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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, 1999 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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MARYLAND 36-4151656
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
TWO NORTH RIVERSIDE PLAZA, 60606
SUITE 2100, CHICAGO, ILLINOIS (Zip Code)
(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
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Securities registered pursuant to Section 12(g) of the Act:
(None)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such 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. [ ]
The aggregate market value of the Common Shares held by non-affiliates of
the registrant as of March 1, 2000 was $5,873,438,850.
On March 1, 2000, 247,941,710 of the registrant's Common Shares were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for the annual shareholders'
meeting to be held in 2000 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 I.
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 33
Item 3. Legal Proceedings........................................... 44
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......................................... 44
Item 6. Selected Financial Data..................................... 45
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 48
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 69
Item 8. Financial Statements........................................ 70
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 111
PART III.
Item 10. Directors and Executive Officers of the Registrant.......... 112
Item 11. Executive Compensation...................................... 112
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 112
Item 13. Certain Relationships and Related Transactions.............. 112
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 113
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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 Partnership"), and our predecessors. With
EOP Partnership, 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, 1999, we owned or had an interest in 294 office
properties containing approximately 77.0 million rentable square feet of office
space (the "Office Properties") and owned 20 stand-alone parking facilities
containing approximately 20,506 parking spaces (the "Parking Facilities" and,
together with the Office Properties, the "Properties"). The weighted average
occupancy for the Office Properties at December 31, 1999 was approximately
93.7%. The Office Properties are located in 81 submarkets in 35 markets in 23
states and the District of Columbia. The Office Properties, by rentable square
feet, are located approximately 52% in central business districts ("CBDs") and
48% in suburban markets. We own all of our assets and conduct all of our
operations through EOP Partnership. We owned approximately 88% of EOP
Partnership as of December 31, 1999 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 2100,
Chicago, Illinois 60606, and our telephone number is (312) 466-3300.
ACQUISITION ACTIVITY
During the period from 1987 through 1999, we invested approximately $12.9
billion, averaging $2.2 billion annually for the five years ended December 31,
1999, 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, 1999, we completed six acquisition transactions in
which we acquired ten office properties, containing an aggregate of
approximately 1.9 million square feet of rentable space and one parking facility
containing 589 spaces. The aggregate consideration we paid for these
acquisitions during 1999 was approximately $393.2 million, comprised of $315.5
million in cash, $24.5 million in units of limited partnership interest in EOP
Partnership and $53.2 million in assumed liabilities.
PROPOSED ACQUISITION OF CORNERSTONE PROPERTIES INC.
On February 11, 2000, Equity Office, EOP Partnership, Cornerstone
Properties Inc. ("Cornerstone") and Cornerstone Properties Limited Partnership
("Cornerstone Partnership") entered into a merger agreement where Cornerstone
will merge with and into Equity Office and Cornerstone Partnership will merge
with and into EOP Partnership. The total merger consideration will be
approximately $4.6 billion, including the assumption of approximately $1.8
billion in debt, the payment of $1.1 billion in cash and the issuance of
approximately 63.6 million new Equity Office common shares and EOP Partnership
units. Cornerstone common stockholders may elect to receive $18.00 per share in
cash, plus any accrued but unpaid dividends, or
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0.7009 of an Equity Office common share based on a prevailing transaction price
of $25.68125 per Equity Office common share, subject to proration. Cornerstone's
convertible preferred stockholders will receive $18.00 per share in cash.
Cornerstone Partnership unitholders will receive 0.7009 units of EOP
Partnership, plus any accrued but unpaid distributions. We intend to finance the
$1.1 billion cash portion of the purchase price by obtaining additional term
loans, issuing unsecured notes or amending our existing line of credit.
The merger is expected to be completed in the third quarter of 2000 and is
subject to the approval of Equity Office shareholders and Cornerstone
stockholders and other customary conditions. Cornerstone is a fully integrated
REIT and currently owns 86 office properties in the U.S. totaling over 18.5
million square feet, and has an additional $884 million of projects under
development. If the merger is completed, we will own approximately 380 office
properties consisting of approximately 95.5 million square feet.
RECENT FINANCING TRANSACTION
On March 21, 2000, EOP Partnership issued $500 million in unsecured notes
due March 2006. The $500 million notes have a fixed coupon rate of approximately
8.4% per annum and an effective rate of approximately 8.5% per annum. We
received net proceeds of approximately $496.2 million, which were used to
paydown our line of credit.
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 have historically
supplemented this strategy through our ownership of Parking Facilities and
intend, in the future, to supplement further this strategy through Access, a
strategic business service unit that provides office space customers access to
business products and services.
INTERNAL GROWTH. We believe that our future internal growth will come from
(a) lease up of vacant space, (b) tenant roll-over at increased rents where
market conditions permit, (c) repositioning of certain properties which have not
yet achieved stabilization, (d) ancillary revenues generated from providing
business products and services to tenants through Access, (e) reduction of
various expenses as a percentage of revenues, and (f) capital market
efficiencies.
As of December 31, 1999, 4.9 million rentable square feet of our office
property space was vacant. During the period from December 31, 1999 through
December 31, 2004, 5,364 leases for 44.8 million rentable square feet of space
are scheduled to expire. As of December 31, 1999, the average rent for this
space was $24.55 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. 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,
joint ventures, and/or mergers or other business combinations.
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EMPLOYEES
As of December 31, 1999, we had approximately 1,733 employees providing
in-house expertise in:
- property management
- real estate services
- leasing
- finance
- tax
- acquisition
- development
- disposition
- marketing
- accounting
- information systems
- law
Our five most senior executives have an average tenure of 9.5 years with us
or our affiliates and an average of 21 years experience in the real estate
industry.
EXECUTIVE AND SENIOR OFFICERS OF THE COMPANY
The following executive and senior officers of Equity Office currently hold
the offices indicated.
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NAME AGE OFFICE HELD
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Timothy H. Callahan.... 49 President and Chief Executive Officer
Richard D. Kincaid..... 38 Executive Vice President and Chief Financial Officer
Michael A. Steele...... 53 Executive Vice President -- Real Estate Operations and
Chief Operating Officer
Stanley M. Stevens..... 51 Executive Vice President, Chief Legal Counsel and Secretary
David A. Helfand....... 35 Executive Vice President -- New Business Development
Peter H. Adams......... 53 Senior Vice President -- Pacific Region
Stephen M. Briggs...... 41 Senior Vice President -- Financial Reporting and Accounting
Sybil J. Ellis......... 46 Senior Vice President -- Real Estate Investments
Maureen O. Fear........ 43 Senior Vice President -- Treasurer
Debra L. Ferruzzi...... 39 Senior Vice President and Executive Advisor
Frank Frankini......... 45 Senior Vice President -- Design & Construction
Peter D. Johnston...... 43 Senior Vice President -- Southwest Region
Kim J. Koehn........... 44 Senior Vice President -- West Region
Frances P. Lewis....... 46 Senior Vice President -- Corporate Communications
Anita A. Loch.......... 52 Senior Vice President -- Human Resources
Gregory S. Mancuso..... 42 Senior Vice President -- Information Systems
Diane M. Morefield..... 41 Senior Vice President -- Investor Relations
Christopher P. Mundy... 38 Senior Vice President -- Northeast Region
David H. Naus.......... 44 Senior Vice President -- Real Estate Investments
Arvid J. Povilaitis.... 39 Senior Vice President -- Central Region
John C. Schneider...... 41 Senior Vice President -- Legal and Associate General
Counsel for Property Operations
Mark E. Scully......... 41 Senior Vice President -- Southeast Region
Michael E. Sheinkop.... 37 Senior Vice President -- Real Estate Services
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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
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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.
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.
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 President
and regional director for Rubloff, Inc., a full service real estate company in
Chicago, Illinois, from April 1987 until June 1992.
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.
David A. Helfand has been Executive Vice President -- New Business
Development of the Company since February 2000 and was its Senior Vice
President -- New Business Development from July 1998 to February 2000. Mr.
Helfand was Managing Director of Equity International Properties, Ltd. from
December 1997 until 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.
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.
Stephen M. Briggs has been Senior Vice President -- Accounting and
Financial Reporting of the Company since April 1999. Mr. Briggs was Vice
President -- Accounting and Financial Reporting of the Company from July 1997
until March 1999. Mr. Briggs was Vice President -- Financial Accounting of EOP,
Inc. from November 1993 until July 1997.
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Sybil J. Ellis has been Senior Vice President -- Real Estate Investments of
the Company since December 1999. Ms. Ellis was Senior Vice
President -- Acquisitions of the Company from March 1997 until December 1999.
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.
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., a manufacturer, seller and distributor of business
communication products, 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, an international real estate
consulting company, 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
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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.
David H. Naus has been Senior Vice President -- Real Estate Investments of
the Company since December 1999. Mr. Naus was Senior Vice President --
Acquisitions of the Company from March 1997 until December 1999. 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.
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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 Partnership, 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/or the units 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 initial public offering in July
1997. As of December 31, 1999, we owned interests in 294 office properties
containing 77.0 million square feet. On a square footage basis, our office
portfolio grew by 139%, from the time of our initial public offering in July
1997 through the end of 1999. If we do not effectively manage our rapid growth,
we may not be able to make expected distributions to our securityholders and the
market value of our securities may decline.
OUR PERFORMANCE AND SHARE VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE
REAL ESTATE INDUSTRY. If we do not generate income sufficient to pay our
expenses, service our debt and maintain our properties, we may not be able to
make expected distributions to our securityholders. As a real estate company, we
are susceptible to the following real estate industry risks:
- downturns in the national, regional and local economic conditions where
our properties are located;
- 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 that may increase over time
as markets stabilize, and that 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 securities. From now through December 31,
2004, leases will expire on a total of 62% of the currently occupied rentable
square feet at our properties. If we are unable to promptly renew the leases or
relet this space, or if the rental rates upon a 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 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
to 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. In addition, there are
limitations under the federal income tax laws applicable to REITs and agreements
that we
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have entered into in connection with the acquisition of some of our properties
that may limit our ability to sell our assets.
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, some 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. Nevertheless, we might 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, however, to coverage
limitations. We cannot guarantee that material losses in excess of insurance
proceeds will not occur in the future.
WE DO NOT CONTROL THE DECISIONS OF JOINT VENTURES OR PARTNERSHIPS IN WHICH
WE HOLD LESS THAN A CONTROLLING INTEREST. We from time to time invest in joint
ventures or partnerships in which we do not hold a controlling interest. These
investments involve risks that are not present with assets in which we own a
controlling interest, including the possibility that our co-venturers or
partners might at any time have economic or other business interests or goals
that are inconsistent with our business interests or goals. Because we lack a
controlling interest, our co-venturers or partners may be in a position to take
action contrary to our instructions or requests or contrary to our policies or
objectives. There is no limitation under our organizational documents as to the
amount of available funds that we may invest in joint ventures or partnerships.
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 interest rates, increased interest expense would adversely affect cash
flow and our ability to service debt and make distributions to our
securityholders.
WE ARE OBLIGATED TO COMPLY WITH FINANCIAL COVENANTS IN OUR DEBT THAT 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 outside of stipulated guidelines or to materially modify
existing leases. In addition, our credit facility contains customary
requirements to, and restrictions and other limitations on our ability to incur
debt, 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 debt. These covenants will reduce our
flexibility in conducting our operations and create a risk of default on our
debt if we cannot continue to 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 Partnership, was approximately 43.3% as of December 31, 1999. Our leverage
could have important consequences to our 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 credit facility bear interest at a variable rate based upon 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
we determine to be 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 our securityholders.
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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 securityholders
with a premium over the then-prevailing market price of their securities or
which might otherwise be in their best interest. These include a staggered board
of trustees and the share ownership limit for REIT tax purposes described below.
WE COULD ADOPT MARYLAND LAW LIMITATIONS IN CHANGES IN CONTROL. Provisions
of Maryland law prohibit "business combinations," including some 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 has 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 securityholder 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. This is referred to 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. Our declaration of trust permits, and in
some cases requires, the board of trustees to waive or modify the ownership
limit, if the board of trustees is satisfied that the waiver or modification
will not jeopardize our REIT qualification. Absent a 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 or prevent a change in control that is opposed by
the board of trustees and, therefore, could adversely affect our
securityholders' ability to realize a premium over the then-prevailing market
price for their securities.
If our merger with Cornerstone Properties, Inc. is completed, our
declaration of trust will be amended to include an additional ownership limit
designed to help us remain qualified as a "domestically controlled REIT" for
federal income tax purposes. The new ownership limit would prevent any person
from acquiring our shares if the acquisition by that person would cause 43% or
more of the fair market value of our issued and outstanding shares to be owned,
directly or indirectly, by non-U.S. persons. The new ownership limit would not
apply to any acquisition of our preferred shares that are outstanding at the
time the new ownership limit becomes effective or to our common shares that are
issued upon conversion of any of these preferred 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 at least 95% of the economic interest in the
noncontrolled subsidiaries, their voting stock is owned directly or indirectly
by private companies controlled by Mr. Zell or in the case of Real State
Insurance Corporation and Equity Business Centers Corp., key officers of Equity
Office. Therefore, we do not control the timing or amount of distributions, the
management, business policies, or operation of the noncontrolled subsidiaries.
As of December 31, 1999, we had seven active noncontrolled subsidiaries,
including:
- Equity Office Properties Management Corp. and Beacon Property Management
Corporation, referred 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;
- Beacon Design Corp., which holds a partnership interest in the Riverside
development project;
- EOP Office Company, which owns a noncontrolling interest in Wright
Runstad Associates Limited Partnership, a provider of third-party
development and management services;
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- Real State Insurance Corporation which provides risk management and
insurance services for our properties and whose voting stock is owned
directly or indirectly by Tim Callahan, Michael Steele, Richard Kincaid,
Stanley Stevens and David Helfand; and
- Equity Business Centers Corp.,whose voting stock is owned directly or
indirectly by Tim Callahan, Michael Steele, Richard Kincaid and Stanley
Stevens, which owns an interest in Regus Equity Business Centers Corp.,
which operates business centers in our properties.
MR. ZELL'S AFFILIATES CONTROL OUR MANAGEMENT AND SERVICES BUSINESSES AND
SOME OF THE PROPERTIES WHICH WE MANAGE BUT DO NOT OWN. The management companies
provide property management services and asset management services to several
properties, some 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 received from these properties are at
current market rates, we cannot assure our 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.
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 our initial public offering, 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 that
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 securityholders 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 these parties in connection with the contamination;
- these 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. These laws require that owners or operators of buildings containing
asbestos:
- properly manage and maintain the asbestos;
- notify and train those who may come into contact with asbestos; and
- undertake special precautions, including removal or other abatement, if
asbestos would be disturbed during renovation or demolition of a
building.
These 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
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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 material environmental
liability. A number of the office properties contain asbestos, 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 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 our 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 some
prior owners and tenants to cover costs related to mitigation should prevent the
contamination from becoming a significant liability for us.
WE ARE DEPENDENT ON OUR KEY PERSONNEL. We depend on the efforts of Mr. Zell
and our executive officers, particularly Mr. Callahan. If they were to resign,
our operations could be adversely affected. We do not have employment agreements
with Mr. Zell or any of our executive officers.
CONTINGENT OR UNDISCLOSED LIABILITIES ACQUIRED IN MERGERS OR SIMILAR
TRANSACTIONS COULD REQUIRE US TO MAKE SUBSTANTIAL PAYMENTS. The properties which
we acquired in our formation and in our 1997 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 liabilities were asserted against us based upon any
of those properties, we might have to pay substantial sums to settle it, which
could adversely affect our cash flow and our ability to service debt and make
distributions to our 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 owners 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.
OUR EARNINGS AND CASH DISTRIBUTIONS WILL AFFECT THE MARKET PRICE OF OUR
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
the REIT's current and potential future cash distributions, and is secondarily
based upon the real estate market value of the underlying assets. For that
reason, our securities may trade at prices that are higher or lower than the net
asset value per share. To the extent that we retain operating cash flow for
investment purposes, working capital reserves or other purposes, these retained
funds, while increasing the value of our underlying assets, may not
correspondingly increase the market price of our securities. 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 securities.
MARKET INTEREST RATES MAY HAVE AN EFFECT ON THE VALUE OF OUR 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 the REIT's shares,
considered as a percentage of the price of those shares, relative to market
interest rates. If market interest rates increase, prospective purchasers of
REIT shares may expect a higher distribution rate. Thus, higher market interest
rates could cause the market price of our securities to go down.
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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 taxable years
beginning after December 31, 2000, this REIT distribution requirement will be
90%. Because of this distribution requirement, it is not likely that we will be
able to fund all future capital needs, including for acquisitions, from income
from operations. Therefore, we 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 our shareholders' 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 we have qualified for taxation as a REIT for federal
income tax purposes since 1997. 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 we are 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 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.
For taxable years beginning after December 31, 2000, this REIT distribution
requirement will be 90%. The fact that we hold our assets through EOP
Partnership and its subsidiaries further complicates the application of the REIT
requirements. Even a technical or inadvertent mistake could jeopardize Equity
Office's 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. 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 securityholders.
WE PAY SOME TAXES. Even if we qualify as a REIT, we are required to pay
some 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, state and local corporate tax. We expect that some or all of the
noncontrolled subsidiaries will elect, under recently enacted REIT tax laws, to
be treated as "taxable REIT subsidiaries" after December 31, 2000. A taxable
REIT subsidiary will be a fully taxable corporation and will be limited in its
ability to deduct interest payments made to us. In addition, we will be subject
to a 100% penalty tax on some payments that we receive if the economic
arrangements between us, our tenants, and the taxable REIT subsidiary are not
comparable to similar arrangements between unrelated parties. See "Federal
Income Tax Consequences -- Other Tax Consequences for Equity Office and Its
Shareholders" and " -- Changes in the REIT Qualification Requirements."
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes many United States federal income tax
consequences relating to Equity Office and to the ownership and disposition of
Equity Office common shares. If Equity Office offers one or more additional
series of preferred shares or debt securities, information about any additional
federal income tax consequences to holders of those preferred shares or debt
securities will be included in the documents pursuant to which they are offered.
Because this is a summary that is intended to address only federal income tax
consequences relating to the ownership and disposition of Equity Office common
shares that will apply to all shareholders, it may not contain all the
information that may be important to you. As you review this discussion, you
should keep in mind that:
- the tax consequences to you may vary depending on your particular tax
situation;
- you may be subject to special rules that are not discussed below if, for
example, you are:
-- a tax-exempt organization;
-- a broker-dealer;
-- a non-U.S. person;
-- a trust;
-- an estate;
-- a regulated investment company; or
-- an insurance company;
-- otherwise subject to special tax treatment under the Internal Revenue
Code;
- this summary does not address state, local, or foreign tax
considerations;
- this summary does not address all aspects of taxation that may be
relevant to persons who are not citizens or residents of the United
States; and
- this discussion is not intended to be, and should not be construed as,
tax advice.
You are urged to both review the following discussion and consult with your
own tax advisor to determine the effect of ownership and disposition of Equity
Office common shares on your individual tax situation, including any state,
local or non-U.S. tax consequences.
The information in this section is based on the current Internal Revenue
Code, current, temporary and proposed regulations, the legislative history of
the Internal Revenue Code, current administrative interpretations and practices
of the Internal Revenue Service, including its practices and policies as
endorsed in private letter rulings, which are not binding on the Internal
Revenue Service, and existing court decisions. Future legislation, regulations,
administrative interpretations and court decisions could change current law or
adversely affect existing interpretations of current law. Any change could apply
retroactively. Except as described below in "-- Income Tests Applicable to
REITs," Equity Office has not requested, and does not plan to request, any
rulings from the Internal Revenue Service concerning the tax treatment of Equity
Office or EOP Partnership. Thus, it is possible that the Internal Revenue
Service would challenge the statements in this discussion, which do not bind the
Internal Revenue Service or the courts, and that a court would agree with the
Internal Revenue Service.
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 of 1986, as amended, beginning with
its taxable year ended December 31, 1997. Equity Office believes that it is
organized and has operated in a manner to qualify for taxation as a REIT under
the Internal Revenue Code and intends to continue to operate in this 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, there is no
guarantee that Equity Office has qualified as a REIT or will continue to qualify
as a REIT. See "-- Failure of Equity Office to Qualify as a REIT" below. The
following summary of the material aspects of the REIT qualification rules is
qualified in its entirety by the applicable Internal Revenue Code provisions,
Treasury Regulations, and administrative and judicial interpretations of the
Internal Revenue Code, all of which are subject to change.
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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 its shareholders. This treatment substantially
eliminates "double taxation" at both the corporate and shareholder levels that
generally results from investment in a regular corporation. However, Equity
Office will be subject to federal income tax as follows:
- Equity Office will be taxed at regular corporate rates on any
undistributed "REIT taxable income." REIT taxable income is the taxable
income of the REIT subject to adjustments, including a deduction for
dividends paid;
- Under some circumstances, Equity Office may be subject to the
"alternative minimum tax" on its items of tax preference;
- 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 this income;
- Equity Office's net income from "prohibited transactions" will be
subject to a 100% tax. In general, prohibited transactions are sales or
other dispositions of property held primarily for sale to customers in
the ordinary course of business other than foreclosure property;
- 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 other requirements are met, it will be
subject to a tax equal to the gross income attributable to the greater
of the amount by which Equity Office fails either the 75% or 95% test
(or, for taxable years beginning after December 31, 2000, a 90% test),
multiplied by a fraction intended to reflect its profitability;
- Equity Office will be subject to a 4% excise tax on the excess of the
required distribution over the sum of amounts actually distributed and
amounts retained for which federal income tax was paid, if Equity Office
fails to distribute during each calendar year at least the sum of:
-- 85% of its REIT ordinary income for the year;
-- 95% of its REIT capital gain net income for the year; and
-- any undistributed taxable income from prior taxable years.
In addition, if Equity Office acquires any asset from a taxable "C"
corporation in a carry-over basis transaction, it would be liable for tax
liabilities inherited from that "C" corporation. Since its formation, Equity
Office has acquired assets in carry-over basis merger transactions with several
REITs. If one of those REITs failed to qualify as a REIT at the time of its
merger into Equity Office, it would have been required to recognize gain with
respect to its assets' "built-in gain." Built-in gain is the amount by which an
asset's fair market value exceeds the REIT's adjusted basis in the asset. As the
successor to these REITs, Equity Office would be liable for any tax owed by them
as a result of the recognition of built-in gain. However, under recently
published Treasury Regulations, Equity Office will be able to make an election
that will allow these REITs to have avoided recognizing gain at the time of
their mergers into Equity Office if the REITs did not qualify as REITs at the
time of their mergers. The election will require Equity Office to recognize the
built-in gain and pay tax at the highest regular corporate rate if Equity Office
disposes of any of the built-in gain assets during the 10 years following the
merger. Even though Equity Office believes that each of these REITs qualified as
a REIT for tax purposes at the time of its merger into Equity Office, Equity
Office intends to make the election described above as a precautionary measure
to protect Equity Office if the Internal Revenue Service later determines that
one of these REITs did not qualify as a REIT at the time of its merger into
Equity Office.
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;
(3) that would be taxable as a domestic corporation, but for sections
856 through 860 of the Internal Revenue Code, which provide the rules
applicable to REITs;
(4) that is neither a financial institution nor an insurance company
subject to applicable provisions of the Internal Revenue Code;
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(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 specified entities;
(7) that makes an election to be taxable as a REIT, or has made this
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 Internal Revenue Service 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 applicable other tests, described below, regarding the
nature of its income and assets and the amount of its distributions.
Conditions (1), (2), (3), and (4) 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 a qualified trust are treated as
holding shares of a REIT in proportion to their actuarial interests in the 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 (5) and (6) above. In addition, Equity Office's 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 conditions (5) and (6) above. These
restrictions, however, may not ensure that Equity Office will be able to satisfy
the share ownership requirements described above. If Equity Office fails to
satisfy these share ownership requirements, it will fail to qualify as a REIT.
To monitor its compliance 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. Equity Office has merged
with several REITs and would have inherited any undistributed non-REIT earnings
and profits that those companies might have had if any of them had failed to
qualify as a REIT at any point. Equity Office believes that all of the REITs
with which it has merged qualified as REITs throughout their existence and that,
in any event, none had any undistributed non-REIT earnings and profits at the
time of its merger with Equity Office. However, the Internal Revenue Service
could determine otherwise.
If the Internal Revenue Service did determine that Equity Office inherited
undistributed non-REIT earnings and profits and Equity Office did not distribute
the non-REIT earnings and profits by the end of that tax year, it appears that
Equity Office could avoid disqualification 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 Internal Revenue Service determination. In
addition, Equity Office would have to pay to the Internal Revenue Service an
interest charge on 50% of the non-REIT earnings and profits that were not
distributed prior to the end of the taxable year in which Equity Office
inherited the undistributed non-REIT earnings and profits. However, it is
possible that the Internal Revenue Service would determine that the
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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 the year in which any undistributed earnings and profits were
acquired, but would be allowed to qualify as a REIT for subsequent years. For
taxable years of Equity Office beginning after December 31, 2000, changes in the
law clarify that the deficiency dividend procedures should be available to allow
Equity Office to qualify as a REIT in the year in which any undistributed
non-REIT earnings and profits are acquired.
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. All assets, liabilities and items of income, deduction and
credit of the qualified REIT 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 some 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 earn its proportionate share of the
partnership's income. In addition, the assets and gross income of the
partnership retain the same character in the hands of the REIT for purposes of
the gross income and asset tests applicable to REITs as described below. Thus,
Equity Office's proportionate share of the assets and items of income of EOP
Partnership, including EOP Partnership's share of assets and items of income of
any subsidiaries that are partnerships or limited liability companies, are
treated as assets and items of income of Equity Office for purposes of applying
the asset and income tests. Equity Office has control over EOP Partnership and
each partnership or limited liability company subsidiary of EOP Partnership 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 some 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
income qualifying under the 75% test and dividends, interest, some payments
under hedging instruments and gain from the sale or disposition of stock or
securities and some 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 unless, for
periods after December 31, 2000, the tenant is a taxable REIT subsidiary and
applicable conditions are met. 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 the 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 the 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 Office may not 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,
after December 31, 2000, Equity Office will be able to provide some
impermissible services through a taxable REIT
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subsidiary. A taxable REIT subsidiary is a corporation other than a REIT in
which a REIT directly or indirectly holds stock that has made a joint election
with the REIT to be treated as a taxable REIT subsidiary. A taxable REIT
subsidiary will be subject to federal income tax. For a further discussion of
taxable REIT subsidiaries, see "-- Changes to REIT Qualification Requirements"
below.
Equity Office may provide some impermissible services directly, if the
"impermissible tenant service income" at any particular property for any taxable
year does not exceed 1% of Equity Office's total income from that property.
Impermissible tenant service income is deemed to be at least 150% of Equity
Office's direct cost of providing the service. If the impermissible tenant
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 tenant
service income will not qualify as rents from real property. If the
impermissible tenant 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 provides services and access to third-party service providers
at some or all of the properties. However, based upon Equity Office's experience
in the office rental markets where the properties are located, Equity Office
believes that all access to service providers and services provided to tenants
by Equity Office 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 with respect to any
property in excess of the 1% limit. However, Equity Office can not guarantee
that the Internal Revenue Service will agree with 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
some services that Equity Office believes are customarily offered in
institutional quality office properties, but that might not be permissible for a
REIT to perform directly. Equity Office may continue to engage Tenant Services
Corp. to perform services that, if not performed by an independent contractor,
would give rise to impermissible service income in excess of the 1% limit.
Equity Office monitors the activities at its properties to ensure that the 1%
limit is not exceeded at any property.
Equity Office does not and does not intend to 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
this type of 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 the 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 an amount that will not jeopardize Equity Office's
status as a REIT; or
- perform services considered to be noncustomary or rendered to the
occupant of the property, other than through an independent contractor
from whom Equity Office derives no revenue, except where the
impermissible service income would not exceed the 1% limit described
above or Equity Office otherwise determines that the resulting
impermissible service income is not material and will not jeopardize
Equity Office's status as a REIT.
Equity Office has obtained a ruling from the Internal Revenue Service
indicating that amounts received by Equity Office under agreements with
third-party service companies for the operation of qualifying parking facilities
will qualify as rents from real property for purposes of satisfying the 95% and
75% gross income tests. The parking facilities must be part of, adjacent to, or
within the same complex as an Equity Office building, and EOP Partnership must
bear the expenses incurred in operating the parking facilities. 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 under
parking management agreements with third party service companies that receive a
management fee which may be a fixed dollar amount or a percentage of gross or
net revenues.
All but one of the stand-alone garages are operated by third party service
companies under lease agreements whereby EOP Partnership and the service
companies share the gross receipts from the parking
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operation and EOP Partnership receives fixed rental payments from the service
companies and bears none of the operational expenses. The income received by EOP
Partnership from the stand-alone garages under these 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 Partnership 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 lease.
Equity Office would then enter into subconcession agreements, which would be
substantially similar to subleases, under which third-parties would operate the
parking facilities. Equity Office has requested a ruling from the Internal
Revenue Service that any income received under these subconcession agreements
would be qualifying income for purposes of the 75% and 95% gross income tests
and the subconcession rights would qualify as a "real estate asset" for the REIT
asset tests discussed below.
Equity Office has also received a ruling from the Internal Revenue Service
generally stating that revenue received by Equity Office with respect to
telecommunications services provided to tenants will qualify as rents from real
property for purposes of the 75% and 95% gross income tests. The ruling
addresses revenue generated from telephone and other communications services,
e-mail, video communications, electronic research, internet access,
communication networking, safety and security systems and environmental control
systems, which may be provided by telecommunications service providers. The
ruling, however, provides that the amounts will not qualify if they are received
from a related party tenant. Allied Riser Corp. is a telecommunications service
provider that has entered into a license agreement with Equity Office to provide
telecommunication services to Equity Office tenants. Mr. Zell owns a substantial
indirect interest in Allied Riser Corp. Equity Office believes that amounts paid
by Allied Riser Corp. under the license agreement should qualify as a rents from
real property and not be disqualified as related party rent. For these purposes,
Equity Office has taken into account Mr. Zell's direct and indirect ownership in
Equity Office and Allied Riser Corp., applying the pertinent constructive
ownership rules.
Under the Allied Riser Corp. arrangement, and arrangements with other
telecommunication service providers, Equity Office has received stock and
warrants to acquire stock in the provider at a nominal cost or no cost. Equity
Office recognized income at the time it received the stock or warrants to the
extent their fair market values exceeded any amount that Equity Office may have
paid for the stock or warrants. Equity Office believes that the gross income
from the receipt of the stock and warrants should qualify as rents from real
property under the ruling. If the stock and warrants received by Equity Office
would cause a telecommunication provider to be a related party tenant, Equity
Office will treat any income received from the providers as bad income for the
purpose of the 95% gross income test. Equity Office will treat any warrant as if
it has been exercised for the purpose of determining whether the provider is a
related party tenant.
In 1999, Equity Office and Equity Business Centers Holding Corp. formed a
new corporation, Equity Business Centers Corp., of which Equity Office owns 100%
of the nonvoting common stock representing 95% of the equity, but none of the
voting common stock. Equity Office also intends to loan money to Equity Business
Centers, Corp. to fund its operations. Equity Business Centers Corp. entered
into a joint venture with an affiliate of Regus Business Centres plc, a company
registered in England. The joint venture, Regus Equity Business Centers, L.L.C.,
was formed to lease office space from Equity Office to operate business centers.
Equity Office has requested that the Internal Revenue Service rule that the
activities of Regus Equity Business Centers, L.L.C., will not cause the rents
received by Equity Office from tenants at the properties where Regus Equity
Business Centers, L.L.C. operates a business center, to be considered
nonqualifying income. Equity Office, however, would treat the rent paid by Regus
Equity Business Centers, L.L.C. to Equity Office as related party rent.
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"Interest" generally will be nonqualifying income for purposes of 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 based on a fixed percentage or
percentages of receipt of sales may still qualify under the gross income tests.
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 Corp. and Beacon Construction Co., Inc., currently hold loans secured
by the Rowes Wharf property. These 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 Property Management Corp. and Beacon Property Management
Corp. conduct third-party management services for properties not wholly owned by
EOP Partnership. EOP Office Company, through its interest in Wright Runstad
Associates Limited Partnership, provides development services for properties
that are not wholly owned by EOP Partnership. These entities collectively,
together with Beacon Construction Company, Inc., which has ceased construction
operations, and Beacon Design Corporation, which has an interest in a
development project in Newton, Massachusetts, Real State Insurance Corporation
and Equity Business Centers, Corp. are referred to as the noncontrolled
subsidiaries. EOP Partnership owns 100% of the non-voting stock of each of the
noncontrolled subsidiaries, 1% of the voting stock of Beacon Property Management
Corp. and Beacon Construction Co., 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.
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
that year if it is entitled to relief under the Internal Revenue Code. These
relief provisions generally will be available if Equity Office's failure to meet
the tests is due to reasonable cause and not due to willful neglect, Equity
Office attaches a schedule of the sources of its income to its federal income
tax return and any incorrect information on the 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 nonqualifying income, the Internal Revenue Service 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 "-- 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 this type of gain
realized by EOP Partnership, 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 of a particular transaction. EOP Partnership 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 occasional sales of the properties
as are consistent with EOP
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Partnership's investment objectives. Equity Office cannot guarantee, however,
that the Internal Revenue Service might not contend that one or more of these
sales is subject to the 100% penalty tax.
ASSET TESTS APPLICABLE TO REITS. At the close of each quarter of its
taxable year, Equity Office must satisfy three tests relating to the nature of
its assets:
(1) 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 Partnership and the non-corporate subsidiaries of EOP
Partnership, as well as stock or debt instruments held for less than
one year purchased with the proceeds of a stock offering, or long-term
debt offering of Equity Office, cash, cash items and government
securities;
(2) not more than 25% of Equity Office's total assets may be represented
by securities other than those in the 75% asset class; and
(3) of the investments included in the 25% asset class, except for REITs
or qualified REIT subsidiaries, 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 Equity Office may not own more than
10% of any one issuer's outstanding voting securities. For taxable
years commencing after December 31, 2000, the 10% test will be
modified, and Equity Office will become subject to a new asset test.
See "-- Changes to REIT Qualification Requirements."
After initially meeting the asset tests at the close of any quarter, Equity
Office will not lose its status as a REIT if it fails 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, the failure can be cured by disposition of sufficient nonqualifying
assets within 30 days after the close of that quarter. An acquisition of
securities could include Equity Office increasing its interest in EOP
Partnership as a result of a merger, the exercise by limited partners of their
right to redeem units in EOP Partnership, or an additional capital contribution
of proceeds of an offering of shares of beneficial interest by Equity Office.
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 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 this 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, these
stock interests are not subject to the 10% voting stock limitation or 5% asset
test described above. Equity Office and EOP Partnership currently own, in
aggregate, 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. Equity Office
believes that BeaMetFed, Inc. has been organized and has operated in a manner to
qualify for taxation as a REIT for federal income tax purposes and will continue
to be organized and to operate in this 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 that are neither REITs
nor qualified REIT subsidiaries. Since Equity Office owns 51.6% of the
outstanding stock of BeaMetFed, Inc., if BeaMetFed, Inc. failed 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 Partnership 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 and will loan money to one of its
noncontrolled subsidiaries. As described above, EOP Partnership also owns stock
and warrants in telecommunications service providers. None of Equity Office, EOP
Partnership, or any of the non-corporate subsidiaries of EOP Partnership own
more than 10% of the voting securities of any entity that would be treated as a
corporation for federal income tax purposes. In making this determination,
Equity Office treats warrants that have a zero or relatively insubstantial
strike price and are currently exercisable for voting stock as if the warrants
had been exercised. In addition, Equity Office and its senior management believe
that its pro rata share of the value of the securities, including debt, of each
of the noncontrolled subsidiaries does not exceed
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5% of the total value of Equity Office's assets. Equity Office cannot guarantee
that the Internal Revenue Service might not contend either that the value of the
securities of the noncontrolled subsidiaries held by EOP Partnership exceeds the
5% value limitation or that nonvoting stock of the noncontrolled subsidiaries or
another corporate entity owned by EOP Partnership should be considered voting
stock for this purpose.
CHANGES TO REIT QUALIFICATION REQUIREMENTS. As a result of the Work
Incentives Improvement Act, after December 31, 2000, the 5% value test and the
10% voting security test will be modified in three respects. First, the 10%
voting securities test will be expanded so that REITs also will be prohibited
from owning more than 10% of the value of the outstanding securities of any one
issuer. Second, an exception to these tests will be created so that REITs will
be permitted to own securities of a subsidiary that exceed the 5% value test and
the new 10% vote or value test if the subsidiary elects to be a taxable REIT
subsidiary. Equity Office currently owns more than 10% of the total value of the
outstanding securities of the noncontrolled subsidiaries. The expanded 10% vote
or value test, however, will not apply to a noncontrolled subsidiary unless it
engages in a substantial new line of business or acquires any substantial asset
or Equity Office acquired any securities in the noncontrolled subsidiary after
July 12, 1999. Equity Office expects that some or all of its existing
noncontrolled subsidiaries will elect to be treated as taxable REIT
subsidiaries. Under the third new asset test, for taxable years beginning after
December 31, 2000, Equity Office will not be able to own securities of taxable
REIT subsidiaries that represent in the aggregate more than 20% of the value of
Equity Office's total assets.
Rents received by Equity Office from a taxable REIT subsidiary will be
qualifying rents from real property for purposes of the REIT income tests,
described above, and will not be related party rent, so long as at least 90% of
the property is leased to unrelated tenants and the rent paid by the taxable
REIT subsidiary is substantially comparable to the rent paid by the unrelated
tenants. In addition, a taxable REIT subsidiary will be able to perform some
impermissible tenant services without causing Equity Office to receive
impermissible tenant services income under the REIT income tests. Several
provisions of the new law will ensure that a taxable REIT subsidiary will be
subject to an appropriate level of federal income taxation. For example, a
taxable REIT subsidiary will be limited in its ability to deduct interest
payments made to an affiliated REIT. In addition, the REIT will have to pay a
100% penalty tax on some payments that it receives if the economic arrangements
between the REIT, the REIT's tenants, and the taxable REIT subsidiary are not
comparable to similar arrangements between unrelated parties.
ANNUAL DISTRIBUTION REQUIREMENTS APPLICABLE TO REITS. In order to qualify
as a REIT, Equity Office is required to distribute dividends, other than capital
gain dividends, to its shareholders in an amount at least equal to (1) the sum
of (a) 95% (90% for taxable years beginning after December 31, 2000) of Equity
Office's REIT taxable income, computed without regard to the dividends paid
deduction and its net capital gain, and (b) 95% (90% for taxable years beginning
after December 31, 2000) of the net income, after tax, from foreclosure
property, minus (2) the sum of specific items of noncash income.
In addition, if Equity Office recognizes any built-in gain, Equity Office
will be required, pursuant to Treasury Regulations, to distribute at least 95%
(90% for taxable years beginning after December 31, 2000) of the built-in gain,
after tax, recognized on the disposition of the applicable asset. These
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 the prior year and if paid with or before the first regular
dividend payment date after the declaration is made. See "-- General" above for
a discussion of the possible recognition of built-in gain.
Equity Office intends to make timely distributions sufficient to satisfy
its annual distribution requirements. In this regard, the partnership agreement
of EOP Partnership authorizes Equity Office, as managing general partner, to
take steps as may be necessary to cause EOP Partnership 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 this event, Equity
Office may find it necessary to
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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 some 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.
To the extent that Equity Office does not distribute all of its net capital
gain or distributes at least 95% (90% for taxable years beginning after December
31, 2000), but less than 100%, of its REIT taxable income, as adjusted, it is
subject to tax on these amounts at regular ordinary and capital gain corporate
tax rates.
Equity Office will be subject to a 4% excise tax on the excess of the
required distribution over the sum of amounts actually distributed and amounts
retained for which federal income tax was paid, if Equity Office fails to
distribute during each calendar year at least the sum of:
- 85% of its REIT ordinary income for the year;
- 95% of its REIT capital gain net income for the year; and
- any undistributed taxable income from prior taxable years.
A REIT may elect to retain rather than distribute, all or a portion of its
net capital gains and pay the tax on the gains. In such a case, a REIT may elect
to have its shareholders include their proportionate share of the undistributed
net capital gains in income as long-term capital gains and receive a credit for
their share of the tax paid by the REIT. For purposes of the 4% excise tax
described above, any retained amounts would be treated as having been
distributed.
RECORDKEEPING REQUIREMENTS. Under applicable Treasury Regulations, Equity
Office must comply with applicable recordkeeping requirements to qualify for
taxation as a REIT.
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 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. If
Equity Office fails to qualify as a REIT, Equity Office will not be required to
make any distributions to shareholders and any distributions that are made to
shareholders will not be deductible by Equity Office. 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 and corporate shareholders may be eligible for
the dividends received deduction. 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. There is no guarantee that Equity Office would be entitled to any
statutory relief.
TAXATION OF U.S. SHAREHOLDERS
As used in this section, the term "U.S. shareholder" means a holder of
common shares who for United States federal income tax purposes is:
- a citizen or resident of the United States;
- 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 state or the District of
Columbia, unless in the case of a partnership Treasury Regulations
otherwise require;
- an estate the income of which is subject to United States federal income
taxation regardless of its source; or
- 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.
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DISTRIBUTIONS BY EQUITY OFFICE. As long as Equity Office qualifies as a
REIT, distributions to U.S. shareholders out of its current or accumulated
earnings and profits that are not designated as capital gain dividends will be
taxable as ordinary income and will not be eligible for the dividends received
deduction generally available for corporations. Distributions in excess of its
current and accumulated earnings and profits will reduce the adjusted tax basis
of the shareholder's shares. Distributions that exceed the U.S. shareholder's
adjusted basis in its shares, will be taxable as capital gains if the shares are
held as a capital asset. If Equity Office declares a dividend in October,
November, or December of any year with a record date in one of these months and
pays the dividend on or before January 30 of the following year, Equity Office
will be treated as having paid the dividend and the shareholder will be treated
as a having received the dividend on December 31 of the year in which the
dividend was declared.
Equity Office may elect to designate distributions of its net capital gain
as "capital gain dividends." Capital gain dividends are taxed to shareholders as
gain from the sale or exchange of a capital asset held for more than one year,
without regard to how long the U.S. shareholder has held its shares. If Equity
Office designates any portion of a dividend as a capital gain dividend, a U.S.
shareholder will receive an Internal Revenue Service Form 1099-DIV indicating
the amount that will be taxable to the shareholder as capital gain. Corporate
shareholders, however, may be required to treat up to 20% of capital gain
dividends as ordinary income.
Instead of paying capital gain dividends, Equity Office may designate all
or part of its net capital gain as "undistributed capital gain." Equity Office
will be subject to tax at regular corporate rates on any undistributed capital
gain. A U.S. shareholder will be required to include its share of this gain in
income as long-term capital gain. However, the U.S. Shareholder will also be
treated as having paid its share of the tax paid by Equity Office with respect
to the gain. Accordingly, U.S. shareholders will be able to claim a refund or a
credit to the extent that the tax paid by Equity Office exceeds the shareholders
tax liability on the undistributed capital gain. The U.S. shareholder's basis in
its shares would be increased by its share of this gain and decreased by its
share of applicable tax. With respect to the long-term capital gain of a U.S.
shareholder that is an individual or an estate or trust, the Internal Revenue
Service 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.
Equity Office will classify portions of any designated capital gain
dividend as either:
- a 20% rate gain distribution, which would be taxable to non-corporate
U.S. shareholders at a maximum rate of 20%; or
- an unrecaptured section 1250 gain distribution, which would be taxable
to non-corporate U.S. shareholders at a maximum rate of 25%.
Equity Office must determine the maximum amounts that it may designate as
20% and 25% rate capital gain dividends by performing the 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%. Designations made by
Equity Office 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.
Generally, individuals, trust and estates that hold Equity Office shares as
capital assets for more than 12 months may be taxed at a maximum long-term
capital gain rate of 20% on the sale or exchange of those shares. However, a
maximum rate of 25% will apply to capital gain that is treated as "unrecaptured
section 1250 gain" for individuals, trusts and estates. The Internal Revenue
Service has the authority to prescribe, but has not yet prescribed, regulations
on how the capital gain rates will apply to sales of capital assets by REITs and
to sales of interests in REITs. Shareholders are urged to consult with their own
tax advisors with respect to their capital gain tax liability.
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
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<PAGE> 26
able to apply any "passive losses" against this income or gain. In addition,
taxable distributions from Equity Office generally will be treated as investment
income for purposes of the investment interest limitations. A U.S. shareholder
may elect to treat capital gain dividends and capital gains from the disposition
of shares as investment income for purposes of the investment interest
limitation, in which case the applicable capital gains will be taxed at ordinary
income rates. Equity Office will notify shareholders regarding the portions of
distributions for each year that constitute ordinary income, return of capital
and capital gain. U.S. shareholders may not include in their individual income
tax returns any net operating losses or capital losses of Equity Office. Equity
Office's operating or capital losses would be carried over by Equity Office for
potential offset against future income, subject to applicable limitations.
SALES OF SHARES. Upon any taxable 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:
- the amount of cash and the fair market value of any property received on
the sale or other disposition; and
- the holder's adjusted basis in the shares for tax purposes.
This 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. A non-corporate U.S.
shareholder who has held Equity Office shares for more than 12 months will be
taxable on capital gain at a maximum rate of 20%. A corporate U.S. shareholder
will be subject to tax at a maximum rate of 35% on capital gain from the sale of
Equity Office shares held for more than 12 months. 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 more, after applying the holding period
rules, will be treated as a long-term capital loss, to the extent of
distributions received by the U.S. shareholder from Equity Office that were
required to be treated as long-term capital gains.
SPECIAL CONSEQUENCES TO 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 the
common shares are not otherwise used in a trade or business, the dividend income
from Equity Office will not be unrelated business taxable income, referred to as
UBTI, to a tax-exempt shareholder. Similarly, income from the sale of shares
will not constitute UBTI unless the tax-exempt shareholder has held its 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
sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code,
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 applicable purposes to offset the income generated by its
investment in Equity Office. These tax-exempt 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 if received by 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 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 "pension
trusts."
A REIT is a pension held REIT if it meets the following two tests:
- it qualified as a REIT by reason of section 856(h)(3) of the Internal
Revenue Code, which provides that stock owned by pension trusts shall be
treated, for purposes of determining if the REIT is closely held, as
owned by the beneficiaries of the trust rather than by the trust itself;
and
- either (a) at least one pension trust holds more than 25% of the value
of the REIT's stock, or (b) a group of pension trusts each individually
holding more than 10% of the value of the REIT's stock, collectively
owns more than 50% of the value of the REIT's stock.
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<PAGE> 27
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 pension 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 pension 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
pension 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
As used below, a non-U.S. shareholder is any shareholder other than a U.S.
shareholder.
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 "U.S. 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 Equity Office's current
or accumulated earnings and profits. These distributions ordinarily will be
subject to withholding of U.S. federal income tax on a gross basis at a rate of
30%, or a lower rate as permitted under an applicable income tax treaty, unless
the dividends are treated as effectively connected with the conduct by the
non-U.S. shareholder of a U.S. trade or business. Under some treaties, however,
lower withholding rates generally applicable to dividends do not apply to
dividends from REITs. Applicable certification and disclosure requirements must
be satisfied to be exempt from withholding under the effectively connected
income exemption. Dividends that are effectively connected with 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 these dividends, and are generally not subject to
withholding. Any dividends received by a corporate non-U.S. shareholder that is
engaged in a U.S. trade or business may also be subject to an additional branch
profits tax at a 30% rate, or lower applicable treaty rate. Equity Office
expects to withhold U.S. income tax at the rate of 30% on any dividend
distributions made to a non-U.S. shareholder unless:
- a lower treaty rate applies and any required form or certification
evidencing eligibility for that reduced rate is filed with Equity
Office; or
- the non-U.S. shareholder files an Internal Revenue Service Form 4224
with Equity Office claiming that the distribution is effectively
connected income.
Distributions in excess of current and accumulated earnings and profits
will be taxable and, subject to withholding, to a non-U.S. shareholder to the
extent that the distributions exceed the non-U.S. shareholder's basis in its
Equity Office common shares. Distributions in excess of current or accumulated
earnings and profits of Equity Office that do not exceed the adjusted basis of
the non-U.S. shareholder in its common shares, will reduce the non-U.S.
shareholder's adjusted basis in its common shares and will not be subject to
U.S. federal income tax, but will be subject to U.S. withholding tax as
described below.
Equity Office may be required to withhold at least 10% of any distribution
in excess of its current and accumulated earnings and profits, even if the
non-U.S. shareholder is not liable for tax on the receipt of that distribution.
However, a non-U.S. shareholder may seek a refund of these amounts from the
Internal Revenue Service if it subsequently determined that the non-U.S.
shareholder's U.S. tax liability with respect to the distribution is less than
the amount withheld.
Distributions to a non-U.S. shareholder that are designated by Equity
Office at the time of the distribution as capital gain dividends, other than
those arising from the disposition of a United States real property interest,
generally should not be subject to U.S. federal income taxation unless:
- 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 any gain, except that a shareholder that is
a foreign corporation may also be subject to the 30% branch profits tax,
as discussed above, or
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<PAGE> 28
- 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, which is referred to
as "FIRPTA," distributions to a non-U.S. shareholder that are attributable to
gain from sales or exchanges by Equity Office of "U.S. real property interests,"
whether or not designated as a capital gain dividend, will cause the non-U.S.
shareholder to be treated as recognizing gain that is income effectively
connected with a United States trade or business. Non-U.S. shareholders will be
taxed on this gain at the same rates applicable to U.S. shareholders, subject to
a special alternative minimum tax in the case of nonresident alien individuals.
Also, this gain may be subject to a 30% branch profits tax in the hands of a
non-U.S. shareholder that is a corporation.
Equity Office will be required to withhold and remit to the Internal
Revenue Service 35% of any distributions to foreign shareholders that are
designated as capital gain dividends, or, if greater, 35% of a distribution that
could have been designated as a capital gain dividend. Distributions can be
designated as capital gains to the extent of Equity Office's net capital gain
for the taxable year of the distribution. The amount withheld is creditable
against the non-U.S. shareholder's United States federal income tax liability.
Although the law is not clear on the matter, it appears that amounts
designated by Equity Office as undistributed capital gains in respect of the
common shares held by U.S. shareholders generally should be treated with respect
to non-U.S. shareholders in the same manner as 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 the undistributed capital gains, and to receive
from the Internal Revenue Service a refund to the extent their proportionate
share of this 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:
- 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 any gain;
- 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 net capital gains for the taxable year; or
- the shares constitute a "United States real property interest" within
the meaning of FIRPTA, as described below.
The common shares will not constitute a United States real property interest if
Equity Office is a "domestically controlled REIT." Equity Office will be a
domestically controlled REIT if, 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, and will continue to be, a
domestically controlled REIT and, therefore, that the sale of common shares will
not be subject to taxation under FIRPTA. Because the shares of Equity Office are
publicly traded, however, Equity Office cannot guarantee that it will continue
to be a domestically controlled REIT.
Even if Equity Office does not qualify as a domestically controlled REIT at
the time a non-U.S. shareholder sells its Equity Office common shares, gain
arising from the sale still would not be subject to FIRPTA tax if:
- the class or series of shares sold is considered "regularly traded"
under applicable Treasury Regulations on an "established securities
market," such as the New York Stock Exchange, and
- 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.
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<PAGE> 29
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 any gain in the same manner as a taxable U.S.
shareholder, subject to any applicable alternative minimum tax and special
alternative minimum tax in the case of nonresident alien individuals.
BACKUP WITHHOLDING AND INFORMATION REPORTING CONSEQUENCES TO SHAREHOLDERS
Generally, Equity Office must report annually to the Internal Revenue
Service and to each Equity Office shareholder the amount of dividends paid
during each calendar year, and the amount of any tax withheld. Information
reporting requirements may apply even if withholding is not required. Copies of
these information reporting returns also may be made available, under provisions
of an applicable income tax treaty or agreement, to the tax authorities in the
country in which a non-U.S. shareholder is resident.
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 the
shareholder:
- is a corporation or comes within other exempt categories, and when
required, demonstrates this fact;
- furnishes a correct taxpayer identification number and certifies that he
or she is not subject to backup withholding on Internal Revenue Service
Form W-9, or an appropriate substitute form; or
- 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
Internal Revenue Service. 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.
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. However, information reporting,
but currently not backup withholding, will apply to a payment of the proceeds of
a sale of common shares by a foreign office of a broker that:
- is a U.S. person for U.S. federal income tax purposes;
- is a non-U.S. person that derives 50% or more of its gross income for
applicable periods from the conduct of a trade or business in the United
States;
- is a "controlled foreign corporation," which, in general, is a foreign
corporation that is controlled by U.S. shareholders; or
- for payments made after December 31, 2000, a foreign partnership with
relevant U.S. connections.
If, however, the broker has documentary evidence in its records that the
holder is a non-U.S. shareholder and other conditions are met or the shareholder
otherwise establishes an exemption, information reporting will not apply.
Payment to or through a U.S. 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. In addition,
effective after December 31, 2000, backup withholding may apply to a payment of
disposition proceeds by or through a non-U.S. office of a broker in the above
cases unless certification requirements are satisfied or an exemption is
otherwise established and the broker has no actual knowledge or reason to know
that the shareholder is a U.S.-person. 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 Internal Revenue Service.
A non-U.S. shareholder should consult its own advisor regarding the
application and effect of the information reporting and backup withholding rules
to them, including changes to these rules that will become effective after
December 31, 2000.
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TAX ASPECTS OF EQUITY OFFICE'S OWNERSHIP OF INTERESTS IN EOP PARTNERSHIP AND
OTHER PARTNERSHIPS
GENERAL. Most of Equity Office's investments are held indirectly through
EOP Partnership. In general, partnerships are "pass-through" entities that are
not subject to federal income tax at the partnership level. However, a partner
is allocated its proportionate share of the items of income, gain, loss,
deduction and credit of a partnership, and is required to include these items in
calculating its tax liability, without regard to whether it receives a
distribution from the partnership. Equity Office includes its proportionate
share of the these partnership items in its income for purposes of the various
REIT income tests and 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 EOP Partnership. See "-- Ownership of Partnership
Interests by a REIT" above.
ENTITY CLASSIFICATION. Equity Office believes that EOP Partnership and
each of the partnerships and limited liability companies in which Equity Office
owns an interest, directly or through another partnership or limited liability
company, will be treated as a partnership or disregarded for federal income tax
purposes and will not be taxable as a corporation. If any of these entities were
treated as a corporation, it would be subject to an entity level tax on its
income and Equity Office could fail to meet the REIT income and asset tests. See
"-- Asset Tests Applicable to REITs" and "-- Income Tests Applicable to REITs"
above.
A partnership is a "publicly traded partnership under section 7704 of the Code
if:
- interests in the partnership are traded on an established securities
market; or
- interests in the partnership are readily tradable on a "secondary
market," or the "substantial equivalent" of a secondary market.
Under the relevant Treasury Regulations interests in a partnership will not be
considered readily tradable on a secondary market or on the substantial
equivalent of a secondary market if the partnership qualifies for specified
"safe harbors," which relate to the specific facts and circumstances relating to
the partnership.
There is a significant risk that the right of a holder of EOP Partnership
units to redeem the EOP Partnership units for EOP common shares could cause EOP
Partnership units to be considered readily tradable on the substantial
equivalent of a secondary market. However, Equity Office believes that even if
EOP Partnership units were considered to be tradable on the substantial
equivalent of a secondary market, EOP Partnership is likely to qualify for at
least one of the safe harbors mentioned above. If one of the safe harbors were
met, EOP Partnership would not be treated as a publicly traded partnership.
