<PAGE> 1
As filed with the Securities and Exchange Commission on October 17, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SPIEKER PROPERTIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 94-3185802
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification Number)
2180 Sand Hill Road
Menlo Park, California 94025
(415) 854-5600
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrar's Principal Executive Offices)
Craig G. Vought
Executive Vice President and Chief Financial Officer
2180 Sand Hill Road
Menlo Park, California 94025
(415) 854-5600
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
COPIES TO:
Stephen J. Schrader, Esq.
Justin L. Bastian, Esq.
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, California 94304
(415) 813-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED
SALE TO THE PUBLIC: From time to time after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. / X /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF SHARES TO BE AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF REGISTRATION
REGISTERED REGISTERED AGGREGATE PRICE PER SHARE AGGREGATE OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, $.0001
par value .............. 245,738 shares $29.5625 (1) $7,264,629.63(1) $2,201.40
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) based on the average of the high and low
reported sales prices on the New York Stock Exchange on October 14,
1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
PROSPECTUS Subject To Completion
Preliminary Prospectus dated October 17, 1996
245,738 SHARES
SPIEKER PROPERTIES, INC.
COMMON STOCK
This Prospectus relates to the offer and sale from time to time by the
holders of up to (i) 245,738 shares of common stock (the "Shares"), par value
$.0001 per share ("Common Stock"), that may be issued by Spieker Properties,
Inc. (the "Company") to certain holders of up to 245,738 units of limited
partnership interest (the "Units") in Spieker Properties, L.P. (the "Operating
Partnership"), of which the Company is the sole general partner and owns a
controlling interest, if and to the extent that such holders tender such Units
for exchange into shares of Common Stock (the "Selling Stockholders). The
Company is registering the Shares issuable upon conversion of the Units pursuant
to the terms of an Investor Rights Agreement dated November 18, 1993 by and
among the Company and certain holders of Units to provide the holders of Units
with freely tradable securities. The registration of the Shares does not
necessarily mean that any of the Shares will be issued by the Company, unless
required by the holders, or will be offered and sold by the holders thereof. See
"Use of Proceeds" and "Registration Rights."
The Common Stock is listed on the New York Stock Exchange (the "NYSE")
under the symbol "SPK." To ensure that the Company maintains its qualification
as a REIT, ownership by any person is limited to 9.9% of the value of the
outstanding capital stock of the Company, with certain limited exceptions. See
"Description of Capital Stock -- Restrictions on Transfer."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
The Selling Stockholders from time to time may offer and sell the
Shares held by them directly or through agents or broker-dealers on terms to be
determined at the time of sale. To the extent required, the names of any agent
or broker-dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution." Each of the
Selling Stockholders reserves the sole right to accept or reject, in whole or in
part, any proposed purchase of the Shares to be made directly or through agents.
The Company will not receive any of the proceeds from the issuance of
the Shares or the sale of Shares by the Selling Stockholders but has agreed to
bear certain expenses of registration of the Shares under Federal and state
securities laws. The Company will acquire one Unit in the Operating Partnership
in exchange for each Share that the Company may issue to Unit holders pursuant
to the Registration Statement of which this Prospectus is part.
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The Selling Stockholders and any agents or broker-dealers that
participate with the Selling Stockholders in the distribution of Shares may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any commissions received by them and any
profit on the resale of the Shares may be deemed to be underwriting commissions
or discounts under the Securities Act. See "Registration Rights" for
indemnification arrangements between the Company and the Selling Stockholders.
The date of this Prospectus is , 1996.
<PAGE> 4
5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith the Company files, reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed can be inspected and
copied at the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C., 20549, and at the following regional offices of the
Commission: Seven World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
In addition, the Common Stock is listed on the New York Stock Exchange and
similar information concerning the Company can be inspected and copied at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement") (of which this Prospectus is a part)
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Offered Securities. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other documents are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Shares, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
a. The Company's Annual Report on Form 10-K for the year ended December
31, 1995 and Annual Report on Form 10-K/A (Amendment No. 1) for the year
ended December 31, 1995 filed with the Commission on June 20, 1996;
b. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996;
c. The Company's two Current Reports on Form 8-K dated June 19, 1996 and
July 15, 1996; and
d. The description of the Registrant's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 1-12528).
