<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-68591
PROSPECTUS SUPPLEMENT
(To prospectus dated December 23, 1998)
2,000,000 Shares
[ARCHSTONE LOGO]
8 3/4% Series D Cumulative Redeemable Preferred Shares
(Liquidation Preference $25.00 Per Share)
-----------------
Archstone is offering and selling its Series D Preferred Shares of
Beneficial Interest and will receive all of the net proceeds from the sale.
Distributions on the Series D Preferred Shares will be cumulative from
the date of original issue and payable quarterly, beginning on September 30,
1999, at the rate of 8 3/4% of the liquidation preference per annum, or
$2.1875 per Series D Preferred Share.
Except in limited circumstances relating to the preservation of
Archstone's status as a real estate investment trust, the Series D Preferred
Shares are not redeemable until August 6, 2004. On and after August 6, 2004,
Archstone may redeem the Series D Preferred Shares only with the proceeds from
certain sales of equity securities at a redemption price of $25.00 per share,
plus any accrued and unpaid distributions through the date of redemption. The
Series D Preferred Shares have no maturity date and will remain outstanding
indefinitely unless redeemed.
Archstone has filed an application to list the Series D Preferred Shares
on the New York Stock Exchange.
-----------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----------
<S> <C> <C>
Public Offering Price(1).......................... $25.00 $50,000,000
Underwriting Discount............................. $.7875 $1,575,000
Proceeds, before expenses, to Archstone........... $24.2125 $48,425,000
</TABLE>
(1) Plus accrued distributions from August 6, 1999, if settlement occurs
after that date.
The underwriters may also purchase up to an additional 300,000 Series D
Preferred Shares at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus supplement to cover over-
allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the attached prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The Series D Preferred Shares will be ready for delivery in New York,
New York on or about August 6, 1999.
-----------------
Merrill Lynch & Co.
A.G. Edwards & Sons, Inc.
PaineWebber Incorporated
Prudential Securities
-----------------
The date of this prospectus supplement is August 3, 1999.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Forward-Looking Statements............................................... S-3
Prospectus Supplement Summary............................................ S-4
Selected Financial Data.................................................. S-7
Archstone Communities Trust.............................................. S-9
Use of Proceeds.......................................................... S-12
Ratios of Earnings to Combined Fixed Charges and Preferred Share
Dividends............................................................... S-12
Management............................................................... S-13
Description of the Series D Preferred Shares............................. S-14
Federal Income Tax Considerations........................................ S-19
Underwriting............................................................. S-21
Validity of the Series D Preferred Shares................................ S-23
Prospectus
About This Prospectus.................................................... 2
Where You Can Find More Information...................................... 2
Archstone Communities Trust.............................................. 4
Use of Proceeds.......................................................... 4
Ratio Information........................................................ 4
Description of Debt Securities........................................... 5
Description of Preferred Shares.......................................... 20
Description of Common Shares............................................. 26
Federal Income Tax Considerations........................................ 30
Plan of Distribution..................................................... 39
Experts.................................................................. 40
Legal Matters............................................................ 40
</TABLE>
S-2
<PAGE>
FORWARD-LOOKING STATEMENTS
The statements contained or incorporated by reference in the registration
statement of which this prospectus supplement and the accompanying prospectus
form a part that are not historical facts are forward-looking within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements are based on current expectations, estimates and projections about
the industry and markets in which Archstone operates, management's beliefs and
assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," and variations of such
words and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions which are difficult to
predict. Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in such forward-looking statements. Archstone
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. Archstone's
operating results depend primarily on income from multifamily communities,
which is substantially influenced by demand and supply of multifamily units in
Archstone's primary target markets and submarkets, operating expense levels,
the effectiveness of property level operations and the pace and price at which
Archstone can acquire and develop additional multifamily communities. Capital
and credit market conditions which affect Archstone's cost of capital also
influence operating results.
-----------------
You should rely only on the information contained in this prospectus
supplement and contained or incorporated by reference in the accompanying
prospectus. Archstone has not, and the underwriters have not, authorized any
other person to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on it.
Archstone is not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted.
S-3
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following information may not contain all the information that may be
important to you. You should read the entire prospectus supplement and
accompanying prospectus, as well as the documents incorporated by reference in
the accompanying prospectus, before making an investment decision. Unless
indicated otherwise, the financial and statistical information contained in
this prospectus supplement is presented as of March 31, 1999. All references to
"we," "our," "us," and "Archstone" in this prospectus supplement and in the
accompanying prospectus mean Archstone Communities Trust and its consolidated
subsidiaries, except where it is made clear that the term means only the parent
company.
Archstone Communities Trust
Archstone is a leading real estate operating company, which was formed in
1963. Archstone's principal focus is the acquisition, development,
redevelopment, operation and long-term ownership of apartment communities in
markets and sub-markets with strong economic fundamentals and high barriers to
entry across the United States. As of March 31, 1999, Archstone had 291
apartment communities, representing 85,810 units, including 16,865 units in its
development pipeline. Archstone's principal focus is to generate long-term
sustainable growth in net operating income and cash flow from operations in
order to maximize shareholder value. In addition, Archstone expects to create
significant value by building a well-known brand image and reputation for
quality around its products and services.
Recent Accomplishments
. In May 1999, Archstone announced its entry into the greater Boston
metropolitan market with $75.8 million in initial investments. Archstone
has completed two transactions in locations with attractive supply and
demand fundamentals and excellent proximity to key employment and
transportation corridors.
. For the three months ended March 31, 1999, net operating income for
Archstone's same-store communities increased 5.2% over the same period of
1998, with a 17.5% increase in same-store net operating income in
California.
. During the three months ended March 31, 1999, Archstone completed $113.1
million of dispositions, producing aggregate gains of $5.3 million and
redeployed the capital into new investments which Archstone believes have
excellent long-term growth prospects.
. Five development communities achieved stabilization during the three
months ended March 31, 1999, adding a total of 1,153 units, representing a
total expected investment at completion of $105.4 million, to Archstone's
operating portfolio.
. In May 1999, Archstone paid a second quarter distribution of $0.37 per
common share, an 8.8% increase over the common share distribution paid
during the second quarter of 1998. This distribution represents
Archstone's 93rd consecutive quarterly common share distribution.
S-4
<PAGE>
The Offering
Shares Offered........... 2,000,000 Series D Preferred Shares of Beneficial
Interest, $1.00 par value per share (2,300,000
shares if the underwriters' over-allotment option
is exercised in full).
Distributions............ Distributions on the Series D Preferred Shares will
be cumulative from the date of original issue and
are payable quarterly in arrears on March 31, June
30, September 30 and December 31 of each year,
commencing on September 30, 1999, at the rate of 8
3/4% of the liquidation preference per annum, or
$2.1875 per Series D Preferred Share per annum.
Liquidation Preference... $25.00 per share, plus an amount equal to accrued
and unpaid distributions (whether or not earned or
declared).
Ranking.................. The Series D Preferred Shares will rank senior to
our common shares and any other junior shares that
we may issue in the future, and equal to our
Cumulative Convertible Series A Preferred Shares,
Series B Cumulative Redeemable Preferred Shares,
Series C Cumulative Redeemable Preferred Shares and
any other parity shares that we may issue in the
future, in each case with respect to payment of
distributions and amounts upon liquidation,
dissolution or winding up.
Conversion Rights........ The Series D Preferred Shares are not convertible
into or exchangeable for any other property or any
of our other securities.
Redemption at Option of Except in limited circumstances relating to
Archstone............... preservation of Archstone's status as a real estate
investment trust, the Series D Preferred Shares are
not redeemable until August 6, 2004. On and after
August 6, 2004, Archstone may redeem the Series D
Preferred Shares only with the proceeds from
certain sales of equity securities at a redemption
price of $25.00 per share, plus any accrued and
unpaid distributions through the date of
redemption. The Series D Preferred Shares have no
maturity date and will remain outstanding
indefinitely unless redeemed.
Voting Rights............ You will generally have no voting rights as a
holder of Series D Preferred Shares. However, if
distributions on the Series D Preferred Shares are
in arrears for six quarterly distribution periods
(whether or not consecutive), the holders of the
Series D Preferred Shares (voting separately as a
class with holders of all other series of parity
preferred shares upon which like voting rights have
been conferred and are exercisable) will have the
right to elect two additional trustees to serve on
Archstone's Board of Trustees until such
distribution arrearage is eliminated. In addition,
certain changes that would be materially adverse to
the rights of holders of the Series D Preferred
Shares cannot be made without the affirmative vote
of holders of at least two-thirds of the
outstanding Series D Preferred Shares.
Listing.................. Archstone has filed an application to list the
Series D Preferred Shares on the New York Stock
Exchange.
S-5
<PAGE>
Use of Proceeds.......... Archstone will use the proceeds from the sale of
the Series D Preferred Shares to repay outstanding
borrowings under its $750 million line of credit.
Restrictions on In order to assist Archstone in maintaining its
Ownership............... status as a real estate investment trust for
federal income tax purposes, ownership by any
person of more than 25% of the outstanding Series D
Preferred Shares is restricted.
Recent Developments
The following information for the quarter and six months ended June 30,
1999 has been derived from Archstone's preliminary unaudited results of
operations.
