<PAGE>
PROSPECTUS SUPPLEMENT FILED PURSUANT TO RULE 424(b)(5)
(To Prospectus dated September 18, 1998) Registration No. 333-42283
LOGO
Medium-Term Notes, Series B
$150,000,000
Due from Nine Months or More from the Date of Issue
The following terms may apply to the Notes. The final terms of each Note will
be specified in a pricing supplement. For more information, see "Description of
Notes."
. Mature nine months or more from the date of issue
. Denominated and/or payable in United States
dollars or a foreign currency or currency units
. May be subject to redemption at the option of Archstone or repurchased at the
option of the holder
. Fixed or floating interest rate. The
floating interest rate formula may be based on:
-Commercial Paper Rate
-Prime Rate
-LIBOR
-Treasury Rate
-CD Rate
-CMT Rate
-Federal Funds Rate
-Eleventh District Cost of Funds Rate
. Fixed rate notes may bear no interest when issued at a discount from the
principal amount due at maturity
. Certificated or book-entry form
. Interest paid on fixed rate notes on April 1 and October 1
. Interest paid on floating rate notes monthly, quarterly, semi-annually or
annually
. Minimum denominations of $1,000, increased in multiples of $1,000
Consider carefully the risk factors beginning on page S-22 of this prospectus
supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Prospectus. Any representation to the contrary is
a criminal offense.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' PROCEEDS TO
PUBLIC COMMISSION COMPANY
- --------------------------------------------------------------------
<S> <C> <C> <C>
Per Note 100% .125%-.750% 99.875%-99.250%
- --------------------------------------------------------------------
Total $150,000,000 $187,500-$1,125,000 $149,812,500-$148,875,000
- --------------------------------------------------------------------
</TABLE>
Archstone is offering the Notes on a continuous basis through the Agents listed
below acting as agent or principal. Each Agent has agreed to use its reasonable
efforts to solicit offers to purchase the Notes.
J.P. MORGAN & CO.
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
October 14, 1998
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in any
Pricing Supplement, this Prospectus Supplement, or the Prospectus, and, if
given or made, such information or representations must not be relied upon as
having been authorized. Any Pricing Supplement, this Prospectus Supplement, and
the Prospectus do not constitute an offer to sell or the solicitation of an
offer to buy any securities other than the securities to which they relate or
any offer to sell or the solicitation of any offer to buy such securities in
any jurisdictions in which such offer or solicitation is unlawful. Neither the
delivery of any Pricing Supplement, this Prospectus Supplement, or the
Prospectus nor any sale made hereunder or thereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of Archstone Communities Trust ("Archstone") since the date hereof or
thereof or that the information contained or incorporated by reference herein
or therein is correct as of any time subsequent to the date of such
information.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Notes....................................................... S-3
Foreign Currency Risks..................................................... S-25
United States Taxation..................................................... S-26
Plan of Distribution....................................................... S-38
Validity of Notes.......................................................... S-39
PROSPECTUS
Archstone Communities Trust................................................ 2
Use of Proceeds............................................................ 2
Ratio Information.......................................................... 3
Description of Debt Securities............................................. 4
Description of Preferred Shares............................................ 18
Description of Common Shares............................................... 23
Federal Income Tax Considerations.......................................... 27
Plan of Distribution....................................................... 34
Experts.................................................................... 35
Legal Matters.............................................................. 36
Available Information...................................................... 36
Incorporation by Reference................................................. 37
</TABLE>
S-2
<PAGE>
DESCRIPTION OF NOTES
The following description of the terms of the Medium-Term Notes, Series B (the
"Notes") (referred to in the Prospectus as "Debt Securities"), supplements, and
to the extent inconsistent replaces, the description of the general terms and
provisions of Debt Securities contained in the Prospectus. The pricing
supplement (the "Pricing Supplement") for each offering of Notes will contain
the specific information and terms for that offering. The Pricing Supplement
may also add, update or change information contained in the Prospectus and this
Prospectus Supplement. It is important for you to consider the information
contained in the Prospectus, the Prospectus Supplement and the Pricing
Supplement in making your investment decision.
GENERAL
The Notes constitute a single series for purposes of the Indenture, dated as of
February 1, 1994, as supplemented by the First Supplemental Indenture, dated as
of February 2, 1994 (as so supplemented, the "Indenture"), between Archstone
and State Street Bank and Trust Company, as trustee (the "Trustee"). The Notes
are limited in amount to $150,000,000. The total price of Notes Archstone is
authorized to offer by means of this Prospectus Supplement may be reduced due
to Archstone's sale of other debt securities. For a description of the rights
attaching to different series of Debt Securities under the Indenture, see
"Description of Debt Securities" in the Prospectus.
Archstone initially appointed the Trustee as the Paying Agent, with its office
(the "Paying Agent Office") currently at Two International Place, Boston,
Massachusetts 02110. The Notes may be presented or surrendered for payment and
notices, designations, or requests in respect of payments with respect to Notes
may be served at the office of the Paying Agent. Archstone will maintain a
Paying Agent having a Paying Agent Office in Boston, Massachusetts or New York,
New York.
Unless redeemed by Archstone or repaid at the option of the Holder, a Note will
mature on the date ("Stated Maturity") that is specified on its face and in the
applicable Pricing Supplement. The "maturity" of any Note refers to the date on
which its principal becomes due and payable, whether at Stated Maturity, upon
redemption by Archstone, repayment at the option of the Holders, or otherwise.
The face of each Note and the applicable pricing supplement will specify the
currency, currency unit or composite currency ("Specified Currency") in which
the Note is denominated. Purchasers of the Notes are required to pay for the
Notes by delivery of the requisite amount of the Specified Currency to an
Agent, unless other arrangements have been made. Unless otherwise specified in
the applicable Pricing Supplement, payments on the Notes will be made in the
Specified Currency in the country issuing the Specified Currency (or, for ECUs
(as defined in the Indenture), Brussels), provided that, at the election of the
Holder and in certain circumstances at Archstone's option, payments on Notes
denominated in other than U.S. dollars may be made in U.S. dollars. See "--
Payment of Principal and Interest."
Each Note will be represented by either (i) a permanent global Note registered
in the name of The Depository Trust Company, as Depository (the "Depository"),
or its nominee (each such Note represented by a permanent global Note being
referred to below as a "Book-Entry Note") or (ii) a certificate issued in
definitive registered form, without coupons, as set forth in the applicable
Pricing Supplement. Except as set forth under "--Book-Entry Notes" below, Book-
S-3
<PAGE>
Entry Notes will not be issued in certificated form. So long as the Depositary
or its nominee is the registered holder of any permanent global Note, the
Depositary or its nominee, as the case may be, will be considered the sole
Holder of the Book-Entry Note or Notes represented by such permanent global
Note for all purposes under the Indenture and the Notes. Unless otherwise
specified in the applicable Pricing Supplement, the authorized denominations of
Notes denominated in U.S. dollars will be $1,000 and any larger amount that is
a multiple of $1,000. The authorized denominations of any Note denominated in
some other Specified Currency will be the amount of the Specified Currency for
such Note equivalent, at the noon buying rate in New York City for cable
transfers for the Specified Currency (the "Exchange Rate") on the sixth
Business Day in New York City and in the country issuing such currency (or, for
ECUs, Brussels) next preceding the date of issue of such Note, to U.S. $1,000
(rounded to the nearest 1,000 units of the Specified Currency) and any larger
amount that is a multiple of 1,000 units of the Specified Currency unless
specified in the applicable Pricing Supplement.
Notes will be sold in individual issues of Notes having such interest rate
and/or interest rate formula, if any, Stated Maturity, and date of original
issuance as selected by the initial purchasers and agreed to by Archstone.
Interest rates offered by Archstone with respect to the Notes may differ
depending upon, among other things, the aggregate principal amount of the Notes
purchased in any single transaction. Notes may be issued at a discount from the
principal amount payable at maturity (a "Zero Coupon Note"). Holders of Zero
Coupon Notes will not receive periodic payments of interest on the Notes.
Unless otherwise specified in the applicable Pricing Supplement, the Notes will
not be subject to any sinking fund. Unless Archstone specifies an initial date
on which a Note may be redeemed by Archstone (a "Redemption Commencement Date")
in the applicable Pricing Supplement, the Note will not be redeemable before
its maturity. See "--Optional Redemption." If Archstone does specify a
Redemption Commencement Date for any Note, the applicable Pricing Supplement
will also specify one or more redemption prices ("Redemption Prices") and the
redemption period or periods ("Redemption Periods") during which such
Redemption Prices shall apply. Unless otherwise specified in the Pricing
Supplement, any such Note shall be redeemable at Archstone's option at any time
on or after the specified Redemption Commencement Date at the specified
Redemption Price applicable to the Redemption Period during which the Note is
to be redeemed, together with interest accrued to the date fixed for redemption
(the "Redemption Date").
The Notes (other than Book-Entry Notes) may be presented for registration of
transfer or exchange at the Paying Agent Office. With respect to transfers of
Book-Entry Notes and exchanges of permanent global Notes representing Book-
Entry Notes, see "--Book-Entry Notes."
The Indenture provisions relating to satisfaction and discharge and legal and
covenant defeasance which are described in the accompanying Prospectus under
"Description of Debt Securities--Discharge, Defeasance and Covenant Defeasance"
will apply to the Notes.
FIXED RATE NOTES
Each Note bearing interest at a fixed rate (a "Fixed Rate Note") will bear
interest from the date it is originally issued at the annual rate stated on its
face and the applicable Pricing Supplement until the principal amount is paid
or made available for payment.
S-4
<PAGE>
The applicable Pricing Supplement relating to a Fixed Rate Note will designate
an annual fixed rate of interest payable on such Fixed Rate Note, the Interest
Payment Dates, the Regular Record Dates, and, if applicable, the Redemption
Commencement Date, Redemption Price and Redemption Periods relating to such
Fixed Rate Note.
FLOATING RATE NOTES
Each Note bearing interest at a variable rate (a "Floating Rate Note") will
bear interest from the date it is originally issued at the annual rate
determined pursuant to the interest rate formula stated on its face and the
applicable Pricing Supplement until the principal amount is paid or made
available for payment. The variable interest rate will be determined as
follows:
(i) Unless the Floating Rate Note is designated as a Floating
Rate/Fixed Rate Note, an Inverse Floating Rate Note or as having an
Addendum (as defined below) attached, the Floating Rate Note will be
designated a "Regular Floating Rate Note" and, except as described
below or in an applicable Pricing Supplement, will bear interest at the
rate determined by reference to the applicable Interest Rate Basis (as
defined below) (i) plus or minus the applicable Spread (as defined
below), if any, and/or (ii) multiplied by the applicable Spread
Multiplier (as defined below), if any.
(ii) If the Floating Rate Note is designated as a "Floating Rate/Fixed
Rate Note," then, except as described below or in an applicable Pricing
Supplement, the Floating Rate Note will initially bear interest at the
rate determined by reference to the applicable Interest Rate Basis (i)
plus or minus the applicable Spread, if any, and/or (ii) multiplied by
the applicable Spread Multiplier, if any. The interest rate in effect
commencing on, and including, the date for interest to begin accruing
at the Fixed Interest Rate (the "Fixed Rate Commencement Date") to the
Maturity Date shall be the Fixed Interest Rate, if such rate is
specified in the applicable Pricing Supplement, or if no Fixed Interest
Rate is specified and the Floating Rate/Fixed Rate Note is still
outstanding on such day, the interest rate in effect thereon on the day
immediately preceding the Fixed Rate Commencement Date.
(iii) If the Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below or in an applicable Pricing
Supplement, the Floating Rate Note will bear interest equal to the
Fixed Interest Rate specified in the related Pricing Supplement minus
the rate determined by reference to the Interest Rate Basis (i) plus or
minus the applicable Spread, if any, and/or (ii) multiplied by the
applicable Spread Multiplier, if any; provided, however, unless
otherwise specified in the applicable Pricing Supplement, the interest
rate thereon will not be less than zero.
A Floating Rate Note may also have either or both:
(a) a maximum, or ceiling, on the rate of interest that may accrue during
any interest period (a "Maximum Rate"); and
(b) a minimum, or floor, on the rate of interest that may accrue during any
interest period (a "Minimum Rate").
The "Spread" is the number of basis points specified in the applicable Pricing
Supplement as applying to the Interest Rate Basis (as defined below) for such
Note. The "Spread Multiplier" is the percentage specified in the applicable
Pricing Supplement as applying to the Interest Rate Basis for such Note.
S-5
<PAGE>
"Market Day" means:
(a) with respect to any Note, any Business Day in New York City and Boston;
and
(b) with respect to any LIBOR Note, any Business Day in New York City and
Boston which is also a day on which dealings in deposits in U.S. dollars
are transacted in the London interbank market (a "London Business Day").
"Business Day" for any particular location means each Monday, Tuesday,
Wednesday, Thursday and Friday that is not a day on which banking
institutions in such location are authorized or obligated by law or
executive order to close.
"Index Maturity" means, for a Floating Rate Note, the period to maturity of the
interest or obligation on which the interest rate formula is based, as
specified in the applicable Pricing Supplement. Unless otherwise provided in
the applicable Pricing Supplement, the Trustee will be the calculation agent
(the "Calculation Agent") for Floating Rate Notes.
The applicable Pricing Supplement relating to a Floating Rate Note will
designate as an interest rate basis (the "Interest Rate Basis") one or more of
the following:
(a) the Commercial Paper Rate for "Commercial Paper Rate Notes";
(b) the Prime Rate for "Prime Rate Notes";
(c) LIBOR for "LIBOR Notes";
(d) the Treasury Rate for "Treasury Rate Notes";
(e) the CD Rate for "CD Rate Notes";
(f) the CMT Rate for "CMT Rate Notes";
(g) the Federal Funds Rate for "Federal Funds Rate Notes";
(h) the Eleventh District Cost of Funds Rate for "Eleventh District Cost of
Funds Rate Notes"; or
(i) such other interest rate formula as such Pricing Supplement sets forth.
The applicable Pricing Supplement for a Floating Rate Note will specify the
Interest Rate Basis and, if applicable, the Calculation Agent, the Index
Maturity, the Spread and/or Spread Multiplier, the Maximum Rate, the Minimum
Rate, the Initial Interest Rate, the Interest Payment Dates, the Regular Record
Dates, the Calculation Date, the Interest Determination Date, and the Interest
Reset Date for such Note.
The interest rate on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semi-annually, annually, or otherwise (such period being
the "Interest Reset Period" for such Floating Rate Note, and the first date of
each Interest Reset Period being an "Interest Reset Date"), as specified in the
applicable Pricing Supplement. The Interest Reset Date will be:
(a) for Floating Rate Notes (other than Treasury Rate Notes) that reset
daily, each Business Day;
(b) for Floating Rate Notes (other than Treasury Rate Notes) that reset
weekly, the Wednesday of each week;
(c) for Treasury Rate Notes that reset weekly, the Tuesday of each week,
except as provided below;
(d) for Floating Rate Notes that reset monthly, the third Wednesday of each
month;
S-6
<PAGE>
(e) for Floating Rate Notes that reset quarterly, the third Wednesday of
March, June, September and December;
(f) for Floating Rate Notes that reset semi-annually, the third Wednesday
of two months of each year as specified in the applicable Pricing
Supplement;
(g) for Floating Rate Notes that reset annually, the third Wednesday of one
month of each year as specified in the applicable Pricing Supplement; and
(h) for Floating Rate Notes that reset at intervals other than those
described above, the days specified in the applicable Pricing Supplement;
provided, however, that the interest rate in effect from the date of issue to
the first Interest Reset Date for a Floating Rate Note will be the Initial
Interest Rate (as set forth in the applicable Pricing Supplement).
If any Interest Reset Date for any Floating Rate Note would otherwise be a day
that is not a Market Day for such Floating Rate Note, the Interest Reset Date
will be the next day that is a Market Day (except that for a LIBOR Note, if
such Market Day is in the following calendar month, the Interest Reset Date
will be the immediately preceding Market Day). In addition, if the Treasury
Rate is an applicable Base Rate and the Interest Determination Date would
otherwise fall on an Interest Reset Date, then the Interest Reset Date will be
the following Business Day.
The Interest Determination Date pertaining to an Interest Reset Date for a
Commercial Paper Rate Note (the "Commercial Paper Interest Determination
Date"), for a Prime Rate Note (the "Prime Rate Interest Determination Date"),
for a CD Rate Note (the "CD Rate Interest Determination Date"), for a CMT Rate
Note (the "CMT Rate Interest Determination Date"), for a Federal Funds Rate
Note (the "Federal Funds Rate Interest Determination Date") and for an Eleventh
District Cost of Funds Rate Note (the "Eleventh District Cost of Funds Interest
Determination Date") will be the second Market Day preceding the Interest Reset
Date. The Interest Determination Date pertaining to an Interest Reset Date for
a LIBOR Note (the "LIBOR Interest Determination Date") will be the second
London Business Day preceding the Interest Reset Date. The Interest
Determination Date pertaining to an Interest Reset Date for a Treasury Rate
Note (the "Treasury Interest Determination Date") will be the day of the week
in which the Interest Reset Date falls on which Treasury bills would normally
be auctioned. Treasury bills are usually sold at auction on the Monday of each
week, unless that day is a legal holiday, in which case the auction is usually
held on the following Tuesday, except that such auction may be held on the
preceding Friday. If, as the result of a legal holiday, an auction is held on
the preceding Friday, that Friday will be the Treasury Interest Determination
Date pertaining to the Interest Reset Date occurring in the following week. If
an auction date falls on any Interest Reset Date for a Treasury Rate Note, then
such Interest Reset Date will be the first Market Day immediately following the
auction date.
All percentages resulting from any calculations referred to in this Prospectus
Supplement will be rounded, if necessary, to the nearest one hundred-thousandth
of a percentage point with five one-millionths of a percentage point rounded
upward (e.g., 9.876546% or .09876546 being rounded to 9.87655% or .0987655),
and all U.S. dollar amounts used in or resulting from such calculations will be
rounded to the nearest cent (with one-half cent being rounded upwards).
In addition to any maximum interest rate that may apply to a Floating Rate Note
under the above provisions, the interest rate on the Floating Rate Notes will
in no event be higher than the maximum rate permitted by New York law, as the
same may be modified by United States law of general application.
S-7
<PAGE>
Upon the request of the Holder of any Floating Rate Note, the Calculation Agent
will provide the interest rate then in effect, and, if determined, the interest
rate that will become effective on the next Interest Reset Date for such
Floating Rate Note. Unless otherwise specified in the applicable Pricing
Supplement, the "Calculation Date," if applicable, pertaining to any Interest
Determination Date will be the earlier of (i) the tenth calendar day after such
Interest Determination Date, or, if such day is not a Business Day, the
following Business Day or (ii) the Business Day immediately preceding the
applicable Interest Payment Date or the Stated Maturity, as the case may be.
The Calculation Agent's determination of any interest rate will be final and
binding in the absence of manifest error.
References below to information services include any successor information
services.
Commercial Paper Rate Notes
Commercial Paper Rate Notes will bear interest at a specified rate that will be
reset periodically based on the Commercial Paper Rate and any Spread and/or
Spread Multiplier.
"Commercial Paper Rate" means, for any Interest Reset Date, the Money Market
Yield (calculated as described below) of the annual rate (quoted on a bank
discount basis) for the relevant Commercial Paper Interest Determination Date
for commercial paper having the specified Index Maturity as published by the
Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" ("H.15(519)") under the heading "Commercial
Paper--Nonfinancial."
The following procedures will apply if the rate cannot be set as described
above:
(a) If the rate is not published before 3:00 p.m., New York City time, on
the Calculation Date, then the Commercial Paper Rate will be the Money
Market Yield of such rate on the Commercial Paper Interest Determination
Date for commercial paper having the specified Index Maturity as published
by the Federal Reserve Bank of New York on the Internet, under the heading
"Federal Reserve Release--Commercial Paper."
(b) If by 3:00 p.m., New York City time, on the Calculation Date the rate
is not published in either H.15(519) or by the Federal Reserve Bank of New
York, the Commercial Paper Rate will be calculated by the Calculation Agent
and will be the Money Market Yield of the arithmetic mean of the offered
annual rates quoted on a bank discount basis, as of 11:00 a.m., New York
City time, on the Commercial Paper Interest Determination Date, of three
leading dealers of commercial paper in New York City (which may include the
Agents) selected by the Calculation Agent for commercial paper of the
specified Index Maturity placed for a nonfinancial issuer whose bond rating
is "AA," or the equivalent, from a nationally recognized rating agency.
(c) If fewer than three dealers selected by the Calculation Agent are
providing quotes, the rate will be the same as the rate used in the prior
interest period.
"Money Market Yield" means a yield (expressed as a percentage) calculated in
accordance with the following formula:
Money Market
Yield = 100 X 360 X D
------------
360 -
(D X M)
S-8
<PAGE>
where "D" refers to the annual rate for commercial paper quoted on a bank
discount basis and expressed as a decimal and "M" refers to the actual number
of days in the period from the Interest Reset Date to but excluding the day
that numerically corresponds to such Interest Rate Date (or, if there is not a
numerically corresponding day, the last day) in the calendar month that is the
number of months corresponding to the specified Index Maturity after the month
in which such Interest Reset Date falls.
Prime Rate Notes
Prime Rate Notes will bear interest at a specified rate that will be reset
periodically based on the Prime Rate and any Spread and/or Spread Multiplier.
"Prime Rate" means, for any Interest Reset Date, the rate set forth for the
relevant Prime Rate Interest Determination Date in H.15(519) under the heading
"Bank Prime Loan."
The following procedures will apply if the rate cannot be set as described
above:
(a) If the rate is not published before 3:00 p.m., New York City time, on
the Calculation Date, then the Prime Rate will be the arithmetic mean of
the rates of interest publicly announced by each bank that appears on the
display designated as page "USPRIME1" on the Reuters Monitor Money Rates
Service ("Reuters Screen USPRIME1 Page") as the bank's prime rate or base
lending rate as in effect for the Prime Rate Interest Determination Date as
quoted on the Reuters Screen USPRIME1 Page on the Prime Rate Interest
Determination Date.
(b) If fewer than four rates appear on the Reuters Screen USPRIME1 Page on
the Prime Rate Interest Determination Date, the Prime Rate will be the
arithmetic mean of the prime rates or base lending rates (quoted on the
basis of the actual number of days in the year divided by a 360-day year)
as of the close of business on the Prime Rate Interest Determination Date
by four major banks in New York City selected by the Calculation Agent.
(c) If fewer than four banks are providing quotes, the rate will be the
same rate as used for the prior interest period.
LIBOR Notes
LIBOR Notes will bear interest at a specified rate that will be reset
periodically based on LIBOR and any Spread and/or Spread Multiplier.
LIBOR for any Interest Reset Date will be determined by the Calculation Agent
as follows:
(a) The Calculation Agent will determine either:
(i) the arithmetic mean of the offered rates for deposits in U.S.
dollars for the period of the applicable Index Maturity commencing on
the Interest Reset Date which appear on the Reuters Screen LIBO Page at
approximately 11:00 a.m., London time, on the LIBOR Interest
Determination Date if at least two offered rates appear on the Reuters
Screen LIBO Page ("LIBOR Reuters"), or (ii) the rate for deposits in
U.S. dollars for the period of the applicable Index Maturity commencing
on the Interest Reset Date that appears on the Telerate Page 3750 as of
11:00 a.m., London time, on the LIBOR Interest Determination Date
("LIBOR Telerate"). "Reuters Screen LIBO Page" means the display
designated as Page "LIBO" on the Reuters Monitor Money Rate Service.
"Telerate Page 3750" means the display designated as page "3750" on the
Telerate Service.
S-9
<PAGE>
If neither LIBOR Reuters nor LIBOR Telerate is specified in the
applicable Pricing Supplement, LIBOR will be determined as if LIBOR
Telerate had been specified. If fewer than two offered rates appear on
the Reuters Screen LIBO Page, or if no rate appears on the Telerate
Page 3750, as applicable, LIBOR in respect of that LIBOR Interest
Determination Date will be determined as if the parties had specified
the rate described in (b) below.
(b) If fewer than two offered rates appear on the Reuters Screen LIBO Page
or no rate appears on Telerate Page 3750, as applicable, the Calculation
Agent will request that the principal London offices of four major banks in
the London interbank market selected by the Calculation Agent provide the
Calculation Agent with its offered quotation for deposits in U.S. dollars
for the period of the applicable Index Maturity to prime banks in the
London interbank market at approximately 11:00 a.m., London time,
commencing on the second London Business Day immediately following the
LIBOR Interest Determination Date and in a principal amount equal to an
amount of not less than U.S. $1 million that is representative of a single
transaction in that market at that time. If at least two quotations are
provided, LIBOR in respect of that LIBOR Interest Determination Date will
be the arithmetic mean of such quotations. If fewer than two quotations are
provided, LIBOR in respect of that LIBOR Interest Determination Date will
be the arithmetic mean of the rates quoted by three major banks in New York
City selected by the Calculation Agent at approximately 11:00 a.m., New
York City time, commencing on the second London Business Day immediately
following the LIBOR Interest Determination Date for loans in U.S. dollars
to leading European banks, for the period of the applicable Index Maturity
and in a principal amount equal to an amount of not less than U.S. $1
million that is representative for a single transaction in that market at
that time.
(c) If fewer than three banks selected by the Calculation Agent are quoting
rates, the rate will be the same rate as used for the prior interest
period.
Treasury Rate Notes
Treasury Rate Notes will bear interest at a specified rate that will be reset
periodically based on the Treasury Rate and any Spread and/or Spread
Multiplier.
"Treasury Rate" means, for any Interest Reset Date, the rate for the auction on
the relevant Treasury Interest Determination Date of direct obligations of the
United States ("Treasury Bills") having the specified Index Maturity as
published in H.15(519) under the heading "U.S. Government Securities/Treasury
Bills/Auction Average (Investment)."
The following procedures will apply if the rate cannot be set as described
above:
(a) If the rate is not published in H.15(519) by 3:00 p.m., New York City
time, on the relevant Calculation Date, then the Treasury Rate will be the
auction average rate (expressed as a bond equivalent, on the basis of a
year of 365 or 366 days, as applicable, and applied on a daily basis) for
such auction as otherwise announced by the United States Department of the
Treasury.