Each document filed by the Company pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering made hereby shall be deemed to be
incorporated by reference in this Prospectus and to be part hereof from the date
of filing such documents.
<PAGE> 5
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein (or in the applicable Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person, including any beneficial owner, to whom this
Prospectus is delivered upon written or oral request. Requests should be
directed to the Investor Relations Coordinator, Spieker Properties, Inc., 2180
Sand Hill Road, Menlo Park, California 94025, telephone number: (415) 854-5600.
<PAGE> 6
All references to the "Company" include Spieker Properties, Inc., those
entities owned or controlled by Spieker Properties, Inc. and predecessors of
Spieker Properties, Inc., unless the context indicates otherwise.
THE COMPANY
Spieker Properties, Inc. (the "Company") is a self-administered and
self-managed equity real estate investment trust ("REIT") that was formed to
continue the business of owning, operating, managing, leasing, acquiring,
developing and redeveloping suburban commercial property previously conducted by
its predecessor, which began operations in 1970. As of September 30, 1996, the
Company owned and operated 146 properties (the "Properties," and each a
"Property"), aggregating approximately 20.3 million rentable square feet and
comprised of 79 industrial Properties, 52 office Properties and 15 retail
Properties. All of the Properties are located in California, and in Washington,
Oregon and Idaho (the "Pacific Northwest"). The Company believes that it is one
of the largest publicly-owned operators, owners and developers of commercial
real estate located in California and the Pacific Northwest. The Company further
believes that California and the Pacific Northwest have a relatively strong and
stable economy and provide significant investment opportunities due to their
Pacific Rim location, well developed transportation infrastructure, high
technology industries, well-educated employee base and excellent universities.
All of the Company's interests in the Properties are held directly or
indirectly by, and substantially all of its operations relating to the
Properties are conducted through, Spieker Properties, L.P. (the "Operating
Partnership"). The Company controls the Operating Partnership as the sole
general partner and, as of September 30, 1996, owned approximately 84.9% of the
partnership interests (the "Units") in the Operating Partnership.
The Company's common stock, par value $.0001 per share ("Common Stock")
is listed on the New York Stock Exchange under the Symbol "SPK." The Company is
a Maryland corporation and the Operating Partnership is a California limited
partnership. The Operating Partnership was formed in 1993 in connection with the
formation of the Company. The Company's and the Operating Partnership's
executive offices are located at 2180 Sand Hill Road, Menlo Park, California
94025 and their telephone number is (415) 854-5600.
TAX STATUS OF THE COMPANY
The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). As a
REIT, the Company generally is not subject to Federal income tax on net income
that it distributes to its stockholders. REITs are subject to a number of
organizational and operational requirements, including a requirement that they
currently distribute at least 95% of their taxable income. See "Federal Income
Tax Considerations."
SECURITIES TO BE OFFERED
This Prospectus relates to the offer and sale from time to time by the
holders of up to 245,738 shares of Common Stock (the "Shares") that may be
issued by the Company to certain holders of up to 245,738 Units in the Operating
Partnership, of which the Company is the sole general partner and owns a
controlling interest, if and to the extent that such holders tender such Units
for exchange into shares of Common Stock. The Company is registering the Shares
issuable upon exchange of the Units pursuant to the terms of the Investor Rights
Agreement
<PAGE> 7
dated November 18, 1993 by and among the Company and certain holders of Units to
provide the holders of such Units with freely tradable securities. The
Registration of the Shares does not necessarily mean that any of such Shares
will be issued by the Company, unless required by the holders, or will be
offered and sold by the holders thereof.
USE OF PROCEEDS
The Company will not receive any of the proceeds of the issuance of the
Shares or the sale of Shares by the Selling Stockholders but has agreed to bear
certain expenses of registration of the Shares under Federal and state
securities laws.
<PAGE> 8
9
SPECIAL CONSIDERATIONS
Prospective investors should carefully consider the following
information in conjunction with the other information contained in this
Prospectus and the applicable Prospectus Supplement before purchasing the Shares
offered hereby.
