower or the
retirement of preference units by Borrower. EOPT will continue to be the
managing general partner of Borrower and of each Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership, Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership II, Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership III, and Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership IV, and will not permit such Persons to
sell, transfer, assign, pledge or otherwise encumber or dispose of any of their
respective partnership interests in the Borrower, except for the reduction of
such partners' interest in the Borrower arising from the Borrower's issuance of
partnership interests in the Borrower or the retirement of preference units by
the Borrower and except in connection with the dissolution or liquidation of
such partners.
SECTION 5.12. Other Indebtedness. Borrower and EOPT shall not
allow any of their Subsidiaries, Financing Partnerships or Joint Venture
Subsidiaries that own, directly or indirectly, any Qualifying Unencumbered
Property to directly or indirectly create, incur, assume or otherwise become or
remain liable with respect to any Indebtedness other than trade debt incurred in
the ordinary course of business and Indebtedness owing to Borrower, if the
resulting failure of such Property to qualify as a Qualifying Unencumbered
Property would result in an Event of Default under Section 5.8.
SECTION 5.13. Forward Equity Contracts. If Borrower shall enter
into any forward equity contracts, Borrower may only settle the same by delivery
of stock, it being agreed that if Borrower shall settle the same with cash, the
same shall constitute an Event of Default hereunder.
<PAGE> 48
ARTICLE VI
DEFAULTS
SECTION 6.1. Events of Default. An "Event of Default" shall have
occurred if one or more of the following events shall have occurred and be
continuing:
(a) the Borrower shall fail to pay when due any principal of any
Loan, or the Borrower shall fail to pay when due interest on any Loan or any
fees or any other amount payable to Administrative Agent or the Banks hereunder
and the same shall continue for a period of five (5) days after the same becomes
due;
(b) the Borrower shall fail to observe or perform any covenant
contained in Section 5.8, Section 5.9(a) or (b), Section 5.10, Section 5.11(a),
(b) or (c), Section 5.12 or Section 5.13;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a),
(b), (e), (f), (g), (h), (j), (n) or (o) of this Section 6.1) for 30 days after
written notice thereof has been given to the Borrower by the Administrative
Agent, or if such default is of such a nature that it cannot with reasonable
effort be completely remedied within said period of thirty (30) days such
additional period of time as may be reasonably necessary to cure same, provided
Borrower commences such cure within said thirty (30) day period and diligently
prosecutes same, until completion, but in no event shall such extended period
exceed ninety (90) days;
(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made) and, with respect
to such representations, warranties, certifications or statements not known by
the Borrower at the time made or deemed made to be incorrect, the defect causing
such representation or warranty to be incorrect when made (or deemed made) is
not removed within thirty (30) days after written notice thereof from
Administrative Agent to Borrower;
(e) the Borrower, EOPT, any Subsidiary or any Investment Affiliate
shall default in the payment when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) of any amount owing in respect of
any Recourse Debt (other than the Obligations) for which the aggregate
outstanding principal amount exceeds $10,000,000 and such default shall continue
beyond the giving of any required notice and the expiration of any applicable
grace period and such default has not been waived, in writing, by the holder of
any such Debt; or the Borrower, EOPT, any Subsidiary or any Investment Affiliate
shall default in the performance or observance of any obligation or condition
with respect to any such Recourse Debt or any other event shall occur or
condition exist beyond the giving of any required notice and the expiration of
any applicable grace period, if the effect of such default, event or condition
is to accelerate the maturity of any such indebtedness or to permit (without any
further requirement of
<PAGE> 49
notice or lapse of time) the holder or holders thereof, or any trustee or agent
for such holders, to accelerate the maturity of any such indebtedness;
(f) the Borrower or EOPT shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidate, custodian or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any action to authorize any of the foregoing;
(g) an involuntary case or other proceeding shall be commenced
against the Borrower or EOPT seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or an order for
relief shall be entered against the Borrower or EOPT under the federal
bankruptcy laws as now or hereafter in effect;
(h) one or more final, non-appealable judgments or decrees in an
aggregate amount of Twenty Million Dollars ($20,000,000) or more shall be
entered by a court or courts of competent jurisdiction against EOPT, the
Borrower or, to the extent of any recourse to EOPT or the Borrower, any of its
Consolidated Subsidiaries (other than any judgment as to which, and only to the
extent, a reputable insurance company has acknowledged coverage of such claim in
writing) and (i) any such judgments or decrees shall not be stayed, discharged,
paid, bonded or vacated within thirty (30) days or (ii) enforcement proceedings
shall be commenced by any creditor on any such judgments or decrees;
(i) there shall be a change in the majority of the Board of Trustees
of EOPT during any twelve (12) month period, excluding any change in directors
resulting from (x) the death or disability of any director, or (y) satisfaction
of any requirement for the majority of the members of the board of directors or
trustees of EOPT to qualify under applicable law as independent trustees or (z)
the replacement of any trustee who is an officer or employee of EOPT or an
affiliate of EOPT with any other officer or employee of EOPT or an affiliate of
EOPT;
(j) any Person (including affiliates of such Person) or "group" (as
such term is defined in applicable federal securities laws and regulations)
shall acquire more than thirty percent (30%) of the common shares of EOPT;
(k) EOPT shall cease at any time to qualify as a real estate
investment trust under the Code;
(l) if any Termination Event with respect to a Plan, Multiemployer
Plan or Benefit Arrangement shall occur as a result of which Termination Event
or Events any member of the
<PAGE> 50
ERISA Group has incurred or may incur any liability to the PBGC or any other
Person and the sum (determined as of the date of occurrence of such Termination
Event) of the insufficiency of such Plan, Multiemployer Plan or Benefit
Arrangement and the insufficiency of any and all other Plans, Multiemployer
Plans and Benefit Arrangements with respect to which such a Termination Event
shall occur and be continuing (or, in the case of a Multiple Employer Plan with
respect to which a Termination Event described in clause (ii) of the definition
of Termination Event shall occur and be continuing and in the case of a
liability with respect to a Termination Event which is or could be a liability
of the Borrower or EOPT rather than a liability of the Plan, the liability of
the Borrower or EOPT) is equal to or greater than $10,000,000 and which the
Administrative Agent reasonably determines will have a Material Adverse Effect;
(m) if, any member of the ERISA Group shall commit a failure
described in Section 302(f)(1) of ERISA or Section 412(n)(1) of the Code and the
amount of the lien determined under Section 302(f)(3) of ERISA or Section
412(n)(3) of the Code that could reasonably be expected to be imposed on any
member of the ERISA Group or their assets in respect of such failure shall be
equal to or greater than $10,000,000 and which the Administrative Agent
reasonably determines will have a Material Adverse Effect;
(n) at any time, for any reason the Borrower seeks to repudiate its
obligations under any Loan Document or EOPT seeks to repudiate its obligations
under the EOPT Guaranty.
(o) a default beyond any applicable notice or grace period under any
of the other Loan Documents;
(p) any assets of Borrower shall constitute "assets" (within the
meaning of ERISA or Section 4975 of the Code, including but not limited to 29
C.F.R. ss. 2510.3-101 or any successor regulation thereto) of an "employee
benefit plan" within the meaning of Section 3(3) of ERISA or a "plan" within the
meaning of Section 4975(e)(1) of the Code; or
(q) the Notes, the Loan, the Obligations, the EOPT Guaranty or any of
the Loan Documents or the exercise of any of the Administrative Agent's or any
of the Banks' rights in connection therewith shall constitute a prohibited
transaction under ERISA and/or the Code.
SECTION 6.2. Rights and Remedies. (a) Upon the occurrence of any
Event of Default described in Sections 6.1(f), (g), (p) or (q), the Commitments
shall immediately terminate and the unpaid principal amount of, and any and all
accrued interest on, the Loans and any and all accrued fees and other
Obligations hereunder shall automatically become immediately due and payable,
with all additional interest from time to time accrued thereon and without
presentation, demand, or protest or other requirements of any kind (including,
without limitation, valuation and appraisement, diligence, presentment, notice
of intent to demand or accelerate and notice of acceleration), all of which are
hereby expressly waived by the Borrower; and upon the occurrence and during the
continuance of any other Event of Default, the Administrative Agent may (and
upon the demand of the Required Banks shall), by written notice to the Borrower,
in addition to the exercise of all of the rights and remedies permitted the
Administrative Agent and the Banks at law or equity or under any of the other
Loan Documents, declare that the commitments
<PAGE> 51
are terminated and declare the unpaid principal amount of and any and all
accrued and unpaid interest on the Loans and any and all accrued fees and other
Obligations hereunder to be, and the same shall thereupon be, immediately due
and payable with all additional interest from time to time accrued thereon and
(except as otherwise provided in the Loan Documents) without presentation,
demand, or protest or other requirements of any kind (including, without
limitation, valuation and appraisement, diligence, presentment, notice of intent
to demand or accelerate and notice of acceleration), all of which are hereby
expressly waived by the Borrower.
(b) Notwithstanding anything to the contrary contained in this
Agreement or in any other Loan Document, the Administrative Agent and the Banks
each agree that any exercise or enforcement of the rights and remedies granted
to the Administrative Agent or the Banks under this Agreement or at law or in
equity with respect to this Agreement or any other Loan Documents shall be
commenced and maintained by the Administrative Agent on behalf of the
Administrative Agent and/or the Banks. The Administrative Agent shall act at the
direction of the Required Banks in connection with the exercise of any and all
remedies at law, in equity or under any of the Loan Documents or, if the
Required Banks are unable to reach agreement, then, from and after an Event of
Default, the Administrative Agent may pursue such rights and remedies as it may
determine.
SECTION 6.3. Notice of Default. The Administrative Agent shall
give notice to the Borrower under Section 6.1(c) and 6.1(d) promptly upon being
requested to do so by the Required Banks and shall thereupon notify all the
Banks thereof. The Administrative Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default (other than
nonpayment of principal of or interest on the Loans) unless the Administrative
Agent has received notice in writing from a Bank or Borrower referring to this
Agreement or the other Loan Documents, describing such event or condition.
Should the Administrative Agent receive notice of the occurrence of an Default
or Event of Default expressly stating that such notice is a notice of an Default
or Event of Default, or should the Administrative Agent send Borrower a notice
of Default or Event of Default, the Administrative Agent shall promptly give
notice thereof to each Bank.
SECTION 6.4. Distribution of Proceeds after Default.
Notwithstanding anything contained herein to the contrary but subject to the
provisions of Section 9.16 hereof , from and after an Event of Default, to the
extent proceeds are received by Administrative Agent, such proceeds will be
distributed to the Banks pro rata in accordance with the unpaid principal amount
of the Loans (giving effect to any participations granted therein pursuant to
Section 9.4).
<PAGE> 52
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.1. Appointment and Authorization. Each Bank
irrevocably appoints and authorizes the Administrative Agent to take such action
as agent on its behalf and to exercise such powers under this Agreement and the
other Loan Documents as are delegated to the Administrative Agent by the terms
hereof or thereof, together with all such powers as are reasonably incidental
thereto. Except as set forth in Sections 7.8 and 7.9 hereof, the provisions of
this Article VII are solely for the benefit of Administrative Agent and the
Banks, and Borrower shall not have any rights to rely on or enforce any of the
provisions hereof. In performing its functions and duties under this Agreement,
the Administrative Agent shall act solely as an agent of the Banks and does not
assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for the Borrower.
SECTION 7.2. Agency and Affiliates. Morgan Guaranty Trust
Company of New York and its affiliates may accept deposits from, lend money to,
and generally engage in any kind of business with the Borrower, EOPT or any
Subsidiary or affiliate of the Borrower as if it were not the Administrative
Agent hereunder.
SECTION 7.3. Action by Administrative Agent. The obligations of
the Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default or Event of
Default, except as expressly provided in Article VI. The duties of
Administrative Agent shall be administrative in nature. Subject to the
provisions of Sections 7.1, 7.5 and 7.6, the Administrative Agent shall
administer the Loans in the same manner as it administers its own loans.
SECTION 7.4. Consultation with Experts. As between
Administrative Agent on the one hand and the Banks on the other hand, the
Administrative Agent may consult with legal counsel (who may be counsel for the
Borrower), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken by it in good
faith in accordance with the advice of such counsel, accountants or experts.
<PAGE> 53
SECTION 7.5. Liability of Administrative Agent. As between
Administrative Agent on the one hand and the Banks on the other hand, none of
the Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be liable for any action taken or
not taken by it in connection herewith (i) with the consent or at the request of
the Required Banks or (ii) in the absence of its own gross negligence or willful
misconduct. As between Administrative Agent on the one hand and the Banks on the
other hand, none of the Administrative Agent nor any of its directors, officers,
agents or employees shall be responsible for or have any duty to ascertain,
inquire into or verify (i) any statement, warranty or representation made in
connection with this Agreement or any borrowing hereunder; (ii) the performance
or observance of any of the covenants or agreements of the Borrower; (iii) the
satisfaction of any condition specified in Article III, except receipt of items
required to be delivered to the Administrative Agent; or (iv) the validity,
effectiveness or genuineness of this Agreement, the other Loan Documents or any
other instrument or writing furnished in connection herewith. As between
Administrative Agent on the one hand and the Banks on the other hand, the
Administrative Agent shall not incur any liability by acting in reliance upon
any notice, consent, certificate, statement, or other writing (which may be a
bank wire, telex or similar writing) believed by it to be genuine or to be
signed by the proper party or parties.
SECTION 7.6. Indemnification. Each Bank shall, ratably in accordance
with its Commitment, indemnify the Administrative Agent, the Arranger and their
affiliates and their respective directors, officers, agents and employees (to
the extent not reimbursed by the Borrower) against any cost, expense (including,
without limitation, counsel fees and disbursements), claim, demand, action, loss
or liability (except such as result from such indemnitee's gross negligence or
willful misconduct) that such indemnitee may suffer or incur in connection with
their respective duties as Administrative Agent and Arranger under this
Agreement, the other Loan Documents or any action taken or omitted by such
indemnitee hereunder. In the event that the Administrative Agent or the Arranger
shall, subsequent to its receipt of indemnification payment(s) from Banks in
accordance with this section, recoup any amount from the Borrower, or any other
party liable therefor in connection with such indemnification, the
Administrative Agent or the Arranger (as applicable) shall reimburse the Banks
which previously made the payment(s) pro rata, based upon the actual amounts
which were theretofore paid by each Bank.
SECTION 7.7. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Administrative Agent, the Arranger
or any other Bank, and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Bank also acknowledges that it will, independently and without
reliance upon the Administrative Agent, the Arranger or any other Bank, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking any
action under this Agreement.
<PAGE> 54
SECTION 7.8. Successor Administrative Agent. The Administrative
Agent may resign at any time by giving notice thereof to the Banks, and the
Borrower. Upon any such resignation, the Majority Banks shall have the right to
appoint a successor Administrative Agent, which successor Administrative Agent,
shall, provided no Event of Default has occurred and is then continuing, be
subject to Borrower's approval, which approval shall not be unreasonably
withheld or delayed. If no successor Administrative Agent shall have been so
appointed by the Majority Banks and approved by the Borrower, and shall have
accepted such appointment, within 30 days after the retiring Administrative
Agent gives notice of resignation, then the retiring Administrative Agent may,
on behalf of the Banks, appoint a successor Administrative Agent, which shall be
the Administrative Agent who shall act until the Majority Banks shall appoint an
Administrative Agent. Any appointment of a successor Administrative Agent by
Majority Banks or the retiring Administrative Agent pursuant to the preceding
sentence shall, provided no Event of Default has occurred and is then
continuing, be subject to the Borrower's approval, which approval shall not be
unreasonably withheld or delayed. Upon the acceptance of its appointment as the
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent, shall thereupon succeed to and become vested
with all the rights and duties of the retiring Administrative Agent and the
retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. After any retiring Administrative Agent's resignation
hereunder, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was the Administrative
Agent. For gross negligence or willful misconduct, as determined by all the
Banks (excluding for such determination Administrative Agent in its capacity as
a Bank, if applicable), Administrative Agent may be removed at any time by
giving at least thirty (30) Business Days prior written notice to Administrative
Agent and Borrower. Such resignation or removal shall take effect upon the
acceptance of appointment by a successor Administrative Agent in accordance with
the provisions of this Section 7.8.
SECTION 7.9. Consents and Approvals. All communications from
Administrative Agent to the Banks requesting the Banks' determination, consent,
approval or disapproval (i) shall be given in the form of a written notice to
each Bank, (ii) shall be accompanied by a description of the matter or item as
to which such determination, approval, consent or disapproval is requested, or
shall advise each Bank where such matter or item may be inspected, or shall
otherwise describe the matter or issue to be resolved, (iii) shall include, if
reasonably requested by a Bank and to the extent not previously provided to such
Bank, written materials and a summary of all oral information provided to
Administrative Agent by Borrower in respect of the matter or issue to be
resolved, and (iv) shall include Administrative Agent's recommended course of
action or determination in respect thereof. Each Bank shall reply promptly, but
in any event within ten (10) Business Days after receipt of the request therefor
from Administrative Agent (the "Bank Reply Period"). Unless a Bank shall give
written notice to Administrative Agent that it objects to the recommendation or
determination of Administrative Agent (together with a written explanation of
the reasons behind such objection) within the Bank Reply Period, such Bank shall
be deemed to have approved of or consented to such recommendation or
determination. With respect to decisions requiring the approval of the Required
Banks, Majority Banks or all the Banks,
<PAGE> 55
Administrative Agent shall submit its recommendation or determination for
approval of or consent to such recommendation or determination to all Banks and
upon receiving the required approval or consent shall follow the course of
action or determination of the Required Banks, Majority Banks or all the Banks
(and each non-responding Bank shall be deemed to have concurred with such
recommended course of action), as the case may be.
ARTICLE VIII
INTENTIONALLY OMITTED
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission followed by telephonic confirmation or similar
writing) and shall be given to such party: (x) in the case of the Borrower, the
Arranger or the Administrative Agent, at its address, telex number or facsimile
number set forth on Exhibit C attached hereto with a duplicate copy thereof, in
the case of the Borrower, to the Borrower, at Equity Office Properties Trust,
Two North Riverside Plaza, Suite 2200, Chicago, Illinois 60606, Attn: Chief
Legal Counsel, and to Rosenberg & Liebentritt, P.C., Two North Riverside Plaza,
Suite 1600, Chicago, Illinois 60606, Attn: James M. Phipps, Esq., (y) in the
case of any Bank, at its address, telex number or facsimile number set forth in
its Administrative Questionnaire or (z) in the case of any party, such other
address, telex number or facsimile number as such party may hereafter specify
for the purpose by notice to the Administrative Agent and the Borrower. Each
such notice, request or other communication shall be effective (i) if given by
telex or facsimile transmission, when such telex or facsimile is transmitted to
the telex number or facsimile number specified in this Section and the
appropriate answerback or facsimile confirmation is received, (ii) if given by
certified registered mail, return receipt requested, with first class postage
prepaid, addressed as aforesaid, upon receipt or refusal to accept delivery,
(iii) if given by a nationally recognized overnight carrier, 24 hours after such
communication is deposited with such carrier with postage prepaid for next day
delivery, or (iv) if given by any other means, when delivered at the address
specified in this Section; provided that notices to the Administrative Agent
under Article II shall not be effective until received.
SECTION 9.2. No Waivers. No failure or delay by the
Administrative Agent or any Bank in exercising any right, power or privilege
hereunder or under any Note shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
<PAGE> 56
SECTION 9.3. Expenses; Indemnification.
(a) The Borrower shall pay within thirty (30) days after written
notice from the Administrative Agent (i) all reasonable out-of-pocket costs and
expenses of the Administrative Agent (including, without limitation, reasonable
fees and disbursements of special counsel Skadden, Arps, Slate, Meagher & Flom
LLP ), in connection with the preparation of this Agreement, the Loan Documents
and the documents and instruments referred to therein, and any waiver or consent
hereunder or any amendment hereof or any Default or alleged Default hereunder,
(ii) all reasonable fees and disbursements of special counsel in connection with
the syndication of the Loans, and (iii) if an Event of Default occurs, all
reasonable out-of-pocket expenses incurred by the Administrative Agent and each
Bank, including, without limitation, fees and disbursements of counsel for the
Administrative Agent and each of the Banks, in connection with the enforcement
of the Loan Documents and the instruments referred to therein and such Event of
Default and collection, bankruptcy, insolvency and other enforcement proceedings
resulting therefrom; provided, however, that the attorneys' fees and
disbursements for which Borrower is obligated under this subsection (a)(iii)
shall be limited to the reasonable non-duplicative fees and disbursements of (A)
counsel for Administrative Agent and (B) counsel for all of the Banks as a
group; and provided, further, that all other costs and expenses for which
Borrower is obligated under this subsection (a)(iii) shall be limited to the
reasonable non-duplicative costs and expenses of Administrative Agent. For
purposes of this Section 9.3(a)(iii), (1) counsel for Administrative Agent shall
mean a single outside law firm representing Administrative Agent, and (2)
counsel for all of the Banks as a group shall mean a single outside law firm
representing such Banks as a group (which law firm may or may not be the same
law firm representing Administrative Agent).
(b) The Borrower agrees to indemnify the Administrative Agent and
each Bank, their respective affiliates and the respective directors, officers,
agents and employees of the foregoing (each an "Indemnitee") and hold each
Indemnitee harmless from and against any and all liabilities, losses, damages,
costs and expenses of any kind, including, without limitation, the reasonable
fees and disbursements of counsel, which may be incurred by such Indemnitee in
connection with any investigative, administrative or judicial proceeding that
may at any time (including, without limitation, at any time following the
payment of the Obligations) be asserted against any Indemnitee, as a result of,
or arising out of, or in any way related to or by reason of, (i) any of the
transactions contemplated by the Loan Documents or the execution, delivery or
performance of any Loan Document, (ii) any violation by the Borrower or the
Environmental Affiliates of any applicable Environmental Law, (iii) any
Environmental Claim arising out of the management, use, control, ownership or
operation of property or assets by the Borrower or any of the Environmental
Affiliates, including, without limitation, all on-site and off-site activities
of Borrower or any Environmental Affiliate involving Materials of Environmental
Concern, (iv) the breach of any environmental representation or warranty set
forth herein, but excluding those liabilities, losses, damages, costs and
expenses (a) for which such Indemnitee has been compensated pursuant to the
terms of this Agreement, (b) incurred solely by reason of the gross negligence,
willful misconduct bad faith or fraud of any Indemnitee as finally determined by
a court of competent
<PAGE> 57
jurisdiction, (c) arising from violations of Environmental Laws relating to a
Property which are caused by the act or omission of such Indemnitee after such
Indemnitee takes possession of such Property or (d) owing by such Indemnitee to
any third party based upon contractual obligations of such Indemnitee owing to
such third party which are not expressly set forth in the Loan Documents. In
addition, the indemnification set forth in this Section 9.3(b) in favor of any
director, officer, agent or employee of Administrative Agent or any Bank shall
be solely in their respective capacities as such director, officer, agent or
employee. The Borrower's obligations under this Section shall survive the
termination of this Agreement and the payment of the Obligations. Without
limitation of the other provisions of this Section 9.3, Borrower shall indemnify
and hold each of the Administrative Agent and the Banks free and harmless from
and against all loss, costs (including reasonable attorneys' fees and expenses),
expenses, taxes, and damages (including consequential damages) that the
Administrative Agent and the Banks may suffer or incur by reason of the
investigation, defense and settlement of claims and in obtaining any prohibited
transaction exemption under ERISA or the Code necessary in the Administrative
Agent's reasonable judgment by reason of the inaccuracy of the representations
and warranties, or a breach of the provisions, set forth in Section 4.6(b).
SECTION 9.4. Sharing of Set-Offs. In addition to any rights now
or hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
any Event of Default, each Bank is hereby authorized at any time or from time to
time, without presentment, demand, protest or other notice of any kind to the
Borrower or to any other Person, any such notice being hereby expressly waived,
but subject to the prior consent of the Administrative Agent, to set off and to
appropriate and apply any and all deposits (general or special, time or demand,
provisional or final) and any other indebtedness at any time held or owing by
such Bank (including, without limitation, by branches and agencies of such Bank
wherever located) to or for the credit or the account of the Borrower against
and on account of the Obligations of the Borrower then due and payable to such
Bank under this Agreement or under any of the other Loan Documents, including,
without limitation, all interests in Obligations purchased by such Bank. Each
Bank agrees that if it shall by exercising any right of set-off or counterclaim
or otherwise, receive payment of a proportion of the aggregate amount of
principal and interest due with respect to any Note held by it which is greater
than the proportion received by any other Bank, the Bank receiving such
proportionately greater payment shall purchase such participations in the Notes
held by the other Banks, and such other adjustments shall be made, as may be
required so that all such payments of principal and interest with respect to the
Notes held by the Banks shall be shared by the Banks pro rata; provided that
nothing in this Section shall impair the right of any Bank to exercise any right
of set-off or counterclaim it may have to any deposits not received in
connection with the Loans and to apply the amount subject to such exercise to
the payment of indebtedness of the Borrower other than its indebtedness under
the Notes. The Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any holder of a participation in a Note, whether or
not acquired pursuant to the foregoing arrangements, may exercise rights of
set-off or counterclaim and other rights with respect to such participation as
fully as if such holder of a participation were a direct creditor of the
Borrower in the amount of such participation. Notwithstanding anything to the
contrary contained herein, any Bank may, by separate agreement with the
Bor-
<PAGE> 58
rower, waive its right to set off contained herein or granted by law and any
such written waiver shall be effective against such Bank under this Section 9.4.
SECTION 9.5. Amendments and Waivers. Any provision of this
Agreement or the Notes or other Loan Documents may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by the Borrower
and the Majority Banks (and, if the rights or duties of the Administrative Agent
in its capacity as Administrative Agent is affected thereby, by the
Administrative Agent); provided that (A) no amendment or waiver of the
provisions of Article V (including, without limitation, any of the definitions
of the defined terms used in Section 5.8 hereof) shall be effective unless
signed by the Borrower and the Required Banks and (B) no such amendment or
waiver with respect to this Agreement, the Notes or any other Loan Documents
shall, unless signed by all the Banks, (i) increase or decrease the Commitment
of any Bank (except for a ratable decrease in the Commitments of all Banks) or
subject any Bank to any additional obligation, (ii) reduce the principal of or
rate of interest on any Loan or any fees hereunder, (iii) postpone the date
fixed for any payment of principal of or interest on any Loan or any fees
hereunder or for any reduction or termination of any Commitment, (iv) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Notes, or the number of Banks, which shall be required for the Banks or any of
them to take any action under this Section or any other provision of this
Agreement, (v) release the EOPT Guaranty, (vi) modify any of the provisions of
Section 2.6, or (vii) modify the provisions of this Section 9.5.
SECTION 9.6. Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that the Borrower may not assign or otherwise transfer any of
its rights under this Agreement or the other Loan Documents without the prior
written consent of all Banks and the Administrative Agent and a Bank may not
assign or otherwise transfer any of its interest under this Agreement except as
permitted in subsection (b) and (c) of this Section 9.6.
(b) Prior to the occurrence of an Event of Default, any Bank may at
any time, with (and subject to) the consent of Borrower (which consent shall not
be unreasonably withheld or delayed) and the Administrative Agent, grant to an
existing Bank, one or more Qualified Institutions (a "Participant") in minimum
amounts of not less than $10,000,000 (or any lesser amount in the case of
participations to an existing Bank, or if a Bank shall hold less than Ten
Million Dollars ($10,000,000), then such lesser amount) participating interests
in its Commitment or any or all of its Loans. After the occurrence and during
the continuance of an Event of Default, any Bank may at any time grant to any
Person in any amount (also a "Participant"), participating interests in its
Commitment or any or all of its Loans. Any participation made during the
continuation of an Event of Default shall not be affected by the subsequent cure
of such Event of Default. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to the
Borrower and the Administrative Agent, such Bank shall remain responsible for
the performance of its obligations hereunder, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such Bank
in connection
<PAGE> 59
with such Bank's rights and obligations under this Agreement. Any agreement
pursuant to which any Bank may grant such a participating interest shall provide
that such Bank shall retain the sole right and responsibility to enforce the
obligations of the Borrower hereunder including, without limitation, the right
to approve any amendment, modification or waiver of any provision of this
Agreement; provided that such participation agreement may provide that such Bank
will not agree to any modification, amendment or waiver of this Agreement
described in clause (i), (ii), (iii), (iv) or (v) of Section 9.5 without the
consent of the Participant.
(c) Any Bank may at any time assign to a Qualified Institution (in
each case, an "Assignee") (i) prior to the occurrence of an Event of Default, in
minimum amounts of not less than Ten Million Dollars ($10,000,000) and integral
multiple of One Million Dollars ($1,000,000) thereafter (or any lesser amount in
the case of assignments to an existing Bank, or if a Bank shall hold less than
Ten Million Dollars ($10,000,000), then such lesser amount) and (ii) after the
occurrence and during the continuance of an Event of Default, in any amount, all
or a proportionate part of all, of its rights and obligations under this
Agreement, the Notes and the other Loan Documents, and, in either case, such
Assignee shall assume such rights and obligations, pursuant to a Transfer
Supplement in substantially the form of Exhibit B hereto executed by such
Assignee and such transferor Bank; provided, that if no Event of Default shall
have occurred and be continuing, such assignment shall be subject to the
Administrative Agent's and the Borrower's consent, which consent shall not be
unreasonably withheld or delayed; and provided further that if an Assignee is an
affiliate of such transferor Bank or was a Bank immediately prior to such
assignment, no such consent shall be required. Upon execution and delivery of
such instrument and payment by such Assignee to such transferor Bank of an
amount equal to the purchase price agreed between such transferor Bank and such
Assignee, such Assignee shall be a Bank party to this Agreement and shall have
all the rights and obligations of a Bank with a Commitment as set forth in such
instrument of assumption, and no further consent or action by any party shall be
required and the transferor Bank shall be released from its obligations
hereunder to a corresponding extent. Upon the consummation of any assignment
pursuant to this subsection (c), the transferor Bank, the Administrative Agent
and the Borrower shall make appropriate arrangements so that, if required, a new
Note is issued to the Assignee. In connection with any such assignment, the
transferor Bank shall pay to the Administrative Agent an administrative fee for
processing such assignment in the amount of $2,500. If the Assignee is not
incorporated under the laws of the United States of America or a state thereof,
it shall deliver to the Borrower and the Administrative Agent certification as
to exemption from deduction or withholding of any United States federal income
taxes. Any assignment made during the continuation of an Event of Default shall
not be affected by any subsequent cure of such Event of Default.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.
(e) Intentionally Omitted.
<PAGE> 60
(f) No Assignee of any rights and obligations under this Agreement
shall be permitted to further assign less than all of such rights and
obligations. No participant in any rights and obligations under this Agreement
shall be permitted to sell subparticipations of such rights and obligations.
(g) Anything in this Agreement to the contrary notwithstanding, so
long as no Event of Default shall have occurred and be continuing, no Bank shall
be permitted to enter into an assignment of, or sell a participation interest
in, its rights and obligations hereunder which would result in such Bank holding
a Commitment without participants of less than Ten Million Dollars
($10,000,000); provided, however, that no Bank shall be prohibited from
assigning its entire Commitment so long as such assignment is otherwise
permitted under this Section 9.6.
SECTION 9.7. Collateral. Each of the Banks represents to the
Administrative Agent and each of the other Banks that it in good faith is not
relying upon any "margin stock" (as defined in Regulation U) as collateral in
the extension or maintenance of the credit provided for in this Agreement.
SECTION 9.8. Governing Law; Submission to Jurisdiction . (a) THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW).
(b) Any legal action or proceeding with respect to this Agreement or
any other Loan Document and any action for enforcement of any judgment in
respect thereof may be brought in the courts of the State of New York or of the
United States of America for the Southern District of New York, and, by
execution and delivery of this Agreement, the Borrower hereby accepts for itself
and in respect of its property, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts and appellate courts from any thereof. The
Borrower irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the hand delivery, or
mailing of copies thereof by registered or certified mail, postage prepaid, to
the Borrower at its address set forth below. The Borrower hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
of any of the aforesaid actions or proceedings arising out of or in connection
with this Agreement or any other Loan Document brought in the courts referred to
above and hereby further irrevocably waives and agrees not to plead or claim in
any such court that any such action or proceeding brought in any such court has
been brought in an inconvenient forum. Nothing herein shall affect the right of
the Administrative Agent to serve process in any other manner permitted by law
or to commence legal proceedings or otherwise proceed against the Borrower in
any other jurisdiction.
SECTION 9.9. Counterparts; Integration;. Effectiveness. This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement constitutes
<PAGE> 61
the entire agreement and understanding among the parties hereto and supersedes
any and all prior agreements and understandings, oral or written, relating to
the subject matter hereof. This Agreement shall become effective upon receipt by
the Administrative Agent and the Borrower of counterparts hereof signed by each
of the parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Administrative Agent in
form satisfactory to it of telegraphic, telex or other written confirmation from
such party of execution of a counterpart hereof by such party).
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT, THE ARRANGER AND EACH BANK HEREBY IRREVOCABLY WAIVE ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.11. Survival. All indemnities set forth herein shall survive
the execution and delivery of this Agreement and the other Loan Documents and
the making and repayment of the Loans hereunder.
SECTION 9.12. Domicile of Loans. Each Bank may transfer and carry its
Loans at, to or for the account of any domestic or foreign branch office,
subsidiary or affiliate of such Bank.
SECTION 9.13. Limitation of Liability. No claim may be made by the
Borrower or any other Person acting by or through Borrower against the
Administrative Agent, the Arranger or any Bank or the affiliates, directors,
officers, employees, attorneys or agent of any of them for any punitive damages
in respect of any claim for breach of contract or any other theory of liability
arising out of or related to the transactions contemplated by this Agreement or
by the other Loan Documents, or any act, omission or event occurring in
connection therewith; and the Borrower hereby waives, releases and agrees not to
sue upon any claim for any such damages, whether or not accrued and whether or
not known or suspected to exist in its favor.