For the quarter ended June 30, 1999, Archstone generated diluted funds
from operations attributable to common shares of $70.9 million on total
revenues of $163.5 million, compared to diluted funds from operations
attributable to common shares of $44.5 million on total revenues of $97.7
million for the quarter ended June 30, 1998. For the quarter ended June 30,
1999, net earnings attributable to common shares were $50.5 million, compared
to $23.3 million for the quarter ended June 30, 1998. For the six months ended
June 30, 1999, Archstone generated diluted funds from operations attributable
to common shares of $141.6 million on total revenues of $324.5 million,
compared to diluted funds from operations attributable to common shares of
$87.3 million on total revenues of $192.9 million for the six months ended June
30, 1998. For the six months ended June 30, 1999, net earnings attributable to
common shares were $88.3 million, compared to $63.4 million for the six months
ended June 30, 1998.
S-6
<PAGE>
SELECTED FINANCIAL DATA
We are providing the following financial information to aid you in your
analysis of the financial aspects of Archstone. We derived this information
from audited financial statements as of and for the years ended December 31,
1994 through 1998 and unaudited financial statements as of and for the three
months ended March 31, 1999 (amounts in thousands, except per share data). The
information is only a summary and you should read it together with Archstone's
historical financial statements, and related notes, contained in the annual
reports, quarterly reports and other information that Archstone files with the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
Three
Months
Ended Year Ended December 31,
March 31, ------------------------------------------------------
1999 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Operations Summary:
Total revenues.......... $ 161,387 $ 513,645 $ 355,662 $ 326,246 $ 264,873 $ 186,105
Property operating
expenses............... 53,741 173,760 123,051 128,122 104,046 79,013
Interest expense........ 27,018 83,350 61,153 35,288 19,584 19,442
General and
administrative
expenses............... 5,332 16,092 18,350 23,268 21,306 13,966
Nonrecurring
expenses(1)............ -- 2,193 71,707 -- -- --
Earnings from
operations(1).......... 39,330 133,926 24,686 94,089 81,696 46,719
Gains on dispositions of
depreciated real
estate, net............ 5,319 65,531 48,232 37,492 2,623 --
Preferred share cash
distributions paid..... 5,691 20,938 19,384 24,167 21,823 16,100
Net earnings
attributable to common
shares................. 37,845 177,022 53,534 106,544 62,496 30,619
Common share cash
distributions paid..... $ 53,364 $ 165,190 $ 105,547 $ 90,728 $ 76,804 $ 46,121
Per Share Data:
Net earnings
attributable to common
shares:
Basic EPS (1).......... $ 0.27 $ 1.49 $ 0.65 $ 1.46 $ 0.93 $ 0.66
Diluted EPS (1)........ 0.27 1.49 0.65 1.44 0.93 0.65
Common share cash
distributions paid..... 0.37 1.39 1.30 1.24 1.15 1.00
Series A Preferred Share
cash distributions
paid................... 0.50 1.87 1.75 1.75 1.75 1.75
Series B Preferred Share
cash distributions
paid................... 0.56 2.25 2.25 2.25 1.36 --
Series C Preferred Share
cash distributions
paid................... $ 0.54 $ 1.08 $ -- $ -- $ -- $ --
Weighted-average common
shares outstanding--
basic.................. 141,295 118,592 81,870 73,057 67,052 46,734
Weighted-average common
shares outstanding--
diluted................ 141,300 125,825 81,908 84,340 78,315 57,987
<CAPTION>
At At December 31,
March 31, ------------------------------------------------------
1999 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Financial Position:
Real estate owned, at
cost................... $4,993,234 $4,869,801 $2,604,919 $2,153,363 $1,855,866 $1,296,288
Mortgage notes
receivable............. 211,101 211,967 285,238 189,829 15,844 22,597
Total assets............ 5,083,621 5,059,898 2,805,686 2,282,432 1,840,999 1,295,778
Unsecured credit
facilities............. 387,843 264,651 231,500 110,200 129,000 102,000
Long-term unsecured
debt................... 1,231,089 1,231,167 630,000 580,000 200,000 200,000
Mortgages payable....... 712,327 676,613 265,652 217,188 158,054 93,624
Total liabilities....... 2,484,556 2,410,114 1,265,250 1,014,924 565,331 455,136
Redeemable preferred
shares................. 267,343 272,515 240,210 267,374 335,000 230,000
Shareholders' equity.... $2,578,746 $2,628,325 $1,540,436 $1,267,508 $1,275,668 $ 840,642
Number of common shares
outstanding............ 138,988 143,313 92,634 75,511 72,211 50,456
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
Three
Months
Ended Year Ended December 31,
March 31, -----------------------------------------------------
1999 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Other Data:
Net earnings
attributable to common
shares................. $ 37,845 $ 177,022 $ 53,534 $ 106,544 $ 62,496 $ 30,619
Add (deduct):
Depreciation on real
estate investments..... 32,797 96,337 52,893 44,887 36,685 24,614
Provision for possible
loss on investments.... 2,000 4,700 3,000 -- 420 1,600
Gain on dispositions of
depreciated real
estate, net............ (5,319) (65,531) (48,232) (37,492) (2,623) --
Nonrecurring expenses
and extraordinary
items, net............. 1,113 3,690 71,707 739 -- --
Other................... (29) (662) (1,281) (141) -- --
-------- --------- --------- --------- --------- ---------
Funds from operations
attributable to common
shares(2)--basic....... 68,407 215,556 131,621 114,537 96,978 56,833
Series A Convertible
Preferred Share
distributions.......... 2,250 9,332 9,934 14,717 16,100 16,100
-------- --------- --------- --------- --------- ---------
Funds from operations
attributable to common
shares(2)--diluted..... $ 70,657 $ 224,888 $ 141,555 $ 129,254 $ 113,078 $ 72,933
======== ========= ========= ========= ========= =========
Weighted-average common
shares outstanding--
diluted................ 148,419 125,825 90,230 84,340 78,315 57,987
-------- --------- --------- --------- --------- ---------
Net cash provided by
operating activities... $ 52,009 $ 221,534 $ 159,724 $ 143,939 $ 121,795 $ 94,625
Net cash used in
investing activities... $(34,104) $(309,145) $(403,112) $(360,935) $(294,488) $(368,515)
Net cash provided by
financing activities... $ 1,465 $ 92,803 $ 242,672 $ 195,720 $ 191,520 $ 276,457
</TABLE>
- --------
(1) Nonrecurring expenses in 1998 include $1.1 million in integration costs
associated with the merger of Security Capital Atlantic Incorporated into
Archstone and $1.1 million associated with the introduction of Archstone's
national branding strategy. In 1997, the non-recurring expense represents
the impact of a one-time non-cash charge of $71.7 million associated with
the costs incurred in acquiring the companies that provided Archstone with
real estate investment trust management and property management services
from an affiliate. These one-time charges were not deducted for purposes of
calculating funds from operations due to the non-recurring and non-cash
nature of the expense in 1998 and 1997.
(2) Archstone believes that funds from operations is helpful to the reader as a
measure of the performance of an equity real estate investment trust
because, along with cash flow from operating, investing and financing
activities, it provides the reader with an indication of the ability of
Archstone to incur and service debt, to make capital expenditures, to make
common share and preferred share distributions and to fund other cash
needs. Funds from operations should not be considered as an alternative to
net earnings or any other generally accepted accounting principles
measurement of performance as an indicator of Archstone's operating
performance or as an alternative to cash flow from operating, investing or
financing activities as a measure of liquidity. The funds from operations
measure presented by Archstone, while consistent with the National
Association of Real Estate Investment Trusts' definition, will not be
comparable to similarly titled measures of other real estate investment
trusts that do not compute funds from operations in a manner consistent
with Archstone. Funds from operations is not intended to represent cash
available to shareholders. Cash distributions paid to shareholders are
summarized above.
S-8
<PAGE>
ARCHSTONE COMMUNITIES TRUST
Archstone is a leading real estate operating company, which was formed in
1963. Archstone's principal focus is the acquisition, development,
redevelopment, operation and long-term ownership of apartment communities in
markets and sub-markets with strong economic fundamentals and high barriers to
entry across the United States. As of March 31, 1999, Archstone had 291
apartment communities, representing 85,810 units, including 16,865 units in its
development pipeline. Archstone's principal focus is to generate long-term
sustainable growth in net operating income and cash flow from operations in
order to maximize shareholder value. In addition, Archstone expects to create
significant value by building a well-known brand image and reputation for
quality around its products and services.
Recent Accomplishments
. In May 1999, Archstone announced its entry into the greater Boston
metropolitan market with $75.8 million in initial investments. Archstone
has completed two transactions in locations with attractive supply and
demand fundamentals and excellent proximity to key employment and
transportation corridors.
. For the three months ended March 31, 1999, net operating income for
Archstone's same-store communities increased 5.2% over the same period
of 1998, with a 17.5% increase in same-store net operating income in
California.
. During the three months ended March 31, 1999, Archstone completed $113.1
million of dispositions, producing aggregate gains of $5.3 million and
redeployed the capital into new investments which Archstone believes
have excellent long-term growth prospects.
. Five development communities achieved stabilization during the three
months ended March 31, 1999, adding a total of 1,153 units, representing
a total expected investment at completion of $105.4 million, to
Archstone's operating portfolio.
. In May 1999, Archstone paid a second quarter distribution of $0.37 per
common share, an 8.8% increase over the common share distribution paid
during the second quarter of 1998. This distribution represents
Archstone's 93rd consecutive quarterly common share distribution.