Nevertheless, Equity Office cannot guarantee that EOP Partnership will qualify
for any of the safe harbors at all times.
If EOP Partnership is a "publicly traded partnership," it will be taxed as
a corporation, unless at least 90% of its gross income consists of "qualifying
income" under section 7704 of the Internal Revenue Code. Qualifying income is
generally real property rents and other types of passive income. Equity Office
believes that EOP Partnership will have sufficient qualifying income so that it
will be taxed as a partnership, even if it were a publicly traded partnership.
The income requirements applicable to Equity Office in order for it to qualify
as a "real estate investment trust" or "REIT" under the Internal Revenue Code
and the definition of "qualifying income" under the "publicly traded
partnership" rules are very similar. However, a significant difference exists
between these two income tests regarding rent from a related tenant. For the
REIT income tests, rent from a related party will be nonqualifying income 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 related tenant is nonqualifying 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. Equity
Office has entered into business arrangements, described above, with Equity
Business Centers, Corp. that may give rise to related party rent that does not
qualify under these income tests. However, Equity Office believes that the
amount of any nonqualifying income attributable to the arrangement will be
insignificant for purposes of both the REIT income tests and the qualifying
income test under section 7704 of the Internal Revenue Code. In addition, Equity
Office does not believe that amounts paid by Allied Riser Corp. or other
telecommunications service providers under license agreements would be treated
as related party rent.
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ALLOCATIONS OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTION. A partnership
agreement will generally determine the allocation of income and loss among
partners. However, those 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 Treasury Regulations, which generally 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 partnership agreement of EOP Partnership 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 a
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 property at the time of
contribution. The difference is known as the book-tax difference. Section 704(c)
allocations are for federal income tax purposes only and do not affect the book
capital accounts or other economic or legal arrangements among the partners.
Under Treasury Regulations promulgated under section 704(c) of the Internal
Revenue Code, similar rules apply when a partnership elects to "revalue" its
assets in limited situations, such as when a contribution of property is made to
a partnership by a new partner.
The partnership agreement of EOP Partnership requires that such allocations
be made in a manner consistent with section 704(c) of the Internal Revenue Code.
Treasury 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
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 Partnership 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
Partnership in connection with its formation or subsequently acquired by merger
or contribution.
In general, if any asset contributed to or revalued by EOP Partnership is
determined to have a fair market value that is greater than its adjusted tax
basis, some partners of EOP Partnership, including Equity Office, will be
allocated lower amounts of depreciation deductions as to specific properties for
tax purposes by EOP Partnership and increased taxable income and gain on sale.
These allocations will tend to eliminate the book-tax difference over the life
of EOP Partnership. 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. These amounts may be in excess of the economic or book
income allocated to it as a result of the sale and, as a result, the allocation
might cause Equity Office to recognize taxable income in excess of the cash
distribution received. This excess taxable income is sometimes referred to as
"phantom income." Because Equity Office relies on cash distributions from EOP
Partnership to meet its REIT distribution requirements, which are specified
percentages of its taxable income, the recognition of this "phantom income"
might adversely affect Equity Office's ability to comply with those
requirements. In this regard, it should be noted that as the general partner of
EOP Partnership, Equity Office will determine, taking into account the tax
consequences to it, when and whether to sell any given property. See "-- Annual
Distribution Requirements Applicable to REITs" above.
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
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<PAGE> 32
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 dividends paid by the noncontrolled subsidiaries. The noncontrolled
subsidiaries pay federal and state income tax at the full applicable corporate
rates. Equity Office expects that some or all of its noncontrolled subsidiaries
will elect to be treated as taxable REIT subsidiaries after December 31, 2000. A
taxable REIT subsidiary will be a fully taxable corporation and, in addition,
will be limited in its ability to deduct interest payments made to Equity
Office. For a more detailed discussion of taxable REIT subsidiaries, see
"-- Changes to REIT Qualification Requirements" above. To the extent that the
noncontrolled subsidiaries are required to pay federal, state or local taxes,
Equity Office will receive less dividend income from them and will have less
cash available for distribution to shareholders.
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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, 1999, the Company owned
or had an interest in 294 Office Properties containing approximately 77.0
million rentable square feet of office space and owned 20 stand-alone Parking
Facilities containing approximately 20,506 parking spaces. The Office Properties
are located in 81 submarkets in 35 markets in 23 states and the District of
Columbia. The Office Properties, by rentable square feet, are located
approximately 52% in CBDs and 48% in suburban markets. As of December 31, 1999,
the Office Properties were, on a weighted average basis, 93.7% occupied by a
total of 6,347 tenants, with no single tenant accounting for more than 1.6% of
the Company's aggregate annualized rent (except for the U.S. General Services
Administration, which accounted for 3.2% of annualized rent).
All property data is as of December 31, 1999.
OFFICE PROPERTIES BY REGION
<TABLE>
<CAPTION>
APPROXIMATE PERCENT OF TOTAL ANNUALIZED
NUMBER OF RENTABLE SQUARE PORTFOLIO PERCENT RENT
BUILDINGS FEET RENTABLE SQUARE FEET OCCUPIED (000'S)(a)
--------- --------------- -------------------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
Central......................... 30 12,932,307 16.8% 96.1% $ 301,135
Northeast....................... 89 21,099,721 27.4% 97.3% 629,982
Southeast....................... 49 8,618,522 11.2% 90.4% 151,550
Southwest....................... 34 11,599,431 15.1% 91.6% 204,946
West............................ 42 12,428,878 16.1% 92.1% 256,365
Pacific......................... 50 10,336,751 13.4% 90.2% 249,541
--- ---------- ------ ----- ----------
Portfolio Total/Weighted
Average........................ 294 77,015,610 100.0% 93.7% $1,793,519
=== ========== ====== ===== ==========
<CAPTION>
PERCENT OF ANNUALIZED RENT
PORTFOLIO NUMBER OF PER OCCUPIED
ANNUALIZED RENT LEASES SQUARE FOOT(a)
--------------- --------- ---------------
<S> <C> <C> <C>
Central......................... 16.8% 1,166 $24.22
Northeast....................... 35.1% 1,446 $30.68
Southeast....................... 8.4% 621 $19.45
Southwest....................... 11.4% 1,152 $19.28
West............................ 14.3% 1,248 $22.41
Pacific......................... 13.9% 714 $26.77
------ ----- ------
Portfolio Total/Weighted
Average........................ 100.0% 6,347 $24.86
====== ===== ======
</TABLE>
- ---------------
(a) Annualized Rent is the monthly contractual rent under existing leases as of
December 31, 1999, 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,
1999, for the 12 months ending December 31, 2000, are approximately $7.0
million.
33
<PAGE> 34
OFFICE PROPERTY STATISTICS
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
APPROXIMATE PORTFOLIO ANNUALIZED
PRIMARY MARKET NUMBER OF YEAR BUILT/ RENTABLE RENTABLE PERCENT RENT
SUB MARKET BUILDINGS RENOVATED SQUARE FEET SQUARE FEET OCCUPIED (000'S)(a)
- -------------- --------- ----------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CENTRAL REGION
Chicago
Central Loop
161 N. Clark.............................. 1 1992 1,010,520 1.3% 99.7% $ 25,184
200 West Adams............................ 1 1985/1996 677,222 0.9% 87.9% 13,471
30 N. LaSalle Street(b)................... 1 1974/1990 925,950 1.2% 99.6% 20,826
One North Franklin........................ 1 1991 617,592 0.8% 97.4% 14,840
Lake County
Tri-State International................... 5 1986 546,263 0.7% 96.5% 12,575
O'Hare
Presidents Plaza.......................... 4 1980-1982 815,604 1.1% 98.4% 17,810
1700 Higgins.............................. 1 1986 133,876 0.2% 95.8% 2,401
Oak Brook
AT&T Plaza................................ 1 1984 224,847 0.3% 96.9% 5,148
Oakbrook Terrace Tower.................... 1 1988 772,928 1.0% 91.8% 17,519
Westbrook Corporate Center................ 5 1985-1996 1,107,372 1.4% 93.8% 28,653
West Loop
10 & 30 S. Wacker(d)...................... 2 1983-1987 2,003,288 2.6% 97.2% 65,849
101 N. Wacker............................. 1 1980/1990 575,294 0.7% 98.7% 13,364
Civic Opera House......................... 1 1929/1996 841,778 1.1% 97.9% 15,303
Cleveland
Downtown
BP Tower.................................. 1 1985 1,242,144 1.6% 95.4% 20,470
Columbus
Suburban
Community Corporate Center................ 1 1987 250,169 0.3% 99.8% 4,997
One Crosswoods Center..................... 1 1984 129,583 0.2% 87.2% 2,189
Indianapolis
Downtown
Bank One Center/Tower(b)(d)............... 2 1990 1,057,877 1.4% 93.9% 20,536
--- ---------- ------ ------ --------
CENTRAL REGION TOTAL/WEIGHTED AVERAGE........ 30 12,932,307 16.8% 96.1% 301,135
--- ---------- ------ ------ --------
NORTHEAST REGION
Boston
East Cambridge
One Canal Park............................ 1 1987 98,154 0.1% 100.0% 3,032
Riverview I & II.......................... 2 1985-1986 263,892 0.3% 100.0% 7,629
Ten Canal Park............................ 1 1987 110,843 0.1% 100.0% 2,520
Financial District
100 Summer Street......................... 1 1974/1990 1,037,801 1.3% 96.1% 32,396
150 Federal Street........................ 1 1988 529,730 0.7% 99.8% 17,191
175 Federal Street........................ 1 1977 207,366 0.3% 99.8% 6,012
2 Oliver Street-147 Milk Street........... 1 1988 270,302 0.4% 98.7% 6,146
225 Franklin Street....................... 1 1966/1996 916,722 1.2% 100.0% 37,156
28 State Street........................... 1 1968/1997 570,040 0.7% 100.0% 23,322
75-101 Federal Street(c).................. 2 1988 811,054 1.1% 96.9% 27,253
One Post Office Square(d)................. 1 1981 765,780 1.0% 100.0% 26,436
Rowes Wharf(b)(d)......................... 3 1987 344,698 0.4% 100.0% 14,070
Russia Wharf.............................. 1 1978-1982 312,833 0.4% 97.3% 5,891
South Station(b).......................... 1 1988 178,959 0.2% 99.8% 6,971
Government Center
Center Plaza.............................. 1 1969 637,069 0.8% 96.8% 18,264
Northwest
Crosby Corporate Center................... 6 1996 337,285 0.4% 100.0% 5,458
Crosby Corporate Center II(e)............. 3 1998 257,528 0.3% 78.0% 4,373
New England Executive Park................ 8 1970-1985 760,118 1.0% 95.4% 17,827
New England Executive Park 17............. 1 1979 56,890 0.1% 83.8% 1,270
The Tower at New England Executive
Park(f).................................. 1 1971/1999 194,911 0.3% 51.8% 2,345
South
Westwood Business Center.................. 1 1985 164,985 0.2% 86.7% 3,128
<CAPTION>
ANNUALIZED
PERCENT OF RENT PER
PORTFOLIO NUMBER OCCUPIED
PRIMARY MARKET ANNUALIZED OF SQUARE
SUB MARKET RENT LEASES FOOT(a)
- -------------- ---------- ------ ----------
<S> <C> <C> <C>
CENTRAL REGION
Chicago
Central Loop
161 N. Clark.............................. 1.4% 48 $25.00
200 West Adams............................ 0.8% 84 $22.62
30 N. LaSalle Street(b)................... 1.2% 130 $22.59
One North Franklin........................ 0.8% 46 $24.68
Lake County
Tri-State International................... 0.7% 43 $23.86
O'Hare
Presidents Plaza.......................... 1.0% 65 $22.18
1700 Higgins.............................. 0.1% 13 $18.73
Oak Brook
AT&T Plaza................................ 0.3% 26 $23.63
Oakbrook Terrace Tower.................... 1.0% 60 $24.68
Westbrook Corporate Center................ 1.6% 96 $27.58
West Loop
10 & 30 S. Wacker(d)...................... 3.7% 122 $33.82
101 N. Wacker............................. 0.7% 40 $23.53
Civic Opera House......................... 0.9% 213 $18.57
Cleveland
Downtown
BP Tower.................................. 1.1% 40 $17.27
Columbus
Suburban
Community Corporate Center................ 0.3% 35 $20.02
One Crosswoods Center..................... 0.1% 15 $19.36
Indianapolis
Downtown
Bank One Center/Tower(b)(d)............... 1.1% 90 $20.67
------ ----- ------
CENTRAL REGION TOTAL/WEIGHTED AVERAGE........ 16.8% 1,166 $24.22
------ ----- ------
NORTHEAST REGION
Boston
East Cambridge
One Canal Park............................ 0.2% 8 $30.89
Riverview I & II.......................... 0.4% 4 $28.91
Ten Canal Park............................ 0.1% 1 $22.74
Financial District
100 Summer Street......................... 1.8% 29 $32.50
150 Federal Street........................ 1.0% 23 $32.51
175 Federal Street........................ 0.3% 31 $29.07
2 Oliver Street-147 Milk Street........... 0.3% 41 $23.03
225 Franklin Street....................... 2.1% 18 $40.53
28 State Street........................... 1.3% 27 $40.91
75-101 Federal Street(c).................. 1.5% 68 $34.67
One Post Office Square(d)................. 1.5% 52 $34.52
Rowes Wharf(b)(d)......................... 0.8% 46 $40.82
Russia Wharf.............................. 0.3% 55 $19.35
South Station(b).......................... 0.4% 34 $39.01
Government Center
Center Plaza.............................. 1.0% 83 $29.61
Northwest
Crosby Corporate Center................... 0.3% 6 $16.18
Crosby Corporate Center II(e)............. 0.2% 6 $21.77
New England Executive Park................ 1.0% 77 $24.58
New England Executive Park 17............. 0.1% 2 $26.65
The Tower at New England Executive
Park(f).................................. 0.1% 8 $23.21
South
Westwood Business Center.................. 0.2% 17 $21.87
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
APPROXIMATE PORTFOLIO ANNUALIZED
PRIMARY MARKET NUMBER OF YEAR BUILT/ RENTABLE RENTABLE PERCENT RENT
SUB MARKET BUILDINGS RENOVATED SQUARE FEET SQUARE FEET OCCUPIED (000'S)(a)
- -------------- --------- ----------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
West
Wellesley Office Park 1-4................. 4 1962-1970 216,420 0.3% 99.9% 5,729
Wellesley 5-7............................. 3 1972-1984 362,421 0.5% 97.3% 9,741
Wellesley 8............................... 1 1960/1996 62,952 0.1% 100.0% 1,819
New York
Columbus Circle
Worldwide Plaza(g)........................ 1 1989 1,704,624 2.2% 99.1% 73,137
Park/Lexington
Park Avenue Tower(h)...................... 1 1986 550,894 0.7% 99.5% 40,607
Third Avenue
850 Third Avenue.......................... 1 1960/1996 562,567 0.7% 100.0% 18,444
Philadelphia
Center City
1601 Market Street........................ 1 1970 681,289 0.9% 96.4% 13,053
1700 Market Street........................ 1 1969 841,172 1.1% 97.3% 16,391
Conshohocken
Four Falls Corporate Center(d)............ 1 1988 254,355 0.3% 98.4% 6,570
King of Prussia/Valley Forge
Oak Hill Plaza(d)......................... 1 1982 164,360 0.2% 100.0% 3,126
Walnut Hill Plaza(d)...................... 1 1985 149,716 0.2% 100.0% 3,163
Main Line
One Devon Square(b)(d).................... 1 1984 73,267 0.1% 56.0% 799
Two Devon Square(d)....................... 1 1985 63,226 0.1% 100.0% 1,073
Three Devon Square(b)(d).................. 1 1985 6,000 0.0% 100.0% 174
Plymouth Meeting/Blue Bell
One Valley Square(d)...................... 1 1982 70,289 0.1% 95.8% 1,320
Two Valley Square(d)...................... 1 1990 70,622 0.1% 100.0% 1,393
Three Valley Square(d).................... 1 1984 84,605 0.1% 67.5% 1,315
Four and Five Valley Square(d)............ 2 1988 68,321 0.1% 100.0% 1,426
Stamford
Shelton
Shelton Pointe............................ 1 1985/1993 159,848 0.2% 88.1% 2,593
Stamford
One Stamford Plaza........................ 1 1986/1994 212,244 0.3% 94.9% 5,158
Two Stamford Plaza........................ 1 1986/1994 253,020 0.3% 93.9% 6,762
Three Stamford Plaza...................... 1 1980/1994 241,575 0.3% 100.0% 5,747
Four Stamford Plaza....................... 1 1979/1994 260,581 0.3% 96.3% 5,639
177 Broad Street.......................... 1 1989 187,573 0.2% 99.4% 4,657
300 Atlantic Street....................... 1 1987/1996 272,458 0.4% 100.0% 7,786
Canterbury Green (b)...................... 1 1987 224,405 0.3% 100.0% 6,635
Washington D.C.
CBD
1111 19th Street.......................... 1 1979/1993 252,014 0.3% 100.0% 7,733
1620 L Street............................. 1 1989 156,272 0.2% 100.0% 4,597
One Lafayette Centre...................... 1 1980/1993 314,634 0.4% 90.4% 9,169
East End
1333 H Street............................. 1 1982 244,585 0.3% 100.0% 7,036
Alexandria/Old Town
1600 Duke Street.......................... 1 1985 68,770 0.1% 100.0% 1,099
Crystal City
Polk and Taylor Buildings................. 2 1970 902,371 1.2% 100.0% 24,662
Fairfax/Center
Centerpointe I & II....................... 2 1988-1990 407,723 0.5% 100.0% 8,123
Fair Oaks Plaza........................... 1 1986 177,917 0.2% 95.6% 3,456
Herndon/Dulles
Northridge I.............................. 1 1988 124,319 0.2% 100.0% 3,134
Reston
Reston Town Center(b)..................... 3 1990 726,045 0.9% 99.6% 21,142
Rosslyn/Ballston
1300 North 17th Street.................... 1 1980 380,199 0.5% 98.0% 9,924
1616 N. Fort Myer Drive................... 1 1974 292,826 0.4% 100.0% 7,480
<CAPTION>
ANNUALIZED
PERCENT OF RENT PER
PORTFOLIO NUMBER OCCUPIED
PRIMARY MARKET ANNUALIZED OF SQUARE
SUB MARKET RENT LEASES FOOT(a)
- -------------- ---------- ------ ----------
<S> <C> <C> <C>
West
Wellesley Office Park 1-4................. 0.3% 42 $26.50
Wellesley 5-7............................. 0.5% 40 $27.62
Wellesley 8............................... 0.1% 1 $28.89
New York
Columbus Circle
Worldwide Plaza(g)........................ 4.1% 25 $43.30
Park/Lexington
Park Avenue Tower(h)...................... 2.3% 25 $74.11
Third Avenue
850 Third Avenue.......................... 1.0% 27 $32.79
Philadelphia
Center City
1601 Market Street........................ 0.7% 75 $19.87
1700 Market Street........................ 0.9% 66 $20.04
Conshohocken
Four Falls Corporate Center(d)............ 0.4% 39 $26.25
King of Prussia/Valley Forge
Oak Hill Plaza(d)......................... 0.2% 4 $19.02
Walnut Hill Plaza(d)...................... 0.2% 23 $21.13
Main Line
One Devon Square(b)(d).................... 0.0% 6 $19.46
Two Devon Square(d)....................... 0.1% 6 $16.96
Three Devon Square(b)(d).................. 0.0% 1 $29.03
Plymouth Meeting/Blue Bell
One Valley Square(d)...................... 0.1% 5 $19.61
Two Valley Square(d)...................... 0.1% 7 $19.72
Three Valley Square(d).................... 0.1% 6 $23.02
Four and Five Valley Square(d)............ 0.1% 5 $20.87
Stamford
Shelton
Shelton Pointe............................ 0.1% 14 $18.42
Stamford
One Stamford Plaza........................ 0.3% 10 $25.61
Two Stamford Plaza........................ 0.4% 20 $28.45
Three Stamford Plaza...................... 0.3% 13 $23.79
Four Stamford Plaza....................... 0.3% 9 $22.47
177 Broad Street.......................... 0.3% 14 $24.97
300 Atlantic Street....................... 0.4% 20 $28.58
Canterbury Green (b)...................... 0.4% 16 $29.57
Washington D.C.
CBD
1111 19th Street.......................... 0.4% 28 $30.68
1620 L Street............................. 0.3% 19 $29.41
One Lafayette Centre...................... 0.5% 21 $32.23
East End
1333 H Street............................. 0.4% 21 $28.77
Alexandria/Old Town
1600 Duke Street.......................... 0.1% 9 $15.97
Crystal City
Polk and Taylor Buildings................. 1.4% 9 $27.33
Fairfax/Center
Centerpointe I & II....................... 0.5% 11 $19.92
Fair Oaks Plaza........................... 0.2% 34 $20.32
Herndon/Dulles
Northridge I.............................. 0.2% 1 $25.21
Reston
Reston Town Center(b)..................... 1.2% 82 $29.25
Rosslyn/Ballston
1300 North 17th Street.................... 0.6% 28 $26.64
1616 N. Fort Myer Drive................... 0.4% 12 $25.54
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
APPROXIMATE PORTFOLIO ANNUALIZED
PRIMARY MARKET NUMBER OF YEAR BUILT/ RENTABLE RENTABLE PERCENT RENT
SUB MARKET BUILDINGS RENOVATED SQUARE FEET SQUARE FEET OCCUPIED (000'S)(a)
- -------------- --------- ----------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tyson's Corner
E. J. Randolph............................ 1 1983 164,906 0.2% 100.0% 3,883
John Marshall I........................... 1 1981 261,376 0.3% 100.0% 5,595
--- ---------- ------ ------ --------
NORTHEAST REGION TOTAL/WEIGHTED AVERAGE...... 89 21,099,721 27.4% 97.3% 629,982
--- ---------- ------ ------ --------
SOUTHEAST REGION
Atlanta
Buckhead
Prominence in Buckhead(i)................. 1 1999 424,635 0.6% 26.9% 2,554
Central Perimeter
Central Park.............................. 2 1986 612,733 0.8% 87.4% 11,762
One Perimeter Center...................... 4 1972-1986 1,265,245 1.6% 93.5% 23,431
Two Perimeter Center...................... 11 1971-1985 980,708 1.3% 98.0% 16,884
Three Perimeter Center.................... 14 1970-1989 572,629 0.7% 72.3% 8,010
Four Perimeter Center..................... 3 1978-1981 483,796 0.6% 92.9% 8,758
Lakeside Office Park...................... 5 1972-1978 390,721 0.5% 91.2% 6,262
Midtown
Promenade II(d)........................... 1 1990 770,840 1.0% 99.1% 17,567
Northwest
Paces West................................ 2 1988 641,263 0.8% 99.1% 13,545
Charlotte
Uptown
Wachovia Center........................... 1 1972/1994 581,666 0.8% 92.5% 6,476
Nashville
Downtown
Bank of America Plaza..................... 1 1977/1995 421,513 0.5% 96.0% 6,069
Norfolk
Norfolk
Dominion Tower(d)......................... 1 1987 403,276 0.5% 98.3% 6,784
Orlando
Central Business District
SunTrust Center(d)........................ 1 1988 640,385 0.8% 99.9% 15,531
Raleigh/Durham
South Durham
University Tower.......................... 1 1987/1992 181,221 0.2% 100.0% 3,765
Sarasota
Downtown
Sarasota City Center...................... 1 1989 247,891 0.3% 88.5% 4,152
--- ---------- ------ ------ --------
SOUTHEAST REGION TOTAL/WEIGHTED AVERAGE...... 49 8,618,522 11.2% 90.4% 151,550
--- ---------- ------ ------ --------
SOUTHWEST REGION
Austin
CBD
One American Center(b).................... 1 1984 505,770 0.7% 99.2% 11,649
One Congress Plaza........................ 1 1987 517,849 0.7% 94.4% 11,124
San Jacinto Center........................ 1 1987 403,329 0.5% 100.0% 9,281
Dallas
Far North Dallas
Colonnade I & II.......................... 2 1983-1985 606,615 0.8% 90.9% 12,092
Colonnade III............................. 1 1998 377,639 0.5% 81.3% 8,213
Las Colinas
Computer Associates Tower................. 1 1988 360,815 0.5% 85.8% 7,441
Texas Commerce Tower...................... 1 1985 369,134 0.5% 98.6% 8,451
LBJ/Quorum
Four Forest Plaza(d)...................... 1 1985 394,324 0.5% 83.5% 6,178
Lakeside Square........................... 1 1987 397,328 0.5% 92.6% 7,185
North Central Plaza Three................. 1 1986/1994 346,575 0.5% 80.7% 5,187
N. Central Expressway
9400 NCX.................................. 1 1981/1995 379,556 0.5% 90.9% 5,277
Eighty-Eighty Central..................... 1 1984/1995 283,707 0.4% 87.2% 4,480
Preston Center
Preston Commons(d)........................ 3 1986 418,604 0.5% 83.1% 7,279
Sterling Plaza(d)......................... 1 1984/1994 302,747 0.4% 82.3% 5,119
Ft. Worth
W/SW Fort Worth
Summitt Office Park....................... 2 1974/1993 239,095 0.3% 92.1% 2,977
<CAPTION>
ANNUALIZED
PERCENT OF RENT PER
PORTFOLIO NUMBER OCCUPIED
PRIMARY MARKET ANNUALIZED OF SQUARE
SUB MARKET RENT LEASES FOOT(a)
- -------------- ---------- ------ ----------
<S> <C> <C> <C>
Tyson's Corner
E. J. Randolph............................ 0.2% 14 $23.55
John Marshall I........................... 0.3% 2 $21.41
------ ----- ------
NORTHEAST REGION TOTAL/WEIGHTED AVERAGE...... 35.1% 1,446 $30.68
------ ----- ------
SOUTHEAST REGION
Atlanta
Buckhead
Prominence in Buckhead(i)................. 0.1% 6 $22.40
Central Perimeter
Central Park.............................. 0.7% 57 $21.97
One Perimeter Center...................... 1.3% 132 $19.80
Two Perimeter Center...................... 0.9% 64 $17.58
Three Perimeter Center.................... 0.4% 48 $19.35
Four Perimeter Center..................... 0.5% 8 $19.49
Lakeside Office Park...................... 0.3% 35 $17.57
Midtown
Promenade II(d)........................... 1.0% 25 $23.00
Northwest
Paces West................................ 0.8% 44 $21.31
Charlotte
Uptown
Wachovia Center........................... 0.4% 9 $12.04
Nashville
Downtown
Bank of America Plaza..................... 0.3% 20 $15.00
Norfolk
Norfolk
Dominion Tower(d)......................... 0.4% 52 $17.11
Orlando
Central Business District
SunTrust Center(d)........................ 0.9% 53 $24.27
Raleigh/Durham
South Durham
University Tower.......................... 0.2% 35 $20.78
Sarasota
Downtown
Sarasota City Center...................... 0.2% 33 $18.92
------ ----- ------
SOUTHEAST REGION TOTAL/WEIGHTED AVERAGE...... 8.4% 621 $19.45
------ ----- ------
SOUTHWEST REGION
Austin
CBD
One American Center(b).................... 0.6% 30 $23.22
One Congress Plaza........................ 0.6% 46 $22.76
San Jacinto Center........................ 0.5% 39 $23.01
Dallas
Far North Dallas
Colonnade I & II.......................... 0.7% 67 $21.93
Colonnade III............................. 0.5% 14 $26.75
Las Colinas
Computer Associates Tower................. 0.4% 15 $24.04
Texas Commerce Tower...................... 0.5% 30 $23.22
LBJ/Quorum
Four Forest Plaza(d)...................... 0.3% 49 $18.76
Lakeside Square........................... 0.4% 21 $19.53
North Central Plaza Three................. 0.3% 30 $18.54
N. Central Expressway
9400 NCX.................................. 0.3% 66 $15.29
Eighty-Eighty Central..................... 0.2% 34 $18.11
Preston Center
Preston Commons(d)........................ 0.4% 70 $20.92
Sterling Plaza(d)......................... 0.3% 67 $20.54
Ft. Worth
W/SW Fort Worth
Summitt Office Park....................... 0.2% 57 $13.52
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
APPROXIMATE PORTFOLIO ANNUALIZED
PRIMARY MARKET NUMBER OF YEAR BUILT/ RENTABLE RENTABLE PERCENT RENT
SUB MARKET BUILDINGS RENOVATED SQUARE FEET SQUARE FEET OCCUPIED (000'S)(a)
- -------------- --------- ----------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Houston
Galleria/West Loop
San Felipe Plaza(d)....................... 1 1984 959,466 1.2% 92.2% 15,987
North Loop/Northwest
Brookhollow Central....................... 3 1972-1981 797,971 1.0% 96.4% 12,854
North/North Belt
Intercontinental Center................... 1 1983/1991 194,801 0.3% 98.3% 3,143
Northborough Tower(d)..................... 1 1983/1990 207,908 0.3% 95.9% 2,982
West
2500 CityWest............................. 1 1982 574,216 0.7% 99.9% 12,436
New Orleans
CBD
LL&E Tower................................ 1 1987 545,157 0.7% 92.8% 8,391
Texaco Center............................. 1 1984 619,714 0.8% 86.1% 9,302
Metairie/E. Jefferson
One Lakeway Center........................ 1 1981/1996 289,112 0.4% 98.0% 4,765
Two Lakeway Center........................ 1 1984/1996 440,826 0.6% 94.7% 7,167
Three Lakeway Center...................... 1 1987/1996 462,890 0.6% 92.0% 7,282
San Antonio
Northwest
Colonnade I............................... 1 1983 168,637 0.2% 96.0% 2,698
Northwest Center.......................... 1 1984/1994 241,248 0.3% 92.4% 3,503
Union Square.............................. 1 1986 194,398 0.3% 75.5% 2,502
--- ---------- ------ ------ --------
SOUTHWEST REGION TOTAL/WEIGHTED AVERAGE...... 34 11,599,431 15.1% 91.6% 204,946
--- ---------- ------ ------ --------
WEST REGION
Albuquerque
Downtown
500 Marquette Building.................... 1 1985 230,022 0.3% 92.2% $ 3,407
Uptown
One Park Square........................... 4 1985 262,020 0.3% 72.0% 3,453
Anchorage
Midtown
Calais Office Center(b)................... 2 1975 190,599 0.2% 98.5% 3,677
Denver
Downtown
410 17th Street........................... 1 1978 388,953 0.5% 88.3% 5,827
Denver Post Tower(b)...................... 1 1984 579,999 0.8% 93.6% 9,097
Dominion Plaza............................ 1 1983 571,468 0.7% 89.4% 8,049
Tabor Center.............................. 2 1985 674,278 0.9% 85.4% 13,966
Trinity Place............................. 1 1983 189,163 0.2% 84.7% 2,431
Southeast
4949 S. Syracuse.......................... 1 1982 62,633 0.1% 82.6% 1,053
Denver Corporate Center II & III.......... 2 1981/93-97 358,357 0.5% 100.0% 7,030
Metropoint................................ 1 1987 263,719 0.3% 87.2% 5,018
Metropoint II(d)(j)....................... 1 1999 150,181 0.2% 85.7% 3,067
Terrace Building.......................... 1 1982 115,408 0.1% 90.1% 2,142
Millennium Plaza.......................... 1 1982 330,033 0.4% 100.0% 7,600
Solarium.................................. 1 1982 162,817 0.2% 82.2% 2,624
The Quadrant.............................. 1 1985 313,302 0.4% 95.1% 6,595
Minneapolis
I-494
Northland Plaza........................... 1 1985 296,965 0.4% 94.9% 7,414
Minneapolis CBD
LaSalle Plaza............................. 1 1991 588,908 0.8% 98.8% 15,994
Phoenix
Central Corridor
49 East Thomas Road(k).................... 1 1974/1993 18,892 0.0% 73.3% 136
One Phoenix Plaza(l)...................... 1 1989 586,403 0.8% 100.0% 8,116
Portland
Downtown
1001 Fifth Avenue(b)...................... 1 1980 368,138 0.5% 94.1% 6,549
<CAPTION>
ANNUALIZED
PERCENT OF RENT PER
PORTFOLIO NUMBER OCCUPIED
PRIMARY MARKET ANNUALIZED OF SQUARE
SUB MARKET RENT LEASES FOOT(a)
- -------------- ---------- ------ ----------
<S> <C> <C> <C>
Houston
Galleria/West Loop
San Felipe Plaza(d)....................... 0.9% 116 $18.06
North Loop/Northwest
Brookhollow Central....................... 0.7% 58 $16.70
North/North Belt
Intercontinental Center................... 0.2% 10 $16.41
Northborough Tower(d)..................... 0.2% 15 $14.96
West
2500 CityWest............................. 0.7% 26 $21.68
New Orleans
CBD
LL&E Tower................................ 0.5% 34 $16.58
Texaco Center............................. 0.5% 23 $17.44
Metairie/E. Jefferson
One Lakeway Center........................ 0.3% 39 $16.82
Two Lakeway Center........................ 0.4% 71 $17.17
Three Lakeway Center...................... 0.4% 47 $17.10
San Antonio
Northwest
Colonnade I............................... 0.2% 27 $16.66
Northwest Center.......................... 0.2% 32 $15.71
Union Square.............................. 0.1% 19 $17.05
------ ----- ------
SOUTHWEST REGION TOTAL/WEIGHTED AVERAGE...... 11.4% 1,152 $19.28
------ ----- ------
WEST REGION
Albuquerque
Downtown
500 Marquette Building.................... 0.2% 34 $16.06
Uptown
One Park Square........................... 0.2% 43 $18.30
Anchorage
Midtown
Calais Office Center(b)................... 0.2% 35 $19.58
Denver
Downtown
410 17th Street........................... 0.3% 74 $16.96
Denver Post Tower(b)...................... 0.5% 30 $16.75
Dominion Plaza............................ 0.4% 68 $15.75
Tabor Center.............................. 0.8% 134 $24.26
Trinity Place............................. 0.1% 44 $15.18
Southeast
4949 S. Syracuse.......................... 0.1% 7 $20.37
Denver Corporate Center II & III.......... 0.4% 12 $19.62
Metropoint................................ 0.3% 20 $21.83
Metropoint II(d)(j)....................... 0.2% 8 $23.82
Terrace Building.......................... 0.1% 20 $20.60
Millennium Plaza.......................... 0.4% 3 $23.03
Solarium.................................. 0.1% 26 $19.60
The Quadrant.............................. 0.4% 35 $22.14
Minneapolis
I-494
Northland Plaza........................... 0.4% 53 $26.30
Minneapolis CBD
LaSalle Plaza............................. 0.9% 38 $27.48
Phoenix
Central Corridor
49 East Thomas Road(k).................... 0.0% 13 $ 9.80
One Phoenix Plaza(l)...................... 0.5% 1 $13.84
Portland
Downtown
1001 Fifth Avenue(b)...................... 0.4% 57 $18.90
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
PERCENT OF
TOTAL
APPROXIMATE PORTFOLIO ANNUALIZED
PRIMARY MARKET NUMBER OF YEAR BUILT/ RENTABLE RENTABLE PERCENT RENT
SUB MARKET BUILDINGS RENOVATED SQUARE FEET SQUARE FEET OCCUPIED (000'S)(a)
- -------------- --------- ----------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Seattle
Bellevue CBD
City Center Bellevue...................... 1 1987 472,587 0.6% 97.6% 11,323
One Bellevue Center(b).................... 1 1983 344,715 0.4% 95.1% 7,777
Rainier Plaza(b).......................... 1 1986 410,855 0.5% 98.5% 10,136
Sunset North Corporate Campus(d)(m)....... 3 1999 460,629 0.6% 55.5% 7,141
CBD
1111 Third Avenue......................... 1 1980 528,282 0.7% 89.0% 10,136
Bank of America Tower..................... 2 1985 1,537,932 2.0% 98.4% 40,068
Nordstrom Medical Tower................... 1 1986 101,431 0.1% 87.3% 2,387
Second and Seneca Buildings............... 2 1991 480,272 0.6% 96.2% 10,936
Second and Spring Building................ 1 1906/1989 134,871 0.2% 79.1% 2,486
Wells Fargo Center........................ 1 1983 915,883 1.2% 94.7% 23,323
St. Louis
Mid County
Interco Corporate Tower................... 1 1986 339,163 0.4% 93.6% 7,408
--- ---------- ------ ------ --------
WEST REGION TOTAL/WEIGHTED AVERAGE........... 42 12,428,878 16.1% 92.1% 256,365
--- ---------- ------ ------ --------
PACIFIC REGION
Los Angeles
Downtown
550 S. Hope............................... 1 1991 566,434 0.7% 86.8% 10,607
Two California Plaza(b)................... 1 1992 1,329,809 1.7% 57.2% 20,522
Pasadena
Pasadena Towers(d)........................ 2 1990-91 439,367 0.6% 89.0% 10,690
Los Angeles
Westwood
10880 Wilshire Boulevard(b)............... 1 1970/1992 534,047 0.7% 96.7% 15,890
10960 Wilshire Boulevard.................. 1 1971/1992 543,804 0.7% 98.3% 16,113
Orange County
Airport Office Area
1920 Main Plaza........................... 1 1988 305,662 0.4% 89.7% 6,296
2010 Main Plaza........................... 1 1988 280,882 0.4% 95.0% 7,624
Anaheim Stadium Area
500 Orange Tower(n)....................... 1 1988 290,765 0.4% 92.8% 5,288
Orange County
Town & Country
1100 Executive Tower...................... 1 1987 366,747 0.5% 100.0% 7,055
San Diego
The Plaza at La Jolla Village(d).......... 5 1987-1990 635,419 0.8% 94.3% 15,261
Smith Barney Tower........................ 1 1987 187,999 0.2% 78.8% 3,722
San Francisco
Financial District
201 Mission Street........................ 1 1981 483,289 0.6% 99.7% 13,322
301 Howard Building....................... 1 1988 307,396 0.4% 94.9% 9,197
580 California............................ 1 1984 313,012 0.4% 98.7% 10,253
60 Spear Street Building.................. 1 1967/1987 133,782 0.2% 98.2% 3,486
One Maritime Plaza........................ 1 1967/1990 534,878 0.7% 97.5% 17,118
One Market(b)............................. 1 1976/1995 1,460,081 1.9% 92.8% 41,050
San Jose
Mountain View
Shoreline Technology Park................. 12 1985-1991 726,508 0.9% 100.0% 15,114
Palo Alto
Palo Alto Square(b)....................... 6 1971/1985 320,468 0.4% 98.3% 11,344
Santa Clara
Lake Marriott Business Park............... 7 1981 401,402 0.5% 99.0% 6,368
Sunnyvale
Sunnyvale Business Center................. 3 1990 175,000 0.2% 100.0% 3,219
--- ---------- ------ ------ --------
PACIFIC REGION TOTAL/WEIGHTED AVERAGE........ 50 10,336,751 13.4% 90.2% 249,541
--- ---------- ------ ------ --------
PORTFOLIO TOTAL/WEIGHTED AVERAGE............. 294 77,015,610 100.0% 93.7% 1$,793,519
=== ========== ====== ====== ========
<CAPTION>
ANNUALIZED
PERCENT OF RENT PER
PORTFOLIO NUMBER OCCUPIED
PRIMARY MARKET ANNUALIZED OF SQUARE
SUB MARKET RENT LEASES FOOT(a)
- -------------- ---------- ------ ----------
<S> <C> <C> <C>
Seattle
Bellevue CBD
City Center Bellevue...................... 0.6% 76 $24.54
One Bellevue Center(b).................... 0.4% 30 $23.72
Rainier Plaza(b).......................... 0.6% 57 $25.06
Sunset North Corporate Campus(d)(m)....... 0.4% 5 $27.91
CBD
1111 Third Avenue......................... 0.6% 40 $21.56
Bank of America Tower..................... 2.2% 142 $26.48
Nordstrom Medical Tower................... 0.1% 16 $26.94
Second and Seneca Buildings............... 0.6% 28 $23.66
Second and Spring Building................ 0.1% 4 $23.31
Wells Fargo Center........................ 1.3% 68 $26.89
St. Louis
Mid County
Interco Corporate Tower................... 0.4% 27 $23.35
------ ----- ------
WEST REGION TOTAL/WEIGHTED AVERAGE........... 14.3% 1,248 $22.41
------ ----- ------
PACIFIC REGION
Los Angeles
Downtown
550 S. Hope............................... 0.6% 37 $21.58
Two California Plaza(b)................... 1.1% 35 $26.97
Pasadena
Pasadena Towers(d)........................ 0.6% 35 $27.33
Los Angeles
Westwood
10880 Wilshire Boulevard(b)............... 0.9% 46 $30.76
10960 Wilshire Boulevard.................. 0.9% 31 $30.13
Orange County
Airport Office Area
1920 Main Plaza........................... 0.4% 40 $22.97
2010 Main Plaza........................... 0.4% 30 $28.58
Anaheim Stadium Area
500 Orange Tower(n)....................... 0.3% 47 $19.61
Orange County
Town & Country
1100 Executive Tower...................... 0.4% 22 $19.24
San Diego
The Plaza at La Jolla Village(d).......... 0.9% 81 $25.47
Smith Barney Tower........................ 0.2% 23 $25.12
San Francisco
Financial District
201 Mission Street........................ 0.7% 20 $27.66
301 Howard Building....................... 0.5% 30 $31.54
580 California............................ 0.6% 23 $33.18
60 Spear Street Building.................. 0.2% 8 $26.54
One Maritime Plaza........................ 1.0% 37 $32.81
One Market(b)............................. 2.3% 116 $30.31
San Jose
Mountain View
Shoreline Technology Park................. 0.8% 12 $20.80
Palo Alto
Palo Alto Square(b)....................... 0.6% 23 $36.00
Santa Clara
Lake Marriott Business Park............... 0.4% 15 $16.03
Sunnyvale
Sunnyvale Business Center................. 0.2% 3 $18.40
------ ----- ------
PACIFIC REGION TOTAL/WEIGHTED AVERAGE........ 13.9% 714 $26.77
------ ----- ------
PORTFOLIO TOTAL/WEIGHTED AVERAGE............. 100.0% 6,347 $24.86
====== ===== ======
</TABLE>
- ---------------
(a) Annualized Rent is the monthly contractual rent under existing leases as of
December 31, 1999, multiplied by 12. This amount reflects total base rent
before any rent abatements, but includes expense
38
<PAGE> 39
reimbursements, which may be estimates. Total rent abatements for leases in
effect as of December 31, 1999, for the 12 months ending December 31, 2000,
are approximately $7.0 million.
(b) All or a portion of this Office Property is held subject to a ground lease
with the exception of Denver Post Tower which is subject to an air rights
lease.
(c) This Office Property is held in a private real estate investment trust in
which the Company owns 51.6% of the outstanding shares.
(d) This Office Property is held in a partnership with an unaffiliated third
party and, in the case of San Felipe Plaza and Sunset North Corporate
Campus, an affiliated party.
(e) This Office Property was a development project placed in-service in
November 1998. It is currently 78.0% occupied.
(f) This Office Property completed a major redevelopment in June 1999. The
property currently is 51.8% occupied and 64.3% leased, with occupancy to
take place some time in the future.
(g) 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.
(h) The Company acquired a first mortgage note secured by this Office Property.
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.
(i) This Office Property was a development project purchased and placed
in-service in July 1999. It is currently 26.9% occupied and 57.9% leased,
with occupancy to take place some time in the future.
(j) This was a development project that was placed in-service in May 1999. It
is currently 85.7% occupied and 95.0% leased, with occupancy to take place
some time in the future.
(k) 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.
(l) 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.
(m) This Office Property was a development project placed in-service in
December 1999. It is currently 55.6% occupied and 96.9% leased, with
occupancy to take place some time in the future.
(n) 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.
39
<PAGE> 40
PARKING FACILITIES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF MANAGEMENT
REGION PROPERTY NAME STATE CITY SPACES GARAGES COMPANY
- ------ -------------------------------------- ----- ------------ --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CENTRAL REGION
Adams-Wabash Garage(a) IL Chicago 670 1 Standard Parking
Theater District Garage(a)(b) IL Chicago 1,020 1 Standard Parking
203 North LaSalle Garage(a)(b) IL Chicago 1,196 1 Standard Parking
Capitol Commons Garage(b)(c) IN Indianapolis 986 1 Central Parking
Milwaukee Center Garage(a)(c) WI Milwaukee 815 1 Standard Parking
NORTHEAST REGION
Boston Harbor Garage MA Boston 1,380 1 Standard Parking
1616 Sansom Street Garage(a) PA Philadelphia 240 1 Central Parking
1111 Sansom Street Garage(a) PA Philadelphia 250 1 Central Parking
Juniper/Locust Street Garage(a) PA Philadelphia 541 1 Central Parking
15th & Sansom Street Garage(a) PA Philadelphia 313 1 Central Parking
1602-34 Chancellor Garage(a) PA Philadelphia 416 1 Central Parking
Riverfront Center PA Pittsburgh 741 1 Standard Parking
Forbes & Allies Garage(a)(d) PA Pittsburgh 1,310 2 Central Parking
MacArthur Airport NY Islip 2,575 1 Standard Parking
WEST REGION
517 Marquette Garage(a) MN Minneapolis 589 1 Standard Parking
St. Louis Parking Garages(a)(e) MO St. Louis 7,464 4 Central Parking
------ ---
TOTAL EOP STAND-ALONE 20,506 20
TOTAL EOP PORTFOLIO 67,178 83
------ ---
GRAND TOTAL 87,684 103
====== ===
</TABLE>
- ---------------
(a) Each of these parking Facilities is 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.
(b) 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.
(c) This Parking Facility is held subject to a ground lease.
(d) The Company acquired a leasehold interest in this parking facility. 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.
(e) 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, 1999, the Office Properties were leased to 6,347
tenants; no single tenant accounted for more than 1.6% of the Company's
aggregate annualized rent or 1.2% of the 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 3.2% of the
annualized rent and 3.2% of the occupied square feet).
40
<PAGE> 41
LEASE EXPIRATION
<TABLE>
<CAPTION>
2000 AND
MONTH TO
MONTH 2001 2002 2003 2004 2005
-------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CENTRAL REGION TOTALS
Square Feet(1)....................... 1,165,841 952,407 1,152,928 1,818,728 1,300,777 1,191,066
% Square Feet (2).................... 9.0% 7.4% 8.9% 14.1% 10.1% 9.2%
Annualized Rent (3).................. $ 29,464,813 $ 21,687,541 $ 29,874,913 $ 52,855,288 $ 32,640,620 $ 28,116,486
Number of Leases..................... 260 184 196 156 147 68
Rent Per Square Foot................. $ 25.27 $ 22.77 $ 25.91 $ 29.06 $ 25.09 $ 23.61
NORTHEAST REGION TOTALS
Square Feet (1)...................... 1,465,183 2,856,718 3,222,555 2,236,024 1,987,388 1,738,436
% Square Feet (2).................... 6.9% 13.5% 15.3% 10.6% 9.4% 8.2%
Annualized Rent (3).................. $ 38,237,836 $ 97,376,144 $ 93,821,096 $ 67,063,699 $ 55,920,198 $ 50,622,527
Number of Leases..................... 265 214 246 220 189 103
Rent Per Square Foot................. $ 26.10 $ 34.09 $ 29.11 $ 29.99 $ 28.14 $ 29.12
SOUTHEAST REGION TOTALS
Square Feet (1)...................... 1,196,358 1,400,715 698,108 645,026 957,218 607,591
% Square Feet (2).................... 13.9% 16.3% 8.1% 7.5% 11.1% 7.0%
Annualized Rent (3).................. $ 23,744,341 $ 25,914,990 $ 14,824,862 $ 14,133,610 $ 15,352,588 $ 10,716,863
Number of Leases..................... 159 129 116 69 76 27
Rent Per Square Foot................. $ 19.85 $ 18.50 $ 21.24 $ 21.91 $ 16.04 $ 17.64
SOUTHWEST REGION TOTALS
Square Feet (1)...................... 2,056,332 1,723,192 1,684,150 1,423,838 1,298,904 509,777
% Square Feet (2).................... 17.7% 14.9% 14.5% 12.3% 11.2% 4.4%
Annualized Rent (3).................. $ 38,383,627 $ 33,685,451 $ 33,878,640 $ 27,872,016 $ 26,169,782 $ 9,776,273
Number of Leases..................... 353 203 207 169 127 37
Rent Per Square Foot................. $ 18.67 $ 19.55 $ 20.12 $ 19.58 $ 20.15 $ 19.18
WEST REGION TOTALS
Square Feet (1)...................... 1,534,755 1,756,194 1,402,661 1,596,835 1,652,816 778,359
% Square Feet (2).................... 12.3% 14.1% 11.3% 12.8% 13.3% 6.3%
Annualized Rent (3).................. $ 32,967,069 $ 40,617,410 $ 31,297,869 $ 38,526,283 $ 34,063,578 $ 18,104,878
Number of Leases..................... 373 220 218 167 125 51
Rent Per Square Foot................. $ 21.48 $ 23.13 $ 22.31 $ 24.13 $ 20.61 $ 23.26
PACIFIC REGION TOTALS
Square Feet (1)...................... 1,276,734 1,640,469 917,224 786,355 1,042,472 1,167,062
% Square Feet (2).................... 12.4% 15.9% 8.9% 7.6% 10.1% 11.3%
Annualized Rent (3).................. $ 28,657,593 $ 39,209,105 $ 27,597,977 $ 22,695,654 $ 32,330,778 $ 31,026,081
Number of Leases..................... 148 147 110 90 81 54
Rent Per Square Foot................. $ 22.45 $ 23.90 $ 30.09 $ 28.86 $ 31.01 $ 26.58
PORTFOLIO TOTALS
Square Feet (1)...................... 8,695,203 10,329,695 9,077,626 8,506,806 8,239,575 5,992,291
% Square Feet (2).................... 11.3% 13.4% 11.8% 11.0% 10.7% 7.8%
Annualized Rent (3).................. $191,455,277 $258,490,640 $231,295,357 $223,146,550 $196,477,544 $148,363,108
Number of Leases..................... 1,558 1,097 1,093 871 745 340
Rent Per Square Foot................. $ 22.02 $ 25.02 $ 25.48 $ 26.23 $ 23.85 $ 24.76
<CAPTION>
2010 AND
2006 2007 2008 2009 BEYOND TOTALS
------------ ------------ ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
CENTRAL REGION TOTALS
Square Feet(1)....................... 768,093 398,596 1,170,538 723,190 1,789,259 12,431,423
% Square Feet (2).................... 5.9% 3.1% 9.1% 5.6% 13.8% 96.1%
Annualized Rent (3).................. $ 17,065,082 $ 8,547,273 $ 24,579,556 $ 20,951,487 $ 35,351,717 $ 301,134,774
Number of Leases..................... 53 27 34 20 21 1,166
Rent Per Square Foot................. $ 22.22 $ 21.44 $ 21.00 $ 28.97 $ 19.76 $ 24.22
NORTHEAST REGION TOTALS
Square Feet (1)...................... 1,149,329 1,067,203 1,191,205 1,818,988 1,802,888 20,535,917
% Square Feet (2).................... 5.4% 5.1% 5.6% 8.6% 8.5% 97.3%
Annualized Rent (3).................. $ 28,812,093 $ 28,984,493 $ 38,414,130 $ 72,725,796 $ 58,004,225 $ 629,982,236
Number of Leases..................... 58 40 50 34 27 1,446
Rent Per Square Foot................. $ 25.07 $ 27.16 $ 32.25 $ 39.98 $ 32.17 $ 30.68
SOUTHEAST REGION TOTALS
Square Feet (1)...................... 770,948 145,658 390,847 191,541 788,184 7,792,194
% Square Feet (2).................... 8.9% 1.7% 4.5% 2.2% 9.1% 90.4%
Annualized Rent (3).................. $ 17,749,334 $ 2,783,954 $ 9,110,405 $ 4,002,700 $ 13,216,543 $ 151,550,190
Number of Leases..................... 14 6 10 7 8 621
Rent Per Square Foot................. $ 23.02 $ 19.11 $ 23.31 $ 20.90 $ 16.77 $ 19.45
SOUTHWEST REGION TOTALS
Square Feet (1)...................... 757,350 321,068 357,429 163,075 334,348 10,629,463
% Square Feet (2).................... 6.5% 2.8% 3.1% 1.4% 2.9% 91.6%
Annualized Rent (3).................. $ 13,878,136 $ 6,176,764 $ 8,520,016 $ 2,977,750 $ 3,627,639 $ 204,946,093
Number of Leases..................... 26 6 10 8 6 1,152
Rent Per Square Foot................. $ 18.32 $ 19.24 $ 23.84 $ 18.26 $ 10.85 $ 19.28
WEST REGION TOTALS
Square Feet (1)...................... 637,567 682,127 802,404 336,480 261,795 11,441,993
% Square Feet (2).................... 5.1% 5.5% 6.5% 2.7% 2.1% 92.1%
Annualized Rent (3).................. $ 14,148,550 $ 14,501,684 $ 22,491,029 $ 8,723,317 $ 923,364 $ 256,365,031
Number of Leases..................... 26 25 21 16 6 1,248
Rent Per Square Foot................. $ 22.19 $ 21.26 $ 28.03 $ 25.93 $ 3.53 $ 22.41
PACIFIC REGION TOTALS
Square Feet (1)...................... 607,837 830,044 297,305 166,746 590,867 9,323,115
% Square Feet (2).................... 5.9% 8.0% 2.9% 1.6% 5.7% 90.2%
Annualized Rent (3).................. $ 17,962,445 $ 26,505,489 $ 10,225,055 $ 4,111,730 $ 9,219,081 $ 249,540,989
Number of Leases..................... 25 20 14 13 12 714
Rent Per Square Foot................. $ 29.55 $ 31.93 $ 34.39 $ 24.66 $ 15.60 $ 26.77
PORTFOLIO TOTALS
Square Feet (1)...................... 4,691,124 3,444,696 4,209,728 3,400,020 5,567,341 72,154,105
% Square Feet (2).................... 6.1% 4.5% 5.5% 4.4% 7.2% 93.7%
Annualized Rent (3).................. $109,615,641 $ 87,499,657 $113,340,191 $113,492,779 $120,342,569 $ 1,793,519,312
Number of Leases..................... 202 124 139 98 80 6,347
Rent Per Square Foot................. $ 23.37 $ 25.40 $ 26.92 $ 33.38 $ 21.62 $ 24.86
</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, 1999 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, 1999 for the 12 months
ending December 31, 2000 are approximately $7.0 million.
41
<PAGE> 42
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, 1999, assuming
that none of the tenants exercise renewal options or termination rights, if any,
at or prior to the scheduled expirations:
<TABLE>
<CAPTION>
PERCENTAGE OF
SQUARE ANNUALIZED RENT ANNUALIZED
NUMBER OF FOOTAGE OF PERCENTAGE OF ANNUALIZED OF EXPIRING RENT OF
LEASES EXPIRING TOTAL OCCUPIED RENT OF EXPIRING LEASES PER EXPIRING
YEAR OF LEASE EXPIRATION EXPIRING LEASES SQUARE FEET LEASES SQUARE FOOT LEASES (1)
- ------------------------ --------- ---------- -------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
2000(2)............................ 1,558 8,695,203 12.2% $ 191,455,277 $22.02 10.7%
2001............................... 1,097 10,329,695 14.5% 258,490,640 25.02 14.4%
2002............................... 1,093 9,077,626 12.7% 231,295,357 25.48 12.9%
2003............................... 871 8,506,806 11.9% 223,146,550 26.23 12.4%
2004............................... 745 8,239,575 11.6% 196,477,544 23.85 11.0%
2005............................... 340 5,992,291 8.4% 148,363,108 24.76 8.3%
2006............................... 202 4,691,124 6.6% 109,615,641 23.37 6.1%
2007............................... 124 3,444,696 4.8% 87,499,657 25.40 4.9%
2008............................... 139 4,209,728 5.9% 113,340,191 26.92 6.3%
2009............................... 98 3,400,020 4.8% 113,492,779 33.38 6.3%
2010 and beyond.................... 80 4,642,725 6.6% 120,342,568 25.92 6.7%
----- ---------- ----- -------------- ------ ------
6,347 71,229,489 100.0%(3) $1,793,519,312 $24.86 100.0%
===== ========== ===== ============== ====== ======
</TABLE>
- ---------------
(1) Based on current payable rent.
