<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1998
REGISTRATION NO. 333-
================================================================================
THIS DOCUMENT IS A COPY OF THE REGISTRATION STATEMENT ON FORM S-4 FILED ON MAY
22, 1998 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GLENBOROUGH PROPERTIES, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
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CALIFORNIA 7001 94-3231041
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OF ORGANIZATION) CLASSIFICATION CODE NUMBERS) IDENTIFICATION NUMBER)
</TABLE>
400 SOUTH EL CAMINO REAL, 11TH FLOOR
SAN MATEO, CALIFORNIA 94402
(650) 343-9300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
FRANK E. AUSTIN, ESQ.
SENIOR VICE PRESIDENT
OF GLENBOROUGH REALTY TRUST INCORPORATED,
GENERAL PARTNER OF THE REGISTRANT
400 SOUTH EL CAMINO REAL, 11TH FLOOR
SAN MATEO, CALIFORNIA 94402
(650) 343-9300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
STEPHEN J. SCHRADER, ESQ.
JUSTIN L. BASTIAN, ESQ.
MORRISON & FOERSTER, LLP
755 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(650) 813-5600
APPROXIMATE DATE OF COMMENCEMENT OF SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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=======================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------
7 5/8% Senior Notes Due 2005... $150,000,000 100% $150,000,000.00 $44,250.00
=======================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 22, 1998
GLENBOROUGH PROPERTIES, L.P.
OFFER TO EXCHANGE ALL OUTSTANDING 7 5/8% SENIOR NOTES DUE 2005
($150,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR 7 5/8% SENIOR NOTES DUE 2005 WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1998 (AS SUCH DATE MAY BE EXTENDED, THE
"EXPIRATION DATE").
Glenborough Properties, L.P., a California limited partnership (the
"Operating Partnership") hereby offers (the "Exchange Offer"), upon the terms
and subject to the conditions set forth in this Prospectus and the accompanying
letter of transmittal (the "Letter of Transmittal"), to exchange $150,000 or
integral multiples of $1,000 in excess thereof in principal amount of its 7 5/8%
Senior Notes due 2005 (the "New Notes") for each $150,000 or integral multiples
of $1,000 in excess thereof in principal amount of its outstanding 7 5/8% Senior
Notes due 2005 (the "Old Notes") (the New Notes and the Old Notes are
collectively referred to herein as the "Notes").
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Notes where such Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities. The Operating Partnership has agreed that, starting on the
Expiration Date (as defined herein) and ending on the close of business one year
after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Operating Partnership will accept for exchange any and all Old Notes
that are validly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date. Tenders of Old Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of the Old Notes being tendered
for exchange. However, the Exchange Offer is subject to the terms and provisions
of the Registration Rights Agreement, dated as of March 23, 1998 (the
"Registration Rights Agreement"), between the Operating Partnership, Bear,
Stearns & Co. Inc., and Salomon Brothers Inc. (the "Initial Purchasers"). The
Old Notes may be tendered only in multiples of $150,000 or integral multiples of
$1,000 in excess thereof. See "The Exchange Offer."
The Old Notes were issued in a transaction (the "Initial Offering")
pursuant to which the Operating Partnership issued an aggregate of $150,000,000
principal amount of the Old Notes to the Initial Purchasers on March 23, 1998
(the "Closing Date") pursuant to an Indenture, and supplement thereto, each
dated March 23, 1998 (the "Indenture"), among the Operating Partnership, the
Company, as general partner of the Operating Partnership, and Chase Manhattan
Bank and Trust Company, National Association, as trustee (the "Trustee"). The
Initial Purchasers subsequently resold the Old Notes in reliance on Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act"). The
Operating Partnership and the Initial Purchasers also entered into the
Registration Rights Agreement pursuant to which the Operating Partnership
granted certain registration rights for the benefit of the holders of the Old
Notes. The Exchange Offer is intended to satisfy certain of the Operating
Partnership's obligations under the Registration Rights Agreement with respect
to the Old Notes. The New Notes will be obligations of the Operating Partnership
evidencing the same indebtedness as the Old Notes and will be issued under and
entitled to the benefits of the Indenture. The form and terms of the New Notes
will be registered under the Securities Act, and therefore such New Notes will
not be subject to certain transfer restrictions, registration rights and related
Special Interest (as defined herein) provisions applicable to the Old Notes. See
"The Exchange Offer -- Purpose and Effect."
(continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS IN EVALUATING THE EXCHANGE OFFER.
------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998
<PAGE> 3
(continued from cover)
The New Notes will bear interest at the rate of 7 5/8% per annum, payable
semi-annually in arrears on March 15 and September 15 of each year, commencing
September 15, 1998, to holders of record on the immediately preceding March 1
and September 1 and will mature on March 15, 2005. Holders whose Old Notes are
accepted for exchange will have the right to receive interest accrued thereof
from the date of the original issuance of the Old Notes or date of the last
interest payment, as applicable, to, but not including, the date of issuance of
the New Notes, such interest to be payable with the first interest payment on
the New Notes. The Notes are subject to redemption at any time at the option of
the Operating Partnership, in whole or in part, at the redemption prices set
forth herein, plus accrued and unpaid interest and the Make Whole amount (as
defined herein), if any, thereon to the date fixed for redemption.
The New Notes will be general unsecured and unsubordinated obligations of
the Operating Partnership and will rank pari passu with all other unsecured and
unsubordinated indebtedness of the Operating Partnership from time to time
outstanding. However, the New Notes will be effectively subordinated to such
secured borrowing arrangements that the Operating Partnership has and from time
to time may enter into with various banks and other lenders, and to the prior
claims of each secured mortgage lender to any specific property owned by the
Operating Partnership which secures any lender's mortgage. As of March 31, 1998,
such arrangements and mortgages aggregated approximately $242.1 million; as
adjusted to reflect the Pro Forma Adjustments (as defined herein), such
arrangements and mortgages would have aggregated approximately million
as of March 31, 1998. Subject to certain limitations set forth in the Indenture,
the Indenture permits the Operating Partnership to incur additional indebtedness
and additional secured indebtedness. See "Description of Notes -- Covenants" and
"Recent Activities -- Financing Activities."
The Operating Partnership is making the Exchange Offer in reliance on the
position of the staff of the Securities and Exchange Commission (the
"Commission") as set forth in certain interpretive letters issued to third
parties in other transactions. However, the Operating Partnership has not sought
its own interpretive letter, and there can be no assurance that the Commission
would make a similar determination with respect to the Exchange Offer. Based on
the Commission interpretations, the Operating Partnership believes that New
Notes issued pursuant to the Exchange Offer to any holder of Old Notes in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by such holder (other than a broker-dealer who purchased Old Notes
directly from the Operating Partnership for resale pursuant to Rule 144A under
the Securities Act or any other available exemption under the Securities Act)
without further compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such holder is not an affiliate
of the Operating Partnership, is acquiring the New Notes in the ordinary course
of business and is not participating, and has no arrangement or understanding
with any person to participate, in the distribution of the New Notes. Holders
wishing to accept the Exchange Offer must represent to the Operating Partnership
that such conditions have been met. In addition, if such holder is not a
broker-dealer, it must represent that it is not engaged in, and does not intend
to engage in, a distribution of the New Notes. Each broker-dealer that receives
New Notes for its own account in exchange for Old Notes, where such Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "The Exchange Offer -- Resales
of the New Notes" and "Plan of Distribution." This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
or other trading activities.
There has previously been only a limited secondary market, and no public
market, for the Old Notes. The Old Notes are eligible for trading in the Private
Offering, Resales and Trading through Automatic Linkages ("PORTAL") market. In
addition, the Initial Purchasers have advised the Operating Partnership that
they currently intend to make a market in the New Notes; however, the Initial
Purchasers are not obligated to do so and any market making activities may be
discontinued by the Initial Purchasers at any time. Therefore, there can be no
assurance that an active market for the New Notes will develop. If such trading
market develops for the New Notes, future trading prices will depend on many
factors, including, among other things, prevailing interest rates, the Operating
Partnership's results of operations and the market for similar securities.
<PAGE> 4
Depending on such factors, the New Notes may trade at a discount from their face
value. See "Risk Factors -- Lack of Public Market."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Old Notes were issued originally in global form (the "Global Old
Note"). The Global Old Note was deposited with the Trustee as custodian of, or
on behalf of, The Depository Trust Operating Partnership ("DTC"), as the initial
depository with respect to the Old Notes (in such capacity, the "Depositary").
The Global Old Note is registered in the name of Cede & Co. ("Cede"), as nominee
of DTC, and beneficial interests in the Global Old Note are shown on, and
transfers thereof are effected only through, records maintained by the
Depositary and its participants, and anyone holding a beneficial interest in an
Old Note registered in the name of such a participant, to transfer interests in
the Old Notes electronically in accordance with the Depositary's established
procedures without the need to transfer a physical certificate. New Notes issued
in exchange for the Global Old Note will also be issued initially as a note in
global form (the "Global New Note," and, together with the Global Old Note, the
"Global Notes") and deposited with the Trustee as custodian of, or on behalf of,
the Depositary. After the initial issuance of the Global New Note, New Notes in
certificated form will be issued in exchange for a holder's proportionate
interest in the Global New Note only as set forth in the Indenture.
THE OPERATING PARTNERSHIP WILL NOT RECEIVE ANY PROCEEDS FROM THIS EXCHANGE
OFFER. PURSUANT TO THE REGISTRATION RIGHTS AGREEMENT, THE OPERATING PARTNERSHIP
WILL BEAR CERTAIN REGISTRATION EXPENSES.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Available Information....................................... 1
Incorporation by Reference.................................. 1
Prospectus Summary.......................................... 3
Operating Partnership..................................... 3
The Initial Offering...................................... 4
The Exchange Offer........................................ 5
Description of New Notes.................................. 7
Risk Factors.............................................. 9
Risk Factors................................................ 10
Risks Associated With Acquisitions........................ 10
Dependence on Executive Officers.......................... 11
Risks Associated With Debt Financing...................... 11
Absence of a Public Market for the Notes.................. 12
Risks Relating to Real Estate............................. 12
Limitation On Ownership of Common Stock May Preclude
Acquisition of Control................................. 16
Litigation Related to Consolidation....................... 16
Chapter 11 Reorganization of Partnership Consolidation by
Senior Management...................................... 16
Board of Directors May Change Investment Policies......... 17
Year 2000 Compliance...................................... 17
The Exchange Offer.......................................... 18
Purpose and Effect........................................ 18
Consequences of Failure to Exchange Old Notes............. 18
Terms of the Exchange Offer............................... 18
Expiration Date; Extensions; Amendments................... 19
Conditions of the Exchange Offer.......................... 19
Termination of Certain Rights............................. 19
Accrued Interest.......................................... 19
Procedures For Tendering Old Notes........................ 20
Guaranteed Delivery Procedures............................ 21
Acceptance of Old Notes for Exchange; Delivery of New
Notes.................................................. 22
Withdrawal Rights......................................... 22
The Exchange Agent; Assistance............................ 23
Fees and Expenses......................................... 23
Accounting Treatment...................................... 23
Resales of the New Notes.................................. 23
Capitalization.............................................. 25
Selected Historical and Pro Forma Financial and Other
Data...................................................... 26
The Operating Partnership................................... 29
Growth Strategy........................................... 29
Financing Policies........................................ 30
Investment Policies....................................... 31
Recent Activities........................................... 32
Pending Acquisitions...................................... 32
1998 and 1997 Completed Acquisitions...................... 33
Other Acquisition Opportunities........................... 36
Redeployment of Assets.................................... 36
</TABLE>
i
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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Financing Policies........................................ 36
Investment Policies....................................... 36
Financing Activities...................................... 37
Legal Proceedings........................................... 38
Business & Properties....................................... 39
Management.................................................. 43
Securities Ownership of Management.......................... 46
Certain Relationships and Related Transactions.............. 48
Acquisitions from Related Parties......................... 48
Employment Agreements..................................... 48
Description of Notes........................................ 49
General................................................... 49
Ranking................................................... 50
Principal, Maturity and Interest.......................... 50
Optional Redemption....................................... 50
Registration Rights; Liquidated Damages................... 51
Merger, Consolidation or Sale............................. 52
Covenants................................................. 52
Certain Definitions....................................... 55
Events of Default, Notice and Waiver...................... 57
Discharge, Defeasance and Covenant Defeasance............. 58
Modification of the Indenture............................. 60
Transfer and Exchange..................................... 61
United States Federal Income Tax Consequences............... 62
General................................................... 62
Exchange Offer............................................ 62
Plan of Distribution........................................ 63
Legal Matters............................................... 63
Experts..................................................... 63
</TABLE>
ii
<PAGE> 7
AVAILABLE INFORMATION
The Operating Partnership has filed a registration statement on Form S-4
(together with any amendments thereto, the "Registration Statement") with the
Commission under the Securities Act with respect to the New Notes. This
Prospectus, which constitutes a part of the Registration Statement, omits
certain information contained in the Registration Statement and reference is
made to the Registration Statement and the exhibits and schedules thereto for
further information with respect to the Operating Partnership and the New Notes
offered hereby. This Prospectus contains summaries of the material terms and
provisions of certain documents and in each instance reference is made to the
Registration Statement and the exhibits and schedules thereto for further
information with respect to the Operating Partnership and the New Notes offered
hereby. This Prospectus contains summaries of the material terms and provisions
of certain documents and in each instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement. Each such summary is
qualified in its entirety by such reference.
The Company (as defined herein) is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith the Company files proxy statements and other
information with the Commission. All reports, proxy statements and other
information filed with the Commission can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.,
20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The address of the
Commission's Web Site is (http://www.sec.gov). In addition, the Common Stock is
listed on the New York Stock Exchange and similar information concerning the
Company can be inspected and copied at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Operating Partnership is not currently subject to the periodic
reporting and other informational requirements of the Exchange Act. The
Operating Partnership has agreed that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Operating Partnership will furnish to the Holders of Notes (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Operating Partnership were
required to file such Forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" that describes the financial
condition and results of operations of the Operating Partnership and its
consolidated Subsidiaries and, with respect to the annual information only, a
report thereon by the Operating Partnership's certified independent accountants
and (ii) all current reports that would be required to be filed with the
Commission on Form 8-K if the Operating Partnership were required to file such
reports. In addition, whether or not required by the rules and regulations of
the Commission, the Operating Partnership will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Operating Partnership will agree that, for so long as any Notes remain
outstanding, it will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered by Rule 144(d)(4) under the Securities Act.
INCORPORATION BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K for the year ended
December 31, 1997;
b. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
c. The Company's Current Reports on Form 8-K filed with the Commission
on April 29, 1998 and May 7, 1998;
1
<PAGE> 8
d. The Company's Current Reports on Form 8-K/A filed with the
Commission on May 15, 1998;
e. The description of the Registrant's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 1-14162); and
f. The description of the Registrant's 7 3/4% Convertible Preferred
Stock (liquidation preference $25.00 per share), par value $0.001 per
share, contained in the Company's Registration Statement on Form 8-A (File
No. 1-14162).
All documents filed by the Operating Partnership pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the Exchange Offer shall be deemed to
be incorporated by reference into this Prospectus and to be a part hereof from
the date of filing of such documents.
As used herein, the terms "Prospectus" and "herein" mean this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document,
copies of which are available from the Operating Partnership as described below,
each such statement being qualified in all respects by such reference.
The Operating Partnership will provide without charge to each person to
whom this Prospectus is delivered, upon the written or oral request of such
person, a copy of any or all of the documents referred to above which have been
or may be incorporated by reference in this Prospectus (excluding exhibits to
the information that is incorporated herein by reference unless such exhibits
are specifically incorporated by reference into the information that this
Prospectus incorporates). Requests for such copies should be directed to
Investor Relations, Glenborough Realty Trust Incorporated, 400 South El Camino
Real Suite 1100, San Mateo, California 95402-1708; telephone number (650)
343-9300.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus) or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus (or in the applicable Prospectus).
2
<PAGE> 9
PROSPECTUS SUMMARY
The following is qualified in its entirety by the more detailed information
and financial statements appearing elsewhere in this Prospectus. As used herein,
the term "Operating Partnership" means Glenborough Properties, L.P., a
California limited partnership, and the term "Company" means Glenborough Realty
Trust Incorporated, a Maryland corporation, and its consolidated subsidiaries
for the periods from and after December 31, 1995 (the date the Company merged
(the "Consolidation") with and into Glenborough Corporation, a California
corporation ("Old GC") and eight public limited partnerships (collectively with
Old GC, the "GRT Predecessor Entities")) and the Company's predecessor
partnerships and companies for periods prior to the Consolidation, unless the
context indicates otherwise. The previous offering and sale in a private
placement of $150,000,000 aggregate principal amount of 7 5/8% Senior Notes Due
2005 (the "Old Notes"), which closed on March 23, 1998 (the "Closing Date"), is
herein referred to as the "Initial Offering," and the exchange offering of the
Old Notes for up to $150,000,000 aggregate principal amount of 7 5/8% Senior
Notes Due 2005 which have been registered with the Commission under the
Securities Act of 1933 (the "Securities Act") made hereby is herein referred to
as the "Exchange Offer." As used herein, the term "Pro Forma Adjustments" with
respect to March 31, 1998 calculations, means that such calculations have been
adjusted to reflect the acquisition of the Eaton & Lauth Portfolio I, the
completion of the Pending Acquisitions and certain other adjustments (see "Pro
Forma Financial Information"), as if such transactions had been completed on
March 31, 1998. Unless otherwise indicated, ownership percentages of the units
of limited partnership interests in the Operating Partnership have been
calculated assuming the entire Preferred Partner Interest (as defined below) has
been converted into such units. This Prospectus contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 (the
"Securities Act") and Section 21E of the Securities and Exchange Act of 1934
(the "Exchange Act"), which statements involve risks and uncertainties. The
Operating Partnership's and the Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth herein under "Risk Factors" and
elsewhere in this Prospectus.
OPERATING PARTNERSHIP
The Operating Partnership is managed by its general partner, the Company, a
self-administered and self-managed real estate investment trust ("REIT"). As of
the date of this Prospectus, the Operating Partnership owned a diversified
portfolio of 157 office, office/flex, industrial, retail, multi-family and hotel
properties (collectively, the "Properties," and each a "Property") aggregating
approximately 18.0 million square feet located in 24 states throughout the
country. In addition, two associated companies, Glenborough Corporation ("GC")
and Glenborough Hotel Group ("GHG," and together with GC, the "Associated
Companies"), provide comprehensive asset, partnership and property management
services for a diversified portfolio of 46 additional properties that are not
owned by the Operating Partnership. The combined portfolios encompass
approximately 22.8 million rentable square feet in 24 states. In addition, the
Operating Partnership is in the process of acquiring the Covance Property and
the Pru-Bache Portfolio (each as defined below, the "Pending Acquisitions"). The
Pending Acquisitions represent approximately 790,470 rentable square feet, with
an acquisition cost of approximately $63.6 million. See "Recent Activities."
The Operating Partnership holds directly or indirectly all of the Company's
interests in the Properties and all of the Company's operations relating to the
Properties are conducted through the Operating Partnership. The Operating
Partnership is controlled by the Company as its sole general partner and, as of
the date of this Prospectus, the Company owned a 1% general partnership interest
and an approximate 92% limited partnership interest in the Operating
Partnership.
The Operating Partnership's principal growth strategy is to capitalize on
the opportunity to acquire diversified portfolios or individual properties on
attractive terms. This strategy has evolved from the Company's predecessors'
experience since 1978 in managing real estate partnerships and their assets and,
since 1989, in acquiring portfolios and management interests from third parties.
As of the date of the Consolidation, the GRT Predecessor Entities had 17 years
of experience in owning and operating properties.
3
<PAGE> 10
In particular, unlike most REITs, which typically purchase specific types
of properties or properties located in regional markets, the Company through the
Operating Partnership seeks to purchase portfolios of properties which are
diversified by both property type and location. The management believes the
Operating Partnership can acquire such diversified portfolios at attractive
prices from partnerships as well as REITs, life insurance companies and other
institutions because it can provide liquidity to portfolio owners who might
otherwise face a limited market for their diversified portfolios, or who might
otherwise face a limited market for their diversified portfolios, or who might
be forced to liquidate through multiple sales of the individual properties which
can be more expensive and time consuming than the single sale of the entire
portfolio.
Furthermore, the Operating Partnership's UPREIT structure allows it to
address the current owners' tax concerns and structure transactions that may
defer taxable gains. The Operating Partnership has issued partnership units in
the Operating Partnership, which are redeemable for cash or exchangeable for the
Company's Common Stock, to sellers in connection with the acquisition of
Properties with a total acquisition cost of over $340.0 million.
The Operating Partnership's executive offices are located at 400 South El
Camino Real, Suite 1100, San Mateo, California 94402-1708 and its telephone
number is (650) 343-9300.
The following table sets forth certain information with respect to the
Operating Partnership's properties as of March 31, 1998. For information
regarding the individual Properties the Operating Partnership owned as of the
date of this Prospectus, see "The Properties."
PROPERTY TABLE BY PROPERTY TYPE AS OF MARCH 31, 1998(1)
<TABLE>
<CAPTION>
OCCUPANCY RATE
RENTABLE AS OF
TYPE OF PROPERTY SQ. FT. MARCH 31, 1998(2)
---------------- ---------- -----------------
<S> <C> <C>
Office......................................... 6,377,571 96%
Office/Flex.................................... 4,029,579 93
Industrial..................................... 3,430,898 96
Retail......................................... 979,088 97
---------- --
Subtotal/Weighted Average................. 14,817,136 95%
---------- --
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY RATE
RENTABLE AS OF
UNITS/ROOMS SQ. FT. MARCH 31, 1998
----------- ---------- --------------
<S> <C> <C> <C>
Multi-family........................ 2,147 1,898,603 96%
Hotels.............................. 744 326,701 71(3)
----------
Subtotal Square Feet........... 2,225,304
----------
Total Square Feet......... 17,042,440
==========
</TABLE>
- ---------------
(1) Excludes the Eaton & Lauth Portfolio I which was acquired in April 1998 and
does not reflect the sale of the Sandhill Industrial Park Property which was
sold in April 1998. Also excludes properties expected to be acquired, see
"Recent Activities -- Pending Acquisitions."
(2) Represents economic occupancy as of March 31, 1998.
(3) Represents average economic occupancy for the three months ended March 31,
1998.
THE INITIAL OFFERING
The outstanding $150.0 million principal amount of Old Notes were sold by
the Operating Partnership to the Initial Purchasers on the Closing Date pursuant
to the Indenture among the Operating Partnership, the Company and the Trustee.
The Initial Purchasers subsequently resold the Old Notes in reliance on Rule
144A under the Securities Act. The Operating Partnership and the Initial
Purchasers also entered into the Registration Rights Agreement pursuant to which
the Operating Partnership granted certain registration rights
4
<PAGE> 11
for the benefit of the holders of the Old Notes. The Exchange Offer is intended
to satisfy certain of the Operating Partnership's obligations under the
Registration Rights Agreement with respect to the Old Notes. See "The Exchange
Offer" and "The Exchange Offer -- Purpose and Effect."
THE EXCHANGE OFFER
Securities Offered............ Up to $150.0 million principal amount of 7 5/8%
Senior Notes Due 2005, which have been
registered under the Securities Act. The form
and term of the New Notes are substantially
identical to the Old Notes in all material
respects, except that the New Notes will be
registered under the Securities Act, and
therefore will not be subject to certain
transfer restrictions, registration rights and
related Special Interest provisions applicable
to the Old Notes.
The Exchange Offer............ The Operating Partnership is offering, upon the
terms and subject to the conditions set forth
herein and in the Letter of Transmittal, to
exchange $150,000 or integral multiples of
$1,000 in excess thereof in principal amount of
New Notes for each $150,000 or integral
multiples of $1,000 in excess thereof in
principal amount of outstanding Old Notes of the
corresponding maturity, with Global New Notes
being exchanged for Global Old Notes. As of the
date of this Prospectus $150.0 million in
aggregate principal amount of the Old Notes were
outstanding. As of , 1998
there was one registered holder of the Old
Notes, Cede & Co., which held the entire $150.0
million of Old Notes for of
its participants. See "The Exchange
Offer -- Terms of the Exchange Offer."
Expiration Date............... The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998,
or such later date and time to which it is
extended. See "The Exchange Offer -- Terms of
the Exchange Offer."
Withdrawal.................... Tenders of Old Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to 5:00
p.m. New York City time on the Expiration Date.
See "The Exchange Offer -- Expiration Date:
Extensions; Amendments."
Conditions of the Exchange
Offer......................... The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered for exchange. The only condition to the
Exchange Offer is the declaration by the
Commission of the effectiveness of the
Registration Statement of which this Prospectus
constitutes a part. See "The Exchange
offer -- Conditions of the Exchange Offer."
Procedures for Tendering Old
Notes......................... Each holder of Old Notes desiring to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal according to the
instructions contained herein and therein, and
mail or otherwise deliver the Letter of
Transmittal, together with the Old Notes and any
other required documents, to the Exchange Agent
(as defined herein) at the address set forth
herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any beneficial owner
whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company
or other nominee and who wishes to tender such
5
<PAGE> 12
Old Notes in the Exchange Offer should instruct
such entity or person to promptly tender on such
beneficial owner's behalf.