SECTION 9.14. Recourse Obligation. This Agreement and the Obligations
hereunder are fully recourse to the Borrower. Notwithstanding the foregoing, no
recourse under or upon any obligation, covenant, or agreement contained in this
Agreement shall be had against (i) any officer, director, shareholder or
employee of the Borrower or EOPT (other than pursuant to the Acorn Guaranty (as
defined in the EOPT Guaranty)) or (ii) any general partner of Borrower other
than EOPT, in each case except in the event of fraud or misappropriation of
funds on the part of such officer, director, shareholder or employee or such
general partner.
SECTION 9.15. Confidentiality. The Administrative Agent, the Arranger
and each Bank shall use reasonable efforts to assure that information about
Borrower, EOPT and its Subsidiaries and Investments Affiliates, and the
Properties thereof and their operations, affairs and financial condition, not
generally disclosed to the public, which is furnished to Administrative Agent,
the Arranger or any Bank pursuant to the provisions hereof or any other Loan
Document
<PAGE> 62
is used only for the purposes of this Agreement and shall not be divulged to any
Person other than the Administrative Agent, the Arranger, the Banks, and their
affiliates and respective officers, directors, employees and agents who are
actively and directly participating in the evaluation, administration or
enforcement of the Loan and other transactions between such Bank and the
Borrower, except: (a) to their attorneys and accountants, (b) in connection with
the enforcement of the rights and exercise of any remedies of the Administrative
Agent, the Arranger and the Banks hereunder and under the other Loan Documents,
(c) in connection with assignments and participations and the solicitation of
prospective assignees and participants referred to in Section 9.6 hereof, who
have agreed in writing to be bound by a confidentiality agreement substantially
equivalent to the terms of this Section 9.15, and (d) as may otherwise be
required or requested by any regulatory authority having jurisdiction over the
Administrative Agent, the Arranger or any Bank or by any applicable law, rule,
regulation or judicial process.
SECTION 9.16. Bank's Failure to Fund.
(a) If a Bank does not advance to Administrative Agent such Bank's Pro
Rata Share of a Loan in accordance herewith, then neither Administrative Agent
nor the other Banks shall be required or obligated to fund such Bank's Pro Rata
Share of such Loan.
(b) As used herein, the following terms shall have the meanings set forth
below:
(i) "Defaulting Bank" shall mean any Bank which (x) does not advance to
the Administrative Agent such Bank's Pro Rata Share of a Loan in accordance
herewith for a period of five (5) Business Days after notice of such failure
from Administrative Agent, (y) shall otherwise fail to perform such Bank's
obligations under the Loan Documents for a period of five (5) Business Days
after notice of such failure from Administrative Agent, or (z) shall fail to pay
the Administrative Agent or any other Bank, as the case may be, upon demand,
such Bank's Pro Rata Share of any costs, expenses or disbursements incurred or
made by the Administrative Agent pursuant to the terms of the Loan Documents for
a period of five (5) Business Days after notice of such failure from
Administrative Agent, and in all cases, such failure is not as a result of a
good faith dispute as to whether such advance is properly required to be made
pursuant to the provisions of this Agreement, or as to whether such other
performance or payment is properly required pursuant to the provisions of this
Agreement.
(ii) "Junior Creditor" means any Defaulting Bank which has not (x) fully
cured each and every default on its part under the Loan Documents and (y)
unconditionally tendered to the Administrative Agent such Defaulting Bank's Pro
Rata Share of all costs, expenses and disbursements required to be paid or
reimbursed pursuant to the terms of the Loan Documents.
(iii) "Payment in Full" means, as of any date, the receipt by the Banks who
are not Junior Creditors of an amount of cash, in lawful currency of the United
States, sufficient to indefeasibly pay in full all Senior Debt.
<PAGE> 63
(iv) "Senior Debt" means (x) collectively, any and all indebtedness,
obligations and liabilities of the Borrower to the Banks who are not Junior
Creditors from time to time, whether fixed or contingent, direct or indirect,
joint or several, due or not due, liquidated or unliquidated, determined or
undetermined, arising by contract, operation of law or otherwise, whether on
open account or evidenced by one or more instruments, and whether for principal,
premium, interest (including, without limitation, interest accruing after the
filing of a petition initiating any proceeding referred to in Section 6.1(f) or
(g)), reimbursement for fees, indemnities, costs, expenses or otherwise, which
arise under, in connection with or in respect of the Loans or the Loan
Documents, and (y) any and all deferrals, renewals, extensions and refundings
of, or amendments, restatements, rearrangements, modifications or supplements
to, any such indebtedness, obligation or liability.
(v) "Subordinated Debt" means (x) any and all indebtedness,
obligations and liabilities of Borrower to one or more Junior Creditors from
time to time, whether fixed or contingent, direct or indirect, joint or several,
due or not due, liquidated or unliquidated, determined or undetermined, arising
by contract, operation of law or otherwise, whether on open account or evidenced
by one or more instruments, and whether for principal, premium, interest
(including, without limitation, interest accruing after the filing of a petition
initiating any proceeding referred to in Section 6.1(f) or (g)), reimbursement
for fees, indemnities, costs, expenses or otherwise, which arise under, in
connection with or in respect of the Loans or the Loan Documents, and (y) any
and all deferrals, renewals, extensions and refundings of, or amendments,
restatements, rearrangements, modifications or supplements to, any such
indebtedness, obligation or liability.
(c) Immediately upon a Bank's becoming a Junior Creditor and until
such time as such Bank shall have cured all applicable defaults, no Junior
Creditor shall, prior to Payment in Full of all Senior Debt:
(i) accelerate, demand payment of, sue upon, collect, or receive any
payment upon, in any manner, or satisfy or otherwise discharge, any Subordinated
Debt, whether for principal, interest and otherwise;
(ii) take or enforce any Liens to secure Subordinated Debt or attach
or levy upon any assets of Borrower, to enforce any Subordinated Debt;
(iii) enforce or apply any security for any Subordinated Debt; or
(iv) incur any debt or liability, or the like, to, or receive any
loan, return of capital, advance, gift or any other property, from, the
Borrower.
(d) In the event of:
(i) any insolvency, bankruptcy, receivership, liquidation,
dissolution, reorganization, readjustment, composition or other similar
proceeding relating to Borrower;
<PAGE> 64
(ii) any liquidation, dissolution or other winding-up of the Borrower,
voluntary or involuntary, whether or not involving insolvency, reorganization or
bankruptcy proceedings;
(iii) any assignment by the Borrower for the benefit of creditors;
(iv) any sale or other transfer of all or substantially all assets of
the Borrower;
or
(v) any other marshaling of the assets of the Borrower;
each of the Banks shall first have received Payment in Full of
all Senior Debt before any payment or distribution, whether in cash, securities
or other property, shall be made in respect of or upon any Subordinated Debt.
Any payment or distribution, whether in cash, securities or other property that
would otherwise be payable or deliverable in respect of Subordinated Debt to any
Junior Creditor but for this Agreement shall be paid or delivered directly to
the Administrative Agent for distribution to the Banks in accordance with this
Agreement until Payment in Full of all Senior Debt. If any Junior Creditor
receives any such payment or distribution, it shall promptly pay over or deliver
the same to the Administrative Agent for application in accordance with the
preceding sentence.
(e) Each Junior Creditor shall file in any bankruptcy or other
proceeding of Borrower in which the filing of claims is required by law, all
claims relating to Subordinated Debt that such Junior Creditor may have against
Borrower and assign to the Banks who are not Junior Creditors all rights of such
Junior Creditor thereunder. If such Junior Creditor does not file any such claim
prior to forty-five (45) days before the expiration of the time to file such
claim, Administrative Agent, as attorney-in-fact for such Junior Creditor, is
hereby irrevocably authorized to do so in the name of such Junior Creditor or,
in Administrative Agent's sole discretion, to assign the claim to a nominee and
to cause proof of claim to be filed in the name of such nominee. The foregoing
power of attorney is coupled with an interest and cannot be revoked. The
Administrative Agent shall, to the exclusion of each Junior Creditor, have the
sole right, subject to Section 9.5 hereof, to accept or reject any plan proposed
in any such proceeding and to take any other action that a party filing a claim
is entitled to take. In all such cases, whether in administration, bankruptcy or
otherwise, the Person or Persons authorized to pay such claim shall pay to
Administrative Agent the amount payable on such claim and, to the full extent
necessary for that purpose, each Junior Creditor hereby transfers and assigns to
the Administrative Agent all of the Junior Creditor's rights to any such
payments or distributions to which Junior Creditor would otherwise be entitled.
(f)(i) If any payment or distribution of any character or any security,
whether in cash, securities or other property, shall be received by any Junior
Creditor in contravention of any of the terms hereof, such payment or
distribution or security shall be received in trust for the benefit of, and
shall promptly be paid over or delivered and transferred to, Administrative
Agent for ap-
<PAGE> 65
plication to the payment of all Senior Debt, to the extent necessary
to achieve Payment in Full. In the event of the failure of any Junior Creditor
to endorse or assign any such payment, distribution or security, Administrative
Agent is hereby irrevocably authorized to endorse or assign the same as
attorney-in-fact for such Junior Creditor.
(ii) Each Junior Creditor shall take such action (including, without
limitation, the execution and filing of a financing statement with respect to
this Agreement and the execution, verification, delivery and filing of proofs of
claim, consents, assignments or other instructions that Administrative Agent may
require from time to time in order to prove or realize upon any rights or claims
pertaining to Subordinated Debt or to effectuate the full benefit of the
subordination contained herein) as may, in Administrative Agent's sole and
absolute discretion, be necessary or desirable to assure the effectiveness of
the subordination effected by this Agreement.
(g)(i) Each Bank that becomes a Junior Creditor understands and
acknowledges by its execution hereof that each other Bank is entering into this
Agreement and the Loan Documents in reliance upon the absolute subordination in
right of payment and in time of payment of Subordinated Debt to Senior Debt as
set forth herein.
(ii) Only upon the Payment in Full of all Senior Debt shall any Junior
Creditor be subrogated to any remaining rights of the Banks which are not
Defaulting Banks to receive payments or distributions of assets of the Borrower
made on or applicable to any Senior Debt.
(iii) Each Junior Creditor agrees that it will deliver all instruments
or other writings evidencing any Subordinated Debt held by it to Administrative
Agent, promptly after request therefor by the Administrative Agent.
(iv) No Junior Creditor may at any time sell, assign or otherwise
transfer any Subordinated Debt, or any portion thereof, including, without
limitation, the granting of any Lien thereon, unless and until satisfaction of
the requirements of Section 9.6 above and the proposed transferee shall have
assumed in writing the obligation of the Junior Creditor to the Banks under this
Agreement, in a form acceptable to the Administrative Agent.
(v) If any of the Senior Debt, should be invalidated, avoided or set
aside, the subordination provided for herein nevertheless shall continue in full
force and effect and, as between the Banks which are not Defaulting Banks and
all Junior Creditors, shall be and be deemed to remain in full force and effect.
(vi) Each Junior Creditor hereby irrevocably waives, in respect of
Subordinated Debt, all rights (x) under Sections 361 through 365, 502(e) and 509
of the Bankruptcy Code (or any similar sections hereafter in effect under any
other Federal or state laws or legal or equitable principles relating to
bankruptcy, insolvency, reorganizations, liquidations or otherwise for the
relief of debtors or protection of creditors), and (y) to seek or obtain
conversion to a different type of proceeding or to seek or obtain dismissal of a
proceeding, in each case in relation
<PAGE> 66
to a bankruptcy, reorganization, insolvency or other proceeding under similar
laws with respect to the Borrower. Without limiting the generality of the
foregoing, each Junior Creditor hereby specifically waives (A) the right to seek
to give credit (secured or otherwise) to the Borrower in any way under Section
364 of the Bankruptcy Code unless the same is subordinated in all respects to
Senior Debt in a manner acceptable to Administrative Agent in its sole and
absolute discretion and (B) the right to receive any collateral security
(including, without limitation, any "super priority" or equal or "priming" or
replacement Lien) for any Subordinated Debt unless the Banks which are not
Defaulting Banks have received a senior position acceptable to the Banks in
their sole and absolute discretion to secure all Senior Debt (in the same
collateral to the extent collateral is involved).
(h)(i) In addition to and not in limitation of the subordination
effected by this Section 9.16, the Administrative Agent and each of the Banks
which are not Defaulting Banks may in their respective sole and absolute
discretion, also exercise any and all other rights and remedies available at law
or in equity in respect of a Defaulting Bank; and
(ii) The Administrative Agent shall give each of the Banks notice of
the occurrence of a default under this Section 9.16 by a Defaulting Bank and if
the Administrative Agent and/or one or more of the other Banks shall, at their
option, fund any amounts required to be paid or advanced by a Defaulting Bank,
the other Banks who have elected not to fund any portion of such amounts shall
not be liable for any reimbursements to the Administrative Agent and/or to such
other funding Banks.
(i) Notwithstanding anything to the contrary contained or implied
herein, a Defaulting Bank shall not be entitled to vote on any matter as to
which a vote by the Banks is required hereunder, including, without limitation,
any actions or consents on the part of the Administrative Agent as to which the
approval or consent of all the Banks or the Required Banks or Majority Banks is
required under Section 9.5 or elsewhere, so long as such Bank is a Defaulting
Bank; provided, however, that in the case of any vote requiring the unanimous
consent of the Banks, if all the Banks other than the Defaulting Bank shall have
voted in accordance with each other, then the Defaulting Bank shall be deemed to
have voted in accordance with such Banks.
(j) Each of the Administrative Agent and any one or more of the Banks
which are not Defaulting Banks may, at their respective option, (i) advance to
the Borrower such Bank's Pro Rata Share of the Loans not advanced by a
Defaulting Bank in accordance with the Loan Documents, or (ii) pay to the
Administrative Agent such Bank's Pro Rata Share of any costs, expenses or
disbursements incurred or made by the Administrative Agent pursuant to the terms
of this Agreement not theretofore paid by a Defaulting Bank. Immediately upon
the making of any such advance by the Administrative Agent or any one of the
Banks, such Bank's Pro Rata Share and the Pro Rata Share of the Defaulting Bank
shall be recalculated to reflect such advance. All payments, repayments and
other disbursements of funds by the Administrative Agent to Banks shall
thereupon and, at all times thereafter be made in accordance with such Bank's
recalculated Pro Rata Share unless and until a Defaulting Bank shall fully cure
all defaults on the part of such Defaulting Bank under the Loan Documents or
otherwise existing in respect of the Loans or this
<PAGE> 67
Agreement, at which time the Pro Rata Share of the Bank(s) which advanced sums
on behalf of the Defaulting Bank and of the Defaulting Bank shall be restored to
their original percentages.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 68
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
EOP OPERATING LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Equity Office Properties Trust, a Maryland real es-
tate investment trust, its managing general partner
By:
------------------------------------------------
Name: Stanley M. Stevens
Title: Executive Vice President and Chief Legal
Officer
Facsimile number: (312) 559-5009
Address: Two North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Attn: Chief Financial Officer
S-1
<PAGE> 69
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as Administrative Agent
By:
----------------------------------
Name: Richard Dugoff
Title: Vice President
J.P. MORGAN SECURITIES, INC., as Arranger
By:
----------------------------------
Name:
Title:
Commitments:
$165,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By:
Name:
Title:
S-2
<PAGE> 70
$40,000,000 THE TRAVELERS ESCROWED MONEY
MARKET FUND
By:
Name:
Title:
S-3
<PAGE> 71
$20,000,000 THE TRAVELERS INSURANCE COMPANY
By:
Name:
Title:
S-4
<PAGE> 72
$15,000,000 BT PYRAMID INTERMEDIATE AND LONG TERM
BOND FUND
By:
Name:
Title:
S-5
<PAGE> 73
$25,000,000 STRONG ADVANTAGE FUND, INC.
By:
Name:
Title:
S-6
<PAGE> 74
$10,000,000 COMBINED INSURANCE COMPANY OF AMERICA
By: AON Advisors, Inc.
By:
Name:
Title:
S-7
<PAGE> 75
$10,000,000 PACIFIC LIFE INSURANCE COMPANY
By:
Name:
Title:
By:
Name:
Title:
S-8
<PAGE> 76
$8,000,000 KEMPER INVESTOR LIFE INSURANCE COMPANY
By:
Name:
Title
S-9
<PAGE> 77
$5,000,000 FEDERAL KEMPER LIFE ASSURANCE COMPANY
By:
Name:
Title
S-10
<PAGE> 78
$5,000,000 GENERAL AMERICAN LIFE COMPANY
By:
Name:
Title:
S-11
<PAGE> 79
$5,000,000 RGA REINSURANCE COMPANY
By:
Name:
Title:
S-12
<PAGE> 80
$20,000,000 SENECA CAPITAL MANAGEMENT, as Nominee
By:
Name:
Title:
S-13
<PAGE> 81
Schedule 1.1
Initial Qualifying Unencumbered Properties
<PAGE> 82
SCHEDULE 4.4 (b)
Disclosure of
Additional Material Indebtedness
<PAGE> 83
SCHEDULE 4.6
Borrower and EOPT ERISA Plans
The employees of EOPT and the Borrower (other than union employees) may
currently participate in a 401(k) Plan.
Other benefits for non-union employees include:
Health care plan, dental care, vision care, life
insurance and accidental death and dismemberment
plan, travel/accident insurance, short-term
disability, long-term disability, sick time,
vacation time, personal days, holidays and
direct paycheck deposit.
Union employee benefits include:
Sick time, vacation time, personal days,
holidays, direct paycheck deposit, monthly
employer contributions into the health and
welfare trust and pension fund (which health and
welfare trusts and pension funds are generally
Plans, Multiemployer Plans or Benefit
Arrangements).
<PAGE> 84
SCHEDULE 5.11(c)(1)
EOP-QRS Trust
EOP-QRS LaJolla Trust
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership II
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership III
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership IV
<PAGE> 85
SCHEDULE 5.11(c)(2)
EOP-QRS Trust
EOP-QRS LaJolla Trust
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership II
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership III
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership IV
<PAGE> 1
EXHIBIT 4.21
TERM LOAN AGREEMENT
for $200,000,000 Term Credit Facility
dated as of September 22, 1998
among
EOP OPERATING LIMITED PARTNERSHIP,
THE FINANCIAL INSTITUTIONS LISTED HEREIN,
THE CHASE MANHATTAN BANK,
as Administrative Agent,
AND
CHASE SECURITIES INC.,
as Arranger and Book Manager
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS 1
SECTION 1.1. Definitions 1
SECTION 1.2. Accounting Terms and Determinations 25
SECTION 1.3. Types of Borrowings 25
ARTICLE II
THE CREDITS 26
SECTION 2.1. Commitments to Lend 26
SECTION 2.2. Notice of Borrowing 26
SECTION 2.3. Money Market Borrowings 26
(a)The Money Market Option 26
(b)Money Market Quote Request 27
(c)Invitation for Money Market Quotes 27
(d)Submission and Contents of Money Market
Quotes 28
(e)Notice to Borrower 29
(f)Acceptance and Notice by Borrower 29
(g)Allocation by Agent 30
SECTION 2.4. Notice to Banks; Funding of Loans 30
SECTION 2.5. Notes 31
SECTION 2.6. Method of Electing Interest Rates.
i
<PAGE> 3
SECTION 2.7. Interest Rates 33
SECTION 2.8. Interest Rate Reset Date 34
SECTION 2.9. Maturity Date 36
SECTION 2.10. Optional Prepayments 36
SECTION 2.11. General Provisions as to Payments 37
SECTION 2.12. Funding Losses 37
SECTION 2.13. Computation of Interest and Fees 38
SECTION 2.14. Use of Proceeds 38
ARTICLE III
CONDITIONS 38
SECTION 3.1. Closing 38
SECTION 3.2. Borrowings 40
ARTICLE IV
REPRESENTATIONS AND WARRANTIES 41
SECTION 4.1. Existence and Power 41
SECTION 4.2. Power and Authority 41
SECTION 4.3. No Violation 41
SECTION 4.4. Financial Information 42
SECTION 4.5. Litigation 43
SECTION 4.6. Compliance with ERISA 43
SECTION 4.7. Environmental 43
SECTION 4.8. Taxes 44
SECTION 4.9. Full Disclosure 44
SECTION 4.10. Solvency 44
SECTION 4.11. Use of Proceeds 44
SECTION 4.12. Governmental Approvals 44
SECTION 4.13. Investment Company Act; Public Utility Holding
Company Act 45
SECTION 4.14. Principal Offices 45
SECTION 4.15. REIT Status 45
SECTION 4.16. Patents, Trademarks, etc. 45
SECTION 4.17. Judgments 45
SECTION 4.18. No Default 45
SECTION 4.19. Licenses, etc. 45
SECTION 4.20. Compliance With Law 45
SECTION 4.21. No Burdensome Restrictions 46
SECTION 4.22. Brokers' Fees 46
SECTION 4.23. Labor Matters 46
ii
<PAGE> 4
SECTION 4.24. Insurance 46
SECTION 4.25. Organizational Documents 46
SECTION 4.26. Qualifying Unencumbered Properties 47
SECTION 4.27. "Year 2000" Compliance. 47
ARTICLE V
AFFIRMATIVE AND NEGATIVE COVENANTS 47
SECTION 5.1. Information 47
SECTION 5.2. Payment of Obligations 50
SECTION 5.3. Maintenance of Property; Insurance; Leases 50
SECTION 5.4. Maintenance of Existence 50
SECTION 5.5. Compliance with Laws 51
SECTION 5.6. Inspection of Property, Books and Records 51
SECTION 5.7. Existence 51
SECTION 5.8. Financial Covenants 51
SECTION 5.9. Restriction on Fundamental Changes 53
SECTION 5.10. Changes in Business 53
SECTION 5.11. EOPT Status 54
SECTION 5.12. Other Indebtedness 55
SECTION 5.13. Forward Equity Contracts. 55
ARTICLE VI
DEFAULTS 56
SECTION 6.1. Events of Default 56
SECTION 6.2. Rights and Remedies 58
SECTION 6.3. Notice of Default 59
SECTION 6.4. Distribution of Proceeds after Default 59
ARTICLE VII
THE ADMINISTRATIVE AGENT 60
SECTION 7.1. Appointment and Authorization 60
SECTION 7.2. Agency and Affiliates 60
SECTION 7.3. Action by Administrative Agent 60
SECTION 7.4. Consultation with Experts 60
iii
<PAGE> 5
SECTION 7.5. Liability of Administrative Agent 60
SECTION 7.6. Indemnification 61
SECTION 7.7. Credit Decision 61
SECTION 7.8. Successor Administrative Agent 61
SECTION 7.9. Consents and Approvals 62
ARTICLE VIII
CHANGE IN CIRCUMSTANCES 63
SECTION 8.1. Basis for Determining Interest Rate Inadequate
or Unfair 63
SECTION 8.2. Illegality 63
SECTION 8.3. Increased Cost and Reduced Return 64
SECTION 8.4. Taxes 65
SECTION 8.5. Base Rate Loans Substituted for Affected
Euro-Dollar Loans 67
ARTICLE IX
MISCELLANEOUS 68
SECTION 9.1. Notices 68
SECTION 9.2. No Waivers 68
SECTION 9.3. Expenses; Indemnification 69
SECTION 9.4. Sharing of Set-Offs 70
SECTION 9.5. Amendments and Waivers 71
SECTION 9.6. Successors and Assigns 71
SECTION 9.7. Collateral 74
SECTION 9.8. Governing Law; Submission to Jurisdiction 74
SECTION 9.9. Counterparts; Integration;. Effectiveness 75
SECTION 9.10. WAIVER OF JURY TRIAL 75
SECTION 9.11. Survival 75
SECTION 9.12. Domicile of Loans 75
SECTION 9.13. Limitation of Liability 75
SECTION 9.14. Recourse Obligation 75
SECTION 9.15. Confidentiality 75
SECTION 9.16. Bank's Failure to Fund 76
SECTION 9.17. Banks' ERISA Covenant 81
SECTION 9.17. Bank's ERISA Covenant 81
SECTION 9.18. No Bankruptcy Proceedings 81
iv
<PAGE> 6
SCHEDULE 1.1 Initial Qualifying Unencumbered Properties
SCHEDULE 4.4 (b) Disclosure of Additional Material Indebtedness
SCHEDULE 4.6 Borrower and EOPT ERISA Plans
SCHEDULE 5.11(c)(1)
SCHEDULE 5.11(c)(2)
vi
<PAGE> 7
TERM LOAN AGREEMENT
THIS TERM LOAN AGREEMENT (this "Agreement") dated as of September 22, 1998
is made among EOP OPERATING LIMITED PARTNERSHIP (the "Borrower"), the FINANCIAL
INSTITUTIONS listed on the signature pages hereof, THE CHASE MANHATTAN BANK, as
Administrative Agent, and CHASE SECURITIES INC., as Arranger and Book Manager.
For good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have the
following meanings:
"Absolute Rate Auction" means a solicitation of Money Market Quotes setting
forth Money Market Absolute Rates pursuant to Section 2.4.
"Administrative Agent" shall mean The Chase Manhattan Bank in its capacity
as Administrative Agent hereunder, and its permitted successors in such capacity
in accordance with the terms of this Agreement.
"Administrative Questionnaire" means with respect to each Bank, an
administrative questionnaire in the form prepared by the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Borrower) duly
completed by such Bank.
"Agreement" shall mean this Term Loan Agreement as the same may from time
to time hereafter be modified, supplemented or amended.
"Applicable Interest Rate" means (i) with respect to any Fixed Rate
Indebtedness, the fixed interest rate applicable to such Fixed Rate Indebtedness
at the time in question, and (ii) with respect to any Floating Rate
Indebtedness, either (x) the rate at which the interest rate applicable to such
Floating Rate Indebtedness is actually capped (or fixed pursuant to an interest
rate hedging device), at the time of calculation, if Borrower has entered into
an interest rate cap agreement or other interest rate hedging device with
respect thereto or (y) if Borrower has not entered into an interest rate cap
agreement or other interest rate hedging device with respect to such Floating
Rate Indebtedness, the greater of (A) the rate at which the interest rate
applicable to such Floating Rate Indebtedness could be fixed for the remaining
term of such Floating Rate Indebtedness, at the time of calculation, by
Borrower's entering into any unsecured interest rate
1
<PAGE> 8
hedging device either not requiring an upfront payment or if requiring an
upfront payment, such upfront payment shall be amortized over the term of such
device and included in the calculation of the interest rate (or, if such rate is
incapable of being fixed by entering into an unsecured interest rate hedging
device at the time of calculation, a fixed rate equivalent reasonably determined
by Administrative Agent) or (B) the floating rate applicable to such Floating
Rate Indebtedness at the time in question.
"Applicable Lending Office" means with respect to any Bank, (i) in the case
of its Base Rate Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office, and (iii) in the case of its
Money Market Loans, its Money Market Lending Office.
"Applicable Margin" means, with respect to each Committed Loan: (i) the
respective percentages per annum determined, at any time, based on the range
into which Borrower's Credit Rating then falls, in accordance with the table set
forth below. Any change in Borrower's Credit Rating causing it to move to a
different range on the table shall effect an immediate change in the Applicable
Margin. In the event that Borrower receives only two (2) Credit Ratings, and
such Credit Ratings are not equivalent, the Applicable Margin shall be
determined by the lower of such two (2) Credit Ratings. In the event that
Borrower receives more than two (2) Credit Ratings, and such Credit Ratings are
not all equivalent, the Applicable Margin shall be determined by the higher of
the ratings from S&P and Moody's, provided that the rating from one of the other
Rating Agencies shall be at least equivalent to such higher rating; provided,
further, that if the rating from one of the other Rating Agencies is not at
least equivalent to the higher of the ratings from S&P and Moody's, then the
Applicable Margin shall be determined by the second (2nd) highest Credit Rating.
In the event that only one of the Rating Agencies shall have set Borrower's
Credit Rating, then the Applicable Margin shall be based on such rating only.
<PAGE> 9
<TABLE>
<CAPTION>
Range of Applicable
Borrower's Margin for Applicable
Credit Rating Base Rate Margin for Euro
(S&P/Moody's Loans Dollar Loans
Ratings) (% per annum) (% per annum)
- --------------- ------------- ---------------
<S> <C> <C>
Non-Invest-
ment Grade 0.0 1.075
BBB-/Baa3 0.0 0.70
BBB/Baa2 0.0 0.60
BBB+/Baa1 0.0 0.50
A-/A3 or better 0.0 0.45
</TABLE>
and (ii) from and after the first day following the First Rate Reset Date, the
Revised Applicable Margin, and (iii) from and after the first day following the
Second Rate Reset Date, the Second Revised Applicable Margin.
"Arranger" means Chase Securities Inc., in its capacity as syndication
agent hereunder and its permitted successors in such capacity in accordance with
the terms of this Agreement.
"Assignee" has the meaning set forth in Section 9.6(c).
"Balance Sheet Indebtedness" means with respect to any Person and assuming
such Person is required to prepare financial statements in accordance with GAAP,
without duplication, the Indebtedness of such Person which would be required to
be included on the liabilities side of the balance sheet of such Person in
accordance with GAAP. Notwithstanding the foregoing, Balance Sheet Indebtedness
shall include current liabilities and all guarantees of Indebtedness of any
Person.
"Balloon Payments" shall mean with respect to any loan constituting Balance
Sheet Indebtedness, any required principal payment of such loan which is either
(i) payable at the maturity of such Indebtedness or (ii) in an amount which
exceeds fifteen percent (15%) of the original principal amount of such loan;
provided, however, that the final payment of a fully amortizing loan shall not
constitute a Balloon Payment.
"Bank" means each entity listed on the signature pages hereof (other than
Borrower, the Administrative Agent and the Arranger), each of which is either a
"Qualified Institutional Buyer" (as defined in Rule 144A under the Securities
Act) or an institutional "Accredited
<PAGE> 10
Investor" (as defined in Rule 501(a)(1), (2), (3), or (7) of the Securities Act
of 1933, as amended), and each Assignee which becomes a Bank pursuant to Section
9.6(c), and their respective successors.
"Bankruptcy Code" shall mean Title 11 of the United States Code, entitled
"Bankruptcy", as amended from time to time, and any successor statute or
statutes.
"Base Rate" means, for any day, a rate per annum equal to the higher of (i)
the Prime Rate for such day, and (ii) the sum of 0.5% plus the Federal Funds
Rate for such day. Each change in the Base Rate shall become effective
automatically as of the opening of business on the date of such change in the
Base Rate, without prior written notice to Borrower or Banks.
"Base Rate Loan" means a Committed Loan to be made by a Bank as a Base Rate
Loan in accordance with the provisions of this Agreement.
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by any member of the ERISA
Group.
"Borrower" means EOP Operating Limited Partnership, a Delaware limited
partnership.
"Borrower's Share" means Borrower's and EOPT's direct or indirect share of
an Investment Affiliate based upon Borrower's and EOPT's percentage ownership
(whether direct or indirect) of such Investment Affiliate.
"Borrowing" has the meaning set forth in Section 1.3.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized by law to close.
"Capital Leases" as applied to any Person, means any lease of any property
(whether real, personal or mixed) by that Person as lessee which, in conformity
with GAAP, is or should be accounted for as a capital lease on the balance sheet
of that Person.
"Cash or Cash Equivalents" shall mean (a) cash; (b) marketable direct
obligations issued or unconditionally guaranteed by the United States Government
or issued by an agency thereof and backed by the full faith and credit of the
United States, in each case maturing within one (1) year after the date of
acquisition thereof; (c) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within ninety (90) days after the
date of acquisition thereof and, at the time of acquisition, having one of the
two highest ratings obtainable from any two of S & P, Moody's, Duff or Fitch
(or, if at any time no two of the foregoing shall be rating such obligations,
then from such other nationally recognized rating services acceptable to
Administrative
<PAGE> 11
Agent ); (d) domestic corporate bonds, other than domestic corporate bonds
issued by Borrower or any of its Affiliates, maturing no more than two (2) years
after the date of acquisition thereof and, at the time of acquisition, having a
rating of at least A or the equivalent from any two (2) of S & P, Moody's, Duff
or Fitch (or, if at any time no two of the foregoing shall be rating such
obligations, then from such other nationally recognized rating services
acceptable to Administrative Agent); (e) variable-rate domestic corporate notes
or medium term corporate notes, other than notes issued by Borrower or any of
its Affiliates, maturing or resetting no more than one (1) year after the date
of acquisition thereof and having a rating of at least AA or the equivalent from
two of S & P, Moody's, Duff or Fitch (or, if at any time no two of the foregoing
shall be rating such obligations, then from such other nationally recognized
rating services acceptable to Administrative Agent); (f) commercial paper
(foreign and domestic) or master notes, other than commercial paper or master
notes issued by Borrower or any of its Affiliates, and, at the time of
acquisition, having a long-term rating of at least A or the equivalent from S &
P, Moody's, Duff or Fitch and having a short-term rating of at least A-1 and P-1
from S & P and Moody's, respectively (or, if at any time neither S & P nor
Moody's shall be rating such obligations, then the highest rating from such
other nationally recognized rating services acceptable to Administrative Agent);
(g) domestic and Eurodollar certificates of deposit or domestic time deposits or
Eurodollar deposits or bankers' acceptances (foreign or domestic) that are
issued by a bank (I) which has, at the time of acquisition, a long-term rating
of at least A or the equivalent from S & P, Moody's, Duff or Fitch and (II) if a
domestic bank, which is a member of the Federal Deposit Insurance Corporation;
and (h) overnight securities repurchase agreements, or reverse repurchase
agreements secured by any of the foregoing types of securities or debt
instruments, provided that the collateral supporting such repurchase agreements
shall have a value not less than 101% of the principal amount of the repurchase
agreement plus accrued interest.
"Cash Flow" means, for any period, EBITDA for such period, as adjusted for
a normalized recurring level of capital expenditures by Borrower for such
period, which adjustment shall be at the rate of One Dollar and Fifty Cents
($1.50) per square foot per annum of office space leased as of the applicable
date of determination for (i) all Office Properties of Borrower and Consolidated
Subsidiaries, and (ii) Borrower's Share of each Office Property of an Investment
Affiliate (provided that, as to any Office Property acquired during such period
such $1.50 per square foot adjustment shall be pro-rated for the period of
ownership).