(2) Represents lease expirations from January 1, 2000 to December 31, 2000 and
month-to-month leases.
(3) Reconciliation for total net rentable square footage is as follows:
<TABLE>
<CAPTION>
SQUARE PERCENT
FOOTAGE OF TOTAL
---------- --------
<S> <C> <C>
Square footage occupied by tenants.......................... 71,229,489 92.5%
Square footage used for management offices, building use and
remeasurement adjustments................................. 924,616 1.2%
---------- -----
Total occupied square footage............................... 72,154,105 93.7%
Square footage vacant....................................... 4,861,505 6.3%
---------- -----
Total net rentable square footage........................... 77,015,610 100.0%
========== =====
</TABLE>
LEASE DISTRIBUTION
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, 1999.
<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................ 2,344 36.9% 2,808,421 3.9% $ 66,506,838 $23.68
2,501 -- 5,000............... 1,362 21.5% 4,881,001 6.9% 116,678,260 23.90
5,001 -- 7,500............... 703 11.1% 4,288,874 6.0% 102,424,463 23.88
7,501 -- 10,000.............. 378 6.0% 3,289,304 4.6% 79,011,887 24.02
10,001 -- 20,000............. 788 12.4% 11,217,665 15.7% 274,845,107 24.50
20,001 -- 40,000............. 440 6.9% 12,013,701 16.9% 303,597,750 25.27
40,001 -- 60,000............. 132 2.1% 6,414,137 9.0% 159,275,119 24.83
60,001 -- 100,000............ 105 1.7% 7,965,161 11.2% 202,839,031 25.47
100,001 or Greater........... 95 1.5% 18,351,225 25.8% 488,340,856 26.61
----- ----- ---------- ----- -------------- ------
TOTAL/WEIGHTED AVERAGE....... 6,347 100.0% 71,229,489 100.0% $1,793,519,312 $24.86
===== ===== ========== ===== ============== ======
<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............... 5.7%
7,501 -- 10,000.............. 4.4%
10,001 -- 20,000............. 15.3%
20,001 -- 40,000............. 16.9%
40,001 -- 60,000............. 8.9%
60,001 -- 100,000............ 11.3%
100,001 or Greater........... 27.2%
-----
TOTAL/WEIGHTED AVERAGE....... 100.0%
=====
</TABLE>
42
<PAGE> 43
OCCUPANCY
The table below sets forth weighted average occupancy rates, based on
square footage occupied, of the Office Properties owned by the Company at the
indicated date:
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
RENTABLE SQUARE RENTABLE SQUARE
DATE FOOTAGE 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%
December 31, 1999........................................... 77,015,610 94%
</TABLE>
43
<PAGE> 44
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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 1, 2000, the reported closing sale price
per Common Share on the NYSE was $23.8125 and there were approximately 791
holders of record. The high and low closing prices for 1999 and 1998 on the NYSE
was as follows:
<TABLE>
<CAPTION>
YEAR QUARTER HIGH LOW CLOSE DIVIDEND
- ---- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1999........................................ Fourth $ 24.625 $ 21.00 $24.625 $0.42
Third $ 25.75 $ 23.25 $ 23.25 $0.42
Second $ 29.25 $ 25.125 $25.625 $0.37
First $ 26.75 $ 24.00 $25.375 $0.37
1998........................................ Fourth $ 25.625 $22.9375 $ 24.00 $0.37
Third $28.6875 $ 20.75 $ 24.50 $0.37
Second $ 31.00 $24.9375 $28.375 $0.32
First $ 31.875 $ 28.00 $30.625 $0.32
</TABLE>
ISSUANCE 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 October 1999, the Company acquired an Office Property from an affiliated
party for approximately $78.3 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, 1,035,389 Units at a price
of $29.50 per Unit. The Units were recorded at $23.64 each for a total of $24.5
million for accounting purposes.
44
<PAGE> 45
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 PROPERTIES TRUST EQUITY OFFICE PREDECESSORS
-------------------------------------------- -------------------------------------
FOR THE YEARS ENDED FOR THE PERIOD FOR THE PERIOD FOR THE YEARS ENDED
DECEMBER 31, FROM JULY 11, FROM JANUARY 1, DECEMBER 31,
--------------------------- 1997 THROUGH 1997 THROUGH -------------------
DECEMBER 31, JULY 10,
1999 1998 1997 1997 1996 1995
------------ ------------ -------------- --------------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Rental, parking and other....... $ 1,919,056 $ 1,658,420 $ 406,713 $327,017 $493,396 $356,959
------------ ------------ ------------ -------- -------- --------
Total revenues................ 1,942,243 1,679,699 412,968 339,104 508,124 371,457
------------ ------------ ------------ -------- -------- --------
Expenses:
Interest........................ 413,995 338,611 76,675 80,481 119,595 100,566
Depreciation and amortization... 358,989 305,982 70,346 66,034 96,237 74,156
Property operating and ground
rent(2)....................... 669,763 600,367 155,679 127,285 201,067 151,488
General and administrative...... 80,927 63,564 17,690 17,201 23,145 21,987
Provision for value
impairment.................... -- -- -- -- -- 20,248
------------ ------------ ------------ -------- -------- --------
Total expenses................ 1,523,674 1,308,524 320,390 291,001 440,044 368,445
------------ ------------ ------------ -------- -------- --------
Income before allocation to
minority interests, income from
investment in unconsolidated
joint ventures, net gain/(loss)
on sales of real estate and
extraordinary items............. 418,569 371,175 92,578 48,103 68,080 3,012
Minority interests................ (50,153) (38,340) (7,799) (912) (2,086) (2,129)
Income from investment in
unconsolidated joint ventures... 13,824 11,267 3,173 1,982 2,093 2,305
Net gain/(loss) on sales of real
estate and extraordinary
items........................... 49,113 4,927 (16,240) 12,236 5,338 31,271
------------ ------------ ------------ -------- -------- --------
Net income........................ 431,353 349,029 71,712 61,409 73,425 34,459
Put option settlement............. (5,658) -- -- -- -- --
Preferred distributions........... (43,603) (32,202) (649) -- -- --
------------ ------------ ------------ -------- -------- --------
Net income available for Common
Shares.......................... $ 382,092 $ 316,827 $ 71,063 $ 61,409 $ 73,425 $ 34,459
============ ============ ============ ======== ======== ========
Net income available per weighted
average Common Share
outstanding -- Basic............ $ 1.49 $ 1.25 $ 0.44
============ ============ ============
Net income available per weighted
average Common Share
outstanding -- Diluted.......... $ 1.48 $ 1.24 $ 0.43
============ ============ ============
Weighted average Common Shares
outstanding -- Basic............ 256,045,895 253,167,037 162,591,477
============ ============ ============
Weighted average Common Shares
outstanding -- Diluted.......... 291,157,204 283,974,532 180,014,027
============ ============ ============
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
EQUITY OFFICE PROPERTIES TRUST EQUITY OFFICE PREDECESSORS
------------------------------------------ -----------------------------------------
FOR THE YEARS ENDED FOR THE PERIOD FOR THE PERIOD FOR THE YEARS ENDED
DECEMBER 31, FROM JULY 11, FROM JANUARY 1, DECEMBER 31,
------------------------- 1997 THROUGH 1997 THROUGH -----------------------
DECEMBER 31, JULY 10,
1999 1998 1997 1997 1996 1995
----------- ----------- -------------- --------------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (at end of
period):
Investment in real estate, net of
accumulated depreciation......... $12,572,153 $13,331,560 $10,976,319 -- $3,291,815 $2,393,403
Total Assets............... $14,046,058 $14,261,291 $11,751,672 -- $3,912,565 $2,650,890
Mortgage debt, unsecured notes and
lines of credit.................. $ 5,851,918 $ 6,025,405 $ 4,284,317 -- $1,964,892 $1,434,827
Total Liabilities.......... $ 6,336,531 $ 6,472,613 $ 4,591,697 -- $2,174,483 $1,529,334
Minority Interests................. $ 883,454 $ 737,715 $ 754,818 -- $ 11,080 $ 31,587
Preferred Shares................... $ 615,000 $ 615,000 $ 200,000 -- -- --
Shareholders' Equity/Owners'
Equity........................... $ 6,211,073 $ 6,435,963 $ 6,205,157 -- $1,727,002 $1,089,969
OTHER DATA:
General and administrative expenses
as a percentage of total
revenues......................... 4.2% 3.8% 4.3% 5.1% 4.6% 5.9%
Number of Office Properties........ 294 284 258 -- 84 73
Net rentable square feet of Office
Properties (in millions)......... 77.0 75.1 65.3 -- 29.2 23.1
Occupancy of Office Properties..... 94% 95% 94% -- 90% 86%
Number of Parking Facilities....... 20 19 17 -- 10 3
Number of spaces at Parking
Facilities....................... 20,506 18,059 16,749 -- 7,321 3,323
Funds from Operations(3)........... $ 748,983 $ 662,585 $ 163,253 $ 113,022 $ 160,460 $ 96,104
=========== =========== =========== ========= ========== ==========
Property Net Operating Income(4)... $ 1,256,180 $ 1,065,714 $ 253,418 $ 202,108 $ 294,556 $ 206,341
=========== =========== =========== ========= ========== ==========
Earnings before interest, taxes,
depreciation and
amortization(5).................. $ 1,228,913 $ 1,049,577 $ 242,969 $ 197,489 $ 286,128 $ 200,438
=========== =========== =========== ========= ========== ==========
Cash flow provided by operating
activities....................... $ 720,711 $ 759,151 $ 190,754 $ 95,960 $ 165,975 $ 93,878
=========== =========== =========== ========= ========== ==========
Cash flow (used for) investing
activities....................... $ (67,138) $(2,231,712) $(1,592,272) $(571,068) $ (924,227) $ (380,615)
=========== =========== =========== ========= ========== ==========
Cash flow (used for) provided by
financing activities............. $ (718,315) $ 1,310,788 $ 1,630,346 $ 245,851 $1,057,551 $ 276,513
=========== =========== =========== ========= ========== ==========
</TABLE>
- ---------------
(1) The selected financial data at December 31, 1999, 1998, 1997, 1996 and 1995
and for the five years ended December 31, 1999 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.
(2) Property operating expenses includes real estate taxes, insurance, repairs
and maintenance 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, investing and financing 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
46
<PAGE> 47
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.
For a reconciliation of net income to 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) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is defined as net income excluding interest expense, taxes, depreciation
and amortization, minority interest allocation to the Operating
Partnership, net gain/(loss) 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. EBITDA is presented because the Company believes this data
is used by some investors to evaluate the Company's ability to meet debt
service requirements. The Company considers EBITDA to be an indicative
measure of its operating performance due to the significance of the
Company's long-lived assets and because this data can be used to measure
the Company's ability to service debt, fund capital expenditures and expand
its business. However, this data should not be considered as an alternative
to net income, operating profit, cash flows from operations or any other
operating or liquidity performance measure prescribed by GAAP. In addition,
EBITDA as calculated by the Company may not be comparable to similarly
titled measures reported by other companies. Interest expense, taxes,
depreciation and amortization, which are not reflected in the presentation
of EBITDA, have been, and will be, incurred by the Company. Investors are
cautioned that these excluded items are significant components in
understanding and assessing the Company's financial performance.
47
<PAGE> 48
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 activities prior to the Company's initial
public offering ("IPO") on July 11, 1997, contained in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations" refer
to the activities of 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" and "Developments" 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, 1999. Among the
factors that the Company has made assumptions 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 on operating expenses.
- The Company's ability to reduce various expenses as a percentage of
revenues.
- The Company's continuing ability to pay amounts due to its noteholders
and preferred shareholders prior to any distribution to common
shareholders.
- The cost to complete and lease-up pending developments.
- The Company's continued access to adequate credit facilities on
acceptable terms, including any amounts required for the Cornerstone
Merger.
- The demand from the Company's customers for office-related services.
1999 Highlights:
- Acquired ten Office Properties containing approximately 1.9 million
square feet and one Parking Facility for approximately $393.2 million in
the aggregate.
- Invested approximately $73.9 million in mezzanine debt financing on the
SunAmerica Center office property.
- Sold four Office Properties containing .7 million square feet in
non-core markets and one redevelopment property for approximately $98.0
million.
- Sold a partial interest in twelve Office Properties for net proceeds of
approximately $480 million to Lend Lease Australia/U.S. Properties.
- Issued the $1.0 Billion Notes in three tranches due in three, five and
ten years with an effective overall interest rate of 6.8% per annum and
issued the $200 Million Notes due in 30 years with an effective interest
rate of 7.6% per annum.
- Repaid the $328 Million Credit Facility and the $200 Million Credit
Facility.
- Introduced Access, a strategic business service unit providing
additional products and services to Equity Office customers. The initial
offerings include telecom, office suites, ATMs, training tools, and
informational and advertising venues.
- The Company received a Private Letter Ruling from the Internal Revenue
Service allowing participation in the delivery of telecommunications
services to customers without violation of REIT rules.
48
<PAGE> 49
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, 1999 and 1998, and for the years
ended December 31, 1999, 1998 and 1997.
The Company receives income primarily from rental revenue from 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, 1998. The buildings and total square feet shown include
Properties the Company owns in joint ventures with other partners and reflects
the total square footage of the Properties. Excluding the joint venture
partner's share of the square feet of these Properties, the Company effectively
owned approximately 72.9 million square feet of office space as of December 31,
1999.
<TABLE>
<CAPTION>
OFFICE PROPERTIES
----------------------- PARKING FACILITIES
TOTAL ------------------
BUILDINGS SQUARE FEET GARAGES SPACES
--------- ----------- -------- -------
<S> <C> <C> <C> <C>
PROPERTIES OWNED AS OF:
January 1, 1998....................................... 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..................................... 284 75,100,727 19 18,059
Acquisitions........................................ 10 1,947,639 1 2,575
Developments placed in service...................... 4 610,810 1 589
Dispositions........................................ (4) (668,796) -- --
Building remeasurements............................. -- 25,230 -- 42
Reclassifications(1)................................ -- -- (1) (759)
--- ---------- -- ------
December 31, 1999 ("Total Portfolio")................. 294 77,015,610 20 20,506
=== ========== == ======
</TABLE>
- ---------------
(1) The 601 Tchoupitoulas garage was previously considered a stand-alone garage
and included in the number of Parking Facilities owned by the Company.
Effective in the second quarter of 1999, this garage is no longer considered
a stand-alone Parking Facility.
As a result of the acquisition and disposition of Properties, the financial
data presented shows changes in revenues and expenses from period-to-period.
Therefore the Company does not believe its period-to-period financial data are
comparable. The following analysis 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.
As reflected in the tables below, property revenues include rental
revenues, reimbursements from tenants for certain expenses, parking revenue and
other property operating revenues. Property operating expenses include real
estate taxes, insurance, repairs and maintenance and other property operating
expenses.
49
<PAGE> 50
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO DECEMBER 31, 1998
The table below represents selected operating information for the Total
Portfolio and for the Core Portfolio consisting of 236 Office Properties and 16
Parking Facilities acquired or placed in service prior to January 1, 1998.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO CORE PORTFOLIO
--------------------------------------------- ---------------------------------------------
INCREASE/ % INCREASE/ %
1999 1998 (DECREASE) CHANGE 1999 1998 (DECREASE) CHANGE
---------- ---------- ---------- ------ ---------- ---------- ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property revenues............. $1,919,056 $1,658,420 $260,636 15.7% $1,379,062 $1,314,411 $ 64,651 4.9%
Fee income.................... 8,939 9,571 (632) (6.6) -- -- -- --
Interest/dividend income...... 14,248 11,708 2,540 21.7 1,554 1,844 (290) (15.7)
---------- ---------- -------- ------ ---------- ---------- -------- ------
Total revenues............ 1,942,243 1,679,699 262,544 15.6 1,380,616 1,316,255 64,361 4.9
---------- ---------- -------- ------ ---------- ---------- -------- ------
Interest expense.............. 413,995 338,611 75,384 22.3 110,731 139,927 (29,196) (20.9)
Depreciation and
amortization................ 358,989 305,982 53,007 17.3 262,894 243,006 19,888 8.2
Property operating expenses... 662,876 592,706 70,170 11.8 477,623 469,771 7,852 1.7
Ground rent................... 6,887 7,661 (774) (10.1) 6,179 7,203 (1,024) (14.2)
General and administrative.... 80,927 63,564 17,363 27.3 468 403 65 16.1
---------- ---------- -------- ------ ---------- ---------- -------- ------
Total expenses............ 1,523,674 1,308,524 215,150 16.4 857,895 860,310 (2,415) (0.3)
---------- ---------- -------- ------ ---------- ---------- -------- ------
Income before allocation to
minority interests, income
from investment in
unconsolidated joint
ventures, net gain on sales
of real estate and
extraordinary items......... 418,569 371,175 47,394 12.8 522,721 455,945 66,776 14.6
Minority Interests............ (50,153) (38,340) (11,813) 30.8 (1,972) (2,096) 124 (5.9)
Income from investment in
unconsolidated joint
ventures.................... 13,824 11,267 2,557 22.7 10,512 8,928 1,584 17.7
Net gain on sales of real
estate...................... 59,661 12,433 47,228 379.9 -- -- -- --
Extraordinary items........... (10,548) (7,506) (3,042) 40.5 (9,527) -- (9,527) --
---------- ---------- -------- ------ ---------- ---------- -------- ------
Net income.................... $ 431,353 $ 349,029 $ 82,324 23.6% $ 521,734 $ 462,777 $ 58,957 12.7%
========== ========== ======== ====== ========== ========== ======== ======
Property revenues less
property operating expenses
before depreciation and
amortization, general and
administrative, ground rent
and interest expense........ $1,256,180 $1,065,714 $190,466 17.9% $ 901,439 $ 844,640 $ 56,799 6.7%
========== ========== ======== ====== ========== ========== ======== ======
</TABLE>
Property Revenues
The increase in 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 93.8% at January 1, 1998 to 94.6%
at December 31, 1999. This increase represents approximately .5 million square
feet of additional occupancy in the Core Portfolio.
Property revenues for the Total Portfolio include lease termination fees of
approximately $15.9 million and $15.5 million for the years ended December 31,
1999 and 1998, respectively, and property revenues for the Core Portfolio
include lease termination fees of approximately $12.8 million and $14.0 million
for the years ended December 31, 1999 and 1998, respectively (lease termination
fees are included in the "other revenue" category on the consolidated statements
of operations). These fees relate to specific tenants who have paid a fee to
terminate their lease obligations before the end of the contractual term of
their 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.
Property revenues for the Total Portfolio also include straight-line rent
adjustments of approximately $65.4 million and $68.1 million for the years ended
December 31, 1999 and 1998, respectively. Property revenues for the Core
Portfolio include straight-line rent adjustments of approximately $44.7 million
and $58.0 million for the years ended December 31, 1999 and 1998, respectively.
50
<PAGE> 51
Interest Expense
Total Portfolio interest expense increased from the prior period as a
result of having more debt outstanding primarily attributable to property
acquisitions. The following statistics for each period for the Total Portfolio
are as follows:
- Total debt to total assets decreased to 41.7% from 42.3%.
- Interest coverage ratio decreased to 2.9 times from 3.0 times.
- Weighted average interest rate increased to 7.2% from 7.1%.
Core Portfolio interest expense decreased from the prior period due to the
paydown of mortgage debt with proceeds from various unsecured notes offerings
and borrowing on the lines of credit. Interest expense on the unsecured notes
and the lines of credit is not reflected in the Core Portfolio.
Depreciation and Amortization
Total Portfolio depreciation and amortization expense increased as a result
of Properties acquired and capital and tenant improvements made during 1999 and
1998. Core Portfolio depreciation and amortization expense increased as a result
of capital and tenant improvements made to the Properties.
Property Operating Expenses
Core Portfolio property operating expenses increased due to an increase in
real estate tax expense of approximately $10.1 million due to higher property
tax assessments in certain markets and an increase in insurance expense. These
increases were partially offset by decreases in repairs and maintenance and
other property operating expenses.
General and Administrative Expenses
General and administrative expenses increased due to increases in the size
of the Company's portfolio and additional expenses associated with being a
public company. During 1999, the Company made significant investments in its
information systems, including the hiring of additional personnel and
established a real estate services group. In addition, the Company incurred
severance costs during 1999 that were not incurred in 1998. While general and
administrative expenses are expected to continue to increase along with any
increase in the size of the Company's portfolio, it is also anticipated that the
Company will realize economies of scale with future growth, should it occur.
Income from Investment in Unconsolidated Joint Ventures
Income from investment in unconsolidated joint ventures increased for the
Total Portfolio due to the partial sale of twelve Office Properties in December
1999. The Company retained an equity interest in the twelve Office Properties
and accounts for its remaining interest under the equity method of accounting.
Prior to the sale, the Company consolidated the results of operations of such
Office Properties.
51
<PAGE> 52
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%
Fee income........................ 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...... 12,433 12,636 (203) (1.6) -- -- -- --
Extraordinary items............... (7,506) (16,640) 9,134 (54.9) -- (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 revenues 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 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 91.9% at January 1, 1997 to 96.1%
as of December 31, 1998. This increase represents approximately 1.2 million
square feet of additional occupancy in the Core Portfolio.
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, (lease termination
fees are included in the "other revenue" category on the consolidated and
combined statements of operations). These fees relate to specific tenants who
have paid a fee to terminate their lease obligations before the end of the
contractual term of their 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.
52
<PAGE> 53
Property revenues for the Total Portfolio include straight-line rent
adjustments of approximately $68.1 million and $27.7 million, for the years
ended December 31, 1998 and 1997, respectively. Property revenues for the Core
Portfolio include straight-line rent adjustments of approximately $26.2 million
and $23.4 million, for the years ended December 31, 1998 and 1997, respectively.
Fee Income
The increase in fee income 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 properties the Company manages.
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 on an investment in preferred
securities.
Interest Expense
Total Portfolio interest expense increased from the prior period as a
result of having more debt outstanding attributable primarily to Property
acquisitions. The following statistics for each period for the Total Portfolio
are as follows:
- Total debt to total assets increased to 42.3% from 36.5%.
- Interest coverage ratio increased to 3.0 times from 2.8 times.
- Weighted average interest rate decreased to 7.1% from 7.2%.
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. Interest on unsecured debt is
not reflected in the Core Portfolio.
Depreciation and Amortization
Total Portfolio depreciation and amortization expense increased as a result
of Properties acquired and capital and tenant improvements made during 1998 and
1997. Core Portfolio depreciation and amortization expense 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
Core Portfolio property operating expenses increased mainly as a result of
real estate taxes. Real estate taxes 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
General and administrative expenses increased due to the size of the
Company's portfolio increasing and additional expenses associated with being a
public company. While general and administrative expenses are expected to
continue to increase along with any increase in the size of the portfolio, 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.
53
<PAGE> 54
PARKING OPERATIONS
The Total Portfolio and Core Portfolio selected operating information for
1999, 1998, and 1997 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, 1999 TO DECEMBER 31, 1998
The table below represents selected operating information for the Total
Portfolio and the Core Portfolio consisting of 16 Parking Facilities acquired
prior to January 1, 1998.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO CORE PORTFOLIO
--------------------------------------- ---------------------------------------
INCREASE/ % INCREASE/ %
1999 1998 (DECREASE) CHANGE 1999 1998 (DECREASE) CHANGE
------- ------- ---------- ------ ------- ------- ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property revenues........................ $37,236 $29,435 $7,801 26.5% $32,617 $29,295 $3,322 11.3%
Interest/dividend income................. 495 140 355 253.6 77 140 (63) (45.0)
------- ------- ------ ------ ------- ------- ------ ------
Total revenues....................... 37,731 29,575 8,156 27.6 32,694 29,435 3,259 11.1
------- ------- ------ ------ ------- ------- ------ ------
Interest expense......................... 3,181 5,496 (2,315) (42.1) 3,014 5,490 (2,476) (45.1)
Depreciation and amortization............ 6,581 5,542 1,039 18.7 5,505 5,542 (37) (0.7)
Property operating expenses.............. 7,905 8,096 (191) (2.4) 7,716 8,093 (377) (4.7)
Ground rent.............................. 50 50 -- -- 50 50 -- --
General and administrative............... 105 72 33 45.8 105 72 33 45.8
------- ------- ------ ------ ------- ------- ------ ------
Total expenses....................... 17,822 19,256 (1,434) (7.4) 16,390 19,247 (2,857) (14.8)
------- ------- ------ ------ ------- ------- ------ ------
Income before allocation to minority
interests and income from investment in
unconsolidated joint ventures.......... 19,909 10,319 9,590 92.9 16,304 10,188 6,116 60.0
Minority interests....................... (463) (360) (103) 28.6 (463) (360) (103) 28.6
Income from investment in unconsolidated
joint ventures......................... 1,740 1,884 (144) (7.6) 1,740 1,884 (144) (7.6)
------- ------- ------ ------ ------- ------- ------ ------
Net income............................... $21,186 $11,843 $9,343 78.9% $17,581 $11,712 $5,869 50.1%
======= ======= ====== ====== ======= ======= ====== ======
Property revenues less property operating
expenses before depreciation and
amortization, general and
administrative, ground rent and
interest expense....................... $29,331 $21,339 $7,992 37.5% $24,901 $21,202 $3,699 17.4%
======= ======= ====== ====== ======= ======= ====== ======
</TABLE>
54
<PAGE> 55
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO DECEMBER 31, 1997
The table below represents selected operating information for the Total
Portfolio and the Core Portfolio consisting of ten Parking Facilities acquired
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............. $29,435 $22,211 $7,224 32.5% $23,467 $20,669 $2,798 13.5%
Interest/dividend income...... 140 249 (109) (43.8) 139 249 (110) (44.2)
------- ------- ------ ------ ------- ------- ------ -------
Total revenues............ 29,575 22,460 7,115 31.7 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................ 5,542 3,954 1,588 40.2 4,628 3,755 873 23.2
Property operating expenses... 8,096 4,950 3,146 63.6 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............ 19,256 14,432 4,824 33.4 16,622 13,895 2,727 19.6
------- ------- ------ ------ ------- ------- ------ -------
Income before allocation to
minority interests and
income from investment in
unconsolidated joint
ventures.................... 10,319 8,028 2,291 28.5 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.................... $11,843 $10,166 $1,677 16.5% $ 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........ $21,339 $17,261 $4,078 23.6% $17,066 $16,056 $1,010 6.3%
======= ======= ====== ====== ======= ======= ====== =======
</TABLE>
55
<PAGE> 56
PROPERTY DISPOSITIONS
The Company has disposed of the following properties since January 1, 1997:
<TABLE>
<CAPTION>
YEAR PROPERTY
- ---- --------
<S> <C> <C>
1999............................... Atrium Towers SunTrust Center(1)
5100 Brookline Promenade II(1)
215 Fremont Street Pasadena Towers(1)
One Columbus Preston Commons(1)
10 & 30 South Wacker(1) Sterling Plaza(1)
Bank One Center(1)
1998............................... First Union Center Westshore Center
One Clearlake Centre Walker Building
Tampa Commons
1997............................... Barton Oaks Plaza II 8383 Wilshire
</TABLE>
After the Company sold the above properties, the Company continued as the
property manager for One Columbus, First Union Center, One Clearlake Centre,
Tampa Commons and Westshore Center as well as the Properties described in Note
(1) below. Below is a summary of the results of operations of these office
properties through their respective disposition dates:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Property revenue............................................ $166,113 $187,876 $132,647
Interest income............................................. 300 103 149
-------- -------- --------
Total income........................................... 166,413 187,979 132,796
-------- -------- --------
Interest expense............................................ 10,762 12,803 21,077
Depreciation and amortization............................... 26,580 30,250 22,788
Property operating expense.................................. 59,124 70,486 47,503
Ground Rent................................................. -- 265 --
General and administrative.................................. 44 75 77
-------- -------- --------
Total expenses......................................... 96,510 113,879 91,445
-------- -------- --------
Income before gain on sales of real estate and extraordinary
items..................................................... 69,903 74,100 41,351
Minority interest -- partially owned properties............. (9) (19) (4)
Gain on sales of real estate and extraordinary items........ 58,869 12,433 9,599
-------- -------- --------
Net income.................................................. $128,763 $ 86,514 $ 50,946
======== ======== ========
Property revenues less property operating expenses before
depreciation and amortization, general and administrative
and interest expense...................................... $106,989 $117,390 $ 85,144
======== ======== ========
</TABLE>
- ---------------
(1) These Office Properties were partially sold in December 1999. The above
condensed statements of operations include the results of operations for
these Properties through their disposition date. Since the Company retained
an equity interest in these Office Properties and shares equally in the
control of the operations and major decisions of these Properties, the
Company now accounts for these Properties under the equity method of
accounting. The following table shows the Company's share of the results of
operations excluding the gain on sales of real estate from these Properties
under the equity method as if they were partially sold on January 1, 1997 or
the Properties original acquisition date if the Property was acquired
subsequent to January 1, 1997:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net income............................................. $35,650 $32,992 $12,733
======= ======= =======
Interest expense....................................... $ 4,399 $ 4,693 $ 6,316
======= ======= =======
Depreciation and amortization (real estate related).... $13,539 $13,622 $ 6,753
======= ======= =======
</TABLE>
56
<PAGE> 57
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Net cash from operations represents the primary source of liquidity to fund
distributions, debt service, recurring capital costs and non-revenue enhancing
tenant improvements. In order to qualify as a REIT for federal income tax
purposes, the Company must distribute annually at least 95% of its REIT taxable
income (excluding capital gains). Accordingly, the Company currently intends to
continue to make, but has not contractually bound itself to make, regular
quarterly distributions to holders of Common Shares/Units and preferred shares.
Subject to the foregoing, the Company has established annual distribution rates
as follows:
- $1.68 per annum per Common Share/Unit
- 8.98% per annum ($2.245 per share) per Series A Preferred Share
- 5.25% per annum ($2.625 per share) per Series B Preferred Share
- 8.625% per annum ($2.15625 per share) per Series C Preferred Share
The Company intends to continue to fund distributions, debt service,
recurring capital costs and non-revenue enhancing tenant improvements from cash
from operations and borrowings under its unsecured credit facilities. The
Company also expects that its unsecured credit facilities 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.
DEBT FINANCING
The table below summarizes the mortgage debt, unsecured notes and lines of
credit indebtedness outstanding at December 31, 1999 and 1998, including a net
premium on mortgage debt and unsecured notes (net of accumulated amortization of
approximately $3.9 million and $2.7 million) of approximately $10.6 million and
$17.8 million, respectively, recorded in connection with the Consolidation, debt
assumed in connection with certain property acquisitions and the issuances of
unsecured notes.
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
DEBT SUMMARY: (DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance
Fixed rate................................................ $5,272,608 $4,739,018
Variable rate............................................. 579,310 1,286,387
---------- ----------
Total.................................................. $5,851,918 $6,025,405
========== ==========
Percent of total debt:
Fixed rate................................................ 90.1% 78.7%
Variable rate............................................. 9.9% 21.3%
---------- ----------
Total.................................................. 100.0% 100.0%
========== ==========
Effective interest rate at end of period:
Fixed rate................................................ 7.1% 7.3%
Variable rate............................................. 7.4% 6.4%
---------- ----------
Effective interest rate................................ 7.2% 7.1%
========== ==========
</TABLE>
A majority of the variable rate debt shown above bears interest based on
various spreads over LIBOR.
57
<PAGE> 58
MORTGAGE FINANCING
As of December 31, 1999, the Company's total mortgage debt (excluding the
Company's share of unconsolidated debt of approximately $264.8 million)
consisted of approximately $1.6 billion of fixed rate debt with a weighted
average interest rate of approximately 7.5% and $126.3 million of variable rate
debt based on various spreads over LIBOR or the prime rate. The Company's
mortgage debt at December 31, 1999 will mature as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
2000........................................................ $ 186,809
2001........................................................ 200,194
2002........................................................ 73,151
2003........................................................ 184,454
2004........................................................ 224,070
Thereafter.................................................. 864,619
----------
Subtotal............................................... 1,733,297
Net premium (net of accumulated amortization of $4.0
million).................................................. 10,574
----------
Total.................................................. $1,743,871
==========
</TABLE>
In February 2000, upon its maturity, the mortgage note secured by the Civic
Opera House was repaid in the amount of approximately $30.6 million.
The instruments encumbering the Properties restrict transfer of the
respective Properties subject to the terms of the mortgage, prohibit additional
liens and require payment of real estate taxes on the Properties, maintenance of
the Properties in good condition, maintenance of insurance on the Properties and
obtaining lender consent to material tenant leases.
CREDIT FACILITIES
Lines of Credit
In 1998, the Company obtained a revolving credit facility for $1.0 billion
(the "$1.0 Billion Credit Facility") maturing on May 29, 2001. The Company
incurred fees of approximately $2.5 million at the closing of the facility which
are being amortized over the term along with approximately $1.0 million of
unamortized deferred financing costs from 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 (based on the aggregate amount of the facility) 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 March 1, 2000 and
December 31,1999, there was approximately $397.6 million and $453.0 million
outstanding on the facility, respectively.
In January 2000, the Company obtained an additional unsecured borrowing
facility from the Chase Manhattan Bank for short-term borrowings not to exceed
$300 million in the aggregate. Upon request of the Company, and at the lender's
option, the lender may offer to lend funds at mutually agreed upon interest
rates and terms, as determined by current market conditions. As of March 1,
2000, the Company owed $200 million under this facility at a weighted-average
rate of 6.4%. On each of March 15, 2000 and March 24, 2000, the note is
repayable in two $100 million installments.
58
<PAGE> 59
UNSECURED NOTES
The table below summarizes the Company's unsecured notes outstanding as of
December 31,1999:
<TABLE>
<CAPTION>
(DOLLARS IN STATED EFFECTIVE
TRANCHE 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%
30 Year Notes due 2029...................................... 200,000 7.5% 7.6%
---------- --- ---
Subtotal............................................... 3,655,000 6.8% 7.0%
=== ===
Net premium (net of accumulated amortization of $.1
million).................................................. 47
----------
Total.................................................. $3,655,047
==========
</TABLE>
- ---------------
(1) Includes the cost of terminated interest rate protection agreements,
offering and transaction costs and premiums and discounts on certain
unsecured notes.
(2) The MOPPRS are subject to mandatory redemption in 2002 but do not mature
until 2012.
The Company previously 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
debt securities in amounts, at initial prices and on terms to be determined at
the time of offering. The Company issued $1.2 billion of unsecured notes in 1999
under this registration statement.
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.
59
<PAGE> 60
EQUITY SECURITIES
A summary of the activity of the Company's Common Shares and Units during
1999 is as follows:
<TABLE>
<CAPTION>
COMMON SHARES UNITS TOTAL
------------- ---------- -----------
<S> <C> <C> <C>
Balance at January 1, 1999................... 259,901,657 28,645,699 288,547,356
Common Shares exchanged for Units(1)....... (8,220,969) 8,220,969 --
Repurchases(2)............................. (1,040,034) (1,189,652) (2,229,686)
Units redeemed for Common Shares........... 833,493 (833,493) --
Put Options exercised...................... -- (1,675,000) (1,675,000)
Units issued for Palo Alto Square
acquisition............................. -- 1,035,389 1,035,389
Restricted Shares retired.................. (20,000) -- (20,000)
Share options exercised.................... 128,287 -- 128,287
----------- ---------- -----------
Balance at December 31, 1999................. 251,582,434 34,203,912 285,786,346
=========== ========== ===========
</TABLE>
- ---------------
(1) Certain Common Shares were placed in escrow subject to release pursuant to
the provisions of the Merger Agreement, Plan of Liquidation and Escrow
Agreements entered into at the time of Consolidation. In 1999, 11,332,203
Common Shares were released from escrow and 8,220,969 of such Common Shares
were cancelled and exchanged for Units, which represented a reallocation of
Units owned by the Company to other minority interest partners. This
reallocation did not change the total number of Units outstanding or the
amount of fully diluted Common Shares and Units outstanding.
(2) In 1999, the Company announced a share repurchase plan. During 1999, 715,600
Common Shares were repurchased at an average share price of $23.14 for
approximately $16.6 million in the aggregate and were retired. An additional
4,742,500 Common Shares were repurchased and retired between January and
February 2000 at an average share price of $25.27 for approximately $119.8
million in the aggregate. In February 2000, the Company suspended its share
repurchase plan in anticipation of the Cornerstone Merger. Prior to the
implementation of the Company's share repurchase plan, the Company
repurchased 324,434 Common Shares and approximately 1.2 million Units in a
private transaction.
The Company previously 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
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.
CORNERSTONE MERGER
On February 11, 2000, the Company, the Operating Partnership, Cornerstone
Properties Inc. ("Cornerstone") and Cornerstone Properties Limited Partnership
("Cornerstone Partnership") entered into a merger agreement where Cornerstone
will merge with and into the Company and Cornerstone Partnership will merge with
and into the Operating Partnership (the "Cornerstone Merger"). The total
purchase price will be approximately $4.6 billion, including the assumption of
approximately $1.8 billion in debt, the payment of $1.1 billion in cash and the
issuance of approximately 63.6 million new Common Shares and Units. Cornerstone
common shareholders may elect to receive $18.00 per share in cash, plus any
accrued but unpaid dividends, or 0.7009 of the Company's Common Shares based on
a prevailing transaction price of $25.68125 per Common Share, subject to
proration. Cornerstone's convertible preferred shareholders will receive $18.00
per share in cash. Cornerstone Partnership unitholders will receive 0.7009 Units
of the Company. The Company intends to finance the $1.1 billion cash portion of
the purchase price by obtaining additional term loans, issuing unsecured notes
or amending the existing line of credit.
The Cornerstone Merger is expected to be completed in the third quarter of
2000 and is subject to the approval of the shareholders of the Company and the
shareholders of Cornerstone and other customary conditions. Cornerstone is a
fully integrated REIT and currently owns 86 office properties in the U.S.
totaling
60
<PAGE> 61
over 18.5 million square feet, and has an additional $884 million of projects
under development. If the Cornerstone Merger is completed the Company will own
approximately 380 office properties consisting of approximately 95.5 million
square feet.
MARKET RISK
QUALITATIVE INFORMATION 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, investing and financing activities with projected cash outflows to
fund debt service, acquisitions, capital expenditures, distributions to
shareholders and unitholders and other cash requirements. The majority of the
Company's outstanding debt (maturing at various times through 2029) has a fixed
interest rate, which minimizes the risk of fluctuating interest rates. The
Company also utilizes certain derivative financial instruments at times to limit
interest rate risk. Interest rate protection agreements are used to convert
variable 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.
QUANTITATIVE INFORMATION ABOUT MARKET RISK
Interest Rate Risk
As of December 31, 1999, the Company has total outstanding debt of
approximately $5.9 billion of which approximately $.6 billion, or 10%, is
variable rate debt. If market rates of interest on the Company's variable rate
debt increase by 10% (or approximately 74 basis points), the increase in
interest expense on the Company's variable rate debt would decrease future
earnings and cash flows by approximately $4.3 million. If market rates of
interest increased by 10%, the fair value of the Company's total outstanding
debt would decrease by approximately $157.1 million. If market rates of interest
on the Company's variable rate debt decrease by 10% (or approximately 74 basis
points), the decrease in interest expense on the Company's variable rate debt
would increase future earnings and cash flows by approximately $4.3 million. If
market rates of interest decreased by 10%, the fair value of the Company's total
outstanding debt would increase by approximately $166.2 million.
As of December 31, 1998, the Company had total outstanding debt of
approximately $6.0 billion of which approximately $1.3 billion, or 21%, was
variable rate debt. If market rates of interest on the Company's variable rate
debt increased by 10% (or approximately 64 basis points), the increase in
interest expense on the Company's variable rate debt would have decreased future
earnings and cash flows by approximately $8.2 million. If market rates of
interest increased by 10%, the fair value of the Company's total outstanding
debt would have decreased by approximately $141.0 million. If market rates of
interest on the Company's variable rate debt decreased by 10% (or approximately
64 basis points), the decrease in interest expense on the Company's variable
rate debt would have increased future earnings and cash flows by approximately
$8.2 million. If market rates of interest decreased by 10%, the fair value of
the Company's total outstanding debt would have increased by approximately
$146.0 million.
Market Rate Risk
On August 12, 1999, the Company and the WR Holders amended their put option
agreement to defer to August 13, 2000 (or to August 13, 2001 at the option of
the WR Holders) the exercise date for 1,717,844 of the 3,435,688 Common Shares
affected by the put option agreement (a maximum exposure to the Company of
approximately $54.1 million when and if this put option is exercised). The
Company and the WR Holders also agreed to cancel the put option on the remaining
1,717,844 Common Shares in exchange for the Company's payment to the WR Holders
of approximately $11.3 million on September 13, 1999. The payment represented
the excess of $31.50 over $24.90 (the average price of a Common Share calculated
over the five trading days immediately prior to August 13, 1999), for each of
the 1,717,844 Common Shares affected by the put option agreement. The portion of
the amounts paid in excess of $29.10625 per Common Share totaling approximately
$4.1 million was reflected as a preferred distribution. The remaining $7.2
million of the payment was recorded as a reduction to shareholders' equity.
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<PAGE> 62
On August 13, 2000, (or August 13, 2001 at the option of the WR Holders),
the WR Holders can require the Company to purchase all or a portion of the
remaining 1,717,844 Common Shares issued to them at a price equal to $31.50 per
Common Share. Prior to such date, 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 for each Common Share sold at such
lower price an amount equal to the difference between $29.10625 and such lower
price, not to exceed $3.00 per Common Share. Any amounts paid by the Company as
a result of such sales will be recorded as a reduction in shareholders' equity.
For put options exercised as aforesaid, any amounts paid up to $29.10625 per
Common Share would be reflected as a reduction in 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 $4.1
million) will be reflected as a preferred distribution. The $4.1 million portion
of the total potential payment is being amortized by the Company on a
straight-line basis over the period between August 13, 1999 and August 13, 2000.
The Company's cash flows could decrease by up to $5.2 million if, prior to
August 13, 2000, the WR Holders sell all their Common Shares to third parties.
Cash flows of the Company may decrease by up to approximately $54.1 million if
the WR Holders exercise their rights under the put option agreement on August
13, 2000 (or August 13, 2001, if extended at the option of the WR Holders).
There will be no impact on cash flows or net income from this transaction if the
put option is not exercised.
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 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 October 1999, the CA Holder
exercised its option to require the Company to purchase 1,675,000 Units at a
price equal to $29.00 per Unit for a total of approximately $48.6 million. The
Company recognized the $48.6 million payment as a reduction of minority interest
and retired the Units.
The Company has several investments in marketable securities. If the market
price of these securities increases or decreases by 10%, the Company's
investment in the securities would increase or decrease by approximately $7.4
million. The change in market price would also be reflected as a corresponding
adjustment to accumulated other comprehensive income. There will be no impact on
earnings or cash flows of the Company from market price fluctuations unless the
Company disposes of its investments.
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 effect 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
assume no changes in the Company's financial structure.
CAPITAL IMPROVEMENTS
The Company considers capital improvements and revenue enhancing tenant
improvements when a property is acquired in determining the amount of equity and
debt financing required to purchase the property and fund the improvements.
Therefore, capital improvements made in the year of acquisition and the
following two years 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, 1999, 1998 and
1997 were approximately $64.9 million, $44.1 million and $46.8 million,
respectively or $.84, $.59 and $.72 per square foot, respectively. These amounts
exclude capital and tenant improvements of approximately $133.2 million, $70.0
million and $31.2 million incurred for the years ended December 31, 1999, 1998
and 1997, respectively, for developments.
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<PAGE> 63
The Company considers capital expenditures to be recurring expenditures
relating to the ongoing maintenance of the Office Properties. The table below
summarizes capital expenditures for the years ended December 31, 1999, 1998 and
1997. The capital expenditures set forth below are not necessarily indicative of
future capital expenditures.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Number of Office Properties................................. 294 284 258
Rentable square feet (in millions).......................... 77.0 75.1 65.3
Annual capital expenditures per square foot................. $0.22 $0.17 $0.08
</TABLE>
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
for the years ended December 31, 1999, 1998 and 1997. 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,
--------------------------------
1999 (1) 1998 (1) 1997 (1)
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Number of Office Properties................................. 294 284 258
Rentable square feet (in millions).......................... 77.0 75.1 65.3
Revenue enhancing tenant improvements and leasing
commissions:
Amounts (in thousands).................................... $23,873 $42,817 $18,272
Per square foot improved.................................. $ 20.25 $ 16.33 $ 19.74
Per total square foot..................................... $ 0.31 $ 0.57 $ 0.27
Non-revenue enhancing tenant improvements and leasing
commissions:
Renewal space:
Amounts (in thousands).................................... $31,638 $27,176 $ 8,334
Per square foot improved.................................. $ 7.30 $ 7.74 $ 5.73
Per total square foot..................................... $ 0.41 $ 0.36 $ 0.12
Retenanted space:
Amounts (in thousands).................................... $52,056 $33,324 $14,806
Per square foot improved.................................. $ 13.88 $ 16.97 $ 15.10
Per total square foot..................................... $ 0.68 $ 0.44 $ 0.22
------- ------- -------
Total non-revenue enhancing (in thousands).................. $83,694 $60,500 $23,140
Per square foot improved.................................... $ 10.35 $ 11.05 $ 9.50
Per total square foot....................................... $ 1.09 $ 0.80 $ 0.35
</TABLE>
- ---------------
(1) The per square foot calculations as of December 31, 1999, 1998 and 1997 are
calculated taking the total dollars anticipated to be incurred on tenant
improvements for tenants taking occupancy during the year divided by the
total square footage being improved or total building square footage. The
actual amounts
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<PAGE> 64
incurred as of December 31, 1999, 1998 and 1997 for revenue enhancing,
non-revenue enhancing renewal and retenanted space are summarized below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Revenue enhancing....................................... $ 32.9 $ 39.0 $ 18.4
Non-revenue enhancing renewal........................... $ 31.9 $ 33.2 $ 12.4
Non-revenue enhancing retenanted........................ $ 57.4 $ 51.9 $ 33.5
</TABLE>
DEVELOPMENTS
The Company currently owns several Properties in various stages of
development or pre-development. The Company funds these developments with
proceeds from working capital and the line of credit. 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, 1999, the Company had incurred approximately
$229.2 million of costs in connection with the Properties being developed. The
Properties under development as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
ESTIMATED
PLACE TOTAL
IN SERVICE PERCENT SQUARE COSTS ESTIMATED
PROPERTY LOCATION DATE(A) LEASED FOOTAGE INCURRED COST(A)
- -------- ----------------- ---------- ------- --------- -------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
WHOLLY-OWNED
Prominence in Buckhead (b) Atlanta, GA 3Q/1999 58% 424,635 $ 77,519 $ 91,000
150 California San Francisco, CA 1Q/2000 11% 201,554 42,939 66,000
John Marshall III McLean, VA 1Q/2000 100% 180,000 42,602 48,000
Riverside Center Newton, MA 2Q/2000 82% 494,710 72,331 112,000
--- --------- -------- --------
65% 1,300,899 235,391 317,000
TAKE-OUT PROJECTS
World Trade Center(c) Seattle, WA 2Q/2000 100% 186,787 164 39,000
JOINT VENTURES
Three Bellevue Center(d) Bellevue, WA 2Q/2000 23% 471,635 36,121 72,000
--- --------- -------- --------
GRAND TOTAL/WEIGHTED AVERAGE 58% 1,959,321 $271,676 $428,000
=== ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET RECONCILIATION COST INCURRED
- ---------------------------- -------------
<S> <C>
Wholly-Owned Developments................................... $235,391
Take Out Projects........................................... 164
Leasing Commissions(e)...................................... (6,330)
--------
Developments in process..................................... $229,225
========
</TABLE>
- ---------------
(a) 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 Costs include amounts attributable to
tenanting the Property.
(b) The Total Estimated Cost of this property excludes a vacant land parcel
valued at approximately $7.8 million. This property was acquired on July
13, 1999 and is currently undergoing lease-up.
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<PAGE> 65
(c) The Company expects to acquire this property upon full occupancy in May
2000. This transaction is contingent upon certain terms and conditions as
set forth in its purchase agreement. There can be no assurance that this
transaction will be consummated.
(d) The Costs Incurred and Total Estimated Costs 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 million of which up to $60 million
will be funded by a development loan.
(e) Deferred leasing costs are classified separately on the balance sheet.
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 the Y2K problem had been left uncorrected, many time
sensitive computer systems in use at the Company may have recognized a date
using "00" as the year 1900 rather than the year 2000.
THE YEAR 2000 PROGRAM
Over the course of 1998 and 1999, the Company developed and implemented a
Y2K readiness program (the "Program") to identify and correct potential Y2K
problems. The initial phase of the Program was devoted to assessing the
Company's Y2K readiness. During this phase, the Company inventoried all of its
information and operating systems and, through a combination of physical
inspections, vendor inquiries and research, determined which of the systems
could have potential Y2K problems. When the Company's research or inquiries
indicated that a particular system had a Y2K problem, the system was upgraded,
replaced or retired. If the assessment revealed only the possibility of a Y2K
problem, the Company performed an analysis of the impact that a system failure
would have on the Company's operations and the likelihood that such a failure
would occur. Based on such analysis, the Company determined whether validation
testing of each particular system was warranted. With only minor exceptions, all
building operating systems were tested, as well as all information systems that
were deemed critical to the Company's operation. During the final phase of the
Program, contingency plans were developed for each of the Company's Properties
and for most of the information systems that were deemed to be critical.
Throughout the implementation of the Program, the Company used its best efforts
to keep its tenants, investors and other interested parties apprised of the
progress of the Company's Year 2000 Program.
YEAR 2000 PROGRAM RESULTS
The Year 2000 Program was successful in uncovering and proactively
correcting a number of Y2K problems with respect to the Company's information
systems and building operating systems. Without limitation, material Y2K
problems were corrected in advance of January 1, 2000 with respect to the
Company's Network Operating Systems and Accounting and Property Management
Systems. Other Y2K problems were identified and corrected in connection with
building operating systems, such as the garage revenue control, building
automation and card key access systems.
As a precaution and service to those tenants that were conducting their own
Year 2000 tests, each of the Company's Properties was staffed on New Years Eve.
Without exception, the Properties continued to operate without interruption
after the beginning of the new Millennium. Tests of the Company's building
operating systems and information systems on New Years Day did not reveal any
problems. The Company is not aware of any Y2K problems that have had a material
adverse affect on any of its tenants, contractors or service providers.
65
<PAGE> 66
YEAR 2000 RELATED COSTS
The total cost of the Company's Year 2000 Program was approximately $9.2
million. Approximately $1.2 million was spent in connection with the assessment,
testing, upgrade, remediation and/or replacement of information systems for the
Company. Approximately $7.9 million was incurred to assess, test, upgrade,
remediate and/or replace building operation systems. In many cases, the systems
that were replaced were at or near the end of their useful life. Many of these
systems were previously scheduled for replacement and the correction of
potential Y2K problems was not the exclusive reason for the upgrade or
replacement. The Company anticipates incurring no additional significant costs
related to the Program.
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.
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<PAGE> 67
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.
The following table reflects the calculation of the Company's Funds from
Operations for the years ended December 31, 1999, 1998 and 1997 on a historical
basis:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997(1)
--------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income before allocations to minority interests, income
from investment in unconsolidated joint ventures, net
gain on sales of real estate and extraordinary
items................................................ $ 418,569 $ 371,175 $ 140,681
Add back (deduct):
(Income) allocated to minority interests for
partially owned properties........................ (1,981) (2,114) (1,701)
Income from investment in unconsolidated joint
ventures.......................................... 13,824 11,267 5,155
Depreciation and amortization (real estate
related).......................................... 368,490 313,519 130,465
Net amortization of net discount/premium on mortgage
debt.............................................. (658) 940 2,324
Put option settlement................................ (5,658) -- --
Preferred distributions.............................. (43,603) (32,202) (649)
--------- ----------- -----------
Funds from Operations(2)............................... 748,983 662,585 276,275
Less deferred rental revenue......................... (65,397) (68,107) (27,740)
Plus deferred rental expense......................... 2,083 2,613 2,206
--------- ----------- -----------
Adjusted Funds from Operations......................... $ 685,669 $ 597,091 $ 250,741
========= =========== ===========
Cash Flow provided by (used for):
Operating Activities................................. $ 720,711 $ 759,151 $ 286,714
Investing Activities................................. $ (67,138) $(2,231,712) $(2,163,340)
Financing Activities(3).............................. $(718,315) $ 1,310,788 $ 1,876,197
Ratio of earnings to combined fixed charges and
preferred share distributions........................ 1.8 1.8 1.8
</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, investing and financing 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
67
<PAGE> 68
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> 69
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about quantitative and qualitative disclosures about market
risk is incorporated herein by reference from Item 7 Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Market Risk
section.
69
<PAGE> 70
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, 1999 and 1998, and
the related consolidated statements of operations, shareholders' equity and cash
flows of the Company for the years ended December 31, 1999 and 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. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, the consolidated results of
Equity Office Properties Trust's operations and cash flows for the years ended
December 31, 1999 and 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 in conformity with accounting principles generally accepted in the
United States. 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 8, 2000, except for Note 24,
as to which the date is February 15, 2000
70
<PAGE> 71
EQUITY OFFICE PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Investment in real estate................................. $12,847,389 $13,349,627
Developments in process................................... 229,225 268,373
Land available for development............................ 125,926 65,819
Accumulated depreciation.................................. (630,387) (352,259)
----------- -----------
Investment in real estate, net of accumulated
depreciation........................................... 12,572,153 13,331,560
Cash and cash equivalents................................. 2,338 67,080
Tenant and other receivables (net of allowance for
doubtful accounts of $1,244 and $1,013, respectively)... 54,497 36,193
Deferred rent receivable.................................. 138,697 87,115
Escrow deposits and restricted cash....................... 19,754 159,576
Investment in unconsolidated joint ventures............... 865,863 378,534
Deferred financing costs (net of accumulated amortization
of $14,863 and $6,242, respectively).................... 55,196 53,181
Deferred leasing costs (net of accumulated amortization of
$22,461 and $9,714, respectively)....................... 97,743 65,090
Prepaid expenses and other assets (net of discount on note
receivable of $62,393 and $0, respectively)............. 239,817 82,962
----------- -----------
Total Assets............................................ $14,046,058 $14,261,291
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Mortgage debt (including a net premium of $10,574 and
$13,517, respectively).................................. $ 1,743,871 $ 2,350,088
Unsecured notes (including a net premium of $47 and
$4,317, respectively)................................... 3,655,047 2,459,317
Lines of credit........................................... 453,000 1,216,000
Accounts payable and accrued expenses..................... 318,003 347,970
Due to affiliates......................................... -- 1,136
Dividend/distribution payable............................. 5,446 5,080
Other liabilities......................................... 161,164 93,022
----------- -----------
Total Liabilities....................................... 6,336,531 6,472,613
----------- -----------
Commitments and contingencies.............................