Investment Strategy
Archstone uses its extensive commitment to research to identify
investment opportunities that it believes will produce total returns in excess
of its long-term cost of capital. Management believes Archstone's cost of
equity capital is 13-14%, which when combined with current long-term debt
rates, gives Archstone a weighted average long-term cost of capital of
approximately 10-10.5%. Archstone only makes an investment when the total
return, which includes the initial yield plus continued growth in net operating
income, is expected to exceed Archstone's long-term cost of capital.
Archstone focuses its investment activities on those markets
characterized by (i) attractive long-term economic fundamentals, (ii) high
barriers to entry against new supply, and (iii) expensive single-family
housing. Barriers to entry exist when there is a very limited amount of land
zoned for apartment community development, and where local municipalities are
reluctant to zone additional land for apartment communities. Examples of high-
barrier markets include the Washington, D.C. metropolitan area, the San
Francisco Bay area, and San Diego-all markets where Archstone has established a
strategic long-term presence that it plans to increase over time. Archstone
believes that the consistent increases in demand and limited competition
typical of its target markets maximize Archstone's ability to produce
sustainable long-term cash flow growth.
Archstone is a fully integrated operating company that executes its
investment strategy through the following four internal capabilities:
S-9
<PAGE>
1. Development. Archstone places considerable emphasis on the creation of
value through the development of carefully planned apartment communities. As of
March 31, 1999, Archstone's communities under construction had a total expected
investment cost of $904.4 million (of this amount, approximately $440.0 million
relates to communities which were in lease-up). Through March 31, 1999,
Archstone had funded $645.0 million or 71% of the total expected investment
cost of construction of these development communities and had unfunded
commitments for only $259.4 million. Archstone's industry-leading development
team includes 58 locally based professionals with a proven track record in the
development of apartment communities. Archstone has completed and stabilized
over $1.0 billion of apartment communities since 1993 and expects to stabilize
approximately $450.0 million of apartment communities in 1999 and 2000. Based
on its customer research, Archstone's new development communities are designed
to offer customers a high level of amenities at an attractive price, including
computer alcoves, high-speed data access, extensive sound-proofing, fitness
centers, theaters and business centers. Additionally, Archstone is redeveloping
a number of its existing communities to include these amenities.
Archstone minimizes development risk through the implementation of a
disciplined strategy that includes: (i) land purchase contracts contingent on
entitlements and permits to eliminate entitlement risk; (ii) guaranteed maximum
price contracts with qualified third party construction companies to mitigate
construction risk; and (iii) extensive real estate research to minimize market
risk. Management expects Archstone's development capability to be a key
contributor to its growth, as communities are completed and stabilized at
attractive yields during the next several years.
2. Dispositions. Archstone continues to pursue favorable opportunities to
dispose of assets that no longer meet Archstone's long-term investment criteria
and redeploy the proceeds into new investments in markets and submarkets with
high barriers to entry. Through March 31, 1999, Archstone's experienced
disposition team has disposed of more than $1.3 billion of assets since the
inception of its asset optimization strategy in 1995, generating aggregate
gains of $167.5 million (including $161.6 million of Security Capital Atlantic
dispositions producing gains of $8.3 million prior to the July 1998 merger
between Security Capital Atlantic and Archstone). Archstone has recently exited
a number of secondary markets with limited barriers to entry that do not meet
Archstone's long-term investment criteria, including Greenville, South
Carolina; Columbus, Ohio; Sacramento, California; Sarasota, Florida; and Santa
Fe, New Mexico. Over the next 18 to 24 months, Archstone plans to exit a number
of other secondary markets that are not consistent with its long-term
investment strategy. The proceeds from dispositions in these markets will
provide a significant source of incremental capital to fund future investments.
3. Acquisitions. Archstone has proven acquisition capabilities, with more
than $2.5 billion (excluding the 91 apartment communities acquired in the
merger with Security Capital Atlantic, totaling $1.5 billion) in acquisitions
completed since 1992. However, in mid-1997, Archstone determined that pricing
for acquisitions had become relatively unattractive. Since that time,
Archstone's dispositions have been approximately equal to its acquisitions,
excluding assets acquired in the merger with Security Capital Atlantic.
Virtually all of Archstone's acquisitions during the three months ended March
31, 1999 were funded from disposition proceeds through tax-deferred exchanges.
Archstone's network of locally-based acquisition professionals allows
Archstone to continue to take advantage of selected opportunities in markets
with strong growth prospects as they become available.
4. Redevelopment. Archstone has significant experience adding value to
existing apartment communities through redevelopment. Archstone's redevelopment
strategy is to reposition well-located assets through major redevelopments,
including upgrades to interiors, exteriors, landscaping and amenities. This
strategy has been particularly successful in certain markets where it is
generally difficult
S-10
<PAGE>
to develop new products due to a shortage of land suitable for development of
apartments or onerous zoning restrictions. In addition, Archstone has invested
in revenue-enhancing capital expenditures such as building garages, carports
and storage facilities, and also expense-reducing expenditures, by implementing
initiatives such as water submetering systems and xeriscaping.
Archstone's sophisticated investment strategy is designed to maximize the
return on its invested capital. Archstone establishes targeted capital
allocations for each of its markets using a proprietary model. Archstone's
extensive investment and market research is used to update this model every six
months, providing the foundation for a disciplined approach to investing in
real estate. By executing this investment strategy through the internal
investment capabilities discussed above, Archstone expects to solidify its
position over the next two years as a company with core long-term investments
concentrated in markets and submarkets with strong economic fundamentals and
significant supply constraints.
Customer-Focused Operations
Archstone is dedicated to maximizing its communities' performance by
providing high-quality lifestyle services to its customers in a consistent
manner across its diverse portfolio. Archstone actively pursues the ongoing
development of innovative ideas and programs designed to enhance the customer
experience with the Archstone brand, while also increasing cash flow generated
from operations.
Management believes that consistent delivery of customer service provides
the platform for the development of a strong, enduring brand identity. Since
1992, Archstone has dedicated significant resources to the recruiting, training
and development of customer-focused associates. Archstone believes that its
associates provide the foundation for the delivery of consistent, high quality
customer service across Archstone's portfolio.
In 1998, Archstone launched its Seal of ServiceSM program, which allows
Archstone to consistently offer unconditional customer service guarantees at
all of its communities. To management's knowledge, no other apartment company
offers similar service programs on an unconditional basis. The Seal of
ServiceSM program, which emulates successful customer service programs from
other highly competitive industries, is designed to create customer loyalty and
trust while setting a new service standard for the apartment industry. The
program is fully operational at each Archstone community and its features
include:
. 100% Move-In Satisfaction Guarantee allows a customer to live in an
Archstone community for the first 30 days of his/her lease, and move out
for any reason whatsoever without penalty, if not completely satisfied.
. One-Day Service Guarantee ensures that an Archstone associate will
respond to service requests within one day of the request.
. The Archstone Relocation Guarantee allows a customer to relocate to
another Archstone community anywhere in the United States without
completing his/her lease term or making a new security deposit.
. The Archstone Rewards Program allows customers to benefit from long-term
residency at a single Archstone apartment through receipt of
complimentary services, such as carpet cleaning and repainting, based on
tenure.
. The Customer Service Connection consists of a toll-free number and an e-
mail address to provide customers with an avenue to share comments and
suggestions.
Through extensive customer research, Archstone believes it has identified
a distinct opportunity to build an enduring brand identity around its services
to its customers. Archstone is committed to being viewed as a service leader
and not solely as a real estate company. This innovative approach to its
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<PAGE>
business is expected to create significant incremental value for Archstone by
increasing customer preference for Archstone's products and services.
Conservative Balance Sheet Management
Archstone is committed to preserving its strong balance sheet and to
maintaining financial flexibility. One of Archstone's primary objectives is to
structure its balance sheet in order to have access to capital when few other
real estate operating companies do. Archstone believes that its conservative
balance sheet management will allow Archstone to take advantage of compelling
investment opportunities that it believes are more likely to emerge in a
capital-constrained environment.
During the three months ended March 31, 1999, Archstone financed its
investment activity primarily through internally generated cash flow from
operations, asset dispositions, and the issuance of long-term debt. To minimize
refinancing risk, Archstone's balance sheet is carefully managed so that
Archstone does not face liquidity issues in a given quarter or year. Archstone
had a total of $462.2 million of undrawn capacity on its existing unsecured
credit facilities as of March 31, 1999, and $4.0 billion of unencumbered
assets. Archstone's long-term debt is structured to create a relatively level
principal maturity schedule, without excessive repayment obligations in any
future year. Archstone has only $35.5 million of long-term debt maturing during
1999, and $76.8 million maturing during 2000. In addition, Archstone has a
significant equity base, with a total equity market capitalization of
approximately $3.1 billion as of March 31, 1999.
USE OF PROCEEDS
The net proceeds from the sale of the Series D Preferred Shares are
expected to be approximately $48.3 million, after deducting underwriting
discounts and offering expenses payable by Archstone (approximately $55.6
million if the underwriters' over-allotment option is exercised in full). The
net proceeds will be used to repay a portion of the borrowings under
Archstone's $750 million unsecured revolving line of credit with Chase Bank of
Texas, National Association, as agent for a group of lenders. At August 3,
1999, $491.8 million in borrowings were outstanding under the line of credit.