(b) If the results of the auction of Treasury bills having the specified
Index Maturity are not published or reported in H.15(519) by 3:00 p.m., New
York City time, on the Calculation Date, or if no auction is held in a
particular week, then the Treasury Rate shall be the rate set forth in
H.15(519) for the relevant Treasury Interest Determination Date for the
specified Index Maturity under the heading "U.S. Government
Securities/Treasury Bills/Secondary Market."
S-10
<PAGE>
(c) If the secondary market rate is not published in H.15(519) by 3:00
p.m., New York City time, on the relevant Calculation Date, the Treasury
Rate for the Interest Reset Date will be calculated by the Calculation
Agent and will be a yield to maturity (expressed as a bond equivalent, on
the basis of a year of 365 or 366 days, as applicable, and applied on a
daily basis) of the arithmetic mean of the secondary market bid rates as of
approximately 3:30 p.m., New York City time, on the Treasury Interest
Determination Date, of three primary United States government securities
dealers in New York City selected by the Calculation Agent for the issue of
Treasury bills with a remaining maturity closest to the specified Index
Maturity.
(d) If fewer than three dealers selected by the Calculation Agent are
quoting rates, the rate will be the same rate used for the prior interest
period.
CD Rate Notes
CD Rate Notes will bear interest at a specified rate that will be reset
periodically based on the CD Rate and any Spread and/or Spread Multiplier.
"CD Rate" means, for any Interest Reset Date, the rate for the relevant CD
Interest Determination Date for negotiable U.S. dollar certificates of deposit
having the specified Index Maturity as published in H.15(519) under the heading
"CDs (Secondary Market)."
The following procedures will apply if the rate cannot be set as described
above:
(a) If the rate is not published before 3:00 p.m., New York City time, on
the relevant Calculation Date, then the CD Rate for the Interest Reset Date
will be the rate on the CD Rate Interest Determination Date for negotiable
certificates of deposit having the specified Index Maturity as published in
Composite Quotations under the heading "Certificates of Deposit."
(b) If by 3:00 p.m., New York City time, on the Calculation Date the rate
is not published in either H.15(519) or Composite Quotations, the CD Rate
for the Interest Reset Date will be calculated by the Calculation Agent and
will be the arithmetic mean of the secondary market offered rates, as of
10:00 a.m., New York City time, on the CD Rate Interest Determination Date,
of three leading nonbank dealers of negotiable U.S. dollar certificates of
deposit in New York City selected by the Calculation Agent for negotiable
U.S. dollar certificates of deposit of major United States money market
banks in the market for negotiable U.S. dollar certificates of deposit with
a remaining maturity closest to the specified Index Maturity in a
denomination of U.S. $5,000,000.
(c) If fewer than three dealers selected by the Calculation Agent are
quoting rates, the rate will be the same rate used for the prior interest
period.
CMT Rate Notes
CMT Rate Notes will bear interest at a specified rate that will be reset
periodically based on the CMT Rate and any Spread and/or Spread Multiplier.
"CMT Rate" means, with respect to any CMT Rate Interest Determination Date, the
rate displayed on the Designated CMT Telerate Page under the caption ". . .
Treasury Constant Maturities . . . Federal Reserve Board Release H.15 . . .
Mondays Approximately 3:45 p.m.," under the column for the Designated CMT
Maturity Index for:
(i) if the Designated CMT Telerate Page is 7055, the rate on such CMT Rate
Interest Determination Date; or
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(ii) if the Designated CMT Telerate Page is 7052, the weekly or monthly
average, as specified in the applicable Pricing Supplement, for the week or
the month, as applicable, ended immediately preceding the week in which the
related CMT Rate Interest Determination Date occurs.
(a) If the rate is no longer displayed on the relevant page or is not
displayed by 3:00 p.m., New York City time, on the related Calculation
Date, then the CMT Rate for the CMT Rate Interest Determination Date
will be the treasury constant maturity rate for the Designated CMT
Maturity Index as published in the relevant H.15(519).
(b) If the rate is no longer published in H.15(519) or is not published
by 3:00 p.m., New York City time, on the Calculation Date, then the CMT
Rate on the CMT Rate Interest Determination Date will be the treasury
constant maturity rate for the Designated CMT Maturity Index (or other
United States Treasury rate for the Designated CMT Maturity Index) for
the CMT Rate Interest Determination Date with respect to the Interest
Reset Date as published by either the Board of Governors of the Federal
Reserve System or the United States Department of the Treasury that the
Calculation Agent determines to be comparable to the rate formerly
displayed on the Designated CMT Telerate Page and published in the
relevant H.15(519).
(c) If that information is not provided by 3:00 p.m., New York City
time, on the Calculation Date, then the CMT Rate on the CMT Rate
Interest Determination Date will be calculated by the Calculation Agent
and will be a yield to maturity, based on the arithmetic mean of the
secondary market closing offer side prices as of approximately 3:30
p.m., New York City time, on the CMT Rate Interest Determination Date
reported, according to their written records, by three leading primary
United States government securities dealers (each, a "Reference
Dealer") in New York City (which may include the Agent or its
affiliates) selected by the Calculation Agent (from five Reference
Dealers selected by the Calculation Agent and eliminating the highest
quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)),
for the most recently issued direct noncallable fixed rate obligations
of the United States ("Treasury Notes") with an original maturity of
approximately the Designated CMT Maturity Index and a remaining term to
maturity of not less than the Designated CMT Maturity Index minus one
year.
(d) If the Calculation Agent is unable to obtain three Treasury Note
quotations, the CMT Rate on the CMT Rate Interest Determination Date
will be calculated by the Calculation Agent and will be a yield to
maturity based on the arithmetic mean of the secondary market offer
side prices as of approximately 3:30 p.m., New York City time, on the
CMT Rate Interest Determination Date of three Reference Dealers in New
York City (from five the Reference Dealers selected by the Calculation
Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for Treasury Notes with an
original maturity of the number of years that is the next highest to
the Designated CMT Maturity Index and a remaining term to maturity
closest to the Designated CMT Maturity Index and in an amount of at
least U.S. $100 million. If three or four (and not five) of such
Reference Dealers are providing quotes, then the CMT Rate will be based
on the arithmetic mean of the offer prices obtained and neither the
highest nor the lowest of such quotes will be eliminated. If two
Treasury Notes with an original maturity have remaining terms to
maturity equally close to the Designated CMT Maturity Index, the
Calculation Agent will obtain from
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five Reference Dealers quotations for the Treasury Note with the
shorter remaining term to maturity and will use those quotations to
calculate the CMT Rate as described above.
(e) If fewer than three Reference Dealers are providing quotes, the
rate will be the same as the rate used in the prior interest period.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page specified in the applicable Pricing Supplement for the
purpose of displaying Treasury Constant Maturities as reported in H.15(519). If
a page is not specified in the applicable Pricing Supplement, the Designated
CMT Telerate Page will be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of the
U.S. Treasury securities (1, 2, 3, 5, 7, 10, 20 or 30 years) specified in the
applicable Pricing Supplement with respect to which the CMT Rate will be
calculated. If no maturity is specified in the applicable Pricing Supplement,
the Designated CMT Maturity Index will be 2 years.
Federal Funds Rate Notes
Federal Funds Rates Notes will bear interest at a specified rate that will be
reset periodically based on the Federal Funds Rate and any Spread and/or Spread
Multiplier.
"Federal Funds Rate" means, for any Interest Reset Date, the rate on the
relevant Federal Funds Interest Determination Date for Federal Funds as
published in H.15(519) under the heading "Federal Funds (Effective)."
The following procedures will apply if the rate cannot be set as described
above:
(a) If the rate is not published before 3:00 p.m., New York City time, on
the Calculation Date, then the Federal Funds Rate for the Interest Reset
Date will be the rate on the Federal Funds Interest Determination Date as
published in Composite Quotations under the heading "Federal
Funds/Effective Rate."
(b) If by 3:00 p.m., New York City time, on the Calculation Date the rate
is not published in either H.15(519) or Composite Quotations, the Federal
Funds Rate for the Interest Reset Date will be calculated by the
Calculation Agent and will be the arithmetic mean of the rates, as of 9:00
a.m., New York City time, on the Federal Funds Interest Determination Date,
for the last transaction in overnight Federal Funds arranged by three
leading brokers of Federal Funds transactions in New York City selected by
the Calculation Agent.
(c) If fewer than three brokers selected by the Calculation Agent are
providing quotes, the rate will be the same as the rate used in the prior
interest period.
Eleventh District Cost of Funds Rate Notes
Eleventh District Cost of Funds Rate Notes will bear interest at a specified
rate that will be reset periodically based on the Eleventh District Cost of
Funds Rate and any Spread and/or Spread Multiplier.
"Eleventh District Cost of Funds Rate" means, for any Interest Reset Date, the
rate on the relevant Eleventh District Cost of Funds Rate Interest
Determination Date equal to the monthly weighted average cost of funds for the
calendar month immediately preceding the
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month in which the Eleventh District Cost of Funds Rate Interest Determination
Date falls, as set forth under the caption "11th District" on Telerate Page
7058 as of 11:00 A.M., San Francisco time, on the Eleventh District Cost of
Funds Rate Interest Determination Date.
The following procedures will apply if the rate cannot be set as described
above:
(a) If the rate does not appear on Telerate Page 7058 on the Eleventh
District Cost of Funds Rate Interest Determination Date, then the Eleventh
District Cost of Funds Rate on the Eleventh District Cost of Funds Rate
Interest Determination Date will be the monthly weighted average cost of
funds paid by member institutions of the Eleventh Federal Home Loan Bank
District that was most recently announced (the "Index") by the Federal Home
Loan Bank. ("FHLB") of San Francisco, as the cost of funds for the calendar
month immediately preceding the Eleventh District Cost of Funds Rate
Interest Determination Date.
(b) If the FHLB of San Francisco fails to announce the Index on or prior to
the Eleventh District Cost of Funds Rate Interest Determination Date for
the calendar month immediately preceding the Eleventh District Cost of
Funds Rate Interest Determination Date, the rate will be the same as the
rate used in the prior interest period.
RENEWABLE NOTES
Archstone may issue from time to time renewable Floating Rate Notes ("Renewable
Notes") that will bear interest at the interest rate (calculated with reference
to a Interest Rate Basis and any Spread and/or Spread Multiplier, and subject
to any minimum interest rate and maximum interest rate,) specified in the
Renewable Notes and in the applicable Pricing Supplement.
Renewable Notes will mature on an Interest Payment Date as specified in the
applicable Pricing Supplement (the "Initial Maturity Date"), unless the
maturity of all or any portion of the principal amount thereof is extended in
accordance with the procedures described below. On the Interest Payment Dates
in each year specified in the applicable Pricing Supplement (each such Interest
Payment Date, an "Election Date"), the maturity of the Renewable Notes will be
extended to the Interest Payment Date occurring twelve months after the
Election Date (or to such other date as is specified in the applicable Pricing
Supplement), unless the Holder of the Renewable Notes elects to terminate the
automatic extension of the maturity of the Renewable Notes or of any portion
thereof having a principal amount of U.S. $1,000 or any larger amount that is a
multiple of U.S. $1,000 by delivering a notice of that election to the Paying
Agent not less than nor more than the number of days specified in the
applicable Pricing Supplement prior to the Election Date. This option may be
exercised with respect to less than the entire principal amount of the
Renewable Notes so long as the principal amount for which the option is not
exercised is at least U.S. $1,000 or any larger amount that is a multiple of
U.S. $1,000. The maturity of the Renewable Notes may not, however, be extended
beyond the Final Maturity Date as specified in the applicable Pricing
Supplement (the "Final Maturity Date"). If the Holder elects to terminate the
automatic extension of the maturity of any portion of the principal amount of
the Renewable Notes and that election is not revoked as described below, that
portion will become due and payable on the Interest Payment Date falling six
months (unless another period is specified in the applicable Pricing
Supplement) after the Election Date prior to which the Holder made the
election.
An election to terminate the automatic extension of maturity may be revoked as
to any portion of the Renewable Notes having a principal amount of U.S. $1,000
or any larger amount that is
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a multiple of U.S. $1,000 by delivering a notice of the revocation to the
Paying Agent on any day following the effective date of the election to
terminate the automatic extension of maturity and prior to the fifteenth
calendar day before the date on which that portion would otherwise mature. Such
a revocation may be made for less than the entire principal amount of the
Renewable Notes for which the automatic extension of maturity has been
terminated; provided, however, that the principal amount of the Renewable Notes
for which the automatic extension of maturity has been terminated and for which
such a revocation has not been made is at least U.S. $1,000 or any larger
amount that is a multiple of U.S. $1,000. A revocation may not, however, be
made during the period from and including a Regular Record Date to but
excluding the immediately succeeding Interest Payment Date.
An election to terminate the automatic extension of the maturity of the
Renewable Notes, if not revoked as described in the preceding paragraph, will
be binding upon subsequent Holders.
Renewable Notes may be redeemed in whole or in part at the option of Archstone
on the Interest Payment Dates in each year specified in the applicable Pricing
Supplement, commencing with the Interest Payment Date specified in the
applicable Pricing Supplement, at a redemption price of 100% of the principal
amount of the Renewable Notes to be redeemed, together with accrued and unpaid
interest to the date of redemption. Notice of redemption will be sent to each
Holder by first class mail, postage prepaid, at least 30 and not more than 60
calendar days prior to the date fixed for redemption.
Renewable Notes may also be issued, from time to time, with the Spread and/or
Spread Multiplier to be reset by a remarketing agent in remarketing procedures
to be specified in the Renewable Notes and in the applicable Pricing
Supplement.
EXTENSION OF MATURITY
The Pricing Supplement relating to each Fixed Rate Note (other than an
Amortizing Note) will indicate whether Archstone has the option to extend the
maturity of the Fixed Rate Note for one or more periods of one or more whole
years (each an "Extension Period") up to but not beyond the date (the "Final
Maturity Date") set forth in the Pricing Supplement. If Archstone has this
option with respect to any Fixed Rate Note (an "Extendible Note"), the
following procedures will apply, unless modified in the applicable Pricing
Supplement.
Archstone may exercise the option with respect to an Extendible Note by
notifying the Paying Agent of the exercise at least 45 but not more than 60
calendar days prior to the stated maturity date originally in effect with
respect to the Note (the "Original Maturity Date") or, if the stated maturity
date of the Note has already been extended, prior to the stated maturity date
then in effect (an "Extended Maturity Date"). No later than 40 calendar days
prior to the Original Maturity Date or an Extended Maturity Date, as the case
may be (each, a "Maturity Date"), the Paying Agent will mail to the Holder of
the Extendible Note a notice (the "Extension Notice") relating to such
Extension Period, first class mail, postage prepaid, setting forth: (a) the
election of Archstone to extend the maturity of the Extendible Note; (b) the
new Extended Maturity Date; (c) the interest rate applicable to the Extension
Period; and (d) the provisions, if any, for redemption during the Extension
Period, including the date or dates on which, the period or periods during
which and the price or prices at which the redemption may occur during the
Extension Period. Upon the mailing by the Paying Agent of an Extension Notice
to the Holder of an Extendible Note, the maturity of the Note shall be extended
automatically, and, except as modified by the Extension Notice and as described
in the next paragraph, the Note will have the same terms it had prior to the
mailing of such Extension Notice.
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Notwithstanding the foregoing, not later than 10:00 a.m., New York City time,
on the twentieth calendar day prior to the Maturity Date then in effect for an
Extendible Note (or, if such day is not a Business Day, not later than 10:00
a.m., New York City time, on the immediately succeeding Business Day),
Archstone may, at its option, revoke the interest rate provided for in the
Extension Notice and establish a higher interest rate for the Extension Period
by causing the Paying Agent to send notice of the higher interest rate to the
Holder of the Note by first class mail, postage prepaid, or by such other means
as agreed between Archstone and the Paying Agent. Such notice shall be
irrevocable. All Extendible Notes with respect to which the Maturity Date is
extended in accordance with an Extension Notice will bear the higher interest
rate for the Extension Period, whether or not tendered for repayment.
If Archstone elects to extend the maturity of an Extendible Note, the Holder of
the Note will have the option to require Archstone to repay the Note on the
Maturity Date then in effect at a price equal to the principal amount thereof
plus all accrued and unpaid interest to the Maturity Date. In order for an
Extendible Note to be repaid on the Maturity Date, the Holder thereof must
follow the procedures set forth below under "Repayment at the Option of the
Holder" for optional repayment, except that the period for delivery of the Note
or notification to the Paying Agent will be at least 25 but not more than 35
calendar days prior to the Maturity Date then in effect and except that a
Holder who has tendered an Extendible Note for repayment pursuant to an
Extension Notice may, by written notice to the Paying Agent, revoke any such
tender for repayment until 3:00 p.m., New York City time, on the twentieth
calendar day prior to the Maturity Date then in effect (or, if such day is not
a Business Day, until 3:00 p.m., New York City time, on the immediately
succeeding Business Day).
ORIGINAL ISSUE DISCOUNT NOTES
Original Issue Discount Notes are Notes issued at a discount from the principal
amount payable at maturity (including any Zero Coupon Note) and which are
considered to be issued with original issue discount which must be included in
income for United States federal income tax purposes at a constant rate
("Original Issue Discount Notes"). See "United States Taxation." Certain
additional considerations relating to Original Issue Discount Notes may be
described in the Pricing Supplement relating thereto.
AMORTIZING NOTES
Archstone may offer Notes for which payments of principal and interest are made
over the life of the Notes ("Amortizing Notes"). Unless otherwise specified in
the applicable Pricing Supplement, interest on each Amortizing Note will be
computed on the basis of a 360-day year of twelve 30-day months. Payments with
respect to Amortizing Notes will be applied first to interest due and payable
on the Note and then to the reduction of the unpaid principal amount of the
Note. Further information concerning additional terms and provisions of
Amortizing Notes will be specified in the applicable Pricing Supplement,
including a table setting forth repayment information for the Amortizing Notes.
INDEXED NOTES
Archstone may issue Notes with the amount of principal, premium and/or interest
payable to be determined with reference to the price or prices of specific
commodities or stocks, to the exchange rate of one or more designated
currencies (including a composite currency such as the ECU) relative to an
indexed currency or to such other price(s) or exchange rate(s)
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("Indexed Notes"), as specified in the applicable Pricing Supplement. In
certain cases, Holders of Indexed Notes may receive a principal payment on the
Maturity Date that is greater than or less than the principal amount of such
Indexed Notes depending upon the relative value on the Maturity Date of the
specified indexed item. Information as to the method for determining the amount
of principal, premium, if any, and/or interest payable in respect of Indexed
Notes, certain historical information with respect to the specified indexed
item and certain tax considerations associated with an investment in Indexed
Notes will be specified in the applicable Pricing Supplement.
OTHER PROVISIONS, ADDENDA
Any provisions with respect to the Notes, may be modified by the terms
specified under "Other Provisions" on the face of the Note or in an addendum
(an "Addendum") relating thereto, if so specified on the face of the Note and
in the applicable Pricing Supplement.
PAYMENT OF PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, payments of
principal of (and premium, if any) and interest on all Notes will be made in
the applicable Specified Currency; provided, however, that payments of
principal (and premium, if any) and interest on Notes denominated in a currency
other than U.S. dollars will nevertheless be made in U.S. dollars:
(a) at the option of the Holders of such Notes under the procedures
described in the two following paragraphs; and
(b) at Archstone's option in the case of imposition of exchange controls or
other circumstances beyond Archstone's control as described in the last
paragraph under this heading.
Unless otherwise specified in the applicable Pricing Supplement, and except as
provided in the next paragraph, payments of interest and principal (and
premium, if any) for any Note denominated in a currency other than U.S. dollars
will be made in U.S. dollars if the registered Holder of such Note on the
relevant Regular Record Date, or at maturity, as the case may be, has requested
in writing to the Paying Agent on or before such Regular Record Date, or the
date 15 days before maturity, as the case may be, that payments be made in U.S.
dollars. Such request may be in writing (mailed or hand delivered) or by cable
or other form of facsimile transmission. Any such request made for any Note by
a registered Holder will remain in effect for any further payments of interest
and principal (and premium, if any) on such Note payable to the Holder, unless
such request is revoked on or before the relevant Regular Record Date or the
date 15 days before maturity, as the case may be. Holders of Notes denominated
in a currency other than U.S. dollars whose Notes are registered in the name of
a broker or nominee should contact the broker or nominee to determine whether
and how to elect to receive payments in U.S. dollars.
The U.S. dollar amount to be received by a Holder of a Note denominated in a
currency other than U.S. dollars who elects to receive payment in U.S. dollars
will be determined by the exchange rate agent (the "Exchange Rate Agent"), at
approximately 11:00 a.m., New York City time, on the second Business Day
preceding the applicable Payment Date, by selecting the indicative quotations
for the Specified Currency appearing at that time on the bank composite or
multi-contributor pages of the Quoting Source (as defined below) for the first
three banks, in descending order of their appearance on a list of banks to be
agreed to by Archstone and the Exchange Rate Agent prior to such second
Business Day, which are offering quotes on the
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Quoting Source. The Exchange Rate Agent will select from among the selected
quotations the one which will yield the largest number of U.S. dollars upon
conversion from the Specified Currency. "Quoting Source" means Reuters Monitor
Foreign Exchange Service, or if the Exchange Rate Agent determines that that
service is not available, Telerate Monitor Foreign Exchange Service. If the
Exchange Rate Agent determines that neither Service is available, Archstone and
the Exchange Rate Agent shall agree on a comparable display or other comparable
manner of obtaining quotations and that display or manner will become the
Quoting Source.
In the case of a Specified Currency other than ECUs, if (i) fewer than three
bid quotations are available at the time a determination is to be made by the
Exchange Rate Agent pursuant to the preceding paragraph, or (ii) the Exchange
Rate Agent received no later than 12:00 noon, New York City time, on the second
Business Day preceding the applicable Payment Date notice from Archstone that
there exist exchange controls or other circumstances beyond Archstone's control
rendering the Specified Currency unavailable, then the Exchange Rate Agent
will, prior to such Payment Date, notify Archstone and the Trustee of the noon
buying rate in New York City for cable transfers, in the Specified Currency
indicated in such notice, as certified for customs purposes by the Federal
Reserve Bank of New York (the "Market Exchange Rate") as of such second
Business Day. If the Market Exchange Rate for that date is not available, the
Exchange Rate Agent shall immediately notify Archstone and the Trustee of the
most recently available Market Exchange Rate for the Specified Currency. In the
case of ECUs, if: (i) fewer than three bid quotations are available at the time
a determination is to be made by the Exchange Rate Agent pursuant to the
preceding paragraph, or (ii) the Exchange Rate Agent received no later than
12:00 noon, New York City time, on the second Business Day preceding the
applicable Payment Date notice from Archstone that (A) there exist exchange
controls or other circumstances beyond Archstone's control, rendering ECUs
unavailable or (B) ECUs are no longer used in the European Monetary System,
rendering ECUs unavailable, then the Exchange Rate Agent will, prior to such
Payment Date, notify Archstone and the Trustee of the rate of conversion for
ECUs into U.S. dollars, determined as of the second Business Day on the
following basis: The component currencies of the ECUs for this purpose (the
"Components") shall be the currency amounts that were components of the ECUs as
of the last date on which ECUs were used in the European Monetary System. The
equivalent of ECUs in U.S. dollars shall be calculated by aggregating the U.S.
dollar equivalent of the Components. The U.S. dollar equivalent of each of the
Components shall be determined by the Exchange Rate Agent on the basis of the
most recently available Market Exchange Rate for the Components, or as
otherwise specified to the Exchange Rate Agent by Archstone.
Interest will be payable to the person in whose name a Note is registered at
the close of business on the Regular Record Date immediately before each
Interest Payment Date; provided, however, that interest payable at maturity
will be payable to the person to whom principal shall be payable. The first
payment of interest on any Note originally issued between a Regular Record Date
and an Interest Payment Date will be made on the second Interest Payment Date
following its date of issue to the registered owner on the Regular Record Date
relating to the second Interest Payment Date. Unless otherwise indicated in the
applicable Pricing Supplement, the "Regular Record Date" for any Floating Rate
Note will be the date 15 calendar days before each Interest Payment Date,
whether or not that date is a Business Day, and the "Regular Record Date" for
any Fixed Rate Note will be the March 15 and September 15 immediately preceding
the April 1 and October 1 Interest Payment Dates unless otherwise indicated in
the applicable Pricing Supplement.
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Unless otherwise indicated in the applicable Pricing Supplement and except as
provided below, interest will be payable:
(a) for Floating Rate Notes that reset daily, on the third Wednesday of
each month or on the third Wednesday of March, June, September, and
December of each year (as indicated in the applicable Pricing Supplement);
(b) for Floating Rate Notes that reset weekly, on the third Wednesday of
each month or on the third Wednesday of March, June, September, and
December of each year (as indicated in the applicable Pricing Supplement);
(c) for Floating Rate Notes that reset monthly, on the third Wednesday of
each month or on the third Wednesday of March, June, September, and
December of each year (as indicated in the applicable Pricing Supplement);
(d) for Floating Rate Notes that reset quarterly, on the third Wednesday of
March, June, September, and December of each year;
(e) for Floating Rate Notes that reset semi-annually, on the third
Wednesday of the two months of each year specified in the applicable
Pricing Supplement;
(f) for Floating Rate Notes that reset annually, on the third Wednesday of
the month specified in the applicable Pricing Supplement; and
(g) for Floating Rate Notes that reset at intervals other than those
described above, on the days specified in the applicable Pricing
Supplement,
each an "Interest Payment Date," and in each case, at maturity. If an Interest
Payment Date (other than at Stated Maturity, a Redemption Date or an Optional
Repayment Date (as defined below under "Repayment at the Option of the
Holder")) with respect to any Floating Rate Note would otherwise fall on a day
that is not a Market Day with respect to that Note (and for any Note
denominated in a currency other than U.S. dollars, a Business Day in the
country issuing the Specified Currency (or, for ECUs, Brussels)), the Interest
Payment Date will be on the following Market Day (with interest accruing to but
excluding the next following Market Day) (or, in the case of a LIBOR Note, if
such day falls in the next calendar month, the immediately preceding Market Day
(with interest accruing to but excluding the immediately preceding Market
Day)). If the Stated Maturity, Redemption Date or Optional Repayment Date of a
Floating Rate Note falls on a day that is not a Market Day (and for any Note
denominated in a currency other than U.S. dollars, a Business Day in the
country issuing the Specified Currency (or, for ECUs, Brussels)), the required
payment of principal, premium, if any, and interest will be made on the
following Market Day as if made on the date the payment was due, and no
interest will accrue on the payment for the period from and after the Stated
Maturity, Redemption Date or Optional Repayment Date, as the case may be, to
the date of the payment on the following Market Day.