Minority Interests:
Operating Partnership................................... 844,427 709,355
Partially owned properties.............................. 39,027 28,360
----------- -----------
Total Minority Interests.............................. 883,454 737,715
----------- -----------
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................ 300,000 300,000
8.625% Series C Cumulative Redeemable Preferred Shares,
liquidation preference $25.00 per share, 4,600,000
issued and outstanding................................. 115,000 115,000
Common Shares, $0.01 par value; 750,000,000 shares
authorized, 251,582,434 and 259,901,657 issued and
outstanding, respectively............................... 2,516 2,599
Additional paid in capital................................ 6,269,259 6,483,569
Dividends in excess of accumulated earnings............... (71,640) (50,205)
Accumulated other comprehensive income.................... 10,938 --
----------- -----------
Total Shareholders' Equity.............................. 6,826,073 7,050,963
----------- -----------
Total Liabilities and Shareholders' Equity.............. $14,046,058 $14,261,291
=========== ===========
</TABLE>
See accompanying notes.
71
<PAGE> 72
EQUITY OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
AND EQUITY OFFICE PREDECESSORS COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
EQUITY OFFICE PROPERTIES TRUST EQUITY OFFICE
--------------------------------------------------- PREDECESSORS
FOR THE YEAR ENDED -----------------------
DECEMBER 31, FOR THE PERIOD FROM FOR THE PERIOD FROM
--------------------------- JULY 11, 1997 THROUGH JANUARY 1, 1997 THROUGH
1999 1998 DECEMBER 31, 1997 JULY 10, 1997
------------ ------------ --------------------- -----------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Rental.................................... $ 1,493,196 $ 1,299,044 $ 314,233 $256,146
Tenant reimbursements..................... 281,358 239,390 63,196 43,241
Parking................................... 112,204 94,241 25,960 21,091
Other..................................... 32,298 25,745 3,324 6,539
Fee income................................ 8,939 9,571 2,440 2,510
Interest/dividends........................ 14,248 11,708 3,815 9,577
------------ ------------ ------------ --------
Total revenues.......................... 1,942,243 1,679,699 412,968 339,104
------------ ------------ ------------ --------
Expenses:
Interest:
Expense incurred........................ 413,995 338,611 76,675 80,481
Amortization of deferred financing
costs................................. 4,693 6,404 4,178 2,771
Depreciation.............................. 339,751 291,213 64,695 57,379
Amortization.............................. 14,545 8,365 1,473 5,884
Real estate taxes......................... 243,778 203,805 47,579 34,000
Insurance................................. 9,589 7,736 3,196 3,060
Repairs and maintenance................... 209,630 191,588 50,285 45,540
Property operating........................ 199,879 189,577 52,235 42,309
Ground rent............................... 6,887 7,661 2,384 2,376
General and administrative................ 80,927 63,564 17,690 17,201
------------ ------------ ------------ --------
Total expenses.......................... 1,523,674 1,308,524 320,390 291,001
------------ ------------ ------------ --------
Income before allocation to minority
interests, income from investment in
unconsolidated joint ventures, net gain on
sales of real estate and extraordinary
items..................................... 418,569 371,175 92,578 48,103
Minority Interests:
Operating Partnership..................... (48,172) (36,226) (7,010) --
Partially owned properties................ (1,981) (2,114) (789) (912)
Income from investment in unconsolidated
joint ventures............................ 13,824 11,267 3,173 1,982
Net gain on sales of real estate............ 59,661 12,433 126 12,510
------------ ------------ ------------ --------
Income before extraordinary items........... 441,901 356,535 88,078 61,683
Extraordinary items......................... (10,548) (7,506) (16,366) (274)
------------ ------------ ------------ --------
Net income.................................. 431,353 349,029 71,712 61,409
Put option settlement....................... (5,658) -- -- --
Preferred distributions..................... (43,603) (32,202) (649) --
------------ ------------ ------------ --------
Net income available for Common Shares...... $ 382,092 $ 316,827 $ 71,063 $ 61,409
============ ============ ============ ========
Net income available per weighted average
Common Share outstanding -- Basic......... $ 1.49 $ 1.25 $ 0.44
============ ============ ============
Weighted average Common Shares
outstanding -- Basic...................... 256,045,895 253,167,037 162,591,477
============ ============ ============
Net income available per weighted average
Common Share outstanding -- Diluted....... $ 1.48 $ 1.24 $ 0.43
============ ============ ============
Weighted average Common Shares
outstanding -- Diluted.................... 291,157,204 283,974,532 180,014,027
============ ============ ============
</TABLE>
See accompanying notes.
72
<PAGE> 73
EQUITY OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND EQUITY OFFICE PREDECESSORS
COMBINED STATEMENT OF CHANGES IN OWNERS' EQUITY
<TABLE>
<CAPTION>
EQUITY OFFICE
EQUITY OFFICE PROPERTIES TRUST 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, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 JULY 10, 1997
------------------ ------------------ --------------------- -----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
PREFERRED SHARES:
Balance, beginning of period.......... $ 615,000 $ 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 $ 615,000 $ 200,000 $ --
========== ========== =========== ===========
COMMON SHARES, $0.01 PAR VALUE:
Balance, beginning of period.......... $ 2,599 $ 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............... 1 8 -- --
Issuance of Common Shares in
exchange for Units................ 8 76 -- --
Issuance of Units in exchange for
Common Shares..................... (82) -- -- --
Sale of Common Shares, net.......... -- 16 97 --
Issuance of Common Shares for Beacon
Merger............................ -- -- 844 --
Common Shares repurchased by the
Company........................... (10) -- -- --
Common Shares issued for restricted
shares and trustee fees........... -- 4 3 --
---------- ---------- ----------- -----------
Balance, end of period................ $ 2,516 $ 2,599 $ 2,495 $ --
========== ========== =========== ===========
ADDITIONAL PAID IN CAPITAL:
Balance, beginning of period.......... $6,483,569 $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............................ 4,933 3,129 -- --
Issuance of Common Shares through
exercise of options............... 2,680 15,460 -- --
Issuance of Common Shares in
exchange for Units................ 19,395 197,627 -- --
Issuance of Units in exchange for
Common Shares..................... (172,558) -- -- --
Preferred shares and other offering
costs............................. (854) (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 --
Common Shares repurchased by the
Company........................... (23,980) -- -- --
Exercise of put options............. (7,226) -- -- --
Adjustment for minority interests
ownership in Operating
Partnership....................... (36,700) (8,935) 33,326 --
---------- ---------- ----------- -----------
Balance, end of period................ $6,269,259 $6,483,569 $ 6,219,511 $ --
========== ========== =========== ===========
DISTRIBUTIONS IN EXCESS OF ACCUMULATED
EARNINGS AND OTHER
COMPREHENSIVE INCOME:
Balance, beginning of period.......... $ (50,205) $ (16,849) $ -- $ --
---------- ---------- ----------- -----------
Comprehensive income:
Net income........................ 431,353 349,029 71,712 --
Other comprehensive income:
Unrealized holding gains arising
during the period............... 10,938 -- -- --
---------- ---------- ----------- -----------
Comprehensive income................ 442,291 349,029 71,712 --
Put option settlement............... (5,658) -- -- --
Preferred distributions............. (43,603) (32,202) (649) --
Dividends to Common Shares.......... (403,527) (350,183) (87,912) --
---------- ---------- ----------- -----------
Balance, end of period................ $ (60,702) $ (50,205) $ (16,849) $ --
========== ========== =========== ===========
OWNERS' EQUITY:
Balance, beginning of period.......... $ -- $ -- $ -- $ 1,727,002
Contributions....................... -- -- -- 285,542
Distributions....................... -- -- -- (189,752)
Net income.......................... -- -- -- 61,409
Contribution of Owners' Equity to
the Company in connection with the
Consolidation..................... -- -- -- (1,884,201)
---------- ---------- ----------- -----------
Balance, end of period................ $ -- $ -- $ -- $ --
========== ========== =========== ===========
</TABLE>
See accompanying notes.
73
<PAGE> 74
EQUITY OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
AND EQUITY OFFICE PREDECESSORS
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
EQUITY OFFICE
EQUITY OFFICE PROPERTIES TRUST PREDECESSORS
----------------------------------------------- -----------------------
FOR THE YEARS
ENDED DECEMBER 31, FOR THE PERIOD FROM FOR THE PERIOD FROM
----------------------- JULY 11, 1997 THROUGH JANUARY 1, 1997 THROUGH
1999 1998 DECEMBER 31, 1997 JULY 10, 1997
--------- ----------- --------------------- -----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income before put option settlement and
preferred distributions........................... $ 431,353 $ 349,029 $ 71,712 $ 61,409
Adjustments to reconcile net income before put
option settlement and preferred distributions to
net cash provided by operating activities:
Depreciation and amortization..................... 358,989 305,982 70,202 66,034
Amortization of premiums/discounts on unsecured
notes and terminated interest rate protection
agreements...................................... 3,690 2,898 144 --
Amortization of deferred revenue included in other
income.......................................... (693) -- -- --
Compensation related to restricted shares issued
to employees.................................... 4,933 2,829 -- --
Income from unconsolidated joint ventures......... (13,824) (11,267) (3,173) (1,982)
Gain on sales of real estate, net................. (59,661) (12,433) (126) (12,510)
Extraordinary items............................... 10,548 7,506 16,366 274
Provision for doubtful accounts................... 1,585 890 1,686 1,175
Allocation to minority interests.................. 50,153 38,340 7,799 912
Changes in assets and liabilities:
(Increase) decrease in rents receivable......... (19,889) (4,552) 2,064 2,664
(Increase) in deferred rent receivables......... (51,582) (67,065) (21,421) (8,061)
Decrease (increase) in prepaid expenses and
other
assets........................................ 429 10,756 (29,551) (8,839)
(Decrease) increase in accounts payable and
accrued expenses.............................. (29,186) 87,569 54,076 2,916
(Decrease) increase in due to affiliates........ (1,136) 403 (898) (722)
Increase (decrease) in other liabilities........ 35,002 48,266 21,874 (7,310)
--------- ----------- ----------- ---------
Net cash provided by operating activities..... 720,711 759,151 190,754 95,960
--------- ----------- ----------- ---------
INVESTING ACTIVITIES:
Property acquisitions............................... (122,419) (1,930,172) (1,508,928) (531,968)
Cash received from Beacon Merger.................... -- -- 79,786 --
Proceeds from sales of real estate.................. 452,659 10,175 -- 72,078
Payment of Beacon Merger costs...................... -- -- (62,069) --
Payments for capital and tenant improvements........ (297,496) (207,093) (99,586) (59,511)
Distributions from unconsolidated joint ventures.... 45,536 46,122 4,571 --
Investments in unconsolidated joint ventures........ (32,110) (42,019) -- (44,260)
Payments of lease acquisition costs................. (55,065) (46,337) (15,043) (9,260)
Contributions from minority interest partner in
partially owned properties........................ 11,000 -- -- --
Investment in notes receivable and other assets..... (112,594) -- -- --
Investment in preferred securities of Capital
Trust............................................. -- (48,532) -- --
Decrease (increase) in escrow deposits and
restricted cash................................... 43,351 (13,856) 8,997 1,853
--------- ----------- ----------- ---------
Net cash (used for) investing activities...... (67,138) (2,231,712) (1,592,272) (571,068)
--------- ----------- ----------- ---------
</TABLE>
See accompanying notes.
74
<PAGE> 75
EQUITY OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
AND EQUITY OFFICE PREDECESSORS
COMBINED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
EQUITY OFFICE
EQUITY OFFICE PROPERTIES TRUST PREDECESSORS
--------------------------------------------------------------- ---------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM
FOR THE YEAR ENDED FOR THE YEAR ENDED JULY 11, 1997 THROUGH JANUARY 1, 1997
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 THROUGH JULY 10, 1997
------------------ ------------------ --------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds from Common Shares, net of
offering costs....................... -- 43,983 838,456 --
Repurchase of Common Shares............ (23,990) -- -- --
Repurchase of Units.................... (27,391) -- -- --
Proceeds from exercise of share
options.............................. 2,681 15,435 68,191 --
Dividends/distributions to shareholders
and unitholders...................... (454,516) (388,954) (95,569) --
Capital contributions.................. -- -- -- 287,949
Capital distributions.................. -- -- -- (288,652)
Cash contributed from net assets at the
IPO.................................. -- -- 181,138 --
Put option settlement.................. (59,913) -- -- --
Payment of preferred distributions..... (43,822) (29,581) -- --
Proceeds from sale of preferred shares,
net of offering costs................ -- 400,487 -- --
Payment of offering costs.............. (854) (117) -- --
Distributions to minority interest in
partially owned properties........... (2,138) (3,366) (371) (3,401)
Proceeds from mortgage debt............ 3,374 10,865 84,466 154,090
Proceeds from unsecured notes.......... 1,195,587 2,279,572 180,000 --
Proceeds from lines of credit.......... 1,814,500 4,922,500 2,530,425 218,000
Principal payments on mortgage debt.... (519,671) (38,370) (838,354) (47,472)
Principal payments on lines of
credit............................... (2,577,500) (5,841,197) (1,294,750) (72,500)
Payments of loan costs................. (11,096) (22,192) (7,039) (1,889)
Termination of interest rate protection
agreements........................... -- (38,277) -- --
Prepayment penalties on early
extinguishment of debt............... (13,566) -- (16,247) (274)
----------- ----------- --------------------- ---------
Net cash (used for) provided by
financing activities............... (718,315) 1,310,788 1,630,346 245,851
----------- ----------- --------------------- ---------
Net (decrease) increase in cash and
cash equivalents..................... (64,742) (161,773) 228,828 (229,257)
Cash and cash equivalents at the
beginning of the period.............. 67,080 228,853 25 410,420
----------- ----------- --------------------- ---------
Cash and cash equivalents at the end of
the period........................... $ 2,338 $ 67,080 $ 228,853 $ 181,163
=========== =========== ===================== =========
SUPPLEMENTAL INFORMATION:
Interest paid during the period,
including capitalized interest of
$18,030, $15,077, $1,890 and $3,699,
respectively......................... $ 402,683 $ 302,415 $ 70,658 $ 82,969
=========== =========== ===================== =========
</TABLE>
See accompanying notes.
75
<PAGE> 76
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,
1999, the Company owned or had an interest in 294 office properties (the "Office
Properties") containing approximately 77.0 million rentable square feet of
office space and owned 20 stand-alone parking facilities (the "Parking
Facilities" and, together with the Office Properties, the "Properties")
containing approximately 20,506 parking spaces. The weighted average occupancy
for the Office Properties at December 31, 1999 was approximately 93.7%. The
Office Properties are located in 81 submarkets in 35 markets in 23 states and
the District of Columbia. The Office Properties, by rentable square feet, are
located approximately 52% in central business districts ("CBDs") and 48% 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.
Concurrent with the IPO, the Equity Office Predecessors contributed their
interest in the Properties to the Operating Partnership in exchange for
126,419,397 Units and 122,927,030 Common Shares of the Company. In addition,
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.
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 form of
80,596,117 Common Shares, 8,000,000 preferred shares, 8,570,886 Units, stock
options assumed, $1.2 billion of debt assumed and merger costs of $85 million.
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.
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 entities
and other subsidiaries, each such entity has been consolidated with the Company
for financial reporting purposes.
76
<PAGE> 77
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Consolidation and the Beacon Merger 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 includes
interests in the properties owned and the Management Business. The financial
statements of Equity Office Predecessors is presented on a combined basis
because the properties owned and the Management Business were under common
control. All intercompany transactions and balances have been eliminated in
combination.
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
for the amount 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, 1999 and 1998, the period from
July 11, 1997 through December 31, 1997 and the period from January 1, 1997
through July 10, 1997, which were not currently collectible as of such dates,
were approximately $65.4 million, $68.1 million, $20.0 million and $7.7 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.
77
<PAGE> 78
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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. 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
Investments in marketable equity securities and investments in note
receivables are reported at fair value and included in other assets. All
marketable equity securities held by the Company at December 31, 1999 were
designated as available for sale, with unrealized holding gains and losses
included in shareholders' equity as accumulated other comprehensive income.
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,
1999 and 1998, respectively. The current value of debt was computed by
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 a straight-line basis, which
approximates the effective yield method.
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. The standard's effective date was deferred
by FASB Statement No. 137 to all fiscal quarters of all fiscal years beginning
after June 15, 2000. The Company is planning to adopt the standard once it is
effective and does not anticipate that the adoption will have a material impact
on the Company's financial condition and results of operations.
Deferred Revenue
During 1999, the Company received common stock and/or warrants to purchase
common stock for allowing companies that provide telecommunication and other
services access to the Properties. The securities received from these companies
were recorded as deferred revenue at fair value at the time such securities were
earned and are included in other liabilities on the balance sheet. The deferred
revenue will be amortized into other income over the terms of the respective
license agreements. As of December 31, 1999, approximately
78
<PAGE> 79
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
$31.6 million is recorded as deferred revenue relating to these agreements and
is being amortized over a five-year period. Approximately $.7 million was
recorded as other income during 1999.
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 $.7 million, $1.7 million,
$0.2 million and $0.9 million for the years ended December 31, 1999 and 1998,
the period from July 11, 1997 through December 31, 1997, and the period from
January 1, 1997 through July 10, 1997, 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, 1999 and 1998 was approximately $10.3 billion and $9.7
billion, respectively.
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 accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
79
<PAGE> 80
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Reclassifications
Certain reclassifications have been made to the previously reported 1998
and 1997 statements in order to provide comparability with the 1999 statements
reported herein. These reclassifications have not changed the 1998 or 1997
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,
-------------------------
1999 1998
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 1,278,310 $ 1,343,308
Land available for development.............................. 125,926 65,819
Building.................................................... 11,123,181 11,729,616
Building improvements....................................... 162,628 76,631
Tenant improvements......................................... 261,121 191,936
Furniture and fixtures...................................... 22,149 8,136
Developments in process..................................... 229,225 268,373
----------- -----------
Gross investment in real estate........................ 13,202,540 13,683,819
Accumulated depreciation.................................... (630,387) (352,259)
----------- -----------
Net investment in real estate.......................... $12,572,153 $13,331,560
=========== ===========
</TABLE>
During the year ended December 31, 1999, the Company acquired the
Properties listed below. Each Property was purchased from an unaffiliated party,
except for Palo Alto Square (see footnote (4) below), and was funded from
working capital, credit facilities, assumption of mortgage debt, and/or issuance
of Units. During 1998 the Company acquired 28 Office Properties, an office
property under development, several vacant land parcels and two Parking
Facilities, for a total cost of approximately $2.5 billion, including the
issuance of 7,043,510 Units at a weighted average price of $25.07 per Unit for a
total of approximately $176.6 million. During 1997 the Company acquired 176
Office Properties and seven parking facilities, including those acquired in
connection with the Beacon Merger, 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>
1/7/99 Texas Commerce Tower Irving, TX 369,134 $ 55,254
1/7/99 Computer Associates Tower Irving, TX 360,815 51,294
1/28/99 City Center Bellevue Bellevue, WA 472,587 115,936(2)
4/30/99 517 Marquette Garage Minneapolis, MN -- 19,403
7/13/99 Prominence in Buckhead Atlanta, GA 424,635 73,005(3)
10/1/99 Palo Alto Square Palo Alto, CA 320,468 78,287(4)
--------- ----------
Total 1,947,639 $ 393,179
========= ==========
</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 total acquisition cost includes a vacant land parcel valued at $12.4
million.
(3) The total acquisition cost includes a vacant land parcel valued at $7.8
million.
80
<PAGE> 81
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- INVESTMENT IN REAL ESTATE -- (CONTINUED)
(4) Palo Alto Square was acquired from a private investment partnership
controlled by Mr. Samuel Zell. The terms of the acquisition were reviewed
and recommended for Board approval by a special subcommittee of the Board
of Trustees formed to review related party conflicts between trustees and
their affiliates. Upon the recommendation of the special subcommittee, the
non-affiliated members of the Board of Trustees approved the transaction.
The acquisition was funded primarily through the issuance of 1,035,389
Units valued at $23.64 per Unit for a total of approximately $24.5 million
and the assumption of $53.2 million in debt.
NOTE 4 -- DISPOSITIONS
During 1999 the Company disposed of the following office properties:
<TABLE>
<CAPTION>
PERCENT OF
PROPERTY RENTABLE SALES GAIN/LOSS
DATE SOLD PROPERTY LOCATION SOLD SQUARE FEET PRICE ON SALE
--------- ---------------------- ----------------- ---------- ----------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
5/21/99 Atrium Towers Oklahoma City, OK 100% 155,865 $ 8,600 $ 549
5/21/99 5100 Brookline Oklahoma City, OK 100% 105,459 4,400 (756)
6/30/99 215 Fremont Street (a) San Francisco, CA 100% -- 33,500 6,179
6/30/99 One Columbus Columbus, OH 100% 407,472 51,500 2,046
12/14/99 Various properties (b) Various Various -- 533,901 51,643
------- -------- -------
668,796 $631,901 $59,661
======= ======== =======
</TABLE>
- ---------------
(a) 215 Fremont Street was a redevelopment property.
(b) The Company sold an interest in these Office Properties to Lend Lease
Australia/US Properties. Prior to the sale, the Company consolidated the
financial condition and results of operations of the Office Properties.
Upon the sale, the Company retained an equity interest in the Office
Properties and shares equally in the control of the operations and major
decisions of the Office Properties. Therefore, the Company accounts for its
remaining interest in the Office Properties under the equity method of
accounting and classifies its net equity investment of approximately $486.9
million as investment in unconsolidated joint ventures on the consolidated
balance sheet and its interest in the net income from investment in
unconsolidated joint ventures is reflected in the consolidated statements
of operations. Net proceeds were approximately $480 million from this
transaction after giving effect to the buyer's assumption of debt and
additional financings.
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.
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.
NOTE 5 -- INVESTMENT IN NOTE RECEIVABLE
On September 2, 1999, the Company acquired a mezzanine-level debt position
as part of a debt restructuring related to the SunAmerica Center office
property. The property is owned by an unaffiliated party and is located in
Century City, California. The Company invested approximately $73.9 million for a
67% share of a $202.2 million Tranche B note. The Company's share of the Tranche
B note is approximately $136.0 million. The discount to the face amount of the
note of approximately $62.4 million will be amortized
81
<PAGE> 82
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- INVESTMENT IN NOTE RECEIVABLE - (CONTINUED)
to interest income based on the estimated yield of the investment. The Company
will also provide property management and leasing services for the property.
The Tranche B Note accrues interest at 7.25% per annum compounded quarterly
and matures on August 31, 2014. Interest is payable on the Tranche B Note from
available cash flow from the property as defined in the Noteholder Agreement. In
addition, the Company previously had entered into two forward rate interest
protection agreements effectively hedging the investment. These agreements were
terminated prior to the Company's investment in the Tranche B Note for proceeds
to the Company of approximately $1.1 million. The proceeds will be amortized to
interest income over the term of the Tranche B Note.
In addition, the Company has the option to acquire 67% of the aggregate
face amount of the Tranche D Note and the Tranche E Note debt position from the
current holder, an affiliate of the property owner. The current aggregate face
amount of the Tranche D Note and Tranche E Note is $15.0 million.
NOTE 6 -- INVESTMENT IN SECURITIES
The following investments are included in other assets on the Consolidated
Balance Sheet.
During 1999, the Company invested approximately $2.0 million for
approximately .1 million common shares of Allied Riser Communications
Corporation ("ARC"). ARC is a facilities based provider of broadband data, video
and voice communications services, delivered over fiber optic networks designed
constructed and owned by ARC in large- and medium-sized office buildings. The
Company and ARC entered into various license agreements allowing ARC to install
and provide its services to tenants in certain Office Properties containing
approximately 75.6 million square feet. In return for allowing ARC access to the
Office Properties, ARC granted the Company, in addition to the purchased
securities described above, approximately 1.4 million warrants to acquire an
equal number of common shares of ARC for no additional consideration, as well as
an additional .2 million common shares for nominal consideration, and other ARC
investors transferred approximately .3 million ARC common shares to the Company.
The warrants and the common shares were recorded at fair value as deferred
revenue and will be amortized over the term of the licensing agreements of five
years. The total deferred revenue at December 31, 1999, was approximately $29.1
million. As of December 31, 1999, the fair value of the ARC common shares and
warrants, which are exercisable into ARC common shares at the Company's option
commencing in April 2000, was approximately $41.5 million. A gross unrealized
holding gain of approximately $9.7 million is included in other comprehensive
income and represents the increase in the fair value of the ARC securities. A
private investment entity controlled by Mr. Zell has a substantial investment in
ARC.
Also during 1999, the Company was granted approximately 2.4 million common
shares of Broadband Office, Inc. ("Broadband"). Broadband is also a facilities
based provider of broadband data, video and voice communications services,
delivered over fiber optic networks similar to ARC. The Company and Broadband
entered into various license agreements allowing Broadband to install and
provide its services to tenants in certain Office Properties containing
approximately 55.0 million square feet. Broadband granted the common shares to
the Company in return for allowing Broadband access to the Office Properties.
The common shares were recorded at fair value of approximately $1.3 million and
will be amortized over the term of the license agreements of five years. The
shares issued to the Company are not currently registered, and Broadband is not
currently qualified as a public reporting company under the Securities and
Exchange Act of 1934.
Also during 1999, the Company was issued a warrant to acquire approximately
.9 million common shares of Captivate Network, Inc. ("Captivate"). Captivate
installs high-resolution, flat-panel screens in elevators, and programs the
network with news, features, and advertising. The Company and Captivate entered
into a master license agreement allowing Captivate to install its screens in
elevators at certain Office Properties. Captivate granted the warrant to the
Company in return for executing the master license agreement and for allowing
access to the Office Properties. As license agreements for specific Office
Properties are executed, a
82
<PAGE> 83
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INVESTMENT IN SECURITIES -- (CONTINUED)
portion of the warrant becomes vested. The vested portion of the warrant was
recorded at a fair value of approximately $1.2 million and will be amortized
over the term of the license agreements of five years. The warrant issued to the
Company is not currently registered, and Captivate is not currently qualified as
a public reporting company under the Securities and Exchange Act of 1934.
In July 1998, the Company purchased 50,000 shares of Capital Trust 8.25%
Preferred Securities, $1,000 liquidation preference per share, for $48.5
million. The discount of $1.5 million is being amortized as additional dividend
revenue over the term of 20 years. The preferred shares are convertible at any
time into common shares of Capital Trust at a conversion price of $11.70 and are
non-callable for five years. The dividend is payable each quarter and commencing
in year seven, the dividend will increase by 75 basis points per annum. Mr. Zell
is Chairman of the Board of Capital Trust.
NOTE 7 -- 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, 1999
- ------ -------- -----------------------
<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. .................... St. Louis Parking Garages 50%
Wright Runstad Associates Limited
Partnership(2).......................... N/A 28.5%
One Post Office Square Associates......... One Post Office Square 50%
BeaMetFed, Inc.(3)........................ 75-101 Federal Street 52%
Rowes Wharf Associates(4)................. Rowes Wharf 50%
Lehndorff Four Oaks Place Associates(5)... Four Oaks Place 2.55%
Metropoint II Associates(6)............... Metropoint II 70%
WRC Sunset North, L.L.C.(7)............... Sunset North Corporate 80%
Campus
Three Bellevue, L.L.C.(8)................. Three Bellevue Center 80%
10 & 30 South Wacker, L.L.C.(9)(10)....... 10 & 30 South Wacker 75%
Monument Center, L.L.C.(10)............... Bank One Center 25%
Pasadena Towers, L.L.C.(10)............... Pasadena Towers 25%
Promenade II, L.L.C.(10).................. Promenade II 50%
Sun Trust Center, L.L.C.(10).............. Sun Trust Center 25%
Preston Commons Limited Partnership(10)... Preston Commons 50%
Sterling Plaza Limited Partnership(10).... Sterling Plaza 50%
Regus Equity Business Centers,
L.L.C.(11).............................. N/A 47.5%
</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 28.5% non-controlling interest in this property
management and development company.
(3) The Company is a shareholder in the corporation (a private REIT) which owns
the property.
(4) The Company owns a 50% equity interest in the property and 50% of the first
mortgage notes.
(5) The Company owns a 3% general partner interest in this general partnership
which owns an 85% general partnership interest in the property.
83
<PAGE> 84
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES -- (CONTINUED)
(6) 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 in Denver, Colorado, which was completed in 1999. 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.
(7) 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, 460,629 square-foot office complex in Bellevue, Washington,
which was completed in 1999. 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.
(8) 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, Washington. Completion of the 22-story office
building is scheduled for the second quarter of 2000. 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) The joint venture partner has the option to increase its ownership in the
property by an additional 25% by December 31, 2001, at the greater of 25%
of the fair market value at the time of the exercise or $122.5 million.
(10) These properties were partially sold during 1999. See Note 4, footnote (b)
for additional information.
(11) The Company owns a 47.5% membership interest in this joint venture. The
joint venture provides fully furnished offices with short term, flexible
rental agreements to prospective tenants seeking this type of office space.
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.
84
<PAGE> 85
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES -- (CONTINUED)
Combined summarized financial information of the unconsolidated joint
ventures is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance Sheets:
Real estate, net.......................................... $1,719,417 $488,997
Other assets.............................................. 106,211 78,623
---------- --------
Total Assets........................................... $1,825,628 $567,620
========== ========
Mortgage debt............................................. $ 559,344 $243,096
Other liabilities......................................... 58,793 16,059
Partners' and shareholders' equity........................ 1,207,491 308,465
---------- --------
Total Liabilities and Partners' and Shareholders'
Equity................................................ $1,825,628 $567,620
========== ========
Company's share of equity................................... $ 696,502 $159,092
Net excess of cost of investments over/under the net book
value of underlying net assets, net of accumulated
depreciation of $11,679 and $5,854, respectively.......... 169,361 219,442
---------- --------
Carrying value of investments in unconsolidated joint
ventures.................................................. $ 865,863 $378,534
========== ========
Company's share of unconsolidated mortgage debt............. $ 264,751 $124,282
========== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Statements of Operations:
Revenues.................................................. $119,566 $107,617 $16,687
-------- -------- -------
Expenses:
Interest expense....................................... 18,787 17,004 793
Depreciation and amortization.......................... 19,968 18,916 2,752
Operating expenses..................................... 44,002 37,489 4,638
-------- -------- -------
Total expenses....................................... 82,757 73,409 8,183
-------- -------- -------
Net income................................................ $ 36,809 $ 34,208 $ 8,504
======== ======== =======
Company's share of net income............................... $ 13,824 $ 11,267 $ 5,155
======== ======== =======
Company's share of interest expense......................... $ 9,116 $ 8,580 $ --
======== ======== =======
Company's share of depreciation and amortization
(real estate related)..................................... $ 15,741 $ 14,412 $ 1,524
======== ======== =======
</TABLE>
85
<PAGE> 86
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- MORTGAGE DEBT
The Company had outstanding mortgage indebtedness of approximately $1.7
billion and $2.4 billion as of December 31, 1999 and 1998, respectively. The
historical cost, net of accumulated depreciation of encumbered properties at
December 31, 1999 and 1998 was approximately $3.8 billion and $5.3 billion,
respectively. During the years ended December 31, 1999 and 1998, the following
transactions occurred:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year(1)............................. $2,336,571 $2,061,860
Assumed through property acquisitions..................... 52,550 302,216
Repaid/or assumed by buyer upon sale of property.......... (81,400) (7,206)
Consolidated debt reclassed to investment in
unconsolidated joint ventures(2)....................... (58,127) --
Proceeds from draws....................................... 3,374 10,865
Repayments/principal amortization......................... (519,671) (31,164)
---------- ----------
Balance at end of year(1)................................... $1,733,297 $2,336,571
========== ==========
</TABLE>
- ---------------
(1) Excludes net premium on mortgage debt of approximately $10,574, $13,517 and
$1,157 as of December 31, 1999, 1998 and 1997, respectively.
(2) See Note 4 footnote (b).
A summary of the Company's fixed and variable rate mortgage debt is as
follows:
Fixed Rate Mortgage Debt
As of December 31, 1999 and 1998, the Company had outstanding fixed rate
mortgage indebtedness of approximately $1.6 billion and $2.3 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, 1999
and 1998, fixed interest rates ranged from 6.9% to 8.6% and 6.9% to 9.1%,
respectively. The weighted average fixed interest rate was approximately 7.5%
and 7.6% as of December 31, 1999 and 1998, 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 6.9% through the maturity of the loan on June 30, 2000.
Variable Rate Mortgage Debt
As of December 31, 1999 and 1998, the Company had outstanding variable rate
mortgage indebtedness of approximately $126.3 million and $70.4 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, 1999 and 1998, the weighted average variable interest
rate was 7.2% and 6.4%, respectively.
86
<PAGE> 87
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- MORTGAGE DEBT -- (CONTINUED)
Repayment Schedule
Scheduled payments of principal on mortgage debt for each of the next five
years and thereafter as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
2000........................................................ $ 186,809
2001........................................................ 200,194
2002........................................................ 73,151
2003........................................................ 184,454
2004........................................................ 224,070
Thereafter.................................................. 864,619
----------
Subtotal............................................... 1,733,297
Net premium (net of accumulated amortization of $4.0
million).................................................. 10,574
----------
Total.................................................. $1,743,871
==========
</TABLE>
NOTE 9 -- LINES OF CREDIT
Lines of Credit
In 1998, the Company obtained a revolving credit facility for $1.0 billion
(the "$1.0 Billion Credit Facility") maturing on May 29, 2001. The Company
incurred fees of approximately $2.5 million at the closing of the facility which
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 (based on the aggregate amount of the facility) 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, 1999
there was approximately $453.0 million outstanding on the 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
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 paid an underwriting fee on the $1.5 Billion Credit Facility at
closing of approximately $4.9 million. In addition, an unused commitment fee of
15 to 25 basis points was payable quarterly in arrears based upon the unused
amount of the $1.5 Billion Credit Facility. 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 was
priced at 90-day LIBOR plus 80 basis points and was prepayable on any interest
payment date. The term loan had a maturity date of August 15, 2000. On August 9,
1999 the Company prepaid the facility with proceeds from the $1.0 Billion Credit
Facility and approximately $.2 million of unamortized loan costs were
written-off and accounted for as an extraordinary loss.
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 accrued 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 was based on a matrix tied to the Company's
credit rating. The proceeds were used to pay
87
<PAGE> 88
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- LINES OF CREDIT -- (CONTINUED)
down the $1.0 Billion Credit Facility. On September 15, 1999, the Company repaid
the facility upon its maturity with proceeds from the $1.0 Billion Credit
Facility.
NOTE 10 -- 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 6.4%
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
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 issued $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. 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. The warrants expired and
no additional notes were issued by the Company.
$1.0 Billion Notes Offering
On January 26, 1999, the Company issued $1.0 Billion of unsecured notes
(the "$1.0 Billion Notes") in three tranches (the "$1.0 Billion Notes
Offering"). The $1.0 Billion Notes were issued at a discount of approximately
$3.3 million, which is being amortized over terms of the respective tranches as
an adjustment to
88
<PAGE> 89
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- UNSECURED NOTES -- (CONTINUED)
interest expense. Net proceeds to the Company after offering costs were
approximately $989.2 million. The net proceeds were used to repay mortgage debt
and amounts outstanding on the $1.0 Billion Credit Facility.
$200 Million Notes Offering
On April 19, 1999, the Company issued $200 million of unsecured notes due
April 19, 2029 (the "$200 Million Notes") in an offering to institutional
investors (the "$200 Million Notes Offering"). The net proceeds after discount
and offering expenses were approximately $196.6 million and were used to repay
amounts outstanding on the $1.0 Billion Credit Facility.
A summary of the terms of the unsecured notes outstanding as of December
31, 1999 is presented below:
<TABLE>
<CAPTION>
(DOLLARS IN STATED EFFECTIVE
TRANCHE 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%
30 Year Notes due 2029...................................... 200,000 7.5% 7.6%
---------- --- ---
Subtotal............................................... 3,655,000 6.8% 7.0%
=== ===
Net premium (net of accumulated amortization of $.1
million).................................................. 47
----------
Total.................................................. $3,655,047
==========
</TABLE>
- ---------------
(1) Includes the cost of the terminated interest rate protection agreements,
offering and transaction costs and premiums and discounts on certain
unsecured notes.
(2) 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 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 debt
securities in amounts, at initial prices and on terms to be determined at the
time of offering. The Company issued $1.2 billion of unsecured notes in 1999
under this registration statement.
89
<PAGE> 90
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- UNSECURED NOTES -- (CONTINUED)
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 11 -- 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, 1999 AND 1998
- -------- --------------------------
<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)
203 North LaSalle and Theater District Garages.............. 50%(3)
Park Avenue Tower........................................... 100%(5)
</TABLE>
- ---------------
(1) The Company owns a controlling interest and is the managing general
partner. The 5100 Brookline (CIGNA Center) property was disposed of during
1999.
(2) The Company is the managing general partner and receives preferential
allocations resulting in the Company receiving 100% of the economic
benefits.
(3) The Company owns a controlling interest and receives preferential
allocations. The unaffiliated partner is entitled to receive 50% of the
remaining cash flow and residual profits 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.
(5) The Company acquired a first mortgage note secured by the property. In
accordance with certain agreements concerning the first mortgage note and
the Property, 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. During 1999, the
minority interest partner contributed $11.0 million.
90
<PAGE> 91
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- SHAREHOLDERS' EQUITY
Common Shares
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.
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 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 January 1, 1998 (excluding Units of 34,203,912
and 28,645,699 outstanding at December 31, 1999 and 1998, respectively, which
are convertible into Common Shares on a one-for-one basis, or the cash
equivalent thereof, subject to certain restrictions):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Outstanding at January 1,.................................. 259,901,657 249,527,663
Common Shares exchanged for Units(1)..................... (8,220,969) --
Repurchases(2)........................................... (1,040,034) --
Units redeemed for Common Shares......................... 833,493 7,556,332
Restricted Shares retired................................ (20,000) --
Share options exercised.................................. 128,287 809,653
Issued through private offering.......................... -- 1,628,009
Restricted share awards.................................. -- 380,000
----------- -----------
Outstanding at December 31,................................ 251,582,434 259,901,657
=========== ===========
</TABLE>
- ---------------
(1) Certain Common Shares were placed in escrow subject to release pursuant to
the provisions of the Merger Agreement, Plan of Liquidation and Escrow
Agreements entered into at the time of Consolidation. In 1999, 11,332,203
Common Shares were released from escrow and 8,220,969 of such Common Shares
were cancelled and exchanged for Units, which represented a reallocation of
Units owned by the Company to other minority interest partners. This
reallocation did not change the total number of Units outstanding or the
amount of fully diluted Common Shares and Units outstanding.
(2) In 1999, the Company announced a share repurchase plan. During 1999, 715,600
Common Shares were repurchased at an average share price of $23.14 for
approximately $16.6 million in the aggregate and were retired. An additional
4,742,500 Common Shares were repurchased and retired between January and
February 2000 at an average share price of $25.27 for approximately $119.8
million in the aggregate. In February 2000, the Company suspended its share
repurchase plan in anticipation of the Cornerstone Merger (see Note 24).
Prior to the implementation of the Company's share repurchase plan, the
Company repurchased 324,434 Common Shares and approximately 1.2 million
Units in a private transaction.
Ownership of Operating Partnership
The Company's ownership in the Operating Partnership was approximately
88.0% and 90.1% as of December 31, 1999 and 1998, respectively.
91
<PAGE> 92
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- SHAREHOLDERS' EQUITY -- (CONTINUED)
Preferred Shares
The Series A Preferred Share holders 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 and
are payable quarterly in arrears of $.56125 per share. Holders of the shares
have no other voting rights except as provided by law and have no preemptive
rights. On and after June 15, 2002, the Company, at its option may redeem the
shares, in whole or in part, at any 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 when and as authorized by
the Company.
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 right
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 receives a quarterly distribution of $0.5390625 per share
when and as authorized by the Company.
92
<PAGE> 93
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- SHAREHOLDERS' EQUITY -- (CONTINUED)
Dividends/Distributions
The following tables summarizes the dividends/distributions paid to Common
Share/Unit holders and Preferred shareholders related to the years ended
December 31, 1999 and 1998.
<TABLE>
<CAPTION>
DIVIDEND/
DISTRIBUTION RECORD
AMOUNT DATE PAID DATE
------------ --------- --------
<S> <C> <C> <C>
Common Shares/Units(1).................................. $ 0.32 4-10-98 3-31-98
$ 0.32 7-10-98 6-30-98
$ 0.37 10-9-98 9-30-98
$ 0.37 12-29-98 12-15-98
$ 0.37 4-12-99 3-31-99
$ 0.37 7-12-99 6-30-99
$ 0.42 10-13-99 9-30-99
$ 0.42 12-29-99 12-15-99
Series A Preferred Shares............................... $ 0.56125 3-15-98 3-9-98
$ 0.56125 6-15-98 6-1-98
$ 0.56125 9-15-98 9-1-98
$ 0.56125 12-15-98 12-1-98
$ 0.56125 3-15-99 3-1-99
$ 0.56125 6-15-99 6-1-99
$ 0.56125 9-15-99 9-1-99
$ 0.56125 12-15-99 12-1-99
Series B Preferred Shares............................... $0.619792(2) 5-15-98 5-1-98
$ 0.65625 8-17-98 8-3-98
$ 0.65625 11-16-98 11-2-98
$ 0.65625 2-16-99 2-1-99
$ 0.65625 5-17-99 5-3-99
$ 0.65625 8-16-99 8-2-99
$ 0.65625 11-1599 11-1-99
Series C Preferred Shares............................... $ 0.58099(3) 3-15-99 3-1-99
$ 0.53906 6-15-99 6-1-99
$ 0.53906 9-15-99 9-1-99
$ 0.53906 12-15-99 12-1-99
</TABLE>
- ---------------
(1) For federal income tax purposes, 17.7% (unaudited) of the dividends paid in
1999 represented a capital gain distribution and the remaining 82.3%
(unaudited) represented ordinary income. In addition, 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.
(2) Partial distribution of $0.619792 covers the period from February 19
through May 15, 1998.
(3) The distribution represents a pro-rated distribution from December 8, 1998
(the closing date of the Series C Preferred Shares Offering) through March
14, 1999.
93
<PAGE> 94
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- FUTURE MINIMUM RENTS
Future minimum rental receipts due on noncancelable operating leases at the
Office Properties and Parking Facilities as of December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
2000........................................................ $1,335,509
2001........................................................ 1,228,471
2002........................................................ 1,041,549
2003........................................................ 859,725
2004........................................................ 704,123
Thereafter.................................................. 2,235,994
----------
Total.................................................. $7,405,371
==========
</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.
NOTE 14 -- FUTURE MINIMUM LEASE PAYMENTS
As of December 31, 1999, the Company's ownership of various Office
Properties and 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 20, the Company leases its office space from an
affiliate. Future minimum lease obligations under these noncancelable leases as
of December 31, 1999 were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
2000........................................................ $ 8,350
2001........................................................ 8,282
2002........................................................ 8,257
2003........................................................ 8,248
2004........................................................ 6,199
Thereafter.................................................. 490,018
--------
Total.................................................. $529,354
========
</TABLE>
Rental expense for the year ended December 31, 1999 and 1998, the period
from July 11, 1997 through December 31, 1997 and the period from January 1, 1997
through July 10, 1997, was approximately $10.6 million, $11.1 million, $3.4
million and $3.8 million, respectively.
NOTE 15 -- EXTRAORDINARY ITEMS
The Company incurred an extraordinary loss of approximately $10.5 million
during 1999 consisting of the following transactions:
- $3.2 million due to the write-off of unamortized mark-to-market
adjustments in connection with the repayment of certain mortgage debt;
- $7.1 million consisting of a $13.6 million prepayment penalty partially
offset by the write-off of approximately $6.5 million of unamortized
mark-to-market premium in connection with the repayment of a mortgage
debt; and
- $.2 million due to the write-off of unamortized loan costs in connection
with the prepayment of the $328 Million Credit Facility.
94
<PAGE> 95
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- EXTRAORDINARY ITEMS -- (CONTINUED)
The Company reported 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 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.
The Company and Equity Office Predecessors reported an extraordinary loss
of approximately $16.4 million and $0.3 million, for the period from 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.
NOTE 16 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per Common Share:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED FROM JULY 11,
DECEMBER 31, 1997 THROUGH
----------------------------- DECEMBER 31,
1999 1998 1997
------------- ------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
NUMERATOR:
Net income available to Common Shares before net
gain on sales of real estate and extraordinary
items......................................... $ 332,979 $ 311,900 $ 87,303
Net gain on sales of real estate................. 59,661 12,433 126
Extraordinary items.............................. (10,548) (7,506) (16,366)
------------ ------------ ------------
Numerator for basic earnings per share -- income
available to Common Shares.................... 382,092 316,827 71,063
Minority interest in Operating Partnership....... 48,172 36,226 7,010
------------ ------------ ------------
Numerator for diluted earnings per share -- net
income available to Common Shares............. $ 430,264 $ 353,053 $ 78,073
============ ============ ============
DENOMINATOR:
Denominator for basic earnings per
share -- weighted average Common Shares....... 256,045,895 253,167,037 162,591,477
------------ ------------ ------------
Effect of dilutive securities:
Redemption of Units to Common Shares............. 32,280,652 28,947,306 16,056,085
Share options and put options.................... 2,830,657 1,860,189 1,366,465
------------ ------------ ------------
Dilutive potential Common Shares................. 35,111,309 30,807,495 17,422,550
------------ ------------ ------------
Denominator for diluted earnings per
share -- adjusted weighted average shares and
assumed conversions........................... 291,157,204 283,974,532 180,014,027
============ ============ ============
BASIC EARNINGS AVAILABLE FOR COMMON SHARES
PER WEIGHTED AVERAGE COMMON SHARE:
Net income before net gain on sales of real
estate and extraordinary items................ $ 1.30 $ 1.23 $ 0.54
Net gain on sales of real estate................. 0.23 0.05 --
Extraordinary items.............................. (0.04) (0.03) (0.10)
------------ ------------ ------------
Net income....................................... $ 1.49 $ 1.25 $ 0.44
============ ============ ============
</TABLE>
95
<PAGE> 96
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- EARNINGS PER SHARE -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS ENDED FROM JULY 11,
DECEMBER 31, 1997 THROUGH
----------------------------- DECEMBER 31,
1999 1998 1997
------------- ------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
DILUTED EARNINGS AVAILABLE FOR COMMON SHARES
PER WEIGHTED AVERAGE COMMON SHARE:
Net income before net gain on sales of real
estate and extraordinary items................ $ 1.31 $ 1.23 $ 0.52
Net gain on sales of real estate................. 0.20 0.04 --
Extraordinary items.............................. (0.03) (0.03) (0.09)
------------ ------------ ------------
Net income....................................... $ 1.48 $ 1.24 $ 0.43
============ ============ ============
</TABLE>
The following securities were not included in the computation of diluted
earnings per share since they would have an antidilutive effect:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR ENDED JULY 11, THROUGH
DECEMBER 31, DECEMBER 31,
WEIGHTED AVERAGE ----------------------- -------------------
ANTIDILUTIVE SECURITIES EXERCISE PRICE 1999 1998 1997
- ----------------------- ---------------- ---------- ---------- -------------------
<S> <C> <C> <C> <C>
Share options........................ $30.040 3,435,762 -- --
Share options........................ $30.270 -- 2,969,608 --
Share options........................ $32.930 -- -- 726,500
Series B Preferred Shares............ $35.700 6,000,000 6,000,000 --
Warrants............................. $39.375 5,000,000 5,000,000 5,000,000
---------- ---------- ---------
Total........................... 14,435,762 13,969,608 5,726,500
========== ========== =========
</TABLE>
For additional disclosures regarding the employee stock options and the
restricted shares see Note 22.
96
<PAGE> 97
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- 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, 1999, 1998
and 1997 is below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------
OFFICE CORPORATE
PROPERTIES AND OTHER CONSOLIDATED
----------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Property Operating Revenues............................ $ 1,881,820 $ 37,236 $ 1,919,056
Property Operating Expenses............................ (654,971) (7,905) (662,876)
----------- --------- -----------
Net operating income................................. 1,226,849 29,331 1,256,180
----------- --------- -----------
Adjustments to arrive at net income:
Other revenues....................................... 5,282 17,905 23,187
Interest expense(1).................................. (129,021) (284,974) (413,995)
Depreciation and amortization........................ (345,458) (13,531) (358,989)
Ground rent.......................................... (6,836) (51) (6,887)
General and administrative........................... (415) (80,512) (80,927)
----------- --------- -----------
Total adjustments to arrive at net income......... (476,448) (361,163) (837,611)
----------- --------- -----------
Income before allocation to minority interests, income
from investment in unconsolidated joint ventures,
gain on sales of real estate and extraordinary
items................................................ 750,401 (331,832) 418,569
Minority interests..................................... (1,518) (48,635) (50,153)
Income from investment in unconsolidated joint
ventures............................................. 11,779 2,045 13,824
Gain on sales of real estate and extraordinary items... 49,343 (230) 49,113
----------- --------- -----------
Net income........................................ $ 810,005 $(378,652) $ 431,353
=========== ========= ===========
Capital and tenant improvements........................ $ 267,637 $ 29,859 $ 297,496
=========== ========= ===========
Total Assets........................................... $13,490,266 $ 555,792 $14,046,058
=========== ========= ===========
</TABLE>
97
<PAGE> 98
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------
OFFICE CORPORATE
PROPERTIES AND OTHER CONSOLIDATED
----------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Property Operating Revenues............................ $ 1,628,985 $ 29,435 $ 1,658,420
Property Operating Expenses............................ (584,610) (8,096) (592,706)
----------- --------- -----------
Net operating income................................. 1,044,375 21,339 1,065,714
----------- --------- -----------
Adjustments to arrive at net income:
Other revenues....................................... 1,879 19,400 21,279
Interest expense(1).................................. (144,987) (193,624) (338,611)
Depreciation and amortization........................ (294,574) (11,408) (305,982)
Ground rent.......................................... (7,611) (50) (7,661)
General and administrative........................... (417) (63,147) (63,564)
----------- --------- -----------
Total adjustments to arrive at net income......... (445,710) (248,829) (694,539)
----------- --------- -----------
Income before allocation to minority interests, income
from investment in unconsolidated joint ventures,
gain on sales of real estate and extraordinary
items................................................ 598,665 (227,490) 371,175
Minority interests..................................... (1,755) (36,585) (38,340)
Income from investment in unconsolidated joint
ventures............................................. 7,653 3,614 11,267
Gain on sales of real estate and extraordinary items... 12,433 (7,506) 4,927
----------- --------- -----------
Net income........................................ $ 616,996 $(267,967) $ 349,029
=========== ========= ===========
Capital and tenant improvements........................ $ 200,033 $ 7,060 $ 207,093
=========== ========= ===========
Total Assets........................................... $13,646,160 $ 615,131 $14,261,291
=========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------
OFFICE CORPORATE
PROPERTIES AND OTHER CONSOLIDATED
----------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Property Operating Revenues............................ $ 711,519 $ 22,211 $ 733,730
Property Operating Expenses............................ (273,254) (4,950) (278,204)
----------- --------- -----------
Net operating income................................. 438,265 17,261 455,526
----------- --------- -----------
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........................ (128,214) (8,166) (136,380)
Ground rent.......................................... (4,714) (46) (4,760)
General and administrative........................... (955) (33,936) (34,891)
----------- --------- -----------
Total adjustments to arrive at net income......... (246,769) (68,076) (314,845)
----------- --------- -----------
Income before allocation to minority interests, income
from investment in unconsolidated joint ventures,
gain on sales of real estate and extraordinary
items................................................ 191,496 (50,815) 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........................................ $ 189,274 $ (56,153) $ 133,121
=========== ========= ===========
Capital and tenant improvements........................ $ 156,419 $ 2,678 $ 159,097
=========== ========= ===========
Total Assets........................................... $11,364,606 $ 387,066 $11,751,672
=========== ========= ===========
</TABLE>
- ---------------
(1) Interest expense for the Office Properties does not include allocations of
interest expense on corporate unsecured debt.
98
<PAGE> 99
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 -- 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 following transactions which
occurred in 1998 and 1997 as if they occurred on January 1, 1997.
- the acquisition and disposition of Office Properties and Parking
Facilities;
- the purchase of the remaining partnership interests in a joint venture;
- the $1.25 Billion Notes Offering, the $250 Million MOPPRS Offering, the
$775 Million Notes Offering, the $180 Million Notes Offering;
- the Series B and Series C Preferred Share Offerings;
- the increase in the line of credit to $1.0 billion;
- the $48.5 million investment in preferred shares of Capital Trust;
- the Consolidation and the IPO and the paydown of debt with the proceeds;
- the Beacon Merger; and
- the UIT Offering.
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 $ 0.86
============ ============
Common Shares outstanding -- Basic....................... 259,902,000 257,203,000
============ ============
Net income per Common Share -- Diluted................... $ 1.14 $ 0.85
============ ============
Common Shares outstanding -- Diluted..................... 290,824,000 289,136,000
============ ============
</TABLE>
99
<PAGE> 100
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 -- QUARTERLY DATA (UNAUDITED)
The quarterly data for the last three years are presented in the tables
below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------------------------------
12/31/99 9/30/99 6/30/99 3/31/99
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total Revenues....................... $ 494,473 $ 491,357 $ 481,279 $ 475,134
============ ============ ============ ============
Income before allocation to minority
interests, income from investment
in unconsolidated joint ventures,
net gain on sales of real estate
and extraordinary items............ $ 107,596 $ 106,153 $ 104,536 $ 100,284
============ ============ ============ ============
Net income........................... $ 146,242 $ 97,173 $ 98,217 $ 89,721
============ ============ ============ ============
Net income available for Common
Shares............................. $ 134,303 $ 81,639 $ 87,310 $ 78,840
============ ============ ============ ============
Net income available per weighted
average Common Shares outstanding--
Basic.............................. $ 0.53 $ 0.32 $ 0.34 $ 0.30
============ ============ ============ ============
Net income available per weighted
average Common Share outstanding --
Diluted............................ $ 0.52 $ 0.32 $ 0.33 $ 0.30
============ ============ ============ ============
Weighted average Common Shares
outstanding -- Basic............... 252,179,620 253,625,036 258,525,258 259,965,816
============ ============ ============ ============
Weighted average Common Shares
Outstanding -- Diluted............. 290,549,547 291,592,245 290,946,853 291,433,553
============ ============ ============ ============
</TABLE>
100
<PAGE> 101
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 -- QUARTERLY DATA (UNAUDITED) -- (CONTINUED)
<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>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------------------------------
12/31/97 9/30/97 (1) 6/30/97 3/31/97
------------ ------------ -------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Total Revenues.............................. $ 248,400 $ 183,866 $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>
- ---------------
(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.
101
<PAGE> 102
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- 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, 1999, 1998 and 1997 and payable as of December 31, 1999 and 1998 were as
follows:
<TABLE>
<CAPTION>
PAID IN YEAR ENDED PAYABLE AS OF
DECEMBER 31, DECEMBER 31,
-------------------------- -------------
1999 1998 1997 1999 1998
------- ------- ------ ---- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Legal fees and expenses(1)..................... $ 2,330 $ 3,507 $3,006 $-- $ 978
Insurance reimbursements and brokerage
fees(2)...................................... 3,494 3,323 2,279 -- (139)
Development, management and leasing fees(3).... 5,102 4,405 434 -- --
Office rent(4)................................. 2,820 1,792 1,068 -- 128
Administrative, accounting and consulting
services(5).................................. 715 750 1,373 -- 169
Acquisition fees(6)............................ -- -- 777 -- --
Organization and offering expenses(7).......... -- -- 106 -- --
------- ------- ------ --- ------
Total................................ $14,461 $13,777 $9,043 $-- $1,136
======= ======= ====== === ======
</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. In 1999, Rosenberg & Liebentritt,
P.C. dissolved and, as a result, no longer provides legal services to the
Company.