Amounts repaid under the line of credit may be reborrowed and Archstone expects
to make additional borrowings under the line of credit following this offering
for the development and acquisition of multifamily communities and for working
capital purposes. The line of credit bears interest at the greater of prime or
the federal funds rate plus 0.50% or, at Archstone's option, LIBOR (5.19% at
August 3, 1999) plus 0.65%. The spread over LIBOR can vary from LIBOR plus
0.50% to LIBOR plus 1.25% based upon the rating of Archstone's long term
unsecured senior notes. The line of credit is scheduled to mature on July 7,
2001 at which time it may be converted into a two-year term loan at Archstone's
option.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
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>
Historical Historical
Three Months Year Ended
Ended December 31,
March 31, ------------------------------------------------------------------------
1999 1998 1997(1) 1996 1995 1994
------------ ---- ------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1.6x 1.6x 0.9x 1.7x 1.9x 1.6x
</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. Accordingly, earnings from operations were
insufficient to cover combined fixed charges and preferred share dividends
by $12.3 million. Excluding this charge, the ratio of earnings to combined
fixed charges and preferred share dividends for the year ended December 31,
1997 would be 1.6x.
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<PAGE>
MANAGEMENT
The following table identifies the senior executive officers of
Archstone:
<TABLE>
<CAPTION>
Name Title
- ---- -----
<S> <C>
R. Scot Sellers........................... Chairman and Chief Executive Officer
Patrick R. Whelan......................... Chief Operating Officer
Charles E. Mueller, Jr.................... Chief Financial Officer
Richard A. Banks.......................... Managing Director--West Region
J. Lindsay Freeman........................ Managing Director--East Region
Jay S. Jacobson........................... Managing Director--Central Region
</TABLE>
R. Scot Sellers-42-Trustee of Archstone since July 1998; Chairman and
Chief Executive Officer of Archstone since December 1998, where he has overall
responsibility for Archstone's strategic direction, investments and operations;
Co-Chairman and Chief Investment Officer of Archstone from July 1998 to
December 1998; President and Chief Executive Officer of Archstone from June
1997 to July 1998; from September 1994 to June 1997, Managing Director of
Archstone, where he had overall responsibility for Archstone's investment
strategy and implementation; Senior Vice President of Archstone from May 1994
to September 1994; from April 1993 to May 1994, Senior Vice President of
Security Capital Group Incorporated, where he was responsible for portfolio
acquisitions from institutional sources.
Patrick R. Whelan-42-Chief Operating Officer of Archstone since December
1998, where he has overall responsibility for operations of Archstone; Managing
Director of Archstone since December 1996; previously, President of Archstone's
property manager, where he had overall responsibility for property management
nationwide; Senior Vice President and Co-Manager of apartment acquisitions for
Security Capital from February 1994 to October 1994; Senior Vice President of
Trammell Crow Company (development, acquisition and management of commercial
properties) from July 1986 to January 1994.
Charles E. Mueller, Jr.-36-Chief Financial Officer of Archstone since
December 1998, where he is responsible for corporate finance,
accounting/reporting and investor relations; Vice President of Archstone from
September 1996 to December 1998; prior thereto, he was with Security Capital
Markets Group, where he provided financial services to Security Capital and its
affiliates; from April 1994 to April 1995, he participated in the management
development program of Security Capital.
Richard A. Banks-51-Managing Director of Archstone since December 1997,
where he is responsible for investments and operations in the West Region;
Senior Vice President of Archstone from August 1997 to December 1997; from
January 1995 to August 1997, President and Chief Executive Officer of Lincoln
Residential Services, where he was responsible for all aspects of leading a
full service property management company of approximately 40,000 apartment
units in the western United States; from July 1993 to January 1995, Vice
President of Lincoln Property Company, Irvine, California, with responsibility
for overall management and revenue growth for the region.
J. Lindsay Freeman-53-Managing Director of Archstone since July 1998,
where he has responsibility for investments and operations in the East Region;
Managing Director of Security Capital Atlantic from December 1997 to July 1998;
Senior Vice President of Security Capital Atlantic from May 1994 to November
1997; previously, Senior Vice President and Operating Partner of Lincoln
Property Company in Atlanta, Georgia, where he was responsible for
acquisitions, financing, construction and management of apartment communities
within the Atlantic region and oversaw operations of 16,000 apartment units.
Jay S. Jacobson-46-Managing Director of Archstone since December 1997,
where he is responsible for investments and operations in the Central Region;
Senior Vice President from June 1996
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<PAGE>
to December 1997; Vice President from July 1993 to June 1996; from 1988 to July
1993, Vice President of Residential Development for Michael Swerdlow Companies,
Inc. and Hollywood Inc., South Florida (real estate development/management
companies under common control), where he was responsible for the planning and
development of large scale single-family and apartment developments as well as
other development properties.
DESCRIPTION OF THE SERIES D PREFERRED SHARES
The summary of certain terms and provisions of the Series D Preferred
Shares contained in this prospectus supplement does not purport to be complete
and is subject to, and qualified in its entirety by reference to, the terms and
provisions of the articles supplementary relating to the Series D Preferred
Shares and Archstone's Amended and Restated Declaration of Trust, as amended
and supplemented, which are incorporated by reference herein. The following
description of the particular terms of the Series D Preferred Shares
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the preferred shares set forth in the
accompanying prospectus, to which reference is hereby made.
General
Archstone's Board of Trustees 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
distributions, qualifications and terms and conditions of redemption of the
shares of each such series. Archstone currently has outstanding 4,131,190 of
its Cumulative Convertible Series A Preferred Shares of Beneficial Interest,
$1.00 par value per share, 4,200,000 of its Series B Cumulative Redeemable
Preferred Shares of Beneficial Interest, $1.00 par value per share, and
2,000,000 of its Series C Cumulative Redeemable Preferred Shares of Beneficial
Interest, $1.00 par value per share. On August 3, 1999 a committee of the Board
of Trustees authorized Archstone to classify and issue the Series D Preferred
Shares. The Series D Preferred Shares rank on a parity with Archstone's other
outstanding preferred shares with respect to distributions and liquidation
proceeds.
When issued, the Series D Preferred Shares will be validly issued, fully
paid and, except as set forth in the accompanying prospectus under "Description
of Common Shares--Shareholder Liability," nonassessable. The holders of the
Series D Preferred Shares will have no preemptive rights with respect to any
shares of the capital securities of Archstone or any other securities of
Archstone convertible into or carrying rights or options to purchase any such
shares. The Series D Preferred Shares will not be subject to any sinking fund
or other obligation of Archstone to redeem or retire the Series D Preferred
Shares. Unless otherwise redeemed by Archstone, the Series D Preferred Shares
will have a perpetual term with no maturity.
The transfer agent, registrar and distribution disbursing agent for the
Series D Preferred Shares will be ChaseMellon Shareholder Services, LLC, New
York, New York.
Distributions
Holders of the Series D Preferred Shares shall be entitled to receive,
when and as declared by the Board of Trustees out of funds legally available
for the payment of distributions, cumulative, preferential cash distributions
at the rate of 8 3/4% of the liquidation preference per annum (equivalent to
$2.1875 per share). Such distributions shall be cumulative from the date of
original issue and shall be
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<PAGE>
payable quarterly in arrears on the last day of each March, June, September and
December or, if not a business day, the next succeeding business day (each such
day being a "distribution payment date"). The first distribution, which will be
paid on September 30, 1999, will be for less than a full quarter. Such
distribution and any distribution payable on the Series D Preferred Shares for
any partial distribution period will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Distributions will be payable to holders of
record as they appear in the records of Archstone at the close of business on
the applicable record date, which shall be on such date designated by the Board
of Trustees for the payment of distributions that is not more than 50 nor less
than 10 days prior to such distribution payment date (each such date being a
"distribution record date").
No distributions on Series D Preferred Shares shall be declared by the
Board of Trustees or paid or set apart for payment by Archstone at such time as
the terms and provisions of any agreement of Archstone, including any agreement
relating to its indebtedness, prohibits such declaration, payment or setting
apart for payment or provides that such declaration, payment or setting apart
for payment would constitute a breach thereof or a default thereunder, or if
such declaration or payment shall be restricted or prohibited by law.
Notwithstanding the foregoing, distributions on the Series D Preferred
Shares will accrue whether or not Archstone has earnings, whether or not there
are funds legally available for the payment of such distributions and whether
or not such distributions are declared. Accrued but unpaid distributions on the
Series D Preferred Shares will not bear interest. Holders of the Series D
Preferred Shares will not be entitled to any distributions in excess of full
cumulative distributions as described above. See "Description of Preferred
Shares--Dividends" in the accompanying prospectus.
If, for any taxable year, Archstone elects to designate as "capital gain
distributions" (as defined in Section 857 of the Internal Revenue Code of 1986,
as amended), any portion of the distributions (as determined for federal income
tax purposes) paid or made available for the year to holders of all classes of
shares, then the portion of such designated amount that shall be allocable to
the holders of Series D Preferred Shares shall be the amount that the total
distributions (as determined for federal income tax purposes) paid or made
available to the holders of the Series D Preferred Shares for the year bears to
the total distributions paid or made available for the year to holders of all
classes of shares.
If any Series D Preferred Shares are outstanding, no full distributions
shall be declared or paid or set apart for payment on any series of preferred
shares of Archstone ranking, as to distributions, on a parity with or junior to
the Series D Preferred Shares for any period unless full cumulative
distributions have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for such payments on the
Series D Preferred Shares for all past distribution periods and the then
current distribution period. When distributions are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Series D
Preferred Shares and the shares of any other series of preferred shares ranking
on parity as to distributions with the Series D Preferred Shares, all
distributions declared upon Series D Preferred Shares and any other series of
preferred shares ranking on a parity as to distributions with the Series D
Preferred Shares shall be declared pro rata so that the amount of distributions
declared per share on the Series D Preferred Shares and such other series of
preferred shares shall in all cases bear to each other the same ratio that
accrued distributions per share on the Series D Preferred Shares 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 distribution payment or
payments on Series D Preferred Shares which may be in arrears.