Unless otherwise specified in the applicable Pricing Supplement, interest
payments in respect of Fixed Rate Notes and Floating Rate Notes will equal the
amount of interest accrued from and including the immediately preceding
Interest Payment Date in respect of which interest has been paid or duly made
available for payment (or from and including the date of issue, if no interest
has been paid or duly made available for payment) to but excluding the
applicable Interest Payment Date or the Stated Maturity, as the case may be.
For a Floating Rate Note, accrued interest from (and including) the date of
issue or from (and including) the last date to which interest has been paid is
calculated by multiplying the face amount of such Floating Rate Note by an
accrued interest factor. The accrued interest factor is
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computed by adding the interest factor calculated for each day from (and
including) the date of issue, or from (and including) the last date to which
interest has been paid, but excluding the date for which accrued interest is
being calculated. The interest factor (expressed as a decimal) for each such
day is computed by dividing the interest rate (expressed as a decimal)
applicable to such date by 360 for Commercial Paper Rate Notes, Prime Rate
Notes, LIBOR Notes, CD Rate Notes, Federal Funds Rate Notes, or Eleventh
District Cost of Funds Rate Notes or by the actual number of days in the year
for Treasury Rate Notes or CMT Rate Notes. Interest on Fixed Rate Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
A payment on any Fixed Rate Note due on any day that is not a Market Day (and,
for any Note denominated in a currency other than U.S. dollars, a Business Day
in the country issuing the Specified Currency (or, for ECUs, Brussels)) need
not be made on such a day, but may be made on the following Market Day with the
same force and effect as if made on the due date, and no interest shall accrue
for the period from and after such date.
Payment of the principal of (and premium, if any) and any interest due with
respect to any Note (other than a Book-Entry Note) at maturity will be made in
immediately available funds upon surrender of such Note at the Paying Agent
Office, provided that the Note is presented to the Paying Agent in time for the
Paying Agent to make the payments in such funds in accordance with its normal
procedures. Payments of interest on any Note (other than any Book-Entry Note)
other than at maturity will be made by check mailed to the address of the
Person entitled thereto as it appears in the Security Register or by wire
transfer to such account as may have been appropriately designated by such
Person. Payments in respect of Book-Entry Notes are discussed under "--Book-
Entry Notes."
If the principal of (and premium, if any) or interest on any Note is payable in
a currency other than U.S. dollars and such Specified Currency is not available
due to the imposition of exchange controls or other circumstances beyond the
control of Archstone, Archstone will be entitled to satisfy its obligations to
Holders of the Notes by making payment in U.S. dollars on the basis of the most
recently available Exchange Rate. Any payment made under such circumstances in
U.S. dollars where the required payment is in a currency other than U.S.
dollars will not constitute an Event of Default under the Indenture.
REPAYMENT AT THE OPTION OF THE HOLDER
The Notes will be repayable by Archstone at the option of the Holders thereof
prior to Stated Maturity only if one or more optional repayment dates are
specified on the face of the Note and in the applicable Pricing Supplement
("Optional Repayment Dates"). If so specified, the Notes will be subject to
repayment at the option of the Holders thereof on any Optional Repayment Date
in whole or in part in increments of U.S. $1,000 or such other minimum
denomination specified in the applicable Pricing Supplement (provided that any
remaining principal amount thereof shall be at least U.S. $1,000 or such other
minimum denomination), at a repayment price equal to 100% of the unpaid
principal amount to be repaid (or, if this Note is an Original Issue Discount
Note, such lesser amount as provided therein), together with unpaid interest
accrued to the date of repayment. For any Note to be repaid, the Note must be
received, together with the form thereon entitled "Option to Elect Repayment"
duly completed, by the Trustee at its Corporate Trust Office (or such other
address of which Archstone shall from time to time notify the Holders) not more
than 60 nor less than 30 calendar days prior to the date of repayment. Exercise
of such repayment option by the Holder will be irrevocable.
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Only the Depositary may exercise the repayment option in respect of Global
Securities representing Book-Entry Notes. Accordingly, holders of beneficial
interests ("Beneficial Owners") of a permanent global Note that desire to have
all or any portion of the Book-Entry Notes represented by such permanent global
Note repaid must instruct the participant through which they own their interest
to direct the Depositary to exercise the repayment option on their behalf by
delivering the related permanent global Note and duly completed election form
to the Trustee as aforesaid. In order to ensure that the permanent global Note
and election form are received by the Trustee on a particular day, the
applicable Beneficial Owner must so instruct the participant through which it
owns its interest before such participant's deadline for accepting instructions
for that day. Different firms may have different deadlines for accepting
instructions from their customers. Accordingly, Beneficial Owners should
consult the participants through which they own their interest for the
respective deadlines for such participants. All instructions given to
participants from Beneficial Owners of permanent global Notes relating to the
option to elect repayment shall be irrevocable. In addition, at the time such
instructions are given, each such Beneficial Owner shall cause the participant
through which it owns its interest to transfer such Beneficial Owner's interest
in the permanent global Note or Notes representing the related Book-Entry
Notes, on the Depositary's records, to the Trustee. See "--Book-Entry Notes."
If applicable, Archstone will comply with the requirements of Rule 14e-1 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any
other securities laws or regulations in connection with any such repayment.
Archstone may at any time purchase Notes at any price or prices in the open
market or otherwise. Notes so purchased by Archstone may, at the discretion of
Archstone, be held, resold or surrendered to the Trustee for cancellation.
OPTIONAL REDEMPTION
Unless otherwise specified in the applicable Pricing Supplement, the Notes will
not be redeemable prior to their Stated Maturity. If so specified in the
applicable Pricing Supplement, the Notes will be redeemable at Archstone's
option at any time after the date or dates specified therein. If one or more
dates are so specified with respect to any Note, the applicable Pricing
Supplement will also specify one or more redemption prices (expressed as a
percentage of the principal amount of such Note) ("Redemption Prices") and the
redemption period or periods ("Redemption Periods") during which such
Redemption Prices apply. Unless otherwise specified in the Pricing Supplement,
any such Note shall be redeemable at the option of Archstone at the specified
Redemption Price applicable to the Redemption Period during which the Note is
to be redeemed, together with interest accrued to the Redemption Date.
If so specified in the applicable Pricing Supplement, the Notes will be
redeemable at Archstone's option, as a whole or from time to time in part in
increments of U.S. $1,000 or such other minimum denomination specified in the
applicable Pricing Supplement (provided that any remaining principal amount
thereof shall be at least U.S. $1,000 or such other minimum denomination), on
any date prior to their Stated Maturity at a Redemption Price equal to 100% of
the principal amount thereof plus accrued interest to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on an Interest Payment Date that is on or prior to the
Redemption Date), plus a Make-Whole Premium, if any.
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The "Make-Whole Premium" in respect of any Note is intended to be the amount,
if any, which, when added to the then outstanding principal amount of such
Note, would, if invested on the Redemption Date of such Note in U.S. Treasury
securities with maturities equal to the Remaining Life of the Notes, have a
yield to maturity equal to the original yield to maturity of the Notes, based
on the initial public offering price of the Notes set forth in the applicable
Pricing Supplement. The amount of the Make-Whole Premium in respect of the
principal amount of any Note to be redeemed will be calculated by Archstone and
will be the excess, if any, of (i) the sum of the present values, as of the
Redemption Date of such Note, of (A) the respective interest payments
(exclusive of the amount of accrued interest to the Redemption Date) on such
Note that, but for such redemption, would have been payable on their respective
Interest Payment Dates after such Redemption Date, and (B) the payment of such
principal amount that, but for such redemption, would have been payable on the
Stated Maturity over (ii) the amount of such principal to be redeemed. Such
present values will be determined in accordance with generally accepted
principles of financial analysis by discounting the amounts of such payments of
interest and principal from their respective Stated Maturities to such
Redemption Date at a discount rate equal to the Treasury Yield.
The "Treasury Yield" in respect of any Note to be redeemed shall be determined
as of the date on which notice of redemption of such Note is sent to the Holder
thereof by reference to the most recent Federal Reserve Statistical Release
H.15(519) (or successor publication) which has become publicly available not
more than two Business Days prior to such date (or, if such Statistical Release
(or successor publication) is no longer published or no longer contains the
applicable data, to the most recently published issue of The Wall Street
Journal (Eastern Edition) published not more than two Business Days prior to
such date that contains such data or, if The Wall Street Journal (Eastern
Edition) is no longer published or no longer contains such data, to any
publicly available source of similar market data), and shall be the most recent
weekly average yield on actively traded U.S. Treasury securities adjusted to a
constant maturity equal to the Remaining Life of the Notes and, if applicable,
converted to a bond equivalent yield basis as described below. The "Remaining
Life of the Notes" shall equal the number of years from the Redemption Date to
the Stated Maturity of the Notes; provided that if the Remaining Life of the
Notes being redeemed is not equal to the constant maturity of a U.S. Treasury
security for which a weekly average yield is specified in the applicable
source, then the Remaining Life of the Notes shall be rounded to the nearest
one-twelfth of one year and the Treasury Yield shall be obtained by linear
interpolation (computed to the fifth decimal place (one thousandth of a
percentage point) and then rounded to the fourth decimal place (one hundredth
of a percentage point)), after rounding to the nearest one-twelfth of one year,
from the weekly average yields of (a) the actively traded U.S. Treasury
security with a maturity closest to and less than the Remaining Life of the
Notes and (b) the actively traded U.S. Treasury security with a maturity
closest to and greater than the Remaining Life of the Notes, except that if the
Remaining Life of the Notes is less than three months, the weekly average yield
on actively traded U.S. Treasury securities adjusted to a constant maturity of
three months shall be used. The Treasury Yield shall, if expressed on a yield
basis other than that equivalent to a bond equivalent yield basis, be converted
to a bond equivalent yield basis and shall be computed to the fifth decimal
place (one thousandth of a percentage point) and then rounded to the fourth
decimal place (one hundredth of a percentage point).
Notice of redemption will be provided by mailing a notice of such redemption to
each Holder by first class mail, postage prepaid, at least 30 days and not more
than 60 days prior to the date fixed for redemption to the respective address
of each Holder as that address appears in the Security Register.
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Archstone may purchase Notes at any price in the open market or otherwise.
Notes purchased by Archstone may, at the discretion of Archstone, be held or
resold or surrendered to the Trustee for cancellation.
BOOK-ENTRY NOTES
Upon issuance, all Book-Entry Notes having the same terms and date of issue
will be represented by a single permanent global Note. Each permanent global
Note representing Book-Entry Notes will be deposited with, or on behalf of, The
Depository Trust Company, as Depositary (the "Depositary"), located in the
Borough of Manhattan, The City of New York, and will be registered in the name
of the Depositary or a nominee of the Depositary. Currently, the Depositary
will accept the deposit of only permanent global Notes denominated in U.S.
dollars.
Ownership of beneficial interests in a permanent global Note representing Book-
Entry Notes will be limited to institutions that have accounts with the
Depositary or its nominee ("participants") or persons that may hold interests
through participants. In addition, ownership of beneficial interests by
participants in such a permanent global Note will be evidenced only by, and the
transfer of that ownership interest will be effected only through, records
maintained by the Depositary or its nominee for such permanent global Note.
Ownership of beneficial interests in such a permanent global Note by persons
that hold through participants will be evidenced only by, and the transfer of
that ownership interest within such participant will be effected only through,
records maintained by such participant. The laws of some jurisdictions require
that certain purchasers of securities take physical delivery of such securities
in definitive form. Such laws may impair the ability to transfer beneficial
interests in such a permanent global Note.
Archstone has been advised by the Depositary that upon the issuance of a
permanent global Note representing Book-Entry Notes, and the deposit of such
permanent global Note with the Depositary, the Depositary will immediately
credit, on its book-entry registration and transfer system, the respective
principal amounts of the Book-Entry Notes represented by such permanent global
Note to the accounts of participants. The accounts to be credited shall be
designated by the soliciting Agent or, to the extent that the Book-Entry Notes
are offered and sold directly, by Archstone.
Payment of principal of and any premium and interest on Book-Entry Notes
represented by any permanent global Note registered in the name of or held by
the Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the registered owner and Holder of the permanent global
Note representing such Book-Entry Notes. Neither Archstone, the Trustee, nor
any agent of Archstone or the Trustee will have any responsibility or liability
for any aspect of the Depositary's records or any participant's records
relating to or payments made on account of beneficial ownership interests in a
permanent global Note representing such Book-Entry Notes or for maintaining,
supervising or reviewing any of the Depositary's records or any participant's
records relating to such beneficial ownership interests.
Archstone has been advised by the Depositary that upon receipt of any payment
of principal of or any premium or interest in respect of a permanent global
Note, the Depositary will immediately credit, on its book-entry registration
and transfer system, accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such permanent global Note as shown on the records of the Depositary.
Payments by participants to owners of beneficial interests in a permanent
global Note held through such
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participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers
registered in "street name," and will be the sole responsibility of such
participants.
No permanent global Note described above may be transferred except as a whole
by the Depositary for such permanent global Note to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary.
A permanent global Note representing Book-Entry Notes is exchangeable for
definitive Notes registered in the name of, and a transfer of a permanent
global Note may be registered to, any Person other than the Depositary or its
nominee, only if:
(a) the Depositary notifies Archstone that it is unwilling or unable to
continue as Depositary for such permanent global Note or if at any time the
Depositary ceases to be a clearing agency registered under the Exchange
Act;
(b) Archstone in its sole discretion determines that such permanent global
Note shall be exchangeable for definitive Notes in registered form; or
(c) any event shall have happened and be continuing that constitutes or,
after notice or lapse of time, or both, would constitute an Event of
Default with respect to the Notes.
Any permanent global Note that is exchangeable pursuant to the preceding
sentence shall be exchangeable in whole for definitive Notes in registered
form, of like tenor and of an equal aggregate principal amount, in
denominations of U.S. $1,000 and integral multiples of U.S. $1,000 in excess
thereof. Such definitive Notes shall be registered in the name or names of such
person or persons as the Depositary shall instruct the Trustee. It is expected
that such instructions may be based upon directions received by the Depositary
from its participants with respect to ownership of beneficial interests in such
permanent global Note.
Except as provided above, owners of beneficial interests in such permanent
global Note will not be entitled to receive physical delivery of Notes in
definitive form and will not be considered the Holders thereof for any purpose
under the Indenture, and no permanent global Note representing Book-Entry Notes
shall be exchangeable, except for another permanent global Note of like
denomination and tenor to be registered in the name of the Depositary or its
nominee. Accordingly, each person owning a beneficial interest in such
permanent global Note must rely on the procedures of the Depositary and, if
such person is not a participant, on the procedures of the participant through
which such person owns its interest, to exercise any rights of a Holder under
the Indenture.
The Indenture provides that the Depositary, as a Holder, may appoint agents and
otherwise authorize participants to give or take any request, demand,
authorization, direction, notice, consent, waiver, or other action which a
Holder is entitled to give or take under the Indenture. Archstone understands
that, under existing industry practices, in the event that Archstone requests
any action of Holders or an owner of a beneficial interest in such permanent
global Note desires to give or take any action that a Holder is entitled to
give or take under the Indenture, the Depositary would authorize the
participants holding the relevant beneficial interests to give or take such
action, and such participants would authorize beneficial owners owning through
such participants to give or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
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The Depositary has advised Archstone that the Depositary is a limited purpose
trust company organized under the laws of the State of New York, a member of
the Federal Reserve System, a "clearing corporation" within the meaning of the
New York Uniform Commercial Code, and a "clearing agency" registered under the
Exchange Act. The Depositary was created to hold securities of its participants
and to facilitate the clearance and settlement of securities transactions among
its participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. The Depositary's participants include
securities brokers and dealers (including the Agents), banks, trust companies,
clearing corporations, and certain other organizations, some of whom (or their
representatives) own the Depositary. Access to the Depositary's book-entry
system is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
FOREIGN CURRENCY RISKS
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in a Note denominated in a currency other than U.S. dollars
entails significant risks. These risks include the possibility of significant
changes in rates of exchange between the U.S. dollar and other currencies and
the possibility of the imposition or modification of foreign exchange controls
by either the United States or foreign governments. These risks generally
depend on factors over which Archstone has no control, including economic and
political events and the supply of and demand for the relevant currencies. In
recent years, rates of exchange between the U.S. dollar and certain currencies
have been highly volatile, and prospective purchasers should be aware that
volatility may occur in the future. Fluctuations in any particular exchange
rate that have occurred in the past, however, are not necessarily indicative of
fluctuations in the rate that may occur during the term of any Note.
Depreciation of the specified currency for a Note against the U.S. dollar would
result in a decrease in the effective yield of such Note (on a U.S. dollar
basis) below its coupon rate and, in certain circumstances, could result in a
loss to prospective purchasers on a U.S. dollar basis.
Except as set forth below, if payment in respect of a Note is required to be
made in a currency other than U.S. dollars and such currency is unavailable to
Archstone due to the imposition of exchange controls or other circumstances
beyond Archstone's control or is no longer used by the government of the
relevant country or for the settlement of transactions by public institutions
of or within the international banking community, then all payments in respect
of such Note will be made in U.S. dollars until such currency is again
available to Archstone or so used. The amounts payable on any date in such
currency will be converted into U.S. dollars on the basis of the most recently
available market exchange rate for such currency or as otherwise indicated in
the applicable pricing supplement. Any payment in respect of such Note so made
in U.S. dollars will not constitute an event of default under the Indenture.
But, if a specified currency is unavailable to Archstone solely because the
country of issue has replaced its currency with Euro or other currency of the
European Union pursuant to the Treaty establishing the European Community, the
amounts payable will, beginning with the date the replacement becomes
effective, be made in Euro or such other currency. The amounts payable on any
date will be converted into Euro or such other currency on the basis of the
conversion rate officially in effect in the European Union on the effective
date of the replacement.
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If payment is required to be made in Euro and Euro are unavailable to Archstone
due to the imposition of exchange controls or other circumstances beyond
Archstone's control or are no longer used in the European Monetary System, then
all payments will be made in U.S. dollars until Euro are again available to
Archstone or so used. The amount of each payment in U.S. dollars will be
computed on the basis of the equivalent of Euro in U.S. dollars, determined as
described below, as of the second Business Day prior to the date on which such
payment is due.
If payments on any series of Notes must be made in the European Currency Unit
("ECU") and Euro is substituted for the ECU as the unit of account of the
European Community or the European Central Bank, then Archstone may
redenominate all of the Notes of that series into Euros, by giving holders
notice of the redenomination.
The paying agent will make all determinations referred to above at its sole
discretion. All determinations will, in the absence of clear error, be binding
on holders of the Notes.
The information set forth in this prospectus supplement is directed to
prospective purchasers of Notes who are U.S. residents. We disclaim any
responsibility to advise any other prospective purchasers with respect to any
matters that may affect the purchase, sale or holding of Notes. These persons
should consult their own legal and financial advisors with regard to such
matters.
Any pricing supplement relating to Notes having a specified currency other than
U.S. dollars will contain information concerning historical exchange rates for
that currency against the U.S. dollar and a brief description of any relevant
exchange controls.
FOREIGN CURRENCY JUDGMENTS
The Notes will be governed by and construed in accordance with the internal
laws of the State of New York. Courts in the United States customarily have not
rendered judgments for money damages denominated in any currency other than the
U.S. dollar.
UNITED STATES TAXATION
The following discussion is a summary of the principal United States federal
income tax consequences of ownership and disposition of Notes. It deals only
with Notes held as capital assets by initial purchasers and not with special
classes of holders, such as dealers in securities or currencies, banks, tax-
exempt organizations, life insurance companies, persons that hold Notes that
are a hedge or that are hedged against currency risks or that are part of a
straddle or conversion transaction or persons whose functional currency is not
the U.S. dollar. Moreover, the summary deals only with Notes that are due to
mature 30 years or less from the date on which they are issued. The United
States federal income tax consequences of ownership of Notes that are due to
mature more than 30 years from their date of issue will be discussed in an
applicable Pricing Supplement. The summary is based on the Internal Revenue
Code of 1986, as amended (the "Code"), its legislative history, final,
temporary and proposed regulations thereunder, administrative rulings and court
decisions, all as currently in effect and all subject to change at any time,
perhaps with retroactive effect.
Prospective purchasers of Notes should consult their own tax advisors
concerning the consequences, in their particular circumstances, under the Code
and the laws of any other taxing jurisdiction, of the ownership and disposition
of Notes.
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UNITED STATES HOLDERS
PAYMENTS OF INTEREST
Payments of "qualified stated interest" (as defined below under "Original Issue
Discount--General") on a Note, whether payable in U.S. dollars or a currency,
composite currency or basket of currencies other than U.S. dollars (a "foreign
currency"), generally will be taxable to a United States Holder as ordinary
income at the time it is received or accrued, depending on the holder's method
of accounting for tax purposes. A United States Holder is a beneficial owner of
a Note who or that is (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity, other than a partnership that is not
treated as a U.S. person under applicable Treasury regulations, created or
organized in the United States or organized under the laws of the United States
or of any State thereof, (iii) an estate the income of which is subject to
United States federal income taxation regardless of its source, (iv) a trust
described in Section 7701(a)(30) of the Code (taking into account changes
thereto and associated effective dates, elections and transition rules) or (v)
otherwise subject to United States federal income taxation on a net income
basis in respect of a Note. The term "United States Holder" also includes
certain former citizens and residents of the United States whose income and
gain on the Notes will be subject to United States taxation. As used herein,
the term "United States Alien Holder" means a Holder of a Note who or that is
not a United States Holder.
If an interest payment is denominated in, or determined by reference to, a
foreign currency, the amount of income recognized by a cash basis United States
Holder will be the U.S. dollar value of the interest payment, based on the
exchange rate in effect on the date of receipt, regardless of whether the
payment is in fact received in or converted into U.S. dollars. An accrual basis
United States Holder may determine the amount of income recognized with respect
to an interest payment denominated in, or determined by reference to, a foreign
currency in accordance with either of two methods. Under the first method, the
amount of income accrued by a United States Holder will be based on the average
exchange rate in effect during the interest accrual period (or, with respect to
an accrual period that spans two taxable years, the part of the period within
the taxable year).
Under the second method, the United States Holder may elect to determine the
amount of income accrued on the basis of the exchange rate in effect on the
last day of the accrual period or, in the case of an accrual period that spans
two taxable years, the exchange rate in effect on the last day of the part of
the period within the taxable year. Additionally, if a payment of interest is
actually received within five business days of the last day of the accrual
period or taxable year, an electing accrual basis United States Holder may
instead translate such accrued interest into U.S. dollars at the exchange rate
in effect on the day of actual receipt. Any such election will apply to all
debt instruments held by the United States Holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the United
States Holder, and will be irrevocable without the consent of the Internal
Revenue Service (the "Service").
Upon receipt of the interest payment (including a payment attributable to
accrued but unpaid interest upon the sale or retirement of a Note) denominated
in, or determined by reference to, a foreign currency, the accrual-basis United
States Holder thereof will recognize ordinary income or loss measured by the
difference between (x) the average exchange rate used to accrue interest
income, or the exchange rate as determined under the second method described
above if the United States Holder elects that method, and (y) the exchange rate
in effect on the date of receipt, regardless of whether the payment is in fact
converted into U.S. dollars.
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ORIGINAL ISSUE DISCOUNT
GENERAL. A Note, other than a Note with a term of one year or less (a "short-
term Note"), will be treated as issued at an original issue discount (a
"Original Issue Discount Note") if the excess of the Note's "stated redemption
price at maturity" over its issue price is more than a "de minimis amount" (as
defined below). Generally, the issue price of a Note will be the first price at
which a substantial amount of Notes included in the issue of which the Note is
a part is sold to the public (excluding bond houses, brokers, or similar
persons or organizations acting in the capacity of underwriters, placement
agents, or wholesalers). The stated redemption price at maturity of a Note is
the total of all payments provided by the Note that are not payments of
"qualified stated interest." Qualified stated interest is generally stated
interest that is unconditionally payable in cash or property (other than debt
instruments of the issuer) at least annually at a single fixed rate (with
certain exceptions for lower rates paid during some periods). Special rules for
"Variable Rate Notes" (as defined below under "Original Issue Discount--
Variable Rate Notes") are described below under "Original Issue Discount--
Variable Rate Notes."
In general, if the excess of a Note's stated redemption price at maturity over
its issue price is less than 1/4 of 1 percent of the Note's stated redemption
price at maturity multiplied by the number of complete years to its maturity,
or in the case of Amortizing Notes, the weighted average maturity as determined
under the applicable regulations (the "de minimis amount"), then such excess,
if any, constitutes "de minimis original issue discount" and the Note is not an
Original Issue Discount Note. Unless the election described below under
"Election to Treat All Interest as Original Issue Discount" is made, a United
States Holder of a Note with de minimis original issue discount must include
such de minimis original issue discount in income as capital gain as stated
principal payments on the Note are made. The includible amount with respect to
each such payment will equal the product of the total amount of the Note's de
minimis original issue discount and a fraction, the numerator of which is the
amount of the principal payment made and the denominator of which is the stated
principal amount of the Note.