(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. was a wholly owned
subsidiary of the Equity Group, of which Samuel Zell is the Chairman of the
Board. Effective October 1, 1999, the Company no longer utilizes the
services provided by EGI Risk Services Inc., and its employees have become
employees of the Company.
(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 for future development. As of
December 31, 1999, no amounts have been funded. However, the Company has
guaranteed WRALP's line of credit which has an outstanding balance of
approximately $16.9 million as of December 31, 1999. The Company recorded
income of approximately $0.9 million and $1.3 million from its investment in
WRALP for the years ended December 31, 1999 and 1998, respectively.
WRALP serves as co-property manager with the Company for the Properties
acquired from its affiliates in December, 1997. In addition, WRALP serves
as co-property manager for four properties acquired by the Company from
unaffiliated parties during 1998 and 1999. WRALP served as the developer on
Sunset North Corporate Campus project placed in service during 1999 and
currently serves as developer of the Three Bellevue Center project which is
under construction. 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 Center in Seattle, Washington. The Company has agreed to
acquire that building after its completion and occupancy by a third-party
tenant, currently scheduled for the second quarter of 2000. Mr. Runstad did
not, in his capacity as Trustee, approve the foregoing arrangements with
the Company.
102
<PAGE> 103
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
(4) The Company leases its corporate office space from an affiliate of the
Equity Group. The terms of this lease were reviewed and recommended for
Board approval by a special subcommittee of the Company's Board of Trustees.
Upon the recommendation of the special subcommittee, the non-affiliated
members of the Board of Trustees approved the transaction.
(5) During 1999, fees were paid to the Equity Group for miscellaneous consulting
services. In 1998 and 1997 administrative services also included fees paid
to Equity Group for centralized services, such as real estate tax
consulting, payroll processing, employee benefits and telecommunications,
all of which are now performed by the Company.
(6) Represents amounts paid by Equity Office Predecessors to Merrill Lynch, a
limited partner of the general partner of certain entities included in the
Equity Office Predecessors.
(7) Affiliates of the Equity Group were reimbursed for reasonable costs incurred
in connection with the organization and the offering of units in the Equity
Office Predecessors, 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.
The Company was a party to various other transactions with related parties as
disclosed in Note 3 and Note 6.
Amounts Received from Affiliates
Affiliates of the Company leased space in certain of the Office Properties
owned by the Company. Total rents and other amounts paid by affiliates under the
terms of their respective leases were approximately $1.2 million, $0.3 million,
and $3.0 million for the years ended December 31, 1999, 1998, and 1997,
respectively. In addition, in 1999 the Company provided real estate tax
consulting and risk management services to affiliates for which it received
approximately $1.2 million.
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 the lessee with a series
of annual options to extend the term of the lease through various dates. The
rent paid in the years ended December 31, 1999, 1998, and 1997 under these lease
agreements was approximately $9.0 million, $13.1 million, and $11.0 million,
respectively. 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.
103
<PAGE> 104
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 21 -- 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 YEARS ENDED FOR THE PERIOD FROM
DECEMBER 31, JULY 11, 1997 THROUGH
-------------------- DECEMBER 31,
1999 1998 1997
-------- --------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <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)............................. $ 24,476 $ 204,008 $ 357,672
======== ========= ==========
Mortgage loans assumed/promissory notes issued
through property acquisitions...................... $ 52,550 $ 406,837 $ 263,048
======== ========= ==========
Mortgage loans assumed by buyer upon disposition of
Office Properties.................................. $(81,400) $ -- $ --
======== ========= ==========
Escrow deposits used for property acquisitions....... $192,427 $ -- $ --
======== ========= ==========
Escrow deposits provided by property dispositions.... $(95,956) $(119,948) $ --
======== ========= ==========
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
======== ========= ==========
Deferred revenue recorded in connection with receipt
of securities...................................... $ 32,276 $ -- $ --
======== ========= ==========
</TABLE>
NOTE 22 -- 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 1999, 1998 and
1997, the Common Shares subject to Options and Share Awards under the Employee
Plan were limited to 19,433,472, 11,121,786, and 11,121,786, respectively. The
maximum aggregate number of Common Shares that may be granted for all
104
<PAGE> 105
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 22 -- SHARE OPTION PLAN AND SHARE AWARD PLAN -- (CONTINUED)
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 Employee Plan, but
termination will not affect Options and Share Awards previously granted. Any
Options or Share Awards which vest prior to any such termination will continue
to be 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, 1999, 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, 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 officers in 1997 and 1998 and based upon
performance for 1999. The Restricted Share Awards vest over a five year period
as follows: (i) fifty percent of each Restricted Share Award vests on the third
anniversary of the initial grant date; (ii) an additional twenty-five percent of
each Restricted Share Award vests on the fourth anniversary of the initial grant
date; and (iii) the remaining twenty-five percent of each Restricted Share Award
vests 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 1999, 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 1999, 1998 and 1997, respectively: risk-free interest rates of
6.4%, 5.4% and 5.6%; dividend yields of 6.8%, 5.8% and 4.0%; volatility factors
of the expected market price of the Company's Common Shares of 0.19, 0.30 and
0.24; and a weighted average expected life of the Options of five years.
105
<PAGE> 106
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 22 -- SHARE OPTION PLAN AND SHARE AWARD PLAN -- (CONTINUED)
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.
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, 1999 and
1998 and the period from July 11, 1997 through December 31, 1997:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED FROM JULY 11,
DECEMBER 31, 1997 THROUGH
------------------- DECEMBER 31,
1999 1998 1997
-------- -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Pro forma net income available to Common Shares before gain
on sales of real estate and extraordinary items.......... $330,638 $310,051 $ 85,654
Gain on sales of real estate and extraordinary items....... 49,113 4,927 (16,240)
-------- -------- --------
Pro forma net income available to Common Shares............ $379,751 $314,978 $ 69,414
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR ENDED DECEMBER 31, JULY 11, 1997
------------------------------------ THROUGH
1999 1998 DECEMBER 31, 1997
---------------- ---------------- -------------------
EARNINGS PER SHARE BASIC DILUTED BASIC DILUTED BASIC DILUTED
- ------------------ ----- ------- ----- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Pro forma net income available to Common
Shares before gain on sales of real
estate and extraordinary items........ $1.29 $1.30 $1.22 $1.22 $ .53 $ .51
Gain on sales of real estate and
extraordinary items................... .19 .17 .02 .02 (.10) (.09)
----- ----- ----- ----- ----- -----
Pro forma net income per weighted
average Common Share outstanding...... $1.48 $1.47 $1.24 $1.24 $ .43 $ .42
===== ===== ===== ===== ===== =====
</TABLE>
106
<PAGE> 107
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 22 -- SHARE OPTION PLAN AND SHARE AWARD PLAN -- (CONTINUED)
The table below summarizes the Option activity of the Employee Plan for the
years ended December 31, 1999, 1998 and the period from July 11, 1997 through
December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
COMMON SHARES SUBJECT EXERCISE PRICE PER
TO OPTIONS OR AWARDS 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
Options granted................................ 4,677,971 24.88
Options cancelled.............................. (520,314) 24.78
Options exercised.............................. (128,287) 20.90
---------- ------
Balance at December 31, 1999..................... 13,462,154 $24.66
========== ======
</TABLE>
As of December 31, 1999, there were 5,174,418 Options under the Employee
Plan that were exercisable and 8,287,736 Options that were not exercisable.
Exercise prices for the 13,462,154 Options outstanding as of December 31, 1999
ranged from $12.09 to $33.00, with a weighted average exercise price of $24.66.
Expiration dates ranged from July 11, 2007 to December 31, 2009. The remaining
weighted average contractual life of Options was 8.70 years. The weighted
average grant date fair value of Options granted during 1999, 1998 and 1997 was
$2.91, $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. The Restricted Shares were valued at an average of
$21.57 per share.
NOTE 23 -- 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 typically 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 risk of non-performance by the swap counterparties since
each counterparty is a major U.S. or foreign financial institution; management
does not anticipate any such non-performance. As of December 31, 1999, the
Company has one interest rate protection agreement which effectively fixed the
interest rate on a $93.6 million loan at 6.9% 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
107
<PAGE> 108
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 23 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
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.
Insurance
The Company is self-insured for certain amounts related to losses that may
be incurred at the Properties. However, management does not believe that this
exposure will have a material adverse effect on the Company.
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 49 Properties
located in California, 12 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 July 1998, the Company entered into an agreement to purchase the World
Trade Center project in Seattle, Washington. The property consists of
approximately 186,787 square feet of office space and is 100% preleased to a
single tenant. After the tenant takes full occupancy in 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, 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, 1999, no amounts have been funded pursuant to this agreement. However, the
Company has guaranteed WRALP's line of credit which has an outstanding balance
of approximately $16.9 million as of December 31, 1999.
Contingencies
On August 12, 1999, the Company and the WR Holders amended their put option
agreement to defer to August 13, 2000 (or to August 13, 2001 at the option of
the WR Holders) the exercise date for 1,717,844 of the 3,435,688 Common Shares
affected by the put option agreement (a maximum exposure to the Company of
approximately $54.1 million when and if this put option is exercised). The
Company and the WR Holders
108
<PAGE> 109
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 23 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
also agreed to cancel the put option on the remaining 1,717,844 Common Shares in
exchange for the Company's payment to the WR Holders of approximately $11.3
million on September 13, 1999. The payment represented the excess of $31.50 over
$24.90 (the average price of a Common Share calculated over the five trading
days immediately prior to August 13, 1999), for each of 1,717,844 Common Shares
affected by the put option agreement. The portion of the amounts paid in excess
of $29.10625 per Common Share totaling approximately $4.1 million was reflected
as a preferred distribution. The remaining $7.2 million of the payment was
recorded as a reduction to shareholders' equity.
On August 13, 2000, (or August 13, 2001 at the option of the WR Holders)
the WR Holders can require the Company to purchase all or a portion of the
remaining 1,717,844 Common Shares issued to them in the acquisition at a price
equal to $31.50 per Common Share. Prior to such date, 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 for each
Common Share sold at such lower price an amount equal to the difference between
$29.10625 and such lower price, not to exceed $3.00 per Common Share. Any
amounts paid by the Company as a result of such sales will be recorded as a
reduction in shareholders' equity. For put options exercised as aforesaid, any
amounts paid up to $29.10625 per Common Share would be reflected as a reduction
in 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 $4.1 million) will be reflected as a preferred distribution. The
$4.1 million portion of the total potential payment is being amortized by the
Company on a straight-line basis over the period between August 13, 1999 and
August 13, 2000. The Company will not incur any loss on this transaction if the
put option is not exercised.
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 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.
In October 1999, the CA Holder exercised its option to require the Company to
purchase 1,675,000 Units at a price equal to $29.00 per Unit for a total of
approximately $48.6 million. The Company recognized the $48.6 million payment as
a reduction of minority interest and retired the Units.
In connection with the acquisition of Worldwide Plaza on October 1, 1998,
the Company issued a transferable put option on the 6,861,166 Units issued at
acquisition which is 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.
NOTE 24 -- SUBSEQUENT EVENTS
1. The Company entered into an agreement with OnSite Access, Inc. ("OnSite"), a
facilities based provider of broadband data, video and voice communications
services, delivered over fiber optic networks designed, constructed and
owned by OnSite in large- and medium-sized office buildings. OnSite will
provide its services to tenants in certain Office Properties. In return for
allowing OnSite access to the Office Properties, OnSite will grant the
Company warrants to acquire common shares of OnSite for $2.36 per share.
Although OnSite is not currently a public company, it has filed a
registration statement with the SEC to register the issuance of its common
shares and is expected to become a reporting company under the Securities
and Exchange Act of 1934.
2. On January 14, 2000, 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 15, 2000 to holders of record
as of February 1, 2000.
109
<PAGE> 110
EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 24 -- SUBSEQUENT EVENTS -- (CONTINUED)
3. On January 17, 2000, the Company obtained an additional unsecured borrowing
facility from the Chase Manhattan Bank for short-term borrowings not to
exceed $300 million in the aggregate. Upon request of the Company, and at
the lender's option, the lender may offer to lend funds at mutually agreed
upon interest rates and terms, as determined by current market conditions.
As of March 1, 2000, the Company owed $200 million under this facility at a
weighted average rate of 6.4%. On each of March 15, 2000, and March 24,
2000, the note is repayable in two $100 million installments.
4. On February 10, 2000, the Company sold Sarasota City Center in Sarasota,
Florida, for approximately $27.7 million to an unaffiliated party. The
office property consisted of approximately 247,891 square feet and was 88.5%
occupied at December 31, 1999.
5. On February 11, 2000, the Company, the Operating Partnership, Cornerstone
Properties, Inc. ("Cornerstone") and Cornerstone Properties Limited
Partnership ("Cornerstone Partnership") entered into a merger agreement
where Cornerstone will merge with and into the Company and Cornerstone
Partnership will merge with and into the Operating Partnership (the
"Cornerstone Merger"). The total purchase price will be approximately $4.6
billion, including the assumption of approximately $1.8 billion in debt, the
payment of $1.1 billion in cash and the issuance of approximately 63.6
million new Common Shares and Units. Cornerstone common shareholders may
elect to receive $18.00 per share in cash, plus any accrued but unpaid
dividends, or 0.7009 of the Company's Common Shares based on a prevailing
transaction price of $25.68125 per Common Share, subject to proration.
Cornerstone's convertible preferred shareholders will receive $18.00 per
share in cash. Cornerstone Partnership unitholders will receive 0.7009 Units
of the Company. The Company intends to finance the $1.1 billion cash portion
of the purchase price by obtaining additional term loans, issuing unsecured
notes or amending the existing line of credit.
The Cornerstone Merger is expected to be completed in the third quarter of
2000 and is subject to the approval of the shareholders of the Company and
the shareholders of Cornerstone and other customary conditions. Cornerstone
is a fully integrated REIT and currently owns 86 office properties in the
U.S. totaling over 18.5 million square feet, and has an additional $884
million of projects under development. If the Cornerstone Merger is
completed the Company will own approximately 380 office properties
consisting of approximately 95.5 million square feet.
6. On February 15, 2000, the Board of Trustees of the Company declared a first
quarter distribution for the Series A and Series C Preferred Shares. On
March 15, 2000, the Company will pay the 8.98% Series A Cumulative
Redeemable Preferred Share dividend of $0.56125 per share to the holders of
record on March 1, 2000. On the same date, the Company will pay the 8.625%
Series C Cumulative Redeemable Preferred Share dividend of $0.5390625 per
share to the holders of record on March 1, 2000.
7. On February 15, 2000, upon its maturity, the mortgage note secured by the
Civic Opera House was repaid in the amount of approximately $30.6 million.
110
<PAGE> 111
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
111
<PAGE> 112
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 2000 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 2000 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
"Common Share and Unit Ownership by Trustees and Executive Officers" in our
Proxy Statement for the 2000 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 2000 Annual Meeting of Shareholders.
112
<PAGE> 113
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, 1999 and 1998
Consolidated Statements of Operations of Equity Office Properties Trust for
the years ended December 31, 1999 and 1998, the period from July 11, 1997
through December 31, 1997 and the Combined Statement of Operations of Equity
Office Predecessors for the period from January 1, 1997 through July 10, 1997.
Consolidated Statements of Shareholders' Equity of Equity Office Properties
Trust for the years ended December 31, 1999 and 1998, the period from July 11,
1997 through December 31, 1997 and the Combined Statement of Owners' Equity of
Equity Office Predecessors for the period from January 1, 1997 through July 10,
1997.
Consolidated Statements of Cash Flows of Equity Office Properties Trust for
the years ended December 31, 1999 and 1998, 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.
Notes to Consolidated and Combined Financial Statements
SCHEDULES
Schedule III -- Real Estate and Accumulated Depreciation
113
<PAGE> 114
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>
2.1 Agreement and Plan of Merger, dated February 11, 2000, among
the Company, the Operating Partnership, Cornerstone and
Cornerstone Partnership (incorporated herein by reference to
Exhibit 2.1 to the Company's Current Report on Form 8-K
dated February 11, 2000)
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 Articles Supplementary of the Company, dated February 28,
2000 and filed with the Maryland State Department of
Assessments and Taxation on March 17, 2000
3.6 Amended Bylaws of the Company
4.1* Indenture, dated as of September 2, 1997, between the
Operating Partnership and State Street Bank and Trust
Company
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 4.4 of the Operating Partnership's
Registration Statement on Form S-4 (Reg. No. 333-47347))
4.4 Form of 6.625% Note due 2005 (incorporated herein by
reference to Exhibit 4.5 of the Operating Partnership's
Registration Statement on Form S-4 (Reg. No. 333-47347))
4.5 Form of 6.750% Note due 2008 (incorporated herein by
reference to Exhibit 4.6 of the Operating Partnership's
Registration Statement of Form S-4 (Reg. No. 333-47347))
4.6 Form of 7.250% Note due 2018 (incorporated herein by
reference to Exhibit 4.7 of the Operating Partnership's
Registration Statement on Form S-4 (Reg. No. 333-47347))
4.7 Form of 6.376% Mandatory Par Put Remarketed Securities due
2012 (incorporated herein by reference to Exhibit 4.8 of the
Operating Partnership's Registration Statement on Form S-4
(Reg. No. 333-47347))
4.8 $30,000,000 7.24% Senior Note due 2004 (incorporated herein
by reference to Exhibit 4.9 of the Operating Partnership's
Registration Statement on Form S-4 (Reg. No. 333-47347))
4.9 $50,000,000 7.36% Senior Note due 2005 (incorporated herein
by reference to Exhibit 4.10 of the Operating Partnership's
Registration Statement on Form S-4 (Reg. No. 333-47347))
4.10 $50,000,000 7.44% Senior Note due 2006 (incorporated herein
by reference to Exhibit 4.11 to the Operating Partnerships
Registration Statement on Form S-4 (Reg. No. 333-47347))
4.11 $50,000,000 7.41% Senior Note due 2007 (incorporated herein
by reference to Exhibit 4.12 to the Operating Partnerships
Registration Statement on Form S-4 (Reg. No. 333-47347))
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))
</TABLE>
114
<PAGE> 115
<TABLE>
<CAPTION>
EXHIBIT
NO DESCRIPTION
- ------- -----------
<C> <S>
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 Form of 6.375% Notes 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)
4.16 Form of 6.5% Notes 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)
4.17 Form of 6.8% Notes 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)
4.18 Form of 7.5% Notes due April 19, 2029 (incorporated herein
by reference to Exhibit 4.23 of the Operating Partnership's
Current Report on Form 8-K filed with the SEC on April 19,
1999)
4.19 Form of $400,000,000 8.375% Note due March 15, 2006
(incorporated herein by reference to Exhibit 4.25 of the
Operating Partnership's Form 8-K dated March 24, 2000)
4.20 Form of $100,000,000 8.375% Note due March 15, 2006
(incorporated herein by reference to Exhibit 4.26 of the
Operating Partnership's Form 8-K dated March 24, 2000)
4.21 First Amendment to Second Amended and Restated Revolving
Credit Agreement
4.22 Fixed Rate Promissory Note with The Chase Manhattan Bank
4.23 Second Amended and Restated Revolving Credit Facility $1
Billion Revolving Credit Facility dated as of May 29, 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
</TABLE>
115
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NO DESCRIPTION
- ------- -----------
<C> <S>
10.4* Each member of the Company's Board of Trustees and each
Executive 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 for 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:
</TABLE>
<TABLE>
<CAPTION>
NAME DATE AS OF
---- ----------
<C> <S> <C>
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
</TABLE>
<TABLE>
<C> <S>
10.5 Stock Option Agreement by and among Cornerstone, the
Company, Deutsche Bank AG and Deutscher Herold
Lebensversicherungs -AG dated as of February 11, 2000
(incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated February 11,
2000)
10.9 Equity Office Supplemental Retirement Savings Plan,
including the first and second amendment
12.1 Statement Regarding Computation of Ratios
21.1 List of Subsidiaries
23.1 Consent of Independent Auditors
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
years ended December 31, 1999 and 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 14, 1999 including Items 5 and 7
(b) Exhibits
See Item 14(a)(3) above
(c) Financial Statement Schedules:
None
116
<PAGE> 117
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 27th day of March, 2000.
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 27th day of March, 2000.
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, 1999, 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. ANDRE DE BOCK Trustee
- ------------------------------------------------
D.J. Andre 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>
117
<PAGE> 118
<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
/s/ H. JON RUNSTAD Trustee
- ------------------------------------------------
H. Jon Runstad
/s/ EDWIN N. SIDMAN Trustee
- ------------------------------------------------
Edwin N. Sidman
</TABLE>
118
<PAGE> 119
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
ENCUMBRANCES
DESCRIPTION NOTES LOCATION AT 12/31/99 NOTES
----------- ----- -------- --------------- ------
<S> <C> <C> <C> <C>
1 60 Spear Street Building............................ (3) San Francisco, CA $ --
2 San Felipe Plaza.................................... (3) Houston, TX (51,455,300)
3 Summit Office Park.................................. (3) Ft. Worth, TX --
4 Intercontinental Center............................. (3) Houston, TX --
5 Four Forest Plaza................................... (3) Dallas, TX --
6 Dominion Tower...................................... (3) Norfolk, VA --
7 Northborough Tower.................................. (3) Houston, TX --
8 500 Marquette Building.............................. (3) Albuquerque, NM --
9 Community Corporate Center.......................... (3) Columbus, OH (16,616,100)
10 Sarasota City Center................................ (3) Sarasota, FL --
11 Denver Corporate Center II & III.................... (3) Denver, CO --
12 University Tower.................................... (3) Durham, NC --
13 Shelton Pointe...................................... (3) Shelton, CT --
14 San Jacinto Center.................................. (3) Austin, TX --
15 1111 19th Street.................................... (3) Washington, D.C. --
16 North Central Plaza Three........................... (3) Dallas, TX --
17 The Quadrant........................................ (3) Englewood, CO --
18 Canterbury Green.................................... (3)(4) Stamford, CT (19,107,200)
19 Three Stamford Plaza................................ (3) Stamford, CT (16,626,100)
20 Union Square........................................ (3) San Antonio, TX --
21 One North Franklin.................................. (3) Chicago, IL --
22 1620 L Street....................................... (3) Washington, D.C. --
23 300 Atlantic Street................................. (3) Stamford, CT --
24 One and Two Stamford Plaza.......................... (3) Stamford, CT --
25 1700 Higgins........................................ (3) Des Plaines, IL --
26 One Congress Plaza.................................. (3) Austin, TX --
27 Northwest Center.................................... (3) San Antonio, TX --
28 One Crosswoods Center............................... (3) Columbus, OH --
29 One Lakeway Center.................................. (3) Metairie, LA --
30 Three Lakeway Center................................ (3) Metairie, LA --
31 Two Lakeway Center.................................. (3) Metairie, LA --
32 Bank of America Plaza............................... (3) Nashville, TN --
33 The Plaza at LaJolla Village........................ (3) San Diego, CA (57,157,800)
34 Interco Corporate Tower............................. (3) Clayton, MO (21,564,800)
35 9400 NCX............................................ (3) Dallas, TX --
36 Four Stamford Plaza................................. (3) Stamford, CT (15,886,000)
37 1920 Main Plaza..................................... (3) Irvine, CA --
38 Paces West.......................................... (3) Atlanta, GA --
39 One Market.......................................... (3) San Francisco, CA (147,363,300)
40 2010 Main Plaza..................................... (3) Irvine, CA --
41 1100 Executive Tower................................ (3) Orange, CA --
42 28 State Street..................................... (3) Boston, MA --
43 850 Third Avenue.................................... (3) New York, NY --
44 161 N. Clark........................................ (3) Chicago, IL (130,312,400)
45 Wachovia Center..................................... (3) Charlotte, NC (25,712,000)
46 Central Park........................................ (3) Atlanta, GA (55,535,600)
47 One American Center................................. (3) Austin, TX --
48 580 California...................................... (3) San Francisco, CA (29,112,300)
49 1601 Market Street.................................. (3) Philadelphia, PA --
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
-------------------------------- -------------------------
BUILDING AND BUILDING AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- -------------- --------------- ---------- ------------
<S> <C> <C> <C> <C>
1 60 Spear Street Building............................ $ 2,125,200 $ 19,126,500 $ -- $ 319,400
2 San Felipe Plaza.................................... 13,471,300 117,984,000 19,600 4,305,900
3 Summit Office Park.................................. 1,421,100 12,789,700 -- 1,029,100
4 Intercontinental Center............................. 1,752,200 14,420,200 69,800 515,600
5 Four Forest Plaza................................... 4,767,900 42,911,400 -- 1,524,200
6 Dominion Tower...................................... 4,643,700 41,100,100 -- 1,228,700
7 Northborough Tower.................................. 1,705,400 12,198,900 37,000 563,000
8 500 Marquette Building.............................. 2,219,800 19,978,600 -- 1,064,100
9 Community Corporate Center.......................... 3,018,900 27,169,800 -- 843,600
10 Sarasota City Center................................ 2,239,600 20,156,700 -- 826,600
11 Denver Corporate Center II & III.................... 6,059,400 36,534,300 -- 1,153,700
12 University Tower.................................... 2,085,100 18,766,100 -- 851,400
13 Shelton Pointe...................................... 1,513,900 13,625,200 -- 617,500
14 San Jacinto Center.................................. 5,074,500 45,670,600 -- 2,426,900
15 1111 19th Street.................................... 5,024,000 45,216,000 -- 819,900
16 North Central Plaza Three........................... 3,632,100 32,689,300 -- 1,223,200
17 The Quadrant........................................ 4,357,300 39,215,300 -- 1,571,800
18 Canterbury Green.................................... -- 41,987,100 91,900 1,461,300
19 Three Stamford Plaza................................ 3,956,600 35,609,800 -- 477,400
20 Union Square........................................ 2,368,500 14,236,000 8,600 1,421,200
21 One North Franklin.................................. 9,830,500 88,474,400 -- 1,205,200
22 1620 L Street....................................... 2,708,200 24,374,000 -- 900,800
23 300 Atlantic Street................................. 4,632,300 41,690,900 -- 896,800
24 One and Two Stamford Plaza.......................... 8,267,700 74,409,300 -- 2,467,300
25 1700 Higgins........................................ 1,323,100 11,907,900 34,500 193,500
26 One Congress Plaza.................................. 6,502,400 58,521,300 -- 3,466,500
27 Northwest Center.................................... 1,948,000 17,531,900 -- 880,800
28 One Crosswoods Center............................... 1,058,900 9,529,800 -- 612,400
29 One Lakeway Center.................................. 2,803,900 25,235,500 -- 1,729,000
30 Three Lakeway Center................................ 4,695,000 43,517,200 59,300 2,124,000
31 Two Lakeway Center.................................. 4,643,500 41,791,800 49,200 2,162,200
32 Bank of America Plaza............................... 3,049,200 27,443,100 -- 583,700
33 The Plaza at LaJolla Village........................ 11,838,900 98,243,100 19,300 1,881,800
34 Interco Corporate Tower............................. 4,688,400 42,195,200 83,900 2,586,200
35 9400 NCX............................................ 3,570,000 32,129,700 -- 4,097,400
36 Four Stamford Plaza................................. 4,470,900 40,237,900 24,500 763,700
37 1920 Main Plaza..................................... 5,480,600 47,525,800 -- 1,736,300
38 Paces West.......................................... 12,833,700 75,024,500 -- 2,304,800
39 One Market.......................................... 34,814,400 313,329,700 -- 30,343,800
40 2010 Main Plaza..................................... 5,197,100 46,773,700 -- 717,100
41 1100 Executive Tower................................ 10,121,800 41,598,600 -- 835,600
42 28 State Street..................................... 9,512,600 85,622,900 -- 40,780,800
43 850 Third Avenue.................................... 9,605,900 86,453,200 30,000 3,085,000
44 161 N. Clark........................................ 15,881,800 142,936,100 -- 19,426,800
45 Wachovia Center..................................... 5,061,000 45,548,900 -- 870,600
46 Central Park........................................ 9,162,600 82,463,000 -- 1,613,100
47 One American Center................................. -- 70,811,600 -- 3,769,200
48 580 California...................................... 7,491,200 67,420,900 107,100 2,855,400
49 1601 Market Street.................................. 5,780,800 52,027,500 -- 4,474,700
<CAPTION>
GROSS AMOUNT CARRIED AT
CLOSE OF PERIOD 12/31/99
--------------------------------
BUILDING AND
DESCRIPTION LAND IMPROVEMENTS TOTAL (1)
----------- -------------- --------------- ---------------
<S> <C> <C> <C>
1 60 Spear Street Building............................ $ 2,125,200 $ 19,445,900 $ 21,571,100
2 San Felipe Plaza.................................... 13,490,900 122,289,900 135,780,800
3 Summit Office Park.................................. 1,421,100 13,818,800 15,239,900
4 Intercontinental Center............................. 1,822,000 14,935,800 16,757,800
5 Four Forest Plaza................................... 4,767,900 44,435,600 49,203,500
6 Dominion Tower...................................... 4,643,700 42,328,800 46,972,500
7 Northborough Tower.................................. 1,742,400 12,761,900 14,504,300
8 500 Marquette Building.............................. 2,219,800 21,042,700 23,262,500
9 Community Corporate Center.......................... 3,018,900 28,013,400 31,032,300
10 Sarasota City Center................................ 2,239,600 20,983,300 23,222,900
11 Denver Corporate Center II & III.................... 6,059,400 37,688,000 43,747,400
12 University Tower.................................... 2,085,100 19,617,500 21,702,600
13 Shelton Pointe...................................... 1,513,900 14,242,700 15,756,600
14 San Jacinto Center.................................. 5,074,500 48,097,500 53,172,000
15 1111 19th Street.................................... 5,024,000 46,035,900 51,059,900
16 North Central Plaza Three........................... 3,632,100 33,912,500 37,544,600
17 The Quadrant........................................ 4,357,300 40,787,100 45,144,400
18 Canterbury Green.................................... 91,900 43,448,400 43,540,300
19 Three Stamford Plaza................................ 3,956,600 36,087,200 40,043,800
20 Union Square........................................ 2,377,100 15,657,200 18,034,300
21 One North Franklin.................................. 9,830,500 89,679,600 99,510,100
22 1620 L Street....................................... 2,708,200 25,274,800 27,983,000
23 300 Atlantic Street................................. 4,632,300 42,587,700 47,220,000
24 One and Two Stamford Plaza.......................... 8,267,700 76,876,600 85,144,300
25 1700 Higgins........................................ 1,357,600 12,101,400 13,459,000
26 One Congress Plaza.................................. 6,502,400 61,987,800 68,490,200
27 Northwest Center.................................... 1,948,000 18,412,700 20,360,700
28 One Crosswoods Center............................... 1,058,900 10,142,200 11,201,100
29 One Lakeway Center.................................. 2,803,900 26,964,500 29,768,400
30 Three Lakeway Center................................ 4,754,300 45,641,200 50,395,500
31 Two Lakeway Center.................................. 4,692,700 43,954,000 48,646,700
32 Bank of America Plaza............................... 3,049,200 28,026,800 31,076,000
33 The Plaza at LaJolla Village........................ 11,858,200 100,124,900 111,983,100
34 Interco Corporate Tower............................. 4,772,300 44,781,400 49,553,700
35 9400 NCX............................................ 3,570,000 36,227,100 39,797,100
36 Four Stamford Plaza................................. 4,495,400 41,001,600 45,497,000
37 1920 Main Plaza..................................... 5,480,600 49,262,100 54,742,700
38 Paces West.......................................... 12,833,700 77,329,300 90,163,000
39 One Market.......................................... 34,814,400 343,673,500 378,487,900
40 2010 Main Plaza..................................... 5,197,100 47,490,800 52,687,900
41 1100 Executive Tower................................ 10,121,800 42,434,200 52,556,000
42 28 State Street..................................... 9,512,600 126,403,700 135,916,300
43 850 Third Avenue.................................... 9,635,900 89,538,200 99,174,100
44 161 N. Clark........................................ 15,881,800 162,362,900 178,244,700
45 Wachovia Center..................................... 5,061,000 46,419,500 51,480,500
46 Central Park........................................ 9,162,600 84,076,100 93,238,700
47 One American Center................................. -- 74,580,800 74,580,800
48 580 California...................................... 7,598,300 70,276,300 77,874,600
49 1601 Market Street.................................. 5,780,800 56,502,200 62,283,000
<CAPTION>
DATE OF
ACCUMULATED CONSTRUCTION/ DATE DEPRECIABLE
DESCRIPTION DEPRECIATION RENOVATION ACQUIRED LIVES (2)
----------- ------------- ------------- ------------------ -----------
<S> <C> <C> <C> <C>
1 60 Spear Street Building............................ $ (1,231,800) 1967/1987 09/29/87 40
2 San Felipe Plaza.................................... (8,308,400) 1984 09/29/87 40
3 Summit Office Park.................................. (1,010,400) 1974/1993 03/01/89 40
4 Intercontinental Center............................. (941,900) 1983/1991 06/28/89 40
5 Four Forest Plaza................................... (2,925,200) 1985 06/29/89 40
6 Dominion Tower...................................... (2,733,300) 1987 07/25/89 40
7 Northborough Tower.................................. (882,800) 1983/1990 08/03/89 40
8 500 Marquette Building.............................. (1,489,600) 1985 08/15/89 40
9 Community Corporate Center.......................... (1,925,400) 1987 06/14/90 40
10 Sarasota City Center................................ (1,243,600) 1989 09/28/90 40
11 Denver Corporate Center II & III.................... (2,371,100) 1981/93-97 12/20/90 40
12 University Tower.................................... (1,325,100) 1987/1992 10/16/91 40
13 Shelton Pointe...................................... (819,800) 1985/1993 11/26/91 40
14 San Jacinto Center.................................. (3,245,700) 1987 12/13/91 40
15 1111 19th Street.................................... (2,900,100) 1979/1993 12/18/91 40
16 North Central Plaza Three........................... (2,326,600) 1986/1994 04/21/92 40
17 The Quadrant........................................ (2,761,600) 1985 12/01/92 40
18 Canterbury Green.................................... (2,792,900) 1987 12/15/92 40
19 Three Stamford Plaza................................ (2,323,300) 1980/1994 12/15/92 40
20 Union Square........................................ (1,086,000) 1986 12/23/92 40
21 One North Franklin.................................. (5,645,600) 1991 12/31/92 40
22 1620 L Street....................................... (1,860,200) 1989 02/05/93 40
23 300 Atlantic Street................................. (2,765,100) 1987/1996 03/30/93 40
24 One and Two Stamford Plaza.......................... (5,096,000) 1986/1994 03/30/93 40
25 1700 Higgins........................................ (767,800) 1986 11/12/93 40
26 One Congress Plaza.................................. (4,472,900) 1987 11/12/93 40
27 Northwest Center.................................... (1,233,000) 1984/1994 11/12/93 40
28 One Crosswoods Center............................... (755,000) 1984 11/12/93 40
29 One Lakeway Center.................................. (1,896,400) 1981/1996 11/12/93 40
30 Three Lakeway Center................................ (3,303,400) 1987/1996 11/12/93 40
31 Two Lakeway Center.................................. (3,031,300) 1984/1996 11/12/93 40
32 Bank of America Plaza............................... (1,790,500) 1977/1995 12/01/93 40
33 The Plaza at LaJolla Village........................ (6,293,500) 1987-1990 03/10/94 40
34 Interco Corporate Tower............................. (3,357,700) 1986 05/27/94 40
35 9400 NCX............................................ (2,650,900) 1981/1995 06/24/94 40
36 Four Stamford Plaza................................. (2,606,200) 1979/1994 08/31/94 40
37 1920 Main Plaza..................................... (3,486,300) 1988 09/29/94 40
38 Paces West.......................................... (5,374,500) 1988 10/31/94 40
39 One Market.......................................... (24,434,200) 1976/1995 11/22/94 40
40 2010 Main Plaza..................................... (3,121,700) 1988 12/13/94 40
41 1100 Executive Tower................................ (2,807,900) 1987 12/15/94 40
42 28 State Street..................................... (10,333,300) 1968/1997 01/23/95 40
43 850 Third Avenue.................................... (5,997,600) 1960/1996 03/20/95 40
44 161 N. Clark........................................ (12,264,400) 1992 07/26/95 40
45 Wachovia Center..................................... (2,871,200) 1972/1994 09/01/95 40
46 Central Park........................................ (5,499,200) 1986 10/17/95 40
47 One American Center................................. (4,867,000) 1984 11/01/95 40
48 580 California...................................... (4,927,000) 1984 12//21/95 40
49 1601 Market Street.................................. (3,604,800) 1970 01/18/96 40
</TABLE>
<PAGE> 120
<TABLE>
<CAPTION>
ENCUMBRANCES
DESCRIPTION NOTES LOCATION AT 12/31/99 NOTES
----------- ----- -------- --------------- ------
<S> <C> <C> <C> <C>
50 Two California Plaza............................... (3) Los Angeles, CA $ --
51 BP Tower........................................... (3) Cleveland, OH (85,380,500)
52 Reston Town Center................................. (3) Reston, VA (89,705,700)
53 Reston Town Center Garage.......................... (3)(5) Reston, VA --
54 Colonnade I........................................ (3) San Antonio, TX --
55 One Phoenix Plaza.................................. (3) Phoenix, AZ --
56 49 East Thomas Road................................ (3) Phoenix, AZ --
57 177 Broad Street................................... (3)(6) Stamford, CT --
58 Oakbrook Terrace Tower............................. (3) Oakbrook Terrace, IL --
59 One Maritime Plaza................................. (3) San Francisco, CA --
60 Smith Barney Tower................................. (3) San Diego, CA --
61 201 Mission Street................................. (3) San Francisco, CA --
62 30 N. LaSalle Street............................... (3) Chicago, IL --
63 LL&E Tower......................................... New Orleans, LA (37,500,000) (7)
64 Texaco Center...................................... New Orleans, LA (42,500,000) (7)
65 601 Tchoupitoulas Garage........................... New Orleans, LA -- (7)
66 Prudential Portfolio............................... (8) Various --
67 550 S. Hope........................................ Los Angeles, CA --
68 Four and Five Valley Square........................ Blue Bell, PA --
69 Four Falls Corporate Center........................ Conshohocken, PA --
70 Oak Hill Plaza..................................... King of Prussia, PA --
71 One Devon Square................................... Wayne, PA --
72 Three Devon Square................................. Wayne, PA --
73 Two Devon Square................................... Wayne, PA --
74 Two Valley Square.................................. Blue Bell, PA --
75 Walnut Hill Plaza.................................. King of Prussia, PA (14,408,400)
76 One Lafayette Centre............................... Washington, D.C. --
77 One Valley Square.................................. Blue Bell, PA --
78 Three Valley Square................................ Blue Bell, PA --
79 1600 Duke Street................................... Alexandria, VA --
80 Fair Oaks Plaza.................................... Fairfax, VA --
81 Lakeside Square.................................... Dallas, TX --
82 LaSalle Plaza...................................... Minneapolis, MN --
83 1001 Fifth Avenue.................................. Portland, OR --
84 1111 Third Avenue.................................. Seattle, WA --
85 Calais Office Center............................... Anchorage, AK --
86 Wells Fargo Center................................. Seattle, WA --
87 Nordstrom Medical Tower............................ Seattle, WA --
88 One Bellevue Center................................ Bellevue, WA --
89 Rainier Plaza...................................... Bellevue, WA --
90 Second and Seneca Buildings........................ Seattle, WA --
91 101 N. Wacker...................................... Chicago, IL --
92 175 Wyman Street................................... Walthan, MA --
93 10880 Wilshire Boulevard........................... Los Angeles, CA --
94 10960 Wilshire Boulevard........................... Los Angeles, CA --
95 1300 North 17th Street............................. Rosslyn, VA --
96 1333 H Street...................................... Washington, D.C. --
97 150 Federal Street................................. Boston, MA --
98 1616 N. Fort Myer Drive............................ Rosslyn, VA --
99 175 Federal Street................................. Boston, MA --
100 2 Oliver Street--147 Milk Street................... Boston, MA --
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
-------------------------------- -------------------------
BUILDING AND BUILDING AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- -------------- --------------- ---------- ------------
<S> <C> <C> <C> <C>
50 Two California Plaza............................... $ -- $ 156,197,000 $ -- $34,033,900
51 BP Tower........................................... 17,402,500 157,260,200 -- 3,063,600
52 Reston Town Center................................. 21,482,600 154,576,300 33,500 899,600
53 Reston Town Center Garage.......................... 1,942,500 9,640,300 -- --
54 Colonnade I........................................ 1,413,600 12,725,200 81,000 1,156,200
55 One Phoenix Plaza.................................. 6,191,900 55,726,900 -- --
56 49 East Thomas Road................................ 65,300 587,900 -- 21,900
57 177 Broad Street................................... 3,941,200 35,470,800 -- 688,200
58 Oakbrook Terrace Tower............................. 11,950,200 107,551,700 485,700 3,715,500
59 One Maritime Plaza................................. 11,530,700 103,776,000 -- 7,502,700
60 Smith Barney Tower................................. 2,657,700 23,919,400 -- 1,920,400
61 201 Mission Street................................. 8,870,700 79,836,500 -- 1,759,700
62 30 N. LaSalle Street............................... 12,489,000 112,400,700 -- 4,244,200
63 LL&E Tower......................................... 6,185,800 55,672,200 46,000 4,452,900
64 Texaco Center...................................... 6,686,300 60,177,000 9,500 2,263,900
65 601 Tchoupitoulas Garage........................... 1,180,000 10,619,800 -- 300,000
66 Prudential Portfolio............................... 28,463,400 256,216,100 -- 19,732,200
67 550 S. Hope........................................ 10,016,200 90,146,000 -- 1,013,900
68 Four and Five Valley Square........................ 865,700 7,793,200 -- 210,200
69 Four Falls Corporate Center........................ 4,938,900 44,458,300 55,000 1,125,700
70 Oak Hill Plaza..................................... 2,208,200 19,878,500 -- 233,700
71 One Devon Square................................... 1,024,900 9,226,700 -- 178,300
72 Three Devon Square................................. 412,500 3,712,600 -- --
73 Two Devon Square................................... 659,200 5,935,000 -- 228,000
74 Two Valley Square.................................. 879,000 7,913,300 -- 300,400
75 Walnut Hill Plaza.................................. 2,045,000 18,409,900 -- 263,800
76 One Lafayette Centre............................... 8,262,400 74,362,000 -- 574,700
77 One Valley Square.................................. 717,200 6,456,900 -- 674,300
78 Three Valley Square................................ 1,012,100 9,111,300 -- 530,600
79 1600 Duke Street................................... 1,105,600 9,950,000 -- 188,500
80 Fair Oaks Plaza.................................... 2,412,000 21,707,600 35,400 314,800
81 Lakeside Square.................................... 8,262,200 47,368,800 24,200 2,327,700
82 LaSalle Plaza...................................... 9,680,800 87,126,800 -- 1,727,500
83 1001 Fifth Avenue.................................. 5,383,300 48,633,700 -- 1,079,900
84 1111 Third Avenue.................................. 9,899,900 89,570,700 -- 1,795,500
85 Calais Office Center............................... -- 16,630,800 -- 1,214,600
86 Wells Fargo Center................................. 21,360,700 193,528,600 -- 1,817,700
87 Nordstrom Medical Tower............................ 1,763,600 16,026,200 -- 33,100
88 One Bellevue Center................................ -- 56,223,100 -- 976,000
89 Rainier Plaza...................................... -- 79,928,100 -- 916,200
90 Second and Seneca Buildings........................ 10,922,500 98,927,300 -- 799,900
91 101 N. Wacker...................................... 10,035,500 90,319,400 -- 2,245,300
92 175 Wyman Street................................... 20,000,400 -- -- --
93 10880 Wilshire Boulevard........................... -- 149,841,200 142,600 4,001,200
94 10960 Wilshire Boulevard........................... 16,841,300 151,573,900 -- 4,261,800
95 1300 North 17th Street............................. 9,810,700 88,295,900 -- 303,600
96 1333 H Street...................................... 6,715,400 60,438,200 -- 666,800
97 150 Federal Street................................. 14,131,400 127,182,200 -- 10,066,900
98 1616 N. Fort Myer Drive............................ 6,960,700 62,646,300 -- 1,743,900
99 175 Federal Street................................. 4,893,900 44,045,200 -- 1,378,300
100 2 Oliver Street--147 Milk Street................... 5,017,400 45,157,000 -- 1,711,300
<CAPTION>
GROSS AMOUNT CARRIED AT
CLOSE OF PERIOD 12/31/99
--------------------------------
BUILDING AND
DESCRIPTION LAND IMPROVEMENTS TOTAL (1)
----------- -------------- --------------- ---------------
<S> <C> <C> <C>
50 Two California Plaza............................... $ -- $ 190,230,900 $ 190,230,900
51 BP Tower........................................... 17,402,500 160,323,800 177,726,300
52 Reston Town Center................................. 21,516,100 155,475,900 176,992,000
53 Reston Town Center Garage.......................... 1,942,500 9,640,300 11,582,800
54 Colonnade I........................................ 1,494,600 13,881,400 15,376,000
55 One Phoenix Plaza.................................. 6,191,900 55,726,900 61,918,800
56 49 East Thomas Road................................ 65,300 609,800 675,100
57 177 Broad Street................................... 3,941,200 36,159,000 40,100,200
58 Oakbrook Terrace Tower............................. 12,435,900 111,267,200 123,703,100
59 One Maritime Plaza................................. 11,530,700 111,278,700 122,809,400
60 Smith Barney Tower................................. 2,657,700 25,839,800 28,497,500
61 201 Mission Street................................. 8,870,700 81,596,200 90,466,900
62 30 N. LaSalle Street............................... 12,489,000 116,644,900 129,133,900
63 LL&E Tower......................................... 6,231,800 60,125,100 66,356,900
64 Texaco Center...................................... 6,695,800 62,440,900 69,136,700
65 601 Tchoupitoulas Garage........................... 1,180,000 10,919,800 12,099,800
66 Prudential Portfolio............................... 28,463,400 275,948,300 304,411,700
67 550 S. Hope........................................ 10,016,200 91,159,900 101,176,100
68 Four and Five Valley Square........................ 865,700 8,003,400 8,869,100
69 Four Falls Corporate Center........................ 4,993,900 45,584,000 50,577,900
70 Oak Hill Plaza..................................... 2,208,200 20,112,200 22,320,400
71 One Devon Square................................... 1,024,900 9,405,000 10,429,900
72 Three Devon Square................................. 412,500 3,712,600 4,125,100
73 Two Devon Square................................... 659,200 6,163,000 6,822,200
74 Two Valley Square.................................. 879,000 8,213,700 9,092,700
75 Walnut Hill Plaza.................................. 2,045,000 18,673,700 20,718,700
76 One Lafayette Centre............................... 8,262,400 74,936,700 83,199,100
77 One Valley Square.................................. 717,200 7,131,200 7,848,400
78 Three Valley Square................................ 1,012,100 9,641,900 10,654,000
79 1600 Duke Street................................... 1,105,600 10,138,500 11,244,100
80 Fair Oaks Plaza.................................... 2,447,400 22,022,400 24,469,800
81 Lakeside Square.................................... 8,286,400 49,696,500 57,982,900
82 LaSalle Plaza...................................... 9,680,800 88,854,300 98,535,100
83 1001 Fifth Avenue.................................. 5,383,300 49,713,600 55,096,900
84 1111 Third Avenue.................................. 9,899,900 91,366,200 101,266,100
85 Calais Office Center............................... -- 17,845,400 17,845,400
86 Wells Fargo Center................................. 21,360,700 195,346,300 216,707,000
87 Nordstrom Medical Tower............................ 1,763,600 16,059,300 17,822,900
88 One Bellevue Center................................ -- 57,199,100 57,199,100
89 Rainier Plaza...................................... -- 80,844,300 80,844,300
90 Second and Seneca Buildings........................ 10,922,500 99,727,200 110,649,700
91 101 N. Wacker...................................... 10,035,500 92,564,700 102,600,200
92 175 Wyman Street................................... 20,000,400 -- 20,000,400
93 10880 Wilshire Boulevard........................... 142,600 153,842,400 153,985,000
94 10960 Wilshire Boulevard........................... 16,841,300 155,835,700 172,677,000
95 1300 North 17th Street............................. 9,810,700 88,599,500 98,410,200
96 1333 H Street...................................... 6,715,400 61,105,000 67,820,400
97 150 Federal Street................................. 14,131,400 137,249,100 151,380,500
98 1616 N. Fort Myer Drive............................ 6,960,700 64,390,200 71,350,900
99 175 Federal Street................................. 4,893,900 45,423,500 50,317,400
100 2 Oliver Street--147 Milk Street................... 5,017,400 46,868,300 51,885,700
<CAPTION>
DATE OF
ACCUMULATED CONSTRUCTION/ DATE DEPRECIABLE
DESCRIPTION DEPRECIATION RENOVATION ACQUIRED LIVES (2)
----------- ------------- ------------- ------------------ -----------
<S> <C> <C> <C> <C>
50 Two California Plaza............................... $ (15,338,600) 1992 08/23/96 40
51 BP Tower........................................... (9,962,100) 1985 09/04/96, 01/29/98 40
52 Reston Town Center................................. (9,702,900) 1990 10/22/96 40
53 Reston Town Center Garage.......................... (30,100) 1999 10/22/96 40
54 Colonnade I........................................ (1,032,900) 1983 12/04/96 40
55 One Phoenix Plaza.................................. (3,422,500) 1989 12/04/96 40
56 49 East Thomas Road................................ (36,600) 1974/1993 12/11/96 40
57 177 Broad Street................................... (2,303,900) 1989 01/29/97 40
58 Oakbrook Terrace Tower............................. (7,298,500) 1988 04/16/97 40
59 One Maritime Plaza................................. (7,098,300) 1967/1990 04/21/97 40
60 Smith Barney Tower................................. (2,245,000) 1987 04/28/97 40
61 201 Mission Street................................. (5,118,900) 1981 04/30/97 40
62 30 N. LaSalle Street............................... (7,409,800) 1974/1990 06/13/97 40
63 LL&E Tower......................................... (3,610,300) 1987 09/03/97 40
64 Texaco Center...................................... (3,772,600) 1984 09/03/97 40
65 601 Tchoupitoulas Garage........................... (609,900) 1982 09/03/97 40
66 Prudential Portfolio............................... (16,933,300) Various 10/01/97 40
67 550 S. Hope........................................ (5,073,000) 1991 10/06/97 40
68 Four and Five Valley Square........................ (456,400) 1988 10/07/97 40
69 Four Falls Corporate Center........................ (2,596,600) 1988 10/07/97 40
70 Oak Hill Plaza..................................... (1,134,000) 1982 10/07/97 40
71 One Devon Square................................... (542,500) 1984 10/07/97 40
72 Three Devon Square................................. (204,800) 1985 10/07/97 40
73 Two Devon Square................................... (418,800) 1985 10/07/97 40
74 Two Valley Square.................................. (491,900) 1990 10/07/97 40
75 Walnut Hill Plaza.................................. (1,057,100) 1985 10/07/97 40
76 One Lafayette Centre............................... (4,145,900) 1980/1993 10/17/97 40
77 One Valley Square.................................. (409,100) 1982 11/21/97 40
78 Three Valley Square................................ (494,200) 1984 11/21/97 40
79 1600 Duke Street................................... (553,500) 1985 11/24/97 40
80 Fair Oaks Plaza.................................... (1,188,800) 1986 11/24/97 40
81 Lakeside Square.................................... (2,850,400) 1987 11/24/97 40
82 LaSalle Plaza...................................... (4,909,400) 1991 11/25/97 40
83 1001 Fifth Avenue.................................. (2,643,300) 1980 12/17/97 40
84 1111 Third Avenue.................................. (4,967,800) 1980 12/17/97 40
85 Calais Office Center............................... (1,114,200) 1975 12/17/97 40
86 Wells Fargo Center................................. (10,062,100) 1983 12/17/97 40
87 Nordstrom Medical Tower............................ (844,100) 1986 12/17/97 40
88 One Bellevue Center................................ (3,127,200) 1983 12/17/97 40
89 Rainier Plaza...................................... (4,220,300) 1986 12/17/97 40
90 Second and Seneca Buildings........................ (5,376,500) 1991 12/17/97 40
91 101 N. Wacker...................................... (4,813,300) 1980/1990 12/19/97 40
92 175 Wyman Street................................... -- 1999 12/19/97 40
93 10880 Wilshire Boulevard........................... (8,073,900) 1970/1992 12/19/97 40
94 10960 Wilshire Boulevard........................... (8,351,700) 1971/1992 12/19/97 40
95 1300 North 17th Street............................. (4,568,400) 1980 12/19/97 40
96 1333 H Street...................................... (3,117,500) 1982 12/19/97 40
97 150 Federal Street................................. (7,795,700) 1988 12/19/97 40
98 1616 N. Fort Myer Drive............................ (3,277,700) 1974 12/19/97 40
99 175 Federal Street................................. (2,464,900) 1977 12/19/97 40
100 2 Oliver Street--147 Milk Street................... (2,532,300) 1988 12/19/97 40
</TABLE>
<PAGE> 121
<TABLE>
<CAPTION>
ENCUMBRANCES
DESCRIPTION NOTES LOCATION AT 12/31/99 NOTES
----------- ----- -------- --------------- ------
<S> <C> <C> <C> <C>
101 200 West Adams..................................... Chicago, IL $ --
102 225 Franklin Street................................ Boston, MA --
103 AT&T Plaza......................................... Oak Brook, IL --
104 Center Plaza....................................... Boston, MA (59,382,200)
105 Centerpointe I & II................................ Fairfax, VA (29,617,000)
106 Civic Opera House.................................. Chicago, IL (30,652,000)
107 Crosby Corporate Center............................ Bedford, MA --
108 Crosby Corporate Center II......................... (5) Bedford, MA --
109 E.J. Randolph...................................... McLean, VA (15,631,500) (9)
110 E.J. Randolph II vacant land....................... McLean, VA --
111 John Marshall I.................................... McLean, VA (20,020,600)
112 Lake Marriott Business Park........................ Santa Clara, CA --
113 Lakeside Office Park............................... Atlanta, GA --
114 Media Center vacant land........................... Burbank, CA --
115 New England Executive Park......................... Burlington, MA --
116 Northridge I....................................... Herndon, VA (14,174,300) (9)
117 One Canal Park..................................... Cambridge, MA --
118 Perimeter Center................................... Atlanta, GA (212,277,800)
119 Presidents Plaza................................... Chicago, IL --
120 Riverview I & II................................... Cambridge, MA --
121 Russia Wharf....................................... Boston, MA --
122 Shoreline Technology Park.......................... Mountain View, CA --
123 South Station...................................... Boston, MA --
124 Sunnyvale Business Center.......................... Sunnyvale, CA --
125 Ten Canal Park..................................... Cambridge, MA --
126 Tri-State International............................ Lincolnshire, IL --
127 Wellesley Office Park.............................. Wellesley, MA (54,563,300)
128 Westbrook Corporate Center......................... Westchester, IL (107,525,600)
129 Westwood Business Center........................... Wellesley, MA --
130 100 Summer Street.................................. Boston, MA --
131 The Tower at New England Executive Park............ (5) Burlington, MA --
132 Westbrook Corporate Center vacant land............. Westchester, IL --
133 Denver Post Tower.................................. Denver, CO --
134 301 Howard Building................................ San Francisco, CA --
135 410 17th Street.................................... Denver, CO --
136 Tabor Center....................................... Denver, CO --
137 Trinity Place...................................... Denver, CO --
138 Dominion Plaza..................................... Denver, CO --
139 Millennium Plaza................................... Englewood, CO --
140 Polk and Taylor Buildings.......................... Arlington, VA --
141 Bank of America Tower.............................. Seattle, WA --
142 Northland Plaza.................................... Bloomington, MN --