Except as provided in the immediately preceding paragraph, unless full
cumulative distributions on the Series D Preferred Shares 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 distribution periods and
the then current distribution period, no distributions (other than in common
shares or other capital shares ranking junior to the Series D Preferred Shares
as to distributions 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
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<PAGE>
other capital shares of Archstone ranking junior to or on a parity with the
Series D Preferred Shares as to distributions or upon liquidation, nor shall
any common shares or any other capital shares of Archstone ranking junior to or
on a parity with the Series D Preferred Shares as to distributions or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any such shares) by Archstone, except by conversion into or
exchange for other capital shares of Archstone ranking junior to the Series D
Preferred Shares as to distributions and upon liquidation.
Any distribution payment made on Series D Preferred Shares shall first be
credited against the earliest accrued but unpaid distribution due with respect
to Series D Preferred Shares which remains payable.
Liquidation Rights
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
capital shares of Archstone ranking junior to the Series D Preferred Shares in
the distribution of assets upon any liquidation, dissolution or winding up of
Archstone, the holders of Series D 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 ($25.00 per share), plus an amount equal to all distributions
accrued and unpaid thereon. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Series D Preferred
Shares 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 Series D
Preferred Shares and the corresponding amounts payable on all shares of other
classes or series of capital shares of Archstone ranking on a parity with the
Series D Preferred Shares in the distribution of assets, then the holders of
the Series D Preferred Shares 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 Series D Preferred Shares and all other classes or series of capital shares
of Archstone ranking on a parity with the Series D Preferred Shares in the
distribution of assets, the remaining assets of Archstone shall be distributed
among the holders of any other classes or series of capital shares ranking
junior to the Series D Preferred Shares 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.
Redemption
The Series D Preferred Shares are not redeemable prior to August 6, 2004.
On and after August 6, 2004, Archstone, at its option upon not less than 30 nor
more than 90 days' written notice, may redeem the Series D Preferred Shares, in
whole or in part, at any time or from time to time, for cash at a redemption
price of $25.00 per share, plus all accrued and unpaid distributions thereon to
the date fixed for redemption, without interest. The redemption price of the
Series D Preferred Shares (other than the portion thereof consisting of accrued
and unpaid distributions) is payable solely out of the sale proceeds of other
capital shares of Archstone, which may include other series of preferred
shares. Holders of Series D Preferred Shares to be redeemed shall surrender
such Series D Preferred Shares at the place designated in such notice and shall
be entitled to the redemption price and any accrued and unpaid distributions
payable upon such redemption following such surrender. If fewer than all of the
outstanding Series D Preferred Shares 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 such shares in
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<PAGE>
proportion to the number of such shares held by such holders (with adjustments
to avoid redemption of fractional shares) or by lot in a manner determined by
Archstone.
Unless full cumulative distributions on all Series D Preferred Shares and
all shares ranking on a parity with the Series D Preferred Shares with respect
to the payment of distributions and amounts upon liquidation, dissolution and
winding up (referred to as parity shares) 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 distribution periods and the then current
distribution period, no Series D Preferred Shares or parity shares shall be
redeemed unless all outstanding Series D Preferred Shares and parity shares are
simultaneously redeemed; provided, however, that the foregoing shall not
prevent the purchase or acquisition of Series D Preferred Shares or parity
shares pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding Series D Preferred Shares or parity shares, as the
case may be. Furthermore, unless full cumulative distributions on all
outstanding Series D Preferred Shares and parity shares 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 distribution periods and
the then current distribution period, Archstone shall not purchase or otherwise
acquire directly or indirectly any Series D Preferred Shares or parity shares
(except by conversion into or exchange for capital shares of Archstone ranking
junior to the Series D Preferred Shares and parity shares as to distributions
and upon liquidation).
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 Series D Preferred
Shares at the address shown on the share transfer books of Archstone. Each
notice shall state: (i) the redemption date; (ii) the number of Series D
Preferred Shares to be redeemed; (iii) the redemption price of $25.00 per
Series D Preferred Share, plus any accrued and unpaid distributions through the
date of redemption; (iv) the place or places where certificates for Series D
Preferred Shares are to be surrendered for payment of the redemption price; and
(v) that distributions on the Series D Preferred Shares will cease to accrue on
such redemption date. If fewer than all Series D Preferred Shares are to be
redeemed, the notice mailed to each such holder thereof shall also specify the
number of Series D Preferred Shares to be redeemed from each such holder. If
notice of redemption of any Series D 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 Series D Preferred Shares so called for
redemption, then from and after the redemption date, distributions will cease
to accrue on the Series D Preferred Shares, such Series D Preferred Shares
shall no longer be deemed outstanding and all rights of the holders of such
shares will terminate, except the right to receive the redemption price.
The holders of Series D Preferred Shares at the close of business on a
distribution record date will be entitled to receive the distribution payable
with respect to such Series D Preferred Shares on the corresponding
distribution payment date notwithstanding the redemption thereof between such
distribution record date and the corresponding distribution payment date or
Archstone's default in the payment of the distribution due. Except as provided
above, Archstone will make no payment or allowance for unpaid distributions,
whether or not in arrears, on Series D Preferred Shares which have been called
for redemption.
The Series D Preferred Shares have no stated maturity and will not be
subject to any sinking fund or mandatory redemption. However, in order to
preserve Archstone's status as a real estate invesmtent trust as defined in the
Internal Revenue Code, the Series D Preferred Shares may be subject to
redemption as described in "Description of Preferred Shares--Restrictions on
Ownership" in the accompanying prospectus. Any such redemption would apply only
to shares held, directly or indirectly, by those shareholders with concentrated
share ownership that would violate the preferred shares ownership limit
provision. In addition, the number of shares subject to such a redemption would
be limited to that number of concentrated shares sufficient in the opinion of
the Board of Trustees to maintain or bring the ownership of shares into
conformity with the preferred shares ownership limit provision. See
"Description of Preferred Shares--Restrictions on Ownership" in the
accompanying prospectus.
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<PAGE>
Voting Rights
Except as indicated below, or except as otherwise from time to time
required by applicable law, the holders of Series D Preferred Shares will have
no voting rights.
If six quarterly distributions (whether or not consecutive) payable on
the Series D Preferred Shares or any parity shares are in arrears, whether or
not earned or declared, the number of trustees then constituting the Board of
Trustees will be increased by two, and the holders of Series D Preferred
Shares, voting together as a class with the holders of any other series of
parity shares, including the outstanding Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares (any such other series, being
"voting preferred shares"), will have the right to elect two additional
trustees to serve on Archstone's Board of Trustees at any annual meeting of
shareholders or a properly called special meeting of the holders of Series D
Preferred Shares and such voting preferred shares and at each subsequent annual
meeting of shareholders until all such distributions and distributions for the
current quarterly period on the Series D Preferred Shares and such other voting
preferred shares have been paid or 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 and certain
of its affiliates beneficially own in excess of 10% of the outstanding common
shares, in any such vote by holders of Series D Preferred Shares and such other
voting preferred shares, Security Capital and certain of its affiliates shall
vote their Series D Preferred Shares and voting preferred shares, if any, in
the same respective percentages as the Series D Preferred Shares and voting
preferred shares that are not held by such persons.
The approval of two-thirds of the outstanding Series D Preferred Shares
and all other series of voting preferred shares similarly affected, voting as a
single class, is required in order to (i) amend Archstone's Amended and
Restated Declaration of Trust to affect materially and adversely the rights,
preferences or voting power of the holders of the Series D Preferred Shares or
the voting preferred shares, (ii) enter into a share exchange that affects the
Series D Preferred Shares, consolidate with or merge into another entity, or
permit another entity to consolidate with or merge into Archstone, unless in
each such case each Series D Preferred Share remains outstanding without a
material adverse change to its terms and rights or is converted into or
exchanged for preferred stock of the surviving entity having preferences,
rights, voting powers, restrictions, limitations as to distributions,
qualifications and terms or conditions of redemption thereof identical to that
of a Series D Preferred Share (except for changes that do not materially and
adversely affect the holders of the Series D Preferred Shares) or (iii)
authorize, reclassify, create, or increase the authorized amount of any class
of stock having rights senior to the Series D Preferred Shares with respect to
the payment of distributions or amounts upon liquidation, dissolution or
winding up. However, Archstone may create additional classes of parity shares
and shares ranking junior to the Series D Preferred Shares as to distributions
or upon liquidation (each, referred to as "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
Series D Preferred Shares.
Except as provided above and as required by law, the holders of Series D
Preferred Shares are not entitled to vote on any merger or consolidation
involving Archstone or a sale of all or substantially all of the assets of
Archstone.
Conversion
The Series D Preferred Shares are not convertible into or exchangeable
for any other property or securities of Archstone.
Restrictions on Ownership
For information regarding restrictions on ownership of the Series D
Preferred Shares, see "Description of Preferred Shares--Restrictions on
Ownership" in the accompanying prospectus.
S-18
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations is
based on current law, is for general information only, and is not tax advice.
This discussion does not purport to deal with all aspects of taxation that may
be relevant to particular shareholders in light of their personal investment or
tax circumstances, or to certain types of shareholders (including insurance
companies, tax exempt organizations, 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.
In addition, this section does not discuss foreign, state, or local taxation.