GENERAL REAL ESTATE INVESTMENT RISKS
Real property investments are subject to varying degrees of risk. The
yields available from investments in real estate depend on the amount of income
and capital appreciation generated by the related properties. If the Properties
do not generate sufficient income to meet operating expenses, including debt
service, ground lease payments, tenant improvements, third-party leasing
commissions and other capital expenditures, the Company's income and ability to
make distributions to its stockholders will be adversely affected. The
performance of the economy in each of the regions in which the Properties are
located affects occupancy, market rental rates and expenses and, consequently,
has an impact on the income from the Properties and their underlying values. The
financial results of major local employers also may have an impact on the cash
flow and value of certain Properties. In terms of rentable square feet, over 44%
of the Properties as of September 30, 1996, were located in the San Francisco
Bay Area. As a result of this geographic concentration, the performance of the
San Francisco Bay Area commercial real estate market will affect the value of
the Properties in that area and, in turn, the value of the Company.
Income from the Properties may be further adversely affected by the
general economic climate, local economic conditions in which the Properties are
located, such as oversupply of space or a reduction in demand for rental space,
the attractiveness of the Properties to tenants, competition from other
available space, the ability of the Company to provide for adequate maintenance
and insurance and increased operating expenses. There is also the risk that as
leases on the Properties expire, tenants will enter into new leases on terms
that are less favorable to the Company. Income and real estate values may also
be adversely affected by such factors as applicable laws (e.g., ADA and tax
laws), interest rate levels and the availability of financing. In addition, real
estate investments are relatively illiquid and, therefore, will tend to limit
the ability of the Company to vary its portfolio promptly in response to changes
in economic or other conditions.
COMPETITION
Numerous industrial, office and retail properties compete with the
Properties in attracting tenants to lease space. Some of these competing
properties are newer, better located or better capitalized than the Company's
Properties. The number of competitive commercial properties in a particular area
could have a material effect on the Company's ability to lease space in the
Properties or at newly developed or acquired properties and on the rents
charged.
<PAGE> 9
ACQUISITION AND DEVELOPMENT ACTIVITIES
The Company intends to acquire existing commercial properties to the
extent that they can be acquired on advantageous terms and meet the Company's
investment criteria. Acquisitions of commercial properties entail general
investment risks associated with any real estate investment, including the risk
that investments will fail to perform as expected or that estimates of the cost
of improvements to bring an acquired property up to standards established for
the intended market position may prove inaccurate.
The Company intends to pursue commercial property development projects
and to develop certain landholdings as to which it has certain options. Such
projects generally require various governmental and other approvals, the receipt
of which cannot be assured. The Company's development activities will entail
certain risks, including the expenditure of funds on and devotion of
management's time to projects which may not come to fruition; the risk that
construction costs of a project may exceed original estimates, possibly making
the project uneconomic; the risk that occupancy rates and rents at a completed
project will be less than anticipated; and the risk that expenses at a completed
development will be higher than anticipated. These risks may result in a
reduction in the funds available for distribution.
DEBT FINANCING
The Company will be subject to the risks normally associated with debt
financing, including the risk that the Company's cash flow will be insufficient
to meet required payments of principal and interest, the risk that existing
indebtedness on the Properties cannot be refinanced or that the terms of such
refinancing will not be as favorable as the terms of existing indebtedness.
ENVIRONMENTAL MATTERS
Under various Federal, state and local laws, ordinances and
regulations, an owner or operator of real estate is liable for the costs of
removal or remediation of certain hazardous or toxic substances on or in such
property. Such laws often impose such liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's or
operator's ability to sell or rent such property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain environmental
laws impose liability for release of asbestos-containing materials into the air,
and third parties may seek recovery from owners or operators of real properties
for personal injuries associated with asbestos-containing materials. In
connection with the ownership (direct or indirect), operation, management and
development of real properties, the Company may be considered an owner or
operator of such properties or as having arranged for the disposal or treatment
of hazardous or toxic substances and, therefore, may be potentially liable for
removal or remediation costs, as well as certain other costs, including
governmental fines and injuries to persons and property.
The Company is not aware of any environmental liability with respect to
the Properties that would have a material adverse effect on the Company's
business, assets or results of operations. There can be no assurance that such a
material environmental liability does not exist. The existence of any such
material environmental liability would have an adverse effect on the Company's
results of operations and cash flow.