143 4949 S. Syracuse................................... Denver, CO --
144 Metropoint......................................... Denver, CO --
145 Metropoint III vacant land......................... Denver, CO --
146 One Park Square.................................... Albuquerque, NM --
147 Park Avenue Tower.................................. New York, NY --
148 Terrace Building................................... Englewood, CO --
149 The Solarium....................................... Englewood, CO --
150 Second and Spring Building......................... Seattle, WA --
151 Colonnade I & II................................... Dallas, TX --
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
-------------------------------- -------------------------
BUILDING AND BUILDING AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- -------------- --------------- ---------- ------------
<S> <C> <C> <C> <C>
101 200 West Adams..................................... $ 11,654,100 $ 104,887,100 $ -- $ 2,072,000
102 225 Franklin Street................................ 34,607,800 311,470,600 -- 2,529,200
103 AT&T Plaza......................................... 4,834,200 43,507,900 36,000 1,516,600
104 Center Plaza....................................... 18,942,300 170,480,400 -- 3,696,900
105 Centerpointe I & II................................ 8,837,800 79,540,200 366,900 719,700
106 Civic Opera House.................................. 12,771,300 114,941,900 -- 3,342,300
107 Crosby Corporate Center............................ 5,957,800 53,620,400 49,800 1,071,100
108 Crosby Corporate Center II......................... 9,384,600 27,584,300 -- 4,569,000
109 E.J. Randolph...................................... 3,936,600 35,429,100 7,000 189,900
110 E.J. Randolph II vacant land....................... 5,770,000 -- -- 146,400
111 John Marshall I.................................... 5,216,400 46,814,100 23,600 93,500
112 Lake Marriott Business Park........................ 9,090,800 84,967,100 231,600 1,716,100
113 Lakeside Office Park............................... 4,792,500 43,132,300 -- 585,500
114 Media Center vacant land........................... 19,900,200 -- -- --
115 New England Executive Park......................... 15,636,600 140,729,200 102,400 6,469,300
116 Northridge I....................................... 3,224,900 29,024,400 -- 52,600
117 One Canal Park..................................... 2,006,000 18,054,000 -- 156,800
118 Perimeter Center................................... 65,886,000 428,981,700 272,500 8,833,200
119 Presidents Plaza................................... 13,435,300 120,919,200 -- 2,136,700
120 Riverview I & II................................... 5,937,600 53,438,100 6,300 975,800
121 Russia Wharf....................................... 3,891,400 35,022,800 -- 1,226,500
122 Shoreline Technology Park.......................... 31,575,200 190,894,500 -- 495,800
123 South Station...................................... -- 31,073,800 -- 728,900
124 Sunnyvale Business Center.......................... 4,890,000 44,010,000 -- 43,800
125 Ten Canal Park..................................... 2,383,100 21,447,900 -- 38,200
126 Tri-State International............................ 10,925,300 98,327,300 141,200 2,001,300
127 Wellesley Office Park.............................. 16,492,700 148,434,200 20,300 2,432,900
128 Westbrook Corporate Center......................... 24,874,900 223,874,100 30,100 4,630,300
129 Westwood Business Center........................... 2,719,600 24,476,300 -- 591,600
130 100 Summer Street.................................. 22,271,000 200,439,300 -- 11,443,100
131 The Tower at New England Executive Park............ 2,792,900 25,136,500 -- 14,019,100
132 Westbrook Corporate Center vacant land............. 3,972,800 -- -- --
133 Denver Post Tower.................................. -- 52,937,200 -- 4,683,600
134 301 Howard Building................................ 7,050,800 58,920,400 -- 2,756,300
135 410 17th Street.................................... 4,473,700 40,263,700 -- 1,834,200
136 Tabor Center....................................... 27,948,500 116,536,200 -- 2,509,500
137 Trinity Place...................................... 1,898,400 17,085,400 -- 901,400
138 Dominion Plaza..................................... 5,990,100 53,911,200 -- 3,709,700
139 Millennium Plaza................................... 7,757,100 38,313,800 -- 45,900
140 Polk and Taylor Buildings.......................... 16,942,500 152,482,800 -- 6,371,700
141 Bank of America Tower.............................. 40,178,200 361,603,500 -- 5,868,500
142 Northland Plaza.................................... 4,705,100 42,346,000 -- 692,800
143 4949 S. Syracuse................................... 822,300 7,400,800 -- 158,800
144 Metropoint......................................... 4,374,900 39,374,500 -- 393,700
145 Metropoint III vacant land......................... 2,000,000 -- -- --
146 One Park Square.................................... 3,634,300 32,708,700 -- 896,600
147 Park Avenue Tower.................................. 48,976,000 195,903,900 -- 4,419,500
148 Terrace Building................................... 1,546,400 13,917,900 -- 499,800
149 The Solarium....................................... 1,951,100 17,560,100 -- 402,200
150 Second and Spring Building......................... 1,968,400 17,715,700 -- 491,200
151 Colonnade I & II................................... 9,043,800 81,394,100 -- 1,554,200
<CAPTION>
GROSS AMOUNT CARRIED AT
CLOSE OF PERIOD 12/31/99
--------------------------------
BUILDING AND
DESCRIPTION LAND IMPROVEMENTS TOTAL (1)
----------- -------------- --------------- ---------------
<S> <C> <C> <C>
101 200 West Adams..................................... $ 11,654,100 $ 106,959,100 $ 118,613,200
102 225 Franklin Street................................ 34,607,800 313,999,800 348,607,600
103 AT&T Plaza......................................... 4,870,200 45,024,500 49,894,700
104 Center Plaza....................................... 18,942,300 174,177,300 193,119,600
105 Centerpointe I & II................................ 9,204,700 80,259,900 89,464,600
106 Civic Opera House.................................. 12,771,300 118,284,200 131,055,500
107 Crosby Corporate Center............................ 6,007,600 54,691,500 60,699,100
108 Crosby Corporate Center II......................... 9,384,600 32,153,300 41,537,900
109 E.J. Randolph...................................... 3,943,600 35,619,000 39,562,600
110 E.J. Randolph II vacant land....................... 5,770,000 146,400 5,916,400
111 John Marshall I.................................... 5,240,000 46,907,600 52,147,600
112 Lake Marriott Business Park........................ 9,322,400 86,683,200 96,005,600
113 Lakeside Office Park............................... 4,792,500 43,717,800 48,510,300
114 Media Center vacant land........................... 19,900,200 -- 19,900,200
115 New England Executive Park......................... 15,739,000 147,198,500 162,937,500
116 Northridge I....................................... 3,224,900 29,077,000 32,301,900
117 One Canal Park..................................... 2,006,000 18,210,800 20,216,800
118 Perimeter Center................................... 66,158,500 437,814,900 503,973,400
119 Presidents Plaza................................... 13,435,300 123,055,900 136,491,200
120 Riverview I & II................................... 5,943,900 54,413,900 60,357,800
121 Russia Wharf....................................... 3,891,400 36,249,300 40,140,700
122 Shoreline Technology Park.......................... 31,575,200 191,390,300 222,965,500
123 South Station...................................... -- 31,802,700 31,802,700
124 Sunnyvale Business Center.......................... 4,890,000 44,053,800 48,943,800
125 Ten Canal Park..................................... 2,383,100 21,486,100 23,869,200
126 Tri-State International............................ 11,066,500 100,328,600 111,395,100
127 Wellesley Office Park.............................. 16,513,000 150,867,100 167,380,100
128 Westbrook Corporate Center......................... 24,905,000 228,504,400 253,409,400
129 Westwood Business Center........................... 2,719,600 25,067,900 27,787,500
130 100 Summer Street.................................. 22,271,000 211,882,400 234,153,400
131 The Tower at New England Executive Park............ 2,792,900 39,155,600 41,948,500
132 Westbrook Corporate Center vacant land............. 3,972,800 -- 3,972,800
133 Denver Post Tower.................................. -- 57,620,800 57,620,800
134 301 Howard Building................................ 7,050,800 61,676,700 68,727,500
135 410 17th Street.................................... 4,473,700 42,097,900 46,571,600
136 Tabor Center....................................... 27,948,500 119,045,700 146,994,200
137 Trinity Place...................................... 1,898,400 17,986,800 19,885,200
138 Dominion Plaza..................................... 5,990,100 57,620,900 63,611,000
139 Millennium Plaza................................... 7,757,100 38,359,700 46,116,800
140 Polk and Taylor Buildings.......................... 16,942,500 158,854,500 175,797,000
141 Bank of America Tower.............................. 40,178,200 367,472,000 407,650,200
142 Northland Plaza.................................... 4,705,100 43,038,800 47,743,900
143 4949 S. Syracuse................................... 822,300 7,559,600 8,381,900
144 Metropoint......................................... 4,374,900 39,768,200 44,143,100
145 Metropoint III vacant land......................... 2,000,000 -- 2,000,000
146 One Park Square.................................... 3,634,300 33,605,300 37,239,600
147 Park Avenue Tower.................................. 48,976,000 200,323,400 249,299,400
148 Terrace Building................................... 1,546,400 14,417,700 15,964,100
149 The Solarium....................................... 1,951,100 17,962,300 19,913,400
150 Second and Spring Building......................... 1,968,400 18,206,900 20,175,300
151 Colonnade I & II................................... 9,043,800 82,948,300 91,992,100
<CAPTION>
DATE OF
ACCUMULATED CONSTRUCTION/ DATE DEPRECIABLE
DESCRIPTION DEPRECIATION RENOVATION ACQUIRED LIVES (2)
----------- ------------- ------------- ------------------ -----------
<S> <C> <C> <C> <C>
101 200 West Adams..................................... $ (5,741,400) 1985/1996 12/19/97 40
102 225 Franklin Street................................ (16,382,200) 1966/1996 12/19/97 40
103 AT&T Plaza......................................... (2,464,300) 1984 12/19/97 40
104 Center Plaza....................................... (9,023,700) 1969 12/19/97 40
105 Centerpointe I & II................................ (4,112,200) 1988-1990 12/19/97 40
106 Civic Opera House.................................. (6,394,600) 1929/1996 12/19/97 40
107 Crosby Corporate Center............................ (2,787,700) 1996 12/19/97 40
108 Crosby Corporate Center II......................... (784,800) 1998 12/19/97 40
109 E.J. Randolph...................................... (1,827,900) 1983 12/19/97 40
110 E.J. Randolph II vacant land....................... -- N/A 12/19/97 N/A
111 John Marshall I.................................... (2,402,700) 1981 12/19/97 40
112 Lake Marriott Business Park........................ (3,989,900) 1981 12/19/97 40
113 Lakeside Office Park............................... (2,286,500) 1972-1978 12/19/97 40
114 Media Center vacant land........................... -- N/A 12/19/97 N/A
115 New England Executive Park......................... (7,597,100) 1970-1985 12/19/97 40
116 Northridge I....................................... (1,482,100) 1988 12/19/97 40
117 One Canal Park..................................... (977,100) 1987 12/19/97 40
118 Perimeter Center................................... (23,491,800) 1970-1989 12/19/97 40
119 Presidents Plaza................................... (6,528,400) 1980-1982 12/19/97 40
120 Riverview I & II................................... (2,775,200) 1985-1986 12/19/97 40
121 Russia Wharf....................................... (2,414,400) 1978-1982 12/19/97 40
122 Shoreline Technology Park.......................... (9,417,600) 1985-1991 12/19/97 40
123 South Station...................................... (1,615,100) 1988 12/19/97 40
124 Sunnyvale Business Center.......................... (2,246,700) 1990 12/19/97 40
125 Ten Canal Park..................................... (1,095,800) 1987 12/19/97 40
126 Tri-State International............................ (5,552,300) 1986 12/19/97 40
127 Wellesley Office Park.............................. (7,840,800) 1963-1984 12/19/97 40
128 Westbrook Corporate Center......................... (12,176,800) 1985-1996 12/19/97 40
129 Westwood Business Center........................... (1,322,600) 1985 12/19/97 40
130 100 Summer Street.................................. (9,403,800) 1974/1990 03/18/98 40
131 The Tower at New England Executive Park............ (599,500) 1971/1999 03/31/98 40
132 Westbrook Corporate Center vacant land............. -- N/A 04/02/98 N/A
133 Denver Post Tower.................................. (2,474,100) 1984 04/21/98 40
134 301 Howard Building................................ (2,661,700) 1988 04/29/98 40
135 410 17th Street.................................... (1,828,800) 1978 04/30/98 40
136 Tabor Center....................................... (5,243,000) 1985 04/30/98 40
137 Trinity Place...................................... (796,800) 1983 04/30/98 40
138 Dominion Plaza..................................... (2,353,600) 1983 05/14/98 40
139 Millennium Plaza................................... (1,564,400) 1982 05/19/98 40
140 Polk and Taylor Buildings.......................... (8,077,900) 1970 05/22/98 40
141 Bank of America Tower.............................. (14,560,300) 1985 06/26/98 40
142 Northland Plaza.................................... (1,610,500) 1985 07/02/98 40
143 4949 S. Syracuse................................... (288,600) 1982 07/15/98 40
144 Metropoint......................................... (1,475,300) 1987 07/15/98 40
145 Metropoint III vacant land......................... -- N/A 07/15/98 N/A
146 One Park Square.................................... (1,240,200) 1985 07/15/98 40
147 Park Avenue Tower.................................. (7,280,900) 1986 07/15/98 40
148 Terrace Building................................... (526,400) 1982 07/15/98 40
149 The Solarium....................................... (665,500) 1982 07/15/98 40
150 Second and Spring Building......................... (689,200) 1906/1989 07/29/98 40
151 Colonnade I & II................................... (2,786,800) 1983-1985 09/30/98 40
</TABLE>
<PAGE> 122
<TABLE>
<CAPTION>
ENCUMBRANCES
DESCRIPTION NOTES LOCATION AT 12/31/99 NOTES
----------- ----- -------- --------------- ------
<S> <C> <C> <C> <C>
152 Colonnade III...................................... (5) Dallas, TX $ --
153 Worldwide Plaza.................................... New York, NY (254,767,200)
154 Central Park vacant land........................... Atlanta, GA --
155 Computer Associates Tower.......................... Irving, TX --
156 Texas Commerce Tower............................... Irving, TX --
157 City Center Bellevue............................... Bellevue, WA --
158 Prominence vacant land............................. Atlanta, GA --
159 Palo Alto Square................................... Palo Alto, CA (52,550,000)
---------------
Subtotal Office Properties........................... $(1,707,105,000)
---------------
Development Properties:
160 150 California..................................... (10) San Francisco, CA $ --
161 John Marshall III.................................. (10) McLean, VA --
162 Riverside.......................................... (10) Newton, MA --
163 Prominence in Buckhead............................. (10) Atlanta, GA --
164 World Trade Center................................. (11) Seattle, WA --
---------------
Subtotal Development Properties...................... $ --
---------------
Parking Facilities:
1 203 North LaSalle Garage............................ (3) Chicago, IL $ (32,432,600) (12)
2 Theatre District Garage............................. (3) Chicago, IL --
3 Capital Commons Garage.............................. (3) Indianapolis, IN (4,333,700)
4 Boston Harbor Garage................................ (3) Boston, MA --
5 Milwaukee Center Garage............................. (3) Milwaukee, WI --
6 1111 Sansom Street Garage........................... (3) Philadelphia, PA --
7 15th & Sansom Streets Garage........................ (3) Philadelphia, PA --
8 1602-34 Chancellor Garage........................... (3) Philadelphia, PA --
9 1616 Sansom Street Garage........................... (3) Philadelphia, PA --
10 Juniper/Locust Streets Garage...................... (3) Philadelphia, PA --
11 Adams-Wabash Garage................................ Chicago, IL --
12 Riverfront Center.................................. Pittsburgh, PA --
13 Forbes and Allies Garages.......................... Pittsburgh, PA --
14 517 Marquette Garage............................... (5) Minneapolis, MN --
---------------
Subtotal Parking Facilities $ (36,766,300)
---------------
Management Business -- Furniture, fixtures and equipment $ --
---------------
Investment in Real Estate $(1,743,871,300) (13)
===============
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
-------------------------------- -------------------------
BUILDING AND BUILDING AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- -------------- --------------- ---------- ------------
<S> <C> <C> <C> <C>
152 Colonnade III...................................... $ 6,152,000 $ 55,367,700 $ -- $ 3,019,500
153 Worldwide Plaza.................................... 124,919,000 499,676,100 -- 108,900
154 Central Park vacant land........................... 3,975,400 -- -- --
155 Computer Associates Tower.......................... 5,129,400 46,164,300 12,800 113,100
156 Texas Commerce Tower............................... 5,525,400 49,728,500 -- 357,400
157 City Center Bellevue............................... 22,794,100 93,141,500 -- 384,500
158 Prominence vacant land............................. 7,861,700 -- -- --
159 Palo Alto Square................................... -- 78,286,700 -- 401,800
-------------- --------------- ---------- ------------
Subtotal Office Properties........................... $1,375,333,200 $10,874,433,100 $2,848,100 $415,366,900
-------------- --------------- ---------- ------------
Development Properties:
160 150 California..................................... $ 12,566,800 $ -- $ -- $30,277,900
161 John Marshall III.................................. 9,950,000 -- -- 30,486,100
162 Riverside.......................................... 24,000,000 -- -- 47,344,300
163 Prominence in Buckhead............................. 7,456,300 57,686,900 -- 9,293,300
164 World Trade Center................................. -- -- -- 163,800
-------------- --------------- ---------- ------------
Subtotal Development Properties...................... $ 53,973,100 $ 57,686,900 $ -- $117,565,400
-------------- --------------- ---------- ------------
Parking Facilities:
1 203 North LaSalle Garage............................ $ 3,784,600 $ 34,061,500 $ -- $ 1,129,300
2 Theatre District Garage............................. 3,372,300 30,326,400 -- 419,300
3 Capital Commons Garage.............................. -- 14,428,500 -- 30,000
4 Boston Harbor Garage................................ 6,087,300 54,785,300 -- 1,931,700
5 Milwaukee Center Garage............................. -- 7,798,800 -- 354,100
6 1111 Sansom Street Garage........................... 1,476,500 -- 6,800 --
7 15th & Sansom Streets Garage........................ 726,400 6,537,600 -- 11,300
8 1602-34 Chancellor Garage........................... 735,900 6,622,700 -- 1,113,900
9 1616 Sansom Street Garage........................... 432,900 3,896,200 -- 22,000
10 Juniper/Locust Streets Garage...................... 574,400 5,169,900 -- 246,600
11 Adams-Wabash Garage................................ 2,525,000 22,725,300 -- 298,500
12 Riverfront Center.................................. 1,794,500 16,160,000 -- 940,900
13 Forbes and Allies Garages.......................... -- 31,370,500 -- 1,455,100
14 517 Marquette Garage............................... 4,538,000 14,865,000 -- --
-------------- --------------- ---------- ------------
Subtotal Parking Facilities $ 26,047,800 $ 248,747,700 $ 6,800 $ 7,952,700
-------------- --------------- ---------- ------------
Management Business -- Furniture, fixtures and equipm $ -- $ -- $ -- $22,578,200
-------------- --------------- ---------- ------------
Investment in Real Estate $1,455,354,100 $11,180,867,700 $2,854,900 $563,463,200
============== =============== ========== ============
<CAPTION>
GROSS AMOUNT CARRIED AT
CLOSE OF PERIOD 12/31/99
--------------------------------
BUILDING AND
DESCRIPTION LAND IMPROVEMENTS TOTAL (1)
----------- -------------- --------------- ---------------
<S> <C> <C> <C>
152 Colonnade III...................................... $ 6,152,000 $ 58,387,200 $ 64,539,200
153 Worldwide Plaza.................................... 124,919,000 499,785,000 624,704,000
154 Central Park vacant land........................... 3,975,400 -- 3,975,400
155 Computer Associates Tower.......................... 5,142,200 46,277,400 51,419,600
156 Texas Commerce Tower............................... 5,525,400 50,085,900 55,611,300
157 City Center Bellevue............................... 22,794,100 93,526,000 116,320,100
158 Prominence vacant land............................. 7,861,700 -- 7,861,700
159 Palo Alto Square................................... -- 78,688,500 78,688,500
-------------- --------------- ---------------
Subtotal Office Properties........................... $1,378,181,300 $11,289,800,000 $12,667,981,300
-------------- --------------- ---------------
Development Properties:
160 150 California..................................... $ 12,566,800 $ 30,277,900 $ 42,844,700
161 John Marshall III.................................. 9,950,000 30,486,100 40,436,100
162 Riverside.......................................... 24,000,000 47,344,300 71,344,300
163 Prominence in Buckhead............................. 7,456,300 66,980,200 74,436,500
164 World Trade Center................................. -- 163,800 163,800
-------------- --------------- ---------------
Subtotal Development Properties...................... $ 53,973,100 $ 175,252,300 $ 229,225,400
-------------- --------------- ---------------
Parking Facilities:
1 203 North LaSalle Garage............................ $ 3,784,600 $ 35,190,800 $ 38,975,400
2 Theatre District Garage............................. 3,372,300 30,745,700 34,118,000
3 Capital Commons Garage.............................. -- 14,458,500 14,458,500
4 Boston Harbor Garage................................ 6,087,300 56,717,000 62,804,300
5 Milwaukee Center Garage............................. -- 8,152,900 8,152,900
6 1111 Sansom Street Garage........................... 1,483,300 -- 1,483,300
7 15th & Sansom Streets Garage........................ 726,400 6,548,900 7,275,300
8 1602-34 Chancellor Garage........................... 735,900 7,736,600 8,472,500
9 1616 Sansom Street Garage........................... 432,900 3,918,200 4,351,100
10 Juniper/Locust Streets Garage...................... 574,400 5,416,500 5,990,900
11 Adams-Wabash Garage................................ 2,525,000 23,023,800 25,548,800
12 Riverfront Center.................................. 1,794,500 17,100,900 18,895,400
13 Forbes and Allies Garages.......................... -- 32,825,600 32,825,600
14 517 Marquette Garage............................... 4,538,000 14,865,000 19,403,000
-------------- --------------- ---------------
Subtotal Parking Facilities $ 26,054,600 $ 256,700,400 $ 282,755,000
-------------- --------------- ---------------
Management Business -- Furniture, fixtures and equipm $ -- $ 22,578,200 $ 22,578,200
-------------- --------------- ---------------
Investment in Real Estate $1,458,209,000 $11,744,330,900 $13,202,539,900
============== =============== ===============
<CAPTION>
DATE OF
ACCUMULATED CONSTRUCTION/ DATE DEPRECIABLE
DESCRIPTION DEPRECIATION RENOVATION ACQUIRED LIVES (2)
----------- ------------- ------------- ------------------ -----------
<S> <C> <C> <C> <C>
152 Colonnade III...................................... $ (1,683,100) 1998 09/30/98 40
153 Worldwide Plaza.................................... (15,097,000) 1989 10/01/98 40
154 Central Park vacant land........................... -- N/A 11/03/98 N/A
155 Computer Associates Tower.......................... (1,116,500) 1988 01/07/99 40
156 Texas Commerce Tower............................... (1,223,400) 1985 01/07/99 40
157 City Center Bellevue............................... (2,246,500) 1987 01/28/99 40
158 Prominence vacant land............................. -- N/A 07/13/99 N/A
159 Palo Alto Square................................... (410,500) 1971/1985 10/01/99 40
-------------
Subtotal Office Properties........................... $(614,198,700)
-------------
Development Properties:
160 150 California..................................... $ -- N/A 12/19/97 N/A
161 John Marshall III.................................. -- N/A 12/19/97 N/A
162 Riverside.......................................... -- N/A 12/19/97 N/A
163 Prominence in Buckhead............................. (108,100) 1999 07/13/99 40
164 World Trade Center................................. -- N/A N/A N/A
-------------
Subtotal Development Properties...................... $ (108,100)
-------------
Parking Facilities:
1 203 North LaSalle Garage............................ $ (2,280,400) 1985 06/09/95 40
2 Theatre District Garage............................. (1,888,400) 1987 06/09/95 40
3 Capital Commons Garage.............................. (887,000) 1987 06/29/95 40
4 Boston Harbor Garage................................ (3,513,200) 1972 12/10/96 40
5 Milwaukee Center Garage............................. (540,300) 1988 12/18/96 40
6 1111 Sansom Street Garage........................... (1,400) N/A 12/27/96 40
7 15th & Sansom Streets Garage........................ (401,300) 1950/1954 12/27/96 40
8 1602-34 Chancellor Garage........................... (423,600) 1945/1955 12/27/96 40
9 1616 Sansom Street Garage........................... (237,700) 1950 12/27/96 40
10 Juniper/Locust Streets Garage...................... (327,400) 1949/1952 12/27/96 40
11 Adams-Wabash Garage................................ (1,375,700) 1990 08/11/97 40
12 Riverfront Center.................................. (941,400) 1989 11/25/97 40
13 Forbes and Allies Garages.......................... (843,100) 1954 12/17/98 40
14 517 Marquette Garage............................... (232,200) 1999 04/01/99 40
-------------
Subtotal Parking Facilities $ (13,893,100)
-------------
Management Business -- Furniture, fixtures and equipm $ (2,186,700)
-------------
Investment in Real Estate $(630,386,600)
=============
</TABLE>
<PAGE> 123
- ---------------
(1) The aggregate cost for Federal Income Tax purposes as of December 31, 1999
was approximately $10.3 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 Properties were previously under development and have been placed
into service during 1999.
(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 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.
(11) During 1998, the Company committed to acquire this property upon its
completion. The costs reflected above include legal and other professional
fees incurred in connection with the Company's potential acquisition of
this project. This transaction is contingent upon certain terms and
conditions as set forth in its respective purchase agreements. There can be
no assurance that this transaction will be consummated.
(12) The encumbrance on the 203 North LaSalle Garage is also secured by a first
lien on the Theatre District Garage.
(13) The encumbrances at December 31, 1999 include a net premium (net of
accumulated amortization of approximately $4.0 million) of approximately
$10.6 million.
<PAGE> 124
A SUMMARY OF ACTIVITY OF INVESTMENT IN REAL ESTATE AND ACCUMULATED DEPRECIATION
IS AS FOLLOWS:
The changes in investment in real estate for the years ended December 31,
1999 and 1998, the period from July 11, 1997 through December 31, 1997 and the
period from January 1, 1997 through July 10, 1997 are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
JULY 11, 1997 THROUGH JANUARY 1, 1997 THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 JULY 10, 1997
----------------- ----------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
Balance, beginning of the
period....................... $13,683,819,300 $11,041,014,100 $ -- $3,549,707,600
Additions during period:
Acquisitions.............. 391,917,800 2,556,978,300 10,941,428,100 531,968,000
Improvements.............. 297,495,500 207,093,000 99,586,000 59,511,000
Deductions during period:
Properties disposed
of(1)................... (1,170,692,700) (121,266,100) (67,193,400)
--------------- --------------- --------------- --------------
Balance, end of period......... $13,202,539,900 $13,683,819,300 $11,041,014,100 $4,073,993,200
=============== =============== =============== ==============
</TABLE>
The changes in accumulated depreciation for the years ended December 31,
1999 and 1998, the period from July 11, 1997 through December 31, 1997 and the
period from January 1, 1997 through July 10, 1997 are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
JULY 11, 1997 THROUGH JANUARY 1, 1997 THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 JULY 10, 1997
----------------- ----------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
Balance, beginning of the
period....................... $ (352,258,800) $ (64,695,100) $ -- $ (257,893,300)
Additions during period:
Depreciation.............. (339,751,400) (291,213,400) (64,695,100) (57,379,300)
Deductions during period:
Properties disposed
of(1)................... 61,623,600 3,649,700 -- 8,517,200
--------------- --------------- --------------- --------------
Balance, end of period......... $ (630,386,600) $ (352,258,800) $ (64,695,100) $ (306,755,400)
=============== =============== =============== ==============
</TABLE>
(1) The disposition amount of approximately $1.2 billion and the related
accumulated depreciation of $61.6 million for the year ended December 31,
1999 includes approximately $1.1 billion and $58.5 million, respectively,
related to the partial sale of interest in various Properties to Lend Lease
Australia/US Properties. Prior to the sale, the Company consolidated the
financial condition and results of operations of the Office Properties. Upon
the sale, the Company retained an equity interest in the Office Properties
and shares equally in the control of the operations and major decisions of
the Office Properties. Therefore, the Company accounts for its remaining
interest in the Office Properties under the equity method of accounting and
classifies its net equity investment of approximately $486.9 million as
investment in unconsolidated joint ventures on the consolidated balance
sheet and its interest in the net income from investment in unconsolidated
joint venture is reflected in the consolidated statements of operations.
<PAGE> 1
EXHIBIT 3.5
EQUITY OFFICE PROPERTIES TRUST
ARTICLES SUPPLEMENTARY
Equity Office Properties Trust, a Maryland real estate investment trust
(hereinafter called the "Trust"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
Pursuant to Section 3-802 of the Maryland General Corporation Law (the
"MGCL"), by resolution of the Board of Trustees of the Trust duly adopted at a
duly called meeting held on February 10, 2000, the Trust elected to be subject
to the provisions of Section 3-804(c) of the MGCL, subject to any rights
conferred by the Trust by provision in its declaration of trust as now or
hereafter in effect on holders of any class or series of preference or preferred
shares of the Trust now or hereafter created.
IN WITNESS WHEREOF, the Trust has caused these Articles Supplementary to be
signed in its name and on its behalf by its President and Chief Executive
Officer and witnessed by its Secretary on February 28, 2000.
WITNESS: EQUITY OFFICE PROPERTIES TRUST
By: /s/ Stanley M. Stevens By: /s/Timothy H. Callahan
---------------------- ----------------------
Stanley M. Stevens Timothy H. Callahan
Secretary President and Chief Executive Officer
THE UNDERSIGNED, President and Chief Executive Officer of Equity Office
Properties Trust, who executed on behalf of the Trust Articles Supplementary of
which this Certificate is made a part, hereby acknowledges in the name and on
behalf of said Trust the foregoing Articles Supplementary to be the act of said
Trust and hereby certifies that the matters and facts set forth herein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/Timothy H. Callahan
----------------------
Timothy H. Callahan
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 4.21
FIRST AMENDMENT TO SECOND AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING
CREDIT AGREEMENT (this "Amendment") is made as of June 18, 1999, by and among
EOP OPERATING LIMITED PARTNERSHIP (the "Borrower"), EQUITY OFFICE PROPERTIES
TRUST (the "Guarantor"), NATIONSBANK, N.A., as Administrative Agent for the
Banks (the "Administrative Agent"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
THE CHASE MANHATTAN BANK, as Documentation Agent and as Managing Agent, J.P.
MORGAN SECURITIES INC., as Syndication Agent, THE BANK OF NOVA SCOTIA,
COMMERZBANK AKTIENGESELLSCHAFT, DRESDNER BANK AG, NEW YORK AND CAYMAN BRANCHES,
PNC BANK, NATIONAL ASSOCIATION, and UNION BANK OF SWITZERLAND, NEW YORK BRANCH,
as Managing Agents, CREDIT LYONNAIS, NEW YORK BRANCH, FLEET NATIONAL BANK, and
U.S. BANK NATIONAL ASSOCIATION, as Co-Agents, and the BANKS party hereto.
W I T N E S S E T H:
WHEREAS, the Borrower has executed and delivered to the Agents
(or their predecessors), the Managing Agents, certain of the Co-Agents and the
Banks that certain Second Amended and Restated Revolving Credit Agreement dated
as of May 29, 1998, by and among the Borrower, certain of the Banks, the
Managing Agents, the Co-Agents and the Agents (the "Credit Agreement");
WHEREAS, the Borrower has requested that the Banks agree to
modify the Credit Agreement in order to amend certain provisions therein, upon
the terms and conditions set forth herein, and the Administrative Agent has
recommended that such modification be approved by the Banks.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
1. Definitions. All capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Credit Agreement.
2. Amendments.
(a) The definition of "Applicable Margin" set forth in the
Credit Agreement is hereby amended by adding the following clause at the end of
the first sentence thereof:
"; provided, however, that, during the twelve (12) month
period following the closing of an Identified Merger or
Acquisition (as hereinafter defined), if the ratio of Total
Liabilities to Total Asset Value of the Borrower at any time
exceeds 0.50:1, then the Applicable Margin for Euro-Dollar
Loans made or outstanding during the period that such ratio
exceeds 0.50:1 shall be Applicable Margin set forth on the
table below plus 0.20%.
<PAGE> 2
(b) The definition of "Documentation Agent" set forth in the
Credit Agreement is hereby deleted and the following is substituted therefor:
"Documentation Agent" means The Chase Manhattan Bank, in its
capacity as Documentation Agent hereunder, and its permitted
successors in such capacity in accordance with the terms of
this Agreement.
(c) The definition of "Joint Venture Subsidiary" is hereby
amended by (1) inserting the word "substantially" between "is" and "controlled"
in clause (ii) of the first sentence thereof, and (2) inserting the following
clause at the end of the first sentence thereof: ", subject to customary
provisions set forth in the organizational documents of such Joint Venture
Subsidiary with respect to refinancings or rights of first refusal granted to
other members of such Joint Venture Subsidiary."
(d) The definition of "Unencumbered Asset Value" is hereby
amended by (1) inserting the words "the sum of" after the word "means" in the
first line thereof, (2) inserting the following words after "(i)" in the first
line thereof: "all Cash and Cash Equivalents of the Borrower, all Financing
Partnerships and Joint Venture Subsidiaries which are not subject to any pledge,
negative pledge, encumbrance, hypothecation or other restriction (provided that
in the case of Cash and Cash Equivalents of any Joint Venture Subsidiary, the
amount of Cash and Cash Equivalents attributable to such Joint Venture
Subsidiary shall be reduced to a percentage equal to the Borrower's percentage
ownership interest (whether direct or indirect) in such Joint Venture
Subsidiary), plus (ii)", (3) deleting "$1.50" from the fifth line thereof and
substituting therefor "$0.50", (4) renumbering clause (ii) in the tenth line
thereof as clause (iii) and revising all cross-references to such clause within
such definition, (5) deleting "twenty-five percent (25%)" from line 23 thereof
and substituting therefor "twenty percent (20%)", and (6) deleting "twenty-five
percent (25%)" from line 27 thereof and substituting therefor "fifteen percent
(15%)."
(e) Section 5.8(a) of the Credit Agreement is hereby deleted
in its entirety and substituted therefor is the following covenant:
(a) Total Liabilities to Total Asset Value. The Borrower shall
not permit the ratio of Total Liabilities to Total Asset Value
of Borrower to exceed 0.50:1 at any time except for the twelve
(12) month period described in the following sentence. During
the twelve (12) month period following the closing of the
Identified Merger or Acquisition, Borrower shall not permit
the ratio of Total Liabilities to Total Asset Value of the
Borrower to exceed 0.55:1. As used in this Agreement, the term
"Identified Merger or Acquisition" shall mean the first merger
or acquisition by Borrower or any Subsidiary which Borrower
has designated in writing to the Administrative Agent as the
Identified Merger or Acquisition at least thirty (30) days
prior to the closing of such merger or acquisition and for
which Borrower has, prior to the closing of such merger or
acquisition, provided the Administrative Agent with
<PAGE> 3
Borrower's projections for the twelve (12) month period
following such merger or acquisition, after giving effect to
such merger or acquisition, outlining in reasonable detail the
anticipated performance of Borrower during such twelve (12)
month period and anticipated compliance with the requirements
of Section 5.8 hereof during such twelve (12) month period.
(f) Section 5.8(j) of the Credit Agreement is hereby amended
by deleting "fifteen percent (15%)" from the sixth line thereof and substituting
therefor "twenty percent (20%)".
3. Confirmation of Guaranties. Guarantor hereby acknowledges
and agrees that the Amended and Restated Guaranty of Payment - No. 1 dated as of
May 29, 1998 and the Amended and Restated Guaranty of Payment - No. 2 dated as
of May 29, 1998, each entered into in connection with the Credit Agreement, and
the Guarantor's obligations under each such guaranty, continue in full force and
effect notwithstanding this Amendment.
4. Representations and Warranties. The Borrower hereby
represents and warrants to the Banks that no Default or Event of Default exists
under the Credit Agreement and that the representations and warranties of the
Borrower set forth in the Credit Agreement are true and correct on and as of the
date hereof, except to the extent that such representations and warranties
expressly speak only as of a prior date, in which case such representations and
warranties were true and correct on and as of such prior date.
5. Effective Date. This Amendment shall become effective upon
receipt by the Administrative Agent 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).
6. Entire Agreement. This Amendment constitutes the entire and
final agreement among the parties hereto with respect to the subject matter
hereof and there are no other agreements, understandings, undertakings,
representations or warranties among the parties hereto with respect to the
subject matter hereof except as set forth herein.
7. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the law of the State of Illinois.
8. Counterparts. This Amendment may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
agreement, and any of the parties hereto may execute this Amendment by signing
any such counterpart.
9. Headings, Etc. Section or other headings contained in this
Amendment are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Amendment.
<PAGE> 4
10. No Further Modifications. Except as modified herein, all
of the terms and conditions of the Credit Agreement, as modified hereby shall
remain in full force and effect and, as modified hereby, the Borrower confirms
and ratifies all of the terms, covenants and conditions of the Credit Agreement
in all respects.
Signature Pages to Follow
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment 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 estate investment trust,
its managing general partner
By: /s/ RICHARD D. KINCAID
Name: Richard D. Kincaid
Title: Executive Vice President and
Chief Financial Officer
WITH RESPECT TO
SECTION 3 HEREOF
ONLY: EQUITY OFFICE PROPERTIES TRUST
By: /s/ RICHARD D. KINCAID
Name: Richard D. Kincaid
Title: Executive Vice President and
Chief Financial Officer
THE BANK OF NOVA SCOTIA, as a Managing
Agent and as a Bank
By: /s/ R.H. BOESE
Name: R.H. Boese
Title: Sr. Relationship Manager
Commitment: $65,000,000
COMMERZBANK AKTIENGESELLSCHAFT, as a
Managing Agent and as a Bank
By: /s/ DOUGLAS P. TRAYNOR
Name: Douglas P. Traynor
Title: Vice President
By: /s/ DAVID BUETTNER
Name: David Buettner
Title: Assistant Treasurer
Commitment: $65,000,000
DRESDNER BANK AG, NEW YORK AND CAYMAN
BRANCHES, as a Managing Agent and as Bank
By: /s/ BEVERLY G. CASON
Name: Beverly G. Cason
Title: Vice President
By: /s/ JOHN W. SWEENEY
Name: John W. Sweeney
Title: Vice President
Commitment: $65,000,000
PNC BANK, NATIONAL ASSOCIATION, as a
Managing agent and as a bank
By: /s/ MICHAEL E. SMITH
Name: Michael E. Smith
Title: Vice President
Commitment: $65,000,000
<PAGE> 6
NATIONSBANK, N.A., as Administrative
Agent, as Swingline Lender and as a Bank
By: /s/ PATRICK TROWBRIDGE
Name: Patrick Trowbridge
Title: Vice President
Commitment: $138,000,000
UBS AG, STAMFORD BRANCH,
successor-in-interest to Union Bank of
Switzerland, New York Branch, as a
Managing Agent and as a Bank
By: /s/ JEFFREY W. WALD
Name: Jeffrey W. Wald
Title: Executive Director
By: /s/ DAVID GOLDMAN
Name: David Goldman
Title: Director
Commitment: $65,000,000
CREDIT LYONNAIS, NEW YORK BRANCE, as a
Co-Agent and as a Bank
By: /s/ JAMES R. FITZGERALD
Name: James R. Fitzgerald
Title: Senior Vice President
Commitment: $54,000,000
FLEET NATIONAL BANK, as a Co-Agent and as
a Bank
By: /s/ THOMAS J. PONTES
Name: Thomas J. Pontes
Title: Vice President
Commitment: $54,000,000
BANK ONE, ILLINOIS, N.A., as a Bank
By: /s/ LYNN BRAUN
Name: Lynn Braun
Title: Vice President
Commitment: $50,000,000
U.S. BANK NATIONAL ASSOCIATION,
as a Co-Agent and as a Bank
By:
Name:
Title:
Commitment: $54,000,000
BAYERISCHE HYPO-UND VEREINSBANK AG,
as successor by Merger to
BAYERISCHE HYPOTHEKEN-UND WECHSEL-BANK
AKTIENGESELLSCHAFT, as a Bank
By: /s/ MEGGAN W. WALSH
Name: Meggan W. Walsh
Title: Managing Director
By: /s/ DENNIS B. TRACEY
Name: Dennis B. Tracey
Title: Director
Commitment: $50,000,000
<PAGE> 7
THE CHASE MANHATTAN BANK, as
Documentation Agent, as a Managing Agent
and as a Bank
By: /s/ MARC E. COSTANTINO
Name: Marc E. Costantino
Title: Vice President
Commitment: $65,000,000
BANKBOSTON, N.A., as a Bank
By: /s/ DOUGLAS S. NOVITCH
Name: Douglas S. Novitch
Title: Authorized Officer
Commitment: $31,000,000
LASSALE NATIONAL BANK, as a Bank
By: /s/ PETER MARGOLIN
Name: Peter Margolin
Title: A.V.P.
Commitment: $30,000,000
MELLON BANK, as a Bank
By: /s/ MICHAEL FALLON
Name: Michael Fallon
Title: Vice President
Commitment: $30,000,000
UNION BANK OF CALIFORNIA, N.A., as a Bank
By: /s/ DIANA GIACOMINI
Name: Diana Giacomini
Title: Vice President
Commitment: $30,000,000
THE INDUSTRIAL BANK OF JAPAN, LIMITED, as
a Bank
By: /s/ TAKESHI KUBO
Name: Takeshi Kubo
Title: Vice President
Commitment: $20,000,000
<PAGE> 8
J.P. MORGAN SECURITIES, INC., as
Syndication Agent
By: /s/ JENNY Y. LEE
Name: Jenny Y. Lee
Title: Vice President
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as a Bank
By: /s/ ROBERT BOTTAMEDI
Name: Robert Bottamedi
Title: Vice President
Commitment: $69,000,000
<PAGE> 1
EXHIBIT 4.22
[CHASE LOGO]
Fixed Rate Promissory Note
(Multiple Loans)
New York, New York January 17, 2000
For value received, the undersigned (the "Borrower") unconditionally
promises to pay to the order of THE CHASE MANHATTAN BANK (the "Bank"), at its
principal office located at 270 Park Avenue, New York, New York 10017, the
principal amount of each loan made by the Bank to the Borrower and outstanding
under this Note, on the maturity date(s) as evidenced in the Bank's records as
provided in the fifth paragraph hereof.
The Borrower promises to pay interest on the unpaid balance of the
principal amount of each such loan for each day outstanding at a fixed rate per
annum equal to the rate as evidenced in the Bank's records as provided in the
fifth paragraph hereof; provided that principal and (to the extent permitted by
law) interest not paid when due (whether at stated maturity, by acceleration or
otherwise) shall bear interest for each day overdue at a variable rate per annum
equal to: (a) the higher of: (i) the Federal Funds Rate plus 1/2 of 1% or (ii)
the Prime Rate; plus (b) 2%. "Federal Funds Rate" means, for any day, the rate
per annum equal to the weighted average of the rates on overnight Federal funds
transactions as published by the Federal Reserve Bank of New York for such day
(or for any day that is not a banking day in New York City, for the immediately
preceding banking day). "Prime Rate" means, for any day, that rate of interest
from time to time announced by the Bank at its principal office as its prime
commercial lending rate, as in effect for such day in accordance with
announcements by the Bank of changes in such rate. Interest shall be calculated
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). Interest on each
loan shall be due and payable at the maturity thereof (and quarterly, if
requested by the Bank). In no case shall the interest on this Note exceed the
maximum amount which the Bank may charge or collect under applicable law.
Each loan hereunder may be prepaid in whole but not in part, provided
that accrued and unpaid interest is paid on the date of such prepayment,
together with any compensation payable in accordance with the following. If
there is any payment (whether by voluntary prepayment, acceleration or
otherwise) of principal of a loan under this Note on a date other than the
scheduled maturity date thereof set forth in the first paragraph hereof, then
the Borrower will pay the Bank such amount as will be sufficient in the
reasonable opinion of the Bank to compensate it for any loss, cost or expense
which the Bank determines is attributable thereto within ten (10) days after
written notice from the Bank to Borrower of the amount of such loss, cost or
expense and a statement in reasonable detail of the basis for and calculation of
such amount. Without limiting the foregoing, such compensation shall include an
amount equal to the excess, if any, of: (a) the aggregate amount of interest
which otherwise would have accrued on the principal amount so paid for the
period from and including the date of payment to but excluding such maturity
date at the rate of interest provided herein over (b) the amount of interest the
Bank would pay (as determined by the Bank in good faith, such determination to
be conclusive) on a deposit placed with the Bank on the date of such payment in
an amount comparable to such principal amount and with a maturity comparable to
such period.
All payments under this Note shall be made in lawful money of the
United States of America and in immediately available funds at the Bank's
principal office specified above. If any loan evidenced by this Note becomes due
and payable on a day which is not a banking day in New York City, the maturity
of such loan shall be extended to the next succeeding banking day, and interest
shall be payable for such extension on such loan at the rate of interest
specified in this Note.
The date, amount, rate of interest and maturity date of each loan under
this Note as verbally agreed to between the Bank and Borrower at the time each
Loan is requested by Borrower hereunder and each payment of principal, loan(s)
to which such principal is applied (as designated by Borrower at the time such
payment is made) and the outstanding principal balance of loans shall be
recorded by the Bank on its books and prior to any transfer and delivery of this
Note, endorsed by the Bank on the schedule attached or any continuation of the
schedule. Any such endorsement shall be conclusive in the absence of manifest
error.
<PAGE> 2
If any of the following events of default shall occur: (a) the Borrower
fails to pay any liability to the Bank under this Note when due and payable in
the case of principal, within five (5) days after the same became due and
payable in the case of interest and within ten (10) days after written notice
from the Bank to Borrower in all other cases; (b) the Borrower shall breach in
any material respect any representation, warranty or covenant in this Note or
other document executed and delivered by Borrower in connection with this Note
(this Note and any such document being a "Facility Document") or in any
certificate or financial or other statement delivered in connection with a
Facility Document; (c) the Borrower shall become insolvent (however evidenced)
or shall seek any relief under any bankruptcy or similar law of any jurisdiction
(or any person shall seek such relief against the Borrower and such involuntary
case or other proceeding shall remain undismissed and unstayed for a period of
90 days); (e) any Facility Document shall at any time cease to be in full force
and effect or its validity or enforceability shall be disputed or contested; or
(f) any lien or security interest securing this Note shall cease to create a
valid and perfected first priority lien or security interest in the property
purported to be subject thereto; THEN, if the Bank shall elect by notice to the
Borrower, the unpaid principal amount of this Note, together with interest and
any other amounts due hereunder shall become forthwith due and payable; provided
that in the case of an event of default under (d) above, such amounts shall
automatically become due and payable without any notice or other action by the
Bank.
The Borrower waives presentment, notice of dishonor, protest and any
other formality with respect to this Note.
The Borrower shall reimburse the Bank on demand for all reasonable
costs and expenses (including, without limitation, the reasonable fees and
charges of external legal counsel for the Bank) in connection with the
enforcement of this Note.
This Note shall be binding on the Borrower and its successors and
assigns and shall inure to the benefit of the Bank and its successors and
assigns; provided that the Borrower may not delegate any obligations hereunder
without the prior written consent of the Bank. Without limiting any provision of
this Note, the obligations under this Note shall continue in full force and
effect and shall be binding on: (a) the estate of the Borrower if the Borrower
is an individual; and (b) any successor partnership and on previous partners and
their respective estates if the Borrower is a partnership, regardless of any
change in the partnership as a result of death, retirement or otherwise.
THIS NOTE SHALL BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. THE
BORROWER CONSENTS TO THE NONEXCLUSIVE JURISDICTION AND VENUE OF THE STATE OR
FEDERAL COURTS LOCATED IN THE CITY OF NEW YORK. SERVICE OF PROCESS BY THE BANK
IN CONNECTION WITH ANY SUCH DISPUTE SHALL BE BINDING ON THE BORROWER IF SENT TO
THE BORROWER BY REGISTERED MAIL AT THE ADDRESS SPECIFIED BELOW. THE BORROWER
AND, BY ITS ACCEPTANCE OF THIS NOTE, LENDER WAIVE ANY RIGHT EACH MAY HAVE TO
JURY TRIAL.
Address: Two North Riverside Plaza EOP OPERATING LIMITED PARTNERSHIP,
Suite 2100 a Delaware limited partnership
Chicago, Illinois 60606
Attention: Treasurer By: Equity Office Properties Trust,
its managing general partner
By: /s/ MAUREEN FEAR
Name: Maureen Fear
Title: Sr. Vice President, Treasurer
<PAGE> 3
<TABLE>
<CAPTION>
Amount of
Date Payment and Principal
and Amount Loan Number Balance
Loan of Loan Maturity to Which Remaining Notation
Number and Rate Date Applied Unpaid Made By
------ -------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 4.23
SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
for $1,000,000,000 Revolving Credit Facility
dated as of May 29, 1998
among
EOP OPERATING LIMITED PARTNERSHIP,
THE BANKS LISTED HEREIN,
NATIONSBANK, N.A.,
as Administrative Agent,
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
as Documentation Agent,
J.P. MORGAN SECURITIES INC.,
as Syndication Agent,
THE BANK OF NOVA SCOTIA,
THE CHASE MANHATTAN BANK,
COMMERZBANK AKTIENGESELLSCHAFT,
DRESDNER BANK AG, NEW YORK AND CAYMAN BRANCHES,
PNC BANK, NATIONAL ASSOCIATION,
and
UNION BANK OF SWITZERLAND, NEW YORK BRANCH,
as Managing Agents
AND
CREDIT LYONNAIS, NEW YORK BRANCH,
FLEET NATIONAL BANK,
and
U.S. BANK NATIONAL ASSOCIATION,
as Co-Agents.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS..................................................................... 1
SECTION 1.1. Definitions ...................................... 1
SECTION 1.2. Accounting Terms and Determinations .............. 23
SECTION 1.3. Types of Borrowings .............................. 24
SECTION 1.4. Interrelationship with the Existing Credit
Agreement ........................................ 24
ARTICLE II THE CREDITS ................................................................. 24
SECTION 2.1. Commitments to Lend .............................. 24
SECTION 2.2. Notice of Borrowing .............................. 25
SECTION 2.3. Swingline Loan Subfacility ....................... 25
(a)Swingline Commitment .................................... 25
(b)Swingline Borrowings .................................... 25
(c)Interest Rate ........................................... 27
SECTION 2.4. Money Market Borrowings ........................... 27
(a)The Money Market Option ................................. 27
(b)Money Market Quote Request .............................. 27
(c)Invitation for Money Market Quotes ...................... 28
(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 2.5. Notice to Banks; Funding of Loans ................. 30
SECTION 2.6. Notes ............................................. 31
SECTION 2.7. Method of Electing Interest Rates ................. 32
SECTION 2.8. Interest Rates .................................... 33
SECTION 2.9. Fees .............................................. 34
(a)Facility Fee ............................................ 34
(b)Agency Fees ............................................. 34
(c)Fees Non-Refundable ..................................... 34
SECTION 2.10. Maturity Date ................................... 35
SECTION 2.11. Optional Prepayments ............................ 35
SECTION 2.12. General Provisions as to Payments ............... 36
SECTION 2.13. Funding Losses .................................. 37
SECTION 2.14. Computation of Interest and Fees ................ 37
SECTION 2.15. Use of Proceeds ................................. 37
ARTICLE III CONDITIONS ................................................................. 37
SECTION 3.1. Closing .......................................... 37
SECTION 3.2. Borrowings ....................................... 39
ARTICLE IV REPRESENTATIONS AND WARRANTIES .............................................. 39
SECTION 4.1. Existence and Power .............................. 40
SECTION 4.2. Power and Authority .............................. 40
SECTION 4.3. No Violation ..................................... 40
SECTION 4.4. Financial Information ............................ 41
SECTION 4.5. Litigation ....................................... 41
SECTION 4.6. Compliance with ERISA ............................ 42
SECTION 4.7. Environmental .................................... 42
SECTION 4.8. Taxes ............................................ 42
SECTION 4.9. Full Disclosure .................................. 43
SECTION 4.10. Solvency ........................................ 43
SECTION 4.11. Use of Proceeds ................................. 43
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 4.12. Governmental Approvals .......................... 43
SECTION 4.13. Investment Company Act; Public Utility
Holding Company Act ............................. 43
SECTION 4.14. Principal Offices ............................... 43
SECTION 4.15. REIT Status ..................................... 43
SECTION 4.16. Patents, Trademarks, etc. ....................... 43
SECTION 4.17. Judgments ....................................... 43
SECTION 4.18. No Default ...................................... 44
SECTION 4.19. Licenses, etc. .................................. 44
SECTION 4.20. Compliance With Law ............................. 44
SECTION 4.21. No Burdensome Restrictions ...................... 44
SECTION 4.22. Brokers' Fees ................................... 44
SECTION 4.23. Labor Matters ................................... 44
SECTION 4.24. Insurance ....................................... 44
SECTION 4.25. Organizational Documents ........................ 45
SECTION 4.26. Qualifying Unencumbered Properties .............. 45
SECTION 4.27. "Year 2000" Compliance........................... 45
ARTICLE V AFFIRMATIVE AND NEGATIVE COVENANTS ........................................... 45
SECTION 5.1. Information ...................................... 45
SECTION 5.2. Payment of Obligations ........................... 48
SECTION 5.3. Maintenance of Property; Insurance; Leases ....... 48
SECTION 5.4. Maintenance of Existence ......................... 48
SECTION 5.5. Compliance with Laws ............................. 48
SECTION 5.6. Inspection of Property, Books and Records ........ 49
SECTION 5.7. Existence ........................................ 49
SECTION 5.8. Financial Covenants .............................. 49
(a)Total Liabilities to Total Asset Value .................. 49
(b)EBITDA to Interest Expense Ratio ........................ 49
(c)[Intentionally Omitted.] ................................ 49
(d)Cash Flow to Fixed Charges Ratio ........................ 49
(e)Secured Debt to Total Asset Value ....................... 49
(f)Unencumbered Pool ....................................... 50
(g)Unencumbered Net Operating Income to Unsecured
Debt Service ............................................ 50
(h)Minimum Tangible Net Worth .............................. 50
(i)Dividends ............................................... 50
(j)Permitted Holdings ...................................... 50
(k)No Liens ................................................ 50
(l)Calculation ............................................. 50
SECTION 5.9. Restriction on Fundamental Changes ............... 50
SECTION 5.10. Changes in Business ............................. 51
SECTION 5.11. EOPT Status ..................................... 51
(a)Status .................................................. 51
(b)Indebtedness ............................................ 51
(c)Restriction on Fundamental Changes ...................... 52
(d)Environmental Liabilities ............................... 52
(e)Disposal of Partnership Interests ....................... 52
SECTION 5.12. Other Indebtedness .............................. 53
SECTION 5.13. Forward Equity Contracts. ....................... 53
ARTICLE VI DEFAULTS .................................................................... 53
SECTION 6.1. Events of Default ................................ 53
SECTION 6.2. Rights and Remedies .............................. 56
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
SECTION 6.3. Notice of Default ................................ 56
SECTION 6.4. Distribution of Proceeds after Default ........... 56
ARTICLE VII THE AGENTS ................................................................. 57
SECTION 7.1. Appointment and Authorization ..................... 57
SECTION 7.2. Agency and Affiliates ............................. 57
SECTION 7.3. Action by Administrative Agent and
Documentation Agent ............................... 57
SECTION 7.4. Consultation with Experts ......................... 57
SECTION 7.5. Liability of Administrative Agent and
Documentation Agent ............................... 58
SECTION 7.6. Indemnification ................................... 58
SECTION 7.7. Credit Decision ................................... 58
SECTION 7.8. Successor Administrative Agent, Documentation
Agent or Syndication Agent ........................ 59
SECTION 7.9. Consents and Approvals ............................ 60
ARTICLE VIII CHANGE IN CIRCUMSTANCES ................................................... 60
SECTION 8.1. Basis for Determining Interest Rate Inadequate
or Unfair ........................................ 60
SECTION 8.2. Illegality ....................................... 60
SECTION 8.3. Increased Cost and Reduced Return ................ 61
SECTION 8.4. Taxes ............................................ 63
SECTION 8.5. Base Rate Loans Substituted for Affected
Euro-Dollar Loans ................................ 64
ARTICLE IX MISCELLANEOUS ............................................................... 65
SECTION 9.1. Notices .......................................... 65
SECTION 9.2. No Waivers ....................................... 65
SECTION 9.3. Expenses; Indemnification ........................ 66
SECTION 9.4. Sharing of Set-Offs .............................. 67
SECTION 9.5. Amendments and Waivers ........................... 68
SECTION 9.6. Successors and Assigns ........................... 68
SECTION 9.7. Collateral ....................................... 71
SECTION 9.8. Governing Law; Submission to Jurisdiction ........ 71
SECTION 9.9. Counterparts; Integration;. Effectiveness ........ 72
SECTION 9.10. WAIVER OF JURY TRIAL ............................ 72
SECTION 9.11. Survival ........................................ 72
SECTION 9.12. Domicile of Loans ............................... 72
SECTION 9.13. Limitation of Liability ......................... 72
SECTION 9.14. Recourse Obligation ............................. 73
SECTION 9.15. Confidentiality ................................. 73
SECTION 9.16. Bank's Failure to Fund .......................... 73
SECTION 9.17. Banks' ERISA Covenant ........................... 78
SECTION 9.18. Managing Agents and Co-Agents ................... 78
SECTION 9.19. No Bankruptcy Proceedings ....................... 78
</TABLE>
SCHEDULE 1.1
SCHEDULE 4.4 (b)
SCHEDULE 4.6
SCHEDULE 5.11(c)(1)
SCHEDULE 5.11(c)(2)
<PAGE> 5
SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this
"Agreement") dated as of May 29, 1998 among EOP OPERATING LIMITED PARTNERSHIP
(the "Borrower"), the BANKS listed on the signature pages hereof, NATIONSBANK,
N.A., as Administrative Agent, BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Documentation Agent, J.P. MORGAN SECURITIES INC., as Syndication
Agent, THE BANK OF NOVA SCOTIA, THE CHASE MANHATTAN BANK, COMMERZBANK
AKTIENGESELLSCHAFT, DRESDNER BANK AG, NEW YORK AND CAYMAN BRANCHES, PNC BANK,
NATIONAL ASSOCIATION, and UNION BANK OF SWITZERLAND, NEW YORK BRANCH, as
Managing Agents, CREDIT LYONNAIS, NEW YORK BRANCH, FLEET NATIONAL BANK, and U.S.