This prospectus supplement does not address the taxation of Archstone or
the impact on Archstone of its election to be taxed as a real estate investment
trust. Those matters are addressed in the accompanying prospectus under
"Federal Income Tax Considerations--Taxation of Archstone." Prospective
investors should consult, and must depend on, their own tax advisors regarding
the state, local, foreign and other tax consequences of holding and disposing
of Series D Preferred Shares.
Dividends and Other Distributions. For a discussion regarding the
taxation of dividends and other distributions, see "Federal Income Tax
Considerations--Taxation of Archstone's Shareholders" in the accompanying
prospectus.
Backup Withholding. For a discussion of backup withholding, see "Federal
Income Tax Considerations--Taxation of Archstone's Shareholders--Backup
Withholding" in the accompanying prospectus.
Sale or Exchange of Series D Preferred Shares. Upon the sale or exchange
of Series D Preferred Shares to a party other than Archstone, a holder of
Series D Preferred Shares will realize a capital gain or loss measured by the
difference between the amount realized on the sale or other disposition and the
holder's adjusted tax basis in the Series D Preferred Shares, provided the
Series D Preferred Shares are held as a capital asset. This gain or loss will
be a long term capital gain or loss if the holder's holding period for the
Series D Preferred Shares is more than one year at the time of the sale or
exchange. Further, any loss on a sale of Series D Preferred Shares which were
held by the holder for six months or less and on which a capital gain dividend
was received will be treated as a long term capital loss, up to the amount of
the capital gain dividend received on those such shares.
Redemption of Series D Preferred Shares. The treatment to be accorded to
any redemption by Archstone of Series D Preferred Shares can only be determined
on the basis of particular facts as to each holder of Series D Preferred Shares
at the time of redemption. In general a preferred holder will recognize capital
gain or loss measured by the difference between the amount realized by the
holder upon the redemption and the holder's adjusted tax basis in the Series D
Preferred Shares redeemed, provided the Series D Preferred Shares are held as a
capital asset, if the redemption (i) results in a "complete termination" of the
holder's share interest in all classes of shares of Archstone under Section
302(b)(3) of the Internal Revenue Code, (ii) is "substantially
disproportionate" with respect to the holder's interest in Archstone under
Section 302(b)(2) of the Internal Revenue Code (which will not be the case if
only Series D Preferred Shares are redeemed, since they generally do not have
voting rights) or (iii) is "not essentially equivalent to a dividend" with
respect to the holder of Series D Preferred Shares under Section 302(b)(1) of
the Internal Revenue Code. In determining whether any of these tests have been
met, shares considered to be owned by the holder by reason of certain
constructive ownership rules set forth in the Internal Revenue Code, as well as
shares actually owned, must generally be taken into account. Because the
determination as to whether any of the alternative tests of Section 302(b) of
the Internal Revenue Code will be satisfied with respect to any particular
holder of Series D Preferred Shares depends upon the facts and circumstances at
the time when the determination must be made, prospective investors are advised
to consult their own tax advisors to determine the tax treatment to them. Any
portion of the redemption proceeds attributable to a declared but unpaid
dividend will be treated as a distribution to the Series D Preferred Shares as
described in the accompanying prospectus under "Federal Income Taxes
Considerations--Taxation of Archstone's Shareholders."
A "substantially disproportionate" reduction in the interest of a holder
of Series D Preferred Shares will have occurred if, as a result of the
redemption, (1) the holder's ownership of all of the
S-19
<PAGE>
outstanding voting shares of Archstone is reduced immediately after the
redemption to less than 80% of the holder's percentage interest in the shares
immediately before the redemption; (2) the holder's percentage ownership of the
common shares after and before the redemption meets the same 80% requirement;
and (3) the holder owns, immediately after the redemption, less than 50% of the
total combined voting power of all classes of shares entitled to vote. Based
upon current law, it is possible that a redemption of Series D Preferred Shares
from a holder of Series D Preferred Shares would be considered "not essentially
equivalent to a dividend." However, whether a distribution is "not essentially
equivalent to a dividend" depends on all of the facts and circumstances. The
application of these tests to a redemption of Series D Preferred Shares is
unclear, and a holder of Series D Preferred Shares intending to rely on any of
these tests at the time of redemption should consult its own tax adviser to
determine their application to its particular situation.
If the redemption does not meet any of the tests under Section 302 of the
Internal Revenue Code, then the redemption proceeds received from the Series D
Preferred Shares will be treated as a distribution on the Series D Preferred
Shares as described under "Federal Income Tax Considerations-- Taxation of
Archstone's Shareholders" in the accompanying prospectus. If the redemption is
taxed as a dividend, the holder's adjusted tax basis in the Series D Preferred
Shares will be transferred to any other shareholdings of the holder in
Archstone. If, however, the shareholder has no remaining shareholdings in
Archstone, such basis could be transferred to a related person or it may be
lost.
S-20
<PAGE>
UNDERWRITING
General
Subject to the terms and conditions contained in the purchase agreement,
Archstone has agreed to sell to each of the underwriters named below, and each
of the underwriters named below has severally agreed to purchase from
Archstone, the respective number of Series D Preferred Shares set forth after
its name below. The obligations of the underwriters are subject to various
conditions. The underwriters must purchase all of the Series D Preferred Shares
if they purchase any.
<TABLE>
<CAPTION>
Number of Series
D
Underwriter Preferred Shares
----------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................. 400,000
A.G. Edwards & Sons, Inc............................... 400,000
PaineWebber Incorporated............................... 400,000
Prudential Securities Incorporated..................... 400,000
ABN AMRO Incorporated.................................. 20,000
Banc of America Securities LLC......................... 20,000
CIBC World Markets Corp................................ 20,000
Dain Rauscher Incorporated............................. 20,000
Deutsche Bank Securities Inc........................... 20,000
Donaldson, Lufkin & Jenrette Securities Corporation.... 20,000
EVEREN Securities, Inc................................. 20,000
Goldman, Sachs & Co.................................... 20,000
Fahnestock & Co. Inc................................... 20,000
First Union Capital Markets Corp....................... 20,000
Legg Mason Wood Walker, Incorporated................... 20,000
J.P. Morgan Securities Inc............................. 20,000
Olde & Co., Incorporated............................... 20,000
Raymond James & Associates, Inc........................ 20,000
Roney Capital Markets, A Division of First Chicago
Capital Markets, Inc.................................. 20,000
The Robinson-Humphrey Company, LLC..................... 20,000
Tucker Anthony Incorporated............................ 20,000
U.S. Bancorp Piper Jaffray Inc......................... 20,000
Wachovia Capital Markets, Inc.......................... 20,000
Warburg Dillon Read LLC................................ 20,000
---------
Total............................................. 2,000,000
=========
</TABLE>
Commissions and Discounts
The underwriters have advised Archstone that they propose initially to
offer the Series D Preferred Shares to the public at the public offering price
set forth on the cover page of this prospectus supplement, and to certain
dealers at such price less a concession not in excess of $.50 per share. The
underwriters may allow, and such dealers may reallow, a discount not in excess
of $.40 to certain other dealers. After the offering, the public offering
price, concession and discount may be changed.
Over-Allotment Option
Archstone has granted an option to the underwriters, exercisable during
the 30-day period after the date of this prospectus supplement, to purchase up
to an aggregate of 300,000 additional Series D Preferred Shares at the price to
the public set forth on the cover page of this prospectus supplement, less the
underwriting discount. The underwriters may exercise this option only to cover
over-allotments, if
S-21
<PAGE>
any. If the underwriters exercise this option, each of the underwriters will
have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage of the additional Series D Preferred Shares
which the number of Series D Preferred Shares to be purchased by it shown in
the foregoing table bears to the Series D Preferred Shares offered by this
prospectus supplement.
The following table shows the per share and total public offering price,
underwriting discount and proceeds, before expenses, to Archstone. The amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase 300,000 Series D Preferred Shares.
<TABLE>
<CAPTION>
Per Without
Share Option With Option
-------- ----------- -----------
<S> <C> <C> <C>
Public Offering Price.................. $25.00 $50,000,000 $57,500,000
Underwriting Discount.................. $.7875 $1,575,000 $1,811,250
Proceeds, before expenses, to
Archstone............................. $24.2125 $48,425,000 $55,688,750
</TABLE>
Archstone expects to incur expenses of approximately $115,000 in
connection with this offering. These expenses are estimated to include printing
costs of $40,000, legal fees of $30,000, accounting fees of $15,000, New York
Stock Exchange listing fees of $15,000 and miscellaneous expenses of $15,000.
Price Stabilization and Short Positions
Until the distribution of the Series D Preferred Shares is completed,
certain rules of the Securities and Exchange Commission may limit the ability
of the underwriters to bid for and purchase Series D Preferred Shares. As an
exception to these rules, the underwriters are permitted to engage in certain
transactions that stabilize the price of the Series D Preferred Shares. Such
transactions consist of bids or purchases for the purposes of pegging, fixing
or maintaining the price of the Series D Preferred Shares.
If the underwriters create a short position in the Series D Preferred
Shares in connection with this offering (i.e., if they sell more Series D
Preferred Shares than are set forth on the cover page of this prospectus
supplement), the underwriters may reduce the short position by purchasing
shares in the open market. The underwriters may also elect to reduce any short
position through the exercise of all or part of the over-allotment option
described above.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither Archstone nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above might have on the price of the Series D Preferred Shares. In
addition, neither Archstone nor the underwriters make any representation that
the underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
New York Stock Exchange Listing
Archstone has filed an application to list the Series D Preferred Shares
on the New York Stock Exchange. If the application is approved, trading of the
Series D Preferred Shares on the New York Stock Exchange is expected to
commence within a 30-day period after the initial delivery of the Series D
Preferred Shares. The underwriters have advised Archstone that they intend to
make a market in the Series D Preferred Shares prior to the commencement of
trading on the New York Stock Exchange. The underwriters will have no
obligation to make such market in the Series D Preferred Shares, however, and
may cease market-making activities if commenced at any time.