United States Holders of Original Issue Discount Notes having a maturity of
more than one year from their date of issue, whether a holder uses the cash or
accrual method of accounting must, generally, include in ordinary gross income,
before the receipt of cash attributable to such income, original issue discount
("OID") calculated on a constant-yield method. The amount of OID includible in
income by a United States Holder of an Original Issue Discount Note is the sum
of the daily portions of OID with respect to the Original Issue Discount Note
for each day during the taxable year or portion of the taxable year on which
the United States Holder holds such Original Issue Discount Note ("accrued
OID"). The daily portion is determined by allocating to each day in any
"accrual period" a pro rata portion of the OID allocable to that accrual
period. Accrual periods with respect to a Note may be of any length selected by
the United States Holder and may vary in length over the term of the Note as
long as (i) no accrual period is longer than one year and (ii) each scheduled
payment of interest or principal on the Note occurs on either the final or
first day of an accrual period. In the case of an initial holder, the amount of
OID allocable to an accrual period equals the excess of (a) the product of the
Original Issue Discount Note's "adjusted issue price" at the beginning of the
accrual period and such Note's yield to maturity (determined on the basis of
compounding at the close of each accrual period and properly adjusted for the
length of the accrual period) over (b) the sum of the qualified stated interest
payments, if any, payable (or treated as payable) on the Note during the
accrual period. The "adjusted issue price" of an Original Issue Discount Note
at the beginning of any accrual period is the issue price of the Note
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increased by (x) the amount of accrued OID for each prior accrual period and
decreased by (y) the amount of any payments previously made on the Note that
were not qualified stated interest payments. For purposes of determining the
amount of OID allocable to an accrual period, if an interval between payments
of qualified stated interest on the Note contains more than one accrual period,
the amount of qualified stated interest payable at the end of the interval
(including any qualified stated interest that is payable on the first day of
the accrual period immediately following the interval) is allocated on a pro
rata basis to each accrual period in the interval, and the adjusted issue price
at the beginning of each accrual period in the interval must be increased by
the amount of any qualified stated interest that has accrued prior to the first
day of the accrual period but that is not payable until the end of the
interval. The amount of OID allocable to an initial short accrual period may be
computed using any reasonable method if all other accrual periods other than a
final short accrual period are of equal length. The amount of OID allocable to
the final accrual period is the difference between (x) the amount payable at
the maturity of the Note (other than any payment of qualified stated interest)
and (y) the Note's adjusted issue price as of the beginning of the final
accrual period.
ACQUISITION PREMIUM. A United States Holder that purchases a Note for an amount
less than or equal to the sum of all amounts payable on the Note after the
purchase date other than payments of qualified stated interest but in excess of
the Note's adjusted issue price (as determined above under "Original Issue
Discount--General") (any such excess being "acquisition premium") and that does
not make the election described below under "Election to Treat All Interest as
Original Issue Discount" is permitted to reduce each daily portions of OID by a
fraction thereof, the numerator of which fraction is the excess of the United
States Holder's adjusted basis in the Note immediately after its purchase by
such holder over the adjusted issue price of the Note, and the denominator of
which is the excess of the sum of all amounts payable on the Note after the
purchase date, other than payments of qualified stated interest, over the
Note's adjusted issue price.
MARKET DISCOUNT. A Note, other than a short-term Note, will be treated as
purchased at a market discount (a "Market Discount Note") if (i) the amount for
which a United States Holder purchased the Note is less than the Note's issue
price (as determined above under "Original Issue Discount--General") and (ii)
the Note's stated redemption price at maturity or, in the case of an Original
Issue Discount Note, the Note's "revised issue price," exceeds the amount for
which the United States Holder purchased the Note by at least 1/4 of 1 percent
of such Note's stated redemption price at maturity or revised issue price,
respectively, multiplied by the number of complete years (or weighted average
years in the case of Amortizing Notes) to the Note's maturity. If such excess
is not sufficient to cause the Note to be a Market Discount Note, then such
excess constitutes "de minimis market discount" and such Note is not subject to
the rules discussed in the following paragraphs. The Code provides that, for
these purposes, the "revised issue price" of a Note generally equals its issue
price, increased by the amount of any OID that has accrued on the Note.
Any gain recognized on the maturity or disposition of a Market Discount Note
will be treated as ordinary income to the extent that such gain does not exceed
the accrued market discount on such Note. Any principal payment (or, in the
case of an Original Issue Discount Note, any payment that is not a payment of
qualified stated interest) on a Market Discount Note will be treated as
ordinary income to the extent of the market discount that has not been
previously included in income and is treated as having accrued at the time of
such payment.
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Alternatively, a United States Holder of a Market Discount Note may elect to
include market discount in income currently as it accrues over the life of the
Note. Such an election shall apply to all debt instruments with market discount
acquired by the electing United States Holder on or after the first day of the
first taxable year to which the election applies. This election may not be
revoked without the consent of the Service. A United States Holder's tax basis
in a Market Discount Note is increased by the amount of market discount
included in such holder's income under such an election.
Market discount on a Market Discount Note will accrue on a straight-line basis
unless the United States Holder elects to accrue such market discount on a
constant-yield method. Such an election shall apply only to the Note with
respect to which it is made and may not be revoked. A United States Holder of a
Market Discount Note that does not elect to include market discount in income
currently generally will be required to defer deductions for net direct
interest expense related to such Note in an amount not exceeding the accrued
market discount on such Note until the maturity or disposition of such Note.
PRE-ISSUANCE ACCRUED INTEREST. If (i) a portion of the initial purchase price
of a Note is attributable to pre-issuance accrued interest, (ii) the first
stated interest payment on the Note is to be made within one year of the Note's
issue date and (iii) the payment will equal or exceed the amount of pre-
issuance accrued interest, then the United States Holder may elect to decrease
the issue price of the Note by the amount of pre-issuance accrued interest. In
that event, a portion of the first stated interest payment will be treated as a
return of the excluded pre-issuance accrued interest and not as an amount
payable on the Note.
NOTES SUBJECT TO CONTINGENCIES INCLUDING OPTIONAL REDEMPTION. ln general, if a
Note provides for an alternative payment schedule or schedules applicable upon
the occurrence of a contingency or contingencies (other than a remote or
incidental contingency), the timing and amounts of the payments that comprise
each payment schedule are known as of the issue date and one of such schedules
is significantly more likely than not to occur, the yield and maturity of the
Note are determined by assuming that the payments will be made according to
that payment schedule. If there is no single payment schedule that is
significantly more likely than not to occur (other than because of a mandatory
sinking fund), the Notes will be subject to special rules governing contingent
payment obligations that will be discussed in the applicable Pricing
Supplement.
Notwithstanding the general rules for determining yield and maturity in the
case of Notes subject to contingencies, if Archstone or the Holder has an
unconditional option or options, exercisable on one or more dates during the
term of such Note, that, if exercised, would require payments to be made on the
Note under an alternative payment schedule or schedules, then (i) in the case
of an option or options of Archstone, Archstone will be deemed to exercise or
not exercise an option or combination of options in the manner that minimizes
the yield on the Note and (ii) in the case of an option or options of the
Holder, the Holder will be deemed to exercise or not exercise an option or
combination of options in the manner that maximizes the yield on the Note. If
both Archstone and the Holder have options described in the preceding sentence,
those rules apply to such options in the order in which they may be exercised.
For purposes of those calculations, the yield on the Note is determined by
using any date on which the Note may be redeemed or repurchased as the maturity
date and the amount payable on such date in accordance with the terms of the
Note as the principal amount payable at maturity.
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If a contingency (including the exercise of an option) actually occurs or does
not occur contrary to an assumption made according to the above rules (a
"change in circumstances") then, except to the extent that a portion of the
Note is repaid as a result of the change in circumstances and solely for
purposes of determining the amount and accrual of OID, the yield and maturity
of the Note are redetermined by treating the Note as having been retired and
reissued on the date of the change in circumstances for an amount equal to the
Note's adjusted issue price on that date.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. A United States
Holder may elect to include in gross income all interest that accrues on a Note
using the constant-yield method described above under the heading "Original
Issue Discount--General," with the modifications described below. For purposes
of this election, interest includes stated interest, OID, de minimis original
issue discount, market discount, de minimis market discount and unstated
interest, as adjusted by any amortizable bond premium (described below under
"Notes Purchased at a Premium") or acquisition premium. A United States
Holder's tax basis in a Note is increased by each accrual of the amounts
treated as OID under the constant yield election described in this paragraph.
In applying the constant-yield method to a Note with respect to which this
election has been made, the issue price of the Note will equal its cost to the
electing United States Holder immediately after its acquisition thereby, the
issue date of the Note will be the date of its acquisition by the electing
United States Holder, and no payments on the Note will be treated as payments
of qualified stated interest. This election will generally apply only to the
Note with respect to which it is made and may not be revoked without the
consent of the Service. If this election is made with respect to a Note with
amortizable bond premium, then the electing United States Holder will be deemed
to have elected to apply amortizable bond premium against interest with respect
to all debt instruments with amortizable bond premium (other than debt
instruments the interest on which is excludible from gross income) held by the
electing United States Holder as of the beginning of the taxable year in which
the Note with respect to which the election is made is acquired or thereafter
acquired. The deemed election with respect to amortizable bond premium may not
be revoked without the consent of the Service.
If the election to apply the constant-yield method to all interest on a Note is
made with respect to a Market Discount Note, the electing United States Holder
will be treated as having made the election discussed above under "Original
Issue Discount--Market Discount" to include market discount in income currently
over the life of all debt instruments held or thereafter acquired by such
United States Holder.
VARIABLE RATE NOTES. A "Variable Rate Note" is a Note that: (i) has an issue
price that does not exceed the total noncontingent principal payments by more
than an amount equal to the lesser of (1) the product of (x) the total
noncontingent principal payments, (y) the number of complete years to maturity
(or weighted average maturity in the case of Amortizing Notes) from the issue
date and (z) .015, and (2) 15 percent of the total noncontingent principal
payments, and (ii) provides for stated interest (compounded or paid at least
annually) at the current value of (1) one or more "qualified floating rates,"
(2) a single fixed rate and one or more qualified floating rates, (3) a single
"objective rate" or (4) a single fixed rate and a single objective rate that is
a "qualified inverse floating rate." A "current value" of a qualified floating
rate or objective rate is the value of the rate on any day that is no earlier
than 3 months prior to the first day on which that value is in effect and no
later than 1 year following that first day. Finally, a Variable Rate Note must
not provide for any contingent principal payments, except as otherwise provided
in this paragraph.
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A variable rate is a "qualified floating rate" if (i) variations in the value
of the rate can reasonably be expected to measure contemporaneous variations in
the cost of newly borrowed funds in the currency in which the Note is
denominated or (ii) it is equal to the product of such a rate and either (a) a
fixed multiple that is greater than 0.65 but not more than 1.35, or (b) a fixed
multiple greater than or equal to 0.65 but not more than 1.35, increased or
decreased by a fixed rate. If a Note provides for two or more qualified
floating rates that (i) are within 0.25 percent of each other on the issue date
or (ii) can reasonably be expected to have approximately the same values
throughout the term of the Note, the qualified floating rates together
constitute a single qualified floating rate. A rate is not a qualified floating
rate, however, if the rate is subject to certain restrictions (including caps,
floors, governors, or other similar restrictions) unless such restrictions are
fixed throughout the term of the Note or are not reasonably expected to
significantly affect the yield on the Note.
An "objective rate" is a rate, other than a qualified floating rate, that is
determined using a single, fixed formula and that is based on objective
financial or economic information that is not within the control of or unique
to the circumstances of the issuer or a related party. A variable rate is not
an objective rate, however, if it is reasonably expected that the average value
of the rate during the first half of the Note's term will be either
significantly less than or significantly greater than the average value of the
rate during the final half of the Note's term. An objective rate is a
"qualified inverse floating rate" if (i) the rate is equal to a fixed rate
minus a qualified floating rate, and (ii) the variations in the rate can
reasonably be expected to inversely reflect contemporaneous variations in the
cost of newly borrowed funds.
If interest on a Note is stated at a fixed rate for an initial period of one
year or less followed by a variable rate that is either a qualified floating
rate or an objective rate for a subsequent period and (i) the fixed rate and
the qualified floating rate or objective rate have values on the issue date of
the Note that do not differ by more than 0.25 percent or (ii) the value of the
qualified floating rate or objective rate is intended to approximate the fixed
rate, the fixed rate and the qualified floating rate or the objective rate
constitute a single qualified floating rate or objective rate. Under these
rules, it is expected that Commercial Paper Rate Notes, Prime Rate Notes, LIBOR
Notes, Treasury Rate Notes, CD Rate Notes, CMT Rate Notes, Federal Funds Rate
Notes and Eleventh District Cost of Funds Rate Notes will generally be treated
as Variable Rate Notes.
In general, if a Variable Rate Note provides for stated interest at a single
qualified floating rate or an objective rate and the interest is generally
unconditionally payable in cash or property (other than debt instruments of
Archstone) at least annually, all stated interest on the Note is qualified
stated interest and the amount of OID, if any, is determined as described in
"Original Issue Discount--General" by using, in the case of a qualified
floating rate or qualified inverse floating rate, the value as of the issue
date of the qualified floating rate or qualified inverse floating rate, or, in
the case of any other objective rate (other than a qualified inverse floating
rate), a fixed rate that reflects the yield reasonably expected for the Note.
If a Variable Rate Note does not provide for stated interest at a single
qualified floating rate or an objective rate and also does not provide for
interest payable at a fixed rate (other than at a single fixed rate for an
initial period), the amount of interest and OID accruals on the Note are
generally determined by (i) determining a fixed rate substitute for each
variable rate provided under the Variable Rate Note (generally, the value of
each variable rate as of the issue date or, in the case of an objective rate
that is not a qualified inverse floating rate, a rate that reflects the
reasonably expected yield on the Note), (ii) constructing the equivalent fixed
rate debt
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instrument (using the fixed rate substitutes described above), (iii)
determining the amount of qualified stated interest and OID with respect to the
equivalent fixed rate debt instrument, and (iv) making the appropriate
adjustments for actual variable rates during the applicable accrual period.
If a Variable Rate Note provides for stated interest either at one or more
qualified floating rates or at a qualified inverse floating rate, and in
addition provides for stated interest at a single fixed rate (other than at a
single fixed rate for an initial period), the amount of interest and OID
accruals are determined as in the immediately preceding paragraph with the
modification that the Variable Rate Note is treated, for purposes of the first
three steps of the determination, as if it provided for a qualified floating
rate (or a qualified inverse floating rate, as the case may be) rather than the
fixed rate. The qualified floating rate (or qualified inverse floating rate)
replacing the fixed rate must be such that the fair market value of the
Variable Rate Note as of the issue date would be approximately the same as the
fair market value of an otherwise identical debt instrument that provides for
the qualified floating rate (or qualified inverse floating rate) rather than
the fixed rate.
SHORT-TERM NOTES. In general, an individual or other cash basis United States
Holder of a short-term Note is not required to accrue "acquisition discount"
(as defined below for the purposes of this paragraph) for United States federal
income tax purposes unless it elects to do so (but may be required to include
any stated interest in income as the interest is received). Accrual basis
United States Holders and certain other United States Holders, including banks,
regulated investment companies, dealers in securities, common trust funds,
United States Holders who hold Notes as part of certain identified hedging
transactions, certain pass-through entities and cash basis United States
Holders who so elect, are required to accrue acquisition discount on short-term
Notes on either a straight-line basis or, at the election of the United States
Holder, under the constant-yield method (based on daily compounding). In the
case of a United States Holder not required and not electing to include
acquisition discount in income currently, any gain realized on the sale or
retirement of the short-term Note will be ordinary income to the extent of the
acquisition discount accrued on a straight-line basis (unless an election is
made to accrue the acquisition discount under the constant-yield method)
through the date of sale or retirement. United States Holders who are not
required and do not elect to accrue acquisition discount on short-term Notes
will be required to defer deductions for net direct interest expense related to
short-term Notes in an amount not exceeding the deferred income until the
deferred income is realized.
For purposes of determining the amount of acquisition discount subject to these
rules, no interest on a short-term Note is treated as qualified stated
interest; thus, all interest is included in acquisition discount and no de
minimis rule applies.
FOREIGN CURRENCY ORIGINAL ISSUE DISCOUNT NOTES. OID for any accrual period on
an Original Issue Discount Note that is denominated in, or determined by
reference to, a foreign currency will be determined in the foreign currency and
then translated into U.S. dollars in the same manner as stated interest accrued
by an accrual basis United States Holder, as described under "Payments of
Interest." Upon receipt of an amount attributable to OID (whether in connection
with a payment of interest or the sale or retirement of a Note), a United
States Holder may recognize exchange gain or loss which will be ordinary gain
or loss, measured by the difference between the amount received (translated
into U.S. dollars at the exchange rate on the date of receipt) and the amount
previously accrued (as translated into U.S. dollars).
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NOTES PURCHASED AT A PREMIUM
A United States Holder that purchases a Note for an amount in excess of its
principal amount may elect to treat such excess as "amortizable bond premium,"
in which case the amount required to be included in the United States Holder's
income each year with respect to interest on the Note will be reduced by the
amount of amortizable bond premium allocable (based on the Note's yield to
maturity) to such year. Under new regulations in effect for Notes acquired on
or after March 2, 1998, if the amortizable bond premium allocable to an accrual
period exceeds the amount of interest allocable to such accrual period, such
excess would be allowed as a deduction for such accrual period, but only to the
extent of the U.S. Holder's prior interest inclusions on the Note; any excess
is generally carried forward and allocable to the next accrual period. In the
case of a Note that is denominated in, or determined by reference to, a foreign
currency, amortizable bond premium will be computed in units of foreign
currency, and amortizable bond premium will reduce interest income in units of
the foreign currency. At the time amortized bond premium offsets interest
income, exchange gain or loss (taxable as ordinary income or loss) is realized
measured by the difference between exchange rates at that time and at the time
of the acquisition of the Notes. Any election to amortize bond premium shall
apply to all bonds (other than bonds the interest on which is excludible from
gross income) held by the United States Holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the United
States Holder, and is irrevocable without the consent of the Service. The new
regulations provide a restrictive automatic consent for a U.S. Holder to change
its method of accounting for eligible bond premium in certain circumstances, if
the change is made for the first taxable year for which the U.S. Holder must
account for the Note under the new regulations. See also "Original Issue
Discount--Election to Treat All Interest as Original Issue Discount."
PURCHASE, SALE AND RETIREMENT OF THE NOTES
A United States Holder's tax basis in a Note will generally be its U.S. dollar
cost (as defined below), increased by the amount of any OID or market discount
included in the United States Holder's income with respect to the Note and the
amount, if any, of income attributable to de minimis original issue discount
and de minimis market discount included in the United States Holder's income
with respect to the Note, and reduced by (i) the amount of any payments that
are not qualified stated interest payments, and (ii) the amount of any
amortizable bond premium applied to reduce interest on the Note. The U.S.
dollar cost of a Note purchased with a foreign currency will generally be the
U.S. dollar value of the purchase price on the date of purchase or, in the case
of Notes traded on an established securities market, as defined in the
applicable Treasury Regulations, that are purchased by a cash basis United
States Holder (or an accrual basis United States Holder that so elects), on the
settlement date for the purchase.
A United States Holder will generally recognize gain or loss on the sale or
retirement of a Note equal to the difference between the amount realized on the
sale or retirement and the tax basis of the Note. The amount realized on a sale
or retirement for an amount in foreign currency will be the U.S. dollar value
of such amount on (i) the date payment is received in the case of a cash basis
United States Holder, (ii) the date of disposition in the case of an accrual
basis United States Holder or (iii) in the case of Notes traded on an
established securities market, as defined in the applicable Treasury
Regulations, sold by a cash basis United States Holder (or an accrual basis
United States Holder that so elects), on the settlement date for the sale.
Except to the extent described above under "Original Issue Discount--Short-Term
Notes" or "Original Issue Discount--Market Discount" or described in the next
succeeding paragraph or
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attributable to accrued but unpaid interest or with respect to certain
contingent payment obligations, gain or loss recognized on the sale or
retirement of a Note will be capital gain or loss and will be long-term capital
gain or loss if the Note was held for more than one year.
Gain or loss recognized by a United States Holder on the sale or retirement of
a Note that is attributable to changes in exchange rates will be treated as
ordinary income or loss. However, exchange gain or loss is taken into account
only to the extent of total gain or loss realized on the transaction.
EXCHANGE OF AMOUNTS IN OTHER THAN U.S. DOLLARS
Foreign currency received as interest on (or OID with respect to) a Note or on
the sale or retirement of a Note will have a tax basis equal to its U.S. dollar
value at the time such interest is received or at the time of such sale or
retirement. Foreign currency that is purchased will generally have a tax basis
equal to the U.S. dollar value of the foreign currency on the date of purchase.
Any gain or loss recognized on a sale or other disposition of a foreign
currency (including its use to purchase Notes or upon exchange for U.S.
dollars) will be ordinary income or loss.
INDEXED NOTES, OTHER NOTES SUBJECT TO THE CONTINGENT PAYMENT RULES AND
AMORTIZING NOTES
The applicable Pricing Supplement will contain a discussion of any special
United States federal income tax rules with respect to Notes that are not
subject to the rules governing Variable Rate Notes, payments on which are
determined by reference to any index, and with respect to other notes subject
to the contingent payment rules and any Amortizing Notes.
UNITED STATES ALIEN HOLDERS
This discussion assumes that the Note is not subject to the rules of Section
871(h)(4)(A) of the Code (relating to interest payments that are determined by
reference to the income, profits, changes in the value of property or other
attributes of the debtor or a related party).
Under present United States federal income and estate tax law, and subject to
the discussion of backup withholding below:
(i) payments of principal, premium (if any) and interest, including OID, by
Archstone or any of its paying agents to any United States Alien Holder
will not be subject to United States federal withholding tax if, in the
case of interest or OID, (a) such holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of Archstone entitled to vote, (b) such holder is not, for
federal income tax purposes, a controlled foreign corporation that is
related (directly or indirectly) to Archstone through stock ownership, and
(c) either (A) the beneficial owner of the Note certifies to Archstone or
its agent, under penalties of perjury, that it is not a United States
Holder and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Note certifies to Archstone or its agent under
penalties of perjury that such statement has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof;
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(ii) a United States Alien Holder of a Note will not be subject to United
States federal income tax on any gain realized on the sale or exchange of a
Note unless (a) such gain is effectively connected with a trade or business
in the United States of the United States Alien Holder or (b) in the case
of a United States Alien Holder who is an individual, the United States
Alien Holder is present in the United States for 183 days or more in the
taxable year of such sale or exchange and either (A) such individual has a
"tax home" (as defined in Section 911(d)(3) of the Code) in the United
States or (B) the gain is attributable to an office or other fixed place of
business maintained by such individual in the United States; and
(iii) a Note held by an individual who at death is not a citizen or
resident of the United States will not be includible in the individual's
gross estate for purposes of the United States federal estate tax as a
result of the individual's death if (a) the individual did not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of Archstone entitled to vote and (b) the income on the
Note would not have been effectively connected with a United States trade
or business of the individual at the individual's death.
On October 6, 1997, the U.S. Treasury Department issued final Treasury
regulations (the "Withholding Regulations") that generally provide alternative
methods for satisfying the certification requirement described in clause (i)(c)
above. The Withholding Regulations also would require, in the case of Notes
held by a foreign partnership, that (x) the certification described in clause
(i)(c) above be provided by the partners rather than by the foreign partnership
and (y) the partnership provide certain information, including a United States
taxpayer identification number. A look-through rule would apply in the case of
tiered partnerships. The Withholding Regulations are effective for payments
made after December 31, 1999. The Withholding Regulations would alter the
procedures for claiming the benefit of an income tax treaty and may change the
certification procedures relating to the receipt by intermediaries of payments
on behalf of a beneficial owner of a Note. Prospective investors should consult
their tax advisors concerning the effect, if any, of such Withholding
Regulations on an investment in the Notes.
If a United States Alien Holder of a Note is engaged in a trade or business in
the United States, and if interest (including OID) on the Note, or gain
recognized on the sale, exchange, redemption, retirement or other disposition
of a Note, is effectively connected with the conduct of such trade or business,
the United States Alien Holder, although exempt from withholding of United
States federal income tax, will generally be subject to regular United States
federal income tax on such interest (including OID) or gain in the same manner
as if it were a United States Holder. See "United States Holders" above. In
lieu of the certificate described above, such Holder must provide to the
withholding agent two properly executed copies of IRS Form 4224 (or successor
form) in order to claim an exemption from withholding tax. In addition, if such
United States Alien Holder is a foreign corporation, it may be subject to a
branch profits tax equal to 30% (or such lower rate provided by an applicable
treaty) of its effectively connected earnings and profits for the taxable year,
subject to certain adjustments. For purposes of the branch profits tax,
interest (including OID) on, and any gain recognized on the sale, exchange,
redemption, retirement or other disposition of, a Note will be included in the
effectively connected earnings and profits of such United States Alien Holder
if such interest (including OID) or gain is effectively connected with the
conduct by the United States Alien Holder of a trade or business in the United
States.
United States Alien Holders should consult their own tax advisors with respect
to their particular circumstances.
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BACKUP WITHHOLDING AND INFORMATION REPORTING
UNITED STATES HOLDERS
In general, information reporting requirements will apply to payments of
principal, any premium and interest on a Note and the proceeds of the sale of a
Note before maturity within the United States to, and to the accrual of OID on
an Original Issue Discount Note with respect to, non-corporate United States
Holders, and "backup withholding" at a rate of 31% will apply to such payments
and to payments of OID if the United States Holder fails to provide an accurate
taxpayer identification number or is notified by the Service that it has failed
to report all interest and dividends required to be shown on its federal income
tax returns.
UNITED STATES ALIEN HOLDERS
Under current law, information reporting on Internal Revenue Service Form 1099
and backup withholding will not apply to payments of principal, premium (if
any) and interest (including OID) made by Archstone or a paying agent to a
United States Alien Holder on a Note; provided, the certification described in
clause (i)(c) under "United States Alien Holders" above is received; and
provided further that the payor does not have actual knowledge that the holder
is a United States person. Archstone or a paying agent, however, may report (on
Internal Revenue Service Form 1042S) payments of interest (including OID) on
Notes.
If payments on a Note are made to or through a foreign office of a custodian,
nominee, broker or other agent acting on behalf of a beneficial owner of a
Note, such custodian, nominee or other agent will not be required to apply
backup withholding or information reporting to such payments made to such
beneficial owner. If, however, such nominee, custodian, agent or broker is, for
United States federal income tax purposes, a United States person, a controlled
foreign corporation or a foreign person 50% or more of whose gross income is
effectively connected with the conduct of a United States trade or business for
a specified three-year period, such payments will not be subject to backup
withholding but will be subject to information reporting, unless (1) such
custodian nominee, agent or broker has documentary evidence in its records that
the beneficial owner is not a United States person and certain other conditions
are met or (2) the beneficial owner otherwise establishes an exemption. Under
the Withholding Regulations, backup withholding will not apply to such payments
absent actual knowledge that the payee is a United States person.