"Closing Date" means the date on or after the Effective Date on which the
conditions set forth in Section 3.1 shall have been satisfied to the
satisfaction of the Administrative Agent.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and as it
may be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form.
"Committed Borrowing" has the meaning set forth in Section 1.3.
<PAGE> 12
"Committed Loan" means a loan made by a Bank pursuant to Section 2.1;
provided that, if any such loan or loans (or portions thereof) are combined or
subdivided pursuant to a Notice of Interest Rate Election, the term "Committed
Loan" shall refer to the combined principal amount resulting from such
combination or to each of the separate principal amounts resulting from such
subdivision, as the case may be.
"Commitment" means with respect to each Bank, the amount set forth under
the name of such Bank on the signature pages hereof (and, for each Bank which is
an Assignee, the amount set forth in the Transfer Supplement entered into
pursuant to Section 9.6(c) as the Assignee's Commitment), as such amount may be
reduced from time to time pursuant to Section 2.8 or in connection with an
assignment to an Assignee.
"Consolidated Subsidiary" means at any date any Subsidiary or other entity
which is consolidated with Borrower or EOPT in accordance with GAAP.
"Consolidated Tangible Net Worth" means, at any time, the tangible net
worth of Borrower, on a consolidated basis, determined in accordance with GAAP,
plus all accumulated depreciation and amortization of Borrower plus Borrower's
Share of accumulated depreciation and amortization of Investment Affiliates,
deducted, in either case, from earnings in calculating Net Income.
"Contingent Obligation" as to any Person means, without duplication, (i)
any contingent obligation of such Person required to be shown on such Person's
balance sheet in accordance with GAAP, and (ii) any obligation required to be
disclosed in the footnotes to such Person's financial statements, guaranteeing
partially or in whole any Non-Recourse Indebtedness, lease, dividend or other
obligation, exclusive of contractual indemnities (including, without limitation,
any indemnity or price-adjustment provision relating to the purchase or sale of
securities or other assets) and guarantees of non-monetary obligations (other
than guarantees of completion) which have not yet been called on or quantified,
of such Person or of any other Person. The amount of any Contingent Obligation
described in clause (ii) shall be deemed to be (a) with respect to a guaranty of
interest or interest and principal, or operating income guaranty, the Net
Present Value of the sum of all payments required to be made thereunder (which
in the case of an operating income guaranty shall be deemed to be equal to the
debt service for the note secured thereby), calculated at the Applicable
Interest Rate, through (i) in the case of an interest or interest and principal
guaranty, the stated date of maturity of the obligation (and commencing on the
date interest could first be payable thereunder), or (ii) in the case of an
operating income guaranty, the date through which such guaranty will remain in
effect, and (b) with respect to all guarantees not covered by the preceding
clause (a), an amount equal to the stated or determinable amount of the primary
obligation in respect of which such guaranty is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as recorded on the
balance sheet and on the footnotes to the most recent financial statements of
Borrower required to be delivered pursuant to Section 5.1 hereof.
Notwithstanding anything contained herein to the contrary, guarantees of
completion shall not be deemed to be Contingent Obligations unless and until a
claim for payment or per-
<PAGE> 13
formance has been made thereunder, at which time any such guaranty of completion
shall be deemed to be a Contingent Obligation in an amount equal to any such
claim. Subject to the preceding sentence, (i) in the case of a joint and
several guaranty given by such Person and another Person (but only to the extent
such guaranty is recourse, directly or indirectly to Borrower), the amount of
the guaranty shall be deemed to be 100% thereof unless and only to the extent
that such other Person has delivered Cash or Cash Equivalents to secure all or
any part of such Person's guaranteed obligations and (ii) in the case of a
guaranty (whether or not joint and several) of an obligation otherwise
constituting Indebtedness of such Person, the amount of such guaranty shall be
deemed to be only that amount in excess of the amount of the obligation
constituting Indebtedness of such Person. Notwithstanding anything contained
herein to the contrary, "Contingent Obligations" shall be deemed not to include
guarantees of Unused Commitments or of construction loans to the extent the same
have not been drawn. All matters constituting "Contingent Obligations" shall be
calculated without duplication.
"Convertible Securities" means evidences of shares of stock, limited or
general partnership interests or other ownership interests, warrants, options,
or other rights or securities which are convertible into or exchangeable for,
with or without payment of additional consideration, common shares of beneficial
interest of EOPT or partnership interests of Borrower, as the case may be,
either immediately or upon the arrival of a specified date or the happening of a
specified event.
"Credit Rating" means the rating assigned by the Rating Agencies to
Borrower's senior unsecured long term indebtedness.
"Debt Restructuring" means a restatement of, or material change in, the
amortization or other financial terms of any Indebtedness of EOPT, the Borrower
or any Subsidiary or Investment Affiliate.
"Debt Service" means, for any period and without duplication, Interest
Expense for such period plus scheduled principal amortization (excluding Balloon
Payments) for such period on all Balance Sheet Indebtedness of Borrower on a
consolidated basis, plus Borrower's Share of scheduled principal amortization
(excluding Balloon Payments) for such period on all Balance Sheet Indebtedness
of Investment Affiliates.
"Default" means any condition or event which with the giving of notice or
lapse of time or both would, unless cured or waived, become an Event of Default.
"Default Rate" has the meaning set forth in Section 2.5(d).
"Designated Lender" means a special purpose corporation that (i) shall have
become a party to this Agreement pursuant to Section 9.6(d), and (ii) is not
otherwise a Bank.
"Designated Lender Notes" means promissory notes of the Borrower,
substantially in the form of Exhibit A-1 hereto, evidencing the obligation of
the Borrower to repay
<PAGE> 14
Money Market Loans made by Designated Lenders, and "Designated Lender Note"
means any one of such promissory notes issued under Section 9.6(d) hereof.
"Designating Lender" shall have the meaning set forth in Section 9.6(d)
hereof.
"Designation Agreement" means a designation agreement in substantially the
form of Exhibit G attached hereto, entered into by a Bank and a Designated
Lender and accepted by the Administrative Agent.
"Development Activity" means (a) the development and construction of office
buildings and parking facilities by the Borrower or any of its Financing
Partnerships or Joint Venture Subsidiaries excluding Unimproved Assets, (b) the
financing by the Borrower or any of its Financing Partnerships or Joint Venture
Subsidiaries of any such development or construction and (c) the incurrence by
the Borrower or any of its Financing Partnerships or Joint Venture Subsidiaries
of any Contingent Obligations in connection with such development or
construction (other than purchase contracts for Real Property Assets which are
not payable until after completion of development or construction). For
purposes of Section 5.8(j) hereof, the "value" of Development Activity shall
mean (i) in the case of the development and construction by the Borrower or any
of its Financing Partnerships described in clause (a) of this definition, the
full cost budget to complete such development and construction, (ii) in the case
of the development and construction by a Joint Venture Subsidiary of the
Borrower described in clause (a) of this definition, an amount equal to the
product of (AA) the full cost budget to complete such development and
construction, multiplied by (BB) Borrower's Share of such Joint Venture
Subsidiary, (iii) in the case of the financing of any development and
construction by the Borrower or any of its Financing Partnerships described in
clause (b) of this definition, the amount the Borrower or any Financing
Partnership has committed to fund to pay the cost to complete such development
and construction, (iv) in the case of the financing of any development and
construction by a Joint Venture Subsidiary of the Borrower described in clause
(b) of this definition, an amount equal to the product of (AA) the amount such
Joint Venture Subsidiary has committed to fund to pay the cost to complete such
development and construction, multiplied by (B) Borrower's Share of such Joint
Venture Subsidiary, (v) in the case of the incurrence of any Contingent
Obligations in connection with any development and construction by the Borrower
or any of its Financing Partnerships described in clause (c) of this definition,
the amount of such Contingent Obligation of the Borrower or such Financing
Partnership, (vi) in the case of the incurrence of any Contingent Obligations in
connection with any development and construction by a Joint Venture Subsidiary
of the Borrower described in clause (c) of this definition, an amount equal to
the product of (AA) the amount of such Contingent Obligation of such Joint
Venture Subsidiary, multiplied by (BB) Borrower's Share of such Joint Venture
Subsidiary..
"Domestic Lending Office" means, as to each Bank, its office located at its
address in the United States set forth in its Administrative Questionnaire (or
identified in its Administrative Questionnaire as its Domestic Lending Office)
or such other office as such Bank may hereafter designate as its Domestic
Lending Office by notice to the Borrower and the Administrative Agent.
<PAGE> 15
"Duff" means Duff & Phelps Credit Rating Company, or any successor thereto.
"EBITDA" means, for any period (i) Net Income for such period, plus (ii)
depreciation and amortization expense and other non-cash items deducted in the
calculation of Net Income for such period, plus (iii) Interest Expense deducted
in the calculation of Net Income for such period, plus (iv) Taxes (net of any
Taxes actually paid to, or withheld by, any foreign jurisdiction with respect to
any Real Property Asset located outside of the United States) deducted in the
calculation of Net Income for such period, plus (v) Borrower's Share of the
Investment Affiliate EBITDA for each Investment Affiliate, minus (vi) the gains
(and plus the losses) from extraordinary items or asset sales or write-ups or
forgiveness of indebtedness included (or deducted) in the calculation of Net
Income for such period, all of the foregoing without duplication.
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 9.9.
"Environmental Affiliate" means any partnership, joint venture, trust or
corporation in which an equity interest is owned directly or indirectly by the
Borrower and, as a result of the ownership of such equity interest, Borrower may
have recourse liability for Environmental Claims against such partnership, joint
venture, trust or corporation (or the property thereof).
"Environmental Claim" means, with respect to any Person, any notice, claim,
demand or similar communication (written or oral) by any other Person alleging
potential liability of such Person for investigatory costs, cleanup costs,
governmental response costs, natural resources damage, property damages,
personal injuries, fines or penalties arising out of, based on or resulting from
(i) the presence, or release into the environment, of any Materials of
Environmental Concern at any location, whether or not owned by such Person or
(ii) circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law, in each case (with respect to both (i) and (ii) above) as
to which there is a reasonable possibility of an adverse determination with
respect thereto and which, if adversely determined, would have a Material
Adverse Effect on the Borrower.
"Environmental Laws" means any and all federal, state, and local statutes,
laws, judicial decisions, regulations, ordinances, rules, judgments, orders,
decrees, plans, injunctions, permits, concessions, grants, licenses, agreements
and other governmental restrictions relating to the environment, the effect of
the environment on human health or to emissions, discharges or releases of
Materials of Environmental Concern into the environment including, without
limitation, ambient air, surface water, ground water, or land, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern or the
clean up or other remediation thereof.
"EOPT" means Equity Office Properties Trust, a Maryland real estate
investment trust, the sole managing general partner of the Borrower.
<PAGE> 16
"EOPT Guaranty" means the Guaranty of Payment, dated as of even date
herewith, executed by and between EOPT and Administrative Agent for the benefit
of the Banks.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Borrower, any Subsidiary, EOPT and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control and all members of an "affiliated service
group" which, together with the Borrower, any Subsidiary or EOPT, are treated as
a single employer under Section 414 of the Code or Section 4001(b)(1) of ERISA.
"Euro-Dollar Borrowing" has the meaning set forth in Section 1.3.
"Euro-Dollar Lending Office" means, as to each Bank, its office, branch or
affiliate located at its address set forth in its Administrative Questionnaire
(or identified in its Administrative Questionnaire as its Euro-Dollar Lending
Office) or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower
and the Administrative Agent.
"Euro-Dollar Loan" means a Committed Loan to be made by a Bank as a
Euro-Dollar Loan.
"Eurodollar Rate" means, for any Interest Period, an interest rate per
annum equal to the rate per annum obtained by multiplying (a) a rate per annum
equal to the rate for U.S. dollar deposits with maturities of 30 days (or, in
the case of the final Interest Period prior to the First Rate Reset Date or the
Second Rate Reset Date, with maturities equivalent to such Interest Period)
which appears on Telerate Page 3750 as of 11:00 a.m., London time, two (2)
Business Days prior to the commencement of such Interest Period, provided,
however, that if such rate does not appear on Telerate Page 3750, the
"Eurodollar Rate" applicable to a particular Interest Period shall mean a rate
per annum equal to the rate at which U.S. dollar deposits, in an amount
approximately equal to the principal balance (or the portion thereof which will
bear interest at a rate determined by reference to the Eurodollar Rate during
the Interest Period to which such Eurodollar Rate is applicable in accordance
with the provisions hereof), and with maturities comparable to the last day of
the Interest Period with respect to which such Eurodollar Rate is applicable,
are offered in immediately available funds in the London interbank market to the
London office of the Administrative Agent by leading banks in the Eurodollar
market at 11:00 a.m., London time, two (2) Business Days prior to the
commencement of the Interest Period to which such Eurodollar Rate is applicable,
by (b) a fraction (expressed as a decimal) the numerator of which shall be the
number one and the denominator of which shall be the number one minus the
Eurodollar Reserve Percentage for such Interest Period.
"Eurodollar Reserve Percentage" means, for any day, that percentage which
is in effect on such day, as prescribed by the Federal Reserve Board for
determining the maximum reserve requirement (including, without limitation, any
emergency, supplemental or other mar-
<PAGE> 17
ginal reserve requirement) for a member bank of the Federal Reserve System in
New York, New York with deposits exceeding five billion Dollars in respect of
"Eurocurrency Liabilities" (or in respect of any other category of liabilities
which includes deposits by reference to which the interest rate on Eurodollar
Rate Loans is determined or any category of extensions of credit or other assets
which includes loans by a non-United States office of any bank to United States
residents).
"Event of Default" has the meaning set forth in Section 6.1.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (ii) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average rate quoted to the
Administrative Agent on such day on such transactions as determined by the
Administrative Agent.
"Federal Reserve Board" means the Board of Governors of the Federal Reserve
System as constituted from time to time.
"FFO" means "funds from operations," defined to mean, without duplication
for any period, Net Income, plus (i) Borrower's Share of the Net Income of any
Investment Affiliate (plus Borrower's Share of real estate depreciation and
amortization expenses of Investment Affiliates), plus (ii) real estate
depreciation and amortization expense for such period, plus (iii) any
amortization of loan discount deducted from the calculation of Net Income for
such period, plus (iv) Taxes deducted from the calculation of Net Income for
such period, minus (v) gains (and plus the losses) from Debt Restructurings and
sales or other dispositions of Property of the Borrower or any Subsidiary or
Investment Affiliate included (or deducted) in the calculation of Net Income for
such period.
"Financing Partnerships" means any Subsidiary which is wholly-owned,
directly or indirectly, by Borrower or by Borrower and EOPT, with EOPT holding,
directly or indirectly other than through its interest in Borrower, no more than
a 2% economic interest in such Subsidiary.
"First Rate Reset Date" means September 29, 1999.
"Fiscal Quarter" means a fiscal quarter of a Fiscal Year.
"Fiscal Year" means the fiscal year of Borrower and EOPT.
<PAGE> 18
"Fitch" means Fitch Investors Services, Inc., or any successor thereto.
"Fixed Charges" for any Fiscal Quarter period means the sum of (i) Debt
Service for such period, (ii) dividends on preferred units payable by Borrower
for such period, and (iii) distributions made by Borrower in such period to EOPT
for the purpose of paying dividends on preferred shares in EOPT.
"Fixed Rate Borrowing" has the meaning set forth in Section 1.3.
"Fixed Rate Indebtedness" means all Indebtedness which accrues interest at
a fixed rate.
"Floating Rate Indebtedness" means all Indebtedness which is not Fixed Rate
Indebtedness and which is not a Contingent Obligation or an Unused Commitment.
"Form S-11" means the Form S-11 Registration Statement filed by EOPT with
the Securities and Exchange Commission on May 7, 1997, as amended.
"Funding Date" means the date on or after the date hereof on which all of
the conditions described in Section 3.1 have been satisfied (or waived) in a
manner satisfactory to the Administrative Agent and on which the Loans are made
by the Banks to the Borrower.
"GAAP" means generally accepted accounting principles recognized as such in
the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.
"Group of Loans" means, at any time, a group of Loans consisting of (i) all
Committed Loans which are Base Rate Loans at such time, or (ii) all Euro-Dollar
Loans having the same Interest Period at such time; provided that, if a
Committed Loan of any particular Bank is converted to or made as a Base Rate
Loan pursuant to Section 8.2 or 8.5, such Loan shall be included in the same
Group or Groups of Loans from time to time as it would have been in if it had
not been so converted or made.
"IBOR Auction" means a solicitation of Money Market Quotes setting forth
Money Market Margins based on the Eurodollar Rate pursuant to Section 2.4.
"Indebtedness" as applied to any Person (and without duplication), means
(a) all indebtedness, obligations or other liabilities of such Person for
borrowed money, (b) all indebtedness, obligations or other liabilities of such
Person evidenced by Securities or other similar instruments, (c) all Contingent
Obligations of such Person, (d) all reimbursement obligations and other
liabilities of such Person with respect to letters of credit or banker's
acceptances issued for such Person's account or other similar instruments for
which a contingent liability exists, (e) all
<PAGE> 19
obligations of such Person to pay the deferred purchase price of Property or
services, (f) all obligations in respect of Capital Leases (including, without
limitation, ground leases to the extent such ground leases constitute Capital
Leases) of such Person, (g) all indebtedness obligations or other liabilities of
such Person or others secured by a Lien on any asset of such Person, whether or
not such indebtedness, obligations or liabilities are assumed by, or are a
personal liability of such Person, (h) all indebtedness, obligations or other
liabilities (other than interest expense liability) in respect of Interest Rate
Contracts and foreign currency exchange agreements (other than Interest Rate
Contracts purchased to hedge Indebtedness), to the extent such liabilities are
material and are reported or are required under GAAP to be reported by such
Person in its financial statements, (i) ERISA obligations currently due and
payable and (j) all other items which, in accordance with GAAP, would be
included as liabilities on the liability side of the balance sheet of such
Person.
"Indemnitee" has the meaning set forth in Section 9.3(b).
"Interest Expense" means, for any period and without duplication, total
interest expense, whether paid, accrued or capitalized of Borrower, on a
consolidated basis determined in accordance with GAAP, plus Borrower's Share of
accrued, paid or capitalized interest with respect to any Balance Sheet
Indebtedness of Investment Affiliates (in each case, including, without
limitation, the interest component of Capital Leases but excluding interest
expense covered by an interest reserve established under a loan facility such as
capitalized construction interest provided for in a construction loan).
"Interest Period" means: (1) with respect to each Euro-Dollar Borrowing,
the period commencing on the date of such Borrowing specified in the Notice of
Borrowing or on the date specified in the applicable Notice of Interest Rate
Election and ending 30 days thereafter as the Borrower may elect in the
applicable Notice of Borrowing or Notice of Interest Rate Election; provided
that:
(a) any Interest Period which would otherwise end on a day which is
not a Business Day shall be extended to the next succeeding Business Day
unless such Business Day falls in another calendar month, in which case
such Interest Period shall end on the next preceding Business Day;
(b) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall end on
the last Business Day of a calendar month; and
(c) no Interest Period may end later than the Maturity Date;
(2) with respect to each Base Rate Borrowing and solely for determining when
interest is payable on any Base Rate Borrowing, the period commencing on the
date of such Borrowing speci-
<PAGE> 20
fied in the Notice of Borrowing or on the date specified (or deemed specified)
in the applicable Notice of Interest Rate Election and ending 30 days
thereafter; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Business Day shall be extended to the next succeeding Business Day;
and
(b) no Interest Period may end later than the Maturity Date;
(3) with respect to each Money Market IBOR Loan, the period commencing on the
date of borrowing specified in the applicable Money Market Quote Request and
ending such number of months thereafter as the Borrower may elect in accordance
with Section 2.4; provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Business Day shall be extended to the next succeeding Business Day
unless such Business Day falls in another calendar month, in which case
such Interest Period shall end on the next preceding Business Day;
(b) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall,
subject to clause (c) below, end on the last Business Day of a calendar
month; and
(c) no Interest Period may end later than the Maturity;
(4) with respect to each Money Market Absolute Rate Loan, the period commencing
on the date of borrowing specified in the applicable Money Market Quote Request
and ending such number of days thereafter (but not less than 14 days or more
than 180 days) as the Borrower may elect in accordance with Section 2.4;
provided that:
(a) any Interest Period which would otherwise end on a day which is
not a Business Day shall be extended to the next succeeding Business Day;
and
(b) no Interest Period may end later than the Maturity Date;
(5) notwithstanding anything contained in this definition of "Interest Period"
to the contrary, however, if any Interest Period shall end less than 30 days
prior to the day prior to the First Rate Reset Date or the Second Rate Reset
Date, then with respect to each Euro-Dollar Borrowing or Money Market Loan, the
period commencing on the date of such Borrowing specified in the Notice of
Borrowing, Notice of Money Market Borrowing or Notice of Interest Rate Election
and ending on the day prior to the First Rate Reset Date or the Second Rate
Reset Date.
"Interest Rate Contracts" means, collectively, interest rate swap, collar,
cap or similar agreements providing interest rate protection.
<PAGE> 21
"Investment Affiliate" means any Person in whom EOPT or Borrower holds an
equity interest, directly or indirectly, whose financial results are not
consolidated under GAAP with the financial results of EOPT or Borrower on the
consolidated financial statements of EOPT and Borrower.
"Investment Affiliate EBITDA" means, for any period (i) the net earnings
(or loss) of an Investment Affiliate for such period calculated in conformity
with GAAP, plus (ii) depreciation and amortization expense and other non-cash
items of such Investment Affiliate deducted in the calculation of such net
earnings (or loss) for such period, plus (iii) total interest expense, whether
paid, accrued or capitalized, of such Investment Affiliate deducted in the
calculation of such net earnings (or loss) for such period, plus (iv) Taxes of
such Investment Affiliate deducted in the calculation of such net earnings (or
loss) for such period.
"Investment Grade Rating" means a rating for a Person's senior long-term
unsecured debt of BBB- or better from S&P or a rating of Baa3 or better from
Moody's. In the event that Borrower receives Credit Ratings only from S&P and
Moody's, and such Credit Ratings are not equivalent, the lower of such two (2)
Credit Ratings shall be used to determine whether an Investment Grade Rating was
achieved. In the event that Borrower receives more than two (2) Credit Ratings,
and such Credit Ratings are not all equivalent, the higher of the ratings from
S&P and Moody's shall be used to determine whether an Investment Grade Rating
was achieved, provided that the rating from one of the other Rating Agencies
shall be at least equivalent to such higher rating; provided, further, that if
the rating from one of the other Rating Agencies is not at least equivalent to
the higher of the ratings from S&P and Moody's, then the second (2nd) highest
Credit Rating shall be used to determine whether an Investment Grade Rating was
achieved.
"Investment Mortgages" means mortgages securing indebtedness with respect
to Office Properties and Parking Properties directly or indirectly owed to
Borrower or any of its Subsidiaries, including, without limitation, certificates
of interest in real estate mortgage investment conduits.
"Invitation for Money Market Quotes" has the meaning set forth in Section
2.4(c).
"Joint Venture Interests" means partnership, limited liability company or
joint venture interests issued by any Person which is an Investment Affiliate
that is not a Subsidiary.
"Joint Venture Parent" means Borrower or one or more Financing Partnerships
of Borrower which directly owns any interest in a Joint Venture Subsidiary.
"Joint Venture Subsidiary" means any entity (other than a Financing
Partnership) in which (i) a Joint Venture Parent owns at least 50% of the
economic interests and (ii) the sale or financing of any Property owned by such
Joint Venture Subsidiary is controlled by a Joint Venture Parent. For purposes
of this definition, the Borrower shall be deemed to "control" Civic Parking,
L.L.C., a Missouri limited liability company ("Civic") so long as (i) a Joint
Venture Parent owns at least 50% of economic interest therein and (ii) such
Joint Venture Parent's con-
<PAGE> 22
sent shall be required to authorize and approve the sale or financing of the
Property owned by Civic.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement, in each case that has the effect of creating a
security interest, in respect of such asset. For the purposes of this
Agreement, the Borrower or any Consolidated Subsidiary shall be deemed to own
subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Loan" means a Base Rate Loan, a Euro-Dollar Loan or a Money Market Loan
and "Loans" means Base Rate Loans, Euro-Dollar Loans, Money Market Loans or any
combination of the foregoing.
"Loan Documents" means this Agreement, the Notes, and the EOPT Guaranty.
"Majority Banks" means at any time Banks holding Notes evidencing at least
51% of the aggregate unpaid principal amount of the Loans.
"Material Adverse Effect" means an effect resulting from any circumstance
or event or series of circumstances or events, of whatever nature (but excluding
general economic conditions), which does or could reasonably be expected to,
materially and adversely (i) impair the ability of the Borrower and its
Consolidated Subsidiaries, taken as a whole, to perform their respective
obligations under the Loan Documents, or (ii) the ability of Administrative
Agent or the Banks to enforce the Loan Documents.
"Material Plan" means at any time a Plan or Plans having aggregate
unfunded liabilities in excess of $5,000,000.
"Materials of Environmental Conc
ern" means and includes pollutants,
contaminants, hazardous wastes, toxic and hazardous substances, asbestos, lead,
petroleum and petroleum by-products.
"Maturity Date" shall mean the date when all of the Obligations hereunder
shall be due and payable which shall be September 22, 2000, unless accelerated
pursuant to the terms hereof.
"Maximum Loan Amount" has the meaning set forth in Section 2.1.
"Money Market Absolute Rate" has the meaning set forth in Section
2.4(d)(2).
"Money Market Absolute Rate Loan" means a loan to be made by a Bank
pursuant to an Absolute Rate Auction.
<PAGE> 23
"Money Market Borrowing" has the meaning set forth in Section 1.3.
"Money Market IBOR Loan" means a loan to be made by a Bank pursuant to a
IBOR Auction (including, without limitation, such a loan bearing interest at the
Base Rate pursuant to Article VIII).
"Money Market Lending Office" means, as to each Bank, its Domestic Lending
Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the Borrower
and the Agent; provided that any Bank may from time to time by notice to the
Borrower and the Administrative Agent designate separate Money Market Lending
Offices for its Money Market IBOR Loans, on the one hand, and its Money Market
Absolute Rate Loans, on the other hand, in which case all references herein to
the Money Market Lending Office of such Bank shall be deemed to refer to either
or both of such offices, as the context may require.
"Money Market Loan" means a Money Market IBOR Loan or a Money Market
Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section 2.4(d)(2).
"Money Market Quote" means an offer by a Bank to make a Money Market Loan
in accordance with Section 2.4.
"Money Market Quote Request" has the meaning set forth in Section 2.4(b).
"Moody's" means Moody's Investors Services, Inc. or any successor thereto.
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has at any time after September 25, 1980 made contributions or has been required
to make contributions (for these purposes any Person which ceased to be a member
of the ERISA Group after September 25, 1980 will be treated as a member of the
ERISA Group).
"Negative Pledge" means, with respect to any Property, any covenant,
condition, or other restriction which prohibits or limits the creation or
assumption of any Lien upon such Property to secure any or all of the
Obligations.
"Net Income" means, for any period, the net earnings (or loss) after Taxes
of the Borrower, on a consolidated basis, before the deduction of minority
interests and before the deduction of payment of any preferred dividends, for
such period calculated in conformity with GAAP.
<PAGE> 24
"Net Offering Proceeds" means all cash or other assets received by EOPT or
Borrower as a result of the sale of common shares of beneficial interest,
preferred shares of beneficial interest, partnership interests, limited
liability company interests, Convertible Securities or other ownership or equity
interests in EOPT or Borrower less customary costs and discounts of issuance
paid by EOPT or Borrower, as the case may be.
"Net Price" means, with respect to the purchase of any Property, without
duplication, (i) the aggregate purchase price paid as cash consideration for
such purchase (without adjustment for prorations), including, without
limitation, the principal amount of any note received or other deferred payment
to be made in connection with such purchase (except as described in clause (ii)
below) and the value of any non-cash consideration delivered in connection with
such purchase (including, without limitation, shares or preferred shares of
beneficial interest in EOPT and OP Units or Preferred OP Units (as defined in
Borrower's partnership agreement)) plus (ii) reasonable costs of sale and
non-recurring taxes paid or payable in connection with such purchase or sale.
"Net Present Value" shall mean, as to a specified or ascertainable dollar
amount, the present value, as of the date of calculation of any such amount
using a discount rate equal to the Prime Rate in effect as of the date of such
calculation.
"Non-Recourse Indebtedness" means Indebtedness with respect to which
recourse for payment is limited to (i) specific assets related to a particular
Property or group of Properties encumbered by a Lien securing such Indebtedness
or (ii) any Subsidiary (provided that if a Subsidiary is a partnership, there is
no recourse to Borrower or EOPT as a general partner of such partnership);
provided, however, that personal recourse of Borrower or EOPT for any such
Indebtedness for fraud, misrepresentation, misapplication of cash, waste,
environmental claims and liabilities and other circumstances customarily
excluded by institutional lenders from exculpation provisions and/or included in
separate indemnification agreements in non-recourse financing of real estate
shall not, by itself, prevent such Indebtedness from being characterized as
Non-Recourse Indebtedness.
"Notes" means the promissory notes of the Borrower, substantially in the
form of Exhibit A and Exhibit A-1 hereto, evidencing the obligation of the
Borrower to repay the Loans, and "Note" means any one of such promissory notes
issued hereunder.
"Notice of Borrowing" means a notice from Borrower in accordance with
Section 2.2 or Section 2.3(b)(i).
"Notice of Interest Rate Election" has the meaning set forth in Section
2.7.
"Obligations" means all obligations, liabilities, indemnity obligations and
Indebtedness of every nature of the Borrower, from time to time owing to
Administrative Agent or any Bank under or in connection with this Agreement or
any other Loan Document.
<PAGE> 25
"Office Property" means any Property which constitutes primarily commercial
office space other than a Parking Property.
"Parking Property" means any Property which is primarily used for parking.
"Parent" means, with respect to any Bank, any Person controlling such Bank.
"Participant" has the meaning set forth in Section 9.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Holdings" means Unimproved Assets, Development Activity, Joint
Venture Interests, Investment Mortgages and Securities, but only to the extent
permitted in Section 5.8.
"Permitted Liens" means:
a. Liens for Taxes, assessments or other governmental charges not
yet due and payable or which are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted in accordance with
the terms hereof;
b. statutory liens of carriers, warehousemen, mechanics, materialmen and
other similar liens imposed by law, which are incurred in the ordinary course
of business for sums not more than sixty (60) days delinquent or which are
being contested in good faith in accordance with the terms hereof;
c. deposits made in the ordinary course of business to secure liabilities
to insurance carriers;
d. Liens for purchase money obligations for equipment; provided that (i)
the Indebtedness secured by any such Lien does not exceed the purchase
price of such equipment, (ii) any such Lien encumbers only the asset
so purchased and the proceeds upon sale, disposition, loss or
destruction thereof, and (iii) such Lien, after giving effect to the
Indebtedness secured thereby, does not give rise to an Event of
Default;
e. easements, rights-of-way, zoning restrictions, other similar charges
or encumbrances and all other items listed on Schedule B to Borrower's
owner's title insurance policies, except in connection with any
Indebtedness, for any of Borrower's Real Property Assets, so long as
the foregoing do not interfere in any material respect with the use or
ordinary conduct of the business of Borrower and do not diminish in
any material respect the value of the Property to which it is attached
or for which it is listed;
<PAGE> 26
f. Liens and judgments which have been or will be bonded or released of
record within thirty (30) days after the date such Lien or judgment is entered
or filed against EOPT, Borrower, or any Subsidiary;
g. Liens on Property of the Borrower or its Subsidiaries (other than
Qualifying Unencumbered Property) securing Indebtedness which may be incurred
or remain outstanding without resulting in an Event of Default hereunder; and
h. Liens in favor of Borrower against any asset of any Financing
Partnership or Joint Venture Subsidiaries.
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including, without limitation, a
government or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Code and either (i) is
maintained, or contributed to, by any member of the ERISA Group for employees of
any member of the ERISA Group or (ii) has at any time within the preceding five
years been maintained, or contributed to, by any Person which was at such time a
member of the ERISA Group for employees of any Person which was at such time a
member of the ERISA Group.
"Prime Rate" means the rate of interest publicly announced by the
Administrative Agent from time to time as its Prime Rate (it being understood
that the same shall not necessarily be the best rate offered by the
Administrative Agent to customers).
"Pro Rata Share" means, with respect to any Bank, a fraction (expressed as
a percentage), the numerator of which shall be the amount of such Bank's
Commitment and the denominator of which shall be the aggregate amount of all of
the Banks' Commitments, as adjusted from time to time in accordance with the
provisions of this Agreement.
"Property" means, with respect to any Person, any real or personal
property, building, facility, structure, equipment or unit, or other asset owned
by such Person.
"Qualified Institution" means, as established to the satisfaction of the
Administrative Agent, (i) a Bank, or (ii) a Qualified Institutional Buyer (as
defined in Rule 144A under the Securities Act) or (iii) an Institutional
Accredited Investor (as defined in Rule 501(a)(1)(2)(3) or (7) of the Securities
Act).
"Qualifying Unencumbered Property" means any Property (excluding Unimproved
Assets) from time to time which (i) is an operating Office Property or Parking
Property wholly-owned (directly or beneficially) by Borrower, a Financing
Partnership or a Joint Venture Subsidiary, (ii) is not subject (nor are any
equity interests in such Property that are owned di-
<PAGE> 27
rectly or indirectly by Borrower, EOPT or any Joint Venture Parent subject) to a
Lien which secures Indebtedness of any Person other than Permitted Liens, (iii)
is not subject (nor are any equity interests in such Property that are owned
directly or indirectly by Borrower, EOPT or any Joint Venture Parent subject) to
any Negative Pledge (provided that a financial covenant given for the benefit of
any Person that may be violated by the granting of any Lien on any Property to
secure any or all of the Obligations shall not be deemed a Negative Pledge).
"Rate Reset Notice" has the meaning set forth in Section 2.6.
"Rating Agencies" means, collectively, S&P, Moody's, Duff and Fitch.