Guaranteed Delivery
Procedures.................... Holders of Old Notes who wish to tender their
Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date may tender their Old Notes
according to the guaranteed delivery procedures
set forth in the Letter of Transmittal. See "The
Exchange -- Guaranteed Delivery Procedures."
Acceptance of Old Notes and
Delivery of New Notes......... Upon effectiveness of the Registration Statement
of which this Prospectus constitutes a part and
consummation of the Exchange Offer, the
Operating Partnership will accept any and all
Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will be
delivered promptly after acceptance of the Old
Notes. See "Exchange Offer -- Acceptance of Old
Notes for Exchange; Delivery of New Notes."
The Exchange Agent............ Chase Manhattan Bank and Trust Company, National
Association has agreed to serve as the exchange
agent (in such capacity, the "Exchange Agent")
in connection with the Exchange Offer. See "The
Exchange Offer -- The Exchange Agent."
Federal Income Tax
Consequences.................. There will be no U.S. Federal income tax
consequences to holders exchanging Old Notes
pursuant to the Exchange Offer. See "United
States Federal Income Tax Consequences."
Use of Proceeds............... There will be no proceeds to the Operating
Partnership from the exchange pursuant to the
Exchange Offer. See "Use of Proceeds."
Fees and Expenses............. All expenses incident to the Operating
Partnership's consummation of the Exchange Offer
and compliance with the Registration Rights
Agreement will be borne by the Operating
Partnership. The Operating Partnership will also
pay certain transfer taxes applicable to the
Exchange Offer. See "The Exchange Offer -- Fees
and Expenses."
Termination of Certain
Rights........................ Pursuant to the Registration Rights Agreement,
holders of Old Notes (i) have rights to receive
Special Interest and (ii) have certain rights
intended for the holders of unregistered
securities. As used herein, "Special Interest"
means additional interest of .50% per annum of
the principal amount of the Old Notes during the
first 90 days of a Registration Default (defined
herein), increasing by an additional (0.50% per
annum for each additional 90-day period (up to a
maximum of 2.0% per annum of the principal
amount) for any period during which a
Registration Default is continuing pursuant to
the terms of the Registration Rights Agreement.
Holders of New Notes will no longer be, and upon
consummation of the Exchange Offer, holders of
Old Notes will no longer be, entitled to (i) the
right to receive Special Interest and (ii)
certain other rights under the Registration
Rights Agreement intended for holders of
unregistered securities. See "The Exchange
Offer -- Termination of Certain Rights" and
"Procedures for Tendering Old Notes."
6
<PAGE> 13
Accrued Interest.............. The New Notes will bear interest at a rate equal
to 7 5/8% per annum from their date of issuance.
Holders whose Old Notes are accepted for
exchange will have the right to receive interest
accrued thereon from the date of original
issuance or date of the last interest payment,
as applicable, to, but not including, the date
of issuance of the New Notes, such interest to
be payable with the first interest payment on
the New Notes. Interest on the Old Notes
accepted for exchange will cease to accrue on
the day prior to the issuance of the New Notes.
See "Description of Notes -- Principal, Maturity
and Interest."
Resales of New Notes.......... Based on the position of the staff of the
Commission as set forth in certain interpretive
letters issued to third parties in other
transactions, the Operating Partnership believes
that the New Notes issued pursuant to the
Exchange Offer to any holder of Old Notes in
exchange for Old Notes may be offered for
resale, resold and otherwise transferred by a
holder (other than (i) a broker-dealer who
purchased the Old Notes directly form the
Operating Partnership for resale pursuant to
Rule 144A under the Securities Act or any other
available exemption under the Securities Act of
and (ii) a person that is an affiliate of the
Operating Partnership within the meaning of Rule
405 under the Securities Act), without further
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such holder is not an affiliate of
the Operating Partnership, in acquiring the New
Notes in the ordinary course of business and is
not participating, and has no arrangement or
understanding with any person to participate, in
a distribution of the New Notes. Each
broker-dealer that receives New Notes for its
own account in exchange for Old Notes, where
such Old Notes were acquired by such broker as a
result of market-making or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such New Notes. See "The Exchange
Offer -- Resales of the New Notes" and "Plan of
Distribution.
Effect of Not Tendering Old
Notes for Exchange............ Old Notes that are not tendered or that are not
properly tendered will, following the expiration
of the Exchange Offer, continue to be subject to
the existing restriction upon transfer thereof.
The Operating Partnership will have no further
obligations to provide for the registration
under the Securities Act of such Old Notes and
such Old Notes will, following the expiration of
the Exchange Offer, bear interest at the same
rate as the New Notes.
DESCRIPTION OF NEW NOTES
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes will
be registered under the Securities Act, and therefore will not be subject to
certain transfer restrictions, registration rights and related Special Interest
provisions applicable to the Old Notes. The Exchange Offer shall be deemed
consummated upon the occurrence of the delivery by the Operating Partnership to
the Exchange Agent of New Notes in the same aggregate principal amount as the
aggregate principal amount of Old Notes that are validly tendered by holders
thereof pursuant to the Exchange Offer. See "The Exchange Offer -- Termination
of Certain Rights" and "-- Procedures for Tendering Old Notes" and "Description
of Notes."
7
<PAGE> 14
Securities Offered............ $150.0 million aggregate principal amount of
7 5/8% Senior Notes Due 2005 of the Operating
Partnership
Maturity Date................. March 15, 2005.
Denominations................. $150,000 minimum or integral multiples of $1,000
in excess thereof.
Interest Payment Dates........ Interest on the New Notes is payable
semi-annually on March 15 and September 15 of
each year, commencing September 15, 1998.
Optional Redemption by the
Operating Partnership......... The New Notes are redeemable at any time at the
option of the Operating Partnership, in whole or
in part, at a redemption price equal to the sum
of (i) the principal amount of the New Notes
being redeemed plus accrued interest to the
redemption date, and (ii) the Make-Whole Amount,
if any. See "Description of Notes -- Optional
Redemption."
Ranking....................... The New Notes will be general unsecured and
unsubordinated obligations of the Operating
Partnership and will rank pari passu with all
other unsecured and unsubordinated indebtedness
of the Operating Partnership from time to time
outstanding. However, the New Notes will be
effectively subordinated to secured borrowing
arrangements that the Operating Partnership has
and from time to time may enter into with
various banks and other lenders, and to the
prior claims of each secured mortgage lender to
any specific Property which secures any lender's
mortgage. As of March 31, 1998, such
arrangements and mortgages aggregated
approximately $242.1 million; as adjusted to
reflect the Pro Forma Adjustments, such
arrangements and mortgages would have aggregated
$ million as of March 31, 1998. See
"Recent Activities -- Financing Activities" and
"Capitalization." Subject to certain limitations
set forth in the Indenture, the Indenture
permits the Operating Partnership to incur
additional indebtedness and additional secured
indebtedness. See "Description of
Notes -- Covenants."
Certain Covenants............. The Indenture with respect to the Notes contains
various covenants, including the following:
(1) The Operating Partnership will not incur any
Debt if, after giving effect thereto, the
aggregate principal amount of all outstanding
Debt of the Operating Partnership is greater
than 60% of the sum of (i) Total Assets as of
the end of the Operating Partnership's fiscal
quarter ended immediately prior to the
incurrence of such additional Debt and (ii) the
increase in Total Assets since the end of such
quarter, including any increase in Total Assets
resulting from the incurrence of such additional
Debt (such increase, together with the Total
Assets, the "Adjusted Total Assets"). As of
March 31, 1998, as adjusted to reflect the Pro
Forma Adjustments, the Operating Partnership's
aggregate principal amount of all outstanding
Debt would have been of Adjusted Total
Assets.
(2) The Operating Partnership will not incur any
Debt if the ratio of Consolidated Income
Available for Debt Service to the Annual Service
Charge on all debt outstanding immediately after
the incurrence of such additional Debt for the
four consecutive fiscal quarters most recently
ended prior to the date of the incurrence of
such
8
<PAGE> 15
additional Debt, on a pro forma basis, would be
less than 1.5 to 1.0. As of March 31, 1998, as
adjusted to reflect the pro forma adjustments as
described under the caption "Pro Forma Financial
Information," the Operating Partnership's ratio
of Consolidated Income Available for Debt
Service would have been times the Annual
Service Charge on all Debt.
(3) The Operating Partnership will not incur any
Secured Debt if, after giving effect thereto,
the aggregate amount of all outstanding Secured
Debt is greater than 40% of Adjusted Total
Assets. As of March 31, 1998, as adjusted to
reflect the Pro Forma Adjustments, the Operating
Partnership's aggregate amount of all
outstanding Secured Debt would have been of
Adjusted Total Assets.
(4) The Operating Partnership will maintain
Total Unencumbered Assets of not less than 150%
of the aggregate outstanding principal amount of
Unsecured Debt. As of March 31, 1998, as
adjusted to reflect the Pro Forma Adjustments,
the Operating Partnership's Total Unencumbered
Assets would have been of the aggregate
outstanding principal amount of Unsecured Debt.
For a more complete description of the terms and
definitions used in the foregoing limitations,
see "Description of Notes -- Certain Covenants."
RISK FACTORS
Prospective purchasers of the Notes should carefully consider the matters
set forth under "Risk Factors" and as well as the other information, historical
financial statements and data and the pro forma financial data included in this
Prospectus in evaluating the Exchange Offer.
9
<PAGE> 16
RISK FACTORS
Prospective investors should read this entire Prospectus carefully,
including all appendices and supplements hereto, and should consider carefully
the following factors in evaluating the Exchange Offer.
RISKS ASSOCIATED WITH ACQUISITIONS
Risks Associated with the Addition of a Substantial Number of New Properties
The Operating Partnership is currently experiencing a period of rapid
growth. Since the Consolidation on December 31, 1995, the Operating Partnership
has invested approximately $1.4 billion in properties, as of the date of this
Prospectus. The Operating Partnership's ability to manage its growth effectively
will require it to apply successfully its experience managing its existing
portfolio to new markets and to an increased number of properties. There can be
no assurance that the Operating Partnership will be able to manage these
operations effectively. The Operating Partnership's inability to effectively
manage its expansion could have an adverse effect on the Operating Partnership's
results of operations, financial condition and ability to service debt.
Acquisitions Could Adversely Affect Operations
Consistent with its growth strategy, the Operating Partnership is
continually pursuing and evaluating potential acquisition opportunities, and is
from time to time actively considering the possible acquisition of specific
properties, which may include properties managed or controlled by one of the
Associated Companies or owned by affiliated parties. It is possible that one or
more of such possible future acquisitions, if completed, could adversely affect
the Operating Partnership's results of operations, financial condition and
ability to service debt.
Assumption of General Partner Liabilities
The Operating Partnership and its predecessors have acquired a number of
their properties by acquiring partnerships that own the properties or by first
acquiring general partnership interests and at a later date acquiring the
properties, and the Operating Partnership may pursue acquisitions in this manner
in the future. When the Operating Partnership uses this acquisition technique, a
subsidiary of the Company becomes a general partner. As a general partner, the
Company's subsidiary becomes generally liable for the debts and obligations of
the partnership, including debts and obligations that may be contingent or
unknown at the time of the acquisition. In addition, the Company's subsidiary
assumes obligations under the partnership agreements, which may include
obligations to make future contributions for the benefit of other partners. The
Company undertakes detailed due diligence reviews to ascertain the nature and
extent of obligations that its subsidiary will assume when it becomes a general
partner, but there can be no assurance that the obligations assumed will not
exceed the Company's estimates or that the assumed liabilities will not have an
adverse effect on the Operating Partnership's results of operations or financial
condition and ability to service debt.
Risks Relating to Tender Offers
The Operating Partnership may, as part of its growth strategy, acquire
properties and portfolios of properties through tender offer acquisitions of
interests in public and private partnerships and REITs. Tender offers often
result in competing tender offers, as well as litigation initiated by limited
partners in the subject partnerships or by competing bidders. Due to the
inherent uncertainty of litigation, the Operating Partnership could be subject
to adverse judgments in substantial amounts. As the Operating Partnership has
not yet attempted an acquisition through the tender offer process, and because
of competing offers and possible litigation, there can be no assurance that, if
undertaken, the Operating Partnership would be successful in acquiring
properties through a tender offer or that the tender offer process would not
result in litigation and a significant judgment adverse to the Operating
Partnership.
10
<PAGE> 17
Conflict of Interest
The Operating Partnership has acquired, and from time to time may acquire,
properties from partnerships that Robert Batinovich, the Company's Chairman and
Chief Executive Officer, and Andrew Batinovich, the Company's President and
Chief Operating Officer, control, and in which they and members of their
families have substantial interests. These transactions involve or will involve
conflicts of interest. These transactions may provide substantial economic
benefits such as payments or unit issuances, relief or deferral of tax
liabilities, relief of primary or secondary liability for debt, and reduction in
exposure to other property-related liabilities. Despite the presence of
appraisals or fairness opinions or review by parties who have no interest in the
transactions, the transactions will not be the product of arm's-length
negotiation and there can be no assurance that these transactions will be as
favorable to the Operating Partnership as transactions that the Operating
Partnership negotiates with unrelated parties or will not result in undue
benefit to Robert and Andrew Batinovich and members of their families. Neither
Robert Batinovich nor Andrew Batinovich has guaranteed that any properties
acquired from entities they control or in which they or their families have a
significant interest will be as profitable as other investments made by the
Operating Partnership or will not result in losses.
DEPENDENCE ON EXECUTIVE OFFICERS
The Operating Partnership is dependent on the efforts of Robert and Andrew
Batinovich, the Chief Executive Officer and the President and Chief Operating
Officer, respectively, of the Company, as the Operating Partnership's general
partner, and of the Company's other executive officers. The loss of the services
of any of them could have an adverse effect on the results of operations and
financial condition of the Company and the Operating Partnership. Both Robert
and Andrew Batinovich have entered into employment agreements with the Company.
RISKS ASSOCIATED WITH DEBT FINANCING
The Operating Partnership selectively seeks to use leverage to increase the
rate of return on its investments and to allow the Operating Partnership to make
more investments than it otherwise could. Such use of leverage presents an
element of risk in the event that the cash flow from the Operating Partnership's
properties is insufficient to meet the Operating Partnership's debt service
requirements (including with respect to the Notes). Subject to the limitations
contained in the Indenture and the Acquisition Credit Facility (as defined
below), to the extent the Operating Partnership determines to obtain additional
debt financing in the future, it may do so through mortgages on some of its
properties. As of March 31, 1998, $242.1 million of the Operating Partnership's
outstanding debt was secured by mortgages. The existing mortgages, a substantial
portion of which are cross-collateralized, are on non-recourse or
cross-collateralized bases. To the extent indebtedness is cross-collateralized,
lenders may seek to foreclose upon properties which are not the primary
collateral for their loans, which may, in turn, result in acceleration of other
indebtedness secured by the properties. Holders of indebtedness which is secured
by any of the properties will have a claim against such properties which is
senior to the claim of holders of the Notes. Foreclosure on properties would
result in a loss of income and asset value to the Operating Partnership.
The Company's organizational documents limit the Company's ability to
incur, or permit any consolidated partnership or subsidiary corporation to
incur, additional debt if the total debt, including the additional debt, would
exceed 50% of the Borrowing Base, defined as the greater of Fair Market Value or
Total Market Capitalization. The debt of the Operating Partnership is included
in the calculation of such additional debt and total debt. Fair Market Value is
based upon the value of the Company's assets as determined by an independent
appraiser. Total Market Capitalization is based upon the market value of the
Company's outstanding capital stock, including shares issuable on exercise of
redemption options by holders of units of the Operating Partnership. An
exception is made for refinancings and borrowings required to make distributions
to maintain the Company's status as a REIT. As of March 31, 1998, as adjusted to
reflect the Pro Forma Adjustments, the Company's debt was % of the Borrowing
Base.
11
<PAGE> 18
The Operating Partnership has a $250 million unsecured line of credit (the
"Acquisition Credit Facility") with Wells Fargo Bank, N.A. ("Wells Fargo Bank").
The Acquisition Credit Facility has a three year term and bears interest on a
sliding scale ranging from LIBOR plus 1.1% to LIBOR plus 1.3%. The Acquisition
Credit Facility agreement provides that if the Operating Partnership's debt
securities receive certain ratings from at least two rating agencies, as
specified in the Acquisition Credit Facility agreement, the interest rate will
decrease to a sliding scale ranging from LIBOR plus 0.8% to LIBOR plus 1.15%,
depending upon the rating.
The Acquisition Credit Facility also provides that distributions may not
exceed 90% of funds from operations and that, in the event of a failure to pay
principal or interest on borrowings thereunder when due (subject to any
applicable grace period), distributions may not exceed the lesser of (i) 90% of
funds from operations and (ii) the minimum amount that the Company must
distribute to its stockholders in order to avoid federal tax liability and
remain qualified as a REIT. If the Operating Partnership is unable to obtain
acceptable financing to repay indebtedness at maturity, the Operating
Partnership may have to sell properties to repay indebtedness or properties may
be foreclosed upon, which could have an adverse effect on the Operating
Partnership's results of operations and financial condition.
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
The Notes are a new issue of securities for which there is currently no
public market. The Operating Partnership does not intend to apply for listing of
the Notes on any securities exchange or on the Nasdaq National Market. Although
the Initial Purchasers have informed the Operating Partnership that they
currently intend to make a market in the Notes, they are not obligated to do so
and any such market-making may be discontinued at any time without notice.
Accordingly, there can be no assurance as to the development or liquidity of any
market for the Notes. If a market for the Notes were to develop, the Notes may
trade at prices that may be higher or lower than their respective initial
offering price depending upon many factors, including prevailing interest rates,
the Operating Partnership's operating results and the markets for similar
securities. In addition, such market making activity may be limited during the
Exchange Offer and the pendency of any Shelf Registration Statement. See
"Description of Notes -- Registration Rights; Liquidated Damages." Therefore,
there can be no assurance that an active market for the Notes or, if issued, the
Exchange Notes will develop or, if such a market develops, that it will
continue.
RISKS RELATING TO REAL ESTATE
Environmental Matters
Under federal, state and local laws, ordinances and regulations relating to
protection of the environment ("Environmental Laws"), a current or previous
owner or operator of real estate may be liable for contamination resulting from
the presence or discharge of petroleum products or other hazardous or toxic
substances at such property, and may be required to investigate and clean-up
such contamination at such property or such contamination which has migrated
from such property. Such laws typically impose liability and clean-up
responsibility without regard to whether the owner or operator knew of, or was
responsible for, the presence of such contamination, and the liability under
such laws has been interpreted to be joint and several unless the harm is
divisible and there is a reasonable basis for allocation of responsibility. In
addition, the owner or operator of a property may be subject to claims by third
parties based on personal injury, property damage and/or other costs, including
investigation and clean-up costs, resulting from environmental contamination
present at or emanating from such property. Environmental Laws may also impose
restrictions on the manner in which a property may be used or transferred or in
which business may be operated, and these restrictions may require expenditures.
Under the Environmental Laws, any person who arranges for the transportation,
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of investigation or clean-up of such substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person.
Environmental Laws also govern the presence, maintenance and removal of
asbestos-containing building materials ("ACM"). Such laws require that ACM be
properly managed and maintained, that those who may
12
<PAGE> 19
come into contact with ACM be adequately apprised and trained, and that special
precautions, including removal or other abatement, be undertaken in the event
ACM is disturbed during renovation or demolition of a building. Such laws may
impose fines and penalties on building owners or operators for failure 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.
Some of the Properties, as well as properties previously owned by the
Operating Partnership, are leased or have been leased, in part, to owners and
operators of businesses that use, store or otherwise handle petroleum products
or other hazardous or toxic substances. Some of these Properties contain, or may
have contained, underground storage tanks for the storage of petroleum products
and other hazardous or toxic substances. These operations create a potential for
the release of petroleum products or other hazardous or toxic substances. Some
of the Properties are adjacent to or near other properties that have contained
or currently contain underground storage tanks used to store petroleum products
or other hazardous or toxic substances. Several of the Properties have been
contaminated with petroleum products or other hazardous or toxic substances from
on-site operations or operations on adjacent or nearby properties. In addition,
certain of the Properties are on, or are adjacent to or near other properties
upon which others, including former owners or tenants of the Properties, have
engaged or may in the future engage in activities that may release petroleum
products or other hazardous or toxic substances.
All of the Properties presently owned by the Operating Partnership have
been subject to Phase I environmental assessments by independent environmental
consultants. Some of the Phase I environmental assessments recommended further
investigations in the form of Phase II environmental assessments, including soil
and groundwater sampling, and all of these investigations have been completed by
the Operating Partnership or are in the process of being completed. Certain of
the Properties owned by the Operating Partnership have been found to contain
ACMs. The Operating Partnership believes that these materials have been
adequately contained and that an ACM operations and maintenance program has been
implemented or is in the process of being implemented for the Properties found
to contain ACMs.
Although tenants of the Properties owned by the Operating Partnership
generally are required by their leases to operate in compliance with all
applicable federal, state and local environmental laws, ordinances and
regulations and to indemnify the Operating Partnership against any environmental
liability arising from the tenants' activities on the Properties, the Operating
Partnership could nevertheless be subject to environmental liability relating to
its management of the Properties or strict liability by virtue of its ownership
interest in the Properties and there can be no assurance that the tenants would
satisfy their indemnification obligations under the leases. There can be no
assurance that any environmental assessments of the Properties owned by the
Operating Partnership, or properties being considered for acquisition by the
Operating Partnership, have revealed all potential environmental liabilities,
that any prior owner or prior or current operator of such properties did not
create an environmental condition not known to the Operating Partnership or that
an environmental condition does not otherwise exist as to any one or more of
such properties that could have an adverse effect on the Operating Partnership's
results of operations or financial condition. Moreover, there can be no
assurance that (i) future Environmental Laws, ordinances or regulations will not
have an adverse effect on the Operating Partnership's results of operations and
financial condition or (ii) the current environmental condition of such
properties will not be affected by tenants and occupants of such properties, by
the condition of land or operations in the vicinity of the properties (such as
the presence of underground storage tanks), or by third parties unrelated to the
Operating Partnership.
The Operating Partnership's operating costs may be affected by the
obligation to pay for the cost of complying with existing Environmental Laws as
well as the cost of complying with future legislation. In addition, the presence
of petroleum products or other hazardous or toxic substances at any of the
Properties owned by the Operating Partnership, or the failure to remediate such
property properly, may adversely affect the Operating Partnership's ability to
borrow by using such real property as collateral. The cost of defending against
claims of liability and the cost of complying with Environmental Laws, including
investigation or clean-up of contaminated property, could materially adversely
affect the Operating Partnership's results of operations and financial
conditions.
13
<PAGE> 20
Risks Related to Ownership and Financing of Real Estate
The Operating Partnership is subject to risks generally incidental to the
ownership of real estate, including changes in general economic or local
conditions, changes in supply of or demand for similar or competing properties
in an area, the impact of environmental protection laws, changes in interest
rates and availability of financing which may render the sale or financing of a
property difficult or unattractive, changes in tax, real estate and zoning laws,
and the creation of mechanics' liens or similar encumbrances placed on the
property by a lessee or other parties without the Operating Partnership's
knowledge and consent. Should any of these events occur, there could be an
adverse effect on the Operating Partnership's results of operations, financial
condition and ability to service debt.
Availability of and Competition for Real Estate Acquisitions
The Operating Partnership's growth is dependent upon acquisitions. There
can be no assurance that properties will be available for acquisition or, if
available, that the Operating Partnership will be able to purchase such
properties on favorable terms. If such acquisitions are not available it could
have a negative impact on the growth of the Operating Partnership. Furthermore,
the Operating Partnership faces competition from other businesses, individuals,
fiduciary accounts and plans and other entities in the acquisition, operation
and sale of its properties. Some of the Operating Partnership's competitors are
larger and have greater financial resources than the Operating Partnership. This
competition may result in a higher cost for properties the Operating Partnership
wishes to purchase.
Competition for Tenants
The Operating Partnership is subject to the risk that when space becomes
available at its properties the leases may not be renewed, the space may not be
let or relet, or the terms of the renewal or reletting (including the cost of
required renovations or concessions to tenants) may be less favorable to the
Operating Partnership. Although the Operating Partnership has established annual
property budgets that include estimates of costs for renovation and reletting
expenses that it believes are reasonable in light of each property's situation,
no assurance can be given that these estimates will sufficiently cover these
expenses. If the Operating Partnership is unable to promptly lease all or
substantially all of the space at its properties, if the rental rates are
significantly lower than expected, or if the Operating Partnership's reserves
for these purposes prove inadequate, then there could be an adverse effect on
the Operating Partnership's results of operations, financial condition and
ability to service debt.
Tenants' Defaults
The ability of the Operating Partnership to manage its assets is subject to
federal bankruptcy laws and state laws affecting creditors' rights and remedies
available to real property owners. In the event of the financial failure or
bankruptcy of a tenant, there can be no assurance that the Operating Partnership
could promptly recover the tenant's premises from the tenant or that the
Operating Partnership would receive rent in the proceeding sufficient to cover
its expenses with respect to the premises. In the event of the bankruptcy of a
tenant, the Operating Partnership will be subject to the provisions of the
federal bankruptcy code, which in some instances may restrict the amount and
recoverability of claims held by the Operating Partnership against the tenant.