Payments of the proceeds from the sale by a United States Alien Holder of a
Note made to or through a foreign office of a broker will not be subject to
information reporting or backup withholding, except that if the broker is a
United States person, a controlled foreign corporation for United States tax
purposes or a foreign person 50% or more of whose gross income is effectively
connected with a United States trade or business for a specified three-year
period, information reporting (but not backup withholding) may apply to such
payments, unless (a) such broker has documentary evidence in its records that
the beneficial owner is not a U.S. person and certain other conditions are met
or (b) the beneficial owner otherwise establishes an exemption. Payments of the
proceeds from the sale of a Note to or through the United States office of a
broker is subject to information reporting and backup withholding unless the
holder or beneficial owner certifies as to its non-United States status or
otherwise establishes an exemption from information reporting and backup
withholding.
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The recently issued Withholding Regulations substantially revise the procedures
that withholding agents and payees must follow to comply with, or establish an
exemption from, these information reporting and backup withholding provisions
for payments of income after December 31, 1999. Each Holder of Notes should
consult such Holder's own tax advisor regarding the tax consequences to such
Holder of the Withholding Regulations.
Backup withholding tax is not an additional tax. Rather, any amounts withheld
from a payment to a holder under the backup withholding rules are allowed as a
refund or a credit against such holder's United States federal income tax,
provided that the required information is furnished to the Service.
PLAN OF DISTRIBUTION
Under the terms of the Distribution Agreement, dated October 14, 1998 (the
"Distribution Agreement"), Archstone is offering the Notes on a continuous
basis through the Agents. The Agents have agreed to use their reasonable best
efforts to solicit orders. Archstone will pay an Agent a commission ranging
from .125% to .750% of the principal amount of each Note, depending on its
maturity, sold through that Agent. The exact commission paid will be determined
by the stated maturity of the Notes sold. Commissions with respect to Notes
with stated maturities of over 30 years will be negotiated at the time of sale.
The following table describes the potential proceeds Archstone will receive,
but does not include expenses payable by Archstone which are estimated to be
$100,000.
<TABLE>
<CAPTION>
AGENTS' COMMISSIONS AND
PRICE TO PUBLIC DISCOUNTS PROCEEDS TO THE COMPANY
--------------- ----------------------- ----------------------------
<S> <C> <C> <C>
Per Note................ 100% .125% to .750% 99.875% to 99.250%
Total................... $150,000,000 $187,500 to $1,125,000 $149,812,500 to $148,875,000
</TABLE>
Archstone may arrange for Notes to be sold through any other agent or may sell
Notes directly to investors (other than broker-dealers) in those jurisdictions
in which Archstone is permitted to do so. If Archstone sells Notes directly to
investors, no commission or discount will be paid. Archstone also may sell
Notes to any Agent as principal for the Agent's account at a price agreed upon
at the time of sale. Such Notes may be resold by the Agent to investors at a
fixed public offering price or at prevailing market prices, or at a related
price, as determined by the Agent. Unless otherwise specified in the pricing
supplement, any Note sold to an Agent as principal will be purchased at a price
equal to 100% of the principal amount minus a discount equal to the commission
that would be paid on an agency sale of a Note of identical maturity.
The Agents may sell Notes purchased from Archstone as principal to other
dealers for resale to investors and other purchasers and may provide any
portion of the discount received in connection with their purchase from
Archstone to such dealers. After the initial public offering of the Notes, the
public offering price and other selling terms may be changed.
The Notes will not have an established trading market when issued. Also, the
Notes will not be listed on any securities exchange. The Agents may make a
market in the Notes, as permitted by applicable laws and regulations but are
not obligated to do so and may discontinue any market-making at any time
without notice. There can be no assurance of a secondary market for any Notes,
or that any Notes will be sold.
S-38
<PAGE>
Each purchaser of a Note will arrange for payment as instructed by the
applicable Agent. The Agents are required to deliver the proceeds of the Notes
to Archstone in immediately available funds, to a bank designated by Archstone
in accordance with the terms of the Distribution Agreement, on the date of
settlement.
The Agents may be deemed to be "underwriters" within the meaning of the
Securities Act. Archstone has agreed to indemnify the agents against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that they may be required to make in connection with such
indemnification.
Archstone reserves the right to withdraw, cancel or modify the offer made
hereby without notice.
In connection with the purchase of Notes by one or more Agents, as principal,
for resale at a fixed price, the Agents may engage in transactions that
stabilize, maintain or otherwise affect the price of the Notes. Such
transactions may consist of bids or purchases of Notes for the purpose of
pegging, fixing or maintaining the price of the Notes. Specifically, the Agents
may overallot in connection with such offering, creating a syndicate short
position. In addition, the Agents may bid for and purchase the Notes in the
open market to cover syndicate short position or to stabilize, maintain or
otherwise affect the price of the Notes. Finally, the syndicate may reclaim
selling concessions allowed for distributing Notes in the offering, if the
syndicate repurchases previously distributed Notes in the market to cover
overallotments or to stabilize the price of the Notes. Any of these activities
may stabilize or maintain the market price of the Notes above independent
market level. The Agents are not required to engage in any of these activities,
and may end any of them at any time.
Concurrently with the offering of the Notes through the Agents, Archstone may
issue other Debt Securities as described under "Description of Debt Securities"
in the accompanying Prospectus.
In the ordinary course of their respective businesses, the Agents and their
affiliates have engaged and may in the future engage, in investment banking
and/or commercial banking transactions with Archstone and its affiliates.
VALIDITY OF NOTES
The validity of the Notes and certain other matters will be passed upon for
Archstone by Mayer, Brown & Platt, Chicago, Illinois, and certain matters will
be passed upon for the Agents by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York. The opinions of Mayer, Brown & Platt and Skadden, Arps, Slate,
Meagher & Flom LLP will be based upon, and subject to, certain assumptions as
to future actions required to be taken in connection with the issuance and sale
of the Notes and as to other events that may affect the validity of the Notes
but that cannot be ascertained on the date of such opinions.
S-39
<PAGE>
PROSPECTUS
$400,000,000
DEBT SECURITIES, PREFERRED SHARES AND COMMON SHARES*
----------------
Archstone Communities Trust ("Archstone") may from time to time offer in one
or more series its (i) unsecured senior debt securities (the "Debt
Securities"), (ii) Preferred Shares of Beneficial Interest, par value $1.00
per share (the "Preferred Shares"), and (iii) Common Shares of Beneficial
Interest, par value $1.00 per share (the "Common Shares" and, together with
the Preferred Shares, the "Shares"). The Debt Securities, Preferred Shares and
Common Shares (together, the "Offered Securities") may be offered, separately
or together, in separate series, in amounts, at prices and on terms to be set
forth in a supplement to this Prospectus (a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of Archstone or
repayment at the option of the Holder, terms for sinking fund payments, and
any initial public offering price; (ii) in the case of Preferred Shares, the
specific title and stated value, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price;
and (iii) in the case of Common Shares, any initial public offering price. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Offered Securities, in each case
as may be appropriate to preserve the status of Archstone as a real estate
investment trust ("REIT") for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered
Securities covered by such Prospectus Supplement.
The Offered Securities may be offered directly by Archstone, through agents
designated from time to time by Archstone, or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
Offered Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth,
or will be calculable from the information set forth, in the applicable
Prospectus Supplement. See "Plan of Distribution." No Offered Securities may
be sold without delivery of the applicable Prospectus Supplement describing
the method and terms of the offering of such series of Offered Securities.
*Pursuant to Rule 429 under the Securities Act of 1933, as amended (the
"Securities Act"), this Prospectus also relates to an additional
$170,929,905 of the Debt Securities, Preferred Shares of Beneficial
Interest and Common Shares of Beneficial Interest which were registered
under previous registration statements.
----------------
THESE 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 September 18, 1998.
<PAGE>
ARCHSTONE COMMUNITIES TRUST
Archstone, formerly known as Security Capital Pacific Trust ("PTR"), is a
real estate operating company focused on the acquisition, development,
operation and long-term ownership of multifamily communities in markets and
submarkets with strong economic fundamentals and high barriers to entry
throughout the United States. Archstone's primary objective is creating long-
term sustainable growth in per share cash flow and expects to generate
significant internal growth from its well located operating communities and the
completion and stabilization of new communities in its development pipeline.
Archstone has a significant national presence, and as of June 30, 1998,
Archstone had 232 operating communities representing 68,429 units, with other
communities under development, in markets that include 29 of the nation's 50
largest metropolitan markets. The number of operating communities and units
includes communities acquired in the merger of Security Capital Atlantic
Incorporated with and into PTR (the "Atlantic Merger") which was approved by
Archstone's Board of Trustees on June 29, 1998 and was consummated in July
1998.
The foundation for Archstone's growth strategy is its commitment to
fundamental real estate and customer research, allowing Archstone to deploy its
capital into markets, products and new business opportunities which it believes
have the greatest potential for long-term cash flow growth. Archstone's
objective is to create a dominant national brand in the multifamily industry by
emphasizing an extremely high level of customer service. Management believes
that this unique, research driven strategy will continue to allow Archstone to
produce attractive long-term returns for its shareholders.
Archstone was formed in 1963 and is organized as a real estate investment
trust ("REIT"), under the laws of Maryland. Its principal executive offices are
located at 7670 South Chester Street, Englewood, Colorado 80112, and its
telephone number is (303) 708-5959.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the net
proceeds from the sale of the Offered Securities will be used for the
development and acquisition of additional multifamily communities, as suitable
opportunities arise, for the repayment of certain outstanding indebtedness at
such time and for working capital and general corporate purposes.
2
<PAGE>
RATIO INFORMATION
For the purpose of computing these ratios, (a) "earnings" consist of earnings
from operations plus fixed charges other than capitalized interest and (b)
"fixed charges" consist of interest on borrowed funds (including capitalized
interest) and amortization of debt discount and expense.
<TABLE>
<CAPTION>
PRO
FORMA
SIX
MONTHS HISTORICAL PRO FORMA HISTORICAL YEAR ENDED
ENDED SIX MONTHS YEAR ENDED DECEMBER 31,
JUNE 30, ENDED JUNE DECEMBER 31, ---------------------------
1998 30, 1998 1997(1) 1997(1) 1996 1995 1994 1993
-------- ---------- ------------ ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges.......... 2.2 2.1 1.6 1.1 2.5 3.2 2.6 4.0
Ratio of earnings to
combined fixed charges
and Preferred Share
dividends.............. 1.9 1.7 1.3 0.9 1.7 1.9 1.6 3.4
</TABLE>
- --------
(1) Earnings from operations for 1997 included a one time, non-cash charge of
$71.7 million associated with costs incurred in acquiring the management
companies from an affiliate. Excluding this charge, the ratio of earnings
to fixed charges and the ratio of earnings to combined fixed charges and
preferred share dividends for the year ended December 31, 1997 would be 2.0
and 1.6, respectively (2.3 and 1.9 on a pro forma basis giving effect to
the Atlantic Merger and certain other transactions).
3
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an Indenture, dated as of February
1, 1994, as supplemented by the First Supplemental Indenture, dated as of
February 2, 1994 (as so supplemented, the "Indenture"), between Archstone and
State Street Bank and Trust Company, as trustee (the "Trustee"). The Indenture
has been incorporated by reference as an exhibit to the Registration Statement
of which this Prospectus is a part and is available for inspection at the
corporate trust office of the Trustee at Two International Place, Boston,
Massachusetts 02110 Attention: Corporate Trust Division or as described below
under "Available Information." The Indenture is subject to, and governed by,
the Trust Indenture Act of 1939, as amended (the "TIA"). The statements made
hereunder relating to the Indenture and the Debt Securities to be issued
thereunder are summaries of certain provisions thereof, do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Indenture and such Debt Securities. All section
references appearing herein are to sections of the Indenture, and capitalized
terms used but not defined herein shall have the respective meanings set forth
in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of Archstone and
will rank equally with all other unsecured and unsubordinated indebtedness of
Archstone. The Indenture provides that 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 Archstone's Board of Trustees (the "Board") or as established in
one or more 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 (Section 301).
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect
to such series (Section 608). In the event that two or more persons are acting
as Trustee with respect to different series of Debt Securities, each such
Trustee shall be a Trustee of a trust under the Indenture separate and apart
from the trust administered by any other Trustee (Sections 101 and 609), and,
except as otherwise indicated herein, any action described herein to be taken
by the Trustee may be taken by each such Trustee with respect to, and only with
respect to, the one or more series of Debt Securities for which it is Trustee
under the Indenture.
Reference is made to the Prospectus Supplement relating to the series of Debt
Securities being offered for the specific terms thereof, including:
(1) the title of such series of Debt Securities;
(2) the aggregate principal amount of such series of Debt Securities and
any limit on such principal amount;
(3) the percentage of the principal amount at which the Debt Securities
of such series will be issued and, if other than the full principal amount
thereof, the portion of the principal amount thereof payable upon
declaration of acceleration of the maturity thereof, or the method by which
any such portion shall be determined;
(4) the date or dates, or the method by which such date or dates will be
determined, on which the principal of such Debt Securities will be payable
and the amount of principal payable thereon;
(5) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt Securities
will bear interest, if any;
(6) the date or dates, or the method by which such date or dates will be
determined, from which any such interest will accrue, the Interest Payment
Dates on which any such interest will be payable, the Regular Record Dates
for such Interest Payment Dates, or the method by which such dates shall be
determined, the Person to whom, and the manner in which, such interest
shall be payable, and the basis upon which interest shall be calculated if
other than that of a 360-day year comprised of twelve 30-day months;
4
<PAGE>
(7) the place or places where the principal of (and premium or Make-Whole
Amount (as defined), if any) and interest and Additional Amounts, if any,
on the Debt Securities of such series will be payable, where such Debt
Securities may be surrendered for registration of transfer or exchange and
where notices or demands to or upon Archstone in respect of such Debt
Securities and the Indenture may be served;
(8) the period or periods within which, the price or prices (including
the premium or Make-Whole Amount, if any) at which, the currency or
currencies in which, and the other terms and conditions upon which the Debt
Securities of such series may be redeemed, as a whole or in part, at the
option of Archstone, if Archstone is to have such an option;
(9) the obligation, if any, of Archstone to redeem, repay or purchase the
Debt Securities of such series pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or periods
within which, the date or dates upon which, the price or prices at which,
the currency or currencies, currency unit or units or composite currency or
currencies in which, and the other terms and conditions upon which such
Debt Securities shall be redeemed, repaid or purchased, as a whole or in
part, pursuant to such obligation;
(10) if other than United States dollars, the currency or currencies in
which the Debt Securities of such series are denominated and payable, which
may be a foreign currency or units of two or more foreign currencies or a
composite currency or currencies, and the terms and conditions relating
thereto;
(11) whether the amount of payments of principal of (and premium or Make-
Whole Amount, if any) or interest, if any, on the Debt Securities of such
series may be determined with reference to an index, formula or other
method (which index, formula or method may be, but need not be, based on a
currency or currencies, currency unit or units or composite currency or
currencies) and the manner in which such amounts shall be determined;
(12) whether the principal of (and premium or Make-Whole Amount, if any)
or interest or Additional Amounts, if any, on the Debt Securities of such
series are to be payable, at the election of Archstone or a Holder, in a
currency or currencies, currency unit or units or composite currency or
currencies, other than that in which such Debt Securities are denominated
or stated to be payable, the period or periods within which, and the terms
and conditions upon which, such election may be made, and the time and
manner of, and identity of the exchange rate agent with responsibility for,
determining the exchange rate between the currency or currencies in which
such Debt Securities are denominated or stated to be payable and the
currency or currencies in which such Debt Securities are to be so payable;
(13) any additions to, modifications of or deletions from the terms of
such series of Debt Securities with respect to the Events of Default or
covenants set forth in the Indenture;
(14) whether the Debt Securities of such series will be issued in
certificated or book-entry form;
(15) whether the Debt Securities of such series will be in registered or
bearer form and, if in registered form, the denominations thereof if other
than $1,000 and any integral multiple thereof and, if in bearer form, the
denominations thereof if other than $5,000 and the terms and conditions
relating thereto;
(16) the applicability, if any, of the defeasance and covenant defeasance
provisions of Article Fourteen of the Indenture to such series of Debt
Securities and any provisions in modification thereof, in addition thereto
or in lieu thereof;
(17) if the Debt Securities of such series are to be issued upon the
exercise of debt warrants, the time, manner and place for such Debt
Securities to be authenticated and delivered;
(18) whether and under what circumstances Archstone will pay Additional
Amounts as contemplated in the Indenture on the Debt Securities of such
series in respect of any tax, assessment or governmental charge and, if so,
whether Archstone will have the option to redeem such Debt Securities in
lieu of making such payment; and
(19) any other terms of such series of Debt Securities not inconsistent
with the provisions of the Indenture (Section 301).
5
<PAGE>
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
or bear no interest or bear interest at a rate which at the time of issuance is
below market rates ("Original Issue Discount Securities"). Special United
States federal income tax, accounting and other considerations applicable to
Original Issue Discount Securities will be described in the applicable
Prospectus Supplement.
Under the Indenture, Archstone will have the ability, in addition to the
ability to issue Debt Securities with terms different from those of Debt
Securities previously issued, without the consent of the Holders, to reopen a
previous issue of a series of Debt Securities and issue additional Debt
Securities of such series.
Except as set forth below under "Certain Covenants--Limitations on Incurrence
of Debt," the Indenture does not contain any other provisions that would limit
the ability of Archstone to incur indebtedness or that would afford Holders of
Debt Securities protection in the event of a highly leveraged or similar
transaction involving Archstone or in the event of a change of control of
Archstone. However, Archstone's Amended and Restated Declaration of Trust, as
amended and supplemented (the "Declaration of Trust"), restricts beneficial
ownership of Archstone's outstanding Shares by a single person, or persons
acting as a group, to 9.8% of such Shares, with certain exceptions (including
an exception for the ownership of up to 49% of such Shares in the case of
Security Capital Group Incorporated ("Security Capital Group")). See
"Description of Common Shares--Restriction on Size of Holdings." Additionally,
the Articles Supplementary relating to Archstone's Cumulative Convertible
Series A Preferred Shares of Beneficial Interest, par value $1.00 per share
(the "Series A Preferred Shares"), Archstone's Series B Cumulative Redeemable
Preferred Shares of Beneficial Interest, par value $1.00 per share (the "Series
B Preferred Shares") and Archstone's Series C Cumulative Redeemable Preferred
Shares of Beneficial Interest, par value $1.00 per share (the "Series C
Preferred Shares") restrict beneficial ownership of the Series A Preferred
Shares, Series B Preferred Shares and Series C Preferred Shares, respectively,
by a person, or persons acting as a group, to 25% of the Series A Preferred
Shares, Series B Preferred Shares or Series C Preferred Shares, as the case may
be. Similarly, the Articles Supplementary for each series of Preferred Shares
will contain certain provisions restricting the ownership and transfer of the
Preferred Shares. See "Description of Preferred Shares--Restrictions on
Ownership." These restrictions are designed to preserve Archstone's status as a
REIT and, therefore, may act to prevent or hinder a change of control.
Reference is made to the applicable Prospectus Supplement for information with
respect to any deletions from, modifications of or additions to the Events of
Default or covenants of Archstone that are described below, including any
addition of a covenant or other provision providing event risk or similar
protection.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series issued in registered form will be issuable in
denominations of $1,000 and integral multiples thereof. Unless otherwise
described in the applicable Prospectus Supplement, the Debt Securities of any
series issued in bearer form will be issuable in denominations of $5,000
(Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium or Make-Whole Amount, if any) and interest on any
series of Debt Securities will be payable at the corporate trust office of the
Trustee, initially located at Two International Place, Boston, Massachusetts
02110 Attention: Corporate Trust Division; provided that, at the option of
Archstone, payment of interest may be made by check mailed to the address of
the Person entitled thereto as it appears in the Security Register or by wire
transfer of funds to such Person to an account maintained within the United
States (Sections 301, 305, 306, 307 and 1002).
If any Interest Payment Date, Principal Payment Date or the Maturity Date
falls on a day that is not a Business Day, the required payment shall be made
on the next Business Day as if it were made on the date such payment was due
and no interest shall accrue on the amount so payable for the period from and
after such Interest Payment Date, Principal Payment Date or the Maturity Date,
as the case may be. "Business Day" means any day, other than a Saturday or
Sunday, on which banks in Boston, Massachusetts are not required or authorized
by law or executive order to close. Any interest not punctually paid or duly
provided for on any Interest Payment Date with respect to a Debt Security
("Defaulted Interest") will forthwith cease to be payable to the Holder on the
6
<PAGE>
applicable Regular Record Date and either may be paid to the person in whose
name such Debt Security is registered at the close of business on a special
record date (the "Special Record Date") for the payment of such Defaulted
Interest to be fixed by the Trustee, notice of which shall be given to the
Holder of such Debt Security not less than 10 days prior to such Special Record
Date, or may be paid at any time in any other lawful manner, all as more
completely described in the Indenture (Section 307).
Subject to certain limitations imposed upon Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount and
tenor of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the Trustee referred to above. In
addition, subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for registration of transfer
or exchange shall be duly endorsed or accompanied by a written instrument of
transfer. No service charge will be made for any registration of transfer or
exchange of any Debt Securities, but Archstone may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith (Section 305). If the applicable Prospectus Supplement refers to any
transfer agent (in addition to the Trustee) initially designated by Archstone
with respect to any series of Debt Securities, Archstone may at any time
rescind the designation of any such transfer agent or approve a change in the
location at which any such transfer agent acts, except that Archstone will be
required to maintain a transfer agent in each Place of Payment for such series.
Archstone may at any time designate additional transfer agents with respect to
any series of Debt Securities (Section 1002).
Neither Archstone nor the Trustee shall be required to (i) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed
in part; or (iii) issue, register the transfer of or exchange any Debt Security
which has been surrendered for repayment at the option of the Holder, except
the portion, if any, of such Debt Security not to be so repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
Archstone may consolidate with, or sell, lease or convey all or substantially
all of its assets to, or merge with or into, any other entity, provided that
(a) either Archstone shall be the continuing entity, or the successor entity
(if other than Archstone) formed by or resulting from any such consolidation or
merger or which shall have received the transfer of such assets is a Person
organized and existing under the laws of the United States or any State thereof
and shall expressly assume payment of the principal of (and premium or Make-
Whole Amount, if any) and any interest (including Additional Amounts, if any)
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 Archstone or any Subsidiary as a
result thereof as having been incurred by Archstone 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 and legal opinion covering such conditions shall be delivered to
the Trustee (Sections 801 and 803).
CERTAIN COVENANTS
Limitations on Incurrence of Debt. Archstone will not, and will not permit
any Subsidiary to, incur any Debt (as defined below) if, immediately after
giving effect to the incurrence of such additional Debt and the application of
the proceeds thereof, the aggregate principal amount of all outstanding Debt of
Archstone and its Subsidiaries on a consolidated basis determined in accordance
with generally accepted accounting principles is greater than
7
<PAGE>
60% of the sum of (without duplication) (i) Archstone's Total Assets (as
defined below) as of the end of the calendar quarter covered in Archstone's
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may
be, most recently filed with the Securities and Exchange Commission (the
"Commission") (or, if such filing is not permitted under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), with the Trustee) prior
to the incurrence of such additional Debt and (ii) the purchase price of any
real estate assets or mortgages receivable acquired, and the amount of any
securities offering proceeds received (to the extent that such proceeds were
not used to acquire real estate assets or mortgages receivable or used to
reduce Debt), by Archstone or any Subsidiary since the end of such calendar
quarter, including those proceeds obtained in connection with the incurrence of
such additional Debt (Section 1004).
In addition to the foregoing limitation on the incurrence of Debt, Archstone
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 Archstone or any Subsidiary if, immediately after
giving effect to the incurrence of such additional Debt and the application of
the proceeds thereof, the aggregate principal amount of all outstanding Debt of
Archstone and its Subsidiaries on a consolidated basis which is secured by any
mortgage, lien, charge, pledge, encumbrance or security interest on property of
Archstone or any Subsidiary is greater than 40% of Archstone's Total Assets
(Section 1004).
In addition to the foregoing limitations on the incurrence of Debt, Archstone
will not, and will not permit any Subsidiary to, incur any Debt if the ratio of
Consolidated Income Available for Debt Service (as defined below) to the Annual
Service Charge (as defined below) 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 1.5:1, on a pro forma basis after giving
effect thereto and to the application of the proceeds therefrom, and calculated
on the assumption that (i) such Debt and any other Debt incurred by Archstone
and its Subsidiaries since the first day of such four-quarter period and the
application of the 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 Archstone and 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) in the case of Acquired Debt
(as defined below) or Debt incurred in connection with any acquisition since
the first day of such four-quarter period, the related acquisition had occurred
as of the first day of such period with the appropriate adjustments with
respect to such acquisition being included in such pro forma calculation; and
(iv) in the case of any acquisition or disposition by Archstone or its
Subsidiaries of any asset or group of assets since the first day of such four-
quarter period, whether 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 (Section 1004).
Existence. Except as permitted under "--Merger, Consolidation or Sale,"
Archstone will do or cause to be done all things necessary to preserve and keep
in full force and effect its existence, rights (charter and statutory) and
franchises; provided, however, that Archstone shall not be required to preserve
any right or franchise if it determines that the preservation thereof is no
longer desirable in the conduct of its business and that the loss thereof is
not disadvantageous in any material respect to the Holders of the Debt
Securities (Section 1005).
Maintenance of Properties. Archstone will cause all of its 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 and supplied
with all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of Archstone may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that Archstone and its Subsidiaries shall not be prevented
from selling or otherwise disposing for value its properties in the ordinary
course of business (Section 1006).
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Insurance. Archstone will, and will cause each of its Subsidiaries to, keep
all of its insurable properties insured against loss or damage at least equal
to their then full insurable value with financially sound and reputable
insurance companies (Section 1007).
Payment of Taxes and Other Claims. Archstone will 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 the income, profits or property of Archstone or 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 Archstone or any
Subsidiary; provided, however, that Archstone shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings (Section 1008).
Provision of Financial Information. Whether or not Archstone is subject to
Section 13 or 15(d) of the Exchange Act, Archstone will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which Archstone would have been required
to file with the Commission pursuant to such Section 13 and 15(d) (the
"Financial Statements") if Archstone were so subject, such documents to be
filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which Archstone would have been required so to file such
documents if Archstone were so subject. Archstone will also in any event (i)
within 15 days of each Required Filing Date (x) transmit by mail to all Holders
of Debt Securities, as their names and addresses appear in the Security
Register, without cost to such Holders, copies of the annual reports and
quarterly reports which Archstone would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if Archstone
were subject to such Sections and (y) file with the Trustee copies of the
annual reports, quarterly reports and other documents which Archstone would
have been required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act if Archstone were subject to such Sections and (ii) if
filing such documents by Archstone with the Commission is not permitted under
the Exchange Act, promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any
prospective Holder (Section 1009).