"Real Property Assets" means as to any Person as of any time, the real
property assets (including, without limitation, interests in participating
mortgages in which such Person's interest therein is characterized as equity
according to GAAP) owned directly or indirectly by such Person at such time.
"Recourse Debt" shall mean Indebtedness that is not Non-Recourse
Indebtedness.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"Required Banks" means at any time Banks holding Notes evidencing at least
66 2/3% of the aggregate unpaid principal amount of the Loans.
"Revised Applicable Margin" has the meaning set forth in Section 2.6.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
"Second Rate Reset Date" means March 29, 2000.
"Second Revised Applicable Margin" has the meaning set forth in Section
2.6.
"Secured Debt" means Indebtedness, the payment of which is secured by a
Lien (other than a Permitted Lien, except for those Permitted Liens described in
clauses (d) and (g) of the definition thereof) on any Property owned or leased
by EOPT, Borrower, or any Consolidated Subsidiary plus Borrower's Share of
Indebtedness, the payment of which is secured by a Lien (other than a Permitted
Lien, except for those Permitted Liens described in clauses (d) and (g) of the
definition thereof) on any Property owned or leased by any Investment Affiliate.
"Securities" means any stock, partnership interests, shares, shares of
beneficial interest, voting trust certificates, bonds, debentures, notes or
other evidences of indebtedness, secured or unsecured, convertible, subordinated
or otherwise, or in general any instruments commonly known as "securities," or
any certificates of interest, shares, or participations in tem-
<PAGE> 28
porary or interim certificates for the purchase or acquisition of, or any right
to subscribe to, purchase or acquire any of the foregoing, but shall not include
Joint Venture Interests or any evidence of the Obligations.
"Securities Act" means the Securities Act of 1933, as amended.
"Solvent" means, with respect to any Person, that the fair saleable value
of such Person's assets exceeds the Indebtedness of such Person.
"Subsidiary" means any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by the Borrower or EOPT.
"Taxes" means all federal, state, local and foreign income and gross
receipts taxes.
"Term" has the meaning set forth in Section 2.7.
"Termination Event" shall mean (i) a "reportable event", as such term is
described in Section 4043 of ERISA (other than a "reportable event" not subject
to the provision for 30-day notice to the PBGC), or an event described in
Section 4062(e) of ERISA, (ii) the withdrawal by any member of the ERISA Group
from a Multiemployer Plan during a plan year in which it is a "substantial
employer" (as defined in Section 4001(a)(2) of ERISA), or the incurrence of
liability by any member of the ERISA Group under Section 4064 of ERISA upon the
termination of a Multiemployer Plan, (iii) the filing of a notice of intent to
terminate any Plan under Section 4041 of ERISA, other than in a standard
termination within the meaning of Section 4041 of ERISA, or the treatment of a
Plan amendment as a distress termination under Section 4041 of ERISA, (iv) the
institution by the PBGC of proceedings to terminate, impose liability (other
than for premiums under Section 4007 of ERISA) in respect of, or cause a trustee
to be appointed to administer, any Plan or (v) any other event or condition that
might reasonably constitute grounds for the termination of, or the appointment
of a trustee to administer, any Plan or the imposition of any liability or
encumbrance or Lien on the Real Property Assets or any member of the ERISA Group
under ERISA or the Code.
"Total Asset Value" means, with respect to Borrower and without
duplication, (i) for any Properties owned by Borrower, any Consolidated
Subsidiary or Investment Affiliate which was neither acquired nor disposed of by
Borrower, a Consolidated Subsidiary or an Investment Affiliate in the Fiscal
Quarter most recently ended, the quotient obtained by dividing (a) (x) EBITDA
attributable to such Properties for the Fiscal Quarter most recently ended
multiplied by four (4) less (y) $0.20 per square foot of leased office space
within such Properties which are Office Properties, by (b) 0.0875, plus (ii) for
any Property which was acquired by Borrower or a Consolidated Subsidiary in the
Fiscal Quarter most recently ended, the Net Price of the Property paid by
Borrower or the Consolidated Subsidiary for such Property, plus (iii) for
<PAGE> 29
any Property which was acquired by an Investment Affiliate in the Fiscal Quarter
most recently ended, Borrower's Share of the Net Price of the Property paid by
such Investment Affiliate for such Property, plus (iv) the value of any Cash or
Cash Equivalent owned by Borrower, plus (v) the value of any Unimproved Assets
and any other tangible assets of Borrower or its Consolidated Subsidiaries
(including foreign currency exchange agreements, to the extent such agreements
are material and are reported or are required under GAAP to be reported by the
Borrower or its Consolidated Subsidiaries in their financial statements), as
measured on a GAAP basis, plus (vi) Borrower's Share of the value of any
Unimproved Assets and any other tangible assets of any Investment Affiliate as
measured on a GAAP basis.
"Total Liabilities" means, as of the date of determination and without
duplication, all Balance Sheet Indebtedness of Borrower, on a consolidated
basis, plus Borrower's Share of all Balance Sheet Indebtedness of Investment
Affiliates.
"Treasury Rate" means, as of any date, a rate equal to the annual yield to
maturity on the U.S. Treasury Constant Maturity Series with a ten year maturity,
as such yield is reported in Federal Reserve Statistical Release H.15 --
Selected Interest Rates, published most recently prior to the date the
applicable Treasury Rate is being determined. Such yield shall be determined by
straight line linear interpolation between the yields reported in Release H.15,
if necessary. In the event Release H.15 is no longer published, the
Administrative Agent shall select, in its reasonable discretion, an alternate
basis for the determination of Treasury yield for U.S. Treasury Constant
Maturity Series with ten year maturities.
"Unencumbered Asset Value" means (i) for any Qualifying Unencumbered
Properties which were neither acquired or disposed of by Borrower, a Financing
Partnership or a Joint Venture Subsidiary in the Fiscal Quarter most recently
ended, the quotient of (a) (x) the aggregate EBITDA for such Fiscal Quarter
attributable to such Qualifying Unencumbered Properties for the Fiscal Quarter
most recently ended multiplied by four (4) less (y) $1.50 per square foot of
leased office space within such Qualifying Unencumbered Properties which are
Office Properties, and less (z) in the case of any Qualifying Unencumbered
Property located outside of the United States, an amount equal to the applicable
withholding taxes imposed by any foreign jurisdiction applicable to the EBITDA
attributable to any such Qualifying Unencumbered Property for the applicable
period, divided by (b) 0.0875, plus (ii) for all Qualifying Unencumbered
Properties owned (directly or beneficially) by Borrower, any Financing
Partnership or any Joint Venture Subsidiary which were acquired (directly or
indirectly) by the Borrower, any Financing Partnership or any Joint Venture
Subsidiary during the Fiscal Quarter most recently ended, the aggregate Net
Price of such Qualifying Unencumbered Properties paid by Borrower or its
Affiliates for such Qualifying Unencumbered Properties; provided, however, that,
unless otherwise approved by the Majority Banks, (aa) in the event any such
Qualifying Unencumbered Property is owned by a Joint Venture Subsidiary, the
amount of the EBITDA attributable to such Qualifying Unencumbered Property for
purposes of clause (i) above and the Net Price of such Qualifying Unencumbered
Property for the purposes of clause (ii) above shall be reduced to a percentage
equal to the Borrower's percentage ownership interest (whether direct or
indirect) in such Joint Venture Subsidiary, (bb) the portion of the amount of
the Unencumbered Asset Value at-
<PAGE> 30
tributable to any single Qualifying Unencumbered Property which would cause such
amount to exceed twenty-five percent (25%) of the total Unencumbered Asset Value
at such time (after making all adjustments required by this proviso) will be
disregarded in determining Unencumbered Asset Value, (cc) the portion of the
aggregate amount of the Unencumbered Asset Value attributable to Qualifying
Unencumbered Properties that are Parking Properties which would cause such
aggregate amount to exceed twenty-five percent (25%) of the total Unencumbered
Asset Value at such time (after making all adjustments required by this proviso)
will be disregarded in determining Unencumbered Asset Value, (dd) the portion of
the aggregate amount of the Unencumbered Asset Value attributable to Qualifying
Unencumbered Properties that are Qualifying Unencumbered Properties owned by
Joint Venture Subsidiaries (after first taking into account the adjustment
provided in clause (aa) of this proviso) which would cause such aggregate amount
to exceed thirty-five percent (35%) of the total Unencumbered Asset Value at
such time (after making all adjustments required by this proviso) will be
disregarded in determining Unencumbered Asset Value, and (ee) the portion of the
amount of the Unencumbered Asset Value attributable to all Qualifying
Unencumbered Property located outside of the United States (after first taking
into account the adjustment provided in clause (aa) of this proviso) which would
cause such amount to exceed ten percent (10%) of the total Unencumbered Asset
Value at such time (after making all adjustments required by this proviso) will
be disregarded in determining Unencumbered Asset Value.
"Unencumbered Net Operating Income" means, for any period, for all
Qualifying Unencumbered Properties, the aggregate EBITDA attributable to each
such Qualifying Unencumbered Property for such period (provided that as to any
Qualifying Unencumbered Property acquired during such period, only EBITDA
attributable to such period occurring after such acquisition shall be included),
as adjusted for a normalized recurring level of capital expenditures by Borrower
for such period, which adjustment shall be at the rate of One Dollar and Fifty
Cents ($1.50) per square foot per annum of office space leased as of the
applicable date of determination for all Qualifying Unencumbered Properties that
are Office Properties (provided that, as to any Office Property acquired during
such period, such amount per square foot shall be pro-rated for the period of
ownership).
"Unimproved Assets" means Real Property Assets containing no material
improvements.
"United States" means the United States of America, including the fifty
states and the District of Columbia.
"Unsecured Debt" means the amount of Indebtedness for borrowed money of
EOPT Borrower and any Financing Partnership which is not Secured Debt,
including, without limitation, the amount of all then outstanding Loans, plus,
for the purpose of calculating the ratio of outstanding Unsecured Debt to
Unencumbered Asset Value, an amount equal to the Borrower's percentage ownership
interest (whether direct or indirect) in each Joint Venture Subsidiary times any
Indebtedness for borrowed money of such Joint Venture Subsidiary which is not
Secured Debt.
<PAGE> 31
"Unsecured Debt Service" means Debt Service payable in respect of Unsecured
Debt.
"Unused Commitments" shall mean an amount equal to all unadvanced funds
(other than unadvanced funds in connection with any construction loan) which any
third party is obligated to advance to Borrower or another Person or otherwise
pursuant to any loan document, written instrument or otherwise.
SECTION 1.1. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with GAAP
applied on a basis consistent (except for changes concurred in by the Borrower's
independent public accountants) with the most recent audited consolidated
financial statements of the Borrower and its Consolidated Subsidiaries delivered
to the Administrative Agent; provided that for purposes of references to the
financial results and information of "EOPT, on a consolidated basis," EOPT shall
be deemed to own one hundred percent (100%) of the partnership interests in
Borrower; and provided further that, if the Borrower notifies the Administrative
Agent that the Borrower wishes to amend any covenant in Article V to eliminate
the effect of any change in GAAP on the operation of such covenant (or if the
Administrative Agent notifies the Borrower that the Required Banks wish to amend
Article V for such purpose), then the Borrower's compliance with such covenant
shall be determined on the basis of GAAP in effect immediately before the
relevant change in GAAP became effective, until either such notice is withdrawn
or such covenant is amended in a manner reasonably satisfactory to the Borrower
and the Required Banks.
SECTION 1.2. Types of Borrowings. The term "Borrowing" denotes the
aggregation of Loans of one or more Banks to be made to the Borrower pursuant to
Article 2 on the same date, all of which Loans are of the same type (subject to
Article 8) and, except in the case of Base Rate Loans, have the same initial
Interest Period. Borrowings are classified for purposes of this Agreement
either by reference to the pricing of Loans comprising such Borrowing
(e.g., a "Fixed Rate Borrowing" is a Euro-Dollar Borrowing or a Money Market
Borrowing (excluding any such Borrowing consisting of Money Market IBOR Loans
bearing interest at the Base Rate pursuant to Article VIII), and a
"Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by
reference to the provisions of Article 2 under which participation therein is
determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.1 in
which all Banks participate in proportion to their Commitments, while a
"Money Market Borrowing" is a Borrowing under Section 2.4 in which a Bank's
share is determined on the basis of its bid in accordance therewith).
<PAGE> 32
ARTICLE II
THE CREDITS
SECTION 2.1. Commitments to Lend. Each Bank severally and not jointly
agrees, on the terms and conditions set forth in this Agreement, to make Loans
to the Borrower pursuant to this Article as of the Closing Date in an amount
equal to $328,000,000 (the "Maximum Loan Amount"). The full amount of the Loans
shall be made by the Banks and disbursed to the Borrower on the Funding Date,
subject to the terms and conditions set forth in this Agreement.
SECTION 2.2. Notice of Borrowing. With respect to any Committed Borrowing,
the Borrower shall give Administrative Agent notice not later than 11:00 a.m.
(New York City time) (x) one Business Day before each Base Rate Borrowing, or
(y) three Business Days before each Euro-Dollar Borrowing, specifying:
(i) the date of such Borrowing, which shall be a Business Day,
(ii) the aggregate amount of such Borrowing,
(iii) whether the Loans comprising such Borrowing are to be Base Rate Loans
or Euro-Dollar Loans, and
(iv) in the case of a Euro-Dollar Borrowing, the duration of the Interest
Period applicable thereto, subject to the provisions of the definition of
Interest Period.
Notwithstanding anything contained herein to the contrary, if the
Borrower fails to deliver a timely Notice of Borrowing or Money Market Quote
Request in connection with the repayment of any Money Market Loan to the
Administrative Agent, then the Borrower shall be deemed to have timely delivered
a Notice of Borrowing requesting Euro-Dollar Loans in an amount equal to the
amount of the Money Market Loans so being repaid.
<PAGE> 33
SECTION 2.3. Money Market Borrowings.
(a) The Money Market Option. From time to time during the Term, and
provided that at such time the Borrower maintains a Credit Rating of at least
BBB- or Baa3 (or their equivalent) from two (2) Rating Agencies at least one (1)
of which is S&P or Moody's, the Borrower may, as set forth in this Section 2.4,
request the Banks during the Term to make offers to make Money Market Loans to
the Borrower, not to exceed, at such time, the lesser of (i) $200,000,000
(adjusted pro rata for changes in the aggregate Commitments), and (ii) the
aggregate Commitments less all Loans then outstanding (excluding any Loans or
any portion thereof to be repaid from the proceeds of such Money Market Loans).
Subject to the provisions of this Agreement, the Borrower may repay any
outstanding Money Market Loan on any day which is a Business Day and any amounts
so repaid may be reborrowed, up to the amount available under this Section 2.4
at the time of such Borrowing, until the Business Day next preceding the
Maturity Date. The Banks may, but shall have no obligation to, make such offers
and the Borrower may, but shall have no obligation to, accept any such offers in
the manner set forth in this Section 2.4.
(b) Money Market Quote Request. When the Borrower wishes to request
offers to make Money Market Loans under this Section, it shall transmit to the
Administrative Agent by telex or facsimile transmission a Money Market Quote
Request substantially in the form of Exhibit B hereto (a "Money Market Quote
Request") so as to be received not later than 11:00 A.M. (New York City time) on
(x) the fifth Business Day prior to the date of Borrowing proposed therein, in
the case of a IBOR Auction or (y) the Business Day immediately preceding the
date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or,
in either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified the Banks not later
than the date of the Money Market Quote Request for the first IBOR Auction or
Absolute Rate Auction for which such change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a Business Day in the
case of a IBOR Auction or a Business Day in the case of an Absolute Rate
Auction,
(ii) the aggregate amount of such Borrowing, which shall be $5,000,000 or
a larger multiple of $100,000,
(iii) the duration of the Interest Period applicable thereto (which shall
not be less than 14 days or more than 180 days), subject to the provisions
of the definition of Interest Period,
(iv) whether the Money Market Quotes requested are to set forth a Money
Market Margin or a Money Market Absolute Rate, and
(v) the aggregate amount of all Money Market Loans then outstanding.
<PAGE> 34
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. In no event may
Borrower give a Money Market Quote Request within ten (10) days of the giving of
any other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon receipt of a Money
Market Quote Request, the Administrative Agent shall send to the Banks by telex
or facsimile transmission an "Invitation for Money Market Quotes" substantially
in the form of Exhibit C hereto, which shall constitute an invitation by the
Borrower to each Bank to submit Money Market Quotes offering to make the Money
Market Loans to which such Money Market Quote Request relates in accordance with
this Section.
(d) Submission and Contents of Money Market Quotes. Each Bank may submit
a Money Market Quote containing an offer or offers to make Money Market Loans in
response to any Invitation for Money Market Quotes. Each Money Market Quote
must comply with the requirements of this subsection (d) and must be submitted
to the Administrative Agent by telex or facsimile transmission at its offices
specified in or pursuant to Section 9.1 not later than (x) 2:00 P.M. (New York
City time) on the fourth Business Day prior to the proposed date of Borrowing,
in the case of a IBOR Auction or (y) 9:30 A.M. (New York City time) on the
proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Banks not later
than the date of the Money Market Quote Request for the first IBOR Auction or
Absolute Rate Auction for which such change is to be effective); provided that
Money Market Quotes submitted by the Administrative Agent (or any affiliate of
the Administrative Agent) in the capacity of a Bank may be submitted, and may
only be submitted, if the Administrative Agent or such affiliate notifies the
Borrower of the terms of the offer or offers contained therein not later than
(x) one hour prior to the deadline for the other Banks, in the case of a IBOR
Auction or (y) one hour prior to the deadline for the other Banks, in the case
of an Absolute Rate Auction. Subject to Articles 3 and 6, any Money Market
Quote so made shall be irrevocable except with the written consent of the
Administrative Agent given on the instructions of the Borrower.
(e) Each Money Market Quote shall be in substantially the form of Exhibit
D hereto and shall in any case specify:
(i) the proposed date of Borrowing,
(ii) the principal amount of the Money Market Loan for which each such
offer is being made, which principal amount (w) may be greater than or less
than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger
multiple of $100,000, (y) may not exceed the principal amount of Money
Market Loans for which offers were requested and (z) may be subject to an
aggregate limitation as to the principal amount of Money Market Loans for
which offers being made by such quoting Bank may be accepted,
(iii) the Interest Period(s) with respect to which each such offer is
being made,
<PAGE> 35
(iv) in the case of a IBOR Auction, the margin above or below the
applicable Eurodollar Rate (the "Money Market Margin") offered for each
such Money Market Loan, expressed as a percentage (specified to the nearest
1/10,000th of 1%) to be added to or subtracted from such base rate,
(v) in the case of an Absolute Rate Auction, the rate of interest per
annum (specified to the nearest 1/10,000th of 1%) (the "Money Market
Absolute Rate") offered for each such Money Market Loan, and
(vi) the identity of the quoting Bank. A Money Market Quote may set forth
up to five separate offers by the quoting Bank with respect to each
Interest Period specified in the related Invitation for Money Market
Quotes.
3. Any Money Market Quote shall be disregarded if it:
(i) is not substantially in conformity with Exhibit D hereto or does not
specify all of the information required by subsection (d)(2) above;
(ii) contains qualifying, conditional or similar language (except for an
aggregate limitation as provided in subsection (d)(2)(ii) above);
(iii) proposes terms other than or in addition to those set forth in the
applicable Invitation for Money Market Quotes; or
(iv) arrives after the time set forth in subsection (d)(1).
(e) Notice to Borrower. The Administrative Agent shall promptly (and in
any event within one (1) Business Day after receipt thereof) notify the Borrower
in writing of the terms (x) of any Money Market Quote submitted by a Bank that
is in accordance with subsection (d) and (y) of any Money Market Quote that
amends, modifies or is otherwise inconsistent with a previous Money Market Quote
submitted by such Bank with respect to the same Money Market Quote Request. Any
such subsequent Money Market Quote shall be disregarded by the Administrative
Agent unless such subsequent Money Market Quote is submitted solely to correct a
manifest error in such former Money Market Quote or modifies the terms of such
previous Money Market Quote to provide terms more favorable to Borrower. The
Administrative Agent's notice to the Borrower shall specify (A) the aggregate
principal amount of Money Market Loans for which offers have been received for
each Interest Period specified in the related Money Market Quote Request, (B)
the respective principal amounts and Money Market Margins or Money Market
Absolute Rates, as the case may be, so offered and (C) if applicable,
limitations on the aggregate principal amount of Money Market Loans for which
offers in any single Money Market Quote may be accepted.
<PAGE> 36
(f) Acceptance and Notice by Borrower. Not later than 10:00 A.M. (New
York City time) on (x) the third Business Day prior to the proposed date of
Borrowing, in the case of a IBOR Auction or (y) the proposed date of Borrowing,
in the case of an Absolute Rate Auction (or, in either case, such other time or
date as the Borrower and the Administrative Agent shall have mutually agreed and
shall have notified to the Banks not later than the date of the Money Market
Quote Request for the first IBOR Auction or Absolute Rate Auction for which such
change is to be effective), the Borrower shall notify the Administrative Agent
of its acceptance or non-acceptance of the offers so notified to it pursuant to
subsection (e). In the case of acceptance, such notice (a "Notice of Money
Market Borrowing") shall specify the aggregate principal amount of offers for
each Interest Period that are accepted. The Borrower may accept any Money
Market Quote in whole or in part; provided that:
1. the aggregate principal amount of each Money Market Borrowing may not
exceed the applicable amount set forth in the related Money Market Quote
Request;
2. the principal amount of each Money Market Borrowing must be $5,000,000
or a larger multiple of $100,000;
3. acceptance of offers may only be made on the basis of ascending Money
Market Margins or Money Market Absolute Rates, as the case may be; and
4. the Borrower may not accept any offer that is described in subsection
(d)(3) or that otherwise fails to comply with the requirements of this
Agreement.
(g) Allocation by Agent. If offers are made by two or more Banks with the
same Money Market Margins or Money Market Absolute Rates, as the case may be,
for a greater aggregate principal amount than the amount in respect of which
such offers are accepted for the related Interest Period, the principal amount
of Money Market Loans in respect of which such offers are accepted shall be
allocated by the Administrative Agent among such Banks as nearly as possible (in
multiples of $100,000, as the Administrative Agent may deem appropriate) in
proportion to the aggregate principal amounts of such offers. The
Administrative Agent shall promptly (and in any event within one (1) Business
Day after such offers are accepted) notify the Borrower and each such Bank in
writing of any such allocation of Money Market Loans. Determinations by the
Administrative Agent of the allocation of Money Market Loans shall be conclusive
in the absence of manifest error.
(h) Notwithstanding anything to the contrary contained herein, each Bank
shall be required to fund its Pro Rata Share of Committed Loans in accordance
with Section 2.1 hereof despite the fact that any Bank's Commitment may have
been or may be exceeded as a result of such Bank's making of Money Market Loans.
<PAGE> 37
SECTION 2.4. Notice to Banks; Funding of Loans.
(a) Upon receipt of the Notice of Borrowing from Borrower in accordance
with Section 2.2 hereof, the Administrative Agent shall, on the date such Notice
of Borrowing is received by the Administrative Agent, notify each Bank of the
contents thereof and of such Bank's share of such Borrowing, of the interest
rate determined pursuant thereto and the Interest Period(s) (if different from
those requested by the Borrower) and such Notice of Borrowing shall not
thereafter be revocable by the Borrower, unless Borrower shall pay any
applicable expenses pursuant to Section 2.11.
(b) Not later than 1:00 p.m. (New York City time) on the Closing Date,
each Bank shall (except as provided in subsection (d) of this Section) make
available its share of such Borrowing in Federal funds immediately available in
New York, New York, to the Administrative Agent at its address referred to in
Section 9.1.
(c) Unless the Administrative Agent shall have received notice from a Bank
prior to the date of the Borrowing that such Bank will not make available to the
Administrative Agent such Bank's share of such Borrowing, the Administrative
Agent may assume that such Bank has made such share available to the
Administrative Agent on the date of the Borrowing in accordance with of this
Section 2.4 and the Administrative Agent may, in reliance upon such assumption,
but shall not be obligated to, make available to the Borrower on such date a
corresponding amount on behalf of such Bank. If and to the extent that such
Bank shall not have so made such share available to the Administrative Agent,
such Bank agrees to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent, at the rate of interest applicable to such
Borrowing hereunder. If such Bank shall repay to the Administrative Agent such
corresponding amount, such amount so repaid shall constitute such Bank's Loan
included in such Borrowing for purposes of this Agreement. If such Bank shall
not pay to Administrative Agent such corresponding amount after reasonable
attempts are made by Administrative Agent to collect such amounts from such
Bank, Borrower agrees to repay to Administrative Agent forthwith on demand such
corresponding amounts together with interest thereto, for each day from the date
such amount is made available to Borrower until the date such amount is repaid
to Administrative Agent, at the interest rate applicable thereto one (1)
Business Day after demand. Nothing contained in this Section 2.4(c) shall be
deemed to reduce the Commitment of any Bank or in any way affect the rights of
Borrower with respect to any defaulting Bank or Administrative Agent. The
failure of any Bank to make available to the Administrative Agent such Bank's
share of any Borrowing in accordance with Section 2.4(b) hereof shall not
relieve any other Bank of its obligations to fund its Commitment, in accordance
with the provisions hereof.
(d) Subject to the provisions hereof, the Administrative Agent shall make
available the Borrowing to Borrower in Federal funds immediately available in
accordance with, and on the date set forth in, the Notice of Borrowing.
<PAGE> 38
SECTION 2.5. Notes.
(a) The Loans of each Bank shall be evidenced by a single Note payable to
the order of such Bank.
(b) Each Bank may, by notice to the Borrower and the Administrative Agent
request that its Loans of a particular type (including, without limitation,
Money Market Loans) be evidenced by a separate Note in an amount equal to the
aggregate unpaid principal amount of such Loans. Any additional costs incurred
by the Administrative Agent, the Borrower or the Banks in connection with
preparing such a Note shall be at the sole cost and expense of the Bank
requesting such Note. In the event any Loans evidenced by such a Note are paid
in full prior to the Maturity Date, any such Bank shall return such Note to
Borrower. Each such Note shall be in substantially the form of Exhibit A hereto
with appropriate modifications to reflect the fact that it evidences solely
Loans of the relevant type. Upon the execution and delivery of any such Note,
any existing Note payable to such Bank shall be replaced or modified
accordingly. Each reference in this Agreement to the "Note" of such Bank shall
be deemed to refer to and include any or all of such Notes, as the context may
require.
(c) Upon receipt of each Bank's Note pursuant to Section 3.1(a), the
Administrative Agent shall forward such Note to such Bank. Each Bank shall
record the date, amount, type and maturity of each Loan made by it and the date
and amount of each payment of principal made by the Borrower with respect
thereto, and may, if such Bank so elects in connection with any transfer or
enforcement of its Note, endorse on the appropriate schedule appropriate
notations to evidence the foregoing information with respect to each such Loan
then outstanding; provided that the failure of any Bank to make any such
recordation or endorsement shall not affect the obligations of the Borrower
hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the
Borrower so to endorse its Note and to attach to and make a part of its Note a
continuation of any such schedule as and when required.
(d) The Committed Loans shall mature, and the principal amount thereof
shall be due and payable, on the Maturity Date.
(e) Each Money Market Loan included in any Money Market Borrowing shall
mature, and the principal amount thereof shall be due and payable, together with
accrued interest thereon, on the earlier to occur of (i) last day of the
Interest Period applicable to such Borrowing or (ii) the Maturity Date.
(f) There shall be no more than _____(__) Euro-Dollar Groups of Loans and
no more than ______(__) Money Market Loans outstanding at any one time.
<PAGE> 39
SECTION 2.6. Method of Electing Interest Rates. (a) The Loans included
in each Committed Borrowing shall bear interest initially at the type of rate
specified by the Borrower in the Notice of Borrowing. Thereafter, the Borrower
may from time to time elect to change or continue the type of interest rate
borne by each Group of Loans (subject in each case to the provisions of Article
VIII), as follows: if such Loans are Base Rate Loans, the Borrower may elect to
convert all or any portion of such Loans to Euro-Dollar Loans as of any Business
Day; if such Loans are Euro-Dollar Loans, the Borrower may elect to convert all
or any portion of such Loans to Base Rate Loans and/or elect to continue all or
any portion of such Loans as Euro-Dollar Loans for an additional Interest Period
or additional Interest Periods, in each case effective on the last day of the
then current Interest Period applicable to such Loans, or on such other date
designated by Borrower in the Notice of Interest Rate Election provided Borrower
shall pay any losses pursuant to Section 2.12.Each such election shall be made
by delivering a notice (a "Notice of Interest Rate Election") to the
Administrative Agent at least three (3) Business Days before the conversion or
continuation selected in such notice is to be effective. A Notice of Interest
Rate Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans; provided that (i) such portion
is allocated ratably among the Loans comprising such Group, (ii) the portion to
which such Notice applies, and the remaining portion to which it does not apply,
are each $500,000 or any larger multiple of $100,000, (iii) there shall be no
more than ____ (__) Euro-Dollar Groups of Loans outstanding at any time, (iv) no
Committed Loan may be continued as, or converted into, a Euro-Dollar Loan when
any Event of Default has occurred and is continuing, and (v) no Interest Period
shall extend beyond the Maturity Date. Each Notice of Interest Rate Election
shall specify: the Group of Loans (or portion thereof) to which such notice
applies; the date on which the conversion or continuation selected in such
notice is to be effective, which shall comply with the applicable clause of
subsection (a) above; if the Loans comprising such Group are to be converted,
the new type of Loans and, if such new Loans are Euro-Dollar Loans, the duration
of the initial Interest Period applicable thereto; and if such Loans are to be
continued as Euro-Dollar Loans for an additional Interest Period, the duration
of such additional Interest Period.Each Interest Period specified in a Notice of
Interest Rate Election shall comply with the provisions of the definition of
Interest Period. Upon receipt of a Notice of Interest Rate Election from the
Borrower pursuant to subsection (a) above, the Administrative Agent shall notify
the Documentation Agent and each Bank the same day as it receives such Notice of
Interest Rate Election of the contents thereof, the interest rates determined
pursuant thereto and the Interest Periods (if different from those requested by
the Borrower) and such notice shall not thereafter be revocable by the Borrower.
If the Borrower fails to deliver a timely Notice of Interest Rate Election to
the Administrative Agent for any Group of Euro-Dollar Loans, such Loans shall be
converted into Euro-Dollar Loans on the last day of the then current Interest
Period applicable thereto. SECTION Interest Rates SECTION Method of Electing
Interest Rates. The Loans included in each Committed Borrowing shall bear
interest initially at the type of rate specified by the Borrower in the Notice
of Borrowing. Thereafter, the Borrower may from time to time elect to change or
continue the type of interest rate borne by each Group of Loans (subject in each
case to the provisions of Article VIII), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert all or any portion of such Loans to Euro-
<PAGE> 40
Dollar Loans as of any Business Day;
(ii) if such Loans are Euro-Dollar Loans, the Borrower may elect to
convert all or any portion of such Loans to Base Rate Loans and/or elect to
continue all or any portion of such Loans as Euro-Dollar Loans for an additional
Interest Period or additional Interest Periods, in each case effective on the
last day of the then current Interest Period applicable to such Loans, or on
such other date designated by Borrower in the Notice of Interest Rate Election
provided Borrower shall pay any losses pursuant to Section 2.12. Each such
election shall be made by delivering a notice (a "Notice of Interest Rate
Election") to the Administrative Agent at least three (3) Business Days before
the conversion or continuation selected in such notice is to be effective. A
Notice of Interest Rate Election may, if it so specifies, apply to only a
portion of the aggregate principal amount of the relevant Group of Loans;
provided that (i) such portion is allocated ratably among the Loans comprising
such Group, (ii) the portion to which such Notice applies, and the remaining
portion to which it does not apply, are each $500,000 or any larger multiple of
$100,000, (iii) there shall be no more than (_) Euro-Dollar Groups of Loans
outstanding at any time, (iv) no Committed Loan may be continued as, or
converted into, a Euro-Dollar Loan when any Event of Default has occurred and is
continuing, and (v) no Interest Period shall extend beyond the Maturity Date.
b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in
such notice is to be effective, which shall comply with the applicable
clause of subsection (a) above;
(iii) if the Loans comprising such Group are to be
converted, the new type of Loans and, if such new Loans are Euro-Dollar
Loans, the duration of the initial Interest Period applicable thereto; and
(iv) if such Loans are to be continued as Euro-Dollar Loans for an
additional Interest Period, the duration of such additional Interest
Period. Each Interest Period specified in a Notice of Interest Rate
Election shall comply with the provisions of the definition of Interest
Period.
(c) Upon receipt of a Notice of Interest Rate Election from the Borrower
pursuant to subsection (a) above, the Administrative Agent shall notify the
Documentation Agent and each Bank the same day as it receives such Notice of
Interest Rate Election of the contents thereof, the interest rates determined
pursuant thereto and the Interest Periods (if different from those requested by
the Borrower) and such notice shall not thereafter be revocable by the
Borrower. If the Borrower fails to deliver a timely Notice of Interest Rate
Election to the Administrative Agent for any Group of Euro-Dollar Loans, such
Loans shall be converted into Euro-Dollar Loans on the last day of the then
current Interest Period applicable thereto.
<PAGE> 41
SECTION 2.7. Interest Rates.
(a) Each Base Rate Loan shall bear interest on the outstanding principal
amount thereof, for each day from the date such Loan is made until the date it
is repaid or converted into a Euro-Dollar Loan pursuant to Section 2.6, at a
rate per annum equal to the Base Rate plus the Applicable Margin for Base Rate
Loans for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding principal
amount thereof, for each day during the Interest Period applicable thereto, at a
rate per annum equal to the sum of the Applicable Margin for Euro-Dollar Loans
for such day plus the Eurodollar Rate applicable to such Interest Period.