If any tenant defaults on its obligations to the Operating Partnership, there
could be an adverse effect on the Operating Partnership's results of operations,
financial condition and ability to service debt.
Management, Leasing and Brokerage Risks
The Operating Partnership is subject to the risks associated with the
property management, leasing and brokerage businesses. These risks include the
risk that management contracts or service agreements may be terminated, that
contracts will not be renewed upon expiration or will not be renewed on terms
consistent with current terms, and that leasing and brokerage activity generally
may decline. The occurrence of one or more of these events could have an adverse
effect on the Operating Partnership's results of operations, financial condition
and ability to service debt.
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Uninsured Loss
The Operating Partnership or in certain instances tenants of the properties
carry comprehensive liability, fire and extended coverage with respect to the
Operating Partnership's Properties, with policy specification and insured limits
customarily carried for similar properties. There are, however, certain types of
losses (such as from earthquakes and floods) that may be either uninsurable or
not economically insurable. Further, certain of the properties are located in
areas that are subject to earthquake activity and floods. Should a Property
sustain damage as a result of an earthquake or flood, the Operating Partnership
may incur losses due to insurance deductibles, co-payments on insured losses or
uninsured losses. Should an uninsured loss occur, the Operating Partnership
could lose some or all of its capital investment, cash flow and anticipated
profits related to one or more Properties, which could have an adverse effect on
the Operating Partnership's results of operations, financial condition and
ability to service debt.
Illiquidity of Real Estate
Real estate investments are relatively illiquid and, therefore, will tend
to limit the ability of the Operating Partnership to vary its portfolio promptly
in response to changes in economic or other conditions. In addition, the
Internal Revenue Code of 1986, as amended (the "Code"), and individual
agreements with sellers of properties place limits on the Company's ability to
sell properties. Forty-two of the Properties owned by the Operating Partnership
were acquired on terms and conditions under which they can be disposed of only
in a like-kind exchange or other non-taxable transaction.
Potential Liability Under the Americans With Disabilities Act
The Operating Partnership's Properties are required to be in compliance
with the Americans With Disabilities Act (the "ADA"). The ADA generally requires
that places of public accommodation be made accessible to people with
disabilities to the extent readily achievable. Compliance with the ADA
requirements could require removal of access barriers and non-compliance could
result in imposition of fines by the federal government, an award of damages to
private litigants and/or a court order to remove access barriers. Because of the
limited history of the ADA, the impact of its application to the Operating
Partnership's properties, including the extent and timing of required
renovations, is uncertain. Pursuant to certain lease agreements with tenants in
certain of the "single-tenant" Properties, the tenants are obligated to comply
with the ADA provisions. If due to the ADA the Operating Partnership's costs are
greater than anticipated or tenants are unable to meet their obligations, there
could be an adverse effect on the Operating Partnership's results of operations,
financial condition and ability to service debt.
Risks Related to Development Joint Ventures
The Operating Partnership may from time to time enter into joint ventures
with selected developers ("JV Partners") for the purpose of developing new
projects in which such JV Partner has, in the opinion of the Operating
Partnership, significant expertise or experience. Such projects generally
require various governmental and other approvals, the receipt of which cannot be
assured. Such development activities may entail certain risks, including the
risk that: (i) the expenditure of funds on and devotion of management's time to
projects which may not come to fruition; (ii) construction costs of a project
may exceed original estimates, possibly making the project uneconomical; (iii)
occupancy rates and rents at a completed project may be less than anticipated;
and (iv) expenses at a completed development may be higher than anticipated. In
addition, JV Partners may have significant control over the operation of the
joint venture assets. Therefore, such investments may, under certain
circumstances, involve risks such as the possibility that the JV Partner might
become bankrupt, have economic or business interests or goals that are
inconsistent with the business interests or goals of the Operating Partnership,
or be in a position to take action contrary to the instructions or the requests
of the Operating Partnership or contrary to the Operating Partnership's policies
or objectives. Consequently, actions by a JV Partner might result in subjecting
property owned by the joint venture to additional risk. Although the Operating
Partnership will seek to maintain sufficient control of any joint venture to
permit the Operating Partnership's objectives to be achieved, it may be unable
to take action without the approval of its JV Partners or its JV Partners could
take actions binding the joint venture without the Operating Partnership's
consent. Additionally, should a JV Partner become bankrupt, the Operating
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Partnership could become liable for such JV Partner's share of joint venture
liabilities. These risks may result in a development project having an adverse
effect on the Operating Partnership's result of operations and financial
condition.
LIMITATION ON OWNERSHIP OF COMMON STOCK MAY PRECLUDE ACQUISITION OF CONTROL
Provisions of the Company's Charter are designed to assist the Company in
maintaining its qualification as a REIT under the Code by preventing
concentrated ownership of the Company which might jeopardize REIT qualification.
Among other things, these provisions provide that (a) any transfer or
acquisition of capital stock of the Company that would result in the
disqualification of the Company as a REIT under the Code will be void, and (b)
if any person attempts to acquire shares of capital stock of the Company that
after the acquisition would cause the person to own or to be deemed to own, by
operation of certain attribution rules set out in the Code, an amount of capital
stock of the Company in excess of a predetermined limit, which, pursuant to
Board action, currently is 9.9% of the value of the outstanding shares of
capital stock of the Company (the "Ownership Limitation" and as to the capital
stock of the Company, the transfer of which would cause any person to actually
own capital stock of the Company in excess of the Ownership Limitation, the
"Excess Shares"), the transfer shall be void and the capital stock of the
Company subject to the transfer shall automatically be transferred to an
unaffiliated trustee for the benefit of a charitable organization designated by
the Board of Directors of the Company until sold by the trustee to a third party
or purchased by the Company. This limitation on the ownership of capital stock
of the Company may have the effect of precluding the acquisition of control of
the Company by a third party without the consent of the Board of Directors. If
the Board of Directors waives the Ownership Limitation for any person, the
Ownership Limitation shall be proportionally and automatically reduced with
regard to all other persons such that no five persons may own more than 50% of
the value of the capital stock of the Company (the aggregate Ownership
Limitations as to all of these persons, as adjusted, the "Adjusted Ownership
Limitation").
LITIGATION RELATED TO CONSOLIDATION
Recent business reorganizations sponsored by others involving the
conversion of partnerships into corporations have given rise to a number of
investor lawsuits. These lawsuits have included claims against the general
partners of the participating partnerships, the partnerships themselves and
related persons involved in the structuring of or benefiting from the conversion
or reorganization, as well as claims against the surviving entity and its
directors and officers. The lawsuits have included, among others, claims that
the structure of the reorganizations, as well as the manner in which they were
submitted for investor approval, involved violations of federal and state
securities laws, common law fraud and negligent misrepresentations, breaches of
fiduciary duty, unfair and deceptive trade practices, negligence and waste,
breaches of the partnership documents of the participating partnerships, failure
to comply with applicable reporting requirements, violations of the rules of the
NASD on suitability and fair practices, and violations of the Racketeer
Influenced and Corrupt Organizations Act. Two lawsuits have been filed
contesting the fairness of the Consolidation, one in California state court and
one in federal court. A settlement of the state court action was approved by the
court, but objectors to the settlement appealed that approval. On February 17,
1998, the Court of Appeals rejected the objectors' contentions and upheld the
settlement. The objectors filed with the California Supreme Court a petition for
review, which was denied on May 21, 1998. Plaintiffs in the federal court action
voluntarily dismissed the action pending resolution of the state court action.
From time to time the Company and the Operating Partnership are involved in
other litigation arising out of their business activities. It is possible that
this litigation and the other litigation previously described could result in
significant losses in excess of amounts reserved, which could have an adverse
effect on the Company's or the Operating Partnership's results of operations and
the financial condition of the Company or the Operating Partnership.
CHAPTER 11 REORGANIZATION OF PARTNERSHIP CONSOLIDATION BY SENIOR MANAGEMENT
Robert and Andrew Batinovich, two of the senior officers of the Company,
were also senior members of a management team that formed a publicly registered
limited partnership in 1986 to consolidate a number of predecessor partnerships.
That public partnership was involved in litigation with its primary creditor and
in
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order to prevent foreclosure filed a petition for reorganization under Chapter
11 of the United States Bankruptcy Code in May 1992. The public partnership,
which owns an approximate 1.7% limited partner interest in the Operating
Partnership along with other substantial real estate assets, and a less than
0.4% interest in the Company, settled the litigation and obtained confirmation
of a plan of reorganization in January 1994.
BOARD OF DIRECTORS MAY CHANGE INVESTMENT POLICIES
The descriptions in this Prospectus of the major policies and the various
types of investments to be made by the Operating Partnership reflect only the
current plans of the Board of Directors of the Company, the Operating
Partnership's general partner. The Company's Board of Directors may change the
investment policies of the Operating Partnership without a vote of the
stockholders of the Company or of the limited partners of the Operating
Partnership. In addition, the methods of implementing the Operating
Partnership's investment policies may vary as new investment techniques are
developed.
YEAR 2000 COMPLIANCE
The Operating Partnership utilizes a number of computer software programs
and operating systems across its entire organization, including applications
used in financial business systems and various administrative functions. To the
extent that the Operating Partnership's software applications contain source
code that is unable to appropriately interpret the upcoming calendar year "2000"
and beyond, some level of modification, or replacement of such applications will
be necessary. In addition, the ability of third parties ("Third Parties") with
whom the Operating Partnership transacts business to adequately address their
Year 2000 issues is outside of the Operating Partnership's control. The
Operating Partnership has completed its identification of applications that are
not yet "Year 2000" compliant and has commenced modification or replacement of
such applications, as necessary. Given information known at this time about the
Operating Partnership's systems that are non-compliant, coupled with the
Operating Partnership's ongoing, normal course-of-business efforts to upgrade or
replace critical systems, as necessary, management does not expect Year 2000
compliance costs to have any material adverse impact on the Operating
Partnership's liquidity or ongoing results of operations. No assurance can be
given, however, that all of the Operating Partnership's or Third Parties'
systems will be Year 2000 compliant or that compliance costs or the impact of
the Operating Partnership's or Third Parties' failure to achieve substantial
Year 2000 compliance will not have a material adverse effect on the Operating
Partnership's future liquidity or results of operations.
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THE EXCHANGE OFFER
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and reference is made to the
provisions of the Registration Rights Agreement, which has been filed as an
exhibit to the Registration Statement and a copy of which is available upon
request to the Trustee.
PURPOSE AND EFFECT
The Old Notes were sold by the Operating Partnership to the Initial
Purchasers on March 23, 1998. The Initial Purchasers subsequently resold the Old
Notes in reliance on Rule 144A under the Securities Act. The Operating
Partnership and the Initial Purchasers entered into the Registration Rights
Agreement, pursuant to which the Operating Partnership agreed, with respect to
the Old Notes and subject to the Operating Partnership's determination that the
Exchange Offer is permitted under applicable law, to (i) cause to be filed, on
or prior to May 22, 1998, a registration statement with the Commission under the
Securities Act concerning the Exchange Offer, and, (ii) use its best efforts to
(a) cause such registration statement to be declared effective by the Commission
on or prior to August 20, 1998, and (b) to consummate the Exchange Offer on or
prior to October 2, 1998. The Operating Partnership will keep the Exchange Offer
open for a period of not less than 20 days (or longer if required by applicable
law) after the date the notice of the Exchange Offer is mailed to the holders of
the Old Notes. This Exchange Offer is intended to satisfy the Operating
Partnership's exchange offer obligations under the Registration Rights
Agreement.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Following the expiration of the Exchange Offer, holders of Old Notes not
tendered, or not properly tendered will not have any further registration rights
and such Old Notes will continue to be subject to the existing restrictions on
transfer thereof. Accordingly, the liquidity of the market for a holder's Old
Notes could be adversely affected upon expiration of the Exchange Offer if such
holder elects not to participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
The Operating Partnership hereby offers, upon the terms and subject to the
conditions set forth herein and in the accompanying Letter of Transmittal, to
exchange $150 million aggregate principal amount of New Notes for up to $150
million aggregate principal amount of the outstanding Old Notes. The Operating
Partnership will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the Expiration Date.
Tenders of the Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. The Exchange Offer is not conditioned
upon any minimum principal amount of Old Notes being tendered for exchange.
However, the Exchange Offer is subject to the terms and provisions of the
Registration Rights Agreement. See "-- Conditions of the Exchange Offer."
As of the date of this Prospectus, $150 million in aggregate principal
amount of the Old Notes was outstanding. Only a holder of the Old Notes (or such
holder's legal representative or attorney-in-fact) may participate in the
Exchange Offer. There will be no fixed record date for determining holders of
the Old Notes entitled to participate in the Exchange Offer. The Operating
Partnership believes that, as of the date of this Prospectus, no such holder is
an affiliate (as defined in Rule 405 under the Securities Act) of the Operating
Partnership.
The Operating Partnership shall be deemed to have accepted validly tendered
Old Notes when, as and if the Operating Partnership has given oral or written
notice thereof to the Exchange Agent. The Exchange Agent will act as agent for
the tendering holders of Old Notes and for the purposes of receiving the New
Notes from the Operating Partnership.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be
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returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be , 1998 at 5:00 p.m., New
York City time, unless the Operating Partnership, in its sole discretion,
extends the Exchange Offer, in which case the Expiration Date shall be the
latest date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Operating Partnership will
notify the Exchange Agent of any extension by oral or written notice and will
make a public announcement thereof, each prior to 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date.
The Operating Partnership reserves the right, in its sole discretion, (i)
to delay accepting any Old Notes, (ii) to extend the Exchange Offer, in which
event the term "Expiration Date" shall mean the latest time and date to which
the Exchange Offer is extended, and (iii) to amend the terms of the Exchange
Offer in any manner. If the Exchange Offer is amended in a manner determined by
the Operating Partnership to constitute a material change, the Operating
Partnership will promptly disclose such amendments by means of a prospectus
supplement that will be distributed to the registered holders of the Old Notes.
Modifications of the Exchange Offer, including but not limited to extension of
the period during which the Exchange Offer is open, may require that at least
five business days remain in the Exchange Offer. In order to extend the Exchange
Offer, the Operating Partnership will notify the Exchange Agent of any extension
by oral or written notice and will make a public announcement thereof, each
prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, the Exchange Offer is
conditioned upon the declaration by the Commission of the effectiveness of the
Registration Statement of which this Prospectus constitutes a part.
TERMINATION OF CERTAIN RIGHTS
The Registration Rights Agreement provides that, subject to certain
exceptions, in the event of a Registration Default (as defined below), holders
of Old Notes are entitled to receive Liquidated Damages of 0.5% per annum of the
principal amount of the Old Notes during the first 90 days of a Registration
Default, increasing by an additional 0.5% per annum for each additional 90 day
period of a Registration Default (up to a maximum of 2.0% per annum). A
"Registration Default" with respect to the Exchange Offer shall occur if: (i)
the Operating Partnership fails to file the Exchange Offer Registration
Statement on or prior to May 22, 1998, (ii) the Registration Statement is not
declared effective by the Commission on or prior to August 20, 1998 or (iii) the
Operating Partnership fails to consummate the Exchange Offer on or prior to
October 2, 1998 or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective during the period specified in
the Registration Rights Agreement. Holders of New Notes will not be and, upon
consummation of the Exchange Offer, holders of Old Notes will no longer be,
entitled to (i) the right to receive the Liquidated Damages and (ii) certain
other rights under the Registration Rights Agreement intended for holders of Old
Notes. The Exchange Offer shall be deemed consummated upon the occurrence of the
delivery by the Operating Partnership to the Registrar under the Indenture of
New Notes in the same aggregate principal amount as the aggregate principal
amount of Old Notes that are tendered by holders thereof pursuant to the
Exchange Offer.
ACCRUED INTEREST
The New Notes will bear interest at a rate equal to 7 5/8% per annum from
and including their date of issuance. Holders whose Old Notes are accepted for
exchange will have the right to receive interest accrued thereon from the last
date on which interest was paid on the Old Notes, or if no interest had been
paid on such Old Notes, from the date of their original issue, to, but not
including, the date of issuance of the New Notes,
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such interest to be payable with the first interest payment on the New Notes.
Interest on the Old Notes accepted for exchange, which interest accrued at the
rate of 7 5/8% per annum, will cease to accrue on the day prior to the issuance
of the New Notes. See "Description of Notes -- Exchange Offer; Registration
Rights."
PROCEDURES FOR TENDERING OLD NOTES
The tender of a holder's Old Notes as set forth below and the acceptance
thereof by the Operating Partnership will constitute a binding agreement between
the tendering holder and the Operating Partnership upon the terms and subject to
the conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to tender Old Notes
for exchange pursuant to the Exchange Offer must transmit such Old Notes,
together with a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to the
Exchange Agent at the address set forth on the back cover page of this
Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date. THE
METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT
THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedures for such transfer. In connection with a
book-entry transfer, a Letter of Transmittal need not be transmitted to the
Exchange Agent, provided that the book-entry transfer procedure is made in
accordance with DTC's ATOP (as defined below) procedures for transfer and such
procedures are complied with prior to 5:00 p.m., New York City time, on the
Expiration Date.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system, prior to 5:00 p.m., New York City time, on the Expiration
Date, in place of sending a signed, hard copy Letter of Transmittal. DTC is
obligated to communicate those electronic instructions to the Exchange Agent by
an "Agent's Message." To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the participant's acknowledgement of its receipt of and agreement to be
bound by the Letter of Transmittal for such Old Notes.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant hereto are tendered (i) by a registered holder of the Old Notes who has
not completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal, or (ii)
by an Eligible Institution (as defined below). In the event that a signature on
a Letter of Transmittal or a notice of withdrawal, as the case may be, is
required to be guaranteed, such guarantee must be by a firm which is a member of
a registered national securities exchange or the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or otherwise be an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If the Letter of Transmittal is signed
by a person other than the registered holder of the Old Notes, the Old Notes
surrendered for exchange must either (i) be endorsed by the registered holder,
with the signature thereon guaranteed by an Eligible Institution or (ii) be
accompanied by a bond power, in satisfactory form as determined by the Operating
Partnership in its sole discretion, duly executed by the registered holder, with
the signature thereon guaranteed by an Eligible Institution. The term
"registered holder" as used herein with respect to the Old Notes means any
person in whose name the Old Notes are registered on the books of the Registrar.
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All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Operating Partnership in its sole discretion, which
determination shall be final and binding. The Operating Partnership reserves the
absolute right to reject any and all Old Notes not properly tendered and to
reject any Old Notes the Operating Partnership's acceptance of which might, in
the judgment of the Operating Partnership or its counsel, be unlawful. The
Operating Partnership also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Operating Partnership shall be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Old Notes for
exchange must be cured within such period of time as the Operating Partnership
shall determine. The Operating Partnership will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old Notes
for exchange but shall not incur any liability for failure to give such
notification. Tenders of the Old Notes will not be deemed to have been made
until such irregularities have been cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Operating Partnership, proper evidence satisfactory to the Operating
Partnership, in its sole discretion, of such person's authority to so act must
be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the Exchange
Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior to
completing and executing the Letter of Transmittal and tendering Old Notes, make
appropriate arrangements to register ownership of the Old Notes in such
Beneficial Owner's name. Beneficial Owners should be aware that the transfer of
registered ownership may take considerable time.
By tendering, each registered holder will represent to the Operating
Partnership that, among other things, (i) the New Notes to be acquired in
connection with the Exchange Offer by the holder and each Beneficial Owner of
the Old Notes are being acquired by the holder and each Beneficial Owner in the
ordinary course of business of the holder and each Beneficial Owner, (ii) the
holder and each Beneficial Owner are not participating, do not intend to
participate, and have no arrangement or understanding with any person to
participate, in the distribution of the New Notes, (iii) the holder and each
Beneficial Owner acknowledge and agree that any person participating in the
Exchange Offer for the purpose of distributing the New Notes must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the New Notes acquired by such
person and cannot rely on the position of the staff of the Commission set forth
in no-action letters that are discussed herein under "Resales of the New Notes,"
(iv) that if the holder is a broker-dealer that acquired Old Notes as a result
of market making or other trading activities, it will deliver a prospectus in
connection with any resale of New Notes acquired in the Exchange Offer, (v) the
holder and each Beneficial Owner understand that a secondary resale transaction
described in clause (iii) above should be covered by an effective registration
statement containing the selling security holder information required by Item
507 of Regulation S-K of the Commission, and (vi) neither the holder nor any
Beneficial Owner is an "affiliate," as defined under Rule 405 of the Securities
Act, of the Operating Partnership except as otherwise disclosed to the Operating
Partnership in writing. In connection with a book-entry transfer, each
participant will confirm that it makes the representations and warranties
contained in the Letter of Transmittal.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the procedure for book-entry transfer on a
timely
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basis), may tender their Old Notes according to the guaranteed delivery
procedures set forth in the Letter of Transmittal. Pursuant to such procedures:
(i) such tender must be made by or through an Eligible Institution and a Notice
of Guaranteed Delivery (as defined in the Letter of Transmittal) must be signed
by such Holder, (ii) on or prior to the Expiration Date, the Exchange Agent must
have received from the Holder and the Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the Holder, the
certificate number or numbers of the tendered Old Notes, and the principal
amount of tendered Old Notes, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after the
date of delivery of the Notice of Guaranteed Delivery, the tendered Old Notes, a
duly executed Letter of Transmittal and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent; and (iii) such
properly completed and executed documents required by the Letter of Transmittal
and the tendered Old Notes in proper form for transfer (or confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC)
must be received by the Exchange Agent within five New York Stock Exchange
trading days after the Expiration Date. Any Holder who wishes to tender Old
Notes pursuant to the guaranteed delivery procedures described above must ensure
that the Exchange Agent receives the Notice of Guaranteed Delivery and Letter of
Transmittal relating to such Old Notes to 5:00 p.m., New York City time, on the
Expiration Date. DTC participants may also submit the Notice of Guaranteed
Delivery through ATOP.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Operating Partnership will accept any and all Old Notes that are properly
tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant to the Exchange Offer will be
delivered promptly after acceptance of the Old Notes. For purposes of the
Exchange Offer, the Operating Partnership shall be deemed to have accepted
validly tendered Old Notes, when, as, and if the Operating Partnership has given
oral or written notice thereof to the Exchange Agent.
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents (or of confirmation of a
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC);
provided, however, that the Operating Partnership reserves the absolute right to
waive any defects or irregularities in the tender or conditions of the Exchange
Offer. If any tendered Old Notes are not accepted for any reason, such
unaccepted Old Notes will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written notice
(or for DTC participants, transmission of a notice through ATOP) to the Exchange
Agent, at its address set forth on the back cover page of this Prospectus, at
any time prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes, as applicable), (iii) be signed by the Holder in the
same manner as the original signature on the Letter of Transmittal by which such
Old Notes were tendered (including any required signature guarantees) or be
accompanied by a bond power in the name of the person withdrawing the tender, in
satisfactory form as determined by the Operating Partnership in its sole
discretion, duly executed by the registered holder, with the signature thereon
guaranteed by an Eligible Institution together with the other documents required
upon transfer by the Indenture, and (iv) specify the name in which such Old
Notes are to be re-registered, if different from the Depositor, pursuant to such
documents of transfer. Any questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Operating
Partnership, in its sole discretion. The Old Notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the Exchange
Offer. Any Old Notes which have been tendered
22
<PAGE> 29
for exchange but which are withdrawn will be returned to the Holder thereof
without cost to such Holder as soon as practicable after withdrawal. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "The Exchange Offer -- Procedures for Tendering Old Notes" at
any time on or prior to the Expiration Date.
THE EXCHANGE AGENT; ASSISTANCE
The Trustee is the Exchange Agent. All tendered Old Notes, executed Letters
of Transmittal and other related documents should be directed to the Exchange
Agent. Questions and requests for assistance and requests for additional copies
of the Prospectus, the letter of Transmittal and other related documents should
be addressed to the Exchange Agent as follows:
By Hand, or Overnight Courier:
Facsimile Transmissions (Eligible Institutions Only):
To confirm by telephone or for information call:
FEES AND EXPENSES
All expenses incident to the Operating Partnership's consummation of the
Exchange Offer and compliance with the Registration Agreement will be borne by
the Operating Partnership, including, without limitation: (i) all registration
and filing fees (including, without limitation, fees and expenses of compliance
with state securities or Blue Sky laws); (ii) printing expenses (including,
without limitation, expenses of printing certificates for the New Notes in a
form eligible for deposit with DTC and of printing Prospectuses); (iii)
messenger, telephone and delivery expenses; (iv) fees and disbursements of
counsel for the Operating Partnership; (v) fees and disbursements of independent
certified public accountants; (vi) rating agency fees; and (vii) internal
expenses of the Operating Partnership (including, without limitation, all
salaries and expenses of officers and employees of the Operating Partnership
performing legal or accounting duties).
The Operating Partnership has not retained any dealer-manager in connection
with the Exchange Offer and will not make any payments to brokers, dealers or
others soliciting acceptance of the Exchange Offer. The Operating Partnership,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The Operating Partnership will pay all transfer taxes, if any, applicable
to the exchange of Old Notes pursuant to the Exchange Offer. If, however, a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Operating Partnership's accounting records on the date of
the exchange. Accordingly, no gain or loss will be recognized by the Operating
Partnership for accounting purposes. The expenses of the Exchange Offer will be
amortized over the term of the New Notes.