BANK NATIONAL ASSOCIATION, as Co-Agents
W I T N E S S E T H
WHEREAS, the Borrower has executed and delivered to the Agents, the Managing
Agents, the Co-Agents and certain of the Banks that certain Amended and Restated
Revolving Credit Agreement dated as of November 20, 1997, by and among the
Borrower, certain of the Banks, the Managing Agents, the Co-Agents and the
Agents (the "Existing Credit Agreement");
WHEREAS, the Borrower, the Agents, the Managing Agents, the Co-Agents and
the Banks party to the Existing Credit Agreement desire to amend and restate the
Existing Credit Agreement in its entirety to add additional entities as Banks
and to set forth the terms and conditions under which the Banks may hereafter
extend loans to the Borrower; and
WHEREAS, it is the intent of the Borrower, the Agents, the Managing Agents,
the Co-Agents and the Banks that this Agreement replace in its entirety the
Existing Credit Agreement and that, from and after the Closing Date (as defined
below), the Existing Credit Agreement shall be of no force and effect, except to
evidence the terms and conditions under which the Borrower heretofore incurred
obligations and liabilities to the Banks, the Agents, the Managing Agents and
the Co-Agents, as evidenced by the Existing Credit Agreement and the Banks', the
Agents', the Managing Agents's and the Co-Agents' books and records;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
herein contained, 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.
"Adjusted Interbank Offered Rate" as applicable to any Interest Period means
a rate per annum equal to the quotient obtained (rounded upward, if necessary,
to the next higher 1/100 of 1%) by dividing (i) the Interbank Offered Rate
applicable during such Interest Period by (ii) 1.00 minus the Euro-Dollar
Reserve Percentage.
1
<PAGE> 6
"Administrative Agent" shall mean NationsBank, N.A. 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 and the
Documentation Agent) duly completed by such Bank.
"Agents" shall mean the Administrative Agent, the Documentation Agent and
the Syndication Agent, collectively.
"Agreement" shall mean this Second Amended and Restated Revolving Credit
Agreement as the same may from time to time hereafter be modified, supplemented
or amended.
"Applicable Fee Percentage" means 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 Fee Percentage. In the event
that Borrower receives only two (2) Credit Ratings, and such Credit Ratings are
not equivalent, the Applicable Fee Percentage 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 Fee Percentage 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 Fee
Percentage 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 Fee Percentage shall be based on such rating only.
<TABLE>
<CAPTION>
Range of
Borrower's
Credit Rating Applicable
(S&P/Moody's Fee Percentage
Ratings) (% per annum)
------------- --------------
<S> <C>
Non-Investment Grade 0.20
BBB-/Baa3 0.20
BBB/Baa2 0.20
BBB+/Baa1 0.20
A-/A3 or better 0.15
</TABLE>
"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
2
<PAGE> 7
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 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 and Swingline 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 Loan, 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.
<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 1.175
BBB-/Baa3 0.0 0.80
BBB/Baa2 0.0 0.70
BBB+/Baa1 0.0 0.60
A-/A3 or better 0.0 0.55
</TABLE>
"Assignee" has the meaning set forth in Section 9.6(c).
3
<PAGE> 8
"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 (other than Borrower) listed on the signature pages
hereof, each Assignee which becomes a Bank pursuant to Section 9.6(c), and their
respective successors and each Designated Lender; provided, however, that the
term "Bank" shall exclude each Designated Lender when used in reference to a
Committed Loan, the Commitments or terms relating to the Committed Loans and the
Commitments and shall further exclude each Designated Lender for all other
purposes hereunder except that any Designated Lender which funds a Money Market
Loan shall, subject to Section 9.6(d), have the rights (including the rights
given to a Bank contained in Section 9.3 and otherwise in Article 9) and
obligations of a Bank associated with holding such Money Market Loan. For
purposes of this Agreement, J.P. Morgan Securities, Inc. shall not constitute a
"Bank."
"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.
4
<PAGE> 9
"Business Day" means any day except a Saturday, Sunday or other day on which
commercial banks in Dallas, Texas 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
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
5
<PAGE> 10
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 and the Documentation Agent.
"Co-Agents" means Credit Lyonnais, New York Branch, Fleet National Bank, and
U.S. Bank National Association, in their capacity as Co-Agents hereunder.
"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.
"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 2.11(c) or in connection with an
assignment to an Assignee, and as such amount may be increased pursuant to
Section 2.16.
"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
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<PAGE> 11
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.
"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 2.8(d).
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<PAGE> 12
"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 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 Lead 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..
"Documentation Agent" means Bank of America, National Trust and Savings
Association, in its capacity as Documentation Agent hereunder, and its permitted
successors in such capacity in accordance with the terms of this Agreement.
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<PAGE> 13
"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.
"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.
9
<PAGE> 14
"EOPT" means Equity Office Properties Trust, a Maryland real estate
investment trust, the sole managing general partner of the Borrower.
"EOPT Guaranty" means (i) the Amended and Restated Guaranty of Payment --
No. 1, dated as of even date herewith, executed by and between EOPT and
Administrative Agent for the benefit of the Banks, and (ii) the Amended and
Restated Guaranty of Payment -- No. 2, dated as of even date herewith, executed
by and between EOPT and Administrative Agent for the benefit of the Banks. All
uses herein of the term "EOPT Guaranty" shall be deemed to refer to each of the
guarantees listed in clauses (i) and (ii) above individually and to both such
guarantees collectively.
"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 in accordance with the applicable Notice of Borrowing.
"Euro-Dollar Reference Bank"" means the principal Dallas offices of the
Administrative Agent.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) under
Regulation D, as Regulation D may be amended, modified or supplemented, for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City 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
Euro-Dollar 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). The Adjusted Interbank Offered Rate shall be adjusted
automatically on and as of the effective date of any change in the Euro-Dollar
Reserve Percentage.
"Event of Default" has the meaning set forth in Section 6.1.
"Existing Credit Agreement" has the meaning set forth in the Recitals
hereto.
"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
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<PAGE> 15
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.
"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.
"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
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<PAGE> 16
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 Interbank Offered Rate pursuant to Section
2.4.
"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. (Dallas 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.
"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).
"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
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<PAGE> 17
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, 60, 90, or 180 days thereafter (or a period less than 30
days with the reasonable approval of Administrative Agent, unless any Bank has
previously advised Administrative Agent and Borrower that it is unable to enter
into Interbank Offered Rate Contracts for an Interest Period of the same
duration) 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 specified 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
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<PAGE> 18
(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.
"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 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 or joint venture interests
issued by any Person which is an Investment Affiliate that is not a Subsidiary.
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<PAGE> 19
"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 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 Base Rate Loan, a Euro-Dollar Loan, a Money Market Loan or a
Swingline Loan and "Loans" means Base Rate Loans, Euro-Dollar Loans, Money
Market Loans or Swingline Loans or any combination of the foregoing.
"Loan Documents" means this Agreement, the Notes, the EOPT Guaranty, and the
Acorn Guaranty (as defined in the EOPT Guaranty).
"Majority Banks" means at any time Banks having at least 51% of the
aggregate amount of Commitments, or if the Commitments shall have been
terminated, holding Notes evidencing at least 51% of the aggregate unpaid
principal amount of the Loans, (provided, that in the case of Swingline Loans,
the amount of each Bank's funded participation interest in such Swingline Loans
shall be considered for purposes hereof as if it were a direct loan and not a
participation interest, and the aggregate amount of Swingline Loans owing to the
Swingline Lender shall be considered for purposes hereof as reduced by the
amount of such funded participation interests).
"Managing Agents" means The Bank of Nova Scotia, The Chase Manhattan Bank,
Commerzbank Aktiengesellschaft, Dresdner Bank AG, New York and Cayman Branches,
PNC Bank, National Association, and Union Bank of Switzerland, New York Branch,
in their capacity as Managing Agents hereunder.
"Mandatory Borrowing" has the meaning set forth in Section 2.3(b)(iii).
"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, Documentation Agent or the Banks to enforce the Loan Documents.
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<PAGE> 20
"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 May 29, 2001, unless accelerated
pursuant to the terms hereof.
"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.
"Money Market Borrowing" has the meaning set forth in Section 1.3.
"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 LIBOR 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 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.
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"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 Base 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 amended and restated 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. The Notes shall be issued in substitution for
the "Notes" issued pursuant to the Existing Credit Agreement.
"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, Documentation Agent or any Bank under or in connection
with this Agreement or any other Loan Document.
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"Office Property" means any Property which constitutes primarily commercial
office space other than a Parking Property.
"Original Closing Date" means the "Closing Date" as defined in the Existing
Credit Agreement.
"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;
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
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<PAGE> 23
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 a Bank, or one or more banks, finance
companies, insurance or other financial institutions which (A) has (or, in the
case of a bank which is a subsidiary, such bank's parent has) a rating of its
senior debt obligations of not less than Baa-1 by Moody's or a comparable rating
by a rating agency acceptable to Syndication Agent and (B) has total assets in
excess of Ten Billion Dollars ($10,000,000,000).
"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).
"Rating Agencies" means, collectively, S&P, Moody's, Duff and Fitch.
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"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 having at least 66 2/3% of the
aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding Notes evidencing at least 66 2/3% of the aggregate unpaid
principal amount of the Loans (provided, that in the case of Swingline Loans,
the amount of each Bank's funded participation interest in such Swingline Loans
shall be considered for purposes hereof as if it were a direct loan and not a
participation interest, and the aggregate amount of Swingline Loans owing to the
Swingline Lender shall be considered for purposes hereof as reduced by the
amount of such funded participation interests).
"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 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.
"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.
"Syndication Agent" 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.
"Swingline Borrowing" has the meaning set forth in Section 1.3.
"Swingline Commitment" has the meaning set forth in Section 2.3(a).
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"Swingline Lender" means NationsBank, N.A., in its capacity as Swingline
Lender hereunder, and its permitted successors in such capacity in accordance
with the terms of this Agreement..
"Swingline Loan" means a loan made by the Swingline Lender pursuant to
Section 2.3.
"Taxes" means all federal, state, local and foreign income and gross
receipts taxes.
"Term" has the meaning set forth in Section 2.10.
"Term Loan Agreement" shall mean that certain Credit Agreement, dated as of
October 2, 1997, among the Borrower and the banks and agents listed therein,
providing for a term loan facility in the amount of $1,500,000,000.
"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 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.
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"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 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
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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.
"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
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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) and, except in the case of Base Rate Loans and Swingline 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, and a "Swingline Borrowing" is a
Borrowing under Section 2.3 in which only the Swingline Lender participates
(subject to the provisions of said Section 2.3)).
SECTION 1.4. Interrelationship with the Existing Credit Agreement. As stated
in the recitals to this Agreement, this Agreement is intended to amend and
restate the provisions of the Existing Credit Agreement and, notwithstanding the
issuance of the Notes on the Closing Date, (a) all of the terms and provisions
of the Existing Credit Agreement shall continue to apply for the period prior to
the Closing Date, including any determination of the interest periods, payment
dates, interest rates, Events of Default or any amount that may be payable to
the Banks or the Agents, and (b) the "Obligations" under the Existing Credit
Agreement shall continue to be paid or repaid on or prior to the Closing Date in
accordance with the terms thereof, and shall from and after the Closing Date be
paid or repaid in accordance with the terms of this Agreement. All references in
the Loan Documents to the Existing Credit Agreement, as it may be amended from
time to time, shall be deemed to include references to this Agreement. All
"Loans" under the Existing Credit Agreement shall constitute comparable "Loans"
under this Agreement. Borrower hereby acknowledges that no Bank is currently in
default of its obligations under the Existing Credit Agreement.
ARTICLE II
THE CREDITS
SECTION 2.1. Commitments to Lend. Each Bank severally agrees, on the terms
and conditions set forth in this Agreement, to make Loans to the Borrower
pursuant to this Article from time to time during the term hereof in amounts
such that the aggregate principal amount of Committed Loans by such Bank at any
one time outstanding plus such Bank's Pro Rata Share of Swingline Loans
outstanding at such time shall not exceed the amount of its Commitment. Each
Borrowing outstanding under this Section 2.1 shall be in an aggregate principal
amount of $5,000,000, or an integral multiple of $100,000 in excess thereof
(except that any such Borrowing may be in the aggregate amount available in
accordance with Section 3.2(b)) and, other than with respect to Money Market
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Loans and Swingline Loans, shall be made from the several Banks ratably in
proportion to their respective Commitments. Subject to the limitations set forth
herein, any amounts repaid may be reborrowed.
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.
(Dallas, Texas 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 in the
case of a Base Rate Borrowing or a Business Day in the case of a Euro-Dollar
Borrowing,
(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.
SECTION 2.3. Swingline Loan Subfacility.
(a) Swingline Commitment. Subject to the terms and conditions of this
Section 2.3, the Swingline Lender, in its individual capacity, agrees to make
certain revolving credit loans to the Borrower (each a "Swingline Loan" and,
collectively, the "Swingline Loans") from time to time during the term hereof;
provided, however, that the aggregate amount of Swingline Loans outstanding at
any time shall not exceed the lesser of (i) SEVENTY-FIVE MILLION DOLLARS
($75,000,000), and (ii) the aggregate Commitments less all Loans then
outstanding (the "Swingline Commitment"). Subject to the limitations set forth
herein, any amounts repaid in respect of Swingline Loans may be reborrowed.
(b) Swingline Borrowings.
(i) Notice of Borrowing. With respect to any Swingline Borrowing, the
Borrower shall give the Swingline Lender and the Administrative Agent notice in
writing which is received by the Swingline Lender and Administrative Agent not
later than 1:00 p.m. (Dallas, Texas time) on the proposed date of such Swingline
Borrowing (and confirmed by telephone by such time), specifying (A) that a
Swingline Borrowing is being requested, (B) the amount of such Swingline
Borrowing, (C) the proposed date of such Swingline Borrowing, which shall be a
Business Day and (D) stating that no Default or Event of Default has occurred
and is continuing both before and after giving effect to such Swingline
Borrowing. Such notice shall be irrevocable.
(ii) Minimum Amounts. Each Swingline Borrowing shall be in a minimum
principal amount of $1,000,000, or an integral multiple of $100,000 in excess
thereof.
(iii) Repayment of Swingline Loans. Each Swingline Loan shall be due
and payable on the earliest of (A) 5 days from the date of the applicable
Swingline Borrowing, (B) the date of the next Committed Borrowing or (C) the
Maturity Date. If, and to the extent, any Swingline Loans shall be outstanding
on the date of any Committed Borrowing, such Swingline Loans shall first be
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repaid from the proceeds of such Committed Borrowing prior to the disbursement
of the same to the Borrower. If, and to the extent, a Committed Borrowing is not
requested prior to the Maturity Date or the end of the 5-day period after a
Swingline Borrowing, the Borrower shall be deemed to have requested a Committed
Borrowing comprised entirely of Base Rate Loans in the amount of the applicable
Swingline Loan then outstanding, the proceeds of which shall be used to repay
such Swingline Loan to the Swingline Lender. In addition, the Swingline Lender
may, at any time, in its sole discretion, by written notice to the Borrower and
the Administrative Agent, demand repayment of its Swingline Loans by way of a
Committed Borrowing, in which case the Borrower shall be deemed to have
requested a Committed Borrowing comprised entirely of Base Rate Loans in the
amount of such Swingline Loans then outstanding, the proceeds of which shall be
used to repay such Swingline Loans to the Swingline Lender. Any Committed
Borrowing which is deemed requested by the Borrower in accordance with this
Section 2.3(b)(iii) is hereinafter referred to as a "Mandatory Borrowing". Each
Bank hereby irrevocably agrees to make Committed Loans promptly upon receipt of
notice from the Swingline Lender of any such deemed request for a Mandatory
Borrowing in the amount and in the manner specified in the preceding sentences
and on the date such notice is received by such Bank (or the next Business Day
if such notice is received after 12:00 P.M. (Dallas, Texas time))
notwithstanding (I) the amount of the Mandatory Borrowing may not comply with
the minimum amount of Committed Borrowings otherwise required hereunder, (II)
whether any conditions specified in Section 3.2 are then satisfied, (III)
whether a Default or an Event of Default then exists, (IV) failure of any such
deemed request for a Committed Borrowing to be made by the time otherwise
required in Section 2.1, (V) the date of such Mandatory Borrowing (provided that
such date must be a Business Day), or (VI) any termination of the Commitments
immediately prior to such Mandatory Borrowing or contemporaneously therewith;
provided, however, that no Bank shall be obligated to make Committed Loans in
respect of a Mandatory Borrowing if a Default or an Event of Default then exists
and the applicable Swingline Loan was made by the Swingline Lender without
receipt of a written Notice of Borrowing in the form specified in subclause (i)
above or after Administrative Agent has delivered a notice of Default or Event
of Default which has not been rescinded.
(iv) Purchase of Participations. In the event that any Mandatory
Borrowing cannot for any reason be made on the date otherwise required above
(including, without limitation, as a result of the commencement of a proceeding
under the Bankruptcy Code with respect to the Borrower), then each Bank hereby
agrees that it shall forthwith purchase (as of the date the Mandatory Borrowing
would otherwise have occurred, but adjusted for any payment received from the
Borrower on or after such date and prior to such purchase) from the Swingline
Lender such participations in the outstanding Swingline Loans as shall be
necessary to cause each such Bank to share in such Swingline Loans ratably based
upon its Pro Rata Share (determined before giving effect to any termination of
the Commitments pursuant to Section 6.2), provided that (A) all interest payable
on the Swingline Loans with respect to any participation shall be for the
account of the Swingline Lender until but excluding the day upon which the
Mandatory Borrowing would otherwise have occurred, and (B) in the event of a
delay between the day upon which the Mandatory Borrowing would otherwise have
occurred and the time any purchase of a participation pursuant to this sentence
is actually made, the purchasing Bank shall be required to pay to the Swingline
Lender interest on the principal amount of such participation for each day from
and including the day upon which the Mandatory Borrowing would otherwise have
occurred to but excluding the date of payment for such participation, at the
rate equal to the Federal Funds Rate, for the two (2) Business Days after the
date the Mandatory
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Borrowing would otherwise have occurred, and thereafter at a rate equal to the
Base Rate. Notwithstanding the foregoing, no Bank shall be obligated to purchase
a participation in any Swingline Loan if a Default or an Event of Default then
exists and such Swingline Loan was made by the Swingline Lender without receipt
of a written Notice of Borrowing in the form specified in subclause (i) above or
after Administrative Agent has delivered a notice of Default or Event of Default
which has not been rescinded.
(c) Interest Rate. Each Swingline Loan shall bear interest on the
outstanding principal amount thereof, for each day from the date such Swingline
Loan is made until the date it is repaid, at a rate per annum equal to the
Federal Funds Rate plus the Applicable Margin for Euro-Dollar Loans for such
day.
SECTION 2.4. 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) $350,000,000
(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 both a Business Day and 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. (Dallas, Texas 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,
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(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.
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. 1. 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. (Dallas, Texas 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. (Dallas, Texas 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 an 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.
2. 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,
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(iii) the Interest Period(s) with respect to which each such offer is
being made,
(iv) in the case of an IBOR Auction, the margin above or below the
applicable Interbank Offered 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.
(f) Acceptance and Notice by Borrower. Not later than 10:00 A.M. (Dallas,
Texas time) on (x) the third Business Day prior to the proposed date of
Borrowing, in the case of an 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
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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.
SECTION 2.5. Notice to Banks; Funding of Loans.
(a) Upon receipt of a 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 Documentation Agent
and 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 2.13.
(b) Not later than 1:00 p.m. (Dallas, Texas time) on the date of each
Committed Borrowing (including without limitation each Mandatory Borrowing) as
indicated in the applicable Notice of Borrowing, each Bank shall (except as
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provided in subsection (d) of this Section) make available its share of such
Committed Borrowing in Federal funds immediately available in Dallas, Texas, to
the Administrative Agent at its address referred to in Section 9.1.
(c) Not later than 3:00 p.m. (Dallas, Texas time) on the date of each
Swingline Borrowing as indicated in the applicable Notice of Borrowing, the
Swingline Lender shall make available such Swingline Borrowing in Federal funds
immediately available in Dallas, Texas, to the Administrative Agent at its
address referred to in Section 9.1.
(d) Unless the Administrative Agent shall have received notice from a Bank
prior to the date of any 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 such Borrowing in accordance with of this
Section 2.5 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 2.5(d) 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 2.5(b) hereof shall not
relieve any other Bank of its obligations to fund its Commitment, in accordance
with the provisions hereof.
(e) Subject to the provisions hereof, the Administrative Agent shall make
available each Borrowing to Borrower in Federal funds immediately available in
accordance with, and on the date set forth in, the applicable Notice of
Borrowing.
SECTION 2.6. Notes.
(a) The Loans of each Bank shall be evidenced by a single Note payable to
the order of such Bank for the account of its Applicable Lending Office.
(b) Each Bank may, by notice to the Borrower, the Administrative Agent and
the Documentation Agent, request that its Loans of a particular type (including,
without limitation, Swingline Loans and 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
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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
Documentation 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. The Swingline Loans shall mature, and
the principal amount thereof shall be due and payable, in accordance with
Section 2.3(b)(iii).
(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 ten (10) Euro-Dollar Groups of Loans and no
more than ten (10) Money Market Loans outstanding at any one time.
SECTION 2.7. 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 applicable Notice of Borrowing or as otherwise
provided in Section 2.3 with respect to Mandatory Borrowings. 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-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 2.13.
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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 ten (10) 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 Base Rate Loans on the last day of the then current Interest
Period applicable thereto.
SECTION 2.8. 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 2.7, 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 Adjusted Interbank Offered Rate applicable to such
Interest Period.
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(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 2.8(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) Intentionally Omitted.
(g) Interest on all Loans shall be payable on the first Business Day of each
calendar month.
SECTION 2.9. Fees.
(a) Facility Fee. For the period beginning on the date hereof and ending on
the date the Obligations are paid in full and this Agreement is terminated (the
"Facility Fee Period"), the Borrower shall pay to the Administrative Agent for
the account of the Banks ratably in proportion to their respective Commitments a
facility fee on the aggregate Commitments at the Applicable Fee Percentage. The
facility fee shall be payable in arrears on each January 1, April 1, July 1 and
October 1 during the Facility Fee Period.
(b) Agency Fees. Borrower shall pay Administrative Agent, Documentation
Agent and Syndication Agent such fees as are provided for in the agency fee
agreement by and between Administrative Agent and Borrower, as in existence from
time to time.
(c) Fees Non-Refundable. All fees set forth in this Section 2.9 shall be
deemed to have been earned on the date payment is due in accordance with the
provisions hereof and shall be non-refundable. The obligation of the Borrower to
pay such fees in accordance with the provisions hereof shall be binding upon the
Borrower and shall inure to the benefit of the Administrative Agent, the
Documentation Agent, the Syndication Agent and the Banks regardless of whether
any Loans are actually made.
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SECTION 2.10. 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 on
such date.
SECTION 2.11. 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. The Borrower may, from time to time
on any Business Day so long as prior notice is given to the Administrative Agent
and Swingline Lender no later than 1:00 p.m. (Dallas, Texas time) on the day on
which Borrower intends to make such prepayment, prepay any Swingline Loans in
whole or in part in amounts aggregating $100,000 or a higher integral multiple
of $100,000 (or, if less, the aggregate outstanding principal amount of all
Swingline Loans then outstanding) by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment no later than
2:00 p.m. (Dallas, Texas time) on such day. Each such optional prepayment shall
be applied to prepay ratably the Loans of the several Banks (or the Swingline
Lender in the case of Swingline Loans) 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 2.13. 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. 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 2.11(a) above
and shall be applied to prepay ratably the Loans of the 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.
(c) The Borrower may at any time and from time to time cancel all or any
part of the Commitments by the delivery to the Administrative Agent of a notice
of cancellation within the applicable time periods set forth in Sections 2.11(a)
and (b) if there are Loans then outstanding or, if there are no Loans
outstanding at such time as to which the Commitments with respect thereto are
being canceled, upon at least one (1) Business Day's notice to the
Administrative Agent, whereupon, in either event, all or such portion of the
Commitments, as applicable, shall terminate as to the Banks, pro rata on the
date set forth in such notice of cancellation, and, if there are any Loans then
outstanding, Borrower shall prepay, as applicable, all or such portion of Loans
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outstanding on such date in accordance with the requirements of Section 2.11(a)
and (b), Borrower shall be permitted to designate in its notice of cancellation
which Loans, if any, are to be prepaid. A reduction of the Commitments pursuant
to this Section 2.11(c) shall not effect a reduction in the Swingline Commitment
(unless so elected by the Borrower) until the aggregate Commitments have been
reduced to an amount equal to the Swingline Commitment.
(d) Any amounts so prepaid pursuant to Section 2.11 (a) or (b) may be
reborrowed. In the event Borrower elects to cancel all or any portion of the
Commitments and the Swingline Commitment pursuant to Section 2.11(c) hereof,
such amounts may not be reborrowed.
SECTION 2.12. 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. (Dallas, Texas time) on
the date when due, in Federal or other funds immediately available in Dallas,
Texas, 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 (Dallas, Texas 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 or Swingline Loans or of fees 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 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. 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 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.
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SECTION 2.13. 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 II, VI or VIII 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 notice has been given to any
Bank in accordance with Section 2.5(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 2.14. 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 2.15. 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 and
for general working capital needs of the Borrower; provided, however, that no
Swingline Loan shall be used more than once for the purpose of refinancing
another Swingline Loan, in whole or part.
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 Documentation
Agent a Note for the account of each Bank dated on or before the Closing Date
complying with the provisions of Section 2.6;
(b) the Borrower, the Administrative Agent and Documentation Agent and each
of the Banks shall have executed and delivered to the Borrower, the
Administrative Agent and Documentation Agent a duly executed original of this
Agreement;
(c) EOPT shall have executed and delivered to the Administrative Agent and
Documentation Agent a duly executed original of the EOPT Guaranty;
(d) the Documentation Agent shall have received an opinion of Rosenberg &
Liebentritt, P.C., counsel for the Borrower and EOPT, acceptable to the
Documentation Agent, the Banks and their counsel;
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(e) the Documentation Agent shall have received all documents the
Documentation 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 Documentation Agent;
(g) the Documentation 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
Documentation Agent in their 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, for its and any other
Bank's account, all fees due and payable pursuant to Section 2.9 hereof 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;
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(m) the Borrower shall have delivered a certificate in form acceptable to
Documentation Agent showing compliance with the requirements of Section 5.8 as
of the Closing Date; and
(n) the Borrower shall have repaid in full all amounts outstanding under the
Term Loan Agreement, and terminated the same.
SECTION 3.2. Borrowings. The obligation of any Bank to make a Loan 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 or Section 2.3(b)(i) or a Notice of Money Market Borrowing as
required by Section 2.4;
(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, Documentation
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.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Administrative Agent, Documentation Agent and each of
the other 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
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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, 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
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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.
(b) Since March 31, 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.
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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, Documentation 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, the Documentation 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, the Documentation 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 Note, 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.
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SECTION 4.9. Full Disclosure. All information heretofore furnished by the
Borrower to the Administrative Agent, Documentation Agent 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 Documentation 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;
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
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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, 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
Documentation Agent, the Syndication Agent 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.
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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
Documentation Agent true, correct and complete copies of each such documents.
Schedule 4.25 attached hereto is a true and correct summary of the partners of
the Borrower as of the date hereof and the interest in the Borrower held by each
such partner as of the date hereof. 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.
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
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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 and Documentation 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 the chief financial
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
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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 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 the chief financial
officer or the chief accounting 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
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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.
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
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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, Documentation Agent or 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. Prior to June 30, 1998, Borrower
shall not permit the ratio of Total Liabilities to Total Asset Value of Borrower
to exceed 0.55:1 at any time. From and after July 1, 1998, 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.
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(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.
(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
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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.
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:
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(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 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,
Documentation 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,
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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.
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, Documentation Agent, Syndication
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
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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 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
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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.
(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 Note, the Loan, the Obligations, the EOPT Guaranty or any of the
Loan Documents or the exercise of any of the Administrative Agent's, the
Documentation Agent's or any of the Bank's rights in connection therewith shall
constitute a prohibited transaction under ERISA and/or the Code.
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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 and the
Swingline Commitment 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 Documentation Agent, the Administrative Agent,
and the Banks each agree that any exercise or enforcement of the rights and
remedies granted to the Documentation Agent, 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
Documentation Agent or the Administrative Agent on behalf of the Documentation
Agent, 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.
Neither Administrative Agent nor Documentation Agent shall 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 Administrative
Agent or Documentation 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 Administrative Agent or Documentation 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 Administrative Agent or Documentation Agent send Borrower a notice of
Default or Event of Default, Administrative Agent or Documentation Agent, as
applicable, 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
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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
Section 9.4).
ARTICLE VII
THE AGENTS
SECTION 7.1. Appointment and Authorization. Each Bank irrevocably appoints
and authorizes the Administrative Agent, Documentation Agent and the Syndication
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, Documentation Agent and the Syndication 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,
Documentation Agent, the Syndication 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, Administrative Agent,
Documentation Agent and the Syndication Agent shall each act solely as an agent
of the Banks and do 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. NationsBank, N.A. and Bank of America,
National Trust and Savings Association shall have the same rights and powers
under this Agreement as any other Bank and may exercise or refrain from
exercising the same as though it were not the Administrative Agent or
Documentation Agent respectively, and NationsBank, N.A., Bank of America
National Trust and Savings Association, and their 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 they were
not the Administrative Agent and Documentation Agent, respectively, hereunder,
and the term "Bank" and "Banks" shall include NationsBank, N.A. and Bank of
America National Trust and Savings Association, in their individual capacities.
SECTION 7.3. Action by Administrative Agent and Documentation Agent. The
obligations of the Administrative Agent and Documentation Agent hereunder are
only those expressly set forth herein. Without limiting the generality of the
foregoing, the Administrative Agent and Documentation 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
and Documentation Agent shall be administrative in nature. Subject to the
provisions of Sections 7.1, 7.5 and 7.6, Administrative Agent and Documentation
Agent shall administer the Loans in the same manner as each administers its own
loans.
SECTION 7.4. Consultation with Experts. As between Administrative Agent and
Documentation Agent on the one hand and the Banks on the other hand, the
Administrative Agent and Documentation 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.
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SECTION 7.5. Liability of Administrative Agent and Documentation Agent. As
between Administrative Agent and Documentation Agent on the one hand and the
Banks on the other hand, none of the Administrative Agent, the Documentation
Agent nor any of their 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 and Documentation Agent on the one
hand and the Banks on the other hand, none of the Administrative Agent, the
Documentation 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 the Documentation 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 and Documentation Agent on the one hand and the
Banks on the other hand, neither the Administrative Agent nor the Documentation
Agent shall 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 and the Documentation Agent
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 its duties as Administrative Agent and/or Documentation Agent
under this Agreement, the other Loan Documents or any action taken or omitted by
such indemnitee hereunder. In the event that the Documentation Agent or the
Administrative Agent 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 Documentation Agent or the Administrative Agent, as the
case may be, shall reimburse the Banks which previously made the payment(s) pro
rata, based upon the actual amounts which were theretofore paid by each Bank.
The Documentation Agent or the Administrative Agent, as the case may be, shall
reimburse such Banks so entitled to reimbursement within two (2) Business Days
of its receipt of such funds from the Borrower or such other party liable
therefor.
SECTION 7.7. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Administrative Agent, the
Documentation Agent, the Syndication Agent 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,
Documentation Agent, the Syndication Agent or any other Bank, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking any action under this
Agreement.
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SECTION 7.8. Successor Administrative Agent, Documentation Agent or
Syndication Agent. The Administrative Agent, the Documentation Agent or the
Syndication Agent may resign at any time by giving notice thereof to the Banks,
the Borrower and each other and the Administrative Agent, the Documentation
Agent or the Syndication Agent, as applicable, shall resign in the event its
Commitment (or, so long as J.P. Morgan Securities, Inc. is the Syndication
Agent, Morgan Guaranty Trust Company of New York's Commitment) is reduced to
less than Thirty Million Dollars ($30,000,000) unless as a result of a
cancellation or reduction in the aggregate Commitments. Upon any such
resignation, the Majority Banks shall have the right to appoint a successor
Administrative Agent, Documentation Agent or Syndication Agent, as applicable,
which successor Administrative Agent, successor Documentation Agent or successor
Syndication Agent (as applicable) 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 (except that Borrower
shall, in all events, be deemed to have approved Bank of America, National Trust
and Savings Association, as a successor Administrative Agent and NationsBank,
N.A., as a successor Documentation Agent). If no successor Administrative Agent,
Documentation Agent or Syndication Agent (as applicable) 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, Documentation Agent or Syndication Agent (as applicable) gives notice of
resignation, then the retiring Administrative Agent, retiring Documentation
Agent, or retiring Syndication Agent (as applicable) may, on behalf of the
Banks, appoint a successor Administrative Agent, Documentation Agent or
Syndication Agent (as applicable), which shall be the Administrative Agent, the
Documentation Agent or the Syndication Agent as the case may be, who shall act
until the Majority Banks shall appoint an Administrative Agent, Documentation
Agent or Syndication Agent. Any appointment of a successor Administrative Agent,
Documentation Agent or Syndication Agent by Majority Banks or the retiring
Administrative Agent, the Documentation Agent or the Syndication 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, Documentation Agent or Syndication Agent hereunder
by a successor Administrative Agent or successor Documentation Agent or
successor Syndication Agent, as applicable, such successor Administrative Agent,
successor Documentation Agent or successor Syndication Agent, as applicable,
shall thereupon succeed to and become vested with all the rights and duties of
the retiring Administrative Agent, retiring Documentation Agent or retiring
Syndication Agent, as applicable, and the retiring Administrative Agent, the
retiring Documentation Agent or the retiring Syndication Agent, as applicable,
shall be discharged from its duties and obligations hereunder. The rights and
duties of the Administrative Agent to be vested in any successor Administrative
Agent shall include, without limitation, the rights and duties as Swingline
Lender. After any retiring Administrative Agent's, retiring Documentation
Agent's or retiring Syndication 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, the Documentation Agent or
the Syndication Agent, as applicable. For gross negligence or willful
misconduct, as determined by all the Banks (excluding for such determination
Administrative Agent or Documentation Agent in its capacity as a Bank, as
applicable), Administrative Agent, Documentation Agent or Syndication Agent may
be removed at any time by giving at least thirty (30) Business Days prior
written notice to Administrative Agent, Documentation Agent, Syndication Agent
and Borrower. Such resignation or removal
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shall take effect upon the acceptance of appointment by a successor
Administrative Agent, Documentation Agent or Syndication Agent, as applicable,
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, 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
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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 designation 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 2.13 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 2.11(c).
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
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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 and
Documentation 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 and Documentation Agent), the Borrower shall pay to
such Bank such additional amount or amounts as will compensate such Bank (or its
Parent) for such 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
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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
2.11(c).
SECTION 8.4. Taxes.
(a) Any and all payments by the Borrower to or for the account of any Bank,
the Documentation Agent 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, the Documentation Agent 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, the Documentation Agent 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, Documentation Agent 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, the Documentation Agent 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, the Documentation Agent 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, the Documentation Agent or the Administrative Agent (as
the case may be) and, so long as such Bank, Documentation Agent 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, the Documentation Agent or the Administrative Agent (as the case may
be) makes demand therefor.
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(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 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
2.11(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 8.2 or (ii) any Bank has demanded compensation under Section
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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 2.13 with respect to such Euro-Dollar Loans converted to
Base Rate Loans pursuant to clause (a) above.
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 Documentation
Agent, the Syndication Agent 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 and the Documentation Agent under Article II or Article
VIII shall not be effective until received.
SECTION 9.2. No Waivers. No failure or delay by the Administrative Agent,
the Documentation Agent or any Bank in exercising any right, power or privilege
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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 or Documentation Agent, as applicable, (i) all
reasonable out-of-pocket costs and expenses of the Administrative Agent and the
Documentation 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,
Documentation Agent and each Bank, including, without limitation, fees and
disbursements of counsel for the Administrative Agent, the Documentation 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, (B) counsel for Documentation Agent and (C) 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 and Documentation 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, (2) counsel for Documentation Agent shall
mean a single outside law firm representing Documentation Agent (which may or
may not be the same law firm representing Administrative Agent) and (3) 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 either or both of Administrative Agent or Documentation
Agent).
(b) The Borrower agrees to indemnify the Documentation Agent, 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
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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, Documentation 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, the Documentation 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, the Documentation 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 or the Documentation
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 and the Documentation
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
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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 , the
Documentation Agent or the Swingline Lender in their capacity as Administrative
Agent, Documentation Agent or the Swingline Lender, as applicable, are affected
thereby, by the Administrative Agent, the Documentation Agent or the Swingline
Lender, as applicable); 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 or (vi) 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 banks, finance companies, insurance companies or
other financial 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) 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. Notwithstanding anything to the contrary in this subsection (b), with
respect to a Bank's granting of participations in its outstanding Money Market
Loans prior to the occurrence of an Event of Default, the minimum amount of such
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participations shall be $5,000,000 and no consent of the Administrative Agent or
the Borrower shall be required. 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, the Documentation Agent 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 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) 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 "E" 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 with Section
8.4.
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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 Lead 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 Lead 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, the Managing Agents, the Co-Agents 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, the
Managing Agents, the Co-Agents 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.
(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
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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)
(or in the case of the Administrative Agent, Documentation Agent or Morgan
Guaranty Trust Company of New York or the Managing Agents, Thirty Million
Dollars ($30,000,000), or in the case of any Co-Agent, Twenty Million Dollars
($20,000,000)) unless as a result of a cancellation or reduction of the
aggregate Commitments; 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.
(i) By its execution of this Agreement, each of the Banks which were parties
to the Existing Credit Agreement (each an "Existing Bank") hereby assigns and
sells to the Banks accepting the same as set forth below, without recourse,
representation or warranty (except as expressly provided herein), that portion
of its "Commitment" under the Existing Loan Agreement which is in excess of its
Commitment hereunder. By its execution of this Agreement, each of the Banks
which were not parties to the Existing Credit Agreement (each a "New Bank") and
each Existing Bank whose Commitment hereunder exceeds its "Commitment" under the
Existing Credit Agreement hereby accepts the portion of the above-referenced
excess "Commitments" which is equal to the (i) in the case of a New Bank, the
amount of its Commitment hereunder, and (ii) in the case of an Existing Bank
whose Commitment hereunder exceeds its "Commitment" under the Existing Credit
Agreement, the amount of such increase. Each Bank hereby acknowledges and agrees
that, as of the date hereof, its Commitment hereunder is in the amount shown on
the signature page of such Bank attached to this Agreement. Each Existing Bank
hereby represents and warrants that it is the legal and beneficial owner of the
interests being assigned by it in accordance with this Section 9.6(f) and that
such interests are free and clear of any adverse claim.
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 ILLINOIS (WITHOUT GIVING EFFECT TO THE PRINCIPLES
THEREOF RELATING TO CONFLICTS OF LAW).
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<PAGE> 76
(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 Illinois or of the United
States of America for the Northern District of Illinois, 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 or the Documentation 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 Documentation 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 DOCUMENTATION AGENT, THE SYNDICATION AGENT AND THE BANKS 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 Documentation Agent, the Syndication Agent 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
72
<PAGE> 77
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 Documentation
Agent 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 Documentation Agent 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
Documentation Agent, 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 Documentation Agent 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
Documentation Agent 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,
Documentation 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 (including, without limitation, the
obligation to purchase participations pursuant to Section 2.3) 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, Documentation Agent or any
other Bank, as the case may be, upon demand, such Bank's Pro Rata Share of any
73
<PAGE> 78
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.
(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;
74
<PAGE> 79
(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;
(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.
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<PAGE> 80
(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 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 to a bankruptcy, reorganization, insolvency
or other proceeding under similar laws
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<PAGE> 81
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 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.
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<PAGE> 82
SECTION 9.17. Banks' ERISA Covenant. Each 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. Managing Agents and Co-Agents. Borrower, the Agents and each
Bank acknowledges and agrees that the obligations of the Managing Agents and the
Co-Agents hereunder shall be limited to those obligations that are expressly set
forth herein, if any, and the Managing Agents and the Co-Agents shall not be
required to take any action or assume any liability except as may be required in
each of their capacity as a Bank hereunder. Borrower, the Agents and each Bank
agrees that the indemnifications set forth herein for the benefit of the Agents
shall also run to the benefit of the Managing Agents and the Co-Agents to the
extent the Managing Agents and/or any Agent incurs any loss, cost or damage
arising from its capacity as the Managing Agents or as a Co-Agent.
SECTION 9.19. No Bankruptcy Proceedings. Each of the Borrower, the Banks,
the Administrative Agent, the Managing Agents, and the Co-Agents 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]
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
estate 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
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<PAGE> 83
TOTAL COMMITMENTS: $1,000,000,000
NATIONSBANK, N.A., as Administrative Agent,
as Swingline Lender and as a Bank
By:
--------------------------------------------
Name:
Title:
Commitment: $69,000,000
BANK OF AMERICA, NATIONAL TRUST &
SAVINGS ASSOCIATION, as Documentation
Agent and as a Bank
By:
--------------------------------------------
Name:
Title:
Commitment: $69,000,000
J.P. MORGAN SECURITIES, INC., as Syndication
Agent
By:
--------------------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as a Bank
By:
--------------------------------------------
Name:
Title:
Commitment: $69,000,000
THE BANK OF NOVA SCOTIA, as a Managing
Agent and as a Bank
By:
--------------------------------------------
Name:
Title:
Commitment: $65,000,000
THE CHASE MANHATTAN BANK, as a
Managing Agent and as a Bank
By:
--------------------------------------------
Name:
Title:
<PAGE> 84
Commitment: $65,000,000
COMMERZBANK AKTIENGESELLSCHAFT, as a
By:
--------------------------------------------
Name:
Title:
By:
--------------------------------------------
Name:
Title:
Commitment: $65,000,000
DRESDNER BANK AG, NEW YORK AND
CAYMAN BRANCHES, as a Managing Agent and
as Bank
By:
--------------------------------------------
Name:
Title:
By:
--------------------------------------------
Name:
Title:
Commitment: $65,000,000
PNC BANK, NATIONAL ASSOCIATION, as a
Managing Agent and as a Bank
By:
--------------------------------------------
Name:
Title:
Commitment: $65,000,000
UNION BANK OF SWITZERLAND, NEW
YORK BRANCH, as a Managing Agent and as a
Bank
By:
--------------------------------------------
Name:
Title:
<PAGE> 85
By:
--------------------------------------------
Name:
Title:
Commitment: $65,000,000
CREDIT LYONNAIS, NEW YORK BRANCH, as
a Co-Agent and as a Bank
By:
--------------------------------------------
Name:
Title:
Commitment: $54,000,000
FLEET NATIONAL BANK, as a Co-Agent and as
a Bank
By:
--------------------------------------------
Name:
Title:
Commitment: $54,000,000
U.S. BANK NATIONAL ASSOCIATION, as a
Co-Agent and as a Bank
By:
--------------------------------------------
Name:
Title:
Commitment: $54,000,000
BANK ONE, ILLINOIS, N.A., as a Bank
By:
--------------------------------------------
Name:
Title:
Commitment: $50,000,000
BAYERISCHE HYPOTHEKEN-UND
WECHSEL-BANK AKTIENGESELLSCHAFT, as a
Bank
By:
--------------------------------------------
Name:
Title:
By:
--------------------------------------------
Name:
Title:
<PAGE> 86
Commitment: $50,000,000
BANKBOSTON, N.A., as a Bank
By:
--------------------------------------------
Name:
Title:
Commitment: $31,000,000
LASALLE NATIONAL BANK, as a Bank
By:
--------------------------------------------
Name:
Title:
Commitment: $30,000,000
MELLON BANK, as a Bank
By:
--------------------------------------------
Name:
Title:
Commitment: $30,000,000
UNION BANK OF CALIFORNIA, N.A., as a Bank
By:
--------------------------------------------
Name:
Title:
Commitment: $30,000,000
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, as a Bank
By:
--------------------------------------------
Name:
Title:
Commitment: $20,000,000
<PAGE> 87
Schedule 1.1
Initial Qualifying Unencumbered Properties
<TABLE>
<CAPTION>
Property Name Location
------------- --------
<S> <C>
1,2,3 Devon Square Wayne, PA
1-5 Valley Square Plymouth Meeting, PA
10/30 S. Wacker Chicago, IL
1100 Executive Tower Orange County, CA
1111 19th Street Washington, D.C.
1601 Market Street Philadelphia, PA
1620 L Street Washington, D.C.
1700 Market Philadelphia, PA
177 Broad Stamford, CT
1920 Main Plaza Orange County, CA
201 Mission San Francisco, CA
2010 Main Plaza Orange County, CA
28 State Street Boston, MA
30 North LaSalle Chicago,IL
300 Atlantic Street Stamford, CT
49 East Thomas Phoenix, AZ
500 Marquette Building Albuquerque, NM
500 Orange Tower Orange County, CA
5100 Brookline Oklahoma City, OK
550 South Hope Los Angeles, CA
60 Spear Street Building San Francisco, CA
601 Tehoupitoulas New Orleans, LA
8080 Central Dallas, TX
850 Third Avenue New York, NY
9400 NCX Dallas, TX
Adams/Wabash Garage Chicago, IL
Atrium Towers Oklahoma City, OK
Bank One Center/Tower Indianapolis, IN
</TABLE>
<PAGE> 88
<TABLE>
<S> <C>
Brookhollow I, II, III Houston, TX
Civic Parking St. Louis, MO
Colonnade I San Antonio, TX
Denver Corporate Center II & III Denver, CO
Destec Tower Houston, TX
Dominion Tower Norfolk, VA
First Union Center Ft. Lauderdale, FL
Four Falls West Conshohocken, PA
Four Forest Dallas, TX
Intercontinental Center Houston, TX
LL & E Tower New Orleans, LA
Nations Bank Plaza Nashville, TN
North Central Plaza Three Dallas, TX
Northborough Tower Houston, TX
Oak Hill Plaza King of Prussia, PA
Oakbrook Terrace Oak Brook Terrace, IL
One American Center Austin, TX
One Clearlake Centre West Palm Beach, FL
One Layfayette Washington, D.C.
One Maritime Plaza San Francisco, CA
One North Franklin Chicago, IL
One Phoenix Phoenix, AZ
One & Two Stamford Plaza Stamford, CT
Paces West Atlanta, GA
Philadelphia Garages Philadelphia, PA
Preston Commons Dallas, TX
San Jacinto Center Austin, TX
Sarasota City Center Sarasota, FL
</TABLE>
<PAGE> 89
<TABLE>
<S> <C>
Shelton Point Shelton, CT
Smith Barney San Diego, CA
Sterling Plaza Dallas, TX
Summitt Office Park Ft. Worth, TX
Sun Trust Building Orlando, FL
Tampa Commons Tampa, FL
Texaco Center New Orleans, LA
The Quadrant Denver, CO
Two California Plaza Los Angeles, CA
Union Square San Antonio, TX
University Tower Durham, NC
</TABLE>
<PAGE> 90
SCHEDULE 4.4(b)
Disclosure of
Additional Material Indebtedness
1. Drawings under this Agreement.
2. On April 30, 1998, EOP-Tabor, L.L.C. assumed a $48,108,587 loan obligation
to Prudential Insurance Company of America in connection with the
acquisition of One Tabor Center, Denver Colorado.
3. On May 14, 1998, EOP-Dominion Plaza, L.L.C. issued a Promissory Note in the
amount of $37,943,846.23 to Dom Plaza Associates, L.P., in payment of a
portion of the purchase price in connection with the acquisition of Dominion
Plaza, Denver, Colorado. The Promissory Note is secured by a $37,943,846,23
Letter of Credit issued by NationsBank of Texas, N.A., for the account of,
and reimbursement of any draws thereunder are the obligation of EOP
Operating Limited Partnership and EOP-Dominion Plaza, L.L.C.
<PAGE> 91
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> 92
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> 93
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 10.9
EQUITY OFFICE
SUPPLEMENTAL RETIREMENT SAVINGS PLAN
EFFECTIVE NOVEMBER 1, 1997
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SECTION PAGE
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<S> <C>
ARTICLE 1.....................................................................1
1.1 Purpose of Plan........................................................1
1.2 Status of Plan.........................................................1
ARTICLE 2.....................................................................1
2.1 Account................................................................1
2.2 Change of Control......................................................1
2.3 Code...................................................................2
2.4 Compensation...........................................................2
2.5 Credited Service.......................................................2
2.6 Educational Account....................................................2
2.7 Elective Deferral......................................................2
2.8 Eligible Employee......................................................2
2.9 Eligible Trustee.......................................................2
2.10 Employee Effective Date...............................................2
2.11 Employer..............................................................2
2.12 Enrollment Form.......................................................2
2.13 Entry Date............................................................2
2.14 EOPMC.................................................................3
2.15 EOPT..................................................................3
2.16 Equity Office.........................................................3
2.17 Extended Company......................................................3
2.18 ERISA.................................................................3
2.19 Funding Trust.........................................................3
2.20 Funding Trustee.......................................................3
2.21 Insolvent.............................................................3
2.22 Matching Deferral.....................................................3
2.23 Participant...........................................................3
2.24 Plan..................................................................3
2.25 Plan Administrator....................................................3
2.26 Plan Year.............................................................4
2.27 Qualified Plan........................................................4
</TABLE>
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<TABLE>
<S> <C>
2.28 Restricted Share........................................................4
2.29 Share...................................................................4
2.30 Share Appreciation Right................................................4
2.31 Share Option............................................................4
2.32 Share Deferral..........................................................4
2.33 Total and Permanent Disability..........................................4
2.34 Trustee Effective Date..................................................4
2.35 Unforeseeable Emergency.................................................4
2.36 Unrestricted Share......................................................4
ARTICLE 3.......................................................................5
3.1 Satisfaction of Eligibility Requirements.................................5
3.2 Commencement of Participation............................................5
3.3 Continued Participation..................................................5
3.4 Suspension of Participation..............................................5
ARTICLE 4.......................................................................5
4.1 Elective Deferrals.......................................................5
4.2 Share Deferrals..........................................................7
4.3 Matching Deferrals.......................................................8
4.4 Enrollment Forms.........................................................9
ARTICLE 5.......................................................................9
5.1 Accounts.................................................................9
5.2 Educational Account......................................................9
5.3 Investments.............................................................10
ARTICLE 6......................................................................11
6.1 General.................................................................11
6.2 Change of Control.......................................................11
6.3 Death or Disability.....................................................11
6.4 Insolvency..............................................................11
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 7......................................................................12
7.1 Election as to Time and Form of Payment.................................12
7.2 Termination of Service..................................................14
7.3 Death...................................................................14
7.4 Withdrawal Due to Unforeseeable Emergency...............................14
7.5 Withdrawal due to Educational Expense...................................15
7.6 Other Withdrawals.......................................................15
7.7 Forfeiture of Non-vested Amounts........................................16
7.8 Taxes...................................................................16
ARTICLE 8......................................................................16
8.1 Plan Administration and Interpretation..................................16
8.2 Powers, Duties, Procedures, Etc.........................................17
8.3 Information.............................................................17
8.4 Indemnification of Plan Administrator...................................17
ARTICLE 9......................................................................17
9.1 Amendments..............................................................17
9.2 Termination of Plan.....................................................17
9.3 Existing Rights.........................................................18
ARTICLE 10.....................................................................18
10.1 No Funding.............................................................18
10.2 Non-assignability......................................................18
10.3 Limitation of Participant's Rights.....................................18
10.4 Participants Bound.....................................................18
10.5 Receipt and Release....................................................19
10.6 Governing Law..........................................................19
10.7 Headings and Subheadings...............................................19
</TABLE>
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<PAGE> 5
ARTICLE 1
INTRODUCTION
1.1 PURPOSE OF PLAN
Equity Office Properties Trust and Equity Office Properties Management
Corp. (collectively "Equity Office") hereby adopt the Equity Office Supplemental
Retirement Savings Plan ("Plan") to provide a means by which members of the
Board of Trustees of Equity Office Properties Trust, individuals who are
employees of Equity Office and individuals who are employees of related
companies may elect to defer receipt of portions of their Compensation, to defer
income with respect to Unrestricted Shares, Restricted Shares, Share Options and
Share Appreciation Rights, and to save for their retirement and for the
education of their children.