(c) Subject to Section 8.1, each Money Market IBOR Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the sum of the Interbank
Offered Rate for such Interest Period (determined in accordance with Section
2.6(b) as if the related Money Market IBOR Borrowing were a Euro-Dollar
Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making
such Loan in accordance with Section 2.4. Each Money Market Absolute Rate Loan
shall bear interest on the outstanding principal amount thereof, for the
Interest Period applicable thereto, at a rate per annum equal to the Money
Market Absolute Rate quoted by the Bank making such Loan in accordance with
Section 2.4. Any overdue principal of or interest on any Money Market Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the Base Rate until such failure shall become an Event of Default
and thereafter at a rate per annum equal to the sum of 4% plus the Base Rate for
such day.
(d) In the event that, and for so long as, any Event of Default shall have
occurred and be continuing, the outstanding principal amount of the Loans, and,
to the extent permitted by applicable law, overdue interest in respect of all
Loans, shall bear interest at the annual rate equal to the sum of the Base Rate
and four percent (4%) (the "Default Rate").
(e) The Administrative Agent shall determine each interest rate applicable
to the Loans hereunder. The Administrative Agent shall give prompt notice to
the Borrower and the Banks of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of demonstrable error.
(f) Interest on all Loans shall be payable on the first Business Day of
each calendar month.
<PAGE> 42
SECTION 2.8. Interest Rate Reset Date. (a) The Borrower shall deliver
written notice to the Administrative Agent on or before the date which is twenty
(20) Business Days prior to the First Rate Reset Date to reset the Applicable
Margin for the Loans, which notice shall contain Borrower's tentative revised
Applicable Margin for the Loans. Within five (5) Business Days thereafter,
Borrower, in consultation with the Administrative Agent, shall determine a final
revised Applicable Margin for the Loans and shall, within fifteen (15) Business
Days prior to the First Rate Reset Date deliver written notice (a "Rate Reset
Notice") to each of the Banks which Rate Reset Notice shall contain a revised
Applicable Margin for the Euro-Dollar Loans (the "Revised Applicable Margin").
The Borrower's delivery of the Rate Reset Notice shall be irrevocable. If the
Borrower fails to deliver the Rate Reset Notice to each Bank on or prior to the
date which is fifteen (15) Business Days prior to the First Rate Reset Date,
then the Revised Applicable Margin shall be deemed to be equal to the Applicable
Margin. Within five (5) Business Days after Borrower's delivery of the Rate
Reset Notice, or if the Borrower shall fail to deliver the Rate Reset Notice, on
or before the date which is ten (10) Business Days prior to the First Rate Reset
Date, each Bank shall deliver written notice to the Borrower and the
Administrative Agent of such Bank's election (which election may be made in each
Bank's sole and absolute discretion): (i) to accept the Revised Applicable
Margin contained in the Rate Reset Notice, in which event, from the first day
following the First Rate Reset Date through the day prior to the Second Rate
Reset Date, the Applicable Margin for all Loans made, continued or maintained by
such Bank shall be the Revised Applicable Margin; or (ii) to reject the Revised
Applicable Margin (it being understood that each Bank shall have the right to
reject the Revised Applicable Margin whether the same shall be the same as,
greater than, or less than, the Applicable Margin) , in which case all Loans
(together with accrued interest thereon) made by such Bank shall be repaid by
the Borrower on the First Rate Reset Date and such date shall be deemed to be
the Maturity Date with respect to such Bank's Loans. Any Bank which fails to
deliver notice of its election as set forth in the preceding sentence within
five (5) Business Days after Borrower's delivery of the Rate Reset Notice shall
be deemed to have accepted the Revised Applicable Margin. The failure of the
Borrower to repay on or before the First Rate Reset Date all amounts due to any
Bank that rejects the Revised Applicable Margin shall constitute an Event of
Default hereunder.
(b) The Borrower shall deliver written notice to the Administrative Agent
on or before the date which is twenty (20) Business Days prior to the Second
Rate Reset Date to reset the Revised Applicable Margin for the Loans, which
notice shall contain Borrower's tentative revised Revised Applicable Margin for
the Loans. Within five (5) Business Days thereafter, Borrower, in consultation
with the Administrative Agent, shall determine a final revised Revised
Applicable Margin for the Loans and shall, within fifteen (15) Business Days
prior to the Second Rate Reset Date deliver a Rate Reset Notice to each of the
Banks which Rate Reset Notice shall contain a revised Revised Applicable Margin
for the Euro-Dollar Loans (the "Second Revised Applicable Margin"). The
Borrower's delivery of the Rate Reset Notice shall be irrevocable. If the
Borrower fails to deliver the Rate Reset Notice to each Bank on or prior to the
date which is fifteen (15) Business Days prior to the Second Rate Reset Date,
then the Second Revised Applicable Margin shall be deemed to be equal to the
Revised Applicable Margin. Within five (5) Business Days after Borrower's
delivery of the Rate Reset Notice, or if the Borrower shall fail to
<PAGE> 43
deliver the Rate Reset Notice, on or before the date which is ten (10) Business
Days prior to the Second Rate Reset Date, each Bank shall deliver written notice
to the Borrower and the Administrative Agent of such Bank's election (which
election may be made in each Bank's sole and absolute discretion): (i) to accept
the Second Revised Applicable Margin contained in the Rate Reset Notice, in
which event, from the first day following the Second Rate Reset Date, the
Applicable Margin for all Loans made, continued or maintained by such Bank shall
be the Second Revised Applicable Margin; or (ii) to reject the Second Revised
Applicable Margin (it being understood that each Bank shall have the right to
reject the Second Revised Applicable Margin whether the same shall be the same
as, greater than, or less than, the Revised Applicable Margin) , in which case
all Loans (together with accrued interest thereon) made by such Bank shall be
repaid by the Borrower on the Second Rate Reset Date and such date shall be
deemed to be the Maturity Date with respect to such Bank's Loans. Any Bank
which fails to deliver notice of its election as set forth in the preceding
sentence within five (5) Business Days after Borrower's delivery of the Rate
Reset Notice shall be deemed to have accepted the Second Revised Applicable
Margin. The failure of the Borrower to repay on or before the Second Rate Reset
Date all amounts due to any Bank that rejects the Second Revised Applicable
Margin shall constitute an Event of Default hereunder.
SECTION 2.9. Maturity Date.
The term (the "Term") of the Commitments (and each Bank's obligations
to make Loans hereunder) shall terminate and expire on the Maturity Date. Upon
the date of the termination of the Term, any Loans then outstanding (together
with accrued interest thereon and all other Obligations) shall be due and
payable.
SECTION 2.10. Optional Prepayments.
(a) The Borrower may, upon at least one (1) Business Day's notice to the
Administrative Agent, prepay any Group of Base Rate Loans or any Money Market
Borrowing bearing interest at the Base Rate pursuant to Section 8.1, in whole at
any time, or from time to time in part in amounts aggregating One Million
Dollars ($1,000,000) or any larger multiple of One Hundred Thousand Dollars
($100,000), by paying the principal amount to be prepaid together with accrued
interest thereon to the date of prepayment. Each such optional prepayment shall
be applied to prepay ratably the Loans of the several Banks included in such
Group or Borrowing.
(b) The Borrower may, upon at least one (1) Business Days' notice to the
Administrative Agent, prepay any Euro-Dollar Loan as of the last day of the
Interest Period applicable thereto. Except as provided in Article 8 and except
with respect to any Euro-Dollar Loan which has been converted to a Base Rate
Loan pursuant to Section 8.2, 8.3 or 8.4 hereof, the Borrower may not prepay all
or any portion of the principal amount of any Euro-Dollar Loan prior to the end
of the Interest Period applicable thereto unless the Borrower shall also pay any
applicable expenses pursuant to Section 2.12. Any such prepayment shall be upon
at least three (3) Business Days notice to the Administrative Agent. Each such
optional prepayment shall be in the amounts set forth in Section 2.10(a) above
and shall be applied to prepay ratably the Loans of the
<PAGE> 44
Banks included in any Group of Euro-Dollar Loans, except that any Euro-Dollar
Loan which has been converted to a Base Rate Loan pursuant to Section 8.2, 8.3
or 8.4 hereof may be prepaid without ratable payment of the other Loans in such
Group of Loans which have not been so converted. In addition, the Borrower may
not prepay all or any portion of the principal amount of any Money Market Loan
prior to the end of the Interest Period applicable thereto without the consent
of all applicable Designated Lenders and Banks.
(c) Any amounts so prepaid pursuant to Section 2.10 (a) or (b) (other a
repayment of (x) Money Market Loans, or (y) Committed Loans in connection with
the making of a Money Market Loan) may not be reborrowed.
SECTION 2.11. General Provisions as to Payments.
(a) The Borrower shall make each payment of principal of and interest on
the Loans and of fees hereunder, not later than 11:00 a.m. (New York, New York
time) on the date when due, in Federal or other funds immediately available in
New York, New York, to the Administrative Agent at its address referred to in
Section 9.1. The Administrative Agent will promptly (and in any event within
one (1) Business Day after receipt thereof) distribute to each Bank its ratable
share (or applicable share with respect to Money Market Loans) of each such
payment received by the Administrative Agent for the account of the Banks. If
and to the extent that the Administrative Agent shall receive any such payment
for the account of the Banks on or before 12:00 Noon (New York, New York time)
on any Business Day, and Administrative Agent shall not have distributed to any
Bank its applicable share of such payment on such Business Day, Administrative
Agent shall distribute such amount to such Bank together with interest thereon,
for each day from the date such amount should have been distributed to such Bank
until the date Administrative Agent distributes such amount to such Bank, at the
Federal Funds Rate. Whenever any payment of principal of, or interest on, the
Base Rate Loans, shall be due on a day which is not a Business Day, the date for
payment thereof shall be extended to the next succeeding Business Day. Whenever
any payment of principal of, or interest on, the Euro-Dollar Loans shall be due
on a day which is not a Business Day, the date for payment shall be extended to
the next succeeding Business Day unless such Business Day falls in another
calendar month, in which case the date for payment thereof shall be the next
preceding Business Day. Whenever any payment of principal of, or interest on,
the Money Market Loans shall be due on a day which is not a Business Day, the
date for payment thereof shall be extended to the next succeeding Business Day.
If the date for any payment of principal is extended by operation of law or
otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Banks hereunder
that the Borrower will not make such payment in full, the Administrative Agent
may assume that the Borrower has made such payment in full to the Administrative
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Bank on such due date an amount
equal to the amount then due such Bank. If and to the extent that the Borrower
shall not have so made such payment, each Bank shall repay to the Administrative
Agent forthwith on
<PAGE> 45
demand such amount distributed to such Bank together with interest thereon, for
each day from the date such amount is distributed to such Bank until the date
such Bank repays such amount to the Administrative Agent, at the Federal Funds
Rate.
SECTION 2.12. Funding Losses. If the Borrower makes any payment of
principal with respect to any Euro-Dollar Loan or Money Market IBOR Loan
(pursuant to Article VI or otherwise) on any day other than the last day of the
Interest Period applicable thereto, or if the Borrower fails to borrow any
Euro-Dollar Loans or Money Market IBOR Loans after the notice has been given to
any Bank in accordance with Section 2.3(a) or 2.4(f), as applicable, or if
Borrower shall deliver a Notice of Interest Rate Election specifying that a
Euro-Dollar Loan shall be converted on a date other than the first (1st) day of
the then current Interest Period applicable thereto, the Borrower shall
reimburse each Bank within 15 days after certification of such Bank of such loss
or expense (which shall be delivered by each such Bank to Administrative Agent
for delivery to Borrower) for any resulting loss or expense incurred by it (or
by an existing Participant in the related Loan), including, without limitation,
any loss incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after any such payment or
failure to borrow, provided that such Bank shall have delivered to
Administrative Agent and Administrative Agent shall have delivered to the
Borrower a certification as to the amount of such loss or expense, which
certification shall set forth in reasonable detail the basis for and calculation
of such loss or expense and shall be conclusive in the absence of demonstrable
error.
SECTION 2.13. Computation of Interest and Fees. All interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.14. Use of Proceeds. The Borrower shall use the proceeds
of the Loans for general corporate purposes, including, without limitation, the
acquisition of real property to be used in the Borrower's existing business, the
payment or prepayment of existing indebtedness, and for general working capital
needs of the Borrower.
ARTICLE III
CONDITIONS
SECTION 3.1. Closing. The closing hereunder shall occur on the date
when each of the following conditions is satisfied (or waived in writing by the
Administrative Agent and the Banks), each document to be dated the Closing Date
unless otherwise indicated:
(a) the Borrower shall have executed and delivered to the Administrative
Agent a Note for the account of each Bank dated on or before the Closing Date
complying with the provisions of Section 2.4;
<PAGE> 46
(b) the Borrower, the Administrative Agent and Arranger and each of the
Banks shall have executed and delivered to the Borrower and the Administrative
Agent a duly executed original of this Agreement;
(c) EOPT shall have executed and delivered to the Administrative Agent a
duly executed original of the EOPT Guaranty;
(d) the Administrative Agent shall have received an opinion of Rosenberg &
Liebentritt, P.C., counsel for the Borrower and EOPT, acceptable to the
Administrative Agent, the Banks and their counsel, as well as an opinion of
Skadden, Arps, Slate, Meagher & Flom, LLP, counsel to the Administrative Agent;
(e) the Administrative Agent shall have received all documents the
Administrative Agent may reasonably request relating to the existence of the
Borrower and EOPT, the authority for and the validity of this Agreement and the
other Loan Documents, the incumbency of officers executing this Agreement and
the other Loan Documents and any other matters relevant hereto, all in form and
substance satisfactory to the Administrative Agent. Such documentation shall
include, without limitation, the agreement of limited partnership of the
Borrower, as well as the certificate of limited partnership of the Borrower,
both as amended, modified or supplemented to the Closing Date, certified to be
true, correct and complete by a senior officer of the Borrower as of a date not
more than ten (10) days prior to the Closing Date, together with a certificate
of existence as to the Borrower from the Secretary of State (or the equivalent
thereof) of Delaware, to be dated not more than thirty (30) days prior to the
Closing Date, as well as the declaration of trust of EOPT, as amended, modified
or supplemented to the Closing Date, certified to be true, correct and complete
by a senior officer of EOPT as of a date not more than ten (10) days prior to
the Closing Date, together with a good standing certificate as to EOPT from the
Secretary of State (or the equivalent thereof) of Maryland, to be dated not more
than thirty (30) days prior to the Closing Date;
(f) the Borrower and EOPT each shall have executed a solvency certificate
acceptable to the Administrative Agent;
(g) the Administrative Agent shall have received all certificates,
agreements and other documents and papers referred to in this Section 3.1 and
the Notice of Borrowing referred to in Section 3.2, if applicable, unless
otherwise specified, in sufficient counterparts, satisfactory in form and
substance to the Administrative Agent in its sole discretion;
(h) the Borrower shall have taken all actions required to authorize the
execution and delivery of this Agreement and the other Loan Documents and the
performance thereof by the Borrower, and EOPT shall have taken all actions
required to authorize the execution and delivery of the reaffirmation of the
EOPT Guaranty and the other Loan Documents and the performance thereof by EOPT;
<PAGE> 47
(i) the Banks shall be satisfied that neither the Borrower, EOPT nor any
Consolidated Subsidiary is subject to any present or contingent environmental
liability which could have a Material Adverse Effect and the Borrower shall have
delivered a certificate so stating;
(j) the Administrative Agent shall have received all fees due and payable
on or before the Closing Date, and the reasonable fees and expenses accrued
through the Closing Date of Skadden, Arps, Slate, Meagher & Flom LLP shall have
been paid to Skadden, Arps, Slate, Meagher & Flom LLP;
(k) the Borrower shall have delivered copies of all consents, licenses and
approvals, if any, required in connection with the execution, delivery and
performance by the Borrower and EOPT, and the validity and enforceability, of
the Loan Documents, or in connection with any of the transactions contemplated
thereby, and such consents, licenses and approvals shall be in full force and
effect;
(l) no Default or Event of Default shall have occurred; and
(m) the Borrower shall have delivered a certificate in form acceptable to
Administrative Agent showing compliance with the requirements of Section 5.8 as
of the Closing Date.
SECTION 3.2. Borrowings. The obligation of any Bank to make a Loan
on the Funding Date is subject to the satisfaction of the following conditions:
(a) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.2;
(b) immediately after such Borrowing, the aggregate outstanding principal
amount of the Loans will not exceed the aggregate amount of the Commitments;
(c) immediately before and after such Borrowing, no Default or Event of
Default shall have occurred and be continuing both before and after giving
effect to the making of such Loans;
(d) the representations and warranties of the Borrower contained in this
Agreement (other than representations and warranties which expressly speak as of
a different date) shall be true and correct in all material respects on and as
of the date of such Borrowing both before and after giving effect to the making
of such Loans;
(e) no law or regulation shall have been adopted, no order, judgment or
decree of any governmental authority shall have been issued, and no litigation
shall be pending, which does or seeks to enjoin, prohibit or restrain, the
making or repayment of the Loans or the consummation of the transactions
contemplated by this Agreement; and
<PAGE> 48
(f) no event, act or condition shall have occurred after the Closing Date
which, in the reasonable judgment of the Administrative Agent or the Required
Banks, as the case may be, has had or is likely to have a Material Adverse
Effect.
(g) Each Borrowing hereunder shall be deemed to be a representation and
warranty by the Borrower on the date of such Borrowing as to the facts specified
in clauses (b), (c), (d), (e) and (f) (to the extent that Borrower is or should
have been aware of any Material Adverse Effect) of this Section, except as
otherwise disclosed in writing by Borrower to the Banks. Notwithstanding
anything to the contrary, no Borrowing shall be permitted if such Borrowing
would cause Borrower to fail to be in compliance with any of the covenants
contained in this Agreement or in any of the other Loan Documents.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Administrative Agent and each of the Banks
which is or may become a party to this Agreement to make the Loans, the Borrower
makes the following representations and warranties as of the Closing Date. Such
representations and warranties shall survive the effectiveness of this
Agreement, the execution and delivery of the other Loan Documents and the making
of the Loans.
SECTION 4.1. Existence and Power. The Borrower is a limited
partnership, duly formed and validly existing as a limited partnership under the
laws of the State of Delaware and has all powers and all material governmental
licenses, authorizations, consents and approvals required to own its property
and assets and carry on its business as now conducted or as it presently
proposes to conduct and has been duly qualified and is in good standing in every
jurisdiction in which the failure to be so qualified and/or in good standing is
likely to have a Material Adverse Effect. EOPT is a real estate investment
trust, duly formed, validly existing and in good standing as a real estate
investment trust under the laws of the State of Maryland and has all powers and
all material governmental licenses, authorizations, consents and approvals
required to own its property and assets and carry on its business as now
conducted or as it presently proposes to conduct and has been duly qualified and
is in good standing in every jurisdiction in which the failure to be so
qualified and/or in good standing is likely to have a Material Adverse Effect.
SECTION 4.2. Power and Authority. The Borrower has the partnership
power and authority to execute, deliver and carry out the terms and provisions
of each of the Loan Documents to which it is a party and has taken all necessary
partnership action, if any, to authorize the execution and delivery on behalf of
the Borrower and the performance by the Borrower of such Loan Documents. The
Borrower and EOPT each have duly executed and delivered each Loan Document to
which it is a party in accordance with the terms of this Agreement, and each
such Loan Document constitutes the legal, valid and binding obligation of the
Borrower and EOPT,
<PAGE> 49
enforceable in accordance with its terms, except as enforceability may be
limited by applicable insolvency, bankruptcy or other laws affecting creditors
rights generally, or general principles of equity, whether such enforceability
is considered in a proceeding in equity or at law. EOPT has the power and
authority to execute, deliver and carry out the terms and provisions of each of
the Loan Documents to which it is a party and has taken all necessary action to
authorize the execution, delivery and performance of such Loan Documents. EOPT
has the power and authority to execute, deliver and carry out the terms and
provisions of each of the Loan Documents on behalf of the Borrower to which the
Borrower is a party and has taken all necessary action to authorize the
execution and delivery on behalf of the Borrower and the performance by the
Borrower of such Loan Documents.
SECTION 4.3. No Violation. (a) Neither the execution,
delivery or performance by or on behalf of the Borrower of the Loan Documents to
which it is a party, nor compliance by the Borrower with the terms and
provisions thereof nor the consummation of the transactions contemplated by the
Loan Documents, (i) will materially contravene any applicable provision of any
law, statute, rule, regulation, order, writ, injunction or decree of any court
or governmental instrumentality, (ii) will materially conflict with or result in
any breach of, any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets of
the Borrower or any of its Consolidated Subsidiaries pursuant to the terms of
any indenture, mortgage, deed of trust, or other agreement or other instrument
to which the Borrower (or of any partnership of which the Borrower is a partner)
or any of its Consolidated Subsidiaries is a party or by which it or any of its
property or assets is bound or to which it is subject (except for such breaches
and defaults under loan agreements which the lenders thereunder have agreed to
forbear pursuant to valid forbearance agreements), or (iii) will cause a
material default by the Borrower under any organizational document of any Person
in which the Borrower has an interest, or cause a material default under the
Borrower's agreement or certificate of limited partnership, the consequences of
which conflict, breach or default would have a Material Adverse Effect, or
result in or require the creation or imposition of any Lien whatsoever upon any
Property (except as contemplated herein).
(b) Neither the execution, delivery or performance by EOPT of the
Loan Documents to which it is a party, nor compliance by EOPT with the terms and
provisions thereof nor the consummation of the transactions contemplated by the
Loan Documents, (i) will materially contravene any applicable provision of any
law, statute, rule, regulation, order, writ, injunction or decree of any court
or governmental instrumentality, (ii) will materially conflict with or result in
any breach of, any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets of
EOPT or any of its Consolidated Subsidiaries pursuant to the terms of any
indenture, mortgage, deed of trust, or other agreement or other instrument to
which EOPT (or of any partnership of which EOPT is a partner) or any of its
Consolidated Subsidiaries is a party or by which it or any of its property or
assets is bound or to which it is subject (except for such breaches and defaults
under loan agreements which the lenders thereunder have agreed to forbear
pursuant to valid forbearance agreements), or (iii) will cause a material
default
<PAGE> 50
by EOPT under any organizational document of any Person in which EOPT has an
interest, the consequences of which conflict, breach or default would have a
Material Adverse Effect, or result in or require the creation or imposition of
any Lien whatsoever upon any Property (except as contemplated herein).
SECTION 4.4. Financial Information. (a) The consolidated
balance sheet of EOPT as of December 31, 1997, and the related statements of
operations and cash flows of EOPT for the period from July 11, 1997 to December
31, 1997, reported on by Ernst & Young LLP, fairly present, in conformity with
GAAP, the consolidated financial position of EOPT as of such date and the
consolidated results of operations and cash flows for the period from July 11,
1997 to December 31, 1997.
(b) Since June 30, 1998, (i) except as may have been disclosed in
writing to the Banks, nothing has occurred having a Material Adverse Effect, and
(ii) except as set forth on Schedule 4.4(b), neither the Borrower nor EOPT has
incurred any material indebtedness or guaranty on or before the Closing Date.
SECTION 4.5. Litigation. Except as previously disclosed by the
Borrower in writing to the Banks, there is no action, suit or proceeding pending
against, or to the knowledge of the Borrower threatened against or affecting,
(i) the Borrower, EOPT or any of their Consolidated Subsidiaries, (ii) the Loan
Documents or any of the transactions contemplated by the Loan Documents or (iii)
any of their assets, before any court or arbitrator or any governmental body,
agency or official in which there is a reasonable possibility of an adverse
decision which could, individually, or in the aggregate have a Material Adverse
Effect or which in any manner draws into question the validity of this Agreement
or the other Loan Documents. As of the Closing Date, no such action, suit or
proceeding exists.
SECTION 4.6. Compliance with ERISA. (a) Except as set forth on
Schedule 4.6 attached hereto, neither Borrower nor EOPT is a member of or has
entered into, maintained, contributed to, or been required to contribute to, or
may incur any liability with respect to any Plan or Multiemployer Plan or any
other Benefit Arrangement.
(b) Except for a "prohibited transaction" arising solely because of
a Bank's breach of the covenant set forth in Section 9.17 hereof, the
transactions contemplated by the Loan Documents will not constitute a nonexempt
prohibited transaction (as such term is defined in Section 4975 of the Code or
Section 406 of ERISA) that could subject the Administrative Agent or any of the
Banks to any tax or penalty on prohibited transactions imposed under Section
4975 of the Code or Section 502(i) of ERISA and such transactions will not
otherwise result in the Administrative Agent or any of the Banks being deemed in
violation of Sections 404 or 406 of ERISA or Section 4975 of the Code or in the
Administrative Agent or any of the Banks being a fiduciary or party in interest
under ERISA or a "disqualified person" as defined in Section 4975(e)(2) of the
Code with respect to an "employee benefit plan" within the meaning of Section
3(3) of ERISA or a "plan" within the meaning of Section 4975(e)(1) of the Code.
No assets of Borrower constitute "assets" (within the meaning of ERISA or
Section 4975 of the Code, including, but not limited to, 29 C.F.R. Section
2510.3-101 or any successor regulation thereto) of an "employee benefit plan"
within the meaning of Section 3(3) of ERISA or a "plan" within the meaning of
Section 4975(e)(1) of the Code. In addition to the prohibitions set forth in
this Agreement and the other Loan Documents, and not in limitation thereof,
Borrower covenants and agrees that Borrower shall not use any "assets" (within
the meaning of ERISA or Section 4975 of the Code, including, but not limited
<PAGE> 51
to, 29 C.F.R. Section 2510.3-101 or any successor regulation thereto) of an
"employee benefit plan" within the meaning of Section 3(3) of ERISA or a "plan"
within the meaning of Section 4975(e)(1) of the Code to repay or secure the
Notes, the Loan, or the Obligations.
SECTION 4.7. Environmental. The Borrower conducts reviews of
the effect of Environmental Laws on the business, operations and properties of
the Borrower and its Consolidated Subsidiaries when necessary in the course of
which it identifies and evaluates associated liabilities and costs (including,
without limitation, any capital or operating expenditures required for clean-up
or closure of properties presently owned, any capital or operating expenditures
required to achieve or maintain compliance with environmental protection
standards imposed by law or as a condition of any license, permit or contract,
any related constraints on operating activities, and any actual or potential
liabilities to third parties, including, without limitation, employees, and any
related costs and expenses). On the basis of this review, the Borrower has
reasonably concluded that such associated liabilities and costs, including,
without limitation, the costs of compliance with Environmental Laws, are
unlikely to have a Material Adverse Effect.
SECTION 4.8. Taxes. The Borrower, EOPT and their Consolidated
Subsidiaries have filed all United States Federal income tax returns and all
other material tax returns which are required to be filed by them and have paid
all taxes due pursuant to such returns or pursuant to any assessment received by
the Borrower, EOPT or any Consolidated Subsidiary, except such taxes, if any, as
are reserved against in accordance with GAAP, such taxes as are being contested
in good faith by appropriate proceedings or such taxes, the failure to make
payment of which when due and payable will not have, in the aggregate, a
Material Adverse Effect. The charges, accruals and reserves on the books of the
Borrower, EOPT and their Consolidated Subsidiaries in respect of taxes or other
governmental charges are, in the opinion of the Borrower, adequate.
SECTION 4.9. Full Disclosure. All information heretofore
furnished by the Borrower to the Administrative Agent, the Arranger or any Bank
for purposes of or in connection with this Agreement or any transaction
contemplated hereby or thereby is true and accurate in all material respects on
the date as of which such information is stated or certified. The Borrower has
disclosed to the Administrative Agent, in writing any and all facts which have
or may have (to the extent the Borrower can now reasonably foresee) a Material
Adverse Effect.
SECTION 4.10. Solvency. On the Closing Date and after giving
effect to the transactions contemplated by the Loan Documents occurring on the
Closing Date, the Borrower and EOPT will be Solvent.
SECTION 4.11. Use of Proceeds. All proceeds of the Loans will
be used by the Borrower only in accordance with the provisions hereof. Neither
the making of any Loan nor the
<PAGE> 52
use of the proceeds thereof will violate or be inconsistent with the provisions
of regulations T, U, or X of the Federal Reserve Board.
SECTION 4.12. Governmental Approvals. No order, consent, approval,
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection with
the execution, delivery and performance of any Loan Document or the consummation
of any of the transactions contemplated thereby other than those that have
already been duly made or obtained and remain in full force and effect or those
which, if not made or obtained, would not have a Material Adverse Effect;
SECTION 4.13. Investment Company Act; Public Utility Holding Company
Act . Neither the Borrower, EOPT nor any Consolidated Subsidiary is (x) an
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended, (y) a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of either a "holding company" or a "subsidiary company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended, or (z)
subject to any other federal or state law or regulation which purports to
restrict or regulate its ability to borrow money.
SECTION 4.14. Principal Offices. As of the Closing Date, the
principal office, chief executive office and principal place of business of the
Borrower is Two North Riverside Plaza, Suite 2200, Chicago, Illinois 60606.
SECTION 4.15. REIT Status. EOPT is qualified and EOPT intends to
continue to qualify as a real estate investment trust under the Code. 1.4.
SECTION Patents, Trademarks, etc. The Borrower has obtained and holds in full
force and effect all patents, trademarks, servicemarks, trade names, copyrights
and other such rights, free from burdensome restrictions, which are necessary
for the operation of its business as presently conducted, the impairment of
which is likely to have a Material Adverse Effect.
SECTION 4.16. Patents, Trademarks, etc. The Borrower has obtained
and holds in full force and effect all patents, trademarks, servicemarks, trade
names, copyrights and other such rights, free from burdensome restrictions,
which are necessary for the operation of its business as presently conducted,
the impairment of which is likely to have a Material Adverse Effect.
SECTION 4.17. Judgments. As of the Closing Date, there are no
final, non-appealable judgments or decrees in an aggregate amount of Five
Million Dollars ($5,000,000) or more entered by a court or courts of competent
jurisdiction against EOPT or the Borrower or, to the extent such judgment would
be recourse to EOPT or Borrower, any of its Consolidated Subsidiaries (other
than judgments as to which, and only to the extent, a reputable insurance
company has acknowledged coverage of such claim in writing).
SECTION 4.18. No Default. No Event of Default or, to the best of the
Borrower's knowledge, Default exists under or with respect to any Loan Document
and the Borrower is not in default in any material respect beyond any applicable
grace period under or with respect to any other material agreement, instrument
or undertaking to which it is a party or by which it or any of its property is
bound in any respect, the existence of which default is likely to result in a
Material Adverse Effect.
<PAGE> 53
SECTION 4.19. Licenses, etc. The Borrower has obtained and does
hold in full force and effect, all franchises, licenses, permits, certificates,
authorizations, qualifications, accreditation, easements, rights of way and
other consents and approvals which are necessary for the operation of its
businesses as presently conducted, the absence of which is likely to have a
Material Adverse Effect.
SECTION 4.20. Compliance With Law. To the Borrower's knowledge,
the Borrower and each of its Real Property Assets are in compliance with all
laws, rules, regulations, orders, judgments, writs and decrees, including,
without limitation, all building and zoning ordinances and codes, the failure to
comply with which is likely to have a Material Adverse Effect.
SECTION 4.21. No Burdensome Restrictions. Except as may have
been disclosed by the Borrower in writing to the Banks, Borrower is not a party
to any agreement or instrument or subject to any other obligation or any charter
or corporate or partnership restriction, as the case may be, which, individually
or in the aggregate, is likely to have a Material Adverse Effect.
SECTION 4.22. Brokers' Fees. The Borrower has not dealt with
any broker or finder with respect to the transactions contemplated by this
Agreement or otherwise in connection with this Agreement, and the Borrower has
not done any act, had any negotiations or conversation, or made any agreements
or promises which will in any way create or give rise to any obligation or
liability for the payment by the Borrower of any brokerage fee, charge,
commission or other compensation to any party with respect to the transactions
contemplated by the Loan Documents, other than the fees payable to the
Administrative Agent, the Arranger and the Banks, and certain other Persons as
previously disclosed in writing to the Administrative Agent.
SECTION 4.23. Labor Matters. Except as disclosed on Schedule
4.6, there are no collective bargaining agreements or Multiemployer Plans
covering the employees of the Borrower or any member of the ERISA Group and
neither the Borrower nor any member of the ERISA Group has suffered any strikes,
walkouts, work stoppages or other material labor difficulty within the last five
years.
SECTION 4.24. Insurance. The Borrower currently maintains
insurance at 100% replacement cost insurance coverage (subject to customary
deductibles) in respect of each of its Real Property Assets, as well as
commercial general liability insurance (including, without limitation,
"builders' risk" where applicable) against claims for personal, and bodily
injury and/or death, to one or more persons, or property damage, as well as
workers' compensation insurance, in each case with respect to liability and
casualty insurance with insurers having an A.M. Best policyholders' rating of
not less than A-VII in amounts that prudent owners of assets such as Borrower's
directly or indirectly owned Real Property Assets would maintain.
SECTION 4.25. Organizational Documents. The documents delivered
pursuant to Section 3.1(e) constitute, as of the Closing Date, all of the
organizational documents (together with all amendments and modifications
thereof) of the Borrower and EOPT. The Borrower rep-
<PAGE> 54
resents that it has delivered to the Administrative Agent true, correct and
complete copies of each such documents. EOPT is the managing general partner of
the Borrower and each of Zell/Merrill Lynch Real Estate Opportunity Partners
Limited Partnership, Zell/Merrill Lynch Real Estate Opportunity Partners Limited
Partnership II, Zell/Merrill Lynch Real Estate Opportunity Partners Limited
Partnership III, and Zell/Merrill Lynch Real Estate Opportunity Partners Limited
Partnership IV as of the date hereof. EOPT holds (directly or indirectly) a
89.70% ownership interest in the Borrower as of the date hereof.
SECTION 4.26. Qualifying Unencumbered Properties . As of the
date hereof, each Property listed on Schedule 1.1 as a Qualifying Unencumbered
Property (i) is an operating Office Building or Parking Property wholly-owned
(directly or beneficially) by Borrower, a Financing Partnership or a Joint
Venture Subsidiary, (ii) is not subject (nor are any equity interests in such
Property that are owned directly or indirectly by Borrower, EOPT or any Joint
Venture Parent subject) to a Lien which secures Indebtedness of any Person,
other than Permitted Liens, and (iii) is not subject (nor are any equity
interests in such Property that are owned directly or indirectly by Borrower,
EOPT or Joint Venture Parent subject) to any covenant, condition, or other
restriction which prohibits or limits the creation or assumption of any Lien
upon such Property. All of the information set forth on Schedule 1.1 is true and
correct in all material respects.