RESALES OF THE NEW NOTES
Based on the position of the staff of the Commission as set forth in
certain interpretive letters issued to third parties in other transactions, the
Operating Partnership believes that the New Notes issued pursuant to the
Exchange Offer to any holder of Old Notes in exchange for Old Notes may be
offered for resale, resold
23
<PAGE> 30
and otherwise transferred by such holder (other than (i) a broker-dealer who
purchased Old Notes directly from the Operating Partnership for resale pursuant
to Rule 144A under the Securities Act or any other available exemption under the
Securities Act, or (ii) a person that is an affiliate of the Operating
Partnership within the meaning of Rule 405 under the Securities Act) without
further compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such holder is not an affiliate of the
Operating Partnership, is acquiring the New Notes in the ordinary course of
business and is not participating, and has no arrangement or understanding with
any person to participate, in the distribution of the New Notes. However, the
Operating Partnership has not sought its own interpretive letter and there can
be no assurance that the Commission would make a similar determination with
respect to the Exchange Offer. The Operating Partnership and holders of Old
Notes are not entitled to rely on interpretive letter and there can be no
assurance that the Commission would make a similar determination with respect to
the Exchange Offer. The Operating Partnership and holders of Old Notes are not
entitled to rely on interpretive advice provided by the staff to other persons,
which advice was based on the facts and conditions represented in such letters.
However, the Exchange Offer is being conducted in a manner intended to be
consistent with the facts and conditions represented in such letters. If any
holder acquires New Notes in the Exchange Offer for the purpose of distributing
or participating in a distribution of the New Notes, such holder cannot rely on
the position of the staff of the Commission enunciated in Morgan Stanley & Co.
Incorporated (available June 5, 1991) and Exxon Capital Holdings Corporation
(available May 13, 1989), or interpreted in the Commission's letter to Shearman
and Sterling (available July 2, 1993), or similar no-action or interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless an exemption from registration is otherwise available. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market making or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
It is expected that the New Notes will be freely transferable by the
holders thereof, subject to the limitations described in the immediately
preceding paragraph. Sales of New Notes acquired in the Exchange Offer by
holders who are "affiliates" of the Operating Partnership within the meaning of
the Securities Act will be subject to certain limitations on resale under Rule
144 of the Securities Act. Such persons will only be entitled to sell New Notes
in compliance with the volume limitations set forth in Rule 144, and sales of
New Notes by affiliates will be subject to certain Rule 144 requirements as to
the manner of use, notice and the availability of current public information
regarding the Operating Partnership. The foregoing is a summary only of Rule 144
as it may apply to affiliates of the Operating Partnership. Any such persons
must consult their own legal counsel for advice as to any restrictions that
might apply to the resale of their Notes.
24
<PAGE> 31
CAPITALIZATION
The following table sets forth the historical capitalization of the
Operating Partnership as of March 31, 1998, and on a pro forma basis as if the
acquisitions of the Eaton & Lauth Portfolio and the Pending Acquisitions and
indebtedness incurred and equity issued in connection therewith, had each been
completed on March 31, 1998. This capitalization table should be read in
conjunction with all pro forma and historical financial statements and notes
thereto included in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------
HISTORICAL PRO FORMA
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
DEBT:
Acquisition Credit Facility(1).............................. $ 50,332 $
Mortgage loans(2)........................................... 242,083
The Old Notes............................................... 150,000
The New Notes(3)............................................ --
---------- -----
Total debt........................................ 442,415
---------- -----
PARTNERS' CAPITAL
General Partner, 314,568 and partnership units
outstanding, respectively(4)........................... 5,531
Limited Partner, 31,142,256 and partnership units
outstanding, respectively(4)........................... 884,831
---------- -----
Total Partners' Equity...................................... 890,362
---------- -----
TOTAL CAPITALIZATION........................................ $1,332,777 $
========== =====
</TABLE>
- ---------------
(1) The pro forma balance reflects borrowings under the Acquisition Credit
Facility due to property acquisitions completed after March 31, 1998.
(2) The pro forma balance reflects the assumption of mortgage loans in
connection with the acquisition of the Eaton & Lauth Portfolio.
(3) The pro forma balance reflects the issuance of $150.0 million of 7 5/8%
Senior Notes in connection with the Exchange Offering.
(4) Pro forma amounts reflect the issuance of 672,653 units of partnership
interest in the Operating Partnership in connection with the acquisitions of
the Eaton & Lauth Portfolio and the Covance Property. In addition, the
Operating Partnership issued or will issue 135,566 units of partnership
interest in the Operating Partnership to the Company related to the issuance
of an equal number of shares of Common Stock of the Company in connection
with the acquisitions of the Eaton & Lauth Portfolio and the Covance
Property.
25
<PAGE> 32
SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA
The following table sets forth selected financial and other data on a
historical, as adjusted and pro forma basis for the Operating Partnership, and
on a historical combined basis for the GRT Predecessor Entities.
The following unaudited pro forma operating and other data for the three
months ended March 31, 1998 and for the year ended December 31, 1997 have been
prepared to reflect: (i) all property acquisitions completed in 1997 and in 1998
through the date hereof, as described under "Recent Activities -- 1998 and 1997
Completed Acquisitions;" (ii) the Pending Acquisitions as described under the
caption "Recent Activities -- Pending Acquisitions;" (iii) the Exchange Offer;
(iv) the Initial Offering, the January 1998 Offering, the October 1997 Offering,
the July 1997 Offering and the March 1997 Offering and the application of the
respective net proceeds therefrom; (v) debt assumed and borrowings under the
Interim Loan and the Acquisition Credit Facility, as described under the caption
"Recent Activities -- Financing Activities;" (vi) the repayment of certain
mortgage loans, the Operating Partnership's previous $50 million line of credit,
a $114 million interim unsecured loan, the Interim Loan and a portion of the
borrowings on the Acquisition Credit Facility; (vii) the sale of certain
properties, and use of sales proceeds for the repayment of related mortgage debt
and the funding of certain property acquisitions; and (viii) the collection of a
mortgage loan receivable as if each of such transactions had been completed on
January 1, 1997. The unaudited pro forma balance sheet data as of March 31, 1998
has been prepared to reflect (i) all property acquisitions completed in 1998
through the date hereof, as described under "Recent Activities -- 1998 and 1997
Completed Acquisitions;" (ii) the Pending Acquisitions as described under the
caption "Recent Activities -- Pending Acquisitions;" (iii) the Exchange Offer;
(iv) debt assumed and borrowings under the Acquisition Credit Facility, as
described under the caption "Recent Activities -- Financing Activities;" (v)
repayment of certain mortgage loans and a portion of the borrowings on the
Acquisition Credit Facility; and (vi) the sale of a certain property and the use
of those sales proceeds for the repayment of related mortgage debt and for the
funding of certain property acquisitions as if each of such transactions had
been completed on March 31, 1998.
The following unaudited as adjusted operating data, balance sheet data, and
other data have been prepared to reflect the Consolidation and related
transactions as if such transactions had occurred on January 1, 1994.
The pro forma selected financial and other data is unaudited and is not
necessarily indicative of the consolidated results which would have occurred if
the transactions had been consummated in the periods presented, or on any
particular date in the future, nor does it purport to represent the financial
position, results of operations or cash flows for future periods. The following
table should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and with all financial statements
and notes thereto included in this Prospectus Supplement and the accompanying
Prospectus or incorporated herein and therein by reference.
26
<PAGE> 33
<TABLE>
<CAPTION>
AS OF AND FOR THE THREE MONTHS AS OF AND FOR THE YEAR ENDED DECEMBER 31,
ENDED MARCH 31, ----------------------------------------------
----------------------------------- AS
PRO FORMA HISTORICAL HISTORICAL PRO FORMA HISTORICAL HISTORICAL ADJUSTED
1998 1998 1997 1997 1997 1996 1995
--------- ---------- ---------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Rental Revenue...................
Fees and reimbursements..........
Interest and other income........
Total Revenues(1)................
Property operating expenses......
General and administrative.......
Interest expense.................
Depreciation and Amortization....
Income (loss) from operations
before extraordinary items and
Preferred Partner Interest
distributions..................
Net-income (loss) before
Preferred Partner Interest
distributions (2)..............
Net income (loss) allocable to
Operating Partnership Units....
Per unit (3):
Net income (loss) before
extraordinary items allocable
to Operating Partnership
Units........................
Net income (loss) allocable to
Operating Partnership
Units........................
Balance Sheet Data:
Net investment in real estate....
Mortgage loans receivable, net...
Total assets.....................
Total debt.......................
Partners' equity.................
Other Data:
Distributions per unit (excluding
Preferred Partner Interest
distributions)(4)..............
Preferred Partner Interest
distributions..................
EBIDA(5).........................
Ratios:
Ratio of Earnings to Fixed
Charges and Preferred Partner
Interest distributions (6).....
Annual Service Charge
Coverage(7)....................
Debt to Total Assets(8)..........
Secured Debt to Total
Assets(9)......................
Total Unencumbered Assets to
Unsecured Debt(10).............
Cash flow provided by (used for):
Operating activities.............
Investing activities.............
Financing activities.............
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
AS
HISTORICAL ADJUSTED HISTORICAL HISTORICAL
1995 1994 1994 1993
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Data:
Rental Revenue...................
Fees and reimbursements..........
Interest and other income........
Total Revenues(1)................
Property operating expenses......
General and administrative.......
Interest expense.................
Depreciation and Amortization....
Income (loss) from operations
before extraordinary items and
Preferred Partner Interest
distributions..................
Net-income (loss) before
Preferred Partner Interest
distributions (2)..............
Net income (loss) allocable to
Operating Partnership Units....
Per unit (3):
Net income (loss) before
extraordinary items allocable
to Operating Partnership
Units........................
Net income (loss) allocable to
Operating Partnership
Units........................
Balance Sheet Data:
Net investment in real estate....
Mortgage loans receivable, net...
Total assets.....................
Total debt.......................
Partners' equity.................
Other Data:
Distributions per unit (excluding
Preferred Partner Interest
distributions)(4)..............
Preferred Partner Interest
distributions..................
EBIDA(5).........................
Ratios:
Ratio of Earnings to Fixed
Charges and Preferred Partner
Interest distributions (6).....
Annual Service Charge
Coverage(7)....................
Debt to Total Assets(8)..........
Secured Debt to Total
Assets(9)......................
Total Unencumbered Assets to
Unsecured Debt(10).............
Cash flow provided by (used for):
Operating activities.............
Investing activities.............
Financing activities.............
</TABLE>
27
<PAGE> 34
THE OPERATING PARTNERSHIP
The Operating Partnership is managed by its general partner, the Company, a
self-administered and self-managed REIT. As of the date of this Prospectus, the
Operating Partnership owned a diversified portfolio of 157 office, office/flex,
industrial, retail, multi-family and hotel properties aggregating approximately
18.0 million square feet located in 24 states throughout the country. In
addition, the Associated Companies provide comprehensive asset, partnership and
property management services for a diversified portfolio of 46 additional
properties that are not owned by the Operating Partnership. The combined
portfolios encompass over 22.8 million rentable square feet in 24 states.
The Company holds a 1% interest as the sole general partner of the
Operating Partnership and an approximate 92% limited partnership interest in the
Operating Partnership. The Company's and the Operating Partnership's executive
offices are located at 400 South El Camino Real, Suite 1100, San Mateo,
California 94402-1708, and their telephone number is (650) 343-9300.
GROWTH STRATEGY
The Operating Partnership seeks to achieve sustainable long-term growth in
Funds from Operations primarily through the following strategies:
- Acquiring diversified portfolios or individual properties on attractive
terms, often from public and private partnerships as well as from REITs
and life insurance companies and other institutions;
- Improving the performance of the Properties in the Operating
Partnership's portfolio;
- Constantly reviewing the Operating Partnership's current portfolio for
opportunities to redeploy capital from certain Properties into other
properties which the Operating Partnership believes are more suited to
its strategy and operating goals; and
- Entering into real estate development joint ventures with selected real
estate developers.
Acquisitions
Acquisition Characteristics. The Operating Partnership primarily seeks to
acquire diversified portfolios and individual properties with certain of the
following characteristics: (i) a stable stream of income, both historical and
projected; (ii) existing management fees and costs that, when internalized,
would augment the Operating Partnership's investment return; (iii) generally
constructed after 1980; (iv) little or no exposure to hazardous materials; (v)
prudent debt levels; (vi) potential for substantial overhead savings; (vii)
low-to-moderate vacancy levels; (viii) diversified tenant risk; (ix)
low-to-moderate deferred maintenance; (x) substantial geographic overlap with
the Operating Partnership's existing portfolio, to capitalize on the Operating
Partnership's existing management capabilities; and (xi) comprised of office,
office/flex, industrial, retail or multi-family properties.
Portfolio Acquisitions. The Operating Partnership seeks to grow by
acquiring diversified property portfolios, and believes there are significant
acquisition opportunities for such portfolios from public and private
partnerships, other REITs and life insurance companies and other institutions.
For example, according to Robert A. Stanger & Co., Inc. ("Stanger"), a
substantial percentage of public and private partnerships, representing original
equity investments in excess of $70 billion, own portfolios that are diversified
geographically or by property type or both. Furthermore, the Operating
Partnership believes that there is a limited number of buyers who seek to
purchase diversified portfolios. For example, most REITs pursue a strategy that
focuses either on specific property types or geographic regions or both, and
thus do not provide an outlet for bulk sales by diversified portfolio owners.
For a diversified portfolio seller that is seeking to liquidate, an alternative
to a bulk sale might be a gradual sell-off of assets, which may require an
extended period of time and/or be prohibitively expensive.
The Operating Partnership believes that, in particular, limited
partnerships and the limited partners in such partnerships face difficult
liquidity alternatives. According to Stanger, few of the private partnerships,
and less than half of the public partnerships, are traded in any active
secondary market. The Operating Partnership believes the majority of the limited
partners in these partnerships would be interested in solutions providing
liquidity. The principal options available to such limited partners include: (i)
selling their units for
28
<PAGE> 35
cash on the secondary market, which according to Stanger, has a pricing
structure that typically discounts unit values relative to underlying asset
values; and (ii) more recently, selling their units for cash to large, well-
financed investors who solicit limited partners to sell their interests at
prices that are higher than prevailing secondary market prices but generally
lower than the seller's underlying asset value. In addition to their discounted
pricing structure, these solutions may not be preferred by limited partners who,
as a result of past tax benefits or other factors, may incur significant tax
liabilities as a result of such sale.
The Operating Partnership believes that it can acquire diversified
portfolios on attractive terms because, through the Company's issuance of shares
of Common Stock or the Operating Partnership's issuance of partnership units
which may be redeemed for cash or exchanged for Common Stock, it can provide
owners with liquidity as well as address the owners' tax concerns and structure
transactions that may defer taxable gains. By providing sellers with Common
Stock or partnership units in the Operating Partnership as partial consideration
in acquisition transactions, the Operating Partnership reduces its need to raise
capital to finance such transactions. The Operating Partnership has issued
partnership units to sellers as a portion of the consideration in connection
with the acquisition of Properties aggregating a total acquisition cost of over
$345 million.
Individual Property Acquisitions. From time to time the Operating
Partnership will acquire individual properties that it believes will enhance the
Operating Partnership's profitability and take advantage of existing management
resources.
Possible Tender Offer Acquisitions. In addition to its current program of
negotiated portfolio and individual property acquisitions, the Operating
Partnership may consider opportunities to acquire interests in portfolios and
individual properties through tender offers for public and private limited
partnerships and other REITs. Depending upon the opportunity and the
circumstances, such offers may be made with or without the cooperation of their
respective general partners or boards of directors. See "Risk Factors -- Risks
Associated with Acquisitions -- Risks Relating to Tender Offers."
Internal Growth
The Operating Partnership seeks to increase cash flow from its existing
portfolio by: (i) increasing the occupancy of all Properties that are not fully
leased; (ii) increasing rental rates of expiring leases; (iii) maintaining high
occupancy rates; (iv) increasing economies of scale in management and leasing
activities; and (v) controlling operating expenses and capital expenditures.
Development Joint Ventures
The Operating Partnership has entered into and intends to continue to, on a
limited basis, enter into joint ventures with selected developers for the
purposes of developing new projects within a region in which such developer has
significant expertise and experience. The Operating Partnership believes that
such alliances provide it with the flexibility to develop certain property types
in selected markets where it becomes economically viable without having to make
a significant investment in development infrastructure.
Redeployment of Assets
The Operating Partnership periodically reviews its current portfolio for
opportunities to redeploy capital from certain existing Properties into other
properties which the Operating Partnership believes have characteristics more
suited to its overall growth strategy and operating goals. For example, the
Operating Partnership may: (i) sell properties that have matured beyond a point
of significant future growth potential and replace them with properties with
higher growth potential; and (ii) sell smaller or management intensive
properties and replace them with larger or more management-efficient properties.
By redeploying assets in this manner, the Operating Partnership believes it can
achieve certain economies of scale with respect to staffing and overhead levels.
See "Recent Activities -- Redeployment of Assets."
FINANCING POLICIES
Conservative Debt Strategy. The Operating Partnership's total indebtedness
as of March 31, 1998 was approximately $442.4 million, which represents
approximately 25.6% of the total market capitalization of the Company (debt
divided by the sum of debt plus the market value of equity, including common
stock,
29
<PAGE> 36
preferred stock and redeemable Operating Partnership Units), This ratio is
consistent with the Operating Partnership's conservative strategy of maintaining
its debt to total market capitalization ratio at a level of 30% or less. In
addition, the Company's organizational documents limit the Company's ability to
incur, or permit any consolidated partnership or subsidiary corporation to
incur, additional debt if the total debt, including the additional debt, would
exceed 50% of the Borrowing Base, defined as the greater of Fair Market Value or
Total Market Capitalization. The debt of the Operating Partnership is included
in the calculation of such additional debt and total debt. Fair Market Value is
based upon the value of the Company's assets as determined by an independent
appraiser. Total Market Capitalization is based upon the market value of the
Company's outstanding capital stock, including shares issuable on exercise of
redemption options by holders of units of the Operating Partnership. An
exception is made for refinancings and borrowings required to make distributions
to maintain the Company's status as a REIT. As of March 31, 1998, as adjusted to
reflect the Pro Forma Adjustments, the Company's debt was % of the Borrowing
Base. This debt limitation contained in the Company's Charter cannot be changed
without the affirmative vote of the stockholders of the Company in accordance
with Maryland General Corporation Law.
Limited Floating Interest Rate Debt. The Operating Partnership seeks to
limit the amount of its indebtedness that is subject to floating interest rates.
As of March 31, 1998, approximately $53.1 million, or 12% of the Company's
aggregate indebtedness, was subject to floating rates of interest.
INVESTMENT POLICIES
The Operating Partnership seeks to invest in income-producing property,
both directly and through joint ventures with unaffiliated third parties,
including institutional investors. Prospective real estate investment
opportunities undergo an underwriting process that evaluates the following: (i)
reasonably anticipated levels of net cash and ultimate sales value, based on
evaluation of a range of factors including, but not limited to, rental levels
under existing leases; (ii) financial strength of tenants; (iii) levels of
expense required to maintain operating services and routine building maintenance
at competitive levels; and (iv) levels of capital expenditures required to
maintain the capital components of the building in good working order and in
conformance with building codes, health, safety and environmental and other
standards.
The Operating Partnership conducts physical site inspections of each
property under consideration and also engages outside professionals to
independently inspect properties prior to acquisition. The Operating Partnership
either engages outside professionals to conduct Phase I environmental
assessments for all acquisitions, or relies on either: (i) the availability of a
recent report prepared for a third party; or (ii) in the case of a property
managed by an Associated Company, the experience of the Associated Company in
managing the property, when the incremental benefit of obtaining a report is
believed by the Company to be outweighed by the cost. Based upon the results of
these inspections, assessments, reports and experience, the Company evaluates
the risks associated with a proposed acquisition prior to its completion and
takes appropriate corrective measures.
The Operating Partnership emphasizes equity real estate investments, but
may also invest in mortgages, securitized mortgage portfolios or other assets
consistent with maintaining qualification as a REIT. The Operating Partnership
will not invest in derivative financial instruments except for the limited
purpose of prudently hedging interest rate risk under variable interest rate
debt. The Operating Partnership has no current plans to invest in derivative
financial instruments.
The Board of Directors of the Company reviews the investment policies of
the Operating Partnership periodically to determine that the investment policies
being followed by the Operating Partnership at any time are in the best
interests of the limited partners of the Operating Partnership. The Board of
Directors may alter the Operating Partnership's investment policies if it
determines in the future that such a change is in the best interests of the
limited partners of the Operating Partnership. The methods of implementing the
Company's investment policies may vary as new investment and financing
techniques are developed or for other reasons.
The Company has adopted a policy that no acquisition of properties from
Glenborough Partners or Robert or Andrew Batinovich or their families or from
other entities in which they have an interest will be made without the approval
of at least two-thirds of the Company's independent directors.
30
<PAGE> 37
RECENT ACTIVITIES
The following is a summary of the Operating Partnership's acquisition and
financing activities since January 1, 1997.
PENDING ACQUISITIONS
Covance Property. The Operating Partnership has entered into a definitive
agreement to acquire the Covance Property from a partnership in which affiliates
of Eaton & Lauth serve as general partners. The total acquisition cost,
including capitalized costs, is expected to be approximately $16.5 million,
comprising: (i) approximately $4.4 million of equity which will consist of: (a)
approximately $200,000 in the form of 8,802 shares of common stock (based on a
negotiated per share value of $25.00); and (b) approximately $4.1 million in the
form of 165,865 operating partnership units in the Operating Partnership (based
on a negotiated per unit value of $25.00); and (ii) the balance in cash from
borrowings under the Acquisition Credit Facility. The Covance Property is
located in Indianapolis, Indiana. This acquisition is subject to a number of
contingencies including the negotiation of terms of a definitive agreement,
approval of the assumption of loans, satisfactory completion of due diligence
and customary closing conditions. As a result, there can be no assurance that
this transaction will be completed.
COVANCE PROPERTY
<TABLE>
<CAPTION>
OCCUPANCY
RATE AS OF
YEAR RENTABLE MARCH 31,
PROPERTY CITY ST COMPLETED SQ. FT. 1998(1)
-------- ------------ --- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Office
Covance............................... Indianapolis IN 1994 263,000 100
</TABLE>
- ---------------
(1) Represents economic occupancy.
Pru-Bache Portfolio. The Operating Partnership has entered into a
definitive agreement to acquire all of the real estate assets of
Prudential-Bache/Equitec Real Estate Partnership, a California limited
partnership in which the managing general partner is Prudential-Bache
Properties, Inc., and in which Glenborough Corporation and Robert Batinovich,
the Company's Chairman and Chief Executive Officer, have served as co-general
partners since March 1994, but do not hold a material equity or economic
interest (the "Pru-Bache Portfolio"). The total acquisition cost, including
capitalized costs, is expected to be approximately $47.1 million, which is to be
paid entirely in cash, including cash from borrowings under the Acquisition
Credit Facility. The Pru-Bache Portfolio comprises four office buildings
aggregating 405,825 square feet and one office/flex property containing 121,645
square feet. This acquisition is subject to a number of contingencies including
approval of the acquisition by a majority vote of the limited partners of
Prudential-Bache/Equitec Real Estate Partnership, satisfactory completion of due
diligence and customary closing conditions. As a result, there can be no
assurance that this acquisition will be completed.
31
<PAGE> 38
PRU-BACHE PORTFOLIO
<TABLE>
<CAPTION>
OCCUPANCY
RATE AS OF
YEAR RENTABLE MARCH 31,
PROPERTY CITY ST COMPLETED SQ. FT. 1998(1)
-------- ---------- --- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
OFFICE
Gateway Professional Center............. Sacramento CA 1985 50,556 96%
Park Plaza.............................. Sacramento CA 1985 67,688 75
Montrose Office Park.................... Rockville MD 1980 186,680 89
Poplar Towers........................... Memphis TN 1974 100,901 86
------- ---------
Total Office............................ 405,825 84%
======= =========
OFFICE/FLEX
Totem Valley............................ Kirkland WA 1983 121,645 99%
------- ---------
Total Pru-Bache Portfolio............... 527,470 90%
======= =========
</TABLE>
- ---------------
(1) Represents economic occupancy.
1998 AND 1997 COMPLETED ACQUISITIONS
One Pacific Place. In May 1998, the Operating Partnership acquired a
125,507 square foot office building and adjacent 87,120 square foot parcel of
land located in Omaha, Nebraska. The total acquisition cost, including
capitalized costs, was approximately $20.1 million, all of which was paid in
cash, including cash from borrowings under the Acquisition Credit Facility.
Eaton & Lauth Portfolio. In April 1998, the Operating Partnership acquired
a portfolio of three office properties and four retail properties aggregating
417,745 square feet and three multi-family properties containing 670 units (the
"Eaton & Lauth Portfolio") from a number of partnerships in which affiliates of
Eaton & Lauth serve as general partners. The total acquisition cost, including
capitalized costs, was approximately $68.7 million, comprising: (i)
approximately $32.0 million of net assumed debt; (ii) approximately $15.9
million of equity which consists of: (a) approximately $3.2 million in the form
of 126,764 shares of Common Stock of the Company (based on an agreed per share
value of $25.00); (b) approximately $12.7 million in the form of 506,788
partnership units in the Operating Partnership (based on an agreed per unit
value of $25.00); and (iii) the balance in cash. The cash portion was financed
through advances under the Acquisition Credit Facility. The Eaton & Lauth
Portfolio I properties are located in the Indianapolis, Indiana area.