Archstone has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or if indemnification is not allowed, to contribute to payments the
underwriters may be required to make because of those liabilities.
In the ordinary course of their business, certain of the underwriters and
their affiliates provide investment banking, advisory and other financial
services to Archstone for which they receive customary fees.
S-22
<PAGE>
VALIDITY OF THE SERIES D PREFERRED SHARES
The validity of the Series D Preferred Shares offered hereby will be
passed upon for Archstone by Mayer, Brown & Platt, Chicago, Illinois and for
the underwriters by Andrews & Kurth L.L.P., Washington, D.C. Mayer, Brown &
Platt and Andrews & Kurth L.L.P. will rely upon the opinion of Ballard Spahr
Andrews & Ingersoll, LLP with respect to certain matters of Maryland law.
S-23
<PAGE>
PROSPECTUS
ARCHSTONE COMMUNITIES TRUST
$750,000,000*
Common Shares Preferred Shares Debt Securities Rights
---------------
Archstone will provide specific terms of these securities in supplements to
this Prospectus. You should carefully read this Prospectus and any supplement
before you invest.
* Pursuant to Rule 429 under the Securities Act of 1933, as amended (the "Se-
curities Act"), this Prospectus also relates to an additional $77,229,900 of
the Common Shares, Preferred Shares and Debt Securities which were regis-
tered under a previous registration statement.
---------------
These securities have not been approved by the Securities and Exchange
Commission or any state securities commission nor have these organizations
determined that this prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
---------------
The date of this Prospectus is December 23, 1998
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus (the "Prospectus") is part of a registration statement that
Archstone Communities Trust, formerly known as Security Capital Pacific Trust
("Archstone"), filed with the Securities and Exchange Commission (the
"Commission") utilizing a "shelf" registration process. Under this shelf
process, Archstone may, over the next two years, sell any combination of the
securities described in this Prospectus (the "Offered Securities") in one or
more offerings up to a total dollar amount of $750,000,000. This Prospectus
provides you with a general description of the securities Archstone may offer.
Each time Archstone sells securities, Archstone will provide a prospectus
supplement (each supplement, a "Prospectus Supplement") that will contain
specific information about the terms of that offering. The Prospectus
Supplement may also add, update or change information contained in this
Prospectus. You should read both this Prospectus and any Prospectus Supplement
together with the additional information described under the heading "Where
You Can Find More Information".
WHERE YOU CAN FIND MORE INFORMATION
Archstone is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and files reports,
proxy statements and other information with the Commission. You may read and
copy any materials Archstone files with the Commission at the Commission's
Public Reference Rooms located 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. Please
call the Commission at 1-800-SEC-0330 for further information on the public
reference rooms. Archstone's Commission filings are also available to the
public over the Internet at the Commission's web site at http://www.sec.gov.
Archstone's outstanding Common Shares, Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares are listed on the New York
Stock Exchange ("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.
Archstone has filed with the Commission a registration statement on Form S-3
(together with all amendments and exhibits, the "Registration Statement")
under the Securities Act, with respect to the Offered Securities. This
Prospectus, which constitutes part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement.
Certain parts of the Registration Statement are omitted from the Prospectus in
accordance with the rules and regulations of the Commission. For further
information, your attention is directed to the Registration Statement.
Statements made in this Prospectus concerning the contents of any documents
referred to herein are not necessarily complete, and in each case are
qualified in all respects by reference to the copy of such document filed with
the Commission.
The Commission allows Archstone to "incorporate by reference" the
information Archstone files with the Commission, which means that Archstone
can disclose important information to you by referring you to those documents.
The information incorporated by reference is an important part of this
Prospectus, and information that Archstone files later with the Commission
will automatically update and supersede this information. Archstone
incorporates by reference the documents listed below:
. Security Capital Pacific Trust's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997;
. Security Capital Pacific Trust's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1998;
. Archstone's Quarterly Reports on Form 10-Q for the fiscal quarters ended
June 30, 1998 and September 30, 1998;
. Security Capital Pacific Trust's Current Reports on Form 8-K filed March
4, 1998, April 3, 1998,
April 23, 1998 and April 28, 1998;
. Archstone's Current Reports on Form 8-K filed July 7, 1998, July 15,
1998 and September 1, 1998;
2
<PAGE>
. The description of the Common Shares contained in Security Capital
Pacific Trust's registration statement on Form 8-A, as amended; and
. The description of Security Capital Pacific Trust's preferred share
purchase rights contained in Security Capital Pacific Trust's
registration statement on Form 8-A, as amended.
Archstone also incorporates by reference any future filings made with the
Commission under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until
Archstone sells all of the Offered Securities. You should be aware that any
statement contained in this Prospectus or in a document incorporated by
reference may be modified or superseded by a document filed with the
Commission at a later date. Any statement which has been modified or
superseded shall not be considered to constitute a part of this Prospectus.
You may request a copy of these filings at no cost, by writing or
telephoning Archstone at the following address or telephone number:
Secretary
Archstone Communities Trust
7670 South Chester Street
Englewood, Colorado 80112
(303) 708-5959.
You should rely only on the information incorporated by reference or
provided in this Prospectus or any Prospectus Supplement. Archstone has not
authorized anyone else to provide you with different information. Archstone is
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this Prospectus or
any Prospectus Supplement is accurate as of any date other than the date on
the front of those documents.
3
<PAGE>
ARCHSTONE COMMUNITIES TRUST
Archstone is a real estate operating company focused on the acquisition,
development, operation and long-term ownership of multifamily communities.
Archstone is focused on markets that have strong economic fundamentals and high
barriers to entry throughout the United States. Archstone's primary objective
is creating sustainable long-term growth in per share cash flow, and it 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's commitment to fundamental real estate and customer research is
the foundation for its growth strategy. This allows Archstone to invest capital
into markets, products and new business opportunities that 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. Archstone believes that this unique,
research driven strategy will continue to allow it 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
Archstone will use the net proceeds from the sale of the Offered Securities
for the development, acquisition and redevelopment 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.
RATIO INFORMATION
The ratio of earnings to fixed charges for each of the periods indicated is
as follows:
<TABLE>
<CAPTION>
Nine Months
Ended Twelve months Ended
September 30, December 31,
------------- ---------------------------
1998 1997(1) 1997(1) 1996 1995 1994 1993
------ -------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges......................... 2.0 0.7 1.1 2.5 3.2 2.6 4.0
Ratio of earnings to combined
fixed charges and Preferred
Share dividends................. 1.6 0.6 0.9 1.7 1.9 1.6 3.4
</TABLE>
- --------
(1) Earnings from operations for 1997 includes a one-time, non-cash charge of
$71.7 million associated with costs incurred in acquiring its management
companies from an affiliate. Accordingly, earnings from operations were
insufficient to cover: (i) fixed charges by $16.8 million for the nine
months ended September 30, 1997 and (ii) combined fixed charges and
Preferred Share dividends by $31.5 million and $12.3 million for the nine
months ended September 30, 1997 and for the year ended December 31, 1997,
respectively. Excluding this charge, the ratio of earnings to fixed charges
and ratio of earnings to combined fixed charges and Preferred Share
dividends for the nine months ended September 30, 1997 and for the year
ended December 31, 1997 would be 1.9 and 2.0, respectively and 1.5 and 1.6,
respectively.
For the purpose of computing these ratios, "earnings" consist of earnings
from operations plus fixed charges other than capitalized interest. "Fixed
charges" consist of interest on borrowed funds (including capitalized interest)
and amortization of debt discount and expense.
4
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the debt securities (the "Debt Securities") to which this Prospectus and any
applicable Prospectus Supplement may relate. Archstone may issue Debt
Securities 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 (the "Trustee"). The Indenture is incorporated by reference as an
exhibit to the Registration Statement of which this Prospectus is a part and
may be read at the corporate trust office of the Trustee at 225 Franklin
Street, Boston, Massachusetts 02110 or as described above under "Where You Can
Find More 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).
There may be more than one Trustee under the Indenture, each with respect to
one or more series of Debt Securities. Any Trustee 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). If 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.
Please refer 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
5
<PAGE>
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;
(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
6
<PAGE>
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).
The Debt Securities may provide that less than the entire principal amount
thereof will be paid if the maturity of the Debt Securities is accelerated, 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 apply to
Original Issue Discount Securities and 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 explained below under "Certain Covenants--Limitations on Incurrence
of Debt," the Indenture contains no 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 (as defined below under "Description of Common
Shares--General") 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 (as defined below
under "Description of Preferred Shares--General") 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 225 Franklin Street, Boston, Massachusetts 02110;
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).
7
<PAGE>
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 no longer be payable to the Holder on the
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 (1) 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; (2) 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 (3) 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:
(1) 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;
(2) 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
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which, after notice or the lapse of time, or both, would become such an
Event of Default, shall have occurred and be continuing; and
(3) an officer's 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 60% of the sum of
(without duplication) (1) 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 Commission (or, if such filing is not permitted under the Exchange Act,
with the Trustee) prior to the incurrence of such additional Debt and (2) 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:
(1) 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;
(2) 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);
(3) 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
(4) 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).