SECTION 4.27. "Year 2000" Compliance. The Borrower and EOPT have
conducted a review and assessment of the Borrower's and EOPT's computer
applications with respect to the "year 2000 problem" (that is, the risk that
computer applications may not be able to properly perform date-sensitive
functions after December 31, 1999) and, based on that review and inquiry, the
Borrower does not believe that year 2000 problem will result in a Material
Adverse Effect to the Borrower's or EOPT's financial condition or results of
operations, or on its ability to repay the Loan.
<PAGE> 55
ARTICLE V
AFFIRMATIVE AND NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as any Bank has
any Commitment hereunder or any Obligations remain unpaid:
SECTION 5.1. Information. The Borrower will deliver to each of
the Banks:
(a) as soon as available and in any event within five (5) Business Days after
the same is required to be filed with the Securities and Exchange Commission
(but in no event later than 125 days after the end of each Fiscal Year of the
Borrower) a consolidated balance sheet of the Borrower, EOPT and their
Consolidated Subsidiaries as of the end of such Fiscal Year and the related
consolidated statements of Borrower's and EOPT's operations and consolidated
statements of Borrower's and EOPT's cash flow for such Fiscal Year, setting
forth in each case in comparative form the figures for the previous Fiscal Year
(if available), all reported in a manner acceptable to the Securities and
Exchange Commission on Borrower's and EOPT's Form 10K and reported on by Ernst
& Young LLP or other independent public accountants of nationally recognized
standing;
(b) as soon as available and in any event within five (5) Business
Days after the same is required to be filed with the Securities and Exchange
Commission (but in no event later than 80 days after the end of each of the
first three quarters of each Fiscal Year of the Borrower and EOPT), (i) a
consolidated balance sheet of the Borrower, EOPT and their Consolidated
Subsidiaries as of the end of such quarter and the related consolidated
statements of Borrower's and EOPT's operations and consolidated statements of
Borrower's and EOPT's cash flow for such quarter and for the portion of the
Borrower's or EOPT's Fiscal Year ended at the end of such quarter, all reported
in the form provided to the Securities and Exchange Commission on Borrower's and
EOPT's Form 10Q, and (ii) and such other information reasonably requested by the
Administrative Agent or any Bank;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of a senior
officer of the Borrower (i) setting forth in reasonable detail the calculations
required to establish whether the Borrower was in compliance with the
requirements of Section 5.8 on the date of such financial statements; (ii)
certifying (x) that such financial statements fairly present the financial
condition and the results of operations of the Borrower on the dates and for the
periods indicated, on the basis of GAAP, with respect to the Borrower subject,
in the case of interim financial statements, to normally recurring year-end
adjustments, and (y) that such officer has reviewed the terms of the Loan
Documents and has made, or caused to be made under his or her supervision, a
review in reasonable detail of the business and condition of the Borrower during
the period beginning on the date through which the last such review was made
pursuant to this Section 5.1(c) (or, in the case of the first certifi-
<PAGE> 56
cation pursuant to this Section 5.1(c), the Closing Date) and ending on a date
not more than ten (10) Business Days prior to the date of such delivery and that
(1) on the basis of such financial statements and such review of the Loan
Documents, no Event of Default existed under Section 6.1(b) with respect to
Sections 5.8 and 5.9 at or as of the date of said financial statements, and (2)
on the basis of such review of the Loan Documents and the business and condition
of the Borrower, to the best knowledge of such officer, as of the last day of
the period covered by such certificate no Default or Event of Default under any
other provision of Section 6.1 occurred and is continuing or, if any such
Default or Event of Default has occurred and is continuing, specifying the
nature and extent thereof and, the action the Borrower proposes to take in
respect thereof. Such certificate shall set forth the calculations required to
establish the matters described in clauses (1) and (2) above;
(d) (i) within five (5) Business Days after any officer of the
Borrower obtains knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer, or other executive officer of the
Borrower setting forth the details thereof and the action which the Borrower is
taking or proposes to take with respect thereto; and (ii) promptly and in any
event within five (5) Business Days after the Borrower obtains knowledge
thereof, notice of (x) any litigation or governmental proceeding pending or
threatened against the Borrower or its directly or indirectly Real Property
Assets as to which there is a reasonable possibility of an adverse determination
and which, if adversely determined, is likely to individually or in the
aggregate, result in a Material Adverse Effect, and (y) any other event, act or
condition which is likely to result in a Material Adverse Effect;
(e) promptly upon the mailing thereof to the shareholders of EOPT
generally, copies of all financial statements, reports and proxy statements so
mailed;
(f) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) (other than the exhibits thereto, which exhibits will be provided
upon request therefor by any Bank) which EOPT shall have filed with the
Securities and Exchange Commission;
(g) promptly and in any event within thirty (30) days, if and when
any member of the ERISA Group (i) gives or is required to give notice to the
PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with
respect to any Plan which might constitute grounds for a termination of such
Plan under Title IV of ERISA, or knows that the plan administrator of any Plan
has given or is required to give notice of any such reportable event, a copy of
the notice of such reportable event given or required to be given to the PBGC;
(ii) receives notice of complete or partial withdrawal liability under Title IV
of ERISA or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice; (iii) receives notice
from the PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies
for a waiver of the minimum funding standard under Section 412 of the Code, a
copy of such application; (v) gives notice of intent to terminate any
<PAGE> 57
Plan under Section 4041(c) of ERISA, a copy of such notice and other information
filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to
Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment
or contribution to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement or makes any amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a Lien or the posting of a bond or
other security, and in the case of clauses (i) through (vii) above, which event
could result in a Material Adverse Effect, a certificate of a senior officer of
the Borrower setting forth details as to such occurrence and action, if any,
which the Borrower or applicable member of the ERISA Group is required or
proposes to take;
(h) promptly and in any event within ten (10) days after the Borrower
obtains actual knowledge of any of the following events, a certificate of the
Borrower, executed by an officer of the Borrower, specifying the nature of such
condition, and the Borrower's or, if the Borrower has actual knowledge thereof,
the Environmental Affiliate's proposed initial response thereto: (i) the receipt
by the Borrower, or any of the Environmental Affiliates of any communication
(written or oral), whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Borrower, or any of the
Environmental Affiliates, is not in compliance with applicable Environmental
Laws, and such noncompliance is likely to have a Material Adverse Effect, (ii)
the existence of any Environmental Claim pending against the Borrower or any
Environmental Affiliate and such Environmental Claim is likely to have a
Material Adverse Effect or (iii) any release, emission, discharge or disposal of
any Material of Environmental Concern that is likely to form the basis of any
Environmental Claim against the Borrower or any Environmental Affiliate which in
any such event is likely to have a Material Adverse Effect;
(i) promptly and in any event within five (5) Business Days after
receipt of any notices or correspondence from any company or agent for any
company providing insurance coverage to the Borrower relating to any loss which
is likely to result in a Material Adverse Effect, copies of such notices and
correspondence; and
(j) from time to time such additional information regarding the
financial position or business of the Borrower, EOPT and their Subsidiaries as
the Administrative Agent, at the request of any Bank, may reasonably request in
writing, so long as disclosure of such information could not result in a
violation of, or expose the Borrower, EOPT or their Subsidiaries to any material
liability under, any applicable law, ordinance or regulation or any agreements
with unaffiliated third parties that are binding on the Borrower, EOPT or any of
their Subsidiaries or on any Property of any of them.
SECTION 5.2. Payment of Obligations. The Borrower, EOPT and
their Consolidated Subsidiaries will pay and discharge, at or before maturity,
all their respective material obligations and liabilities including, without
limitation, any obligation pursuant to any agreement by which it or any of its
properties is bound, in each case where the failure to so pay or discharge such
obligations or liabilities is likely to result in a Material Adverse Effect,
and will maintain in accordance with GAAP, appropriate reserves for the accrual
of any of the same.
<PAGE> 58
SECTION 5.3. Maintenance of Property; Insurance; Leases.
(a) The Borrower will keep, and will cause each Consolidated
Subsidiary to keep, all property useful and necessary in its business, including
without limitation its Real Property Assets (for so long as it constitutes Real
Property Assets), in good repair, working order and condition, ordinary wear and
tear excepted, in each case where the failure to so maintain and repair will
have a Material Adverse Effect.
(b) The Borrower shall maintain, or cause to be maintained, insurance
comparable to that described in Section 4.24 hereof with insurers meeting the
qualifications described therein, which insurance shall in any event not
provide for less coverage than insurance customarily carried by owners of
properties similar to, and in the same locations as, Borrower's Real Property
Assets. The Borrower will deliver to the Administrative Agent upon the
reasonable request of the Administrative Agent from time to time (i) full
information as to the insurance carried, (ii) within five (5) days of receipt
of notice from any insurer a copy of any notice of cancellation or material
change in coverage from that existing on the date of this Agreement and (iii)
forthwith, notice of any cancellation or nonrenewal of coverage by the
Borrower.
SECTION 5.4. Maintenance of Existence. The Borrower and EOPT
each will preserve, renew and keep in full force and effect, its partnership and
trust existence and its respective rights, privileges and franchises necessary
for the normal conduct of business unless the failure to maintain such rights
and franchises does not have a Material Adverse Effect.
SECTION 5.5. Compliance with Laws. The Borrower and EOPT will,
and will cause their Subsidiaries to, comply in all material respects with all
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities (including, without limitation, Environmental Laws, and
all zoning and building codes with respect to its Real Property Assets and ERISA
and the rules and regulations thereunder and all federal securities laws) except
where the necessity of compliance therewith is contested in good faith by
appropriate proceedings or where the failure to do so will not have a Material
Adverse Effect or expose Administrative Agent or the Banks to any material
liability therefor.
SECTION 5.6. Inspection of Property, Books and Records. The
Borrower will keep proper books of record and account in which full, true and
correct entries shall be made of all dealings and transactions in relation to
its business and activities in conformity with GAAP, modified as required by
this Agreement and applicable law; and will permit representatives of any Bank
at such Bank's expense to visit and inspect any of its properties, including
without limitation its Real Property Assets, and so long as disclosure of such
information could not result in a violation of, or expose the Borrower, EOPT or
their Subsidiaries to any material liability under, any applicable law,
ordinance or regulation or any agreements with unaffiliated third parties that
are binding on the Borrower, EOPT or any of their Subsidiaries or on any
Property of any of them, to examine and make abstracts from any of its books and
records and to discuss its affairs, finances and accounts with its officers and
independent public accountants, all at such reasonable times during normal
business hours, upon reasonable prior notice and as often as may reasonably
<PAGE> 59
be desired. Administrative Agent shall coordinate any such visit or inspection
to arrange for review by any Bank requesting any such visit or inspection.
SECTION 5.7. Existence. The Borrower shall do or cause to be
done, all things necessary to preserve and keep in full force and effect its,
EOPT's and their Consolidated Subsidiaries' existence and its patents,
trademarks, servicemarks, tradenames, copyrights, franchises, licenses, permits,
certificates, authorizations, qualifications, accreditation, easements, rights
of way and other rights, consents and approvals the nonexistence of which is
likely to have a Material Adverse Effect.
SECTION 5.8. Financial Covenants.
(a) Total Liabilities to Total Asset Value. Borrower shall not
permit the ratio of Total Liabilities to Total Asset Value of Borrower to exceed
0.50:1 at any time.
(b) EBITDA to Interest Expense Ratio. Borrower shall not permit the
ratio of EBITDA for the then most recently completed Fiscal Quarter to Interest
Expense for the then most recently completed Fiscal Quarter to be less than
2.00:1.
(c) [Intentionally Omitted.]
(d) Cash Flow to Fixed Charges Ratio. Borrower shall not permit the
ratio of Cash Flow for the then most recently completed Fiscal Quarter to Fixed
Charges for the then most recently completed Fiscal Quarter to be less than
1.5:1.
(e) Secured Debt to Total Asset Value. Borrower shall not permit the
ratio of Secured Debt to Total Asset Value of Borrower to exceed 0.40:1 at any
time.
(f) Unencumbered Pool. Borrower shall not permit the ratio of the
outstanding Unsecured Debt to Unencumbered Asset Value to exceed 0.55:1 at any
time.
(g) Unencumbered Net Operating Income to Unsecured Debt Service.
Borrower shall not permit the ratio of Unencumbered Net Operating Income for the
then most recently completed Fiscal Quarter to Unsecured Debt Service for the
then most recently completed Fiscal Quarter to be less than 2.0:1.
(h) Minimum Tangible Net Worth. The Consolidated Tangible Net Worth
of the Borrower determined in conformity with GAAP will at no time be less than
the sum of (i) $5,500,000,000, and (ii) seventy percent (70%) of all Net
Offering Proceeds received by EOPT or Borrower after December 31, 1997.
(i) Dividends. The Borrower will not, as determined on an aggregate
annual basis, pay any partnership distributions in excess of 90% of the
Borrower's FFO for such year. During the continuance of a monetary Event of
Default, Borrower shall only pay partnership distribu-
<PAGE> 60
tions that are necessary to enable EOPT to make those dividends necessary to
maintain EOPT's status as a real estate investment trust.
(j) Permitted Holdings. Borrower's primary business will be the
ownership, operation and development of Office Properties and Parking Properties
and any other business activities of Borrower and its Subsidiaries will remain
incidental thereto. Notwithstanding the foregoing, Borrower and its Subsidiaries
may acquire or maintain Permitted Holdings if and so long as the aggregate value
of Permitted Holdings, whether held directly or indirectly by Borrower does not
exceed, at any time, fifteen percent (15%) of Total Asset Value of Borrower
unless a greater percentage is approved by the Majority Banks (which approval
shall not be unreasonably withheld, conditioned or delayed), provided, however,
Borrower and its Subsidiaries may not acquire or maintain Unimproved Assets if
and to the extent that the aggregate value of Unimproved Assets, whether held
directly or indirectly by Borrower exceeds, at any time, ten percent (10%) of
Total Asset Value of Borrower unless a greater percentage is approved by the
Majority Banks (which approval shall not be unreasonably withheld, conditioned
or delayed). For purposes of calculating the foregoing percentage the value of
Unimproved Assets shall be calculated in the manner that Total Asset Value is
determined.
(k) No Liens. Borrower and EOPT shall not, and shall not allow any
of their Subsidiaries, Financing Partnerships or Joint Venture Subsidiaries to,
allow any Qualifying Unencumbered Property (or any equity interests in such
Property that are owned directly or indirectly by Borrower, EOPT or any Joint
Venture Parent), that is necessary to comply with the provisions of Sections
5.8(f) and (g) hereof, to become subject to a Lien that secures the Indebtedness
of any Person, other than Permitted Liens.
(l) Calculation. Each of the foregoing ratios and financial
requirements shall be calculated as of the last day of each Fiscal Quarter.
SECTION 5.9. Restriction on Fundamental Changes. (a) Neither
the Borrower nor EOPT shall enter into any merger or consolidation without
obtaining the prior written consent thereto in writing of the Majority Banks,
which consent shall not be unreasonably withheld, conditioned or delayed, unless
(i) the Borrower or EOPT is the surviving entity, (ii) the entity which is
merged into Borrower or EOPT is predominantly in the commercial real estate
business, (iii) the creditworthiness of the surviving entity's long term
unsecured debt or implied senior debt, as applicable, is not lower than
Borrower's or EOPT's creditworthiness two months immediately preceding such
merger, and (iv) the then fair market value of the assets of the entity which is
merged into the Borrower or EOPT is less than twenty-five percent (25%) of the
Borrower's or EOPT's then Total Asset Value following such merger. Neither the
Borrower nor EOPT shall liquidate, wind-up or dissolve (or suffer any
liquidation or dissolution), discontinue its business or convey, lease, sell,
transfer or otherwise dispose of, in one transaction or series of transactions,
all or substantially all of its business or property, whether now or hereafter
acquired. Nothing in this Section shall be deemed to prohibit the sale or
leasing of portions of the Real Property Assets in the ordinary course of
business.
<PAGE> 61
(b) The Borrower shall not amend its agreement of limited partnership
or other organizational documents in any manner that would have a Material
Adverse Effect without the Majority Banks' consent, which shall not be
unreasonably withheld. Without limitation of the foregoing, no Person shall be
admitted as a general partner of the Borrower other than EOPT and Zell/Merrill
Lynch Real Estate Opportunity Partners Limited Partnership II. EOPT shall not
amend its declaration of trust, by-laws, or other organizational documents in
any manner that would have a Material Adverse Effect without the Majority Banks'
consent, which shall not be unreasonably withheld. The Borrower shall not make
any "in-kind" transfer of any of its property or assets to any of its
constituent partners.
(c) Subject to the provisions of clause (b) above, the Borrower shall
deliver to Administrative Agent copies of all amendments to its agreement of
limited partnership or to EOPT's declaration of trust, by-laws, or other
organizational documents no less than ten (10) days after the effective date of
any such amendment.
SECTION 5.10. Changes in Business. (a) Except for Permitted
Holdings, neither the Borrower nor EOPT shall enter into any business which is
substantially different from that conducted by the Borrower or EOPT on the
Closing Date after giving effect to the transactions contemplated by the Loan
Documents. The Borrower shall carry on its business operations through the
Borrower, its Consolidated Subsidiaries and its Investment Affiliates.
(b) Except for Permitted Holdings, Borrower shall not engage in any
line of business other than ownership, operation and development of Office
Properties and Parking Properties and the provision of services incidental
thereto, whether directly or through its Consolidated Subsidiaries and
Investment Affiliates.
SECTION 5.11. EOPT Status.
(a) Status. EOPT shall at all times (i) remain a publicly traded
company listed for trading on the New York Stock Exchange, and (ii) maintain its
status as a self-directed and self-administered real estate investment trust
under the Code.
(b) Indebtedness. EOPT shall not, directly or indirectly, create,
incur, assume or otherwise become or remain directly or indirectly liable with
respect to, any Indebtedness, except:
(1) the Obligations; and
(2) Indebtedness of Borrower for which there is recourse to EOPT
which, after giving effect thereto, may be incurred or may remain
outstanding without giving rise to an Event of Default or Default under
any provision of this Article V.
<PAGE> 62
(c) Restriction on Fundamental Changes.
(1) EOPT shall not have an investment in any Person other than
(i) Borrower, (ii) directly or indirectly in Financing Partnerships, and
(iii) the interests identified on Schedule 5.11(c)(1) as being owned by
EOPT.
(2) EOPT shall not acquire an interest in any Property other
than securities issued by Borrower and Financing Partnerships and the
interests identified on Schedule 5.11(c)(2) attached hereto.
(3) None of Zell/Merrill Lynch Real Estate Opportunity Partners
Limited Partnership, Zell/Merrill Lynch Real Estate Opportunity Partners
Limited Partnership II, Zell/Merrill Lynch Real Estate Opportunity
Partners Limited Partnership III or Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership IV shall have any investments or
own any assets other than in their respective partnership interests in
Borrower.
(4) Neither of EOP-QRS Trust nor EOP-QRS LaJolla Trust shall
have any investments or own any assets other than their permitted
ownership interests Financing Subsidiaries.
(d) Environmental Liabilities. Neither EOPT nor any of its
Subsidiaries shall become subject to any Environmental Claim which has a
Material Adverse Effect, including, without limitation, any arising out of or
related to (i) the release or threatened release of any Material of
Environmental Concern into the environment, or any remedial action in response
thereto, or (ii) any violation of any Environmental Laws. Notwithstanding the
foregoing provision, EOPT shall have the right to contest in good faith any
claim of violation of an Environmental Law by appropriate legal proceedings and
shall be entitled to postpone compliance with the obligation being contested as
long as (i) no Event of Default shall have occurred and be continuing, (ii) EOPT
shall have given Administrative Agent prior written notice of the commencement
of such contest, (iii) noncompliance with such Environmental Law shall not
subject EOPT or such Subsidiary to any criminal penalty or subject
Administrative Agent or any Bank to pay any civil penalty or to prosecution for
a crime, and (iv) no portion of any Property material to Borrower or its
condition or prospects shall be in substantial danger of being sold, forfeited
or lost, by reason of such contest or the continued existence of the matter
being contested.
(e) Disposal of Partnership Interests. EOPT will not directly or
indirectly convey, sell, transfer, assign, pledge or otherwise encumber or
dispose of any of its partnership interests in Borrower or any of its equity
interest in any of the partners of the Borrower as of the date hereof (except in
connection with the dissolution or liquidation of such partners of the
Borrower), except for the reduction of EOPT's interest in the Borrower arising
from Borrower's issuance of partnership interests in the Borrower or the
retirement of preference units by Borrower. EOPT will continue to be the
managing general partner of Borrower and of each Zell/Merrill
<PAGE> 63
Lynch Real Estate Opportunity Partners Limited Partnership, Zell/Merrill Lynch
Real Estate Opportunity Partners Limited Partnership II, Zell/Merrill Lynch Real
Estate Opportunity Partners Limited Partnership III, and Zell/Merrill Lynch Real
Estate Opportunity Partners Limited Partnership IV, and will not permit such
Persons to sell, transfer, assign, pledge or otherwise encumber or dispose of
any of their respective partnership interests in the Borrower, except for the
reduction of such partners' interest in the Borrower arising from the Borrower's
issuance of partnership interests in the Borrower or the retirement of
preference units by the Borrower and except in connection with the dissolution
or liquidation of such partners.
SECTION 5.12. Other Indebtednes. Borrower and EOPT shall
not allow any of their Subsidiaries, Financing Partnerships or Joint Venture
Subsidiaries that own, directly or indirectly, any Qualifying Unencumbered
Property to directly or indirectly create, incur, assume or otherwise become or
remain liable with respect to any Indebtedness other than trade debt incurred in
the ordinary course of business and Indebtedness owing to Borrower, if the
resulting failure of such Property to qualify as a Qualifying Unencumbered
Property would result in an Event of Default under Section 5.8.
SECTION 5.13. Forward Equity Contracts. If Borrower shall enter
into any forward equity contracts, Borrower may only settle the same by delivery
of stock, it being agreed that if Borrower shall settle the same with cash, the
same shall constitute an Event of Default hereunder.
ARTICLE VI
DEFAULTS
SECTION 6.1. Events of Default. An "Event of Default" shall
have occurred if one or more of the following events shall have occurred and be
continuing:
(a) the Borrower shall fail to pay when due any principal of any
Loan, or the Borrower shall fail to pay when due interest on any Loan or any
fees or any other amount payable to Administrative Agent or the Banks hereunder
and the same shall continue for a period of five (5) days after the same becomes
due;
(b) the Borrower shall fail to observe or perform any covenant
contained in Section 5.8, Section 5.9(a) or (b), Section 5.10, Section 5.11(a),
(b) or (c), Section 5.12 or Section 5.13;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a),
(b), (e), (f), (g), (h), (j), (n) or (o) of this Section 6.1) for 30 days after
written notice thereof has been given to the Borrower by the Administrative
Agent, or if such default is of such a nature that it cannot with reasonable
effort be completely remedied within said period of thirty (30) days such
additional period of time as may be reasonably necessary to cure same, provided
Borrower commences such cure within
<PAGE> 64
said thirty (30) day period and diligently prosecutes same, until completion,
but in no event shall such extended period exceed ninety (90) days;
(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made) and, with respect
to such representations, warranties, certifications or statements not known by
the Borrower at the time made or deemed made to be incorrect, the defect causing
such representation or warranty to be incorrect when made (or deemed made) is
not removed within thirty (30) days after written notice thereof from
Administrative Agent to Borrower;
(e) the Borrower, EOPT, any Subsidiary or any Investment Affiliate
shall default in the payment when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) of any amount owing in respect of
any Recourse Debt (other than the Obligations) for which the aggregate
outstanding principal amount exceeds $10,000,000 and such default shall continue
beyond the giving of any required notice and the expiration of any applicable
grace period and such default has not been waived, in writing, by the holder of
any such Debt; or the Borrower, EOPT, any Subsidiary or any Investment Affiliate
shall default in the performance or observance of any obligation or condition
with respect to any such Recourse Debt or any other event shall occur or
condition exist beyond the giving of any required notice and the expiration of
any applicable grace period, if the effect of such default, event or condition
is to accelerate the maturity of any such indebtedness or to permit (without any
further requirement of notice or lapse of time) the holder or holders thereof,
or any trustee or agent for such holders, to accelerate the maturity of any such
indebtedness;
(f) the Borrower or EOPT shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidate, custodian or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any action to authorize any of the foregoing;
(g) an involuntary case or other proceeding shall be commenced
against the Borrower or EOPT seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 90 days; or an order for
relief shall be entered against the Borrower or EOPT under the federal
bankruptcy laws as now or hereafter in effect;
(h) one or more final, non-appealable judgments or decrees in an
aggregate amount of Twenty Million Dollars ($20,000,000) or more shall be
entered by a court or courts of competent
<PAGE> 65
jurisdiction against EOPT, the Borrower or, to the extent of any recourse to
EOPT or the Borrower, any of its Consolidated Subsidiaries (other than any
judgment as to which, and only to the extent, a reputable insurance company has
acknowledged coverage of such claim in writing) and (i) any such judgments or
decrees shall not be stayed, discharged, paid, bonded or vacated within thirty
(30) days or (ii) enforcement proceedings shall be commenced by any creditor on
any such judgments or decrees;
(i) there shall be a change in the majority of the Board of Trustees
of EOPT during any twelve (12) month period, excluding any change in directors
resulting from (x) the death or disability of any director, or (y) satisfaction
of any requirement for the majority of the members of the board of directors or
trustees of EOPT to qualify under applicable law as independent trustees or (z)
the replacement of any trustee who is an officer or employee of EOPT or an
affiliate of EOPT with any other officer or employee of EOPT or an affiliate of
EOPT;
(j) any Person (including affiliates of such Person) or "group" (as
such term is defined in applicable federal securities laws and regulations)
shall acquire more than thirty percent (30%) of the common shares of EOPT;
(k) EOPT shall cease at any time to qualify as a real estate
investment trust under the Code;
(l) if any Termination Event with respect to a Plan, Multiemployer
Plan or Benefit Arrangement shall occur as a result of which Termination Event
or Events any member of the ERISA Group has incurred or may incur any liability
to the PBGC or any other Person and the sum (determined as of the date of
occurrence of such Termination Event) of the insufficiency of such Plan,
Multiemployer Plan or Benefit Arrangement and the insufficiency of any and all
other Plans, Multiemployer Plans and Benefit Arrangements with respect to which
such a Termination Event shall occur and be continuing (or, in the case of a
Multiple Employer Plan with respect to which a Termination Event described in
clause (ii) of the definition of Termination Event shall occur and be continuing
and in the case of a liability with respect to a Termination Event which is or
could be a liability of the Borrower or EOPT rather than a liability of the
Plan, the liability of the Borrower or EOPT) is equal to or greater than
$10,000,000 and which the Administrative Agent reasonably determines will have a
Material Adverse Effect;
(m) if, any member of the ERISA Group shall commit a failure
described in Section 302(f)(1) of ERISA or Section 412(n)(1) of the Code and the
amount of the lien determined under Section 302(f)(3) of ERISA or Section
412(n)(3) of the Code that could reasonably be expected to be imposed on any
member of the ERISA Group or their assets in respect of such failure shall be
equal to or greater than $10,000,000 and which the Administrative Agent
reasonably determines will have a Material Adverse Effect;
(n) at any time, for any reason the Borrower seeks to repudiate its
obligations under any Loan Document or EOPT seeks to repudiate its obligations
under the EOPT Guaranty.
<PAGE> 66
(o) a default beyond any applicable notice or grace period under any
of the other Loan Documents;
(p) any assets of Borrower shall constitute "assets" (within the
meaning of ERISA or Section 4975 of the Code, including but not limited to 29
C.F.R. Section 2510.3-101 or any successor regulation thereto) of an "employee
benefit plan" within the meaning of Section 3(3) of ERISA or a "plan" within the
meaning of Section 4975(e)(1) of the Code; or
(q) the Notes, the Loan, the Obligations, the EOPT Guaranty or any
of the Loan Documents or the exercise of any of the Administrative Agent's or
any of the Banks' rights in connection therewith shall constitute a prohibited
transaction under ERISA and/or the Code.
SECTION 6.2. Rights and Remedies. (a) Upon the occurrence of
any Event of Default described in Sections 6.1(f), (g), (p) or (q), the
Commitments shall immediately terminate and the unpaid principal amount of, and
any and all accrued interest on, the Loans and any and all accrued fees and
other Obligations hereunder shall automatically become immediately due and
payable, with all additional interest from time to time accrued thereon and
without presentation, demand, or protest or other requirements of any kind
(including, without limitation, valuation and appraisement, diligence,
presentment, notice of intent to demand or accelerate and notice of
acceleration), all of which are hereby expressly waived by the Borrower; and
upon the occurrence and during the continuance of any other Event of Default,
the Administrative Agent may (and upon the demand of the Required Banks shall),
by written notice to the Borrower, in addition to the exercise of all of the
rights and remedies permitted the Administrative Agent and the Banks at law or
equity or under any of the other Loan Documents, declare that the commitments
are terminated and declare the unpaid principal amount of and any and all
accrued and unpaid interest on the Loans and any and all accrued fees and other
Obligations hereunder to be, and the same shall thereupon be, immediately due
and payable with all additional interest from time to time accrued thereon and
(except as otherwise provided in the Loan Documents) without presentation,
demand, or protest or other requirements of any kind (including, without
limitation, valuation and appraisement, diligence, presentment, notice of intent
to demand or accelerate and notice of acceleration), all of which are hereby
expressly waived by the Borrower.
(b) Notwithstanding anything to the contrary contained in this
Agreement or in any other Loan Document, the Administrative Agent and the Banks
each agree that any exercise or enforcement of the rights and remedies granted
to the Administrative Agent or the Banks under this Agreement or at law or in
equity with respect to this Agreement or any other Loan Documents shall be
commenced and maintained by the Administrative Agent on behalf of the
Administrative Agent and/or the Banks. The Administrative Agent shall act at the
direction of the Required Banks in connection with the exercise of any and all
remedies at law, in equity or under any of the Loan Documents or, if the
Required Banks are unable to reach agreement, then, from and after an Event of
Default, the Administrative Agent may pursue such rights and remedies as it may
determine.
<PAGE> 67
SECTION 6.3. Notice of Default. The Administrative Agent shall
give notice to the Borrower under Section 6.1(c) and 6.1(d) promptly upon being
requested to do so by the Required Banks and shall thereupon notify all the
Banks thereof. The Administrative Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default (other than
nonpayment of principal of or interest on the Loans) unless the Administrative
Agent has received notice in writing from a Bank or Borrower referring to this
Agreement or the other Loan Documents, describing such event or condition.
Should the Administrative Agent receive notice of the occurrence of an Default
or Event of Default expressly stating that such notice is a notice of an Default
or Event of Default, or should the Administrative Agent send Borrower a notice
of Default or Event of Default, the Administrative Agent shall promptly give
notice thereof to each Bank.
SECTION 6.4. Distribution of Proceeds after Default.
Notwithstanding anything contained herein to the contrary but subject to the
provisions of Section 9.16 hereof , from and after an Event of Default, to the
extent proceeds are received by Administrative Agent, such proceeds will be
distributed to the Banks pro rata in accordance with the unpaid principal amount
of the Loans (giving effect to any participations granted therein pursuant to
Section 2.3 and 9.4).
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.1. Appointment and Authorization. Each Bank
irrevocably appoints and authorizes the Administrative Agent to take such action
as agent on its behalf and to exercise such powers under this Agreement and the
other Loan Documents as are delegated to the Administrative Agent by the terms
hereof or thereof, together with all such powers as are reasonably incidental
thereto. Except as set forth in Sections 7.8 and 7.9 hereof, the provisions of
this Article VII are solely for the benefit of Administrative Agent and the
Banks, and Borrower shall not have any rights to rely on or enforce any of the
provisions hereof. In performing its functions and duties under this Agreement,
the Administrative Agent shall act solely as an agent of the Banks and does not
assume and shall not be deemed to have assumed any obligation toward or
relationship of agency or trust with or for the Borrower.
SECTION 7.2. Agency and Affiliates. The Chase Manhattan Bank
and its affiliates may accept deposits from, lend money to, and generally engage
in any kind of business with the Borrower, EOPT or any Subsidiary or affiliate
of the Borrower as if it were not the Administrative Agent hereunder.
SECTION 7.3. Action by Administrative Agent. The obligations
of the Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default or Event of
Default, except as expressly provided in Article VI. The duties of Ad-
<PAGE> 68
ministrative Agent shall be administrative in nature. Subject to the provisions
of Sections 7.1, 7.5 and 7.6, the Administrative Agent shall administer the
Loans in the same manner as it administers its own loans.
SECTION 7.4. Consultation with Experts. As between Administrative
Agent on the one hand and the Banks on the other hand, the Administrative Agent
may consult with legal counsel (who may be counsel for the Borrower),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken by it in good faith in
accordance with the advice of such counsel, accountants or experts.
SECTION 7.5. Liability of Administrative Agent. As between
Administrative Agent on the one hand and the Banks on the other hand, none of
the Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be liable for any action taken or
not taken by it in connection herewith (i) with the consent or at the request of
the Required Banks or (ii) in the absence of its own gross negligence or willful
misconduct. As between Administrative Agent on the one hand and the Banks on the
other hand, none of the Administrative Agent nor any of its directors, officers,
agents or employees shall be responsible for or have any duty to ascertain,
inquire into or verify (i) any statement, warranty or representation made in
connection with this Agreement or any borrowing hereunder; (ii) the performance
or observance of any of the covenants or agreements of the Borrower; (iii) the
satisfaction of any condition specified in Article III, except receipt of items
required to be delivered to the Administrative Agent; or (iv) the validity,
effectiveness or genuineness of this Agreement, the other Loan Documents or any
other instrument or writing furnished in connection herewith. As between
Administrative Agent on the one hand and the Banks on the other hand, the
Administrative Agent shall not incur any liability by acting in reliance upon
any notice, consent, certificate, statement, or other writing (which may be a
bank wire, telex or similar writing) believed by it to be genuine or to be
signed by the proper party or parties.