The BGK Portfolio. In April 1998, the Operating Partnership acquired a
portfolio of seven properties (the "BGK Portfolio"), comprising six properties
in Massachusetts and one in Kansas, aggregating 515,445 rentable square feet.
The Operating Partnership acquired the BGK Portfolio from BGK Equities, Inc., of
Santa Fe, New Mexico. Four of the properties are office, one is office/flex and
two are industrial. The total acquisition costs, including capitalized costs,
was approximately $50.2 million, comprised of: (i) approximately $13.4 million
in assumption of debt, and (ii) the balance in cash, including cash from
borrowings under the Acquisition Credit Facility.
400 El Camino Real. In March 1998, the Operating Partnership acquired a
15-story office property located in San Mateo, California ("400 El Camino
Real"), containing 139,109 square feet, which currently houses the Company's
corporate headquarters, from Prudential Insurance Company of America. The
Company's corporate headquarters occupy approximately 30,000 square feet and the
balance of the rentable square feet is leased to third parties. The 400 El
Camino Real property includes a contiguous parking garage. The total acquisition
cost, including capitalized costs, was approximately $34.7 million, which was
paid in cash, including cash from borrowings under the Acquisition Credit
Facility.
Capitol Center. In February 1998, the Operating Partnership acquired a
161,468 square foot office complex ("Capitol Center") located in Des Moines,
Iowa. The total acquisition cost, including capitalized costs, was approximately
$12.3 million, comprising: (i) approximately $116,000 in the form of 3,874
partnership units in the Operating Partnership (based on an agreed per unit
value of $30.00) and (ii) the balance in cash.
32
<PAGE> 39
Windsor Portfolio. In January 1998, the Operating Partnership acquired a
portfolio of 13 suburban office Properties and one office/flex Property (the
"Windsor Portfolio") located in eight states. The Company acquired the Windsor
Portfolio from Windsor Realty Fund II, L.P., of which Windsor Advisor, LLC is
the general partner and DuPont Pension Fund Investments and Gid/S&S Limited
Partnership are limited partners, and other entities affiliated with Windsor
Realty Fund II, L.P. The Windsor Portfolio properties aggregate 3,383,240 net
rentable square feet, located in the eastern and mid-western United States and
are concentrated in suburban Washington, D.C., Chicago, Atlanta, Boston,
Philadelphia, Tampa, Florida and Cary, North Carolina. The total acquisition
cost, including capitalized costs, was approximately $423.2 million, comprised
of: (i) approximately $160.5 million in assumption of debt and (ii) the balance
in cash, including cash from borrowings under a $150.0 million interim loan with
Wells Fargo Bank (the "Interim Loan") and the Acquisition Credit Facility.
Marion Bass Portfolio. In December 1997, the Operating Partnership acquired
10 multi-family Properties (the "Marion Bass Portfolio") aggregating 1,385 units
from 14 limited partnerships each of whose general partner is Marion Bass Real
Estate Group. The total acquisition cost, including capitalized costs, was
approximately $58.3 million, comprising $23.5 million of assumed debt and the
balance in cash, including cash from borrowings under the Acquisition Credit
Facility. Of the 10 Marion Bass Properties, six are located in Charlotte, North
Carolina, two are in Monroe, North Carolina, one is in Raleigh, North Carolina
and one is in Pineville, North Carolina.
Opus Portfolio. In December 1997, the Operating Partnership acquired four
office/flex Properties and one office Property (the "Opus Portfolio")
aggregating 289,874 square feet from four limited liability companies affiliated
with Opus Properties, LLC. The total acquisition cost, including capitalized
costs, was approximately $27.9 million, all of which was paid in cash, including
cash from borrowings under the Acquisition Credit Facility. Four of the Opus
Portfolio Properties are located in or near Tampa, Florida, and one is located
in Denver, Colorado.
Thousand Oaks. In December 1997, the Operating Partnership acquired an
office complex consisting of three office buildings, aggregating 418,457 square
feet ("Thousand Oaks"). The total acquisition cost, including capitalized costs,
was approximately $51.3 million, which was paid entirely in cash, including cash
from borrowings under the Acquisition Credit Facility. The Thousand Oaks
property includes 10 acres suitable for the development of 182,000 square feet
of office space. Thousand Oaks is located in Memphis Tennessee.
Bryant Lake. In November 1997, the Operating Partnership acquired a 171,789
square-foot office/flex building in Eden Prairie, Minnesota ("Bryant Lake"),
from Outlook Income Fund 9, a limited partnership in which GC is managing
general partner. Robert Batinovich is co-general partner of Outlook Income Fund
9 and holds an indirect economic interest therein equal to an approximate 0.83%
limited partnership interest. Because of this affiliation, and consistent with
the Company's Board of Directors' policy, neither Robert Batinovich nor Andrew
Batinovich voted when the Board of Directors considered and acted to approve
this acquisition. The price paid for Bryant Lake equaled 100% of the appraised
value as determined by an independent appraiser. The total acquisition cost,
including capitalized costs, was approximately $9.4 million, comprising
approximately $4.6 million in the form of cash and the balance in the form of
assumption of debt.
Copley Properties. In October 1997, the Operating Partnership acquired
eight Properties from six separate limited partnerships in which affiliates of
AEW Capital Management, L.P. (successors in interest to one or more affiliates
of Copley Advisors Inc.) serve as general partners (the "Copley Properties").
The total acquisition cost, including capitalized costs, was approximately $63.7
million, which was paid entirely in cash. The Copley Properties comprise 766,269
square feet of industrial space, with one property located in Tempe, Arizona,
one in Anaheim, California, one in Columbia, Maryland and five in Las Vegas,
Nevada.
Citibank Park. In September 1997, the Operating Partnership acquired a
147,978 square-foot office building in Las Vegas, Nevada ("Citibank Park"). The
total acquisition cost, including capitalized costs, was approximately $23.3
million, which consisted of: (i) approximately $1.66 million in the form of
61,222 partnership units in the Operating Partnership (based on an agreed per
unit value of $27.156); and (ii) the balance in cash.
33
<PAGE> 40
Advance Properties. In September 1997, the Operating Partnership acquired
from a group of partnerships affiliated with The Advance Group a portfolio of 10
Properties aggregating 755,006 square feet (the "Advance Properties"). The total
acquisition cost, including capitalized costs, was approximately $103.0 million,
which consisted of: (i) approximately $13.6 million in the form of 599,508
partnership units in the Operating Partnership (based on an agreed per unit
value of $22.625); (ii) approximately $7.4 million in assumption of debt; and
(iii) the balance in cash. The Advance Properties consist of five office
Properties and three office/flex Properties located in northern New Jersey and
Maryland and two industrial Properties located in northern New Jersey.
Concurrent with this acquisition, the Operating Partnership entered into a joint
venture with The Advance Group for the development of selected new projects.
This joint venture owns 57 acres of land suitable for office and office/flex
development of up to 560,000 square feet.
T. Rowe Price Properties. In September 1997, the Operating Partnership
acquired from five limited partnerships, two general partnerships and one
private REIT, each organized by affiliates of T. Rowe Price, a portfolio of 27
properties aggregating approximately 2,888,000 square feet (the "T. Rowe Price
Properties"). The total acquisition cost, including capitalized costs, was
approximately $146.8 million, which was paid entirely in cash. The T. Rowe Price
Properties consist of four office Properties, 12 office/flex Properties, eight
industrial Properties and three retail Properties located in 12 states.
Centerstone Property. In July 1997, the Operating Partnership acquired an
office property containing 157,579 square feet (the "Centerstone Property")
located in Irvine, California. The total acquisition cost, including capitalized
costs, was approximately $30.4 million, which consisted of: (i) approximately
$5.5 million in the form of 275,000 partnership units in the Operating
Partnership (based on an agreed per unit value of $20.00); and (ii) the balance
in cash.
CRI Properties. In June 1997, the Operating Partnership acquired from
Carlsberg Realty Inc. a portfolio of three Properties, aggregating approximately
245,600 square feet (the "CRI Properties"). The total acquisition cost,
including capitalized costs, was approximately $14.8 million, which was paid
entirely in cash. The CRI Properties consist of one office Property in
California and one office/flex Property and one industrial Property in Arizona.
The CRI Properties have been managed by GC since November 1996.
CIGNA Properties. In April 1997, the Operating Partnership acquired from
two partnerships formed and managed by affiliates of CIGNA a portfolio of six
Properties, aggregating approximately 616,000 square feet and 224 multi-family
units (the "CIGNA Properties"). The total acquisition cost, including
capitalized costs, was approximately $45.4 million, which was paid entirely in
cash. The CIGNA Properties consist of two office Properties, two office/flex
Properties, a shopping center and a multi-family Property, and are located in
four states.
E&L Properties. In April 1997, the Operating Partnership acquired from
seven partnerships and their general partner, a Southern California syndicator,
a portfolio of 11 Properties, aggregating approximately 523,000 square feet,
together with associated management interests (the "E&L Properties"). The total
acquisition cost, including capitalized costs, was approximately $22.2 million,
which consisted of: (i) approximately $12.8 million of mortgage debt assumed;
(ii) approximately $6.7 million in the form of 352,197 partnership units in the
Operating Partnership (based on an agreed per unit value of $19.075); (iii)
approximately $633,000 in the form of approximately 33,198 shares of Common
Stock of the Company (based on an agreed per share value of $19.075); and (iv)
the balance in cash. The E&L Properties consist of one office Property, nine
office/flex Properties and one industrial Property, all located in Southern
California.
Riverview Property. In April 1997, the Operating Partnership acquired from
a private seller a 15-story office property containing 227,129 square feet
located in Bloomington, Minnesota (the "Riverview Property"). The total
acquisition cost, including capitalized costs, was approximately $20.5 million,
which was paid entirely in cash.
Lennar Properties. In April 1997, the Operating Partnership acquired from
two limited partnerships and one limited liability company managed by affiliates
of Lennar Partners a portfolio of three Properties, aggregating approximately
282,000 square feet (the "Lennar Properties"). The total acquisition cost,
including capitalized costs, was approximately $23.2 million, which was paid
entirely in cash. The Lennar Properties consist of one office Property located
in Virginia and one office/flex Property and one industrial Property, each
located in Massachusetts.
34
<PAGE> 41
Scottsdale Hotel. In February 1997, the Operating Partnership acquired a
163-suite hotel Property (the "Scottsdale Hotel"), which began operations in
January 1996 and is located in Scottsdale, Arizona. The total acquisition cost,
including capitalized costs, was approximately $12.1 million, which consisted of
approximately $4.6 million of mortgage debt assumed, and the balance in cash.
The Scottsdale Hotel and four of the Operating Partnership's other hotel
Properties are marketed as Country Suites by Carlson.
OTHER ACQUISITION OPPORTUNITIES
Acquisition Pipeline. The Operating Partnership maintains an active
acquisition department which identifies, evaluates, negotiates and consummates
portfolio and individual property investments. Currently, other than the Pending
Acquisitions, the Operating Partnership has no potential acquisitions that it
considers probable, but is considering acquisitions involving, in the aggregate,
in excess of $1.0 billion in total capitalized costs. Any future acquisition
would be subject to a number of contingencies, including a review of the
physical and economic characteristics of the properties involved, negotiation of
detailed terms and formal documentation. There can be no assurance that any of
the acquisitions under consideration will ultimately be consummated.
REDEPLOYMENT OF ASSETS
The Operating Partnership periodically reviews its current portfolio of
investments for opportunities to redeploy capital from certain existing
Properties or mortgage receivables to other properties or investments that the
Operating Partnership believes have characteristics more suited to its overall
growth strategy and operating goals. The Operating Partnership used the net
proceeds from the sale of such properties to fund the acquisition of properties
which the Operating Partnership believes have greater growth potential. The
Operating Partnership also has entered into a definitive agreement to sell from
its retail portfolio the Shannon Crossing Property. This sale is subject to a
number of contingencies, and there can be no assurance that such sale will be
consummated.
FINANCING ACTIVITIES
The Operating Partnership seeks to utilize the most appropriate sources of
capital for acquisitions, development, expansion and renovation of properties
and joint ventures, which sources include undistributed Funds from Operations,
borrowings under its credit facilities, permanent secured or unsecured debt
financing, contribution of cash from public equity and privately placed
financing of the Company, issuance of partnership units in the Operating
Partnership and/or bank and other institutional borrowings. As of March 31,
1998, the Operating Partnership's total debt constituted approximately % of
the total market capitalization of the Company on a pro forma basis, after
giving effect to the completion of the Pending Acquisitions, and certain other
pro forma adjustments. See "Selected Historical and Pro Forma Financial and
Other Data."
Initial Offering. In March 1998 the Operating Partnership completed the
Initial Offering, a private placement of $150 million of 7 5/8% Senior Notes due
2005. The net proceeds of approximately $148.2 million were used to repay
substantially all of the outstanding balance under the Interim Loan (defined
below).
January 1998 Offering. In January 1998, the Company completed a public
offering of 11,500,000 shares of 7 3/4% Series A Convertible Preferred Stock
(which are convertible into 8,757,234 shares of Common Stock of the Company) at
a price of $25.00 per share. The net proceeds of approximately $275.5 million
were contributed to the Operating Partnership and used to fund acquisition
activity, to repay approximately $257.1 million of indebtedness and for general
corporate purposes.
$150 Million Interim Loan. In January 1998, the Operating Partnership
closed a $150 million unsecured loan agreement with Wells Fargo Bank (the
"Interim Loan"). The Interim Loan bears interest at LIBOR plus 1.75% and has a
term of three months with an option to extend the term an additional three
months. The purpose of the Interim Loan was to fund the acquisition of the
Windsor Portfolio.
$250 Million Acquisition Credit Facility. In December 1997, the Operating
Partnership replaced its previous $50 million secured line of credit with a new
$250 million unsecured Acquisition Credit Facility with Wells Fargo Bank. The
Acquisition Credit Facility has a three year term and bears interest on a
sliding scale ranging from LIBOR plus 1.1% to LIBOR plus 1.3%. The Acquisition
Credit Facility agreement provides that if the Operating Partnership's debt
securities receive certain ratings from at least two rating agencies, as
specified in the Acquisition Credit Facility agreement, the interest rate will
decrease to a sliding scale ranging from LIBOR plus 0.8% to LIBOR plus 1.15%,
depending upon the rating.
35
<PAGE> 42
Private Equity Issuance. In December 1997, the Operating Partnership issued
(the "Private Equity Issuance") approximately $12.1 million in the form of
433,362 partnership units in the Operating Partnership (based on an agreed per
unit value of $27.896), the Company issued approximately $2.0 million in the
form of 72,564 shares of Common Stock (based on an agreed per share value of
$27.896) and the Operating Partnership paid approximately $200,000 in cash to
acquire all of the limited partnership interests of GRC Airport Associates, a
California limited partnership ("GRCAA"). GRCAA's sole asset consisted of one
property that was sold to a third party in February 1998 and generated net cash
proceeds of approximately $14.1 million. By virtue of interests held directly or
indirectly in GRCAA, GC received consideration of approximately $1.7 million and
Robert Batinovich received consideration of approximately $2.2 million, both in
the form of partnership units in the Operating Partnership, in connection with
the Private Equity Issuance. Consistent with the Company's Board of Directors'
policy, neither Robert Batinovich nor Andrew Batinovich voted when the Board of
Directors considered and acted to approve this transaction.
October 1997 Offering. In October 1997, the Company completed a public
offering of 11,300,000 shares of Common Stock at a price of $25.00 per share.
The net proceeds of approximately $267.3 million were contributed to the
Operating Partnership and used for the acquisitions of certain Properties, to
repay approximately $142.8 million of indebtedness and for general corporate
purposes.
July 1997 Offering. In July 1997, the Company completed a public offering
of 6,980,000 shares of Common Stock at a price of $22.625 per share. The net
proceeds of approximately $149.2 million were contributed to the Operating
Partnership and used to fund acquisitions and for general corporate purposes.
March 1997 Offering. In March 1997, the Company completed a public offering
of 3,500,000 shares of its Common Stock at a price of $20.25 per share. The net
proceeds of approximately $66.0 million were contributed to the Operating
Partnership and used for the acquisition of certain Properties and to repay
approximately $24.9 million of the then outstanding balance under the Company's
previous $50 million secured line of credit.
Increased Distributions. In January 1998, the Company announced a 31%
increase in its regular quarterly distribution from $.32 to $.42 per share of
Common Stock.
LEGAL PROCEEDINGS
Recent business reorganizations sponsored by others involving the
conversion of partnerships into corporations have given rise to a number of
investor lawsuits. These lawsuits have included claims against the general
partners of the participating partnerships, the partnerships themselves and
related persons involved in the structuring of or benefiting from the conversion
or reorganization, as well as claims against the surviving entity and its
directors and officers. The lawsuits have included, among others, claims that
the structure of the reorganizations, as well as the manner in which they were
submitted for investor approval, involved violations of federal and state
securities laws, common law fraud and negligent misrepresentations, breaches of
fiduciary duty, unfair and deceptive trade practices, negligence and waste,
breaches of the partnership documents of the participating partnerships, failure
to comply with applicable reporting requirements, violations of the rules of the
NASD on suitability and fair practices, and violations of the Racketeer
Influenced and Corrupt Organizations Act. Two lawsuits have been filed
contesting the fairness of the Consolidation, one in California state court and
one in federal court. A settlement of the state court action was approved by the
court, but objectors to the settlement appealed that approval. On February 17,
1998, the Court of Appeals rejected the objectors' contentions and upheld the
settlement. The objectors filed with the California Supreme Court a petition for
review, which was denied on May 21, 1998. Plaintiffs in the federal court action
voluntarily dismissed the action pending resolution of the state court action.
From time to time the Company and the Operating Partnership are involved in
other litigation arising out of their business activities. It is possible that
this litigation and the other litigation previously described could result in
significant losses in excess of amounts reserved, which could have an adverse
effect on the Company's or the Operating Partnership's results of operations and
the financial condition of the Company or the Operating Partnership.
36
<PAGE> 43
BUSINESS AND PROPERTIES
The Operating Partnership owns a diversified portfolio of 156 office,
office/flex, industrial, retail, multi-family and hotel Properties located in 24
states throughout the country. In addition, the Associated Companies provide
comprehensive asset, partnership and property management services for a
diversified portfolio of 46 additional properties that are not owned by the
Operating Partnership. The following table lists the Properties owned by the
Operating Partnership as of the date of the Prospectus excluding the Pending
Acquisitions and the 46 additional properties.
<TABLE>
<CAPTION>
YEAR RENTABLE OCCUPANCY AS OF
PROPERTY CITY STATE COMPLETED SQ. FT. MARCH 31, 1998(1)
-------- ---- ----- --------- --------- -----------------
<S> <C> <C> <C> <C> <C>
OFFICE
Tradewinds Financial Center..... Phoenix AZ 1986 17,778 92%
Vintage Pointe.................. Phoenix AZ 1985 56,112 98
Warner Village Medical.......... Fountain Valley CA 1977 32,272 84
Hillcrest Office Plaza.......... Fullerton CA 1974 34,623 94
Centerstone Plaza............... Irvine CA 1988 157,579 98
University Tech Center.......... Pomona CA 1986 100,516 94
Academy Professional Center..... Rolling Hills CA 1974 29,960 74
Dallidet Professional Center.... San Luis Obispo CA 1993 23,051 87
400 El Camino Real.............. San Mateo CA 1973 139,109 100
Park Place...................... Clearwater FL 1986 162,604 97
Buschwood III................... Tampa FL 1989 76,930 92
Temple Terrace Business
Center....................... Temple Terrace FL 1997 79,393 100
Ashford Perimeter............... Atlanta GA 1983 288,273 99
Powers Ferry Landing East....... Atlanta GA 1985 393,672 100
Oak Brook International......... Oak Brook IL 1975 98,443 100
Oakbrook Terrace
Corporate Center III......... Oak Brook IL 1991 253,069 98
Columbia Centre II.............. Rosemont IL 1988 150,133 94
Embassy Plaza................... Schaumburg IL 1986 141,829 88
Crosspoint Four................. Indianapolis IN 1990 41,121 100
Meridian Park................... Indianapolis IN 1989 86,332 98
The Osram Building.............. Indianapolis IN 1990 45,265 100
Leawood Office Building......... Leawood KS 1981 93,667 100
Blue Ridge Office Building...... Braintree MA 1984 74,727 98
Hartwood Building............... Lexington MA 1985 52,721 100
Bronx Park I.................... Marlborough MA 1986 86,935 80
Marlborough Corporate Place..... Marlborough MA 1988 514,789 100
Westford Corporate Center....... Westford MA 1987 163,247 100
Montgomery Executive Center..... Gaithersburg MD 1982 116,348 87
Rockwall I & II................. Rockville MD 1985 340,220 88
Bond Street Building............ Farmington Hills MI 1986 40,595 95
Riverview Office Tower.......... Bloomington MN 1973 227,149 100
University Club Tower........... St. Louis MO 1974 272,443 91
Woodlands Plaza................. St. Louis MO 1993 72,966 99
Edinburgh Center................ Cary NC 1991 115,030 96
One Pacific Place............... Omaha NE 1988 125,507 94
One Professional Square......... Omaha NE 1980 34,836 86
Regency Westpointe.............. Omaha NE 1981 35,937 97
</TABLE>
37
<PAGE> 44
<TABLE>
<CAPTION>
YEAR RENTABLE OCCUPANCY AS OF
PROPERTY CITY STATE COMPLETED SQ. FT. MARCH 31, 1998(1)
-------- ---- ----- --------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Morristown Medical Offices...... Bedminster NJ 1990 14,255 100
Bridgewater Exec. Quarters...... Bridgewater NJ 1995 65,000 100
Frontier Exec. Quarters I....... Bridgewater NJ 1986 224,314 100
Frontier Exec. Quarters II...... Bridgewater NJ 1987 40,565 100(2)
Gatehall........................ Parsipanny NJ 1983 113,604 87
25 Independence Boulevard....... Warren NJ 1989 106,879 100
Citibank Park................... Las Vegas NV 1987 147,841 86
Thousand Oaks................... Memphis TN 1990 418,458 92
Post Oak Place.................. Houston TX 1971 57,411 90
4500 Plaza...................... Salt Lake City UT 1983 70,001 100
700 South Washington............ Alexandria VA 1989 56,348 100
Cameron Run..................... Alexandria VA 1991 143,707 100
2000 Corporate Ridge............ McLean VA 1985 255,980 98
Globe Building.................. Mercer Island WA 1979 24,779 100
--------- ---
TOTAL OFFICE............ 6,675,796 96%
========= ===
OFFICE/FLEX
Hoover Industrial............... Mesa AZ 1985 57,441 89%
Magnolia Industrial............. Phoenix AZ 1984 35,385 100
Baseline Business Park.......... Tempe AZ 1984 100,204 97
Kraemer Industrial Park......... Anaheim CA 1974 55,246 86
Dominguez Industrial............ Carson CA 1973 85,120 96
Chatsworth Industrial Park...... Chatsworth CA 1975 29,764 100
Glassell Industrial Center...... Orange CA 1976 46,912 74
Dunn Way Industrial............. Placentia CA 1968 59,832 100
Monroe Industrial............... Placentia CA 1988 38,655 80
Rancho Bernardo................. Rancho Bernardo CA 1982 52,865 88
Scripps Terrace................. San Diego CA 1986 56,796 90
Tierrasanta Research Park....... San Diego CA 1985 104,234 78
Upland Industrial............... Upland CA 1978 27,414 100
Northglenn Business Center...... Denver CO 1997 65,000 100
Valley Business Park............ Denver CO 1984 202,540 90
Grand Regency Business Center... Brandon FL 1997 48,551 100
Newport Business Center......... Deerfield Beach FL 1984 61,786 92
Cypress Creek Business Center... Ft. Lauderdale FL 1982 66,371 91
Lake Point Business Park........ Orlando FL 1985 135,032 92
Fingerhut Business Center....... Tampa FL 1996 48,840 100
PrimeCo Business Center......... Tampa FL 1996 48,090 100
The Business Park............... Norcross GA 1984 157,153 94
Oakbrook Corners................ Norcross GA 1984 124,776 100
Park 100 -- Building 42......... Indianapolis IN 1980 37,200 79
Canton Business Center.......... Canton MA 1988 79,565 100
Fisher-Pierce................... Weymouth MA 1988 79,825 100
Columbia Warehouse.............. Columbia MD 1974 38,840 88
Germantown Business Center I &
II........................... Germantown MD 1993 60,000 100
Winnetka Industrial Center...... Crystal MN 1982 188,260 100
Bryant Lake Business Center..... Eden Prairie MN 1985 171,789 96
Riverview Industrial Park....... St. Paul MN 1978 113,700 100
</TABLE>
38
<PAGE> 45
<TABLE>
<CAPTION>
YEAR RENTABLE OCCUPANCY AS OF
PROPERTY CITY STATE COMPLETED SQ. FT. MARCH 31, 1998(1)
-------- ---- ----- --------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Woodlands Tech Center........... St. Louis MO 1986 98,037 96
Fox Hollow Business Quarters.... Branchburg NJ 1987 42,173 86
Fairfield Business Quarters..... Fairfield NJ 1978 42,792 100
Palms Business Center III....... Las Vegas NV 1990 136,160 93
Palms Business Center IV........ Las Vegas NV 1991 37,414 74
Palms Business Center North..... Las Vegas NV 1988 92,087 100
Palms Business Center South..... Las Vegas NV 1988 132,387 69
Post Palms...................... Las Vegas NV 1991 139,949 82
Lehigh Valley Executive
Campus....................... Allentown PA 1989 161,421 95
Clark Avenue.................... King of Prussia PA 1965 40,000 100
Valley Forge Corporate Center... Norristown PA 1988 300,894 94
Walnut Creek Business Center.... Austin TX 1984 100,000 100
Kent Business Park.............. Kent WA 1981 138,157 100
--------- ---
TOTAL OFFICE/FLEX....... 3,938,657 93%
========= ===
INDUSTRIAL
Fifth Street Industrial......... Phoenix AZ 1986 109,699 100%
Fairmont Commerce Center........ Tempe AZ 1980 83,200 100
East Anaheim Industrial......... Anaheim CA 1986 106,232 100
Coronado Industrial............. Anaheim CA 1975 95,732 100
Benicia Industrial Park......... Benicia CA 1980 156,800 69
Springdale Commerce Center...... Santa Fe Springs CA 1985 144,000 100
Burnham Industrial Warehouse.... Boca Raton FL 1980 71,168 100
Airport Perimeter Business
Park......................... College Park GA 1982 120,986 81
Atlantic Industrial............. Norcross GA 1975 187,843 86
Bonnie Lane Business Center..... Elk Grove Village IL 1981 119,590 100
Navistar Intl. Transportation
Corp......................... W. Chicago IL 1977 474,426 100
Glenn Avenue Business Center.... Wheeling IL 1981 82,000 100
Wood Dale Business Center....... Wood Dale IL 1979 89,718 70
Park 100-Building 46............ Indianapolis IN 1981 102,400 100
J.I. Case Equipment Corp........ Kansas City KS 1975 199,750 100
Southworth-Milton............... Milford MA 1989 146,125 100
Navistar Intl. Transportation
Corp......................... Baltimore MD 1962 274,000 100
Eatontown Industrial............ Eatontown NJ 1988 36,800 100
Jencraft Industrial............. Totowa NJ 1967 120,943 100
J.I. Case Equipment
Corporation.................. Memphis TN 1950 205,594 100
Pinewood Industrial............. Arlington TX 1971 46,060 100
Mercantile I.................... Dallas TX 1970 236,092 95
Quaker Industrial............... Dallas TX 1974 42,083 100
SeaTac II....................... Seattle WA 1984 41,657 100
--------- ---
TOTAL INDUSTRIAL........ 3,430,898 96%
========= ===
RETAIL
Park Center..................... Santa Ana CA 1979 73,500 98%
Sonora Plaza.................... Sonora CA 1974 162,126 99
Piedmont Plaza.................. Apopka FL 1985 151,000 98
River Run Shopping Center....... Miramar FL 1988 92,787 94
Westwood Plaza.................. Tampa FL 1984 99,304 99
</TABLE>
39
<PAGE> 46
<TABLE>
<CAPTION>
YEAR RENTABLE OCCUPANCY AS OF
PROPERTY CITY STATE COMPLETED SQ. FT. MARCH 31, 1998(1)
-------- ---- ----- --------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Shannon Crossing................ Atlanta GA 1981 64,039 96
Westbrook Commons............... Westchester IL 1983 132,190 97
Broad Ripple Retail Centre...... Indianapolis IN 1988 37,540 100
Cross Creek Retail Centre....... Indianapolis IN 1989 76,908 96
Geist Retail Centre............. Indianapolis IN 1989 72,348 92
Woodfield Centre................ Indianapolis IN 1988 58,171 90
Goshen Plaza.................... Gaithersburg MD 1988 45,546 85
Auburn North Shopping Center.... Auburn WA 1978 158,596 96
--------- ---
TOTAL RETAIL............ 1,224,055 96%
========= ===
</TABLE>
<TABLE>
<CAPTION>
OCCUPANCY AS OF
YEAR RENTABLE MARCH 31,
PROPERTY CITY STATE COMPLETED SQ. FT. UNITS 1998(1)
-------- ---- ----- --------- ---------------- ----- ----------------
<S> <C> <C> <C> <C> <C> <C>
MULTI-FAMILY
Overlook Apartments.......... Scottsdale AZ 1988 188,432 224 96%
Crosscreek Apartments........ Indianapolis IN 1990 159,492 208 91
Harcourt Club Apartments..... Indianapolis IN 1991 149,900 148 95
Island Club Apartments....... Indianapolis IN 1990 245,389 314 88
Arrowood Crossing I & II..... Charlotte NC 1990 187,692 200 99
Sharonridge I & II........... Charlotte NC 1980 59,850 75 96
The Chase (Commonwealth)..... Charlotte NC 1986 105,360 132 97
The Courtyard................ Charlotte NC 1985 60,500 55 93
The Landing on Farmhurst..... Charlotte NC 1986 98,000 125 97
Wendover Glen................ Charlotte NC 1983 75,072 96 96
The Chase (Monroe)........... Monroe NC 1988 100,512 120 97
Willow Glen.................. Monroe NC 1981 104,040 120 99
Sabal Point I, II & III...... Pineville NC 1990 381,463 374 90
The Oaks..................... Raleigh NC 1985 68,256 88 92
Sahara Gardens............... Las Vegas NV 1983 277,056 312 91
Villas de Mission............ Las Vegas NV 1979 192,370 226 97
--------- ----- --
TOTAL MULTI-FAMILY............. 2,453,384 2,817 96%
========= ===== ==
</TABLE>
<TABLE>
<CAPTION>
YEAR RENTABLE UNITS/ OCCUPANCY AS OF
PROPERTY CITY STATE COMPLETED SQ. FT. ROOMS MARCH 31, 1998
-------- ------------ ----- --------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
HOTELS
Country Inn and Suites by Scottsdale AZ 1995 80,568 163 80%
Carlson...................