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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 maintain and keep all of its
properties used or useful in the conduct of its business or the business of any
Subsidiary in good condition, repair and working order and supplied with all
necessary equipment and will make 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).
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, (1) 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 (2) 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:
(1) 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
(2) 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:
(1) existing at the time such Person becomes a Subsidiary; or
(2) 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.
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"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):
(1) interest on Debt of Archstone and its Subsidiaries;
(2) provision for taxes of Archstone and its Subsidiaries based on
income;
(3) amortization of debt discount;
(4) provisions for gains and losses on properties and property
depreciation and amortization;
(5) the effect of any noncash charge resulting from a change in
accounting principles in determining Earnings from Operations for such
period; and
(6) amortization of deferred charges.
"Debt" of Archstone or any Subsidiary means any indebtedness of Archstone or
any Subsidiary, whether or not contingent, in respect of:
(1) borrowed money or evidenced by bonds, notes, debentures or similar
instruments;
(2) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property owned by
Archstone or any Subsidiary;
(3) 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;
(4) the principal amount of all obligations of Archstone or any
Subsidiary with respect to redemption, repayment or other repurchase of any
Disqualified Stock; or
(5) 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 (1) through (3)
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:
(1) matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise;
(2) is convertible into or exchangeable or exercisable for Debt or
Disqualified Stock; or
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(3) 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 (1) the voting power of the voting equity
securities or (2) 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 (1) Archstone's Undepreciated
Real Estate Assets and (2) 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 following events are "Events of Default" with respect to any series of
Debt Securities issued under the Indenture:
(1) default for 30 days in the payment of any installment of interest or
Additional Amounts payable on any Debt Security of such series;
(2) 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;
(3) default in making any sinking fund payment as required for any Debt
Security of such series;
(4) 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 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;
(5) 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;
(6) 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;
(7) 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
(8) any other Event of Default provided with respect to a particular
series of Debt Securities (Section 501).
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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:
(1) 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
(2) 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:
(1) 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
(2) 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 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
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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:
(1) 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;
(2) 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;
(3) 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;
(4) impair the right to institute suit for the enforcement of any payment
on or with respect to any such Debt Security;
(5) 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
(6) 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).
Archstone and the Trustee may modify and amend the Indenture without the
consent of any Holder of Debt Securities for any of the following purposes:
(1) to evidence the succession of another Person to Archstone as obligor
under the Indenture;
(2) 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 Archstone in the Indenture;
(3) to add Events of Default for the benefit of the Holders of all or any
series of Debt Securities;
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(4) 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;
(5) 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;
(6) to secure the Debt Securities;
(7) to establish the form or terms of Debt Securities of any series and
any related coupons;
(8) 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;
(9) 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;
(10) 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
(11) 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:
(1) 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;
(2) 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 (1) above);
(3) 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
(4) 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
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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).
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:
(1) there shall be no minimum quorum requirement for such meeting; and
(2) 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:
(1) 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
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(2) 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 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:
(1) 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
(2) 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:
(1) 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
(2) a Conversion Event (as defined below) occurs in respect of the
currency, currency unit or composite currency in which such deposit has
been made,
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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:
(1) 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;
(2) the ECU both within the European Monetary System and for the
settlement of transactions by public institutions of or within the European
Communities; or
(3) 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 (4) 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 (7) 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.
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).
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Neither Archstone nor the Trustee shall be required to (1) 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; (2) 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 (3) 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
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
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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).
Trustee
There may be more than one Trustee under the Indenture, 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, shares of preferred stock
("Preferred Shares") in series and to establish from time to time the number of
Preferred Shares to be included
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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 December 1, 1998, Archstone
had 4,756,615 of its Series A Preferred Shares issued and outstanding and held
of record by 49 shareholders, 4,200,000 of its Series B Preferred Shares issued
and outstanding and held of record by 253 shareholders and 2,000,000 of its
Series C Preferred Shares issued and outstanding and held of record by 21
shareholders.
Please refer 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;
(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:
(1) senior to all classes or series of Common Shares, and to all equity
securities ranking junior to such series of Preferred Shares;
(2) 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
(3) 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.
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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:
(1) 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
(2) 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.
Except as provided in the immediately preceding paragraph, unless:
(1) 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
(2) 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
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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.
However, unless:
(1) 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
(2) 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:
(1) 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
(2) 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,
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).
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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:
(1) the redemption date;
(2) the number of shares and series of the Preferred Shares to be
redeemed;
(3) the redemption price;
(4) the place or places where certificates for such Preferred Shares are
to be surrendered for payment of the redemption price;
(5) that dividends on the Preferred Shares to be redeemed will cease to
accrue on such redemption date; and
(6) 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 is 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 will 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 are made in full to all holders of Preferred
Shares of such series, the remaining assets of Archstone will 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
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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.
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 (6) 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 (2), 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 (2) 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 ( 2/3) 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:
(1) 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;
(2) 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
(3) 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.
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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 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
Archstone is authorized by the Declaration of Trust to issue up to
250,000,000 Shares of Beneficial Interest, par value $1.00 per share,
consisting of common shares (the "Common Shares"), Preferred Shares and such
other types or classes of shares of beneficial interest as the Board may create
and authorize from time
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to time (the Common Shares, Preferred Shares and such other types or classes of
shares of beneficial interest sometimes referred to collectively as the
"Shares"). At December 1, 1998 143,300,870 Common Shares were issued and
outstanding and held of record by 3,077 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 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 NYSE under the
symbol "ASN."
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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 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:
(1) create a direct or indirect ownership of Shares in excess of the
Ownership Limit;
(2) 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
(3) 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
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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:
(1) 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
(2) 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:
(1) the price paid for the Excess Shares by the purported 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
(2) 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
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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 liabilities and expenses (1) the payment of
which is judicially determined to be unlawful, (2) relating to claims under
Section 16(b) of the Exchange Act, or (3) 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 coverage 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.
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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.
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.
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Notwithstanding its qualification as a REIT, Archstone may also be subject to
taxation in certain other circumstances:
(1) 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;
(2) Archstone will be subject to a tax of 100% on net income from any
"prohibited transaction", as described below;
(3) If Archstone has 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 other non-qualifying income from foreclosure
property, it will be subject to tax on such income from foreclosure
property at the highest corporate rate;
(4) If Archstone should fail to distribute during each calendar year at
least the sum of:
(a) 85% of its REIT ordinary income for such year;
(b) 95% of its REIT capital gain net income for such year; and
(c) 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; and
(5) 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:
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
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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). Where Archstone
invests in a partnership or limited liability company, it will be deemed to own
a proportionate share of the partnership's or limited liability company's
assets. 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:
(1) in the case of securities of any non-government issuer, 5% of the
value of Archstone's total assets; or
(2) 10% of the outstanding voting securities of any one issuer.
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 or limited
liability company, Archstone will be treated as receiving its share of the
income and loss of the partnership or limited liability company, and the gross
income of the partnership or limited liability company will retain the same
character in the hands of Archstone as it has in the hands of the partnership
or limited liability company.
1. The 75% Test. At least 75% of Archstone's gross income for the taxable
year must be "qualifying income". Qualifying income generally includes:
(1) rents from real property (except as modified below);
(2) interest on obligations collateralized by mortgages on, or interests
in, real property;
(3) 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");
(4) dividends or other distributions on shares in other REITs, as well as
gain from the sale of such shares;
(5) abatements and refunds of real property taxes;
(6) 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");
(7) commitment fees received for agreeing to make loans collateralized by
mortgages on real property or to purchase or lease real property; and
(8) 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.
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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: (1) Archstone's failure to comply
was due to reasonable cause and not to willful neglect; (2) 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 (3) 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:
(1) the sum of (a) 95% of Archstone's REIT taxable 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
(2) the sum of certain items of non-cash income.
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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 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
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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:
(1) a 20% rate gain distribution (which would be taxed as capital gain in
the 20% group);
(2) an unrecaptured Section 1250 gain distribution (which would be taxed
as capital gain in the 25% group); or
(3) 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 (1)
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 (2) 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
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rules, a shareholder may be subject to backup withholding at applicable rates
with respect to distributions paid unless such shareholder (1) is a corporation
or comes within certain other exempt categories and, when required,
demonstrates this fact or (2) 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 (1) 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 (2) 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 (1) an applicable tax treaty reduces that tax and the foreign
shareholder files with Archstone the required form evidencing such lower rate
or (2) 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, 2000.
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
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.
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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.
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:
(1) 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
(2) 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.
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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. To the
extent that KPMG Peat Marwick LLP audits and reports on financial statements of
Archstone issued at future dates, and consents to the use of their report
thereon, such financial statements also will be incorporated by reference in
the Registration Statement in reliance upon their report and said authority.
With respect to the unaudited condensed interim financial information for the
periods ended March 31, 1998 and 1997, June 30, 1998 and 1997, and September
30, 1998 and 1997 of Archstone, incorporated by reference herein, the
independent certified public accountants 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 quarters ended March 31, 1998, June 30,
1998 and September 30, 1998, and 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 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.
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2,000,000 Shares
[ARCHSTONE LOGO]
8 3/4% Series D Cumulative Redeemable Preferred Shares
(Liquidation Preference $25.00 Per Share)
-----------------------------------
PROSPECTUS SUPPLEMENT
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Merrill Lynch & Co.
A.G. Edwards & Sons, Inc.
PaineWebber Incorporated
Prudential Securities
August 3, 1999
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