SECTION 7.6. Indemnification. Each Bank shall, ratably in
accordance with its Commitment, indemnify the Administrative Agent, the Arranger
and their affiliates and their respective directors, officers, agents and
employees (to the extent not reimbursed by the Borrower) against any cost,
expense (including, without limitation, counsel fees and disbursements), claim,
demand, action, loss or liability (except such as result from such indemnitee's
gross negligence or willful misconduct) that such indemnitee may suffer or incur
in connection with their respective duties as Administrative Agent and Arranger
under this Agreement, the other Loan Documents or any action taken or omitted by
such indemnitee hereunder. In the event that the Administrative Agent or the
Arranger shall, subsequent to its receipt of indemnification payment(s) from
Banks in accordance with this section, recoup any amount from the Borrower, or
any other party liable therefor in connection with such indemnification, the
Administrative Agent or the Arranger (as applicable) shall reimburse the Banks
which previously made the payment(s) pro rata, based upon the actual amounts
which were theretofore paid by each Bank.
SECTION 7.7. Credit Decision. Each Bank acknowledges that it
has, independently and without reliance upon the Administrative Agent, the
Arranger or any other Bank, and based
<PAGE> 69
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the
Administrative Agent, the Arranger or any other Bank, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking any action under this
Agreement.
SECTION 7.8. Successor Administrative Agent. The Administrative
Agent may resign at any time by giving notice thereof to the Banks, and the
Borrower. Upon any such resignation, the Majority Banks shall have the right to
appoint a successor Administrative Agent, which successor Administrative Agent,
shall, provided no Event of Default has occurred and is then continuing, be
subject to Borrower's approval, which approval shall not be unreasonably
withheld or delayed. If no successor Administrative Agent shall have been so
appointed by the Majority Banks and approved by the Borrower, and shall have
accepted such appointment, within 30 days after the retiring Administrative
Agent gives notice of resignation, then the retiring Administrative Agent may,
on behalf of the Banks, appoint a successor Administrative Agent, which shall be
the Administrative Agent who shall act until the Majority Banks shall appoint an
Administrative Agent. Any appointment of a successor Administrative Agent by
Majority Banks or the retiring Administrative Agent pursuant to the preceding
sentence shall, provided no Event of Default has occurred and is then
continuing, be subject to the Borrower's approval, which approval shall not be
unreasonably withheld or delayed. Upon the acceptance of its appointment as the
Administrative Agent hereunder by a successor Administrative Agent, such
successor Administrative Agent, shall thereupon succeed to and become vested
with all the rights and duties of the retiring Administrative Agent and the
retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. After any retiring Administrative Agent's resignation
hereunder, the provisions of this Article shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was the Administrative
Agent. For gross negligence or willful misconduct, as determined by all the
Banks (excluding for such determination Administrative Agent in its capacity as
a Bank, if applicable), Administrative Agent may be removed at any time by
giving at least thirty (30) Business Days prior written notice to Administrative
Agent and Borrower. Such resignation or removal shall take effect upon the
acceptance of appointment by a successor Administrative Agent in accordance with
the provisions of this Section 7.8.
SECTION 7.9. Consents and Approvals. All communications from
Administrative Agent to the Banks requesting the Banks' determination, consent,
approval or disapproval (i) shall be given in the form of a written notice to
each Bank, (ii) shall be accompanied by a description of the matter or item as
to which such determination, approval, consent or disapproval is requested, or
shall advise each Bank where such matter or item may be inspected, or shall
otherwise describe the matter or issue to be resolved, (iii) shall include, if
reasonably requested by a Bank and to the extent not previously provided to such
Bank, written materials and a summary of all oral information provided to
Administrative Agent by Borrower in respect of the matter or issue to be
resolved, and (iv) shall include Administrative Agent's recommended course of
action or determination in respect thereof. Each Bank shall reply promptly, but
in any event within ten (10) Business Days after receipt of the request therefor
from Administrative Agent (the "Bank
<PAGE> 70
Reply Period"). Unless a Bank shall give written notice to Administrative Agent
that it objects to the recommendation or determination of Administrative Agent
(together with a written explanation of the reasons behind such objection)
within the Bank Reply Period, such Bank shall be deemed to have approved of or
consented to such recommendation or determination. With respect to decisions
requiring the approval of the Required Banks, Majority Banks or all the Banks,
Administrative Agent shall submit its recommendation or determination for
approval of or consent to such recommendation or determination to all Banks and
upon receiving the required approval or consent shall follow the course of
action or determination of the Required Banks, Majority Banks or all the Banks
(and each non-responding Bank shall be deemed to have concurred with such
recommended course of action), as the case may be.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period for any Euro-Dollar
Borrowing or Money Market IBOR Loan the Administrative Agent determines in good
faith that deposits in dollars (in the applicable amounts) are not being offered
in the relevant market for such Interest Period, the Administrative Agent shall
forthwith give notice thereof to the Borrower and the Banks, whereupon until the
Administrative Agent notifies the Borrower that the circumstances giving rise to
such suspension no longer exist, the obligations of the Banks to make
Euro-Dollar Loans shall be suspended. Unless the Borrower notifies the
Administrative Agent at least two Business Days before the date of (i) any
Euro-Dollar Borrowing for which a Notice of Borrowing has previously been given
that it elects not to borrow on such date, such Borrowing shall instead be made
as a Base Rate Borrowing, or (ii) any Money Market IBOR Borrowing for which a
Notice of Money Market Borrowing has previously been given, the Money Market
IBOR Loans comprising such Borrowing shall bear interest for each day from and
including the first day to but excluding the last day of the Interest Period
applicable thereto at the Base Rate for such day.
SECTION 8.2. Illegality. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) made after the Closing Date of any such
authority, central bank or comparable agency shall make it unlawful for any Bank
(or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar
Loans, the Administrative Agent shall forthwith give notice thereof to the other
Banks and the Borrower, whereupon until such Bank notifies the Borrower and the
Administrative Agent that the circumstances giving rise to such suspension no
longer exist, the obligation of such Bank to make Euro-Dollar Loans shall be
suspended. With respect to Euro-Dollar Loans, before giving any notice to the
Administrative Agent pursuant to this Section, such Bank shall designate a
different Euro-Dollar Lending Office if such designa-
<PAGE> 71
tion will avoid the need for giving such notice and will not, in the judgment of
such Bank, be otherwise disadvantageous to such Bank. If such Bank shall
determine that it may not lawfully continue to maintain and fund any of its
outstanding Euro-Dollar Loans to maturity and shall so specify in such notice,
the Borrower shall be deemed to have delivered a Notice of Interest Rate
Election and such Euro-Dollar Loan shall be converted as of such date to a Base
Rate Loan (without payment of any amounts that Borrower would otherwise be
obligated to pay pursuant to Section 2.12 hereof with respect to Loans converted
pursuant to this Section 8.2) in an equal principal amount from such Bank (on
which interest and principal shall be payable contemporaneously with the related
Euro-Dollar Loans of the other Banks), and such Bank shall make such a Base Rate
Loan.
If at any time, it shall be unlawful for any Bank to make,
maintain or fund its Euro-Dollar Loans, the Borrower shall have the right, upon
five (5) Business Day's notice to the Administrative Agent, to either (x) cause
a bank, reasonably acceptable to the Administrative Agent, to offer to purchase
the Commitments of such Bank for an amount equal to such Bank's outstanding
Loans, and to become a Bank hereunder, or obtain the agreement of one or more
existing Banks to offer to purchase the Commitments of such Bank for such
amount, which offer such Bank is hereby required to accept, or (y) to repay in
full all Loans then outstanding of such Bank, together with interest and all
other amounts due thereon, upon which event, such Bank's Commitments shall be
deemed to be canceled pursuant to Section 2.10(c).
<PAGE> 72
SECTION 8.3. Increased Cost and Reduced Return.
(a) If, on or after (x) the date hereof in the case of Committed
Loans made pursuant to Section 2.1, or (y) the date of the related Money Market
Quote (in each case, the "Loan Effective Date"), in the case of any Money Market
Loan, the adoption of any applicable law, rule or regulation, or any change in
any applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Applicable Lending Office) with any request or directive
(whether or not having the force of law) made at the Closing Date of any such
authority, central bank or comparable agency shall impose, modify or deem
applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System (but excluding
with respect to any Euro-Dollar Loan any such requirement reflected in an
applicable Euro-Dollar Reserve Percentage)), special deposit, insurance
assessment or similar requirement against assets of, deposits with or for the
account of, or credit extended by, any Bank (or its Applicable Lending Office)
or shall impose on any Bank (or its Applicable Lending Office) or on the
interbank market any other condition materially more burdensome in nature,
extent or consequence than those in existence as of the Loan Effective Date
affecting such Bank's Euro-Dollar Loans, its Note, or its obligation to make
Euro-Dollar Loans, and the result of any of the foregoing is to increase the
cost to such Bank (or its Applicable Lending Office) of making or maintaining
any Euro-Dollar Loan, or to reduce the amount of any sum received or receivable
by such Bank (or its Applicable Lending Office) under this Agreement or under
its Note with respect to such Euro-Dollar Loans, by an amount deemed by such
Bank to be material, then, within 15 days after demand by such Bank (with a copy
to the Administrative Agent), the Borrower shall pay to such Bank such
additional amount or amounts (based upon a reasonable allocation thereof by such
Bank to the Euro-Dollar Loans made by such Bank hereunder) as will compensate
such Bank for such increased cost or reduction to the extent such Bank generally
imposes such additional amounts on other borrowers of such Bank in similar
circumstances.
(b) If any Bank shall have reasonably determined that, after the date
hereof, the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) made after the Closing Date of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on capital of such Bank (or its Parent) as a
consequence of such Bank's obligations hereunder to a level below that which
such Bank (or its Parent) could have achieved but for such adoption, change,
request or directive (taking into consideration its policies with respect to
capital adequacy) by an amount reasonably deemed by such Bank to be material,
then from time to time, within 15 days after demand by such Bank (with a copy to
the Administrative Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank (or its Parent) for such
<PAGE> 73
reduction to the extent such Bank generally imposes such additional amounts on
other borrowers of such Bank in similar circumstances.
(c) Each Bank will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Bank to compensation pursuant to this
Section and will designate a different Applicable Lending Office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the reasonable judgment of such Bank, be otherwise
disadvantageous to such Bank. If such Bank shall fail to notify Borrower of any
such event within 90 days following the end of the month during which such event
occurred, then Borrower's liability for any amounts described in this Section
incurred by such Bank as a result of such event shall be limited to those
attributable to the period occurring subsequent to the ninetieth (90th) day
prior to the date upon which such Bank actually notified Borrower of the
occurrence of such event. A certificate of any Bank claiming compensation under
this Section and setting forth a reasonably detailed calculation of the
additional amount or amounts to be paid to it hereunder shall be conclusive in
the absence of demonstrable error. In determining such amount, such Bank may use
any reasonable averaging and attribution methods.
(d) If at any time, any Bank shall be owed amounts pursuant to this
Section 8.3, the Borrower shall have the right, upon five (5) Business Day's
notice to the Administrative Agent to either (x) cause a bank, reasonably
acceptable to the Administrative Agent, to offer to purchase the Commitments of
such Bank for an amount equal to such Bank's outstanding Loans, and to become a
Bank hereunder, or to obtain the agreement of one or more existing Banks to
offer to purchase the Commitments of such Bank for such amount, which offer such
Bank is hereby required to accept, or (y) to repay in full all Loans then
outstanding of such Bank, together with interest and all other amounts due
thereon, upon which event, such Bank's Commitment shall be deemed to be canceled
pursuant to Section 2.10(c).
<PAGE> 74
SECTION 8.4. Taxes.
(a) Any and all payments by the Borrower to or for the account of any
Bank or the Administrative Agent hereunder or under any other Loan Document
shall be made free and clear of and without deduction for any and all present or
future taxes, duties, levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto, excluding, in the case of each Bank and
the Administrative Agent, taxes imposed on its income, and franchise taxes
imposed on it, by the jurisdiction under the laws of which such Bank or the
Administrative Agent (as the case may be) is organized or any political
subdivision thereof and, in the case of each Bank, taxes imposed on its income,
and franchise or similar taxes imposed on it, by the jurisdiction of such Bank's
Applicable Lending Office or any political subdivision thereof or by any other
jurisdiction (or any political subdivision thereof) as a result of a present or
former connection between such Bank or Administrative Agent and such other
jurisdiction or by the United States (all such non-excluded taxes, duties,
levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Non-Excluded Taxes"). If the Borrower shall be
required by law to deduct any Non-Excluded Taxes from or in respect of any sum
payable hereunder or under any Note, (i) the sum payable shall be increased as
necessary so that after making all required deductions (including, without
limitation, deductions applicable to additional sums payable under this Section
8.4) such Bank or the Administrative Agent (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made,
(ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law and (iv) the Borrower shall furnish to the
Administrative Agent, at its address referred to in Section 9.1, the original or
a certified copy of a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes and any other excise or property taxes, or charges or
similar levies which arise from any payment made hereunder or under any Note or
from the execution or delivery of, or otherwise with respect to, this Agreement
or any Note (hereinafter referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Bank and the Administrative
Agent for the full amount of Non-Excluded Taxes or Other Taxes (including,
without limitation, any Non-Excluded Taxes or Other Taxes imposed or asserted by
any jurisdiction on amounts payable under this Section 8.4) paid by such Bank or
the Administrative Agent (as the case may be) and, so long as such Bank or
Administrative Agent has promptly paid any such Non-Excluded Taxes or Other
Taxes, any liability for penalties and interest arising therefrom or with
respect thereto. This indemnification shall be made within 15 days from the date
such Bank or the Administrative Agent (as the case may be) makes demand
therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
shall provide the Borrower with (A) two duly completed copies of Internal
<PAGE> 75
Revenue Service form 1001 or 4224, as appropriate, or any successor form
prescribed by the Internal Revenue Service, and (B) an Internal Revenue Service
Form W-8 or W-9, or any successor form prescribed by the Internal Revenue
Service, and shall provide Borrower with two further copies of any such form or
certification on or before the date that any such form or certification expires
or becomes obsolete and after the occurrence of any event requiring a change in
the most recent form previously delivered by it to Borrower, certifying (i) in
the case of a Form 1001 or 4224, that such Bank is entitled to benefits under an
income tax treaty to which the United States is a party which reduces the rate
of withholding tax on payments of interest or certifying that the income
receivable pursuant to this Agreement is effectively connected with the conduct
of a trade or business in the United States, and (ii) in the case of a Form W-8
or W-9, that it is entitled to an exemption from United States backup
withholding tax. If the form provided by a Bank at the time such Bank first
becomes a party to this Agreement indicates a United States interest withholding
tax rate in excess of zero, withholding tax at such rate shall be considered
excluded from "Non-Excluded Taxes" as defined in Section 8.4(a).
(e) For any period with respect to which a Bank has failed to provide
the Borrower with the appropriate form pursuant to Section 8.4(d) (unless such
failure is due to a change in treaty, law or regulation occurring subsequent to
the date on which a form originally was required to be provided), such Bank
shall not be entitled to indemnification under Section 8.4(c) with respect to
Non-Excluded Taxes imposed by the United States; provided, however, that should
a Bank, which is otherwise exempt from or subject to a reduced rate of
withholding tax, become subject to Non-Excluded Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take such steps as such
Bank shall reasonably request to assist such Bank to recover such Taxes so long
as Borrower shall incur no cost or liability as a result thereof.
(f) If the Borrower is required to pay additional amounts to or for
the account of any Bank pursuant to this Section 8.4, then such Bank will change
the jurisdiction of its Applicable Lending Office so as to eliminate or reduce
any such additional payment which may thereafter accrue if such change, in the
judgment of such Bank, is not otherwise disadvantageous to such Bank.
(g) If at any time, any Bank shall be owed amounts pursuant to this
Section 8.4, the Borrower shall have the right, upon five (5) Business Day's
notice to the Administrative Agent to either (x) cause a bank, reasonably
acceptable to the Administrative Agent, to offer to purchase the Commitments of
such Bank for an amount equal to such Bank's outstanding Loans, and to become a
Bank hereunder, or to obtain the agreement of one or more existing Banks to
offer to purchase the Commitments of such Bank for such amount, which offer such
Bank is hereby required to accept, or (y) to repay in full all Loans then
outstanding of such Bank, together with interest and all other amounts due
thereon, upon which event, such Bank's Commitment shall be deemed to be canceled
pursuant to Section 2.10(c).
SECTION 8.5. Base Rate Loans Substituted for Affected Euro-Dollar
Loans . If (i) the obligation of any Bank to make Euro-Dollar Loans has been
suspended pursuant to Section
<PAGE> 76
8.2 or (ii) any Bank has demanded compensation under Section 8.3 or 8.4 with
respect to its Euro-Dollar Loans and the Borrower shall, by at least five
Business Days' prior notice to such Bank through the Administrative Agent, have
elected that the provisions of this Section shall apply to such Bank, then,
unless and until such Bank notifies the Borrower that the circumstances giving
rise to such suspension or demand for compensation no longer exist:
(a) Borrower shall be deemed to have delivered a Notice of Interest
Rate Election with respect to such affected Euro-Dollar Loans and thereafter all
Loans which would otherwise be made by such Bank as Euro-Dollar Loans shall be
made instead as Base Rate Loans (on which interest and principal shall be
payable contemporaneously with the related Euro-Dollar Loans of the other
Banks), and
(b) after each of its Euro-Dollar Loans has been repaid, all payments
of principal which would otherwise be applied to repay such Euro-Dollar Loans
shall be applied to repay its Base Rate Loans instead, and
(c) Borrower will not be required to make any payment which would
otherwise be required by Section 2.12 with respect to such Euro-Dollar Loans
converted to Base Rate Loans pursuant to clause (a) above.
ARTICLE IV
MISCELLANEOUS
SECTION 9.1. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission followed by telephonic confirmation or similar
writing) and shall be given to such party: (x) in the case of the Borrower, the
Arranger or the Administrative Agent, at its address, telex number or facsimile
number set forth on Exhibit F attached hereto with a duplicate copy thereof, in
the case of the Borrower, to the Borrower, at Equity Office Properties Trust,
Two North Riverside Plaza, Suite 2200, Chicago, Illinois 60606, Attn: Chief
Legal Counsel, and to Rosenberg & Liebentritt, P.C., Two North Riverside Plaza,
Suite 1600, Chicago, Illinois 60606, Attn: James M. Phipps, Esq., (y) in the
case of any Bank, at its address, telex number or facsimile number set forth in
its Administrative Questionnaire or (z) in the case of any party, such other
address, telex number or facsimile number as such party may hereafter specify
for the purpose by notice to the Administrative Agent and the Borrower. Each
such notice, request or other communication shall be effective (i) if given by
telex or facsimile transmission, when such telex or facsimile is transmitted to
the telex number or facsimile number specified in this Section and the
appropriate answerback or facsimile confirmation is received, (ii) if given by
certified registered mail, return receipt requested, with first class postage
prepaid, addressed as aforesaid, upon receipt or refusal to accept delivery,
(iii) if given by a nationally recognized overnight carrier, 24 hours after such
communication is deposited with such carrier with postage prepaid for next day
delivery, or (iv) if given by any other means, when delivered at the address
specified in this Section; provided that notices to the Administrative Agent
under Article II shall not be effective until received.
<PAGE> 77
SECTION 9.2. No Waivers . No failure or delay by the Administrative
Agent or any Bank in exercising any right, power or privilege hereunder or under
any Note shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.3. Expenses; Indemnification.
(a) The Borrower shall pay within thirty (30) days after written
notice from the Administrative Agent (i) all reasonable out-of-pocket costs and
expenses of the Administrative Agent (including, without limitation, reasonable
fees and disbursements of special counsel Skadden, Arps, Slate, Meagher & Flom
LLP ), in connection with the preparation of this Agreement, the Loan Documents
and the documents and instruments referred to therein, and any waiver or consent
hereunder or any amendment hereof or any Default or alleged Default hereunder,
(ii) all reasonable fees and disbursements of special counsel in connection with
the syndication of the Loans, and (iii) if an Event of Default occurs, all
reasonable out-of-pocket expenses incurred by the Administrative Agent and each
Bank, including, without limitation, fees and disbursements of counsel for the
Administrative Agent and each of the Banks, in connection with the enforcement
of the Loan Documents and the instruments referred to therein and such Event of
Default and collection, bankruptcy, insolvency and other enforcement proceedings
resulting therefrom; provided, however, that the attorneys' fees and
disbursements for which Borrower is obligated under this subsection (a)(iii)
shall be limited to the reasonable non-duplicative fees and disbursements of (A)
counsel for Administrative Agent and (B) counsel for all of the Banks as a
group; and provided, further, that all other costs and expenses for which
Borrower is obligated under this subsection (a)(iii) shall be limited to the
reasonable non-duplicative costs and expenses of Administrative Agent. For
purposes of this Section 9.3(a)(iii), (1) counsel for Administrative Agent shall
mean a single outside law firm representing Administrative Agent, and (2)
counsel for all of the Banks as a group shall mean a single outside law firm
representing such Banks as a group (which law firm may or may not be the same
law firm representing Administrative Agent).
(b) The Borrower agrees to indemnify the Administrative Agent and
each Bank, their respective affiliates and the respective directors, officers,
agents and employees of the foregoing (each an "Indemnitee") and hold each
Indemnitee harmless from and against any and all liabilities, losses, damages,
costs and expenses of any kind, including, without limitation, the reasonable
fees and disbursements of counsel, which may be incurred by such Indemnitee in
connection with any investigative, administrative or judicial proceeding that
may at any time (including, without limitation, at any time following the
payment of the Obligations) be asserted against any Indemnitee, as a result of,
or arising out of, or in any way related to or by reason of, (i) any of the
transactions contemplated by the Loan Documents or the execution, delivery or
performance of any Loan Document, (ii) any violation by the Borrower or the
Environmental Affiliates of any applicable Environmental Law, (iii) any
Environmental Claim arising out of the management, use, control, ownership or
operation of property or assets by the Borrower or any of the Envi-
<PAGE> 78
ronmental Affiliates, including, without limitation, all on-site and off-site
activities of Borrower or any Environmental Affiliate involving Materials of
Environmental Concern, (iv) the breach of any environmental representation or
warranty set forth herein, but excluding those liabilities, losses, damages,
costs and expenses (a) for which such Indemnitee has been compensated pursuant
to the terms of this Agreement, (b) incurred solely by reason of the gross
negligence, willful misconduct bad faith or fraud of any Indemnitee as finally
determined by a court of competent jurisdiction, (c) arising from violations of
Environmental Laws relating to a Property which are caused by the act or
omission of such Indemnitee after such Indemnitee takes possession of such
Property or (d) owing by such Indemnitee to any third party based upon
contractual obligations of such Indemnitee owing to such third party which are
not expressly set forth in the Loan Documents. In addition, the indemnification
set forth in this Section 9.3(b) in favor of any director, officer, agent or
employee of Administrative Agent or any Bank shall be solely in their respective
capacities as such director, officer, agent or employee. The Borrower's
obligations under this Section shall survive the termination of this Agreement
and the payment of the Obligations. Without limitation of the other provisions
of this Section 9.3, Borrower shall indemnify and hold each of the
Administrative Agent and the Banks free and harmless from and against all loss,
costs (including reasonable attorneys' fees and expenses), expenses, taxes, and
damages (including consequential damages) that the Administrative Agent and the
Banks may suffer or incur by reason of the investigation, defense and settlement
of claims and in obtaining any prohibited transaction exemption under ERISA or
the Code necessary in the Administrative Agent's reasonable judgment by reason
of the inaccuracy of the representations and warranties, or a breach of the
provisions, set forth in Section 4.6(b).
SECTION 9.4. Sharing of Set-Offs. In addition to any rights now
or hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance
of any Event of Default, each Bank is hereby authorized at any time or from
time to time, without presentment, demand, protest or other notice of any kind
to the Borrower or to any other Person, any such notice being hereby expressly
waived, but subject to the prior consent of the Administrative Agent, to set
off and to appropriate and apply any and all deposits (general or special, time
or demand, provisional or final) and any other indebtedness at any time held or
owing by such Bank (including, without limitation, by branches and agencies of
such Bank wherever located) to or for the credit or the account of the Borrower
against and on account of the Obligations of the Borrower then due and payable
to such Bank under this Agreement or under any of the other Loan Documents,
including, without limitation, all interests in Obligations purchased by such
Bank. Each Bank agrees that if it shall by exercising any right of set-off or
counterclaim or otherwise, receive payment of a proportion of the aggregate
amount of principal and interest due with respect to any Note held by it which
is greater than the proportion received by any other Bank, the Bank receiving
such proportionately greater payment shall purchase such participations in the
Notes held by the other Banks, and such other adjustments shall be made, as may
be required so that all such payments of principal and interest with respect to
the Notes held by the Banks shall be shared by the Banks pro rata; provided
that nothing in this Section shall impair the right of any Bank to exercise any
right of set-off or counterclaim it may have to any deposits not received in
connection with the Loans and to apply the amount subject to such exercise to
the payment of indebtedness of the Borrower
<PAGE> 79
other than its indebtedness under the Notes. The Borrower agrees, to the fullest
extent it may effectively do so under applicable law, that any holder of a
participation in a Note, whether or not acquired pursuant to the foregoing
arrangements, may exercise rights of set-off or counterclaim and other rights
with respect to such participation as fully as if such holder of a participation
were a direct creditor of the Borrower in the amount of such participation.
Notwithstanding anything to the contrary contained herein, any Bank may, by
separate agreement with the Borrower, waive its right to set off contained
herein or granted by law and any such written waiver shall be effective against
such Bank under this Section 9.4.
SECTION 9.5. Amendments and Waivers. Any provision of this
Agreement or the Notes or other Loan Documents may be amended or waived if, but
only if, such amendment or waiver is in writing and is signed by the Borrower
and the Majority Banks (and, if the rights or duties of the Administrative Agent
in its capacity as Administrative Agent is affected thereby, by the
Administrative Agent); provided that (A) no amendment or waiver of the
provisions of Article V (including, without limitation, any of the definitions
of the defined terms used in Section 5.8 hereof) shall be effective unless
signed by the Borrower and the Required Banks and (B) no such amendment or
waiver with respect to this Agreement, the Notes or any other Loan Documents
shall, unless signed by all the Banks, (i) increase or decrease the Commitment
of any Bank (except for a ratable decrease in the Commitments of all Banks) or
subject any Bank to any additional obligation, (ii) reduce the principal of or
rate of interest on any Loan or any fees hereunder, (iii) postpone the date
fixed for any payment of principal of or interest on any Loan or any fees
hereunder or for any reduction or termination of any Commitment, (iv) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Notes, or the number of Banks, which shall be required for the Banks or any of
them to take any action under this Section or any other provision of this
Agreement, (v) release the EOPT Guaranty, (vi) modify any of the provisions of
Section 2.6, or (vii) modify the provisions of this Section 9.5.
SECTION 9.6. Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that the Borrower may not assign or otherwise transfer any of
its rights under this Agreement or the other Loan Documents without the prior
written consent of all Banks and the Administrative Agent and a Bank may not
assign or otherwise transfer any of its interest under this Agreement except as
permitted in subsection (b) and (c) of this Section 9.6.
(b) Prior to the occurrence of an Event of Default, any Bank may at
any time, with (and subject to) the consent of Borrower (which consent shall not
be unreasonably withheld or delayed) and the Administrative Agent, grant to an
existing Bank, one or more Qualified Institutions (a "Participant") in minimum
amounts of not less than $10,000,000 (or any lesser amount in the case of
participations to an existing Bank, or if a Bank shall hold less than Ten
Million Dollars ($10,000,000), then such lesser amount) participating interests
in its Commitment or any or all of its Loans. After the occurrence and during
the continuance of an Event of Default, any Bank may at any time grant to any
Person in any amount (also a "Participant"), participating in-
<PAGE> 80
terests in its Commitment or any or all of its Loans. Any participation made
during the continuation of an Event of Default shall not be affected by the
subsequent cure of such Event of Default. In the event of any such grant by a
Bank of a participating interest to a Participant, whether or not upon notice to
the Borrower and the Administrative Agent, such Bank shall remain responsible
for the performance of its obligations hereunder, and the Borrower and the
Administrative Agent shall continue to deal solely and directly with such Bank
in connection with such Bank's rights and obligations under this Agreement. Any
agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrower hereunder including, without limitation,
the right to approve any amendment, modification or waiver of any provision of
this Agreement; provided that such participation agreement may provide that such
Bank will not agree to any modification, amendment or waiver of this Agreement
described in clause (i), (ii), (iii), (iv) or (v) of Section 9.5 without the
consent of the Participant. The Borrower agrees that each Participant that is a
bank, shall, to the extent provided in its participation agreement, be entitled
to the benefits of Article VIII with respect to its participating interest.
(c) Any Bank may at any time assign to a Qualified Institution (in
each case, an "Assignee") (i) prior to the occurrence of an Event of Default, in
minimum amounts of not less than Ten Million Dollars ($10,000,000) and integral
multiple of One Million Dollars ($1,000,000) thereafter (or any lesser amount in
the case of assignments to an existing Bank, or if a Bank shall hold less than
Ten Million Dollars ($10,000,000), then such lesser amount) and (ii) after the
occurrence and during the continuance of an Event of Default, in any amount, all
or a proportionate part of all, of its rights and obligations under this
Agreement, the Notes and the other Loan Documents, and, in either case, such
Assignee shall assume such rights and obligations, pursuant to a Transfer
Supplement in substantially the form of Exhibit B hereto executed by such
Assignee and such transferor Bank; provided, that if no Event of Default shall
have occurred and be continuing, such assignment shall be subject to the
Administrative Agent's and the Borrower's consent, which consent shall not be
unreasonably withheld or delayed; and provided further that if an Assignee is an
affiliate of such transferor Bank or was a Bank immediately prior to such
assignment, no such consent shall be required; and provided further that such
assignment may, but need not, include rights of the transferor bank in respect
of outstanding Money Market Loans. Upon execution and delivery of such
instrument and payment by such Assignee to such transferor Bank of an amount
equal to the purchase price agreed between such transferor Bank and such
Assignee, such Assignee shall be a Bank party to this Agreement and shall have
all the rights and obligations of a Bank with a Commitment as set forth in such
instrument of assumption, and no further consent or action by any party shall be
required and the transferor Bank shall be released from its obligations
hereunder to a corresponding extent. Upon the consummation of any assignment
pursuant to this subsection (c), the transferor Bank, the Administrative Agent
and the Borrower shall make appropriate arrangements so that, if required, a new
Note is issued to the Assignee. In connection with any such assignment, the
transferor Bank shall pay to the Administrative Agent an administrative fee for
processing such assignment in the amount of $2,500. If the Assignee is not
incorporated under the laws of the United States of America or a state thereof,
it shall deliver to the Borrower and the Administrative Agent certification as
to exemption from deduction or withholding of any United States federal income
taxes in accordance
<PAGE> 81
with Section 8.4. Any assignment made during the continuation of an Event of
Default shall not be affected by any subsequent cure of such Event of Default.
(d) Any Bank (each, a "Designating Lender") may at any time designate
one Designated Lender to fund Money Market Loans on behalf of such Designating
Lender subject to the terms of this Section 9.6(d) and the provisions in Section
9.6(b) and (c) shall not apply to such designation. No Bank may designate more
than one (1) Designated Lender at any one time. The parties to each such
designation shall execute and deliver to the Administrative Agent for its
acceptance a Designation Agreement. Upon such receipt of an appropriately
completed Designation Agreement executed by a Designating Lender and a designee
representing that it is a Designated Lender, the Administrative Agent will
accept such Designation Agreement and will give prompt notice thereof to the
Borrower, whereupon, (i) the Borrower shall execute and deliver to the
Designating Lender a Designated Lender Note payable to the order of the
Designated Lender, (ii) from and after the effective date specified in the
Designation Agreement, the Designated Lender shall become a party to this
Agreement with a right (subject to the provisions of Section 2.4(b)) to make
Money Market Loans on behalf of its Designating Lender pursuant to Section 2.4
after the Borrower has accepted a Money Market Loan (or portion thereof) of the
Designating Lender, and (iii) the Designated Lender shall not be required to
make payments with respect to any obligations in this Agreement except to the
extent of excess cash flow of such Designated Lender which is not otherwise
required to repay obligations of such Designated Lender which are then due and
payable; provided, however, that regardless of such designation and assumption
by the Designated Lender, the Designating Lender shall be and remain obligated
to the Borrower, the Administrative Agent and the Banks for each and every of
the obligations of the Designating Lender and its related Designated Lender with
respect to this Agreement, including, without limitation, any indemnification
obligations under Section 7.6 hereof and any sums otherwise payable to the
Borrower by the Designated Lender. Each Designating Lender shall serve as the
administrative agent of the Designated Lender and shall on behalf of, and to the
exclusion of, the Designated Lender: (i) receive any and all payments made for
the benefit of the Designated Lender and (ii) give and receive all
communications and notices and take all actions hereunder, including, without
limitation, votes, approvals, waivers, consents and amendments under or relating
to this Agreement and the other Loan Documents. Any such notice, communication,
vote, approval, waiver, consent or amendment shall be signed by the Designating
Lender as administrative agent for the Designated Lender and shall not be signed
by the Designated Lender on its own behalf and shall be binding upon the
Designated Lender to the same extent as if signed by the Designated Lender on
its own behalf. The Borrower, the Administrative Agent and the Banks may rely
thereon without any requirement that the Designated Lender sign or acknowledge
the same. No Designated Lender may assign or transfer all or any portion of its
interest hereunder or under any other Loan Document, other than assignments to
the Designating Lender which originally designated such Designated Lender or
otherwise in accordance with the provisions of Section 9.6 (b) and (c).
(e) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.
<PAGE> 82
(f) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.3 or 8.4 than
such Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Borrower's prior written
consent or by reason of the provisions of Section 8.2, 8.3 or 8.4 requiring such
Bank to designate a different Applicable Lending Office under certain
circumstances or at a time when the circumstances giving rise to such greater
payment did not exist.