Country Suites by Carlson.... Tucson AZ 1986 61,552 157 79
Country Suites by Carlson.... Ontario CA 1985 54,019 120 73
Country Suites by Carlson.... Arlington TX 1986 56,200 132 56
Country Suites by Carlson.... Irving TX 1986 45,032 108 61
Country Inn by Carlson....... San Antonio TX 1997 29,330 64 55
--------- ----- --
Total Hotels......... 326,701 744 71%
========= ===== ==
</TABLE>
- ---------------
(1) Represents economic occupancy as of March 31, 1998.
(2) This Property is 31% leased by the former owner of the Property for a period
of two years.
(3) Represents average economic occupancy for the three months ended March 31,
1998.
40
<PAGE> 47
MANAGEMENT
The following table sets forth certain information with respect to the
directors and the executive officers of the Company, including their ages.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITION
---- --- ------------------
<S> <C> <C>
Robert Batinovich.............. 61 Chairman and Chief Executive Officer
Andrew Batinovich.............. 39 Director, President and Chief Operating Officer
Sandra L. Boyle................ 49 Executive Vice President
Stephen Saul................... 44 Executive Vice President, Chief Financial Officer
Frank E. Austin................ 50 Senior Vice President, General Counsel and Secretary
Terri Garnick.................. 37 Senior Vice President, Chief Accounting Officer and
Treasurer
Steven F. Hallsey.............. 46 Senior Vice President, Commercial Property Management
Richard C. Blum................ 61 Director
Patrick Foley.................. 65 Director
Richard A. Magnuson............ 40 Director
Laura Wallace.................. 44 Director
</TABLE>
ROBERT BATINOVICH has served as the Company's Chairman and Chief Executive
Officer since the Company began operations on December 31, 1995. Mr. Batinovich
also served as President of the Company since the Company began operations
through September 1997. He also was the founder of Old GC and certain of its
affiliates, and has been engaged in real estate investment and management, and
corporate finance, since 1970. He served as President, Chief Executive Officer
and Chairman of Old GC from its formation in 1978 until its consolidation and
merger with the Company (the "Consolidation") on December 31, 1995. Mr.
Batinovich served as a member of the California Public Utilities Commission from
1975 to 1979, serving as its President the last two years. He is a member of the
Board of Directors of the Farr Company, a publicly held company that
manufactures industrial filters. Mr. Batinovich's business background includes
seven years as an executive with Norris Industries, managing and/or owning
manufacturing, vending and service companies and a national bank, and providing
investment consulting to businesses and individuals. He has served on a number
of governmental commissions and participated in a variety of policy research
efforts sponsored by government bodies and universities.
ANDREW BATINOVICH has served as director, Chief Operating Officer and Chief
Financial Officer of the Company since the Company began operations on December
31, 1995 until September 1997 when he became President and Chief Operating
Officer of the Company. He also served as a director of Old GC prior to the
Consolidation, was employed by Old GC from 1983 until the Consolidation and
functioned as its Chief Operating Officer and Chief Financial Officer since
1987. Mr. Batinovich holds a California real estate broker's license and is a
Member of the National Advisory Council of Building Owners and Managers
Association ("BOMA") International. Prior to joining Glenborough, Mr. Batinovich
was a lending officer with the International Banking Group and the Corporate
Real Estate Division of Security Pacific National Bank. Mr. Batinovich has a
B.A. in International Finance from the American University of Paris.
SANDRA L. BOYLE has served as Executive Vice President of the Company since
September 1997, prior to which she served as Senior Vice President of the
Company since the Company began operations on December 31, 1995. Ms. Boyle has
been associated with Old GC or its affiliated entities since 1984. She was
originally responsible for residential marketing. Her responsibilities were
gradually expanded to include residential leasing and management in 1985, and
commercial leasing and management in 1987. She was elected Vice President of Old
GC in 1989. She currently supervises asset management, property management and
management information services for the Company. Ms. Boyle holds a California
real estate broker's license and a CPM designation, is a past President of BOMA
San Francisco, and is a member of the National Advisory and Finance Committee of
BOMA International, and the Board of Directors of BOMA San Francisco and BOMA
California.
41
<PAGE> 48
STEPHEN R. SAUL has served as Vice President of the Company since May 1996
and became the Company's Executive Vice President and Chief Financial Officer in
September 1997. He has served as Manager of Real Estate Finance since joining
Old GC in April 1995. Prior to joining Old GC, Mr. Saul served for four years as
President of KSA Financial Corporation, a company which was based in Sacramento,
California and which originated equity and debt financing for real estate
projects in Northern California; he also served five years with Security Pacific
National Bank and five years with the development company of Harrington and
Kulakoff. Mr. Saul has a B.A. in Architecture and Urban Studies from Stanford
University and an M.B.A. from Harvard University.
FRANK E. AUSTIN has served as Senior Vice President, General Counsel and
Secretary of the Company since the Company began operations on December 31,
1995. Mr. Austin also served as a Vice President of Old GC from 1985 until the
completion of the Consolidation. He is a member of the State Bar of California.
Prior to joining Glenborough, Mr. Austin served for three years as committee
counsel in the California State Senate, three years with the law firm of
Neumiller & Beardslee, and four years at State Savings and Loan Association and
American Savings and Loan Association.
TERRI GARNICK has served as Senior Vice President, Chief Accounting Officer
and Treasurer of the Company since the Company began operations on December 31,
1995. Ms. Garnick joined Old GC in 1989, and between that time and the
completion of the Consolidation was responsible for property management,
accounting, financial statements, audits, SEC reports, and tax returns for
partnerships under management of Old GC and its affiliates. Prior to joining Old
GC in 1989, Ms. Garnick was a controller at August Financial Corporation from
1986 to 1989 and was a Senior Accountant at Deloitte Haskins & Sells from 1983
to 1986. She is a Certified Public Accountant.
STEVEN F. HALLSEY joined the Company on January 12, 1998, as Senior Vice
President of Commercial Property Management. Prior to joining the Company, Mr.
Hallsey served for three years as President and Chief Operating Officer of
Western National Group, a national property management firm based in Irvine,
California; and for two years as President of the Harbor Group of Norfolk,
Virginia, which owned and operated a regional portfolio of commercial and
multifamily properties. He also served four years as a Senior Vice President of
Balcor Property Management and six years as Senior Executive Vice President of
Clark Financial Corporation, a regional property management firm based in Salt
Lake City, Utah. Mr. Hallsey serves on the boards of directors of the National
Multi Housing Counsel and the California Apartment Association, and is the
founder of the South Coast Apartment Association.
RICHARD C. BLUM has served as a director of the Company since January 1998.
Mr. Blum is chairman and president of Richard C. Blum & Associates, Inc., which
is the general partner of Richard C. Blum & Associates, L.P., a merchant banking
firm which acts as general partner for various investment partnerships. Mr. Blum
also serves as a director of Northwest Airlines Corporation, URS Corporation
(architectural and engineering services) and CB Commercial Real Estate Group
(formerly Coldwell Banker, a holding company for various real estate
enterprises).
PATRICK FOLEY has served as director of the Company since January 11, 1996.
He is also Chairman and Chief Executive Officer of DHL Corporation, Inc. and its
major subsidiary, DHL Airways, positions he has held since 1988. Prior to
joining DHL, Mr. Foley was associated with the Hyatt Hotels Corporation
("Hyatt") for 26 years: in a variety of capacities, from 1962 to 1972; as
Executive Vice President for Operations, from 1972 to 1978; as President, from
1978 to 1984; as Chairman from 1984 to 1988; as Vice Chairman and later Chief
Executive Officer of Braniff Airlines, a Hyatt subsidiary, from 1984 to 1988.
Mr. Foley currently is a member of the board of directors of Continental
Airlines, Inc., Foundation Health Systems, Inc., Del Monte Foods Corporation and
Flextronics International Ltd.
RICHARD A. MAGNUSON has served as director of the Company since January 11,
1996. He is also currently Managing Director at Nomura International, plc.
("Nomura"). Mr. Magnuson joined Nomura in 1997, prior to which he served as a
director at Nomura Securities International Inc. ("Nomura International"), a
position he held since March 1994. Before joining Nomura International, Mr.
Magnuson was a director in Real Estate Investment Banking at Merrill Lynch & Co.
for five years. Mr. Magnuson is an active member of the Urban
42
<PAGE> 49
Land Institute, the National Association of Real Estate Investment Trusts, and
the International Council of Shopping Centers.
LAURA WALLACE has served as director of the Company since January 11, 1996.
She is also Chief Investment Officer of the Public Employees Retirement System
of Nevada (the "System"), a position she has held since 1985 and to which she
was promoted after serving four years as Investment Analyst. The System
comprises 60,000 active members, 40,000 inactive members, and 15,000 benefit
recipients, with an investment portfolio of $10.0 billion. Prior to joining the
System, Ms. Wallace served from 1977 to 1980 as Manager of the Beaverton, Oregon
office of Safeco Title Insurance Company, and from 1975 to 1977 as Senior
Assistant Manager of the Beaverton office of Household Finance Corporation. Ms.
Wallace is a member of the executive council of the National Association of
State Investment Officers, of which she is past chairman; a member of the
National Council on Teacher Retirement; a member of the Advisory Board for the
Retired Senior Volunteer Program; past member of the Editorial Board of the
Institutional Real Estate Letter; and serves as guest lecturer at the University
of Nevada.
DESCRIPTION OF NOTES
Except as otherwise indicated below, the following summary of the material
provisions of the Indenture applies to both the Old Notes and the New Notes. As
used herein, the term "Notes" shall mean the Old Notes and the New Notes, unless
otherwise indicated.
The form and terms of the New Notes are substantially identical to the form
and terms of the Old Notes, except that the exchange of the New Notes pursuant
to the Exchange Offer will be registered under the Securities Act and,
therefore, the New Notes will not bear any legends restricting transfer thereof.
The New Notes will evidence the same debt as the Old Notes and will be treated
as a single class under the Indenture with any Old Notes that remain
outstanding. Each series of New Notes will be issued solely in exchange for an
equal principal amount of the corresponding series of Old Notes. As of the date
hereof, $150 million in aggregate principal amount of Old Notes is outstanding.
See "The Exchange Offer." The following summary of certain provisions of the
Indenture, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part, does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part thereof by the Trust Indenture Act of 1939, as
amended. Whenever particular defined terms of the Indenture not otherwise
defined herein are referred to, the definitions ascribed to such terms in the
Indenture are incorporated herein by reference. For definitions of certain
capitalized terms used in the following summary, see "-- Certain Definitions."
GENERAL
The Old Notes were, and the New Notes will be, issued pursuant to an
Indenture. The Old Notes are a series of Debt Securities issued under the
Indenture designated as 7 5/8% Series A Senior Notes due 2005, and were issued
in a private transaction that was not subject to the registration requirements
of the Securities Act. The New Notes are a series of Debt Securities issuable
under the Indenture designated as 7 5/8% Series B Senior Notes due 2005, and
will be issued in the Exchange Offer. The Notes will be limited to $150,000,000
in aggregate principal amount. The terms of the Notes include those provisions
contained in the Notes and the Indenture. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below but not defined herein.
Pursuant to the Indenture, the Operating Partnership may issue series of
debt securities (the "Debt Securities") in addition to the Notes. Except for any
series of Debt Securities which is specifically subordinated to other
indebtedness of the Operating Partnership, the Debt Securities will rank pari
passu with all other unsecured and unsubordinated indebtedness of the Operating
Partnership. Under the Indenture, the Debt Securities may be issued without
limit as to aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the Board of Directors of the Company as sole general partner of
the Operating Partnership or as established in one or more
43
<PAGE> 50
indentures supplemental to the Indenture. All Debt Securities of one series need
not be issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series.
Except as provided under "-- Merger, Consolidation or Sale" and
"-- Covenants" below, the Notes and the Indenture do not contain any other
provisions that would afford Holders of the Notes ("Holders") protection in the
event of (i) a highly leveraged or similar transaction involving the Operating
Partnership, the management of the Operating Partnership or the Company, or any
affiliate of either such party, (ii) a change of control or (iii) a
reorganization, restructuring, merger or similar transaction involving the
Operating Partnership that may adversely affect the Holders of the Notes. The
financial covenants of the Operating Partnership described below would continue
to apply, unless waived by Holders of the Notes, in the event of a highly
leveraged or similar transaction involving the Operating Partnership, management
of the Operating Partnership or the Company, or any affiliate of either such
party. See "-- Covenants." In addition, subject to the limitations set forth
below under "-- Merger, Consolidation or Sale," the Operating Partnership may,
in the future, enter into certain transactions such as the sale of all or
substantially all of its assets or the merger or consolidation of the Operating
Partnership that would increase the amount of the Operating Partnership's
indebtedness or substantially reduce or eliminate the Operating Partnership's
assets, which may have an adverse effect on the Operating Partnership's ability
to service its indebtedness, including the Notes. The Operating Partnership has
no present intention of engaging in a highly leveraged or similar transaction
involving the Operating Partnership. In addition, certain restrictions on
ownership and transfers of the Company's stock designed to preserve its status
as a REIT may act to prevent or hinder any such transactions or a change of
control.
RANKING
The Old Notes are, and the New Notes will be, general unsecured and
unsubordinated obligations of the Operating Partnership and will rank pari passu
with all other unsecured and unsubordinated indebtedness of the Operating
Partnership from time to time outstanding. However, the Old Notes are, and the
New Notes will be, effectively subordinated to such secured borrowing
arrangements that the Operating Partnership has and from time to time may enter
into with various banks and other lenders, and to the prior claims of each
secured mortgage lender to any specific property owned by the Operating
Partnership which secures any lender's mortgage. As of March 31, 1998, such
arrangements and mortgages aggregated $242.1 million; as adjusted to reflect the
Pro Forma Adjustments, such arrangements and mortgages would have aggregated
million as of March 31, 1998. Subject to certain limitations
set forth in the Indenture described below under the caption "Covenants," the
Indenture will permit the Operating Partnership to incur additional indebtedness
and additional secured indebtedness. See "-- Covenants," "Recent Activities --
Financing Activities."
PRINCIPAL, MATURITY AND INTEREST
The Old Notes are, and the New Notes will be, limited in aggregate
principal amount to $150,000,000 and will mature on March 15, 2005 (the
"Maturity Date"). The New Notes will be issued in minimum denominations of
$150,000 and in integral multiples of $1,000 in excess thereof.
Interest on the Old Notes and on the New Notes will accrue at the rate of
7 5/8% per annum and will be payable semi-annually in arrears on March 15 and
September 15 of each year, commencing on September 15, 1998, to holders of
record on the immediately preceding March 1 and September 1. Holders of New
Notes will receive interest accrued thereof from the date of original issuance
of the Old Notes or the date of last interest payment as applicable, to, but not
including, the date of issuance of the New Notes. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest on the Notes will be payable at
the office or agency of the Operating Partnership maintained for such purpose
or, at the option of the Operating Partnership, payment
44
<PAGE> 51
may be made by check mailed to holders of the Notes at their respective
addresses set forth in the register of holders; provided that all payments with
respect to Notes the Holders of which have given wire transfer instructions to
the Operating Partnership will be required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by the Operating Partnership, the Operating
Partnership's office or agency will be the office of the Trustee maintained for
such purpose in the Borough of Manhattan, The City of New York, which currently
is c/o Chase Manhattan Bank and Trust Company, National Association, 55 Water
Street, Room 234, and at the Trustee's corporate trust office at 101 California
Street, Suite 2725, San Francisco, California 94111.
OPTIONAL REDEMPTION
The Notes may be redeemed at any time at the option of the Operating
Partnership, in whole or from time to time in part, at a redemption price (the
"Redemption Price") equal to the sum of (i) the principal amount of the Notes
(or portion thereof) being redeemed plus accrued interest thereon to the
redemption date and (ii) the Make-Whole Amount, if any, with respect to the
Notes (or portion thereof).
If notice has been given as provided in the Indenture and funds for the
redemption of any Notes (or any portion thereof) called for redemption shall
have been made available on the redemption date referred to in such notice, such
Notes (or any portion thereof) will cease to bear interest on the date fixed for
such redemption specified in such notice and the only right of the Holders of
such Notes will be to receive payment of the Redemption Price.
Notice of any redemption of any Notes (or any portion thereof) will be
given to Holders at their addresses, as shown in the Note Register, not more
than 60 nor less than 30 days prior to the date fixed for redemption. The notice
of redemption will specify, among other items, the Redemption Price and the
principal amount of the Notes held by such Holder to be redeemed.
The Operating Partnership will notify the Trustee at least 45 days prior to
giving notice of redemption (or such shorter period as is satisfactory to the
Trustee) of the aggregate principal amount of such Notes to be redeemed and
their redemption date. If less than all of the Notes are to be redeemed at the
option of the Operating Partnership, the Trustee shall select, in such manner as
it shall deem fair and appropriate, such Notes to be redeemed in whole or in
part.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
In connection with the original issuance and sale of the Old Notes, the
Initial Purchasers and their assignees became entitled to the benefits of the
Registration Rights Agreement. Pursuant to the Registration Rights Agreement,
the Operating Partnership agreed to file with the Commission the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to the Exchange Notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Operating Partnership will offer to the Holders of
Transfer-Restricted Securities pursuant to the Exchange Offer who are able to
make certain representations the opportunity to exchange their Transfer
Restricted Securities for Exchange Notes. If (i) the Operating Partnership is
not required to file the Exchange Offer Registration Statement or permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy or (ii) any Holder of Transfer Restricted
Securities notifies the Operating Partnership on or prior to the 20th business
day following consummation of the Exchange Offer that (a) it is prohibited by
law or Commission policy from participating in the Exchange Offer or (b) that it
may not resell the Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or (c) that it is a broker-dealer and owns Old Notes acquired directly
from the Operating Partnership or an affiliate of the Operating Partnership, the
Operating Partnership will file with the Commission a Shelf Registration
Statement to cover resales of the Notes by the Holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement. The Operating Partnership will use its best
efforts to cause the applicable registration statement to be declared effective
as promptly as possible by the Commission. For purposes of the foregoing,
"Transfer Restricted Securities"
45
<PAGE> 52
means each Old Note until (i) the date on which such Note has been exchanged by
a person other than a broker-dealer for an Exchange Note in the Exchange Offer,
(ii) following the exchange by a broker-dealer in the Exchange Offer of a Note
for an Exchange Note, the date on which such Exchange Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of the prospectus contained in the Exchange Offer Registration
Statement, (iii) the date on which such Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date on which such Note is distributed to the
public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Operating
Partnership will file an Exchange Offer Registration Statement with the
Commission on or prior to 60 days after the Closing Date, (ii) the Operating
Partnership will use its best efforts to have the Exchange Offer Registration
Statement declared effective by the Commission on or prior to 150 days after the
Closing Date, (iii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, the Operating Partnership will commence the
Exchange Offer and use its best efforts to issue, on or prior to 30 business
days after the date on which the Exchange Offer Registration Statement was
declared effective by the Commission, Exchange Notes in exchange for all Notes
tendered prior thereto in the Exchange Offer and (iv) if obligated to file the
Shelf Registration Statement, the Operating Partnership will use its best
efforts to file the Shelf Registration Statement with the Commission on or prior
to 60 days after such filing obligation arises and to cause the Shelf
Registration to be declared effective by the Commission on or prior to 150 days
after such obligation arises. If (a) the Operating Partnership fails to file any
of the Registration Statements required by the Registration Rights Agreement on
or before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) the
Operating Partnership fails to consummate the Exchange Offer within 30 business
days of the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement or (d) the Shelf Registration Statement or the Exchange
Offer Registration Statement is declared effective but thereafter ceases to be
effective or useable in connection with resales of Transfer Restricted
Securities during the periods specified in the Registration Rights Agreement
(each such event referred to in clauses (a) through (d) above a "Registration
Default"), then the Operating Partnership and the Company will pay Liquidated
Damages to each Holder of Notes, with respect to the first 90-day period
immediately following the occurrence of the first Registration Default, in an
amount equal to one-half of the one percentage point (0.5%) per annum of the
principal amount of Notes held by such Holder. The amount of the Liquidated
Damages will increase by an additional one-half of one percent (0.5%) per annum
for each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of two percent (2.0%) per
annum. All accrued Liquidated Damages will be paid on each Damages Payment Date
to the Global Note Holder by wire transfer of immediately available funds or by
federal funds check and to Holders of Definitive Notes by wire transfer to the
accounts specified by them or by mailing checks to their registered addresses if
no such accounts have been specified. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.