As used herein,
"Acquired Debt" means Debt of a Person (i) existing at the time such Person
becomes a Subsidiary or (ii) assumed in connection with the acquisition of
assets from such Person, in each case, other than Debt incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary or such
acquisition. Acquired Debt shall be deemed to be incurred on the date of the
related acquisition of assets from any Person or the date the acquired Person
becomes a Subsidiary.
"Annual Service Charge" as of any date means the maximum amount which is
payable in any period for interest on, and original issue discount of, Debt of
Archstone and its Subsidiaries and the amount of dividends which are payable 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
Earnings from Operations (as defined below) of Archstone and its Subsidiaries
plus amounts which have been deducted, and minus amounts which have been added,
for the following (without duplication): (i) interest on Debt of Archstone and
its Subsidiaries, (ii) provision for taxes of Archstone and its Subsidiaries
based on income, (iii) amortization of debt discount, (iv) provisions for gains
and losses on properties and property depreciation and amortization, (v) the
effect of any noncash charge resulting from a change in accounting principles
in determining Earnings from Operations for such period and (vi) amortization
of deferred charges.
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"Debt" of Archstone or any Subsidiary means any indebtedness of Archstone or
any Subsidiary, whether or not contingent, in respect of (i) borrowed money or
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 Archstone or any Subsidiary; (iii) the
reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance deferred
and unpaid of the purchase price of any property or services, except any such
balance that constitutes an accrued expense or trade payable, or all
conditional sale obligations or obligations under any title retention
agreement; (iv) the principal amount of all obligations of Archstone or any
Subsidiary with respect to redemption, repayment or other repurchase of any
Disqualified Stock; or (v) any lease of property by Archstone or any Subsidiary
as lessee which is reflected on Archstone's Consolidated Balance Sheet as a
capitalized lease in accordance with generally accepted accounting principles
to the extent, in the case of items of indebtedness under (i) through (iii)
above, that any such items (other than letters of credit) would appear as a
liability on Archstone's Consolidated Balance Sheet in accordance with
generally accepted accounting principles, and also includes, to the extent not
otherwise included, any obligation by Archstone or any 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), Debt of another Person (other
than Archstone or any Subsidiary) (it being understood that Debt shall be
deemed to be incurred by Archstone or any Subsidiary whenever Archstone or such
Subsidiary shall create, assume, guarantee or otherwise become liable in
respect thereof).
"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,
(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, in each case on or prior to the Stated Maturity of the
series of Debt Securities.
"Earnings from Operations" for any period means net earnings excluding gains
and losses on sales of investments, net as reflected in the financial
statements of Archstone and its Subsidiaries for such period determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) in the case of a partnership or any other entity other than
a corporation, the outstanding equity interest of which are owned, directly or
indirectly, by such Person. For the purposes of this definition, "voting equity
securities" means equity securities having voting power for the election of
directors, whether at all times or only so long as no senior class of security
has such voting power by reason of any contingency.
"Total Assets" as of any date means the sum of (i) Archstone's Undepreciated
Real Estate Assets and (ii) all other assets of Archstone determined in
accordance with generally accepted accounting principles (but excluding
accounts receivable and intangibles).
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of real estate assets of Archstone and its
Subsidiaries on such date, before depreciation and amortization determined on a
consolidated basis in accordance with generally accepted accounting principles.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (i) default for 30
days in the payment of any installment of interest or Additional Amounts
payable on any Debt Security of such series; (ii) default in the payment of the
principal of (or premium or Make-Whole Amount, if any, on) any Debt Security of
such series at its Maturity; (iii) default in making any sinking fund payment
as required for any Debt Security of such series; (iv) default in the
performance of any other covenant of Archstone contained in the Indenture
(other than a covenant added to the Indenture solely for the
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benefit of a series of Debt Securities issued thereunder other than such
series), continued for 60 days after written notice as provided in the
Indenture; (v) default in the payment of an aggregate principal amount
exceeding $10,000,000 of any evidence of indebtedness of Archstone or any
mortgage, indenture or other instrument under which such indebtedness is issued
or by which such indebtedness is secured, such default having occurred after
the expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such
indebtedness is not discharged or such acceleration is not rescinded or
annulled; (vi) the entry by a court of competent jurisdiction of one or more
judgments, orders or decrees against Archstone or any of its Subsidiaries in an
aggregate amount (excluding amounts fully 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 fully covered by
insurance) in excess of $10,000,000 for a period of 30 consecutive days; (vii)
certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of Archstone or any
Significant Subsidiary or for all or substantially all of either of its
property; and (viii) any other Event of Default provided with respect to a
particular series of Debt Securities (Section 501). The term "Significant
Subsidiary" means each significant subsidiary (as defined in Regulation S-X
promulgated by the Commission) of Archstone.
If an Event of Default under the Indenture with respect to Debt Securities of
any series at the time Outstanding occurs and is continuing, then in every such
case the Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Debt Securities of that series may declare the principal amount
(or, if the Debt Securities of that series are Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may
be specified in the terms thereof) of, and the Make-Whole Amount, if any, on,
all of the Debt Securities of that series to be due and payable immediately by
written notice thereof to Archstone (and to the Trustee if given by the
Holders). However, at any time after such a declaration of acceleration with
respect to Debt Securities of such series (or of all Debt Securities then
Outstanding under the Indenture, as the case may be) 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 than a majority in principal amount of
Outstanding Debt Securities of such series (or of all Debt Securities then
Outstanding under the Indenture, as the case may be) may rescind and annul such
declaration and its consequences if (i) Archstone shall have deposited with the
Trustee all required payments of the principal of (and premium or Make-Whole
Amount, if any) and interest, and any Additional Amounts, on the Debt
Securities of such series (or of all Debt Securities then outstanding under the
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the Trustee and (ii) all Events of Default, other than the
nonpayment of accelerated principal (or specified portion thereof and the Make-
Whole Amount, if any) or interest, with respect to Debt Securities of such
series (or of all Debt Securities then Outstanding under the Indenture, as the
case may be) have been cured or waived as provided in the Indenture (Section
502). The Indenture also provides that the Holders of not less than a majority
in principal amount of the Outstanding Debt Securities of any series (or of all
Debt Securities then Outstanding under the Indenture, as the case may be) may
waive any past default with respect to such series and its consequences, except
a default (i) in the payment of the principal of (or premium or Make-Whole
Amount, if any) or interest or Additional Amounts payable on any Debt Security
of such series or (ii) 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 Debt Security affected thereby (Section 513).
The Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the Indenture; provided, however, that the
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium or Make-Whole Amount, if any) or interest or
Additional Amounts payable on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if the Responsible Officers of the Trustee consider such withholding to
be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of
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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 25% in principal amount of the Outstanding Debt Securities of such
series, as well as an offer of reasonable indemnity (Section 507). This
provision will not prevent, however, any Holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium or Make-Whole Amount, if any), interest on, and Additional Amounts
payable with respect to, such Debt Securities at the respective due dates
thereof (Section 508).
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 any
series of Debt Securities then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under the Indenture, as the case may be) 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 Debt
Securities of such series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, Archstone must deliver
to the Trustee a certificate, signed by one of several specified officers,
stating whether 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 (Section 1010).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made with the consent of
the Holders of not less than a majority in principal amount of all Outstanding
Debt Securities which are affected by such modification or amendment; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each such Debt Security affected thereby, (i) change the Stated
Maturity of the principal of (or premium or Make-Whole Amount, if any), or any
installment of principal of or interest or Additional Amounts payable on, any
such Debt Security; (ii) reduce the principal amount of, or the rate or amount
of interest on, or any premium or Make-Whole Amount payable on redemption of,
or any Additional Amounts payable with respect to, any such Debt Security, or
reduce the amount of principal of an Original Issue Discount Security or Make-
Whole Amount, if any, that would be due and payable upon declaration of
acceleration of the maturity thereof or would be provable in bankruptcy, or
adversely affect any right of repayment of the Holder of any such Debt
Security; (iii) change the Place of Payment, or the coin or currency, for
payment of principal of (and premium or Make-Whole Amount, if any), or interest
on, or any Additional Amounts payable with respect to, any such Debt Security;
(iv) impair the right to institute suit for the enforcement of any payment on
or with respect to any such Debt Security; (v) reduce the above-stated
percentage of Outstanding Debt Securities of any series 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 (vi) 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 Debt Security
(Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities have the right to waive compliance by Archstone with certain
covenants in the Indenture (Section 1012).
Modifications and amendments of the Indenture may be made by Archstone and
the Trustee without the consent of any Holder of Debt Securities for any of the
following purposes: (i) to evidence the succession of another Person to
Archstone as obligor under the Indenture; (ii) to add to the covenants of
Archstone for the benefit of the Holders of all or any series of Debt
Securities or to surrender any right or power conferred upon
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Archstone in the Indenture; (iii) to add Events of Default for the benefit of
the Holders of all or any series of Debt Securities; (iv) to add or change any
provisions of the Indenture to facilitate the issuance of, or to liberalize
certain terms of, Debt Securities in bearer form, or to permit or facilitate
the issuance of Debt Securities in uncertificated form, provided that such
action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate
any provisions of the Indenture, provided that any such change or elimination
shall become effective only when there are no Debt Securities Outstanding of
any series created prior thereto which are entitled to the benefit of such
provision; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series and any related coupons; (viii) to
provide for the acceptance of appointment by a successor Trustee or facilitate
the administration of the trusts under the Indenture by more than one Trustee;
(ix) to cure any ambiguity, defect or inconsistency in the Indenture or to make
any other changes, provided that in each case, such action shall not adversely
affect the interests of Holders of Debt Securities of any series in any
material respect; (x) to close the Indenture with respect to the authentication
and delivery of additional series of Debt Securities or to qualify, or maintain
qualification of, the Indenture under the TIA; or (xi) 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 Debt Securities, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect (Section 901).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security
that shall be deemed to be outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof; (ii) the principal amount
of a Debt Security denominated in a Foreign Currency that shall be deemed
outstanding shall be the United States dollar equivalent, determined on the
issue date for such Debt Security, of the principal amount (or, in the case of
an Original Issue Discount Security, the United States dollar equivalent on the
issue date of such Debt Security of the amount determined as provided in (i)
above); (iii) the principal amount of an Indexed Security that shall be deemed
outstanding shall be the principal face amount of such Indexed Security at
original issuance, unless otherwise provided with respect to such Indexed
Security pursuant to Section 301 of the Indenture; and (iv) Debt Securities
owned by Archstone or any other obligor upon the Debt Securities or any
Affiliate of Archstone or of such other obligor shall be disregarded (Section
101).
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting may be called at any time
by the Trustee, and also, upon request, by Archstone or the Holders of at least
10% in principal amount of the Outstanding Debt Securities of such series, in
any such case upon notice given as provided in the Indenture (Section 1502).
Except for any consent that must be given by the Holder of each Debt Security
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 Debt Securities of such series;
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 Debt Securities of a series 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 Debt Securities of that series. Any resolution passed
or decision taken at any meeting of Holders of Debt Securities of any series
duly held in accordance with the Indenture will be binding on all Holders of
Debt Securities of such series. 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 Debt Securities
of a series; 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
Debt Securities of a series, the Persons holding or representing such specified
percentage in principal amount of the Outstanding Debt Securities of such
series will constitute a quorum (Section 1504).
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Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series 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 Debt
Securities affected thereby, or of the Holders of such series and one or more
additional series: (i) there shall be no minimum quorum requirement for such
meeting and (ii) the principal amount of the Outstanding Debt Securities of
such series 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 (Section 1504).
Any request, demand, authorization, direction, notice, consent, waiver or
other action provided by the Indenture to be given or taken by a specified
percentage in principal amount of the Holders of any or all series of Debt
Securities may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such specified percentage of Holders in
person or by agent duly appointed in writing; and, except as otherwise
expressly provided in the Indenture, such action shall become effective when
such instrument or instruments are delivered to the Trustee. Proof of execution
of any instrument or of a writing appointing any such agent shall be sufficient
for any purpose of the Indenture and (subject to Article Six of the Indenture)
conclusive in favor of the Trustee and Archstone, if made in the manner
specified above (Section 1507).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Archstone may discharge certain obligations to Holders of any series of Debt
Securities 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 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 Debt
Securities are payable in an amount sufficient to pay the entire indebtedness
on such Debt Securities in respect of principal (and premium or Make-Whole
Amount, if any) and interest and Additional Amounts payable to the date of such
deposit (if such Debt Securities have become due and payable) or to the Stated
Maturity or Redemption Date, as the case may be (Section 401).
The Indenture provides that, if the provisions of Article Fourteen are made
applicable to the Debt Securities of or within any series pursuant to Section
301 of the Indenture, Archstone may elect either (i) to defease and be
discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or
mutilated, destroyed, lost or stolen Debt Securities, to maintain an office or
agency in respect of such Debt Securities and to hold moneys for payment in
trust) ("defeasance") (Section 1402) or (ii) to be released from its
obligations with respect to such Debt Securities under Sections 1004 to 1009,
inclusive, of the Indenture (being the restrictions described under "--Certain
Covenants") and, 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 Debt Securities ("covenant defeasance") (Section 1403), in
either case upon the irrevocable deposit by Archstone with the Trustee, in
trust, of an amount, in such currency or currencies, currency unit or units or
composite currency or currencies in which such Debt Securities are payable at
Stated Maturity, or Government Obligations (as defined below), or both,
applicable to such Debt Securities 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 of (and premium or Make-Whole Amount, if
any) and interest on such Debt Securities, 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, Archstone has
delivered to the Trustee an Opinion of Counsel (as specified in the Indenture)
to the effect that the Holders of such Debt Securities will not recognize
income, gain or loss for United States federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to United States
federal income tax on the same amounts, in the same
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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 (Section 1404).
"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 Debt Securities of a particular series 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 Debt Securities 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 (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
Archstone has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (i) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to Section 301 of the Indenture or the terms of such Debt
Security 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 Debt
Security or (ii) a Conversion Event (as defined below) occurs in respect of the
currency, currency unit or composite currency in which such deposit has been
made, the indebtedness represented by such Debt Security shall be deemed to
have been, and will be, fully discharged and satisfied through the payment of
the principal of (and premium or Make-Whole Amount, if any) and interest on
such Debt Security as they become due out of the proceeds yielded by converting
the amount so deposited in respect of such Debt Security into the currency,
currency unit or composite currency in which such Debt Security 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 (other than the ECU
or other currency unit) both by the government of the country which issued such
currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and 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. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium or
Make-Whole Amount, if any) and interest on any Debt Security that is payable in
a Foreign Currency that ceases to be used by its government of issuance shall
be made in United States dollars (Section 101).
In the event Archstone effects covenant defeasance with respect to any Debt
Securities and such Debt Securities are declared due and payable because of the
occurrence of any Event of Default other than the Event of Default described in
clause (iv) under "--Events of Default, Notice and Waiver" with respect to
Sections 1004 to 1009, inclusive, of the Indenture (which Sections would no
longer be applicable to such Debt Securities) or described in clause (vii)
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 Debt Securities are
payable, and Government Obligations on deposit with the Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of their
Stated Maturity but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such Event of
Default. However, Archstone would remain liable to make payment of such amounts
due at the time of acceleration.
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The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
REGISTRATION AND TRANSFER
Subject to certain limitations imposed upon Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount and
tenor of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the Trustee referred to above. In
addition, subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series may be surrendered for
conversion or registration of transfer thereof at the corporate trust office of
the Trustee referred to above. Every Debt Security surrendered for registration
of transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer. No service charge will be made for any registration of
transfer or exchange of any Debt Securities, but Archstone may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith (Section 305). Archstone may at any time designate a
transfer agent (in addition to the Trustee) with respect to any series of Debt
Securities. If Archstone has designated such a transfer agent or transfer
agents, Archstone may at any time rescind the designation of any such transfer
agent or approve a change in the location at which any such transfer agent
acts, except that Archstone will be required to maintain a transfer agent in
each Place of Payment for such series (Section 1002).
Neither Archstone nor the Trustee shall be required to (i) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed
in part; or (iii) issue, register the transfer of or exchange any Debt Security
which has been surrendered for repayment at the option of the Holder, except
the portion, if any, of such Debt Security not to be so repaid (Section 305).
BOOK-ENTRY PROCEDURES
The Debt Securities of a series may be issued in whole or in part in the form
of one or more global securities ("Global Securities") that will be deposited
with, or on behalf of, a depository (the "Depository") identified in the
applicable Prospectus Supplement relating to such series. Global Securities, if
any, are expected to be deposited with The Depository Trust Company, as
Depository. Global Securities may be issued in fully registered form and may be
issued in either temporary or permanent form. Unless and until it is exchanged
in whole or in part for the individual Debt Securities represented thereby, a
Global Security may not be transferred except as a whole by the Depository for
such Global Security to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository or by the
Depository or any nominee of such Depository to a successor Depository or any
nominee of such successor.
The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series. Unless otherwise indicated in the applicable
Prospectus Supplement, Archstone anticipates that the following provisions will
apply to depository arrangements.
Upon the issuance of a Global Security, the Depository for such Global
Security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual Debt Securities
represented by such Global Security to the accounts of persons that have
accounts with such Depository ("Participants"). Such accounts shall be
designated by the underwriters, dealers or agents with respect to such Debt
Securities or by Archstone if such Debt Securities are offered and sold
directly by Archstone. Ownership of beneficial interests in a Global Security
will be limited to Participants or persons that may hold interests through
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Participants. Ownership of beneficial interests in such Global Security will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the applicable Depository or its nominee (with respect to
beneficial interests of Participants) and records of Participants (with respect
to beneficial interests of persons who hold through Participants). The laws of
some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and laws may impair
the ability to own, pledge or transfer beneficial interest in a Global
Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Except as provided below or in the applicable Prospectus Supplement,
owners of beneficial interest in a Global Security will not be entitled to have
any of the individual Debt Securities of the series represented by such Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of any such Debt Securities of such series in definitive form
and will not be considered the owners or holders thereof under the Indenture.
Payments of principal of, any premium or Make-Whole Amount and any interest
on, or any Additional Amounts payable with respect to, individual Debt
Securities represented by a Global Security registered in the name of a
Depository or its nominee will be made to the Depository or its nominee, as the
case may be, as the registered owner of the Global Security representing such
Debt Securities. None of Archstone, the Trustee, any Paying Agent or the
Security Registrar for such Debt Securities will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Security for such Debt
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Archstone expects that the Depository for a series of Debt Securities or its
nominee, upon receipt of any payment of principal, premium, Make-Whole Amount
or interest in respect of a permanent Global Security representing any of such
Debt Securities, immediately will credit Participants' accounts with payments
in amounts proportionate to their respective beneficial interests in the
principal amount of such Global Security for such Debt Securities as shown on
the records of such Depository or its nominee. Archstone also expects that
payments by Participants to owners of beneficial interests in such Global
Security held through such Participants will be governed by standing
instructions and customary practices, as is the case with securities held for
the account of customers in bearer form or registered in "street name." Such
payments will be the responsibility of such Participants.
If a Depository for a series of Debt Securities is at any time unwilling,
unable or ineligible to continue as depository and a successor depository is
not appointed by Archstone within 90 days, Archstone will issue individual Debt
Securities of such series in exchange for the Global Security representing such
series of Debt Securities. In addition, Archstone may, at any time and in its
sole discretion, subject to any limitations described in the applicable
Prospectus Supplement relating to such Debt Securities, determine not to have
any Debt Securities of such series represented by one or more Global Securities
and, in such event, will issue individual Debt Securities of such series in
exchange for the Global Security or Securities representing such series of Debt
Securities. Individual Debt Securities of such series so issued will be issued
in denominations, unless otherwise specified by Archstone, of $1,000 and
integral multiples thereof.
NO PERSONAL LIABILITY
No past, present or future trustee, officer, employee or shareholder, as
such, of Archstone or any successor thereof shall have any liability for any
obligations of Archstone under the Debt Securities or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Debt Securities by accepting such Debt Securities
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of Debt Securities (Section 111).
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TRUSTEE
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect
to such series (Section 608). In the event that two or more persons are acting
as Trustee with respect to different series of Debt Securities, each such
Trustee shall be a Trustee of a trust under the Indenture separate and apart
from the trust administered by any other Trustee (Sections 101 and 609), and
except as otherwise indicated herein, any action described herein to be taken
by the Trustee may be taken by each such Trustee with respect to, and only with
respect to, the one or more series of Debt Securities for which it is Trustee
under the Indenture.
DESCRIPTION OF PREFERRED SHARES
GENERAL
Subject to limitations prescribed by Maryland law and the Declaration of
Trust, the Board is authorized to issue, from the authorized but unissued
shares of beneficial interest of Archstone, Preferred Shares in series and to
establish from time to time the number of Preferred Shares to be included in
such series and to fix the designation and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the shares of each
series, and such other subjects or matters as may be fixed by resolution of the
Board or a duly authorized committee thereof. At August 31, 1998, Archstone had
4,840,215 of its Series A Preferred Shares issued and outstanding and held of
record by approximately 50 shareholders, 4,200,000 of its Series B Preferred
Shares issued and outstanding and held of record by approximately 260
shareholders and 2,000,000 of its Series C Preferred Shares issued and
outstanding and held of record by approximately 10 shareholders.
Reference is made to the Prospectus Supplement relating to the series of
Preferred Shares being offered for the specific terms thereof, including:
(1) The title and stated value of such series of Preferred Shares;
(2) The number of shares of such series of Preferred Shares offered, the
liquidation preference per share and the offering price of such Preferred
Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to Preferred Shares of such series;
(4) The date from which dividends on Preferred Shares of such series
shall cumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for Preferred
Shares of such series;
(6) The provision for a sinking fund, if any, for Preferred Shares of
such series;
(7) The provision for redemption, if applicable, of Preferred Shares of
such series;
(8) Any listing of such series of Preferred Shares on any securities
exchange;
(9) The terms and conditions, if applicable, upon which Preferred Shares
of such series will be convertible into Common Shares, including the
conversion price (or manner of calculation thereof);
(10) Whether interests in Preferred Shares of such series will be
represented by Global Securities;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such series of Preferred Shares;
(12) A discussion of federal income tax considerations applicable to
Preferred Shares of such series;
(13) The relative ranking and preferences of Preferred Shares of such
series as to dividend rights and rights upon liquidation, dissolution or
winding up of the affairs of Archstone;
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(14) Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of Archstone; and
(15) Any limitations on direct or beneficial ownership and restrictions
on transfer of Preferred Shares of such series, in each case as may be
appropriate to preserve the status of Archstone as a REIT.
RANK
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Shares of each Series will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of Archstone, rank (i)
senior to all classes or series of Common Shares, and to all equity securities
ranking junior to such series of Preferred Shares; (ii) on a parity with all
equity securities issued by Archstone the terms of which specifically provide
that such equity securities rank on a parity with the Preferred Shares of such
series; and (iii) junior to all equity securities issued by Archstone the terms
of which specifically provide that such equity securities rank senior to
Preferred Shares of such series.
DIVIDENDS
Holders of Preferred Shares of each series shall be entitled to receive,
when, as and if declared by the Board, out of assets of Archstone legally
available for payment, cash dividends at such rates and on such dates as will
be set forth in the applicable Prospectus Supplement. Each such dividend shall
be payable to holders of record as they appear on the share transfer books of
Archstone on such record dates as shall be fixed by the Board.
Dividends on any series of the Preferred Shares may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board fails to declare a dividend
payable on a dividend payment date on any series of the Preferred Shares for
which dividends are noncumulative, then the holders of such series of the
Preferred Shares will have no right to receive a dividend in respect of the
dividend period ending on such dividend payment date, and Archstone will have
no obligation to pay the dividend accrued for such period, whether or not
dividends on such series are declared payable on any future dividend payment
date.
If Preferred Shares of any series are outstanding, no full dividends shall be
declared or paid or set apart for payment on the Preferred Shares of Archstone
of any other series ranking, as to dividends, on a parity with or junior to the
Preferred Shares of such series for any period unless (i) if such series of
Preferred Shares has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Shares of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Shares of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon the Preferred Shares of any series and the
shares of any other series of Preferred Shares ranking on a parity as to
dividends with the Preferred Shares of such series, all dividends declared upon
Preferred Shares of such series and any other series of Preferred Shares
ranking on a parity as to dividends with such Preferred Shares shall be
declared pro rata so that the amount of dividends declared per share on the
Preferred Shares of such series and such other series of Preferred Shares shall
in all cases bear to each other the same ratio that accrued dividends per share
on the Preferred Shares of such series (which shall not include any cumulation
in respect of unpaid dividends for prior dividend periods if such series of
Preferred Shares does not have a cumulative dividend) and such other series of
Preferred Shares bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
Preferred Shares of such series which may be in arrears.
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Except as provided in the immediately preceding paragraph, unless (i) if such
series of Preferred Shares has a cumulative dividend, full cumulative dividends
on the Preferred Shares of such series have been or contemporaneously are
declared and paid or declared and a sum sufficient of the payment thereof set
apart for payment for all past dividend periods and the then current dividend
period or (ii) if such series of Preferred Shares does not have a cumulative
dividend, full dividends on the Preferred Shares of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend period,
no dividends (other than in Common Shares or other capital shares ranking
junior to the Preferred Shares of such series as to dividends and upon
liquidation) shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon the Common Shares or any other
capital shares of Archstone ranking junior to or on a parity with the Preferred
Shares of such series as to dividends or upon liquidation, nor shall any Common
Shares or any other capital shares of Archstone ranking junior to or on a
parity with the Preferred Shares of such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any shares of any such series) by Archstone (except by conversion
into or exchange for other capital shares of Archstone ranking junior to the
Preferred Shares of such series as to dividends and upon liquidation).