(g) No Assignee of any rights and obligations under this Agreement
shall be permitted to further assign less than all of such rights and
obligations. No participant in any rights and obligations under this Agreement
shall be permitted to sell subparticipations of such rights and obligations.
(h) Anything in this Agreement to the contrary notwithstanding, so
long as no Event of Default shall have occurred and be continuing, no Bank shall
be permitted to enter into an assignment of, or sell a participation interest
in, its rights and obligations hereunder which would result in such Bank holding
a Commitment without participants of less than Ten Million Dollars
($10,000,000); provided, however, that no Bank shall be prohibited from
assigning its entire Commitment so long as such assignment is otherwise
permitted under this Section 9.6.
SECTION 9.7. Collateral . Each of the Banks represents to the
Administrative Agent and each of the other Banks that it in good faith is not
relying upon any "margin stock" (as defined in Regulation U) as collateral in
the extension or maintenance of the credit provided for in this Agreement.
SECTION 9.8. Governing Law; Submission to Jurisdiction . (a)
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND
BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW).
(b) Any legal action or proceeding with respect to this Agreement or
any other Loan Document and any action for enforcement of any judgment in
respect thereof may be brought in the courts of the State of New York or of the
United States of America for the Southern District of New York, and, by
execution and delivery of this Agreement, the Borrower hereby accepts for itself
and in respect of its property, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts and appellate courts from any thereof. The
Borrower irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the hand delivery, or
mailing of copies thereof by registered or certified mail, postage prepaid, to
the Borrower at its address set forth below. The Borrower hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
of any of the aforesaid actions or proceedings arising out of or in connection
with this Agreement or any other Loan Document brought in the courts referred to
above and hereby further irrevocably waives and
<PAGE> 83
agrees not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
Nothing herein shall affect the right of the Administrative Agent to serve
process in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the Borrower in any other jurisdiction.
SECTION 9.9. Counterparts; Integration;. Effectiveness . This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof. This Agreement shall become effective upon receipt by the Administrative
Agent and the Borrower of counterparts hereof signed by each of the parties
hereto (or, in the case of any party as to which an executed counterpart shall
not have been received, receipt by the Administrative Agent in form satisfactory
to it of telegraphic, telex or other written confirmation from such party of
execution of a counterpart hereof by such party).
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT, THE ARRANGER AND EACH BANK HEREBY IRREVOCABLY WAIVE ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.11. Survival. All indemnities set forth herein shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the making and repayment of the Loans hereunder.
SECTION 9.12. Domicile of Loans. Each Bank may transfer and
carry its Loans at, to or for the account of any domestic or foreign branch
office, subsidiary or affiliate of such Bank.
SECTION 9.13. Limitation of Liability. No claim may be made by
the Borrower or any other Person acting by or through Borrower against the
Administrative Agent, the Arranger or any Bank or the affiliates, directors,
officers, employees, attorneys or agent of any of them for any punitive damages
in respect of any claim for breach of contract or any other theory of liability
arising out of or related to the transactions contemplated by this Agreement or
by the other Loan Documents, or any act, omission or event occurring in
connection therewith; and the Borrower hereby waives, releases and agrees not to
sue upon any claim for any such damages, whether or not accrued and whether or
not known or suspected to exist in its favor.
SECTION 9.14. Recourse Obligation. This Agreement and the
Obligations hereunder are fully recourse to the Borrower. Notwithstanding the
foregoing, no recourse under or upon any obligation, covenant, or agreement
contained in this Agreement shall be had against (i) any officer, director,
shareholder or employee of the Borrower or EOPT (other than pursuant to the
Acorn Guaranty (as defined in the EOPT Guaranty)) or (ii) any general partner of
Bor-
<PAGE> 84
rower other than EOPT, in each case except in the event of fraud or
misappropriation of funds on the part of such officer, director, shareholder or
employee or such general partner.
SECTION 9.15. Confidentiality. The Administrative Agent, the
Arranger and each Bank shall use reasonable efforts to assure that information
about Borrower, EOPT and its Subsidiaries and Investments Affiliates, and the
Properties thereof and their operations, affairs and financial condition, not
generally disclosed to the public, which is furnished to Administrative Agent,
the Arranger or any Bank pursuant to the provisions hereof or any other Loan
Document is used only for the purposes of this Agreement and shall not be
divulged to any Person other than the Administrative Agent, the Arranger, the
Banks, and their affiliates and respective officers, directors, employees and
agents who are actively and directly participating in the evaluation,
administration or enforcement of the Loan and other transactions between such
Bank and the Borrower, except: (a) to their attorneys and accountants, (b) in
connection with the enforcement of the rights and exercise of any remedies of
the Administrative Agent, the Arranger and the Banks hereunder and under the
other Loan Documents, (c) in connection with assignments and participations and
the solicitation of prospective assignees and participants referred to in
Section 9.6 hereof, who have agreed in writing to be bound by a confidentiality
agreement substantially equivalent to the terms of this Section 9.15, and (d) as
may otherwise be required or requested by any regulatory authority having
jurisdiction over the Administrative Agent, the Arranger or any Bank or by any
applicable law, rule, regulation or judicial process.
SECTION 9.16. Bank's Failure to Fund.
(a) If a Bank does not advance to Administrative Agent such Bank's
Pro Rata Share of a Loan in accordance herewith, then neither Administrative
Agent nor the other Banks shall be required or obligated to fund such Bank's Pro
Rata Share of such Loan.
(b) As used herein, the following terms shall have the meanings set
forth below:
(i) "Defaulting Bank" shall mean any Bank which (x) does not advance
to the Administrative Agent such Bank's Pro Rata Share of a Loan in accordance
herewith for a period of five (5) Business Days after notice of such failure
from Administrative Agent, (y) shall otherwise fail to perform such Bank's
obligations under the Loan Documents for a period of five (5) Business Days
after notice of such failure from Administrative Agent, or (z) shall fail to pay
the Administrative Agent or any other Bank, as the case may be, upon demand,
such Bank's Pro Rata Share of any costs, expenses or disbursements incurred or
made by the Administrative Agent pursuant to the terms of the Loan Documents for
a period of five (5) Business Days after notice of such failure from
Administrative Agent, and in all cases, such failure is not as a result of a
good faith dispute as to whether such advance is properly required to be made
pursuant to the provisions of this Agreement, or as to whether such other
performance or payment is properly required pursuant to the provisions of this
Agreement.
(ii) "Junior Creditor" means any Defaulting Bank which has not (x)
fully cured each and every default on its part under the Loan Documents and (y)
unconditionally ten-
<PAGE> 85
dered to the Administrative Agent such Defaulting Bank's Pro Rata Share of all
costs, expenses and disbursements required to be paid or reimbursed pursuant to
the terms of the Loan Documents.
(iii) "Payment in Full" means, as of any date, the receipt by the Banks
who are not Junior Creditors of an amount of cash, in lawful currency of the
United States, sufficient to indefeasibly pay in full all Senior Debt.
(iv) "Senior Debt" means (x) collectively, any and all indebtedness,
obligations and liabilities of the Borrower to the Banks who are not Junior
Creditors from time to time, whether fixed or contingent, direct or indirect,
joint or several, due or not due, liquidated or unliquidated, determined or
undetermined, arising by contract, operation of law or otherwise, whether on
open account or evidenced by one or more instruments, and whether for
principal, premium, interest (including, without limitation, interest accruing
after the filing of a petition initiating any proceeding referred to in Section
6.1(f) or (g)), reimbursement for fees, indemnities, costs, expenses or
otherwise, which arise under, in connection with or in respect of the Loans or
the Loan Documents, and (y) any and all deferrals, renewals, extensions and
refundings of, or amendments, restatements, rearrangements, modifications or
supplements to, any such indebtedness, obligation or liability.
(v) "Subordinated Debt" means (x) any and all indebtedness,
obligations and liabilities of Borrower to one or more Junior Creditors from
time to time, whether fixed or contingent, direct or indirect, joint or several,
due or not due, liquidated or unliquidated, determined or undetermined, arising
by contract, operation of law or otherwise, whether on open account or evidenced
by one or more instruments, and whether for principal, premium, interest
(including, without limitation, interest accruing after the filing of a petition
initiating any proceeding referred to in Section 6.1(f) or (g)), reimbursement
for fees, indemnities, costs, expenses or otherwise, which arise under, in
connection with or in respect of the Loans or the Loan Documents, and (y) any
and all deferrals, renewals, extensions and refundings of, or amendments,
restatements, rearrangements, modifications or supplements to, any such
indebtedness, obligation or liability.
(c) Immediately upon a Bank's becoming a Junior Creditor and until
such time as such Bank shall have cured all applicable defaults, no Junior
Creditor shall, prior to Payment in Full of all Senior Debt:
(i) accelerate, demand payment of, sue upon, collect, or receive any
payment upon, in any manner, or satisfy or otherwise discharge, any Subordinated
Debt, whether for principal, interest and otherwise;
(ii) take or enforce any Liens to secure Subordinated Debt or attach
or levy upon any assets of Borrower, to enforce any Subordinated Debt;
(iii) enforce or apply any security for any Subordinated Debt; or
<PAGE> 86
(iv) incur any debt or liability, or the like, to, or receive any
loan, return of capital, advance, gift or any other property, from, the
Borrower.
(d) In the event of:
(i) any insolvency, bankruptcy, receivership, liquidation,
dissolution, reorganization, readjustment, composition or other similar
proceeding relating to Borrower;
(ii) any liquidation, dissolution or other winding-up of the
Borrower, voluntary or involuntary, whether or not involving insolvency,
reorganization or bankruptcy proceedings;
(iii) any assignment by the Borrower for the benefit of creditors;
(iv) any sale or other transfer of all or substantially all
assets of the Borrower;
or
(v) any other marshaling of the assets of the Borrower;
each of the Banks shall first have received Payment in Full of all Senior
Debt before any payment or distribution, whether in cash, securities or other
property, shall be made in respect of or upon any Subordinated Debt. Any
payment or distribution, whether in cash, securities or other property that
would otherwise be payable or deliverable in respect of Subordinated Debt to
any Junior Creditor but for this Agreement shall be paid or delivered directly
to the Administrative Agent for distribution to the Banks in accordance with
this Agreement until Payment in Full of all Senior Debt. If any Junior
Creditor receives any such payment or distribution, it shall promptly pay over
or deliver the same to the Administrative Agent for application in accordance
with the preceding sentence.
(e) Each Junior Creditor shall file in any bankruptcy or other
proceeding of Borrower in which the filing of claims is required by law, all
claims relating to Subordinated Debt that such Junior Creditor may have against
Borrower and assign to the Banks who are not Junior Creditors all rights of such
Junior Creditor thereunder. If such Junior Creditor does not file any such claim
prior to forty-five (45) days before the expiration of the time to file such
claim, Administrative Agent, as attorney-in-fact for such Junior Creditor, is
hereby irrevocably authorized to do so in the name of such Junior Creditor or,
in Administrative Agent's sole discretion, to assign the claim to a nominee and
to cause proof of claim to be filed in the name of such nominee. The foregoing
power of attorney is coupled with an interest and cannot be revoked. The
Administrative Agent shall, to the exclusion of each Junior Creditor, have the
sole right, subject to Section 9.5 hereof, to accept or reject any plan proposed
in any such proceeding and to take any other action that a party filing a claim
is entitled to take. In all such cases, whether in administration, bankruptcy or
otherwise, the Person or Persons authorized to pay such claim shall pay to
Administrative Agent the amount payable on such claim and, to the full extent
necessary for that
<PAGE> 87
purpose, each Junior Creditor hereby transfers and assigns to the Administrative
Agent all of the Junior Creditor's rights to any such payments or distributions
to which Junior Creditor would otherwise be entitled.
(f) (i) If any payment or distribution of any character or any security,
whether in cash, securities or other property, shall be received by any Junior
Creditor in contravention of any of the terms hereof, such payment or
distribution or security shall be received in trust for the benefit of, and
shall promptly be paid over or delivered and transferred to, Administrative
Agent for application to the payment of all Senior Debt, to the extent necessary
to achieve Payment in Full. In the event of the failure of any Junior Creditor
to endorse or assign any such payment, distribution or security, Administrative
Agent is hereby irrevocably authorized to endorse or assign the same as
attorney-in-fact for such Junior Creditor.
(ii) Each Junior Creditor shall take such action (including, without
limitation, the execution and filing of a financing statement with respect to
this Agreement and the execution, verification, delivery and filing of proofs
of claim, consents, assignments or other instructions that Administrative Agent
may require from time to time in order to prove or realize upon any rights or
claims pertaining to Subordinated Debt or to effectuate the full benefit of the
subordination contained herein) as may, in Administrative Agent's sole and
absolute discretion, be necessary or desirable to assure the effectiveness of
the subordination effected by this Agreement.
(g) (i) Each Bank that becomes a Junior Creditor understands and
acknowledges by its execution hereof that each other Bank is entering into this
Agreement and the Loan Documents in reliance upon the absolute subordination in
right of payment and in time of payment of Subordinated Debt to Senior Debt as
set forth herein.
(ii) Only upon the Payment in Full of all Senior Debt shall any Junior
Creditor be subrogated to any remaining rights of the Banks which are not
Defaulting Banks to receive payments or distributions of assets of the Borrower
made on or applicable to any Senior Debt.
(iii) Each Junior Creditor agrees that it will deliver all instruments
or other writings evidencing any Subordinated Debt held by it to Administrative
Agent, promptly after request therefor by the Administrative Agent.
(iv) No Junior Creditor may at any time sell, assign or otherwise
transfer any Subordinated Debt, or any portion thereof, including, without
limitation, the granting of any Lien thereon, unless and until satisfaction of
the requirements of Section 9.6 above and the proposed transferee shall have
assumed in writing the obligation of the Junior Creditor to the Banks under this
Agreement, in a form acceptable to the Administrative Agent.
(v) If any of the Senior Debt, should be invalidated, avoided or set
aside, the subordination provided for herein nevertheless shall continue in full
force and effect and, as be-
<PAGE> 88
tween the Banks which are not Defaulting Banks and all Junior Creditors, shall
be and be deemed to remain in full force and effect.
(vi) Each Junior Creditor hereby irrevocably waives, in respect of
Subordinated Debt, all rights (x) under Sections 361 through 365, 502(e) and 509
of the Bankruptcy Code (or any similar sections hereafter in effect under any
other Federal or state laws or legal or equitable principles relating to
bankruptcy, insolvency, reorganizations, liquidations or otherwise for the
relief of debtors or protection of creditors), and (y) to seek or obtain
conversion to a different type of proceeding or to seek or obtain dismissal of a
proceeding, in each case in relation to a bankruptcy, reorganization, insolvency
or other proceeding under similar laws with respect to the Borrower. Without
limiting the generality of the foregoing, each Junior Creditor hereby
specifically waives (A) the right to seek to give credit (secured or otherwise)
to the Borrower in any way under Section 364 of the Bankruptcy Code unless the
same is subordinated in all respects to Senior Debt in a manner acceptable to
Administrative Agent in its sole and absolute discretion and (B) the right to
receive any collateral security (including, without limitation, any "super
priority" or equal or "priming" or replacement Lien) for any Subordinated Debt
unless the Banks which are not Defaulting Banks have received a senior position
acceptable to the Banks in their sole and absolute discretion to secure all
Senior Debt (in the same collateral to the extent collateral is involved).
(h)(i) In addition to and not in limitation of the subordination
effected by this Section 9.16, the Administrative Agent and each of the Banks
which are not Defaulting Banks may in their respective sole and absolute
discretion, also exercise any and all other rights and remedies available at law
or in equity in respect of a Defaulting Bank; and
(ii) The Administrative Agent shall give each of the Banks notice of
the occurrence of a default under this Section 9.16 by a Defaulting Bank and if
the Administrative Agent and/or one or more of the other Banks shall, at their
option, fund any amounts required to be paid or advanced by a Defaulting Bank,
the other Banks who have elected not to fund any portion of such amounts shall
not be liable for any reimbursements to the Administrative Agent and/or to such
other funding Banks.
(i) Notwithstanding anything to the contrary contained or implied
herein, a Defaulting Bank shall not be entitled to vote on any matter as to
which a vote by the Banks is required hereunder, including, without limitation,
any actions or consents on the part of the Administrative Agent as to which the
approval or consent of all the Banks or the Required Banks or Majority Banks is
required under Article VIII, Section 9.5 or elsewhere, so long as such Bank is a
Defaulting Bank; provided, however, that in the case of any vote requiring the
unanimous consent of the Banks, if all the Banks other than the Defaulting Bank
shall have voted in accordance with each other, then the Defaulting Bank shall
be deemed to have voted in accordance with such Banks.
(j) Each of the Administrative Agent and any one or more of the Banks
which are not Defaulting Banks may, at their respective option, (i) advance to
the Borrower such Bank's Pro
<PAGE> 89
Rata Share of the Loans not advanced by a Defaulting Bank in accordance with the
Loan Documents, or (ii) pay to the Administrative Agent such Bank's Pro Rata
Share of any costs, expenses or disbursements incurred or made by the
Administrative Agent pursuant to the terms of this Agreement not theretofore
paid by a Defaulting Bank. Immediately upon the making of any such advance by
the Administrative Agent or any one of the Banks, such Bank's Pro Rata Share and
the Pro Rata Share of the Defaulting Bank shall be recalculated to reflect such
advance. All payments, repayments and other disbursements of funds by the
Administrative Agent to Banks shall thereupon and, at all times thereafter be
made in accordance with such Bank's recalculated Pro Rata Share unless and until
a Defaulting Bank shall fully cure all defaults on the part of such Defaulting
Bank under the Loan Documents or otherwise existing in respect of the Loans or
this Agreement, at which time the Pro Rata Share of the Bank(s) which advanced
sums on behalf of the Defaulting Bank and of the Defaulting Bank shall be
restored to their original percentages.
SECTION 9.17. Banks' ERISA Covenant. Each Bank, which is a
bank, by its signature hereto or on the applicable Transfer Supplement, hereby
agrees (a) that on the date any Loan is disbursed hereunder no portion of such
Bank's Pro Rata Share of such Loan will constitute "assets" within the meaning
of 29 C.F.R. Section 2510.3-101 of an "employee benefit plan" within the meaning
of Section 3(3) of ERISA or a "plan" within the meaning of Section 4975(e)(1) of
the Code, and (b) that following such date such Bank shall not allocate such
Bank's Pro Rata Share of any Loan to an account of such Bank if such allocation
(i) by itself would cause such Pro Rata Share of such Loan to then constitute
"assets" (within the meaning of 29 C.F.R. Section 2510.3-101) of an "employee
benefit plan" within the meaning of Section 3(3) of ERISA or a "plan" within the
meaning of Section 4975(e)(1) of the Code and (ii) by itself would cause such
Loan to constitute a prohibited transaction under ERISA or the Code (which is
not exempt from the restrictions of Section 406 of ERISA and Section 4975 of the
Code and the taxes and penalties imposed by Section 4975 of the Code and Section
502(i) of ERISA) or any Agent or Bank being deemed in violation of Section 404
of ERISA.
SECTION 9.18. No Bankruptcy Proceedings. Each of the Borrower,
the Banks and the Administrative Agent hereby agrees that it will not institute
against any Designated Lender or join any other Person in instituting against
any Designated Lender any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceeding under any federal or state bankruptcy or similar law,
until the later to occur of (i) one year and one day after the payment in full
of the latest maturing commercial paper note issued by such Designated Lender
and (ii) the Maturity Date.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 90
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
EOP OPERATING LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Equity Office Properties Trust, a Maryland real es-
tate investment trust, its managing general partner
By:
------------------------------------------------
Name:
Title:
Facsimile number: (312) 559-5009
Address: Two North Riverside Plaza
Suite 2200
Chicago, Illinois 60606
Attn: Chief Financial Officer
S-1
<PAGE> 91
THE CHASE MANHATTAN BANK, as Administrative Agent
By:
---------------------------------------
Name:
Title:
CHASE SECURITIES, INC. as Arranger and Book Manager
By:
---------------------------------------
Name:
Title:
Commitments:
$200,000,000 THE CHASE MANHATTAN BANK
By:
Name:
Title:
S-2
<PAGE> 92
Schedule 1.1
Initial Qualifying Unencumbered Properties
<PAGE> 93
SCHEDULE 4.4 (b)
Disclosure of
Additional Material Indebtedness
<PAGE> 94
SCHEDULE 4.6
Borrower and EOPT ERISA Plans
The employees of EOPT and the Borrower (other than union employees) may
currently participate in a 401(k) Plan.
Other benefits for non-union employees include:
Health care plan, dental care, vision care, life
insurance and accidental death and dismemberment
plan, travel/accident insurance, short-term
disability, long-term disability, sick time,
vacation time, personal days, holidays and direct
paycheck deposit.
Union employee benefits include:
Sick time, vacation time, personal days,
holidays, direct paycheck deposit, monthly
employer contributions into the health and
welfare trust and pension fund (which health and
welfare trusts and pension funds are generally
Plans, Multiemployer Plans or Benefit
Arrangements).
<PAGE> 95
SCHEDULE 5.11(c)(1)
EOP-QRS Trust
EOP-QRS LaJolla Trust
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership II
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership III
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership IV
<PAGE> 96
SCHEDULE 5.11(c)(2)
EOP-QRS Trust
EOP-QRS LaJolla Trust
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership II
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership III
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership IV
<PAGE> 1
EXHIBIT 12.1
EQUITY OFFICE PROPERTIES TRUST AND
EQUITY OFFICE PREDECESSORS
STATEMENTS REGARDING COMPUTATION OF RATIOS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
Equity Office Equity Office Equity Office
Properties Trust Properties Trust for Properties Trust for
for the the period from the period from
Year Ended July 11, 1997 through January 1, 1997
December 31, 1998 December 31, 1997 through July 10, 1997
-------------------- -------------------------------------------
<S> <C> <C> <C>
Net Income before preferred $ 380,328 $ 94,962 $ 49,173
distributions, minority interests -
Operating Partnerships, gains from
sales of property, provision for value
impairment and extraordinary items
Plus Fixed Charges:
Interest expense 338,611 76,675 80,481
Interest expense from unconsolidated subsidiaries 8,580
Loan amortization cost 6,404 4,179 2,771
Taxes 1,664 0 0
----------------- -------------------------------------------
Earnings $ 735,587 $ 175,816 $ 132,425
================= ===========================================
Fixed Charges:
Interest expense $ 338,611 $ 76,675 $ 80,481
Interest expense from unconsolidated subsidiaries 8,580 0 0
Capitalized interest 15,077 1,890 3,669
Loan amortization cost 6,404 4,179 2,771
Preferred dividends 32,202 649 0
----------------- -------------------------------------------
Total Fixed Charges $ 400,874 $ 83,393 $ 86,921
================= ===========================================
Ratio of earnings to combined fixed charges
and preferred share distributions 1.8 2.1 1.5
================= ===========================================
<CAPTION>
Equity Office Predecessors
Combined Historical
Years Ended December 31,
1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C>
Net Income before preferred
distributions, minority interests -
Operating Partnerships, gains from
sales of property, provision for value
impairment and extraordinary items $ 68,087 $ 23,436 $ 14,857
Plus Fixed Charges:
Interest expense 119,595 100,566 59,316
Interest expense from unconsolidated subsidiaries
Loan amortization cost 4,275 2,025 1,568
Taxes 0 0 0
------------------------------------------------------------
Earnings $ 191,957 $ 126,027 $ 75,741
============================================================
Fixed Charges:
Interest expense $ 119,595 $ 100,566 $ 59,316
Interest expense from unconsolidated subsidiaries 0 0 0
Capitalized interest 4,640 1,682 0
Loan amortization cost 4,275 2,025 1,568
Preferred dividends 0 0 0
------------------------------------------------------------
Total Fixed Charges $ 128,510 $ 104,273 $ 60,884
============================================================
Ratio of earnings to combined fixed charges
and preferred share distributions 1.5 1.2 1.2
============================================================
</TABLE>
<PAGE> 1
Exhibit 21.1
EOP Operating Limited Partnership, a Delaware limited partnership
Equity Office Properties Management Corp., a Delaware corporation
In addition, the Company has interests in 237 entities which are not
deemed to be significant subsidiaries.
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
Exhibit 23.1
We consent to the incorporation by reference in the Registration Statements
(Form S-3) and related Prospectuses of Equity Office Properties Trust for the
registration of: 137,427 common shares of beneficial interest (registration
statement no. 333-69619); 6,854,451 common shares of beneficial interest
(registration statement no. 333-62213); 20,210,129 common shares of beneficial
interest (registration statement no. 333-59069); 6,000,000 5.25% Series B
convertible, cumulative preferred shares of beneficial interest (registration
statement no. 333-61105); $1.5 billion common shares of beneficial interest,
preferred shares of beneficial interest, common share warrants and preferred
share warrants (registration statement no. 333-58729); 1,628,009 common shares
of beneficial interest (registration statement no. 333-58687); and 8,205,059
common shares of beneficial interest (registration statement no. 333-40401);
and in the Registration Statements (Form S-8) pertaining to Equity Office
Properties Trust 1997 Non-Qualified Employee Share Purchase Plan (registration
statement no. 333-72187) and the Amended and Restated 1997 Share Option and
Share Award Plan, (registration statement no. 333-72205), of our report dated
February 9, 1999, except for Note 23, as to which the date is February 16, 1999,
with respect to the consolidated financial statements and schedule of Equity
Office Properties Trust and Equity Office Predecessors included in the 1998
Annual Report (Form 10-K) of Equity Office Properties Trust.
ERNST & YOUNG LLP
Chicago, Illinois
March 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 226,656
<SECURITIES> 0
<RECEIVABLES> 123,308
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 579,767
<PP&E> 13,683,819
<DEPRECIATION> (352,259)
<TOTAL-ASSETS> 14,261,291
<CURRENT-LIABILITIES> 447,208
<BONDS> 6,025,405
<COMMON> 2,524
0
615,000
<OTHER-SE> 7,171,154
<TOTAL-LIABILITY-AND-EQUITY> 14,261,291
<SALES> 0
<TOTAL-REVENUES> 1,679,699
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,016,755
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 338,611
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 324,333
<DISCONTINUED> 0
<EXTRAORDINARY> (7,506)
<CHANGES> 0
<NET-INCOME> 316,827
<EPS-PRIMARY> $1.25
<EPS-DILUTED> $1.24
</TABLE>
<PAGE> 1
EXHIBIT 99.1
EQUITY OFFICE PROPERTIES TRUST
1997 NON-QUALIFIED EMPLOYEE SHARE PURCHASE PLAN
FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998
CONTENTS
PAGE
Report of Independent Auditors...............................................2
Financial Statements and Notes...............................................3
<PAGE> 2
REPORT OF INDEPENDENT AUDITORS
Compensation and Option Committee of the Board of Trustees
of Equity Office Properties Trust
1997 Non-Qualified Employee Share Purchase Plan
We have audited the accompanying statement of financial condition of the Equity
Office Properties Trust 1997 Non-Qualified Employee Share Purchase Plan, as
amended, as of December 31, 1998, and the related statement of changes in plan
equity for the year then ended. These financial statements are the
responsibility of the plan's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial condition of the Plan at December 31, 1998 and the
plan's changes in plan equity for the year then ended, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
March 11, 1999
2
<PAGE> 3
EQUITY OFFICE PROPERTIES TRUST
1997 NON-QUALIFIED EMPLOYEE SHARE PURCHASE PLAN
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Receivable from Equity Office Properties Trust:
Participant contributions ............................... $ 860,800
Plan Sponsor contributions .............................. 154,500
----------
Total Plan equity ....................................... $1,015,300
==========
</TABLE>
See accompanying notes.
3
<PAGE> 4
EQUITY OFFICE PROPERTIES TRUST
1997 NON-QUALIFIED EMPLOYEE SHARE PURCHASE PLAN
STATEMENT OF CHANGES IN PLAN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Plan equity at beginning of year ............................... $ --
Additions:
Participant contributions .................................... 1,492,100
Plan Sponsor contributions ................................... 253,500
-----------
Total additions ............................................ 1,745,600
-----------
Deductions:
Refunds of Participant contributions ......................... (12,700)
Purchase and distributions of Common Shares to Participants .. (717,600)
-----------
Total deductions ........................................... (730,300)
-----------
Plan equity at end of year ..................................... $ 1,015,300
===========
</TABLE>
See accompanying notes.
4
<PAGE> 5
EQUITY OFFICE PROPERTIES TRUST
1997 NON-QUALIFIED EMPLOYEE SHARE PURCHASE PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF PLAN
The following description of the Equity Office Properties Trust 1997
Non-Qualified Employee Share Purchase Plan, as amended, (the "Plan") provides
only general information. Participants should refer to the text of the Plan and
the Plan prospectus for a complete description of the Plan's provisions. Equity
Office Properties Trust (the "Company") is the Plan sponsor. The Plan was
effective January 1, 1998.
The Plan was adopted by the Company in 1997 to encourage eligible employees and
eligible trustees ("Participants") to purchase the Company's common shares of
beneficial interest, $0.01 par value per share ("Common Shares") in the belief
that a Participant's ownership of Common Shares will increase his or her
interest in the success of the Company. A Participant is eligible to participate
in the Plan for a Purchase Period (as defined below) if he or she serves on the
Board of Trustees of the Company or has been employed by Equity Office
Properties Management Corp., a subsidiary of the Company, for at least six full
calendar months (31 days effective for the Purchase Period commencing July 1,
1998), and is regularly scheduled to work 20 or more hours each week. The
minimum amount a Participant can contribute to the Plan is $10 per pay period.
The maximum amount a Participant can contribute is 20% of gross pay per pay
period, up to $100,000 per calendar year. Contributions may be held as part of
the general assets of the Company. All contributions are fully vested.
The Purchase Periods for the year ended 1998 were from January 1 through June 30
and July 1 though December 31 ("Purchase Period"). At the end of each Purchase
Period, Participants contributions are used to purchase Common Shares. The
price for the Common Shares ("Purchase Price") will be 85% of the lesser of: (i)
the Closing Price (as defined below) for a Common Share as of the last business
day of the applicable Purchase Period; or (ii) the Average Closing Price (as
defined below) of a Common Share for the Purchase Period. The Closing Price is
the price reported for the Common Shares in the Wall Street Journal or another
publication designated by the Compensation and Option Committee of the Board of
Trustees of the Company (the "Committee"), for the applicable business day. The
Average Closing Price is the average of the Closing Prices for all business days
during the Purchase Period. The number of Common Shares purchased is calculated
on a per Participant basis by dividing the contributions made by each
Participant during the Purchase Period by the Purchase Price. Only whole shares
are purchased.
Employer contributions represent the discount or aggregate difference between
the market value price of the Company's Common Shares and the established
discount purchase price at the end of the purchase period.
The Common Shares of the Company purchased on behalf of each Participant are
uncertificated and are recorded as a book entry. Accordingly, all Common Shares
purchased under the provisions of the Plan are deemed to be immediately
distributed to the Participants.
Any disposition by any Participant of his or her Common Shares which he or she
has owned for less than one year is subject to the restrictions set forth in
the Plan.
The Company has reserved 2,000,000 Common Shares for participants under the
Plan.
5
<PAGE> 6
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
Accounting Method
The accounting records of the Plan are maintained on the accrual basis. Common
Shares were purchased after the end of each Purchase Period, June 30 and
December 31, and accounted for in the appropriate Purchase Period.
Expenses
The Company pays administrative expenses of the Plan.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.
NOTE 3 - DISTRIBUTIONS
A summary of the Common Shares purchased and distributed in July 1998 for the
purchase period ended June 30, 1998 is as follows:
<TABLE>
<S> <C>
Participant contributions $618,600
Employer contributions 99,000
--------
$717,600
========
Market value of Common Shares
purchased and distributed per share $27.9355
========
Common Shares purchased and distributed 25,642
======
</TABLE>
NOTE 4 - FEDERAL INCOME TAXES
The Plan is neither a qualified plan under Section 401(a) of the Internal
Revenue Code nor is it an employee stock purchase plan under Section 423 of the
Internal Revenue Code. Participants are subject to any required tax withholding
by the Company on the discount/compensation earned under the Plan.
NOTE 5 - AMENDMENT OR TERMINATION
The Plan may be amended or terminated by the Committee or the Board of Trustees
at any time. Amounts available in Participant's accounts would either be used to
purchase Common Shares or returned to the Participants.
NOTE 6 - SUBSEQUENT EVENTS
(1) In January 1999, an additional 41,871 Common Shares with a market value of
approximately $1,006,500 were purchased and distributed for the Purchase
Period ended December 31, 1998.
(2) In February 1999, the Plan was amended to change the Purchase Period and to
affirm various insider trading restrictions as adopted by the Board of
Trustees of the Company. During 1999, the Purchase Period shall mean the
period January 2, 1999 to June 30, 1999 and July 1, 1999 to November 30,
6
<PAGE> 7
1999. After December 1, 1999, the Purchase Period shall mean December 1 to May
31 and June 1 to November 30.
7
<PAGE> 8
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (File No. 333-72187) pertaining to the Equity Office Properties Trust
1997 Non-Qualified Employee Share Purchase Plan, as amended, of our report dated
March 11, 1999, with respect to the financial statements of the Equity Office
Properties Trust 1997 Non-Qualified Employee Share Purchase Plan, as amended,
included in this Annual Report and included as Exhibit 99.1 in the 1998 Annual
Report (Form 10-K) of Equity Office Properties Trust for the year ended December
31, 1998.
Ernst & Young LLP
Chicago, Illinois
March 22, 1999
8
<PAGE> 9
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
thereunto duly authorized.
Equity Office Properties Trust
1997 Non-Qualified Employee Share Purchase Plan
-----------------------------------------------
(Name of Plan)
Date: March 16, 1999 Compensation and Option Committee of
-------------- the Board of Trustees of Equity Office
Properties Trust
By: /s/ Sheli Z. Rosenberg
--------------------------------------
Sheli Z. Rosenberg
Member of the Compensation and
Option Committee and Trustee
9