Holders of the Old Notes are required to make certain representations to
the Operating Partnership (as described in the Registration Rights Agreement) in
order to participate in the Exchange Offer and will be required to deliver
information to be used in connection with the Shelf Registration Statement and
to provide information reasonably requested by the Operating Partnership for use
in connection with the Shelf Registration Statement within the time periods set
forth in the Registration Rights Agreement in order to have their Old Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
MERGER, CONSOLIDATION OR SALE
The Operating Partnership may consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
person, provided (a) either the Operating Partnership shall be the continuing
person, or the successor (if other than the Operating Partnership) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets shall expressly assume
46
<PAGE> 53
payment of the principal, premium, if any, and interest on all of the Debt
Securities and the due and punctual performance and observance of all of the
covenants and conditions contained in the Indenture, (b) immediately after
giving effect to such transaction and treating any indebtedness which becomes an
obligation of the Operating Partnership or any Subsidiary as a result thereof as
having been incurred by the Operating Partnership or such Subsidiary at the time
of such transaction, no Event of Default under the Indenture, and no event
which, after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing and (c) an officers' certificate
of the Company as General Partner of the Operating Partnership and an opinion of
counsel covering such conditions shall be delivered to the Trustee.
COVENANTS
Limitations on Incurrence of Debt
The Operating Partnership will not, and will not permit any Subsidiary to,
incur any Debt, other than intercompany debt representing Debt to which the only
parties are the Company, the Operating Partnership and any of their Subsidiaries
(but only so long as such Debt is held solely by any of the Company, the
Operating Partnership and any Subsidiary) that is subordinate in right of
payment to the Notes, if, immediately after giving effect to the incurrence of
such additional Debt and the application of the net proceeds thereof, the
aggregate principal amount of all outstanding Debt of the Operating Partnership
and its Subsidiaries on a consolidated basis determined in accordance with GAAP
is greater than 60% of the sum (without duplication) of (i) Total Assets of the
Operating Partnership and its Subsidiaries as of the end of the most recently
completed fiscal quarter of the Operating Partnership for which financial
information is available prior to the incurrence of such additional Debt and
(ii) the purchase price or cost of any real estate assets or mortgages
receivable acquired or developed, and the amount of any securities offering
proceeds or asset sale proceeds received (to the extent that such proceeds were
not used to acquire real estate assets or mortgages receivable, to develop real
estate assets or to reduce Debt) by the Operating Partnership or any Subsidiary
since the end of such fiscal quarter, including those proceeds obtained in
connection with the incurrence of such additional Debt (such increase, together
with the Total Assets, is referred to as "Adjusted Total Assets").
In addition to the foregoing limitation on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt if the ratio of Consolidated Income Available for Debt Service to the
Annual Service Charge on all Debt outstanding immediately after the incurrence
of such additional Debt for the four consecutive fiscal quarters most recently
ended prior to the date on which such additional Debt is to be incurred shall
have been less than 1.5 to 1.0, and calculated on the assumption that (i) such
Debt and any other Debt incurred by the Operating Partnership or its
Subsidiaries since the first day of such four-quarter period and the application
of the net proceeds therefrom, including to refinance other Debt, had occurred
at the beginning of such period, (ii) the repayment or retirement of any other
Debt by the Operating Partnership or its Subsidiaries since the first day of
such four-quarter period had been incurred, repaid or retired at the beginning
of such period (except that, in making such computation, the amount of Debt
under any revolving credit facility shall be computed based upon the average
daily balance of such Debt during such period), (iii) the income earned on any
increase in Adjusted Total Assets since the end of such four-quarter period had
been earned, on an annualized basis, during such period and (iv) in the case of
any acquisition or disposition by the Operating Partnership or any Subsidiary of
any asset or group of assets since the first day of such four-quarter period,
including, without limitation, by merger, stock purchase or sale, or asset
purchase or sale, such acquisition or disposition or any related repayment of
Debt had occurred as of the first day of such period with the appropriate
adjustments with respect to such acquisition or disposition being included in
such pro forma calculation.
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt secured by any mortgage, lien, charge, pledge, encumbrance or security
interest of any kind upon any of the property of the Operating Partnership or
any Subsidiary ("Secured Debt"), whether owned at the date of the Indenture or
thereafter acquired, if, immediately after
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giving effect to the incurrence of such additional Secured Debt, the aggregate
principal amount of all outstanding Secured Debt is greater than 40% of Adjusted
Total Assets.
For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Operating
Partnership or a Subsidiary whenever the Operating Partnership and its
Subsidiary shall create, assume, guarantee or otherwise become liable in respect
thereof. In addition, the amount of Debt issued at a price that is less than the
principal amount thereof shall be equal to the amount of the liability in
respect thereof determined in accordance with GAAP.
Maintenance of Total Unencumbered Assets
The Operating Partnership is required to maintain Total Unencumbered Assets
of not less than 150% of the aggregate outstanding principal amount of all
outstanding Unsecured Debt.
Provision of Financial Information
The Indenture provides that upon the consummation of the Exchange Offer or
the effectiveness of the Shelf Registration Statement, as the case may be,
whether or not required by the rules and regulations of the Commission, so long
as any Notes are outstanding, the Operating Partnership will furnish to the
Holders of Notes (i) all quarterly and annual financial information that would
be required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Operating Partnership were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Operating Partnership and its consolidated Subsidiaries and, with respect to
the annual information only, a report thereon by the Operating Partnership's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Operating
Partnership were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, the Operating
Partnership will file a copy of all such information and reports with the
Commission for public availability (unless the Commission will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Operating Partnership has
agreed that, for so long as any Notes remain outstanding, it will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
Existence
Except as permitted under "Merger, Consolidation or Sale," the Indenture
requires each of the Operating Partnership and the Company to do or cause to be
done all things necessary to preserve and keep in full force and effect its
existence, rights (partnership and statutory) and franchises; provided, however,
that each of the Operating Partnership and the Company shall not be required to
preserve any right or franchise if the Board of Directors of the Company
determines that the preservation thereof is no longer desirable in the conduct
of the business of the Operating Partnership and that the loss thereof is not
disadvantageous in any material respect to the Holders of the Notes.
Maintenance of Properties
The Indenture requires each of the Operating Partnership and the Company to
cause all of its material properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order, all as in the judgment of the Operating
Partnership may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that the Operating Partnership or the Company, as the case may be, and
its Subsidiaries shall not be prevented from selling or otherwise disposing of
their properties for value in the ordinary course of business.
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Insurance
The Indenture requires the Operating Partnership and each of its
Subsidiaries to keep its insurable Properties insured against loss or damage
with commercially reasonable amounts and types of insurance provided by insurers
of recognized responsibility.
Payment of Taxes and Other Claims
The Indenture requires each of the Operating Partnership and the Company to
pay or discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon its income, profits or property or
that of any Subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Operating Partnership or any Subsidiary; provided, however, that the Operating
Partnership or the Company shall not be required to pay or discharge or cause to
be paid or discharged any tax, assessment, charge or claim whose amount or
applicability is being contested in good faith.
Waiver of Covenants; Compliance
The Operating Partnership may omit to comply with any term, provision or
condition of the foregoing covenants, and with any other term, provision or
condition with respect to the Notes (except any such term, provision or
condition which could not be amended without the consent of all Holders of
Notes), if before or after the time for such compliance the Holders of at least
a majority in principal amount of all the outstanding Notes either waive such
compliance in such instance or generally waive compliance with such covenant or
condition. Except to the extent so expressly waived, and until such waiver shall
become effective, the obligations of the Operating Partnership and the duties of
the Trustee in respect of any such term, provision or condition shall remain in
full force and effect. Notwithstanding the foregoing, the defeasance and
covenant defeasance provisions of the Indenture described under "-- Discharge,
Defeasance and Covenant Defeasance" below applies to the Notes.
The Operating Partnership will deliver to the Trustee, within 120 days
after the end of each fiscal year, a brief certificate as to the Operating
Partnership's compliance or non-compliance with the conditions and covenants
under the Indenture. Further, upon any request by the Operating Partnership to
the Trustee to take any action under the Indenture, the Operating Partnership
will furnish to the Trustee (a) an Officers' Certificate stating that all
conditions precedent, if any, provided for in the Indenture relating to the
proposed action have been complied with, and (b) an opinion of counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with.
CERTAIN DEFINITIONS
As used herein:
"Annual Service Charge" for any period means the aggregate interest expense
for such period in respect of, and the amortization during such period of any
original issue discount of, Debt of the Operating Partnership and its
Subsidiaries and the amount of dividends which are payable during such period in
respect of any Disqualified Stock.
"Capital Stock" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights (other
than debt securities convertible into or exchangeable for corporate stock),
warrants or options to purchase any thereof.
"Consolidated Income Available For Debt Service" for any period means
Consolidated Net Income plus amounts which have been deducted, and minus amounts
which have been added, for the following (without duplication): (a) interest on
Debt of the Operating Partnership and its Subsidiaries, (b) provision for taxes
of the Operating Partnership and its Subsidiaries based on income, (c)
amortization of Debt discount, (d) provisions for gains and losses on
properties, (e) depreciation and amortization on properties, (f) the
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effect of any non-cash charge resulting from a change in accounting principles
in determining Consolidated Net Income for such period and (g) amortization of
deferred charges.
"Consolidated Net Income" for any period means the amount of consolidated
net income (or loss) of the Operating Partnership and its Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP.
"Debt" of the Operating Partnership or any Subsidiary means any
indebtedness of the Operating Partnership or such Subsidiary, as applicable,
whether or not contingent, in respect of (i) borrowed money evidenced by bonds,
notes, debentures or similar instruments, (ii) indebtedness secured by any
mortgage, pledge, lien, charge, encumbrance or any security interest existing on
property owned by the Operating Partnership or such Subsidiary, (iii) the
reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance that
constitutes an accrued expense or trade payable or (iv) any lease of property by
the Operating Partnership or such Subsidiary as lessee which is reflected in the
Operating Partnership's consolidated balance sheet as a capitalized lease in
accordance with generally accepted accounting principles, in the case of items
of indebtedness under (i) through (iii) above to the extent that any such items
(other than letters of credit) would appear as a liability on the Operating
Partnership's consolidated balance sheet in accordance with generally accepted
accounting principles, and also includes, to the extent not otherwise included,
any obligation by the Operating Partnership or such Subsidiary to be liable for,
or to pay, as obligor, guarantor or otherwise (other than for purposes of
collection in the ordinary course of business), indebtedness of another person
(other than the Operating Partnership or any Subsidiary).
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which by the terms of such Capital Stock (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise
(other than Capital Stock which is redeemable solely in exchange for common
stock), (ii) is convertible into or exchangeable or exercisable for Debt or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part (other than Capital Stock which is redeemable solely in
exchange for Capital Stock which is not Disqualified Stock or the redemption
price of which may, at the option of such Person, be paid in Capital Stock which
is not Disqualified Stock), in each case on or prior to the Maturity Date of the
Notes. For purposes of this definition, it is expressly understood that the
partnership units in the Operating Partnership and shares of perpetual preferred
stock of the Company (which do not possess any of the features of clauses (i),
(ii) or (iii) above) shall not constitute Disqualified Stock.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Make-Whole Amount" means, in connection with any optional redemption or
accelerated payment of any Notes, the excess, if any, of (i) the aggregate
present value as of the date of such redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest (exclusive
of interest accrued to the date of redemption or accelerated payment) that would
have been payable in respect of each such dollar if such redemption or
accelerated payment had not been made, determined by discounting, on a
semi-annual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date such notice of
redemption is given or declaration of acceleration is made) from the respective
dates on which such principal and interest would have been payable if such
redemption or accelerated payment had not been made, over (ii) the aggregate
principal amount of the Notes being redeemed or paid.
"Reinvestment Rate" means .25% plus the arithmetic mean of the yields under
the respective heading "Week Ending" published in the most recent Statistical
Release under the caption "Treasury Constant Maturities" for the maturity
(rounded to the nearest month) corresponding to the remaining life to maturity,
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as of the payment date of the principal being redeemed or paid. If no maturity
exactly corresponds to such maturity, yields for the two published maturities
most closely corresponding to such maturity shall be calculated pursuant to the
immediately preceding sentence and the Reinvestment Rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding in each of
such relevant periods to the nearest month. For the purpose of calculating the
Reinvestment Rate, the most recent Statistical Release published prior to the
date of determination of the Make-Whole Amount shall be used.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by the Operating
Partnership.
"Subsidiary" means a corporation, partnership or limited liability company,
a majority of the outstanding voting stock, partnership interests or membership
interests, as the case may be, of which is owned or controlled, directly or
indirectly, by the Operating Partnership or by one or more other Subsidiaries of
the Operating Partnership. For the purposes of this definition, "voting stock"
means stock having the voting power for the election of directors, general
partners, managers or trustees, as the case may be, whether at all times or only
so long as no senior class of stock has such voting power by reason of any
contingency.
"Total Assets" as of any date means the sum of (i) Undepreciated Real
Estate Assets and (ii) all other assets of the Operating Partnership and its
Subsidiaries on a consolidated basis determined in accordance with GAAP (but
excluding intangibles and accounts receivable).
"Total Unencumbered Assets" means the sum of (i) those Undepreciated Real
Estate Assets which have not been pledged, mortgaged or otherwise encumbered by
the owner thereof to secure Debt, excluding infrastructure assessment bonds, and
(ii) all other assets of the Operating Partnership and its Subsidiaries
determined in accordance with GAAP (but excluding intangibles and accounts
receivable) which have not been pledged, mortgaged or otherwise encumbered by
the owner thereof to secure Debt.
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with GAAP.
"Unsecured Debt" means Debt which is not secured by any mortgage, lien,
charge, pledge, encumbrance or security interest of any kind upon any of the
properties of the Operating Partnership or any Subsidiary.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default'
with respect to the Notes: (a) default for 30 days in the payment of any
interest on the Notes; (b) default in the payment of any principal of, premium,
if any, or any Make-Whole Amount on any Notes when due; (c) default in the
performance of any other covenant or warranty of the Operating Partnership or
the Company contained in the Indenture with respect to the Notes, continued for
60 days after written notice as provided in the Indenture; (d) default under any
bond, debenture, note, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any indebtedness for money
borrowed (except for nonrecourse mortgage indebtedness which individually or in
the aggregate does not exceed $20,000,000) by the Operating Partnership or the
Company (or by any Subsidiary, the repayment of which the Operating Partnership
or the Company has guaranteed or for which the Operating Partnership or the
Company is directly responsible or liable as obligor or guarantor), having an
aggregate principal amount outstanding of at least $10,000,000, whether such
indebtedness now exists or shall hereafter be created, which default shall have
resulted in such indebtedness becoming or being declared due and payable prior
to the date on which it would otherwise have become due and payable, without
such indebtedness having been discharged, or such acceleration having been
rescinded or annulled, within a period of 10 days after written notice to the
Operating Partnership or the Company, as the case may be, as provided in the
Indenture; (e) the entry by a court of competent jurisdiction of one or more
judgments, orders or decrees against the Operating Partnership or any Subsidiary
in an
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aggregate amount (excluding amounts covered by insurance) in excess of
$10,000,000 and such judgments, orders or decrees remain undischarged, unstayed
and unsatisfied in an aggregate amount (excluding amounts covered by insurance)
in excess of $10,000,000 for a period of 30 consecutive days; and (f) certain
events of bankruptcy, insolvency or reorganization, or court appointment of a
receiver, liquidator or trustee of the Operating Partnership or the Company or
any Significant Subsidiary. The term "Significant Subsidiary" has the meaning
ascribed to such term in Regulation S-X promulgated under the Securities Act. If
an Event of Default specified in clause (f) above relating to the Operating
Partnership or the Company or any Significant Subsidiary occurs, the principal
amount of, and the Make-Whole Amount, on all outstanding Notes shall become
automatically due and payable without any declaration or other act on the part
of the Trustee or of the Holders.
If an Event of Default under the Indenture with respect to the Notes occurs
and is continuing, then in every such case the Trustee or the Holders of not
less than a majority in principal amount of the then outstanding Notes may
declare the principal amount of all of the Notes to be due and payable
immediately by written notice thereof to the Company and the Operating
Partnership (and to the Trustee if given by the Holders). However, any time
after such a declaration of acceleration with respect to the Notes has been
made, but before a judgment or decree for payment of the money due has been
obtained by the Trustee, the Holders of not less then a majority in principal
amount of outstanding Notes may rescind and annul such declaration and its
consequences if (a) the Operating Partnership shall have paid or deposited with
the Trustee all required payments of the principal of, premium, if any, and
interest on the Notes plus certain fees, expenses, disbursements and advances of
the Trustee and (b) all Events of Default, other than the nonpayment of
accelerated principal or interest with respect to the Notes have been cured or
waived as provided in the Indenture. The Indenture will also provide that the
Holders of not less than a majority in principal amount of the outstanding Notes
may waive any past default with respect to such series and its consequences,
except a default (x) in the payment of the principal, premium, if any, or
interest on the Notes or (y) in respect of a covenant or provision contained in
the Indenture that cannot be modified or amended without the consent of the
Holder of each outstanding Note affected thereby.
The Trustee is required under the Indenture to give notice to the Holders
of Notes within 90 days of a default under the Indenture; provided, however,
that the Trustee may withhold from the Holders of the Notes notice of any
default (except a default in the payment of the principal, premium, if any, or
interest on the Notes) if the Responsible Officers of the Trustee consider such
withholding to be in the interest of such Holders.
The Indenture provides that no Holders of the Notes may institute any
proceedings, judicial or otherwise, with respect to the Indenture or for any
remedy thereunder, except in the case of failure of the Trustee, for 60 days, to
act after it has received a written request to institute proceedings in respect
of an Event of Default from the Holders of not less than a majority in principal
amount of the outstanding Notes, as well as an offer of reasonable indemnity.
This provision does not prevent, however, any Holder of Notes from instituting
suit for the enforcement of payment of the principal, premium, if any, and
interest on such Notes at the respective due date thereof.
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of Notes
then outstanding under the Indenture, unless such Holders shall have offered to
the Trustee reasonable security or indemnity. The Holders of not less than a
majority in principal amount of the outstanding Notes of any series shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or of exercising any trust or power
conferred upon the Trustee. However, the Trustee may refuse to follow any
direction which is in conflict with any law or the Indenture, which may involve
the Trustee in personal liability or which may be unduly prejudicial to the
Holders of Notes not joining therein.
Within 120 days after the close of each fiscal year, the Operating
Partnership and the Company must deliver to the Trustee a certificate, signed by
one of several specified officers of the Company, stating whether
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or not such officer has knowledge of any default under the Indenture and, if so,
specifying each such default and the nature and status thereof.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Operating Partnership may discharge certain obligations to Holders of
the Notes that have not already been delivered to the Trustee for cancellation
and that either have become due and payable or will become due and payable
within one year (or are scheduled for redemption within one year) by irrevocably
depositing with the Trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in which such Notes
are payable in an amount sufficient to pay the entire indebtedness on such Notes
in respect of principal of, premium, if any, and interest on the Notes to the
date of such deposit (if such Notes have become due and payable) or to the
Maturity Date or Redemption Date, as the case may be.
The Indenture provides that the Operating Partnership may elect either (a)
to decease and be discharged from any and all obligations with respect to such
Notes (except for the obligations to register the transfer or exchange of such
Notes, to replace temporary or mutilated, destroyed, lost or stolen Notes, to
maintain an office or agency in respect of such Notes to compensate the Trustee
and to hold moneys for payment in trust) ("defeasance") or (b) to be released
from its obligations with respect to such Notes under Sections 1006 through
1008, inclusive, of the Indenture (being the restrictions described under
"-- Covenants") or, if provided pursuant to Section 301 of the Indenture, its
obligations with respect to any other covenant, and any omission to comply with
such obligations shall not constitute a default or an Event of Default with
respect to such Notes ("covenant defeasance"), in either case upon the
irrevocable deposit by the Operating Partnership or the Company, as the case may
be, with the Trustee, in trust, of any amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Notes
are payable on the Maturity Date, or Government Obligations, or both applicable
to such Notes which through the scheduled payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal, premium, if any, and interest on such Notes, and any mandatory
sinking fund or analogous payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Operating
Partnership has delivered to the Trustee an Opinion of Counsel (as specified in
the Indenture) to the effect that the Holders of such Notes will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of such
defeasance or covenant defeasance and will be subject to U.S. federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such defeasance or covenant defeasance had not occurred, and such
Opinion of Counsel, in the case of defeasance, must refer to and be based upon a
ruling of the Internal Revenue Service or a change in applicable United States
federal income tax law occurring after the date of the Indenture.
"Government Obligations" means securities which are (i) direct obligations
of The United States of America or the government which issued the Foreign
Currency in which the Notes are payable, for the payment of which its full faith
and credit is pledged or (ii) obligations of a Person controlled or supervised
by and acting as an agency or instrumentality of The United States of America or
such government which issued the Foreign Currency in which the Notes of such
series are payable, the payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America or such other
government, which, in either case, are not callable or redeemable at the option
of the issuer thereof, and shall also include a depository receipt issued by a
bank or trust company as custodian with respect to any such Government
Obligation or a specific payment of interest on or principal of any such
Government Obligation held by such custodian for the account of the holder of a
depository receipt, provided that (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the holder of
such depository receipt from any amount received by the custodian in respect of
the Government Obligation or the specific payment of interest on or principal of
the Government Obligation evidenced by such depository receipt.
If after the Operating Partnership or the Company, as the case may be, has
deposited funds and/or Government Obligations to effect defeasance or covenant
defeasance with respect to the Notes, (a) the
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Holder of a Note is entitled to, and does, elect pursuant to Section 301 of the
Indenture or the terms of such Note to receive payment in a currency, currency
unit or composite currency other than that in which such deposit has been made
in respect of such Note, or (b) a Conversion Event occurs in respect of the
currency, currency unit or composite currency in which such deposit has been
made, the indebtedness represented by such Note shall be deemed to have been,
and will be, fully discharged and satisfied through the payment of the
principal, premium, if any, and interest on such Note as the same becomes due
out of the proceeds yielded by converting the amount so deposited in respect of
such Note into the currency, currency unit or composite currency in which such
Note becomes payable as a result of such election or such cessation of usage
based on the applicable market exchange rate (Section 1405). "Conversion Event"
means the cessation of use of (i) a currency, currency unit or composite
currency either by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions or within the international banking community, (ii) the ECU either
within the European Monetary System or for the settlement of transactions by
public institutions of or within the European Communities or (iii) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. (Section 101.) All payments of principal, premium, if any, and
interest on any Note that is payable in a Foreign Currency that cease to be used
by its government of issuance shall be made in U.S. dollars.
In the event the Operating Partnership or the Company, as the case may be,
effects covenant defeasance with respect to the Note and such Notes are declared
due and payable because of the occurrence of any Event of Default other than the
Event of Default described in clause (d) under "Events of Default, Notice and
Waiver" with respect to Section 1006 through 1008 of the Indenture (which
Sections would no longer be applicable to such Notes) or described in clause (g)
under "Events of Default, Notice and Waiver" with respect to any other covenant
as to which there has been covenant defeasance, the amount in such currency,
currency unit or composite currency in which such Notes are payable, and
Government Obligations on deposit with the Trustee, will be sufficient to pay
amounts due on such Notes at the time of the Maturity Date but may not be
sufficient to pay amounts due on such Notes at the time of the acceleration
resulting from such Event of Default. However, the Operating Partnership would
remain liable to make payment of such amounts due at the time of acceleration.