Any dividend payment made on a series of Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Shares
will be subject to mandatory redemption or redemption at the option of
Archstone, as a whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of Preferred Shares of
such series that shall be redeemed by Archstone in each year commencing after a
date to be specified, at a redemption price per share to be specified, together
with an amount equal to all accrued and unpaid dividends thereon (which shall
not, if such series of Preferred Shares does not have a cumulative dividend,
include any cumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any series is payable only from the
net proceeds of the issuance of capital shares of Archstone, the terms of such
series of Preferred Shares may provide that, if no such capital shares shall
have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, Preferred
Shares of such series shall automatically and mandatorily be converted into
shares of the applicable capital shares of Archstone pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all Preferred Shares of
any series shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period or (ii) if such
series of Preferred Shares does not have a cumulative dividend, full dividends
on all Preferred Shares of any series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, no Preferred Shares of
any series shall be redeemed unless all outstanding Preferred Shares of such
series are simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Shares of such series
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding Preferred Shares of such series, and, unless (i) if such series
of Preferred Shares has a cumulative dividend, full cumulative dividends on all
Preferred Shares of any series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Shares does not have a
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cumulative dividend, full dividends on all Preferred Shares of any series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, Archstone shall not purchase or otherwise acquire directly or
indirectly any Preferred Shares of such series (except by conversion into or
exchange for capital shares of Archstone ranking junior to the Preferred Shares
of such series as to dividends and upon liquidation).
If fewer than all of the outstanding Preferred Shares of any series are to be
redeemed, the number of shares to be redeemed will be determined by Archstone
and such shares may be redeemed pro rata from the holders of record of
Preferred Shares of such series in proportion to the number of Preferred Shares
of such series held by such holders (with adjustments to avoid redemption of
fractional shares) or by lot in a manner determined by Archstone.
Notice of redemption will be mailed at least 30 days but not more than 90
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the share transfer books of
Archstone. Each notice shall state: (i) the redemption date; (ii) the number of
shares and series of the Preferred Shares to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Shares
are to be surrendered for payment of the redemption price; (v) that dividends
on the Preferred Shares to be redeemed will cease to accrue on such redemption
date; and (vi) the date upon which the holder's conversion rights, if any, as
to such Preferred Shares shall terminate. If fewer than all the Preferred
Shares of any series are to be redeemed, the notice mailed to each such holder
thereof shall also specify the number of Preferred Shares to be redeemed from
each such holder. If notice of redemption of any Preferred Shares has been
given and if the funds necessary for such redemption have been set aside by
Archstone in trust for the benefit of the holders of any Preferred Shares so
called for redemption, then from and after the redemption date dividends will
cease to accrue on such Preferred Shares, and all rights of the holders of such
Preferred Shares will terminate, except the right to receive the redemption
price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of Archstone, then, before any distribution or payment shall be
made to the holders of any Common Shares or any other class or series of shares
of beneficial interest of Archstone ranking junior to such series of Preferred
Shares in the distribution of assets upon any liquidation, dissolution or
winding up of Archstone, the holders of each series of Preferred Shares shall
be entitled to receive out of assets of Archstone legally available for
distribution to shareholders liquidating distributions in the amount of the
liquidation preference per share (set forth in the applicable Prospectus
Supplement), plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any cumulation in respect of unpaid dividends for
prior dividend periods if such series of Preferred Shares does not have a
cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Shares of
such series will have no right or claim to any of the remaining assets of
Archstone. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of Archstone are
insufficient to pay the amount of the liquidating distributions on all
outstanding Preferred Shares of such series and the corresponding amounts
payable on all shares of other classes or series of capital shares of Archstone
ranking on a parity with Preferred Shares of such series in the distribution of
assets, then the holders of Preferred Shares of such series and all other such
classes or series of capital shares shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares of such series, the remaining assets of Archstone shall be
distributed among the holders of any other classes or series of capital shares
ranking junior to the Preferred Shares of such series upon liquidation,
dissolution or winding up, according to their respective rights and preferences
and in each case according to their respective number of shares. For such
purposes, the consolidation or merger of Archstone with or into any other
entity, or the sale, lease or conveyance of all or substantially all of the
property or business of Archstone, shall not be deemed to constitute a
liquidation, dissolution or winding up of Archstone.
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VOTING RIGHTS
Holders of the Preferred Shares of each series will not have any voting
rights, except as set forth below or in the applicable Prospectus Supplement or
as otherwise required by applicable law. The following is a summary of the
voting rights that, unless provided otherwise in the applicable Prospectus
Supplement, will apply to each series of Preferred Shares.
If six quarterly dividends (whether or not consecutive) payable on the
Preferred Shares of such series or any other series of Preferred Shares ranking
on a parity with such series of Preferred Shares with respect in each case to
the payment of dividends, amounts upon liquidation, dissolution and winding up
("Parity Shares") are in arrears, whether or not earned or declared, the number
of Trustees then constituting the Board will be increased by two, and the
holders of Preferred Shares of such series, voting together as a class with the
holders of any other series of Parity Shares (any such other series, the
"Voting Preferred Shares"), will have the right to elect two additional
trustees to serve on the Board at any annual meeting of shareholders or a
properly called special meeting of the holders of Preferred Shares of such
series and such Voting Preferred Shares and at each subsequent annual meeting
of shareholders until all such dividends and dividends for the current
quarterly period on the Preferred Shares of such series and such other Voting
Preferred Shares have been paid or declared and set aside for payment. Such
voting rights will terminate when all such accrued and unpaid dividends have
been declared and paid or set aside for payment. The term of office of all
trustees so elected will terminate with the termination of such voting rights.
For so long as Security Capital Group Incorporated ("Security Capital Group")
and certain of its affiliates beneficially own in excess of 10% of the
outstanding Common Shares, in any such vote by holders of Preferred Shares of
such series, Security Capital Group and certain of its affiliates shall vote
their Preferred Shares of such series, if any, in the same respective
percentages as the Preferred Shares of such series and Voting Preferred Shares
that are not held by such persons.
The approval of two-thirds of the outstanding Preferred Shares of such series
and all other series of Voting Preferred Shares similarly affected, voting as a
single class, is required in order to (i) amend Archstone's Declaration of
Trust to affect materially and adversely the rights, preferences or voting
power of the holders of the Preferred Shares of such series or the Voting
Preferred Shares; (ii) enter into a share exchange that affects the Preferred
Shares of such series, consolidate with or merge into another entity, or permit
another entity to consolidate with or merge into Archstone, unless in each such
case each Preferred Share of such series remains outstanding without a material
and adverse change to its terms and rights or is converted into or exchanged
for preferred shares of the surviving entity having preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms or conditions of redemption thereof identical to that
of a Preferred Share of such series (except for changes that do not materially
and adversely affect the holders of the Preferred Shares of such series); or
(iii) authorize, reclassify, create, or increase the authorized amount of any
class of shares having rights senior to the Preferred Shares of such series
with respect to the payment of dividends or amounts upon liquidation,
dissolution or winding up. However, Archstone may create additional classes of
Parity Shares and other series of Preferred Shares ranking junior to such
series of Preferred Shares with respect in each case to the payment of
dividends, amounts upon liquidation, dissolution and winding up ("Junior
Shares"), increase the authorized number of Parity Shares and Junior Shares and
issue additional series of Parity Shares and Junior Shares without the consent
of any holder of Preferred Shares of such series.
Except as provided above and as required by law, the holders of Preferred
Shares of each series will not be entitled to vote on any merger or
consolidation involving Archstone or a sale of all or substantially all of the
assets of Archstone.
CONVERSION RIGHTS
The terms and conditions, if any, upon which Preferred Shares of any series
are convertible into Common Shares will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
Common Shares into which the Preferred Shares of such series are convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of
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the holders of the Preferred Shares of such series or Archstone, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of the Preferred Shares of such
series.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Shares--Restriction on Size
of Holdings," for Archstone to qualify as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"), not more than 50% in value of its
outstanding shares of beneficial interest may be owned by five or fewer
individuals at any time during the last half of a taxable year, and the capital
stock must be beneficially owned by 100 or more persons during at least 335
days of Archstone's taxable year of 12 months. Therefore, the Articles
Supplementary for each series of Preferred Shares will contain certain
provisions restricting the ownership and transfer of the Preferred Shares (the
"Preferred Shares Ownership Limit Provision"). Except as otherwise described in
the applicable Prospectus Supplement relating thereto, the provisions of each
Articles Supplementary relating to the Preferred Shares Ownership Limit will
provide (as in the case of the Series A Preferred Shares, the Series B
Preferred Shares and the Series C Preferred Shares) as summarized below.
The Preferred Shares Ownership Limit Provision will provide that, subject to
certain exceptions contained in such Articles Supplementary, no person, or
persons acting as a group, may beneficially own more than 25% of any series of
Preferred Shares outstanding at any time, except as a result of Archstone's
redemption of Preferred Shares. Shares acquired in excess of the Preferred
Shares Ownership Limit Provision must be redeemed by Archstone at a price equal
to the average daily per share closing sale price during the 30-day period
ending on the business day prior to the redemption date. Such redemption is not
applicable if a person's ownership exceeds the limitations due solely to
Archstone's redemption of Preferred Shares; provided that thereafter any
additional Preferred Shares acquired by such person shall be Excess Shares (as
hereinafter defined). See "Description of Common Shares--Restriction on Size of
Holdings." From and after the date of notice of such redemption, the holder of
the Preferred Shares thus redeemed shall cease to be entitled to any
distribution (other than distributions declared prior to the date of notice of
redemption), voting rights and other benefits with respect to such shares
except the right to receive payment of the redemption price determined as
described above. The Preferred Shares Ownership Limit Provision may not be
waived with respect to certain affiliates of Archstone.
All certificates representing shares of Preferred Shares will bear a legend
referring to the restrictions described above.
DESCRIPTION OF COMMON SHARES
GENERAL
The Declaration of Trust authorizes Archstone to issue up to 250,000,000
Shares of Beneficial Interest, par value $1.00 per share, consisting of Common
Shares, Preferred Shares and such other types or classes of shares of
beneficial interest as the Board may create and authorize from time to time. At
August 31, 1998 approximately 143,170,717 Common Shares were issued and
outstanding and held of record by approximately 3,080 shareholders.
The following description sets forth certain general terms and provisions of
the Common Shares to which any Prospectus Supplement may relate, including a
Prospectus Supplement which provides for Common Shares issuable pursuant to
subscription offerings or rights offerings or upon conversion of Preferred
Shares which are offered pursuant to such Prospectus Supplement and convertible
into Common Shares for no additional consideration. The statements below
describing the Common Shares are in all respects subject to and qualified in
their entirety by reference to the applicable provisions of the Declaration of
Trust and Archstone's Bylaws.
The outstanding Common Shares are fully paid and, except as set forth below
under "--Shareholder Liability," non-assessable. Each Common Share entitles the
holder to one vote on all matters requiring a vote of
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shareholders, including the election of Trustees. Holders of Common Shares do
not have the right to cumulate their votes in the election of Trustees, which
means that the holders of a majority of the outstanding Common Shares can elect
all of the Trustees then standing for election. Holders of Common Shares are
entitled to such distributions as may be declared from time to time by the
Board out of funds legally available therefor. Holders of Common Shares have no
conversion, redemption, preemptive or exchange rights to subscribe to any
securities of Archstone. In the event of a liquidation, dissolution or winding
up of the affairs of Archstone, the holders of the Common Shares are entitled
to share ratably in the assets of Archstone remaining after provision for
payment of all liabilities to creditors and payment of liquidation preferences
and accrued dividends, if any, on the Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares, and subject to the rights of
holders of other series of Preferred Shares, if any. The right of holders of
the Common Shares are subject to the rights and preferences established by the
Board for the Series A Preferred Shares, Series B Preferred Shares and Series C
Preferred Shares and any other series of Preferred Shares which may
subsequently be issued by Archstone. See "Description of Preferred Shares."
PURCHASE RIGHTS
On July 11, 1994, the Board declared a dividend of one preferred share
purchase right (a "Purchase Right") for each Common Share outstanding, payable
to holders of Common Shares of record at the close of business on July 21,
1994. The holders of any additional Common Shares issued after such date and
before the redemption or expiration of the Purchase Rights are also entitled to
receive one Purchase Right for each such additional Common Share. Each Purchase
Right entitles the holder under certain circumstances to purchase from
Archstone one one-hundredth of a share of a series of participating preferred
shares, par value $1.00 per share (the "Participating Preferred Shares") at a
price of $60.00 per one one-hundredth of a Participating Preferred Share,
subject to adjustment. Purchase Rights are exercisable when a person or group
of persons acquires 20% or more of the outstanding Common Shares (49% in the
case of Security Capital Group and its affiliates) or announces a tender offer
or exchange offer for 25% or more of the outstanding Common Shares. Under
certain circumstances, each Purchase Right entitles the holder to purchase, at
the Purchase Right's then current exercise price, a number of Common Shares
having a market value of twice the Purchase Right's exercise price. The
acquisition of Archstone pursuant to certain mergers or other business
transactions would entitle each holder to purchase, at the Purchase Right's
then current exercise price, a number of the acquiring company's common shares
having a market value at the time equal to twice the Purchase Right's exercise
price. The Purchase Rights held by certain 20% shareholders (other than
Security Capital Group) would not be exercisable. The Purchase Rights will
expire on July 21, 2004 and are subject to redemption in whole, but not in
part, at a price of $.01 per Purchase Right payable in cash, shares of
Archstone or any other form of consideration determined by the Board.
TRANSFER AGENT
The transfer agent and registrar for the Common Shares is ChaseMellon
Shareholder Services, L.L.C. The Common Shares are listed on the New York Stock
Exchange (the "NYSE") under the symbol "ASN."
CLASSIFIED BOARD OF TRUSTEES
Under the Archstone Declaration of Trust, the Board is divided into three
classes of Trustees, designated Class I, Class II and Class III. Each class
consists, as nearly as is possible, of one-third of the total number of
Trustees constituting the entire Board of Trustees. The term of office of each
Trustee is three years and until his or her successor is elected and qualifies,
subject to prior death, resignation or removal. At the 1999 annual meeting of
shareholders, Class I Trustees will be elected; at the 2000 annual meeting of
shareholders, Class II Trustees will be elected; and at the 2001 annual meeting
of shareholders, Class III Trustees will be elected. At each succeeding annual
meeting of shareholders, beginning in 2002, successors to the class of Trustees
whose term expires at such annual meeting will be elected. If the authorized
number of Trustees constituting the Board of Trustees is changed, any increase
or decrease will be apportioned among the classes so as to maintain the number
of Trustees in each class as nearly equal as possible, and any additional
Trustee of any class elected to
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fill a vacancy resulting from an increase in such class will hold office until
the next annual meeting of shareholders, but in no case will a decrease in the
number of Trustees constituting the Board of Trustees shorten the term of any
incumbent Trustee. The staggered board provision is designed to provide for a
certain level of continuity of membership in the Board of Trustees. Such
continuity provides Archstone with consistency in management and business
approach over time. The staggered board provision may have the effect of making
it more difficult for a third party to acquire control of Archstone without the
consent of the Board of Trustees.
RESTRICTION ON SIZE OF HOLDINGS OF SHARES
For Archstone to qualify as a REIT under the Code, no more than 50% in value
of Archstone's shares (after taking into account options to acquire shares) may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities and constructive ownership among specified
family members) during the last half of a taxable year (other than the first
taxable year) or during a proportionate part of a short taxable year.
Archstone's shares must also be beneficially owned (other than during the first
taxable year) by 100 or more persons during at least 335 days of a taxable year
or during a proportionate part of a shorter taxable year.
Subject to certain exceptions, no holder is permitted to own, or be deemed to
own by virtue of the attribution provisions of the Code, more than 9.8% (49% in
the case of Security Capital Group) in number of shares or value, of the
outstanding Shares (the "Ownership Limit"). The Board, upon receipt of a ruling
from the IRS or an opinion of counsel or other evidence satisfactory to the
Board and upon such other conditions as the Board may direct, may also exempt a
proposed transferee from the Ownership Limit. The proposed transferee must give
written notice to Archstone of the proposed transfer at least 30 days prior to
any transfer which, if consummated, would result in the intended transferee
owning Shares in excess of the Ownership Limit. The Board may require such
opinions of counsel, affidavits, undertakings or agreements as it may deem
necessary or advisable in order to determine or ensure Archstone's status as a
REIT. Any transfer of Shares that would (i) create a direct or indirect
ownership of Shares in excess of the Ownership Limit, (ii) result in Shares
being beneficially owned by fewer than 100 persons (determined without
reference to any rules of attribution) as provided in Section 856(a) of the
Code or (iii) result in Archstone being "closely held" within the meaning of
Section 856(h) of the Code, shall be null and void ab initio, and the intended
transferee will acquire no rights to Shares. The foregoing restrictions on
transferability and ownership will not apply if the Board determines that it is
no longer in the best interests of Archstone to attempt to qualify, or to
continue to qualify, as a REIT. The Declaration of Trust excludes Security
Capital Group and its affiliates from the foregoing ownership restriction to
the extent that Security Capital Group beneficially owns 49% or less of
Archstone's outstanding shares.
Any shares the purported transfer of which would result in a person owning
Shares in excess of the Ownership Limit or cause Archstone to become "closely
held" under Section 856(h) of the Code that is not otherwise permitted as
provided above will constitute excess shares ("Excess Shares"), which will be
transferred pursuant to the Declaration of Trust to a party not affiliated with
Archstone designated by Archstone as the trustee of a trust for the exclusive
benefit of an organization or organizations described in Sections 170(b)(1)(A)
and 170(c) of the Code and identified by the Board as the beneficiary or
beneficiaries of the trust (the "Charitable Beneficiary"), until such time as
the Excess Shares are transferred to a person whose ownership will not violate
the restrictions on ownership. While these Excess Shares are held in trust,
distributions on such Excess Shares will be paid to the trust for the benefit
of the Charitable Beneficiary and may only be voted by the trustee for the
benefit of the Charitable Beneficiary. Subject to the Ownership Limit, the
Excess Shares will be transferred by the trustee at the direction of Archstone
to any person (if the Excess Shares would not be Excess Shares in the hands of
such person). The purported transferee will receive the lesser of (i) the price
paid by the purported transferee for the Excess Shares (or, if no consideration
was paid, fair market value on the day of the event causing the Excess Shares
to be held in trust) and (ii) the price received from the sale or other
disposition of the Excess Shares held in trust. Any proceeds in excess of the
amount payable to the purported transferee will be paid to the Charitable
Beneficiary. In addition, such Excess Shares held in trust are subject to
purchase by Archstone for a 90-day period at a purchase price equal to the
lesser of (i) the price paid for the Excess Shares by the purported
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transferee (or, if no consideration was paid, fair market value at the time of
the event causing the shares to be held in trust) and (ii) the fair market
value of the Excess Shares on the date Archstone elects to purchase. Fair
market value, for these purposes, means the last reported sales price reported
on the NYSE on the trading day immediately preceding the relevant date, or if
not then traded on the NYSE, the last reported sales price on the trading day
immediately preceding the relevant date as reported on any exchange or
quotation systems over or through any exchange or quotation system, then the
market price on the relevant date as determined in good faith by the Board.
From and after the purported transfer to the purported transferee of the
Excess Shares, the purported transferee will cease to be entitled to
distribution (other than liquidating distributions), voting rights and other
benefits with respect to the Excess Shares except the right to payment on the
transfer of the Excess Shares as described above. Any distribution paid to a
purported transferee on Excess Shares prior to the discovery by Archstone that
such Excess Shares have been transferred in violation of the provisions of the
Declaration of Trust will be repaid, upon demand, to Archstone, which will pay
any such amounts to the trust for the benefit of the Charitable Beneficiary. If
the foregoing transfer restrictions are determined to be void, invalid or
unenforceable by any court of competent jurisdiction, then the purported
transferee of any Excess Shares may be deemed, at the option of Archstone, to
have acted as an agent on behalf of Archstone in acquiring such Excess Shares
and to hold such Excess Shares on behalf of Archstone.
All certificates evidencing shares will bear a legend referring to the
restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage between 0.5% and 5%, as
provided in the rules and regulations promulgated under the Code) of the number
or value of Archstone's outstanding shares must give a written notice
containing certain information to Archstone by January 31 of each year. In
addition, each shareholder is upon demand required to disclose to Archstone in
writing such information with respect to the direct, indirect and constructive
ownership of Archstone shares as the Board deems reasonably necessary to comply
with the provisions of the Code applicable to a REIT, to determine Archstone's
status as a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
The ownership limitations under the Declaration of Trust are designed to
protect the REIT status of Archstone. The limitations could have the effect of
discouraging a takeover or other transaction in which holders of some, or a
majority, of the Common Shares might receive a premium for their shares over
the then prevailing market price or which such holders might believe to be
otherwise in their best interest.
INDEMNIFICATION OF TRUSTEES AND OFFICERS
The Maryland statutory law governing REITs permits a REIT to indemnify or
advance expenses to trustees, officers, employees and agents of the REIT to the
same extent as is permitted for directors, officers, employees and agents of a
Maryland corporation under Maryland statutory law. Under the Declaration of
Trust, Archstone is required to indemnify each Trustee, officer, employee and
agent to the fullest extent permitted by Maryland law, as amended from time to
time, in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she was a Trustee, officer, employee or agent of
Archstone or is or was serving at the request of Archstone as a director,
trustee, officer, partner, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan, from all claims and liabilities to which such person may become
subject by reason of service in such capacity and to pay or reimburse
reasonable expenses, as such expenses are incurred, of each Trustee in
connection with any such proceedings. The Board believes that the
indemnification provision will enhance Archstone's ability to attract and
retain superior Trustees and officers for Archstone and subsidiaries of
Archstone.
Additionally, Archstone has entered into indemnity agreements with each of
its officers and Trustees which provide for reimbursement of all expenses and
liabilities of such officer or Trustee, arising out of any lawsuit or claim
against such officer or Trustee due to the fact that he was or is serving as an
officer or Trustee, except for
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liabilities and expenses (i) the payment of which is judicially determined to
be unlawful, (ii) relating to claims under Section 16(b) of the Exchange Act,
or (iii) relating to judicially determined criminal violations.
SHAREHOLDER LIABILITY
Both the Maryland statutory law governing REITs and the Declaration of Trust
provide that shareholders shall not be personally or individually liable for
any debt, act, omission or obligation of Archstone or the Board. The
Declaration of Trust further provides that Archstone shall indemnify and hold
each shareholder harmless from all claims and liabilities to which the
shareholder may become subject by reason of his or her being or having been a
shareholder and that Archstone shall reimburse each shareholder for all legal
and other expenses reasonably incurred by the shareholder in connection with
any such claim or liability, provided that such shareholder gives Archstone
prompt notice of any such claim or liability and permits Archstone to conduct
the defense thereof. In addition, Archstone is required to, and as a matter or
practice does, insert a clause in its management and other contracts providing
that shareholders assume no personal liability for obligations entered into on
behalf of Archstone. Nevertheless, with respect to tort claims, contractual
claims where shareholder liability is not so negated, claims for taxes and
certain statutory liability, the shareholders may, in some jurisdictions, be
personally liable to the extent that such claims are not satisfied by
Archstone. Inasmuch as Archstone carries public liability insurance which it
considers adequate, any risk of personal liability to shareholders is limited
to situations in which Archstone's assets plus its insurance covered would be
insufficient to satisfy the claims against Archstone and its shareholders.
FEDERAL INCOME TAX CONSIDERATIONS
Archstone intends to operate in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the
Code. No assurance can be given, however, that such requirements will be met.
The following is a description of the federal income tax consequences to
Archstone and its shareholders of the treatment of Archstone as a REIT. Since
these provisions are highly technical and complex, each prospective purchaser
of the Offered Securities is urged to consult his or her own tax advisor with
respect to the federal, state, local, foreign and other tax consequences of the
purchase, ownership and disposition of the Offered Securities.
Based upon certain representations of Archstone with respect to the facts as
set forth and explained in the discussion below, in the opinion of Mayer, Brown
& Platt, counsel to Archstone, Archstone has been organized in conformity with
the requirements for qualification as a REIT, and its proposed method of
operation described in this Prospectus and as represented by management will
enable it to satisfy the requirements for such qualification.
This opinion is conditioned upon certain representations made by Archstone as
to certain factual matters relating to Archstone's organization and intended or
expected manner of operation. In addition, this opinion is based on the law
existing and in effect on the date hereof. Archstone's qualification and
taxation as a REIT will depend on Archstone's ability to meet on a continuing
basis, through actual operating results, asset composition, distribution levels
and diversity of stock ownership, the various qualification tests imposed under
the Code discussed below. Mayer, Brown & Platt will not review compliance with
these tests on a continuing basis. No assurance can be given that Archstone
will satisfy such tests on a continuing basis.
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities such as Archstone, that invest primarily in real
estate and that otherwise would be treated for federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" (at both the corporate and
shareholder levels) that generally results from the use of corporations.
However, as discussed in greater detail below, such an entity remains subject
to tax in certain circumstances even if it qualifies as a REIT.
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If Archstone fails to qualify as a REIT in any year, however, it will be
subject to federal income taxation as if it were a domestic corporation, and
its shareholders will be taxed in the same manner as shareholders of ordinary
corporations. In this event, Archstone could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its shareholders would be reduced or eliminated.
The Board believes that Archstone has been organized and operated and
currently intends that Archstone will continue to operate in a manner that
permits it to qualify as a REIT. There can be no assurance, however, that this
expectation will be fulfilled, since qualification as a REIT depends on
Archstone continuing to satisfy numerous asset, income and distribution tests
described below, which in turn will be dependent in part on Archstone's
operating results.
The following summary is based on the Code, its legislative history,
administrative pronouncements, judicial decisions and United States Treasury
Department ("Treasury") regulations, subsequent changes to any of which may
affect the tax consequences described herein, possibly on a retroactive basis.
The following summary is not exhaustive of all possible tax considerations and
does not give a detailed discussion of any state, local, or foreign tax
considerations, nor does it discuss all of the aspects of federal income
taxation that may be relevant to a prospective shareholder in light of his or
her particular circumstances or to certain types of shareholders (including
insurance companies, tax-exempt entities, financial institutions or broker-
dealers, foreign corporations and persons who are not citizens or residents of
the United States) subject to special treatment under the federal income tax
laws.
TAXATION OF ARCHSTONE
General
In any year in which Archstone qualifies as a REIT, in general it will not be
subject to federal income tax on that portion of its REIT taxable income or
capital gain which is distributed to shareholders. Archstone may, however, be
subject to tax at normal corporate rates upon any taxable income or capital
gain not distributed. Under recently enacted legislation, to the extent that
Archstone elects to retain and pay income tax on its net long-term capital
gain, shareholders are required to include their proportionate share of
Archstone's undistributed long-term capital gain in income but receive a credit
for their share of any taxes paid on such gain by Archstone.