1.2 STATUS OF PLAN
Except with respect to the participation of trustees, it is intended
that the Plan be "a plan which is unfunded and is maintained by an employer
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees" within the meaning of Sections
201(2), 301(a)(3) and 401(a)(1) of ERISA, and that the Plan be interpreted and
administered consistent with that intent.
ARTICLE 2
DEFINITIONS
Wherever used herein, the following terms have the meanings set forth
below, unless a different meaning is clearly required by the context:
2.1 ACCOUNT means, for each Participant, the account established for
his or her benefit under Section 5.1.
2.2 CHANGE OF CONTROL means (i) the acquisition by any entity, person,
or group acting in concert of more than 50% of the outstanding Shares from the
holders thereof; (ii) a merger or consolidation of EOPT with one (1) or more
other entities as a result of which the ultimate holders of all outstanding
Shares immediately prior to such merger or consolidation hold less than 50% of
the shares of beneficial ownership of the surviving or resulting corporation; or
(iii) a direct or indirect transfer of substantially all of the property of EOPT
other than to an entity of which EOPT directly or indirectly owns at least 50%
of the shares of beneficial ownership.
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<PAGE> 6
2.3 CODE means the Internal Revenue Code of 1986, as amended from time
to time. Reference to any section or subsection of the Code includes reference
to any comparable or succeeding provisions of any legislation which amends,
supplements or replaces such section or subsection.
2.4 COMPENSATION means cash compensation payable by an Employer (before
deductions) for service performed for the Employer that currently would be
includable in gross income and may consist of either the Participant's (i)
salary, (ii) commissions, and/or (iii) incentive pay. In the case of an Eligible
Trustee, "Compensation" shall include Board and Committee fees paid in cash.
2.5 CREDITED SERVICE means the Participant's Years of Credited Service
as calculated for purposes of the Qualified Plan.
2.6 EDUCATIONAL ACCOUNT means an account established by a Participant
pursuant to Section 5.2, for the use described therein.
2.7 ELECTIVE DEFERRAL means the portion of Compensation which is
deferred by a Participant under Section 4.1.
2.8 ELIGIBLE EMPLOYEE means, as of the Employee Effective Date or,
subsequent thereto, one of the dates described in Section 3.1, those selected
employees of the Employer whose anticipated total annualized Compensation is not
less than $100,000.
2.9 ELIGIBLE TRUSTEE means, as of the Trustee Effective Date or,
subsequent thereto, one of the dates described in Section 3.1, a member of the
Board of Trustees of EOPT who is not prevented from participating under the
terms governing his or her service on the Board, as determined by the Chief
Legal Counsel of EOPT.
2.10 EMPLOYEE EFFECTIVE DATE means December 1, 1997.
2.11 EMPLOYER means EOPMC, EOPT, or each other entity that is
affiliated with Equity Office, and that adopts the Plan with the prior written
consent of EOPT.
2.12 ENROLLMENT FORM means the document or documents prescribed by the
Plan Administrator and pursuant to which a Participant may make elections to
defer Compensation and/or defer income with respect to Restricted Shares, Share
Options or Share Appreciation Rights, and related elections, hereunder.
2.13 ENTRY DATE means (i) for 1998 Plan Year, January 1 and October 1;
(ii) for Plan Years beginning on or after January 1, 1999, March 1 and September
1 of each Plan Year; (iii) in the case of an individual who is then an Eligible
Employee, the Employee Effective Date; and (iv) in the case of an individual
described in clause (b)(iii) of Section 4.1, the date as of which his or her
Enrollment Form is effective, as described therein.
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<PAGE> 7
2.14 EOPMC means Equity Office Properties Management Corp., a Delaware
corporation, and any successor entity thereto.
2.15 EOPT means Equity Office Properties Trust, a Maryland real estate
investment trust, and any successor thereto.
2.16 EQUITY OFFICE means EOPT and EOPMC collectively.
2.17 EXTENDED COMPANY means an Employer and any other entity so
designated by the Plan Administrator, but only if such other entity maintains a
non-qualified deferred compensation arrangement that provides that if an
employee terminates his or her employment with the entity and immediately accept
a position with Equity Office, his or her employment is not treated as having
terminated for purposes of distributions under such arrangement. The Plan
Administrator may change the entities designated as Extended Companies from time
to time as it deems appropriate.
2.18 ERISA means the Employee Retirement Income Security Act of 1974,
as amended from time to time. Reference to any section or subsection of ERISA
includes reference to any comparable or succeeding provisions of any legislation
that amends, supplements or replaces such section or subsection.
2.19 FUNDING TRUST means the grantor trust established by Equity Office
to hold assets contributed under the Plan.
2.20 FUNDING TRUSTEE means the trustee or trustees under the Funding
Trust.
2.21 INSOLVENT means, with respect to an Employer, either (i) the
Employer is unable to pay its debts as they become due, or (ii) the Employer is
subject to a pending proceeding as a debtor under the United States Bankruptcy
Code.
2.22 MATCHING DEFERRAL means a contribution by an Employer for the
benefit of a Participant who is an Eligible Employee, as described in Section
4.3.
2.23 PARTICIPANT means any individual who participates in the Plan in
accordance with Article 3.
2.24 PLAN means the Equity Office Properties Trust and Equity Office
Properties Management Corp. Supplemental Retirement Savings Plan as provided
herein and as amended from time to time.
2.25 PLAN ADMINISTRATOR means the Vice President-Human Resources and
Employee Development of EOPT and each other person, persons or entity designated
by EOPT to administer the Plan and to serve as the agent for the settlor of the
Funding Trust as contemplated by the agreement establishing the Funding Trust,
or an alternate designated by EOPT with respect to any matters relating solely
to the Plan Administrator as a Participant. If
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<PAGE> 8
no such person is so serving as the Vice President-Human Resources and Employee
Development at any time, EOPT shall be the Plan Administrator.
2.26 PLAN YEAR means the 12-month period ending on December 31;
provided that the first Plan Year shall be the partial year November 1 through
December 31, 1997.
2.27 QUALIFIED PLAN means the Equity Office Properties Trust Retirement
Savings Plan.
2.28 RESTRICTED SHARE means a Share that is subject to a substantial
risk of forfeiture for purposes of Section 83 of the Code.
2.29 SHARE means a share of beneficial interest, par value $ .01 per
share, of EOPT.
2.30 SHARE APPRECIATION RIGHT means a right to share in the
appreciation of Shares granted by EOPT.
2.31 SHARE OPTION means an option to purchase Shares granted by EOPT.
2.32 SHARE DEFERRAL means the portion of a Share, Share Option or Share
Appreciation Right deferred by a Participant under Section 4.2.
2.33 TOTAL AND PERMANENT DISABILITY means a physical or mental
condition that entitles a Participant to benefits under the Employer-sponsored
long-term disability plan in which he or she participates, as determined by the
Plan Administrator in its discretion.
2.34 TRUSTEE EFFECTIVE DATE means January 1, 1998.
2.35 UNFORESEEABLE EMERGENCY means an immediate and heavy financial
need resulting from any of the following:
(a) Expenses which are not covered by insurance and which the
Participant or his or her spouse or dependent has incurred as
a result of, or is required to incur in order to receive,
medical care;
(b) The need to prevent eviction of a Participant from his or her
principal residence or foreclosure on the mortgage of the
Participant's principal residence; or
(c) Any other circumstance that is determined by the Plan
Administrator, in the Plan Administrator's sole discretion, to
constitute an unforeseeable emergency that (i) is not covered
by insurance, (ii) cannot reasonably be relieved by the
liquidation of
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<PAGE> 9
the Participant's assets, and (iii) is consistent with the
intent of Treasury Regulation Section 1.457-2(h)(4).
2.36 UNRESTRICTED SHARE means a Share that is not subject to a
substantial risk of forfeiture for purposes of Section 83 of the Code.
ARTICLE 3
PARTICIPATION
3.1 SATISFACTION OF ELIGIBILITY REQUIREMENTS
Prior to each Entry Date, the Plan Administrator shall determine in its
discretion the identity of those Eligible Employees and Eligible Trustees who
may commence their participation in the Plan as of such Entry Date. Prior to
each Plan Year, the Plan Administrator shall determine in its discretion the
identity of those Participants who may continue their participation in the Plan
for such Plan Year. The Plan Administrator will notify Eligible Employees and
Eligible Trustees of their eligibility to participate in the Plan and provide
them with an Enrollment Form. If the Plan Administrator determines that a
Participant currently making Elective Deferrals, Share Deferrals or Matching
Deferrals is not eligible to participate in the Plan as of an upcoming Plan Year
because he or she no longer satisfies the eligibility requirements described in
Section 2.8 or 2.9 (as applicable), the Participant will be subject to a
suspension of participation as described in Section 3.4 below.
3.2 COMMENCEMENT OF PARTICIPATION
An Eligible Employee or Eligible Trustee shall become a Participant in
the Plan on the first date as of which an Elective Deferral, Share Deferral, or
Matching Deferral is credited to his or her Account.
3.3 CONTINUED PARTICIPATION
Subject to Section 7.2, a Participant in the Plan shall continue to be
a Participant so long as any amount remains credited to his or her Account.
3.4 SUSPENSION OF PARTICIPATION
If, pursuant to Section 3.1, the Plan Administrator determines that an
active Participant no longer satisfies the eligibility requirements of Section
2.8 or 2.9 (as applicable), the Plan Administrator shall notify the Participant,
and the Participant's Elective Deferrals, Share Deferrals and Matching Deferrals
shall be suspended until the next following Entry Date as of which the
Participant again satisfies Section 2.8 or 2.9 (as applicable). If the Plan
Administrator, pursuant to Section 3.1, determines that the Participant again
satisfies the eligibility requirements of Section 2.8 or 2.9 (as applicable),
the Plan Administrator shall notify the Participant, and the Participant shall
be permitted to resume active participation in the Plan as of the next following
Entry Date in accordance with Article 4. Upon such resumption, EOPT may make
Matching Deferrals for such
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<PAGE> 10
Participant to make up for any Matching Deferrals not made while his or her
participation was suspended.
ARTICLE 4
ELECTIVE, SHARE AND MATCHING DEFERRALS
4.1 ELECTIVE DEFERRALS
(a) From and after the Employee Effective Date (in the case of an
Eligible Employee) or the Trustee Effective Date (in the case of an Eligible
Trustee), an individual who is an Eligible Employee or Eligible Trustee may
elect to defer receipt of a whole percentage or whole dollar amount of the
Compensation otherwise payable to him or her, on and after a subsequent Entry
Date. For purposes of the foregoing, the Elective Deferral of each Eligible
Employee will equal the lesser of (i) the elected percentage of his or her
Compensation or elected dollar amount, as the case may be; or (ii) the entire
amount of his or her Compensation remaining after (A) all contributions that the
Eligible Employee has elected to make under all other retirement and welfare
benefit plans maintained by Equity Office have been deducted from his or her
Compensation, and (B) deductions from Compensation required by law, including
Social Security and Medicare taxes. An Eligible Employee or Eligible Trustee who
desires to elect such a deferral shall complete and file an Enrollment Form with
the Plan Administrator. Notwithstanding any provision of the Plan to the
contrary, as of an Entry Date that is not the first Entry Date of a Plan Year,
an Eligible Employee or Eligible Trustee may not reduce the percentage or dollar
amount elected for deferral.
(b) Each Enrollment Form shall be effective as described in clauses
(i), (ii) (iii) and (iv) below.
(i) An Enrollment Form with respect to salary and
commissions paid from and after the January 1
(effective January 1, 1999, March 1) Entry Date in
any Plan Year shall be filed on or before a deadline
established by the Plan Administrator for the
applicable Plan Year, but in no event later than the
December 31 that precedes the first day of such Plan
Year.
(ii) An Enrollment Form filed with respect to salary and
commission paid from and after the October 1
(effective January 1, 1999, September 1) Entry Date
in any Plan Year shall be filed before the preceding
September 1 (effective January 1, 1999, on or before
the preceding June 1).
(iii) Notwithstanding clauses (i) and (ii), in the case of
an individual who first becomes an Eligible Employee
or Eligible Trustee following the commencement of the
Plan Year, the Enrollment Form will be effective with
respect to salary, commissions and fees received
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<PAGE> 11
after the date the Enrollment Form is filed, if it is
filed within 30 days after the date the individual
becomes an Eligible Employee or Eligible Trustee.
(iv) An Enrollment Form with respect to incentive pay
shall be filed on or before October 1 of the Plan
Year preceding the Plan Year in which the incentive
pay is otherwise payable; provided that, in the case
of an individual who first becomes an Eligible
Employee after October 1 of any Plan Year, the
Enrollment Form will be effective if it is filed no
later than 30 days after he or she becomes an
Eligible Employee and before the start of the Plan
Year in which the incentive pay is otherwise payable.
(c) Except in the case of an Enrollment Form filed under
clause (b)(iv), above, each Enrollment Form shall be effective for all
Compensation to be paid to the Participant filing such Enrollment Form from and
after the Entry Date to which such Enrollment Form applies. An election to defer
salary or commissions also shall apply from and after subsequent Entry Dates
unless changed as provided herein, or until such time (if any) that the
Participant is suspended from the Plan, as provided under Section 3.4 or Section
7.6.
(d) A Participant who is an Eligible Employee and for whom a
deferral election is or will be effective as of a January 1 (effective January
1, 1999, March 1) Entry Date (or such later date permitted pursuant to clause
(b) (iii), above) may elect to have Elective Deferrals contributed pursuant to
this Plan transferred to the Qualified Plan as salary deferrals as of the end of
the Plan Year, if and to the extent allowable under the Qualified Plan. The Plan
Administrator shall direct the Funding Trustee to transfer such Elective
Deferrals as soon as possible after non-discrimination tests and other
compliance matters have been completed for the Qualified Plan for such Plan
Year. The Participant must submit an Enrollment Form indicating such election on
or before September 1 (effective January 1, 1999, June 1) of the Plan Year for
which it is effective. Such election shall be irrevocable for the Plan Year in
which it is made.
4.2 SHARE DEFERRALS
(a) An individual who is an Eligible Employee or
Eligible Trustee and who has received (or is to receive) a Restricted Share,
Share Option or Share Appreciation Right or is to receive an Unrestricted Share
may elect to defer (i) with respect to an Unrestricted Share, the ownership
thereof; (ii) with respect to a Restricted Share, the ownership of the Share
when it is an Unrestricted Share; or (iii) with respect to the Share Option or
Share Appreciation Right, the ownership of the Shares or other proceeds of an
exercise thereof. An Eligible Employee or Eligible Trustee who desires to elect
a Share Deferral shall complete and file an Enrollment Form with the Plan
Administrator. Notwithstanding the foregoing, Board of Trustees or Board
Committee fees paid in Unrestricted Shares to Eligible Trustees for 1998 shall
be deferred. The Participant may also make an election, applicable if the
Funding Trustee receives and complies with a Participant's request to invest the
deferred amount in Shares, to have any dividends paid on
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<PAGE> 12
such Shares distributed to the Participant when received by the Funding Trustee;
provided that, in the absence of such an election, such dividends shall be
credited to his or her Account.
(b) An election to defer pursuant to paragraph (a) must be
made (i) with respect to an Unrestricted Share paid in connection with the
Participant's bonus, on or before October 1 of the Plan Year preceding the Plan
Year in which the Unrestricted Share is otherwise awarded; (ii) with respect to
any other Unrestricted Share, no less than six months before it is awarded or
sold to the Participant; (iii) with respect to a Restricted Share, at least 12
months before the date it would become an Unrestricted Share; or (iv) with
respect to a Share Option or Share Appreciation Right, at least six (6) months
prior to the date the Share Option or Share Appreciation Right is exercised, or
at such other time as the Plan Administrator may specify. Deferrals will only be
effective if the individual making the election is still an Eligible Employee or
Eligible Trustee (I) in the case of a deferral of an Unrestricted Share, on the
date such Share would otherwise be received by the Participant; (II) in the case
of a deferral of a Restricted Share, on the date such Share would become an
Unrestricted Share; or (III) in the case of a deferral of a Share Option or
Share Appreciation Right, on the date that a Share Option or Share Appreciation
Right is exercised.
(c) Except as provided in the last sentence of this paragraph,
the Funding Trustee shall not be required to hold on behalf of a Participant any
Unrestricted Share, Restricted Share, Share Option or Share Appreciation Right
deferred in accordance with paragraph (a) above. Instead, the Funding Trustee
shall credit to the Participant's Account an amount equal to (i) in the case of
an Unrestricted Share or Restricted Share, the fair market value thereof on the
date that the Share would otherwise be received by the Participant (or in the
case of a deferral of a Restricted Share elected after the Share has been
received, on the date that the Enrollment Form is received by the Plan
Administrator); and (ii) in the case of a Share Option or Share Appreciation
Right, the excess of the fair market value of the underlying Shares over the
exercise or base price thereof on the date of exercise. The Participant may
request, in accordance with Section 5.3, that amounts credited to his or her
Account following a Share Deferral be invested in Shares, provided that the
Funding Trustee shall have no obligation to comply with such request.
Notwithstanding the foregoing, in the case of an Unrestricted Share that is paid
to an Eligible Trustee as Board or Committee fees and automatically deferred as
described in paragraph (a), to the extent provided by the COC, the Funding
Trustee shall invest the resulting amount credited to the Participant's Account
in Shares.
4.3 MATCHING DEFERRALS
(a) Not later than the latest date permitted by Section 404 of
the Code for matching contributions under the Qualified Plan with respect to
each Plan Year thereunder (or such later date that the need for a Matching
Deferral is determined), the Employer shall contribute a Matching Deferral to
the Account of each Participant who is an Eligible Employee, if required by the
next sentence. The Matching Deferral for each Eligible Employee for the Plan
Year shall equal the excess of (i) the amount, if any, by which the Eligible
Employee's matching contributions under the Qualified Plan were reduced because
of the operation of Section 401(m) of the Code, or because the amount of his or
her elective contributions to the Qualified Plan were
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<PAGE> 13
reduced by operation of Section 401(k)(3) of the Code (but considering all other
conditions, restrictions and provisions of the Code or the Qualified Plan); over
(ii) any amount paid to the Eligible Employee with respect to such Plan Year by
the Qualified Plan or the Employer to compensate or otherwise make up for such
reduction.
(b) Notwithstanding paragraph (a) above, a Matching Deferral
will be made for an Eligible Employee for a Plan Year only if the Eligible
Employee would have been eligible to receive allocation of a matching
contribution made under the Qualified Plan for such Plan Year.
4.4 ENROLLMENT FORMS
All Enrollment Forms filed pursuant to Article 4 shall be irrevocable
(i) with respect to Elective Deferrals under Section 4.1, except as provided
therein; and (ii) for Share Deferrals under Section 4.2, with respect to the
Unrestricted Share, Restricted Share, Share Option or Share Appreciation Right
subject thereto. Notwithstanding the foregoing, if a Participant incurs an
Unforeseeable Emergency, he or she may amend or revoke his or her Enrollment
Form (but only to the extent reasonably needed to relieve the Unforeseeable
Emergency) by filing a new Enrollment Form. Any Enrollment Form that amends or
revokes an Enrollment Form shall be effective as described in the first sentence
of this Section 4.4; provided that, if the Enrollment Form was previously
amended, the Participant will be entitled to further amend or revoke the
Enrollment Form if the Participant incurs an Unforeseeable Emergency.
ARTICLE 5
ACCOUNTS
5.1 ACCOUNTS
The Plan Administrator shall establish an Account for each Participant
reflecting Elective Deferrals, Share Deferrals and Matching Deferrals (if
applicable) made for the Participant's benefit together with any adjustments for
income, gain or loss and any payments from the Account. Elective Deferrals,
Share Deferrals and Matching Deferrals will be credited to the Account of each
applicable Participant as of the later of the date they are received by the
Funding Trustee or the date the Funding Trustee receives from the Plan
Administrator such instructions as the Funding Trustee may reasonably require to
allocate the amount received among the investments maintained by the Funding
Trustee. A Participant's Account shall also include any Educational Account
established pursuant to Section 5.2. As soon as practicable following the last
business day of each calendar quarter, the Plan Administrator (or its designee)
shall provide the Participant with a statement of such Participant's Account
reflecting the income, gains and losses (realized and unrealized), amounts of
deferrals and distributions with respect to such Account since the prior
statement.
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<PAGE> 14
5.2 EDUCATIONAL ACCOUNT
(a) An Eligible Employee may transfer any vested portion of
his or her Plan Account into an Educational Account in accordance with this
Section 5.2.
(b) An Educational Account may be established for any adopted
or natural-born child of an Eligible Employee in order to finance such child's
post-secondary undergraduate or graduate level education. An Eligible Employee
wishing to establish an Educational Account shall so notify the Plan
Administrator in writing, on a form prescribed by the Plan Administrator for
that purpose, no later than: (i) with respect to an Educational Account
established to finance a child's undergraduate education, the beginning of the
child's last full academic year of secondary education, or (ii) with respect to
an Educational Account established to finance a child's graduate education, the
beginning of the child's last full academic year of undergraduate education.
(c) The balance of an Eligible Employee's Educational Account,
adjusted for earnings, gains and losses, may be withdrawn by the Eligible
Employee on a quarterly basis to pay expenses related to tuition, books, lodging
and meals in connection with the undergraduate or graduate-level education (as
applicable) of the child with respect to whom the Account was established, to
the extent incurred at an accredited institution of higher learning; provided,
however, that lodging expenses incurred as a result of the child's residence in
a home owned directly or indirectly by the Eligible Employee or a member of his
or her family shall not be reimbursed. Distribution of the balance of an
Educational Account shall be governed by Section 7.5.
5.3 INVESTMENTS
(a) The assets of the Funding Trust shall be invested in such
investments as the Funding Trustee shall determine. The Funding Trustee may (but
is not required to) consider the Employer's or a Participant's investment
preferences when investing the assets attributable to a Participant's Account.
All Elective Deferrals contributed pursuant to the Plan by Eligible Trustees
shall be invested in Shares; provided that, if amounts contributed by a
Participant who is an Eligible Trustee are being distributed in installments,
then the Account of such Participant shall be subject to the first two (2)
sentences of this paragraph (a).
(b) EOPT may, at its discretion, provide the Funding Trustee
with the opportunity to purchase Shares at a discounted price on behalf of one
(1) or more Eligible Employees and/or Eligible Trustees, subject to conditions
established by EOPT (which may include the condition that any such Eligible
Employee has surrendered other similar opportunities to purchase Shares). If the
Employer provides such opportunity, it will either sell such common Shares
directly to the Funding Trustee or make cash contributions as necessary to
permit the Funding Trustee to buy such Shares on the open market or from other
sources. The Plan Administrator may impose restrictions on the purchase of
Shares in accordance with the Securities Act of 1933 and/or the Securities
Exchange Act of 1934.
(c) Subject to paragraph (a) above, a Participant may request
that the Funding Trustee hold the following types of investments in such
Participant's Account:
(i) Mutual funds (load or no-load)
-14-
<PAGE> 15
(ii) Securities traded on the NASDAQ national market
or a national securities exchange.
(d) Expense charges for transactions performed for each
Participant's Account shall be paid from each respective Account and will be
listed on the quarterly statement for such Account. Other Plan charges and
administrative expenses will be paid by the Employer.
-15-
<PAGE> 16
ARTICLE 6
VESTING
6.1 GENERAL
(a) A Participant shall at all times have a fully vested and
nonforfeitable right to all Elective Deferrals credited to his or her Account,
adjusted for income, gain and loss attributable thereto.
(b) A Participant shall become vested in the portion of his or
her Account derived from a Share Deferral credited to his or her Account
attributable to a Restricted Share, adjusted for income, gain and loss
attributable thereto, at the same time that such Restricted Share would have
become a Share that was not a Restricted Share.
A Participant shall at all times have a fully vested and nonforfeitable
right to all Share Deferrals credited to his or her Account and attributable to
Unrestricted Shares, Share Options or Share Appreciation Rights.
(c) Subject to earlier vesting as provided in Sections 6.2,
6.3 and 6.4, a Participant shall become vested in the portion of his or her
Account attributable to Matching Deferrals credited to his or her Account,
adjusted for income, gain and loss attributable thereto, based on his or her
years of Credited Service in accordance with the following schedule:
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE VESTED PERCENTAGE
------------------------- -----------------
<S> <C>
0-1 0%
2 25%
3 50%
4 75%
5 100%
</TABLE>
6.2 CHANGE OF CONTROL
A Participant who is then in the employ of the Employer shall become
fully vested in his or her Account immediately prior to a Change of Control of
his or her Employer.
6.3 DEATH OR DISABILITY
A Participant shall become fully vested in his or her Account
immediately prior to termination of the Participant's employment by reason of
the Participant's death or Total and Permanent Disability.
6.4 INSOLVENCY
A Participant who is then in the employ of the Employer shall become
fully vested in his or her Account immediately prior to his or her Employer's
becoming Insolvent, in which case the Participant will have the same rights as a
general creditor of the Employer with respect to his or her Account balance.
-16-
<PAGE> 17
ARTICLE 7
PAYMENTS
7.1 ELECTION AS TO TIME AND FORM OF PAYMENT
(a) A Participant may specify a distribution date applicable
to his or her Elective Deferrals, vested Share Deferrals and vested Matching
Deferrals in accordance with the following:
(i) A Participant may specify (on the first
Enrollment Form used under Section 4.1, 4.2 or,
if filed earlier, on a special Enrollment Form
filed on or before September 1 (effective
January 1, 1999, June 1, of a Plan Year for
Matching Deferrals under Section 4.3 with
respect to such Plan Year) the date or age at
which all Elective Deferrals, vested Share
Deferrals and vested Matching Deferrals
described in the last sentence of this
subparagraph (i), adjusted for earnings, gains
and losses attributable thereto, will be paid
or commence to be paid to the Participant. Such
specified date shall not be earlier than the
January 1 that is at least one year after the
Plan Year subject to such Enrollment Form and
shall apply to all Elective Deferrals, vested
Share Deferrals and vested Matching Deferrals
for (A) the Plan Year for which the Enrollment
Form is filed; (B) any prior Plan Year, in the
case of a Matching Deferral for which no
Enrollment Form was filed; and (C) any
subsequent Plan Year the last day of which is
at least one full Plan Year before the
Participant's elected distribution date.
(ii) On the Enrollment Form filed for the first Plan
Year with respect to which a distribution date
election under subparagraph (i) would not be
applicable (and for the first Plan Year with
respect to which an election under this
subparagraph would not be applicable pursuant
to the last sentence of this subparagraph), a
Participant may specify the date on which
distribution of the Participant's Elective
Deferrals, vested Share Deferrals and vested
Matching Deferrals described in the last
sentence of this subparagraph (ii), as adjusted
for earnings, gains and losses, will be paid or
commenced to be paid to the Participant. Such
specified date shall not be earlier than the
January 1 that is at least one year after the
Plan Year subject to such Enrollment Form and
shall apply to all Elective Deferrals, vested
Share Deferrals and vested Matching Deferrals
(as adjusted) for the Plan Year for which the
Enrollment form is filed, and for
-17-
<PAGE> 18
any subsequent Plan Year the last day of which
is at least one full Plan Year before the
Participant's specified distribution date.
(b) If approved by the Plan Administrator, a Participant may
change a date elected for distribution pursuant to paragraph (a); provided that
(i) the change is filed with the Plan Administrator no later than the December
31 that is at least one year before the Plan Year in which the previously
elected date occurs; (ii) the new date for distribution occurs no earlier than
the second Plan Year after the Plan Year in which the previously elected date
occurs; and (iii) a Participant shall not change a date for distribution more
than once in any two consecutive Plan Years, or more than twice in any five
consecutive Plan Years.
(c) The Participant's election under this Section 7.1 may
provide for payments to be made in the form of either:
(i) A single lump-sum payment; or
(ii) Annual installments over a period elected by
the Participant of up to ten (10) years, the
amount of each installment to equal the then
balance of the Account divided by the number of
installments remaining to be paid. The
Participant may separately designate the date
or age of the initial payment and the date or
age that the remaining payments are to begin.
A Participant who has made no election under this paragraph (c) or a Participant
who has made such an election and wishes to change the election, may make an
election under this paragraph; provided that no election that is made other than
on the Enrollment Form to which an Elective Deferral, a Share Deferral or a
Matching Deferral is subject shall be effective until the January 1 that is at
least 12 months after the date the election is filed with the Plan
Administrator. Any such change shall also apply to all previous Enrollment Forms
and Change Forms filed by the Participant to the extent that the change
satisfies the preceding sentence in connection with such Forms.
(d) Except as provided in Sections 7.2, 7.3, 7.4, 7.5 and 7.6,
payments from a Participant's Account shall be made in accordance with the
Participant's elections under this Section 7.1. If no election is made by a
Participant, distribution shall be made in a single lump sum upon the
termination of the Participant's employment.
(e) Payments from a Participant's Account shall be in cash or
in kind (comprising assets of the Funding Trust), as determined by the Funding
Trustee. The Funding Trustee may (but is not required to) consider the
Employer's or a Participant's preferences when determining the form in which
payment is made from the Participant's Account.
-18-
<PAGE> 19
7.2 TERMINATION OF SERVICE
Upon termination of a Participant's service as a member of EOPT's Board
of Trustees, or termination of a Participant's employment with all Employers and
Extended Companies, as the case may be, for any reason other than death, the
vested portion of the Participant's
Account shall be paid to the Participant according to the Participant's
distribution election, unless the Plan Administrator elects, in its sole
discretion, to pay out a Participant's Account balance in a single lump sum as
soon as practicable following the date of termination. Equity Office shall have
the right to offset against any payments made to a Participant under this
Section 7.2 an amount as is necessary to reimburse Equity Office for liabilities
or obligations of the Participant to Equity Office, including for amounts
misappropriated by the Participant.
7.3 DEATH
(a) If a Participant dies prior to the complete distribution
of his or her Account, the vested portion of the Participant's Account shall be
paid to the Participant's designated beneficiary or beneficiaries, according to
the Participant's distribution election, unless the Plan Administrator elects,
in its sole discretion, to pay out a Participant's Account balance in a single
lump sum as soon as practicable following the date of termination.
(b) A Participant may designate a beneficiary by so notifying
the Plan Administrator in writing, at any time before Participant's death, on a
form prescribed by the Plan Administrator for that purpose. A Participant may
revoke any beneficiary designation or designate a new beneficiary at any time
without the consent of a beneficiary or any other person. If no beneficiary is
designated or no designated beneficiary survives the Participant, payment shall
be made to the Participant's surviving spouse, or, if none, to the Participant's
issue per stirpes, in a single payment. If no spouse or issue survives the
Participant, payment shall be made in a single lump sum to the Participant's
estate.
7.4 WITHDRAWAL DUE TO UNFORESEEABLE EMERGENCY
If a Participant experiences an Unforeseeable Emergency, the Plan
Administrator, in its sole discretion, may pay to the Participant only that
portion, if any, of the vested portion of such Participant's Account which the
Plan Administrator determines is necessary to satisfy the emergency need,
including any amounts necessary to pay any federal, state or local income taxes
reasonably anticipated to result from the distribution. A Participant requesting
an emergency payment shall apply for the payment in writing using a form
prescribed by the Plan Administrator for that purpose and shall provide such
additional information as the Plan Administrator may require.
-19-
<PAGE> 20
7.5 WITHDRAWAL DUE TO EDUCATIONAL EXPENSE
(a) The balance of an Educational Account established under
Section 5.2 shall be distributed on a quarterly basis at the Participant's
request as the expenses described in Section 5.2 are incurred by or for the
child with respect to whom the Educational Account was established. The
Participant's request shall be in writing, delivered to the Plan Administrator,
on a form prescribed for that purpose by the Plan Administrator. The Plan
Administrator may require such documentation as it deems necessary to
substantiate such expenses.
(b) Notwithstanding the foregoing, 90% of the balance of an
Educational Account shall be transferred back to the Account of the Participant
and the balance of the Educational Account shall be forfeited as of the earlier
of: (i) the date as of which the child ceases full-time pursuit of undergraduate
or graduate-level education (as applicable) for a period of more than 12
consecutive months; or (ii) with respect to (A) an Educational Account
established to finance the undergraduate education of a Participant's child, the
child's 23rd birthday, or (B) an Educational Account established to fund the
graduate education of a Participant's child, the child's 28th birthday.
(c) Notwithstanding the foregoing, 100% of the balance of an
Educational Account shall be transferred back to the Participant's Account if
the child with respect to whom the Educational Account is established dies or
becomes disabled (as defined below) before reaching: (i) age 23 with respect to
an Educational Account established to finance the child's undergraduate
education, or (ii) age 28 with respect to an Educational Account established to
finance the child's graduate education. For purposes of this Section 7.5, a
Participant's child shall be deemed to be "disabled" if the Plan Administrator,
in its discretion, determines that an illness or injury has rendered the child
physically or mentally incapable of the full-time pursuit of the course of study
for which the Educational Account was established. The Plan Administrator may
request such evidence of the child's illness or injury as it deems necessary to
establish the existence of a disability.
7.6 OTHER WITHDRAWALS
Upon the request of a Participant, the Plan Administrator, in its sole
discretion, may pay to the Participant any amount up to the vested portion of
the Participant's Account. A Participant requesting a withdrawal under this
Section 7.6 shall apply for the payment in writing on a form prescribed by the
Plan Administrator for that purpose, and shall provide such additional
information as the Plan Administrator may require. The Plan Administrator will
pay 90% of the withdrawn amount to the Participant and the remaining 10% will be
forfeited. A Participant receiving a withdrawal under this Section 7.6 shall be
suspended from making Elective Deferrals and Share Deferrals under the Plan
until the second Plan Year following his or her receipt of such withdrawal.
-20-
<PAGE> 21
7.7 FORFEITURE OF NON-VESTED AMOUNTS
(a) To the extent that any amounts credited to a Participant's
Account are not vested at the time such amounts are otherwise payable under
Sections 7.1 and 7.2, they shall be forfeited. Such forfeited amounts, as well
as forfeitures pursuant to Sections 7.5 and 7.6, shall be used to satisfy the
Employer's obligation to make contributions to the Funding Trust under the Plan.
(b) If (i) the Plan pays to any terminated Participant who is
not 100% vested in his or her Account, the vested portion of his or her Account
prior to the time such Participant has incurred five (5) consecutive Breaks in
Service for purposes of the Qualified Plan and (ii) such Participant resumes
employment as an Eligible Employee after receipt of such distribution and before
incurring five (5) consecutive Breaks in Service, the provisions of this Section
7.7(b) shall apply. Upon such reemployment, the Participant may repay the vested
portion of his or her Account received as such distribution within two (2) years
after he or she is rehired. If and only if the Participant makes such repayment,
the forfeited portion of the Participant's Account shall be restored to his or
her credit and an additional Employer contribution in that amount shall be made
for that purpose.
7.8 TAXES
Income taxes and other taxes payable with respect to an Account shall
be deducted from such Account. All federal, state or local taxes that the Plan
Administrator determines are required to be withheld from any payments made
pursuant to this Article 7 shall be withheld.
ARTICLE 8
PLAN ADMINISTRATOR
8.1 PLAN ADMINISTRATION AND INTERPRETATION
The Plan Administrator shall oversee the administration of the Plan.
The Plan Administrator shall have complete control and authority to determine
the rights and benefits and all claims, demands and actions arising out of the
provisions of the Plan of any Participant, beneficiary, deceased Participant, or
other person having or claiming to have any interest under the Plan.
Notwithstanding any other provision of the Plan to the contrary, the Plan
Administrator shall have complete discretion to interpret the Plan and to decide
all matters under the Plan. Such interpretation and decision shall be final,
conclusive and binding on all Participants and any person claiming under or
through any Participant, in the absence of clear and convincing evidence that
the Plan Administrator acted arbitrarily and capriciously. Any individual(s)
serving as Plan Administrator who is a Participant shall not vote or act on any
matter relating solely to himself or herself. When making a determination or
calculation, the Plan Administrator shall be entitled to rely on information
furnished by a Participant, a beneficiary, the Employer or the Funding Trustee.
The Plan Administrator shall have the responsibility for complying with any
reporting and disclosure requirements of ERISA.
-21-
<PAGE> 22
8.2 POWERS, DUTIES, PROCEDURES, ETC.
The Plan Administrator shall have such powers and duties, may adopt
such rules and tables, may act in accordance with such procedures, may appoint
such officers or agents, may delegate such powers and duties, may receive such
reimbursements and compensation, and shall follow such claims and appeal
procedures with respect to the Plan as the Plan Administrator may establish.
8.3 INFORMATION
To enable the Plan Administrator to perform its functions, the Employer
shall supply full and timely information to the Plan Administrator on all
matters relating to the compensation of Participants, their employment,
retirement, death, termination of employment, and such other pertinent facts as
the Plan Administrator may require.
8.4 INDEMNIFICATION OF PLAN ADMINISTRATOR
The Employers agree to indemnify and to defend to the fullest extent
permitted by law any officer(s) or employee(s) who serve as Plan Administrator
(including any such individual who formerly served as Plan Administrator)
against all liabilities, damages, costs and expenses (including reasonable
attorneys' fees and amounts paid in settlement of any claims approved by the
Employer in writing in advance) occasioned by any act or omission to act in
connection with the Plan, if such act or omission is in good faith.
ARTICLE 9
AMENDMENT AND TERMINATION
9.1 AMENDMENTS
The Compensation and Option Committee of the Board of Trustees of EOPT
(the "COC") shall have the right to amend the Plan from time to time, subject to
Section 9.3, by an instrument in writing that has been executed on behalf of
EOPT by an officer duly authorized by the COC.
9.2 TERMINATION OF PLAN
The Plan is strictly a voluntary undertaking on the part of each
Employer and shall not be deemed to constitute a contract between the Employer
and any Eligible Employee (or any other employee) or any Eligible Trustee, a
consideration for, or an inducement or condition of employment for, the
performance of the services by any Eligible Employee (or other employee) or any
Eligible Trustee. The COC may terminate the Plan at any time, subject to Section
9.3, by an
-22-
<PAGE> 23
instrument in writing that has been executed on behalf of EOPT by an officer
duly authorized by the COC. Upon termination of the Plan, the COC may (a) elect
to continue to maintain the Funding Trust to pay benefits hereunder as they
become due as if the Plan had not terminated or (b) direct the Funding Trustee
to pay promptly to Participants (or their beneficiaries) the vested balance of
their Accounts. For purposes of the preceding sentence, in the event clause (b)
is implemented, the Account balance of all Participants who are in the employ of
the Employer at the time the Funding Trustee is directed to pay such balances
shall become fully vested and nonforfeitable. After Participants and their
beneficiaries are paid all Plan benefits to which they are entitled, all
remaining assets of the Funding Trust attributable to Participants who
terminated employment with the Employer prior to termination of the Plan and who
were not fully vested in their Accounts under Article 6 at that time shall be
returned to the Employer.
9.3 EXISTING RIGHTS
No amendment or termination of the Plan shall adversely affect the
rights of any Participant with respect to amounts that have been credited to his
or her Account prior to the date of such amendment or termination.
ARTICLE 10
MISCELLANEOUS
10.1 NO FUNDING
The Plan constitutes a mere promise by the Employer to make payments in
accordance with the term of the Plan and Participants and beneficiaries shall
have the status of general unsecured creditors of the Employer. Nothing in the
Plan will be construed to give any employee or any other person rights to any
specific assets of the Employer or of any other person. In all events, it is the
intent of the Employer that the Plan be treated as unfunded for tax purposes and
for purposes of Title I of ERISA.
10.2 NON-ASSIGNABILITY
None of the benefits, payments, proceeds or claims of any Participant
or beneficiary shall be subject to any claim of any creditor of any Participant
or beneficiary and, in particular, the same shall not be subject to attachment
or garnishment or other legal process by any creditor of such Participant or
beneficiary, nor shall any Participant or beneficiary have any right to
alienate, anticipate, commute, pledge, encumber or assign any of the benefits or
payments or proceeds which he or she may expect to receive, contingently or
otherwise under the Plan.
10.3 LIMITATION OF PARTICIPANT'S RIGHTS
Nothing contained in the Plan shall confer upon any person a right to
be employed or to continue in the employ of an Employer or on the Board of
Trustees of EOPT, or interfere in any way with the right of an Employer to
terminate the employment of a Participant in the Plan at any time, with or
without cause.
-23-
<PAGE> 24
10.4 PARTICIPANTS BOUND
Any action with respect to the Plan taken by the Plan Administrator or
the Funding Trustee or any action authorized by or taken at the direction of the
Plan Administrator, an Employer or the Funding Trustee shall be conclusive upon
all Participants and beneficiaries entitled to benefits under the Plan.
10.5 RECEIPT AND RELEASE
Any payment to any Participant or beneficiary in accordance with the
provisions of the Plan shall, to the extent thereof, be in full satisfaction of
all claims against an Employer, the Plan Administrator and the Funding Trustee
under the Plan, and the Plan Administrator may require such Participant or
beneficiary, as a condition precedent to such payment, to execute a receipt and
release to such effect. If any Participant or beneficiary is determined by the
Plan Administrator to be incompetent by reason of physical or mental disability
(including minority) to give a valid receipt and release, the Plan Administrator
may cause the payment or payments becoming due to such person to be made to
another person for his or her benefit without responsibility on the part of the
Plan Administrator, an Employer or the Funding Trustee to follow the application
of such funds.
10.6 GOVERNING LAW
The Plan shall be construed, administered, and governed in all respects
under and by the laws of the State of Illinois. If any provision shall be held
by a court of competent jurisdiction to be invalid or unenforceable, the
remaining provisions hereof shall continue to be fully effective.
10.7 HEADINGS AND SUBHEADINGS
Headings and subheading in this Plan are inserted for convenience only
and are not to be considered in the construction of the provisions hereof.
IN WITNESS WHEREOF, the undersigned officer of EOPT has executed this
document to certify its adoption by EOPT as of the effective date provided
herein.
<PAGE> 25
FIRST AMENDMENT TO EQUITY OFFICE
Supplemental Retirement Savings Plan
WHEREAS, Equity Office Properties Trust ("Equity Office") has adopted
the Equity Office Supplemental Retirement Savings Plan (the "Plan"), and has
reserved the right to amend the Plan; and
WHEREAS, Equity Office desires to amend the Plan to authorize the
nonelective deferral of bonuses paid in Equity Office Shares; and
WHEREAS, the Compensation and Option Committee of the Board of Trustees
of Equity Office (the "COC") is authorized to amend the Plan, and the COC has
approved and adopted this amendment;
NOW, THEREFORE, Equity Office amends Section 4.2 of the Plan, effective
December 17, 1998, to read as follows:
"4.2 SHARE DEFERRALS
(a) Share Deferrals under the Plan may be made by or for an
Eligible Employee or Eligible Trustee in accordance with the following:
(i) An individual who is an Eligible Employee or
Eligible Trustee and who has received (or is to receive) a
Restricted Share, Share Option or Share Appreciation Right or
is to receive an Unrestricted Share may elect to defer (A)
with respect to an Unrestricted Share, the ownership thereof;
(B) with respect to a Restricted Share, the ownership of the
Share when it is an Unrestricted Share; or (C) with respect to
the Share Option or Share Appreciation Right, the ownership of
the Shares or other proceeds of an exercise thereof. An
Eligible Employee or Eligible Trustee who desires to elect a
Share Deferral shall complete and file an Enrollment Form with
the Plan Administrator.
(ii) Board of Trustees or Board Committee fees paid
in Unrestricted Shares to Eligible Trustees shall be deferred
hereunder. In addition, the COC (as defined in Article 9) may
cause any Share granted to an Eligible Employee or Eligible
Trustee to be deferred hereunder.
(iii) A Participant by or for whom a Share Deferral
is made may also make an election, applicable if the Funding
Trustee receives and complies with a Participant's request to
invest the deferred amount in Shares, or receives a request
from the COC to invest in Shares, to have any dividends paid
on such Shares distributed to the Participant when received by
the Funding Trustee; provided that, in the absence of such an
election, such dividends shall be credited to his or her
Account.
-25-
<PAGE> 26
(b) An election to defer pursuant to paragraph
9(a)(i) must be made (i) with respect to an Unrestricted Share
paid in connection with the Participant's bonus, on or before
October 1 of the Plan Year preceding the Plan Year in which
the Unrestricted Share is otherwise awarded; (ii) with respect
to any other Unrestricted Share, no less than six months
before it is awarded or sold to the Participant; (iii) with
respect to a Restricted Share, at least 12 months before the
date it would become an Unrestricted Share; or (iv) with
respect to a Share Option or Share Appreciation Right, at
least six (6) months prior to the date the Share Option or
Share Appreciation Right is exercised, or at such other time
as the Plan Administrator may specify. Deferrals will only be
effective if the individual making the election is still an
Eligible Employee or Eligible Trustee on (I) in the case of a
deferral of an Unrestricted Share, the date such Share would
otherwise be received by the Participant; (II) in the case of
a deferral of a Restricted Share, the date such Share would
become an Unrestricted Share; or (III) in the case of a
deferral of a Share Option or Share Appreciation Right, the
date that a Share Option or Share Appreciation Right is
exercised.
(c) Except as provided in the last sentence of this
paragraph, the Funding Trustee shall not be required to hold
on behalf of a Participant any Unrestricted Share, Restricted
Share, Share Option or Share Appreciation Right deferred in
accordance with paragraph (a) above. Instead, the Funding
Trustee shall credit to the Participant's Account an amount
equal to (i) in the case of an Unrestricted Share or
Restricted Share, the fair market value thereof on the date
that the Share would otherwise be received by the Participant
(or in the case of a deferral of a Restricted Share elected
after the Share has been received, on the date that the
Enrollment Form is received by the Plan Administrator); and
(ii) in the case of a Share Option or Share Appreciation
Right, the excess of the fair market value of the underlying
Shares over the exercise or base price thereof on the date of
exercise. The Participant may request, in accordance with
Section 5.3, that amounts credited to his or her Account
following a Share Deferral be invested in Shares, provided
that the Funding Trustee shall have no obligation to comply
with such request. Notwithstanding the foregoing, in the case
of an Unrestricted Share that is paid to an Eligible Trustee
or granted to an Eligible Employee or Eligible Trustee, and
automatically deferred as described in paragraph (a)(ii), to
the extent provided by the COC, the Funding Trustee shall
invest the resulting amount credited to the Participant's
Account in Shares."
<PAGE> 27
SECOND AMENDMENT TO EQUITY OFFICE
SUPPLEMENTAL RETIREMENT SAVINGS PLAN
WHEREAS, Equity Office Properties Trust ("Equity Office") has adopted
the Equity Office Supplemental Retirement Savings Plan (the "Plan"), and has
reserved the right to amend the Plan, and
WHEREAS, the Compensation and Option Committee of the Board of Trustees
of Equity Office (the "COC") is authorized to amend the Plan, and the COC has
approved and adopted this amendment;
NOW, THEREFORE, Equity Office amends the Plan, effective November 1,
1997, by replacing Section 7.1 (a) and (b) with the following (and redesignating
subsections (c) to (e) as subsections (b) to (d)):
"(a) A Participant shall elect (on the Enrollment Form used
under Section 4.1 or 4.2, or a special Enrollment Form filed for a
deferral under Section 4.2(a)(ii), or a special Enrollment Form filed
on or before July of a Plan Year for Matching Deferrals under Section
4.3 with respect to such Plan Year) the date or age at which Elective
Deferrals, vested Share Deferrals and vested Matching Deferrals subject
to such Form, adjusted for earnings, gains and losses attributable
thereto, will be paid or commence to be paid to the Participant. If a
Participant did not elect a date or age on an Enrollment Form, he or
she may nonetheless, with the consent of the Plan Administrator in its
discretion, elect a date or age for distribution; provided that such
election is made not later than the December 31 that is at least 12
months before the date of his or her termination under Section 7.2.
With the consent of the Plan Administrator in its discretion, a
Participant may change any such election; provided that (i) the
Participant changes his or her election to a date or age that is at
least two (2) years later than the date or age previously elected; and
(ii) any such change is made not later than the December 31 that is at
least 12 months before the date previously elected."
<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 Equity
Equity Equity Office Office
Office Office Properties Predecessors
Properties Properties Trust for for
Trust Trust the period from the period from
for the for the July 11, 1997 January 1, 1997 Equity Office Predecessors
Year Ended Year Ended through through Combined Historical for the Years
December 31, December 31, December 31, July 10, Ended December 31,
1999 1998 1997 1997 1996 1995
------------ ------------ -------------- --------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Income before preferred
distributions, minority
interests - $430,412 $380,328 $ 94,962 $ 49,173 $ 68,087 $ 23,436
Operating Partnership, gains
from sales of property,
provision for value impairment
and extraordinary items
Plus Fixed Charges:
Interest expense 413,995 338,611 76,675 80,481 119,595 100,566
Interest expense from
unconsolidated subsidiaries 9,116 8,580
Loan amortization cost 4,693 6,404 4,179 2,771 4,275 2,025
Taxes 654 1,664 0 0 0 0
-------- -------- -------- -------- -------- --------
Earnings $858,870 $735,587 $175,816 $132,425 $191,957 $126,027
======== ======== ======== ======== ======== ========
Fixed Charges:
Interest expense $413,995 $338,611 $ 76,675 $ 80,481 $119,595 $100,566
Interest expense from
unconsolidated subs 9,116 8,580 0 0 0 0
Capitalized interest 18,030 15,077 1,890 3,669 4,640 1,682
Loan amortization cost 4,693 6,404 4,179 2,771 4,275 2,025
Preferred distributions 43,603 32,202 649 0 0 0
-------- -------- -------- -------- -------- --------
Total Fixed Charges $489,437 $400,874 $ 83,393 $ 86,921 $128,510 $104,273
======== ======== ======== ======== ======== ========
Ratio of earnings to combined
fixed charges and preferred
share distributions 1.8 1.8 2.1 1.5 1.5 1.2
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES
EOP Operating Limited Partnership, a Delaware limited partnership
Equity Office Properties Management Corp., a Delaware corporation
In addition, the Company has interests in 286 entities which are not deemed to
be significant subsidiaries.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
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: 25,000,000 common shares of beneficial interest pertaining to
the Equity Office Properties Trust Dividend Reinvestment and Share Purchase Plan
(registration statement no. 333-81303); 21,545,034 common shares of beneficial
interest, as amended (registration statement no. 333-86079); 1,012,623 common
shares of beneficial interest (registration statement no. 333-88481); 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 shares of beneficial interest (registration statement no. 333-40401);
and in the Registration Statements (Form S-8) pertaining to the 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 8, 2000, except for Note 24, as to which the date is February 15, 2000,
with respect to the consolidated financial statements and schedule of Equity
Office Properties Trust and Equity Office Predecessors included in the 1999
Annual Report (Form 10-K) of Equity Office Properties Trust.
Ernst & Young LLP
Chicago, Illinois
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 22,092
<SECURITIES> 0
<RECEIVABLES> 193,194
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,258,619
<PP&E> 13,202,540
<DEPRECIATION> (630,387)
<TOTAL-ASSETS> 14,046,058
<CURRENT-LIABILITIES> 484,613
<BONDS> 5,851,918
0
615,000
<COMMON> 0
<OTHER-SE> 7,094,527
<TOTAL-LIABILITY-AND-EQUITY> 14,046,058
<SALES> 0
<TOTAL-REVENUES> 1,942,243
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,135,608
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 413,995
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (10,548)
<CHANGES> 0
<NET-INCOME> 382,092
<EPS-BASIC> 1.49
<EPS-DILUTED> 1.48
</TABLE>
<PAGE> 1
EXHIBIT 99.1
EQUITY OFFICE PROPERTIES TRUST
1997 NON-QUALIFIED EMPLOYEE SHARE PURCHASE PLAN
FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Auditors............................................................. 2
Financial Statements and Notes............................................................. 3
</TABLE>
<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 statements of financial condition of the Equity
Office Properties Trust 1997 Non-Qualified Employee Share Purchase Plan, as
amended, as of December 31, 1999 and 1998, and the related statements of changes
in plan equity for the years 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 financial condition of the Plan at December 31, 1999
and 1998 and the Plan's changes in plan equity for the years then ended, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Chicago, Illinois
March 8, 2000
2
<PAGE> 3
EQUITY OFFICE PROPERTIES TRUST
1997 NON-QUALIFIED EMPLOYEE SHARE PURCHASE PLAN
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
ASSETS:
Receivable from Equity Office Properties Trust:
Participant contributions ................... $ 105,800 $ 860,800
Plan Sponsor contributions .................. -- 154,500
------------------- -------------------
Total Plan equity $ 105,800 $ 1,015,300
=================== ===================
</TABLE>
See accompanying notes.
3
<PAGE> 4
EQUITY OFFICE PROPERTIES TRUST
1997 NON-QUALIFIED EMPLOYEE SHARE PURCHASE PLAN
STATEMENTS OF CHANGES IN PLAN EQUITY
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Plan equity at beginning of year $ 1,015,300 $ --
------------------- -------------------
Additions:
Participant contributions 1,886,300 1,492,100
Plan Sponsor contributions 267,600 253,500
------------------- -------------------
Total additions 2,153,900 1,745,600
------------------- -------------------
Deductions:
Refunds of Participant contributions (6,200) (12,700)
Purchase and distributions of Common Shares to Participants (3,057,200) (717,600)
------------------- -------------------
Total deductions (3,063,400) (730,300)
------------------- -------------------
Plan equity at end of year $ 105,800 $ 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 so 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 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 1999 were from January 1
through June 30, July 1 through November 30, and December 1 through December 31,
and for 1998 were from January 1 through June 30 and July 1 though December 31
("Purchase Period"). At the end of each Purchase Period, Participant's
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 are subject to the restrictions set
forth in the Plan.
The Company has reserved 2,000,000 Common Shares for participants under
the Plan.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
ACCOUNTING METHOD
The accounting records of the Plan are maintained on the accrual basis.
Common Shares are purchased after the end of each Purchase Period and accounted
for in the appropriate option period.
EXPENSES
The Company pays administrative expenses of the Plan.
5
<PAGE> 6
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 1999 and 1998 for
each purchase period is as follows:
<TABLE>
<CAPTION>
PURCHASE PERIOD
-----------------------------------------------------------------------------------
1/1/99 TO 7/1/99 TO 12/1/99 TO 1/1/98 TO 7/1/98 TO
6/30/99 11/30/99 12/31/99 6/30/98 12/31/98
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Participant contributions $ 1,208,300 $ 572,600 $ 101,100 $ 618,600 $ 854,200
Employer contributions 164,800 102,800 -- 99,000 154,500
============== ============== ============== ============== ==============
Total $ 1,373,100 $ 675,400 $ 101,100 $ 717,600 $ 1,008,700
============== ============== ============== ============== ==============
Market value of Common Shares
purchase and distributed
per share $ 24.75 $ 22.00 $ -- $ 27.9355 $ 24.04
============== ============== ============== ============== ==============
Common Shares purchased and
distributed 55,477 30,700 -- 25,642 41,871
============== ============== ============== ============== ==============
</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 - Year 2000 (unaudited)
The Plan Sponsor developed a Year 2000 program to modify its internal
information systems to be compliant with the year 2000 and has begun converting
critical data processing systems. The program was successful in uncovering and
proactively correcting a number of Y2K problems in advance of January 1, 2000.
Tests of the information systems on New Years Day did not reveal any problems.
6
<PAGE> 7
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 of our report dated March 8,
2000, 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 1999 Annual Report (Form
10-K) of Equity Office Properties Trust for the year ended December 31, 1999.
Ernst & Young LLP
Chicago, Illinois
March 24, 2000
7
<PAGE> 8
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 27, 2000 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