MODIFICATION OF THE INDENTURE
Modifications and amendments of provisions of the Indenture may be made
only with consent of the Holders of not less than a majority in principal amount
of the outstanding Notes; provided, however, that no such modification or
amendment may, without the consent of the Holder of each such Notes affected
thereby, (a) change the Maturity Date of the principal, premium, if any, or
interest on any such Notes; (b) reduce the principal amount of, or the rate or
amount of interest on, or any premium payable on redemption of, any such Notes,
or adversely affect any right of repayment of the Holder of any such Note; (c)
change the Place of Payment, or the coin or currency, for payment of principal
of, premium, if any, or interest on any such Note; (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any such
Note on or after the Maturity Date thereof; (e) reduce the above-stated
percentage of outstanding Notes necessary to modify or amend the Indenture, to
waive compliance with certain provisions thereof or certain defaults and
consequences thereunder or to reduce the quorum or voting requirements set forth
in the Indenture; or (f) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or to provide
that certain other provisions may not be modified or waived without the consent
of the Holder of such Note.
The Holders of not less than a majority in principal amount of outstanding
Notes have the right to waive compliance by the Operating Partnership or the
Company with certain covenants in the Indenture relating to such series.
Modifications and amendments of the Indenture may be made by the Operating
Partnership and the Company and the Trustee without the consent of any Holder of
Notes for any of the following purposes: (i) to evidence the succession of
another Person to the Operating Partnership as obligor under the Indenture; (ii)
to add to the covenants of the Operating Partnership and the Company for the
benefit of the Holders of the Notes or to surrender any right or power conferred
upon the Operating Partnership or the Company in the
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<PAGE> 61
Indenture; (iii) to add Events of Default for the benefit of the Holders of the
Notes; (iv) to add or change any provisions of the Indenture to facilitate the
issuance of the Notes in bearer form, or to permit or facilitate the issuance of
the Notes in uncertificated form, provided that such action shall not adversely
affect the interests of the Holders of the Notes in any material respect; (v) to
secure the Notes; (vi) to provide for the acceptance of appointment by a
successor Trustee or facilitate the administration of the trust under the
Indenture by more than one Trustee; (vii) to cure any ambiguity, defect or
inconsistency in the Indenture, provided that such action shall not adversely
affect the interests of Holders of the Notes in any material respect; and (viii)
to supplement any of the provisions of the Indenture to the extent necessary to
permit or facilitate defeasance and discharge of any series of such Notes,
provided that such action shall not adversely affect the interests of the
Holders of the Notes in any material respect.
The Indenture contains provisions for convening meetings of the Holders of
Notes (Section 1501). A meeting may be called at any time by the Trustee, and
also, upon request, by the Operating Partnership or the Holders of at least 25%
in principal amount of the outstanding Notes, in any such case upon notice given
as provided in the Indenture. Except for any consent that must be given by the
Holder of each Note affected by certain modifications and amendments of the
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the Holders of a majority in principal amount of the outstanding Notes;
provided, however, that, except as referred to above, any resolution with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the Holders of a
specified percentage, which is less than a majority, in principal amount of the
outstanding Notes may be adopted at a meeting or adjourned meeting duly
reconvened at which a quorum is present by the affirmative vote of the Holders
of such specified percentage in principal amount of the outstanding Notes. Any
resolution passed or decision taken at any meeting of Holders of Notes duly held
in accordance with the Indenture will be binding on all Holders of Notes. The
quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be Persons holding or representing a majority in principal amount
of the outstanding Notes; provided, however, that if any action is to be taken
at such meeting with respect to a consent or waiver which may be given by the
Holders of not less than a specified percentage in principal amount of the
outstanding Notes, the Persons holding or representing such specified percentage
in principal amount of the outstanding Notes will constitute a quorum.
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Notes with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that the Indenture expressly
provides may be made, given or taken by the Holders of a specified percentage in
principal amount of all outstanding Notes: (i) there shall be no minimum quorum
requirement for such meeting and (ii) the principal amount of the outstanding
Notes that vote in favor of such request, demand, authorization, direction,
notice, consent, waiver or other action shall be taken into account in
determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under the
Indenture.
TRANSFER AND EXCHANGE
A holder of Notes may transfer or exchange Notes in accordance with the
Indenture. The Trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and the Operating Partnership
may require a holder to pay any taxes and fees required by law or permitted by
the Indenture. The Operating Partnership is not required to transfer or exchange
any Note selected for redemption. Also, the Operating Partnership is not
required to transfer or exchange any Note for a period of 15 days before a
selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
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<PAGE> 62
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material U.S. federal income
tax consequences relevant to the exchange of the Old Notes for New Notes
pursuant to the Exchange Offer and the ownership and disposition of the New
Notes by holders who acquire the New Notes pursuant to the Exchange Offer.
However, the following discussion does not purport to be a complete analysis of
all potential tax effects. The discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), U.S. Treasury Regulations
("Regulations"), Internal Revenue Service ("IRS") rulings and pronouncements and
judicial decisions all in effect as of the date hereof, all of which are subject
to change at any time, and any such change may be applied retroactively in a
manner that could adversely affect a holder of the New Notes. The discussion
does not address all of the U.S. federal income tax consequences that may be
relevant to a holder of the New Notes in light of such holder's particular
circumstances or to holders subject to special rules, such as certain financial
institutions, insurance companies, dealers in securities, tax-exempt
organizations and persons holding the New Notes as part of a "straddle," hedge"
or "conversion transaction." In addition, this discussion is limited to persons
exchanging the Old Notes for New Notes. Moreover, the effect of any applicable
state, local or foreign tax laws is not discussed. The discussion deals only
with New Notes held as "capital assets" within the meaning of Section 1221 of
the Code.
As used herein, "U.S. Holder" means a beneficial owner of the New Notes who
or that (i) is a citizen or resident of the United States, (ii) is a
corporation, partnership or other entity created or organized in or under the
laws of the United States or political subdivision thereof (unless, in the case
of a partnership, the U.S. Treasury provides otherwise by Regulations), (iii) is
an estate the income of which is subject to U.S. federal income taxation
regardless of its source (iv) is a trust if (A) a U.S. court is able to exercise
primary supervision over the administration of the trust and (B) one or more
U.S. persons, within the meaning of Section 7701(a)(30) of the Code ("U.S.
Persons"), have authority to control all substantial decisions of the trust, or
(v) is otherwise subject to U.S. federal income tax on a net income basis in
respect of the New Notes. As used herein, a "Non-U.S. Holder" means a holder of
the New Notes who or that is not a U.S. Holder.
The Operating Partnership has not sought and will not seek any rulings from
the IRS with respect to the matters discussed below. There can be no assurance
that the IRS will not take a different position concerning the tax consequences
of the purchase, ownership or disposition of the Notes or that any such position
would not be sustained.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO
THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR PARTICULAR
SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX
LAWS INCLUDING GIFT AND ESTATE TAX LAWS.
EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not be treated as an exchange or other taxable event for U.S. federal income tax
purposes because, under the Regulations, the New Notes do not differ materially
in kind or extent from the Old Notes. Rather, the New Notes received by a holder
will be treated as a continuation of the Old Notes in the hands of such Holder.
As a result, there will be no U.S. federal income tax consequences to holders
who exchange Old Notes for New Notes pursuant to the Exchange Offer and any such
holder will have the same tax basis and holding period in the New Notes as it
had in the Old Notes immediately before the exchange.
U.S. HOLDERS
INTEREST. The stated interest on the New Notes generally will be taxable to
a U.S. Holder as ordinary income at the time that it is paid or accrued, in
accordance with the U.S. Holder's method of accounting for U.S. federal income
tax purposes. It is not anticipated that the New Notes will give rise to
"original issue discount" income in the hands of U.S. Holders.
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<PAGE> 63
SALE, RETIREMENT OR REDEMPTION OF A NOTE. A U.S. Holder of a New Note will
recognize gain or loss upon the sale, retirement, redemption or other taxable
disposition of such New Note in an amount equal to the difference between (a)
the amount of cash and the fair market value of other property received in
exchange therefor (other than amounts attributable to accrued but unpaid stated
interest) and (b) the U.S. Holder's adjusted tax basis in such New Note. In
general, the maximum tax rate for noncorporate taxpayers on long-term capital
gain is 20% with respect to capital assets (including the New Notes), but only
if they have been held for more than 18 months at the time of disposition.
Capital gain on assets, having a holding period of more than one year but no
more than 18 months, is taxed as "mid-term gain" at a maximum 28% rate in the
hands of noncorporate taxpayers.
U.S. Holders should be aware that the resale of the New Notes may be
affected by the "market discount" ruled of the Code under which a purchaser of a
New Note acquiring the New Note at a market discount generally would be required
to include as ordinary income a portion of the gain realized upon the
disposition or retirement of such New Note, to the extent of the market discount
that has accrued but not been included in income while the debt instrument was
held by such purchaser.
NON-U.S. HOLDERS
U.S. Withholding Tax
Interest paid to Non-U.S. Holders of the New Notes will not be subject to
U.S. income or withholding tax, provided that (i) the Non-U.S. Holder does not
actually or constructively own 10% or more of the capital or profits of the
Operating Partnership, (ii) the Non-U.S. Holder is not (a) a "controlled foreign
corporation" for U.S. federal income tax purposes that is related to the
Operating Partnership through equity ownership of (b) a bank that received the
New Note on an extension of credit made pursuant to a loan agreement entered
into in the ordinary course of its trade or business, and (iii) the beneficial
owner of the New Note provides a statement signed under penalties of perjury
that includes its name and address and certifies that it is not a U.S. Person in
compliance with applicable requirements or an exemption is otherwise
established. If these requirements cannot be met, a Non-U.S. Holder will be
subject to U.S. withholding tax at a rate of 30% (or lower treaty rate, if
applicable) on interest payments on the New Notes.
In general, any gain realized by any Non-U.S. Holder upon the sale,
exchange or redemption of a New Note will not be subject to U.S. income or
withholding tax. However, such gain will be subject to U.S. withholding tax if
(i) a Non-U.S. Holder is an individual who is present in the United States for a
total of 183 days or more during the taxable year is which the gain is realized
and certain other conditions are satisfied or (ii) the Non-U.S. Holder is
subject to tax pursuant to the provisions of U.S. tax law applicable to certain
U.S. expatriates.
U.S. Estate Tax
New Notes owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for U.S. federal estate tax purposes) of the
United States at the time of death ("Nonresident Decedent") will not be
includible in the Nonresident Decedent's gross estate for U.S. federal estate
tax purposes as a result of the Nonresident Decedent's death, provided that, at
the time of death, the Nonresident Decedent does not own, actually or
constructively, 10% or more of the capital or profits of the Operating
Partnership and payments with respect to such New Notes would not have been
effectively connected with the conduct of a trade or business in the United
States by the Nonresident Decedent. A Nonresident Decedent's estate may be
subject to U.S. federal estate tax on property includible in his or her estate
for U.S. federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Certain noncorporate U.S. Holders may be subject to IRS information
reporting and backup withholding at a rate of 31% on payments of principal and
interest on the New Notes, and the proceeds from a disposition of the New Notes:
Backup withholding will be imposed where the U.S. Holder: (i) fails to furnish
its taxpayer
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identification number ("TIN"), which, for an individual, would ordinarily be his
or her social security number, (ii) furnishes an incorrect TIN, (iii) is
notified by the IRS that he or she has failed to properly report payments of
interest or dividends, or (iv) under certain circumstances, fails to certify,
under penalties of perjury, that he or she has furnished a correct TIN and has
not been notified by the IRS that he or she is subject to backup withholding.
The Operating Partnership also will institute backup withholding or payments
made on a New Note to a U.S. Holder if instructed to do so by the IRS. A U.S.
Holder's failure to provide a correct TIN to the Operating Partnership when
requested may also subject the U.S. holders to IRS penalties.
In general interest paid with respect to a new Note and received by a
Non-U.S. Holder will not be subject to IRS information reporting or backup
withholding if the payor has received appropriate certification statements and
provided that the payor does not have actual knowledge that the Non-U.S. Holder
is a U.S. Person. Holders of the New Notes should consult their own tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption, if applicable.
The payment of the proceeds from the disposition of New Notes to or through
the U.S. office of any U.S. or foreign broker will not be subject to IRS
information reporting and possibly backup withholding if the owner certifies as
to its non-U.S. status under penalties of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. Person or that the conditions of any other exemption are not,
in fact, satisfied. The payment of the proceeds from the disposition of a New
Note to or through a non-U.S. broker that is not a U.S. related person will not
be subject to IRS information reporting or backup withholding. For this purpose,
a "U.S. related person" is (i) a "controlled foreign corporation" for U.S.
federal income tax purposes or (ii) a foreign person 50% of more of whose gross
income from all sources for the three-year period ending with the close of its
taxable year preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are effectively
connected with the conduct of a U.S. trade or business.
In the case of the payment of proceeds from the disposition of New Notes to
or through a non-U.S. office of a broker that is a U.S. related person, the
Regulations require IRS information reporting on the payment unless the broker
has documentary evidence in its files that the owner is a Non-U.S. Holder and
the broker has no knowledge to the contrary. Backup withholding will not apply
to payments made through foreign offices of a broker that is a U.S. Person or a
U.S. related person (absent actual knowledge that the payee is a U.S. Person).
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a credit against such Non-U.S. Holder's U.S.
federal income tax liability, if any, or otherwise be refundable, provided that
the requisite IRS procedures are followed.
PROSPECTIVE FINAL REGULATIONS
On October 6, 1997, new Regulations ("New Regulations") were issued that
modify the requirements imposed on a Non-U.S. Holder and certain intermediaries
for establishing the recipient's status as a non-U.S. Holder eligible for
exemption from or reduction in U.S. withholding tax and backup withholding
described above. In general, the New Regulations do not significantly alter the
substantive withholding and information reporting requirements but rather unify
current certification procedures and forms and clarify reliance standards. The
New Regulations generally are effective for payments made after December 31,
1998, subject to certain transition rules. In addition, the New Regulations
impose more stringent conditions on the ability of financial intermediaries
acting for a Non-U.S. Holder to provide certifications on behalf of the Non-U.S.
Holder, which may include entering into an agreement with the IRS to audit
certain documentation with respect to such certifications. Non-U.S. Holders
should consult their own tax advisors to determine the effects of the
application on the New Regulations to their particular circumstances.
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PLAN OF DISTRIBUTION
Each broker-dealer that received New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Operating Partnership has agreed that, starting on the
Expiration Date and ending one year after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until such date, all dealers
effecting transactions in the New Notes may be required to deliver a prospectus.
The Operating Partnership will not receive any proceeds from any sales of
New Notes by broker-dealers or others. New Notes received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit from any
such resale of New Notes and any commissions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period one year after the Expiration Date, the Operating Partnership
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Operating Partnership have agreed to pay
certain expenses incident to the Exchange Offer other than commissions or
concessions of any brokers or dealers and will indemnify the holders of the
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered by this Prospectus will be passed
upon for the Operating Partnership by Morrison & Foerster LLP, Palo Alto,
California. Morrison & Foerster LLP will rely upon the opinion of Hogan &
Hartson LLP, Baltimore, Maryland as to certain matters of Maryland law.
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=========================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE OPERATING PARTNERSHIP. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE OPERATING
PARTNERSHIP SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
UNTIL , 1999 (ONE YEAR AFTER THE DATE OF THIS EXCHANGE OFFER)
ALL DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT
PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
ALL TENDERED OLD NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUEST FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FACSIMILE TRANSMISSIONS
(ELIGIBLE INSTITUTIONS ONLY)
------------------------
TO CONFIRM BY TELEPHONE
OR FOR INFORMATION CALL:
------------------------
(ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE SHOULD BE SENT PROMPTLY
BY HAND, OVERNIGHT COURIER, OR REGISTERED OR CERTIFIED MAIL.)
=========================================================
=========================================================
OFFER TO EXCHANGE
ALL OUTSTANDING
7 5/8% SENIOR SUBORDINATED
NOTES DUE 2005
($150,000,000 PRINCIPAL AMOUNT)
FOR
7 5/8% SENIOR SUBORDINATED
NOTES DUE 2005
GLENBOROUGH PROPERTIES, L.P.
---------------------------
PROSPECTUS
---------------------------
DATED , 1998
=========================================================
<PAGE> 67
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
To the extent permitted by law, the Partnership Agreement of the Operating
Partnership provides for indemnification of the Company, as general partner, its
affiliates, officers, directors and guarantors and any other persons that the
Company may designate in its sole and absolute discretion from any loss, damage,
claim or liability (including reasonable attorneys' fees and costs incurred in
defending any action against such person), arising from any claims, demands,
suits or proceedings that relate to the operations of the Operating Partnership.
In addition, the Company, in its capacity as general partner, shall not be
liable for monetary damages to the Operating Partnership or any of the Limited
Partners for losses sustained as a result of errors in judgment or of any act or
omission if the Company acted in good faith.
In addition, the Maryland GCL permits a Maryland Corporation to include in
its charter a provision limiting the liability of its directors and officers to
the corporation and its stockholders for money damages except for (i) actual
receipt of an improper benefit or profit in money, property or services or (ii)
active and deliberate dishonesty established by a final judgment as being
material to the cause of action. The Charter contains such a provision which
limits such liability to the maximum extent permitted by the Maryland GCL.
The Company's Charter authorizes the Company to obligate itself to
indemnify its present and former officers and directors and to pay or reimburse
reasonable expenses for those individuals in advance of the final disposition of
a proceeding to the maximum extent permitted from time to time by the laws of
Maryland. The Bylaws of the Company obligate it to indemnify, and advance
expenses to present, former and proposed directors and officers to the maximum
extent permitted by Maryland law. The Maryland GCL permits a corporation to
indemnify its present and former directors and officers, among others, against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they may be made a
party by reason of their service in those or other capacities unless it is
established that (a) the act or omission of the director or officer was material
to the matter giving rise to the proceeding and (i) was committed in bad faith
or (ii) was the result of active and deliberate dishonesty, (b) the director or
officer actually received an improper personal benefit in money, property or
services, or (c) in the case of any criminal proceeding, the director or officer
had a reasonable cause to believe that the act or omission was unlawful.
However, a corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. In addition, the Maryland GCL requires the
Company, as conditions to advancing expenses, to obtain (i) a written
affirmation by the director or officer of his good-faith belief that he has met
the standard of conduct necessary for indemnification by the Company as
authorized by the applicable Bylaws and (ii) a written statement by him or on
his behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met. The Bylaws of
the Company also permit the Company to provide indemnification and to advance
expenses to a present or former director or officer who served a predecessor of
the Company in that capacity, and to any employee or agent of the Company, or a
predecessor of the Company. Finally, the Maryland GCL requires a corporation
(unless its charter provides otherwise, which the Company's Charter does not) to
indemnify a director or officer who has been successful on the merits, or
otherwise, in the defense of any proceeding to which he is made a party by
reason of service in that capacity.
The Company has entered into indemnification agreements with each of its
directors and executive officers to provide them with indemnification to the
full extent permitted by the Charter and Bylaws of Company.
The Company has obtained an insurance policy to provide liability coverage
for directors and officers of Company.
II-1
<PAGE> 68
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
4.1* Registration Rights Agreements, dated March 23, 1998, among
the Operating Partnership and the Initial Purchasers
4.2* Indenture and first supplement thereto, each dated March 23,
1998 relating to $150,000,000 aggregate principal amount
7 5/8% Senior Notes due 2008 between the Operating
Partnership, the Company and the Trustee, including the Form
of Notes
4.3* Form of Exchange Note
5.1 Opinion of Morrison & Foerster LLP
23.1* Consent of Accountants
23.2 Consent of Morrison & Foerster LLP (Included in Exhibit 5.1)
24.1 Powers of Attorney (included in Part II to the Registration
Statement)
25.1* Statement of Eligibility of Trustee on Form T-1
99.1* Form of Letter of Transmittal
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
(a) The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrants'
annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act of
1934 (and, were applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described in Item 20 above, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved herein, that was not the subject of and included
in the Registration Statement when it became effective.
II-2
<PAGE> 69
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Operating
Partnership has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of San Mateo,
State of California on May 22, 1998.
GLENBOROUGH REALTY TRUST, L.P.
By: GLENBOROUGH REALTY TRUST
INCORPORATED,
its General Partner
By: /s/ ROBERT BATINOVICH
------------------------------------
Robert Batinovich
Chairman and Chief Executive Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Robert Batinovich, Andrew
Batinovich, Stephen Saul and Frank E. Austin as his/her true and lawful
attorneys-in-fact and agents, jointly and severally, with full power of
substitution and resubstitution, for and in his/her stead, in any and all
capacities, to sign on his/her behalf the Registration Statement on Form S-4 in
connection with the exchange by Glenborough Properties, L.P. of Senior Notes due
2005, and to execute any amendments thereto (including post-effective amendments
or certificates that may be required in connection with this Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange Commission
and granting unto said attorneys-in-fact and agents, jointly and severally, the
full power and authority to do and perform each and every act and thing
necessary or advisable to all intents and purposes as he/she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, jointly and severally, or his/her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed below by the following
persons and in the capacities and on the date indicated. Each person has signed
this Registration Statement in their capacity as an officer or director of the
Company in its capacity as the general partner of Glenborough Properties, L.P.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROBERT BATINOVICH Chairman and Chief Executive May 22, 1998
- ----------------------------------------------------- Officer
Robert Batinovich
/s/ ANDREW BATINOVICH Director, President and Chief May 22, 1998
- ----------------------------------------------------- Operating Officer
Andrew Batinovich
/s/ STEPHEN SAUL Executive Vice President and May 22, 1998
- ----------------------------------------------------- Chief Financial Officer
Stephen Saul
/s/ TERRI GARNICK Senior Vice President and Chief May 22, 1998
- ----------------------------------------------------- Accounting Officer
Terri Garnick
Director
- -----------------------------------------------------
Richard C. Blum
/s/ PATRICK FOLEY Director May 22, 1998
- -----------------------------------------------------
Patrick Foley
Director
- -----------------------------------------------------
Richard A. Magnuson
/s/ LAURA WALLACE Director May 22, 1998
- -----------------------------------------------------
Laura Wallace
</TABLE>
II-3
<PAGE> 70
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
4.1* Registration Rights Agreements, dated March 23, 1998, among
the Operating Partnership and the Initial Purchasers
4.2* Indenture and first supplement thereto, each dated March 23,
1998 relating to $150,000,000 aggregate principal amount
7 5/8% Senior Notes due 2008 between the Operating
Partnership, the Company and the Trustee, including the Form
of Notes
4.3* Form of Exchange Note
5.1 Opinion of Morrison & Foerster LLP
23.1* Consent of Accountants
23.2 Consent of Morrison & Foerster LLP (Included in Exhibit 5.1)
24.1 Powers of Attorney (included in Part II to the Registration
Statement)
25.1* Statement of Eligibility of Trustee on Form T-1
99.1* Form of Letter of Transmittal
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 5.1
May 22, 1998
Glenborough Properties, L.P.
400 S. El Camino Real
San Mateo, CA 94402-1708
Dear Ladies and Gentlemen:
In connection with the registration of $150,000,000 aggregate principal
amount of 7 5/8% Senior Notes due 2005 (the "Exchange Notes") by Glenborough
Properties, L.P., a California limited partnership (the "Operating Partnership")
under the Securities Act of 1933, as amended (the "Act"), on Form S-4 (the
"Registration Statement"), you have requested our opinion with respect to the
matters set forth below. The Exchange Notes will be offered in exchange for like
principal amounts of outstanding 7 5/8% Senior Notes due 2005 (the "Old Notes").
The Exchange Notes will be issued pursuant to an indenture and supplement
thereto (collectively, the "Indenture") each dated as of March 23, 1998 among
the Operating Partnership, Glenborough Realty Trust Incorporated and Chase
Manhattan Bank and Trust Company, National Association, as Trustee (the
"Trustee").
In our capacity as your special counsel in connection with such
registration, we are familiar with the proceedings taken and proposed to be
taken by the Operating Partnership in connection with the authorization and
issuance of the Exchange Notes, and, for the purposes of this opinion, have
assumed such proceedings will be timely completed in the manner presently
proposed. In addition, we have made such legal and factual examinations and
inquiries, including an examination of originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records
and instruments, as we have deemed necessary or appropriate for purposes of this
opinion.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies.
<PAGE> 2
Glenborough Properties, L.P.
May 22, 1998
Page 2
Subject to the foregoing and the other matters set forth herein, it is our
opinion that, as of the date hereof, when (a) the Indenture under which the
Exchange Notes will be issued, has been qualified under the Trust Indenture Act
of 1939, as amended, (b) the Exchange Notes have been executed by the Operating
Partnership and authenticated by the Trustee in accordance with the terms of the
Indenture, and (c) the Exchange Notes have been delivered in exchange for the
Old Notes in the manner and for the consideration stated in the Registration
Statement and the Indenture, the Exchange Notes will constitute valid and
binding obligations of the Operating Partnership.
To the extent that the obligations of the Operating Partnership under the
Indenture may be dependent upon such matters, we assume for purposes of this
opinion that the Trustee is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization; that the Trustee is
duly qualified to engage in the activities contemplated by the Indenture; that
the Indenture has been duly authorized, executed and delivered by the Trustee
and constitutes the legally valid and binding obligation of the Trustee,
enforceable against the Trustee in accordance with its terms; that the Trustee
is in compliance, generally and with respect to acting as a trustee under the
Indenture, with all applicable laws and regulations; and that the Trustee has
the requisite organizational and legal power and authority to perform its
obligations under the Indenture.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
In giving such consent, we do not admit that we come within the category of
persons whose consent is required by Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Morrison & Foerster LLP