Notwithstanding its qualification as a REIT, Archstone may also be subject to
taxation in certain other circumstances. If Archstone should fail to satisfy
either the 75% or the 95% gross income test (as discussed below), and
nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which Archstone fails to satisfy either the 75% test or the 95% test,
multiplied by a fraction intended to reflect Archstone's profitability.
Archstone will also be subject to a tax of 100% on net income from any
"prohibited transaction", as described below, and if Archstone has (i) net
income from the sale or other disposition of "foreclosure property" which is
held primarily for sale to customers in the ordinary course of business or (ii)
other non-qualifying income from foreclosure property, it will be subject to
tax on such income from foreclosure property at the highest corporate rate. In
addition, if Archstone should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year and (iii) any undistributed
taxable income from prior years, Archstone would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed. To the extent that Archstone elects to retain and pay income tax
on its long-term capital gain, such retained amounts will be treated as having
been distributed for purposes of the 4% excise tax. Archstone may also be
subject to the corporate "alternative minimum tax", as well as tax in certain
situations and on certain transactions not presently contemplated. Archstone
will use the calendar year both for federal income tax purposes and for
financial reporting purposes.
In order to qualify as a REIT, Archstone must meet, among others, the
following requirements:
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Share Ownership Test
Archstone's shares of stock must be held by a minimum of 100 persons for at
least 335 days in each taxable year (or a proportional number of days in any
short taxable year). In addition, at all times during the second half of each
taxable year, no more than 50% in value of the stock of Archstone may be owned,
directly or indirectly and by applying certain constructive ownership rules, by
five or fewer individuals, which for this purpose includes certain tax-exempt
entities. Any stock held by a qualified domestic pension or other retirement
trust will be treated as held directly by its beneficiaries in proportion to
their actuarial interest in such trust rather than by such trust. Pursuant to
the constructive ownership rules, Security Capital's ownership of shares is
attributed to its shareholders for purposes of the 50% test. If Archstone
complies with the Treasury regulations for ascertaining its actual ownership
and did not know, or exercising reasonable diligence would not have reason to
know, that more than 50% in value of its outstanding shares of stock were held,
actually or constructively, by five or fewer individuals, then Archstone will
be treated as meeting such requirement.
In order to ensure compliance with the 50% test, Archstone has placed certain
restrictions on the transfer of the shares of its stock to prevent additional
concentration of ownership. Moreover, to evidence compliance with these
requirements under Treasury regulations, Archstone must maintain records which
disclose the actual ownership of its outstanding shares of stock. In fulfilling
its obligations to maintain records, Archstone must and will demand written
statements each year from the record holders of designated percentages of
shares of its stock disclosing the actual owners of such shares (as prescribed
by Treasury regulations). A list of those persons failing or refusing to comply
with such demand must be maintained as a part of Archstone's records. A
shareholder failing or refusing to comply with Archstone's written demand must
submit with his or her tax returns a similar statement disclosing the actual
ownership of shares of Archstone's stock and certain other information. In
addition, Archstone's Charter provides restrictions regarding the transfer of
shares of its stock that are intended to assist Archstone in continuing to
satisfy the share ownership requirements. See "Description of Common Shares--
Restriction on Size of Holdings". Archstone intends to enforce the 9.8%
limitation on ownership of shares of its stock to assure that its qualification
as a REIT will not be compromised.
Asset Tests
At the close of each quarter of Archstone's taxable year, Archstone must
satisfy certain tests relating to the nature of its assets (determined in
accordance with generally accepted accounting principles). First, at least 75%
of the value of Archstone's total assets must be represented by interests in
real property, interests in mortgages on real property, shares in other REITs,
cash, cash items, and government securities, and qualified temporary
investments. Second, although the remaining 25% of Archstone's assets generally
may be invested without restriction, securities in this class may not exceed
either (i) in the case of securities of any non-government issuer, 5% of the
value of Archstone's total assets or (ii) 10% of the outstanding voting
securities of any one issuer. Where Archstone invests in a partnership, it will
be deemed to own a proportionate share of the partnership's assets.
Gross Income Tests
There are two separate percentage tests relating to the sources of
Archstone's gross income which must be satisfied for each taxable year. For
purposes of these tests, where Archstone invests in a partnership, Archstone
will be treated as receiving its share of the income and loss of the
partnership, and the gross income of the partnership will retain the same
character in the hands of Archstone as it has in the hands of the partnership.
1. The 75% Test. At least 75% of Archstone's gross income for the taxable
year must be "qualifying income". Qualifying income generally includes: (i)
rents from real property (except as modified below); (ii) interest on
obligations collateralized by mortgages on, or interests in, real property;
(iii) gains from the sale or other disposition of interests in real property
and real estate mortgages, other than gain from property held primarily for
sale to customers in the ordinary course of Archstone's trade or business
("dealer property"); (iv) dividends or other distributions on shares in other
REITs, as well as gain from the sale of such shares; (v) abatements and
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refunds of real property taxes; (vi) income from the operation, and gain from
the sale, of property acquired at or in lieu of a foreclosure of the mortgage
collateralized by such property ("foreclosure property"); (vii) commitment fees
received for agreeing to make loans collateralized by mortgages on real
property or to purchase or lease real property; and (viii) certain qualified
temporary investment income attributable to the investment of new capital
received by Archstone in exchange for its shares during the one-year period
following the receipt of such capital.
Rents received from a resident will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if Archstone, or an owner of 10% or more of Archstone, directly or
constructively owns 10% or more of such resident. In addition, if rent
attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
rents from real property. Moreover, an amount received or accrued will not
qualify as rents from real property (or as interest income) for purposes of the
75% and 95% gross income tests if it is based in whole or in part on the income
or profits of any person, although an amount received or accrued generally will
not be excluded from "rents from real property" solely by reason of being based
on a fixed percentage or percentages of receipts or sales. Finally, for rents
received to qualify as rents from real property, Archstone generally must not
operate or manage the property or furnish or render services to residents,
other than through an "independent contractor" from whom Archstone derives no
income, except that the "independent contractor" requirement does not apply to
the extent that the services provided by Archstone are "usually or customarily
rendered" in connection with the rental of multifamily units for occupancy
only, or are not otherwise considered "rendered to the occupant for his
convenience". However a REIT is permitted to render a de minimis amount of
impermissible services to tenants, or in connection with the management of
property, and still treat amounts received with respect to that property as
rent from real property. The amount received or accrued by the REIT during the
taxable year for the impermissible services with respect to a property may not
exceed one percent of all amounts received or accrued by the REIT directly or
indirectly from the property. The amount received for any service (or
management operation) for this purpose shall be deemed to be not less than 150%
of the direct cost of the REIT in furnishing or rendering the service (or
providing the management or operation).
2. The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of Archstone's gross income for the taxable
year must be derived from the above-described qualifying income, or from
dividends, interest or gains from the sale or disposition of stock or other
securities that are not dealer property. Dividends (other than on REIT shares)
and interest on any obligations not collateralized by an interest in real
property are included for purposes of the 95% test, but not for purposes of the
75% test.
For purposes of determining whether Archstone complies with the 75% and 95%
income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property
(excluding foreclosure property) unless such property is held by Archstone for
at least four years and certain other requirements (relating to the number of
properties sold in a year, their tax bases, and the cost of improvements made
thereto) are satisfied. See "--Taxation of Archstone--General".
Even if Archstone fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may still qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) Archstone's failure to comply
was due to reasonable cause and not to willful neglect; (ii) Archstone reports
the nature and amount of each item of its income included in the tests on a
schedule attached to its tax return; and (iii) any incorrect information on
this schedule is not due to fraud with intent to evade tax. If these relief
provisions apply, however, Archstone will nonetheless be subject to a special
tax upon the greater of the amount by which it fails either the 75% or 95%
gross income test for that year.
Annual Distribution Requirements
In order to qualify as a REIT, Archstone is required to make distributions
(other than capital gain dividends) to its shareholders each year in an amount
at least equal to (i) the sum of (a) 95% of Archstone's REIT taxable
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income (computed without regard to the dividends paid deduction and the REIT's
net capital gain) and (b) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before Archstone timely files its tax
return for such year and if paid on or before the first regular dividend
payment after such declaration. To the extent that Archstone does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its REIT taxable income, as adjusted, it will be subject to tax
on the undistributed amount at regular capital gains or ordinary corporate tax
rates, as the case may be. Archstone may, with respect to undistributed net
long-term capital gains it received during the taxable year, designate in a
notice mailed to shareholders within 60 days of the end of the taxable year (or
in a notice mailed with its annual report for the taxable year) such amount of
such gains which its shareholders are to include in their taxable income as
long-term capital gains. Thus, if Archstone made this designation, the
shareholders of Archstone would include in their income as long-term capital
gains their proportionate share of the undistributed net capital gains as
designated by Archstone and Archstone would have to pay the tax on such gains
within 30 days of the close of its taxable year. Each shareholder of Archstone
would be deemed to have paid such shareholder's share of the tax paid by
Archstone on such gains, which tax would be credited or refunded to the
shareholder. A shareholder would increase his tax basis in his Archstone stock
by the difference between the amount of income to the holder resulting from the
designation less the holder's credit or refund for the tax paid by Archstone.
Archstone intends to make timely distributions sufficient to satisfy the
annual distribution requirements. It is possible that Archstone may not have
sufficient cash or other liquid assets to meet the 95% distribution
requirement, due to timing differences between the actual receipt of income and
actual payment of expenses on the one hand, and the inclusion of such income
and deduction of such expenses in computing Archstone's REIT taxable income on
the other hand. To avoid any problem with the 95% distribution requirement,
Archstone will closely monitor the relationship between its REIT taxable income
and cash flow and, if necessary, intends to borrow funds in order to satisfy
the distribution requirement. However, there can be no assurance that such
borrowing would be available at such time.
If Archstone fails to meet the 95% distribution requirement as a result of an
adjustment to Archstone's tax return by the Internal Revenue Service (the
"IRS"), Archstone may retroactively cure the failure by paying a "deficiency
dividend" (plus applicable penalties and interest) within a specified period.
Failure to Quality
If Archstone fails to qualify for taxation as a REIT in any taxable year and
certain relief provisions do not apply, Archstone will be subject to tax
(including applicable alternative minimum tax) on its taxable income at regular
corporate rates. Distributions to shareholders in any year in which Archstone
fails to quality as a REIT will not be deductible by Archstone, nor generally
will they be required to be made under the Code. In such event, to the extent
of current and accumulated earnings and profits, all distributions to
shareholders will be taxable as ordinary income, and subject to certain
limitations in the Code, corporate distributees may be eligible for the
dividends-received deduction. Unless entitled to relief under specific
statutory provisions, Archstone also will be disqualified from reelecting
taxation as a REIT for the four taxable years following the year during which
qualification was lost.
TAXATION OF ARCHSTONE'S SHAREHOLDERS
Taxation of Taxable Domestic Shareholders
As long as Archstone qualifies as a REIT, distributions made to Archstone's
taxable domestic shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends-
received deduction for corporations. Distributions and undistributed amounts
that are designated as capital gain dividends will be taxed as long-term
capital gains (to the extent they do not exceed Archstone's actual net capital
gain for the taxable
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year) without regard to the period for which the shareholder has held its
shares. However, corporate shareholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. To the extent that Archstone
makes distributions in excess of current and accumulated earnings and profits,
these distributions are treated first as a tax-free return of capital to the
shareholder, reducing the tax basis of a shareholder's shares by the amount of
such distribution (but not below zero), with distributions in excess of the
shareholder's tax basis taxable as capital gains (if the shares are held as a
capital asset). In addition, any dividend declared by Archstone in October,
November or December of any year and payable to a shareholder of record on a
specific date in any such month shall be treated as both paid by Archstone and
received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by Archstone during January of the following calendar
year. Shareholders may not include in their individual income tax returns any
net operating losses or capital losses of Archstone. Federal income tax rules
may also require that certain minimum tax adjustments and preferences be
apportioned to Archstone shareholders.
Archstone is permitted under the Code to retain and pay income tax on its net
capital gain for any taxable year. Under the Taxpayer Relief Act of 1997 (the
"1997 Act"), however, if Archstone so elects, a shareholder must include in
income such shareholder's proportionate share of Archstone's undistributed
capital gain for the taxable year and will be deemed to have paid such
shareholder's proportionate share of the income tax paid by Archstone with
respect to such undistributed capital gain. Such tax would be credited against
the shareholder's tax liability and subject to normal refund procedures. In
addition, each shareholder's basis in such shareholder's Common Shares would be
increased by the amount of undistributed capital gain (less the tax paid by
Archstone) included in the shareholder's income. Archstone has no current
intent of retaining its net capital gains.
The Internal Revenue Service Restructuring and Reform Act of 1998 (the "1998
Act"), which was recently passed by Congress and signed into law by the
President, alters the holding period for taxation of capital gain income for
individuals (and for certain trusts and estates). Pursuant to the 1997 Act,
gain from the sale or exchange of certain investments held for more than 18
months was taxed at a maximum capital gain rate of 20%. Gain from the sale or
exchange of such investments held for 18 months or less, but for more than one-
year, was taxed at a maximum capital gain rate of 28%. The 1997 Act also
provided for a maximum rate of 25% for "unrecaptured section 1250 gain"
recognized on the sale or exchange of certain real estate assets. Pursuant to
the 1998 Act, property held for more than one-year (rather than 18 months) will
be eligible for the 20% and 25% capital gains rates discussed above. The 1998
Act applies to amounts taken into account on or after January 1, 1998. On
November 10, 1997, the IRS issued Notice 97-64, which provided generally that
Archstone may classify portions of its designated capital gain dividend as (i)
a 20% rate gain distribution (which would be taxed as capital gain in the 20%
group), (ii) an unrecaptured Section 1250 gain distribution (which would be
taxed as capital gain in the 25% group), or (iii) a 28% rate gain distribution
(which would be taxed as capital gain in the 28% group). Under Notice 97-64, if
no designation is made, the entire designated capital gain dividend will be
treated as a 28% rate capital gain distribution. Notice 97-64 provides that a
REIT must determine the maximum amounts that it may designate as 20% and 25%
rate capital gain dividends by performing the computation required by the Code
as if the REIT were an individual whose ordinary income was subject to a
marginal tax rate of at least 28%. Notice 97-64 has not yet been modified to
incorporate the changes made to holding periods under the 1998 Act.
In general, any loss upon a sale or exchange of shares by a shareholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss, to the extent of
distributions from Archstone required to be treated by such shareholder as
long-term capital gains.
Shareholders of Archstone should consult their tax advisor with regard to (i)
the application of the changes made by the 1997 Act and the 1998 Act with
respect to taxation of capital gains and capital gain dividends and (ii) to
state, local and foreign taxes on capital gains.
Backup Withholding
Archstone will report to its domestic shareholders and to the IRS the amount
of distributions paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
shareholder may be subject to backup withholding at applicable rates with
respect to distributions paid
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unless such shareholder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A shareholder that does not provide Archstone with
its correct taxpayer identification number may also be subject to penalties
imposed by the IRS. Any amount paid as backup withholding will be credited
against the shareholder's income tax liability. In addition, Archstone may be
required to withhold a portion of capital gain distributions made to any
shareholders who fail to certify their non-foreign status to Archstone.
Taxation of Tax-Exempt Shareholders
The IRS has issued a revenue ruling in which it held that amounts distributed
by a REIT to a tax-exempt employees' pension trust do not constitute unrelated
business taxable income ("UBTI"). Subject to the discussion below regarding a
"pension-held REIT", based upon the ruling, the analysis therein and the
statutory framework of the Code, distributions by Archstone to a shareholder
that is a tax-exempt entity should also not constitute UBTI, provided that the
tax-exempt entity has not financed the acquisition of its shares with
"acquisition indebtedness" within the meaning of the Code, and that the shares
are not otherwise used in an unrelated trade or business of the tax-exempt
entity, and that Archstone, consistent with its present intent, does not hold a
residual interest in a real estate mortgage investment conduit.
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Code ("qualified pension trust") holds more than 10% by
value of the interests in a "pension-held REIT" at any time during a taxable
year, a portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For these purposes, a "pension-held REIT" is defined
as a REIT if (i) such REIT would not have qualified as a REIT but for the
provisions of the Code which look through such a qualified pension trust in
determining ownership of stock of the REIT and (ii) at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or one
or more qualified pension trusts (each owning more than a 10% interest by value
in the REIT) hold in the aggregate more than 50% by value of the interests in
such REIT.
Taxation of Foreign Shareholders
Archstone will qualify as a "domestically-controlled REIT" so long as less
than 50% in value of its shares is held by foreign persons (i.e., nonresident
aliens and foreign corporations, partnerships, trust and estates). It is
currently anticipated that Archstone will qualify as a domestically controlled
REIT. Under these circumstances, gain from the sale of the shares by a foreign
person should not be subject to U.S. taxation, unless such gain is effectively
connected with such person's U.S. business or, in the case of an individual
foreign person, such person is present within the U.S. for more than 182 days
in such taxable year.
Distributions of cash generated by Archstone's real estate operations (but
not by its sale or exchange of such communities) that are paid to foreign
persons generally will be subject to U.S. withholding tax at a rate of 30%,
unless (i) an applicable tax treaty reduces that tax and the foreign
shareholder files with Archstone the required form evidencing such lower rate
or (ii) the foreign shareholder files an IRS Form 4224 with Archstone claiming
that the distribution is "effectively connected" income. Recently promulgated
Treasury Regulations revise in certain respects the rules applicable to foreign
shareholders with respect to payments made after December 31, 1999 .
Distributions of proceeds attributable to the sale or exchange by Archstone
of U.S. real property interests are subject to income and withholding taxes
pursuant to the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"),
and may be subject to branch profits tax in the hands of a shareholder which is
a foreign corporation if it is not entitled to treaty relief or exemption.
Archstone is required by applicable Treasury Regulations to withhold 35% of any
distribution to a foreign person that could be designated by Archstone as a
capital gain dividend; this amount is creditable against the foreign
shareholder's FIRPTA tax liability.
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The federal income taxation of foreign persons is a highly complex matter
that may be affected by many other considerations. Accordingly, foreign
investors in Archstone should consult their own tax advisors regarding the
income and withholding tax considerations with respect to their investment in
Archstone.
OTHER TAX CONSIDERATIONS
Archstone Development Services
Archstone Development Services will pay Federal and state income taxes at the
full applicable corporate rates on its income prior to payment of any
dividends. Archstone Development Services will attempt to minimize the amount
of such taxes, but there can be no assurance whether or to the extent to which
measures taken to minimize taxes will be successful. To the extent that
Archstone Development Services is required to pay Federal, state or local
taxes, the cash available for distribution by Archstone Development Services to
its shareholders will be reduced accordingly.
Possible Legislative or Other Actions Affecting Tax Consequences
Prospective shareholders should recognize that the present federal income tax
treatment of an investment in Archstone may be modified by legislative,
judicial or administrative action at any time and that any such action may
affect investments and commitments previously made. The rules dealing with
federal income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the Treasury, resulting in revisions of
regulations and revised interpretations of established concepts as well as
statutory changes. Revisions in federal tax laws and interpretations thereof
could adversely affect the tax consequences of an investment in Archstone.
State and Local Taxes
Archstone and its shareholders may be subject to state or local taxation in
various jurisdictions, including those in which it or they transact business or
reside. The state and local tax treatment of Archstone and its shareholders may
not conform to the federal income tax consequences discussed above.
Consequently, prospective shareholders should consult their own tax advisors
regarding the effect of state and local tax laws on an investment in the
Offered Securities of Archstone.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP, AND SALES OF COMMON SHARES, PREFERRED SHARES OR DEBT SECURITIES IN
AN ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
PLAN OF DISTRIBUTION
Archstone may sell the Offered Securities to one or more underwriters or
dealers for public offering and sale by them or may sell the Offered Securities
to investors directly or through agents, which agents may be affiliated with
Archstone. Direct sales to investors may be accomplished through subscription
offerings or through subscription rights distributed to Archstone shareholders
and direct placements to third parties. In connection with subscription
offerings or the distribution of subscription rights to shareholders, if all
the underlying Offered Securities are not subscribed for, Archstone may sell
such unsubscribed Offered Securities to third parties directly or through
agents and, in addition, whether or not all of the underlying Offered
Securities are subscribed for, Archstone may concurrently offer additional
Offered Securities to third parties directly or through agents, which agents
may be affiliated with Archstone. Any underwriter, dealer or agent involved in
the offer and sale of the Offered Securities will be named in the applicable
Prospectus Supplement.
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The distribution of the Offered Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed,
at prices related to the prevailing market prices at the time of sale or at
negotiated prices (any of which may represent a discount from the prevailing
market price). Archstone also may, from time to time, authorize underwriters
acting as Archstone's agents to offer and sell the Offered Securities upon the
terms and conditions set forth in the applicable Prospectus Supplement. In
connection with the sale of Offered Securities, underwriters may be deemed to
have received compensation from Archstone in the form of underwriting discounts
or commissions and may also receive commissions from purchasers of Offered
Securities for whom they may act as agent. Underwriters may sell Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent.
Any underwriting compensation paid by Archstone to underwriters or agents in
connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters,
dealers and agents participating in the distribution of the Offered Securities
may be deemed to be underwriters, and any discounts and commissions received by
them and any profit realized by them on resale of the Offered Securities may be
deemed to be underwriting discounts and commissions, under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered into
with Archstone, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act. Any such
indemnification agreements will be described in the applicable Prospectus
Supplement.
If so indicated in the applicable Prospectus Supplement, Archstone will
authorize dealers acting as Archstone's agents to solicit offers by certain
institutions to purchase Offered Securities from Archstone at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ("Contracts") providing for payment and delivery on the date
or dates stated in such Prospectus Supplement. Each Contract will be for an
amount not less than, and the aggregate principal amount of Offered Securities
sold pursuant to Contracts shall be not less nor more than, the respective
amounts stated in the applicable Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions but will in all cases be
subject to the approval of Archstone. Contracts will not be subject to any
conditions except (i) the purchase by an institution of the Offered Securities
covered by its Contracts shall not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which such institution is
subject, and (ii) if the Offered Securities are being sold to underwriters,
Archstone shall have sold to such underwriters the total principal amount of
the Offered Securities less the principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for Archstone and its subsidiaries in
the ordinary course of business.
EXPERTS
The financial statements of Archstone as of December 31, 1997 and 1996, and
for each of the years in the three-year period ended December 31, 1997 and the
related schedule, have been incorporated by reference herein and in the
Registration Statement, in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein and
upon the authority of said firm as experts in accounting and auditing.
With respect to the unaudited condensed interim financial information for the
periods ended March 31, 1998 and 1997 and June 30, 1998 and 1997 of Archstone,
incorporated by reference herein, KPMG Peat Marwick LLP have reported that they
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate reports included in
Archstone's quarterly reports on Form 10-Q for the
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quarters ended March 31, 1998 and June 30, 1998, incorporated by reference
herein, state that they did not audit and they do not express an opinion on
that interim financial information. Accordingly, the degree of reliance on
their reports on such information should be restricted in light of the limited
nature of the review procedures applied. The accountants are not subject to the
liability provisions of Section 11 of the Securities Act for their reports on
the unaudited interim financial information because those reports are not a
"report" or a "part" of the Registration Statement prepared or certified by the
accountants within the meaning of Section 7 and 11 of the Securities Act.
The financial statements of Atlantic as of December 31, 1997 and 1996, and
for each of the three years in the period ended December 31, 1997 and the
related schedule, incorporated by reference herein have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports incorporated by
reference herein. Such financial statements have been incorporated by reference
herein in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
With respect to the unaudited condensed interim financial information for the
periods ended March 31, 1998 and March 31, 1997 and June 30, 1998 and 1997 of
Atlantic, incorporated by reference herein, Ernst & Young LLP have reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, they have communicated to
management that they did not audit and they do not express an opinion on that
interim financial information. Accordingly, the degree of reliance on their
reviews of such information should be restricted considering the limited nature
of the review procedures applied. The independent auditors are not subject to
the liability provisions of Section 11 of the Securities Act because their
procedures do not constitute a "report" or a "part" of the Registration
Statement prepared or certified by the auditors within the meaning of Sections
7 and 11 of the Securities Act.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for Archstone by
Mayer, Brown & Platt, Chicago, Illinois. Mayer, Brown & Platt has in the past
represented and is currently representing Archstone and certain of its
affiliates, including Security Capital Group.
AVAILABLE INFORMATION
Archstone is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and 7 World Trade Center, 13th Floor, New York, New York 10048, and are also
available on the Commission's worldwide web site at http://www.sec.gov. Copies
of such material can be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Archstone's outstanding Common Shares, Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares are listed on the NYSE under the
symbols "ASN," "ASN.PFA", "ASN.PFB" and "ASN.PFC," respectively, and all such
reports, proxy statements and other information filed by Archstone with the
NYSE may be inspected at the NYSE's offices at 20 Broad Street, New York, New
York 10005.
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This Prospectus constitutes part of a registration statement on Form S-3
(together with all amendments and exhibits, the "Registration Statement") filed
by Archstone with the Commission under the Securities Act. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information, reference is hereby made to the
Registration Statement.
INCORPORATION BY REFERENCE
There are incorporated herein by reference the following documents filed by
Archstone with the Commission (File No. 1-10272):
(a) Archstone's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
(b) Archstone's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1998 and June 30, 1998;
(c) Archstone's Current Reports on Form 8-K filed March 4, 1998, April 3,
1998, April 23, 1998, April 28, 1998, July 7, 1998, July 15, 1998 and
September 1, 1998;
(d) The description of the Common Shares contained in Archstone's
registration statement on Form 8-A, as amended; and
(e) The description of Archstone's preferred share purchase rights
contained in Archstone's registration statement on Form 8-A, as amended.
All documents subsequently filed by Archstone pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of the Offered Securities, shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents. 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 any subsequently filed document which is incorporated
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.
Archstone will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the information
incorporated herein by reference, other than exhibits to such information
unless such exhibits are specifically incorporated by reference into such
documents. Requests should be addressed to Secretary, Archstone Communities
Trust, 7670 South Chester Street, Englewood, Colorado 80112, telephone number:
(303) 708-5959.
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