<PAGE> 10
11
GENERAL UNINSURED LOSSES/SEISMIC ACTIVITY
The Company carries comprehensive liability, fire, flood, extended
coverage and rental loss insurance with policy specifications, limits and
deductibles customarily carried for similar properties. There are, however,
certain types of extraordinary losses which may be either uninsurable, or not
economically insurable. Further, a substantial number of the Properties are
located in areas that are subject to earthquake activity. Although the Company
has obtained certain limited earthquake insurance policies, should a Property
sustain damage as a result of an earthquake, the Company may incur substantial
losses due to insurance deductibles, co-payments on insured losses or uninsured
losses. Additionally, earthquake insurance may not be available for certain of
the Company's Properties, or if available, may not be available on terms
acceptable to the Company. Should an uninsured loss occur, the Company could
lose its investment in, and anticipated profits and cash flows from, a number of
Properties.
<PAGE> 11
DESCRIPTION OF CAPITAL STOCK
STOCK -- GENERAL
As of September 30, 1996, the total number of shares of all classes of
capital stock that the Company had authority to issue was 1,000,000,000 shares,
consisting of (i) 660,500,000 shares of Common Stock, par value $0.0001 per
share, (ii) 1,000,000 shares of Series A Preferred Stock, par value $0.0001 per
share, (iii) 5,000,000 shares of Series B Cumulative Redeemable Preferred Stock,
par value $0.0001 per share ("Series B Preferred Stock"), (iv) 2,000,000 shares
of Class B Common Stock, par value $0.0001 per share ("Class B Common Stock"),
(v) 1,500,000 shares of Class C Common Stock, par value $0.0001 per share
("Class C Common Stock"), and (vi) 330,000,000 shares of excess stock ("Excess
Stock").
As of September 30, 1996, there were (i) 31,811,861 shares of Common
Stock issued and outstanding, (ii) 1,000,000 shares of Series A Preferred Stock
issued and outstanding, (iii) 4,250,000 shares of Series B Preferred Stock,
issued and outstanding, (iv) 2,000,000 shares of Class B Common Stock issued and
outstanding and (v) 1,176,470 shares of Class C Common Stock issued and
outstanding. At any given time, there are reserved for issuance under the
Amended and Restated Spieker Properties, Inc. 1993 Stock Incentive Plan (the
"Plan") shares of the Company's Common Stock equal to 9.9% of the number of
shares of the Company's stock outstanding (including shares of Common Stock
issuable upon conversion of partnership units in the Operating Partnership,
Series A Preferred Stock, Class B Common Stock and Class C Common Stock, and all
classes of convertible securities of the Company that may be issued in the
future) as of the last day of the immediately preceding quarter reduced by the
number of shares of Common Stock reserved for issuance under other stock
compensation plans of the Company. As of September 30, 1996, the Company had
reserved for issuance under the Plan 3,450,000 shares of the Company's Common
Stock and 150,000 shares of Common Stock were reserved for issuance under the
Amended and Restated Spieker Properties, Inc. Directors' 1993 Stock Option Plan
(the "Directors' Stock Option Plan"). In addition, 1,219,512 shares of Common
Stock have been reserved for issuance upon the conversion of the Series A
Preferred Stock, 2,531,646 shares of Common Stock have been reserved for
issuance upon the conversion of Class B Common Stock and 1,176,470 shares of
Common Stock have been reserved for issuance upon the exchange of Class C Common
Stock. Further, 6,549,819 shares of Common Stock have been reserved for issuance
upon the conversion of limited partnership units in the Operating Partnership.
COMMON STOCK
The following description of the Common Stock sets forth certain
general terms and provisions of the Common Stock. This description is in all
respects subject to and qualified in its entirety by reference to the applicable
provisions of the Company's Articles of Incorporation and Articles Supplementary
(collectively, the "Charter") and its Bylaws. The Common Stock is listed on the
New York Stock Exchange under the symbol "SPK." The Bank of New York is the
Company's transfer agent.
The holders of the outstanding Common Stock are entitled to one vote
per share on all matters voted on by stockholders, including elections of
directors. The Charter does not provide for cumulative voting in the election of
directors.
The shares of Common Stock offered hereby will, when issued, be fully
paid and nonassessable and will not be subject to preemptive or similar rights.
Subject to the preferential rights of the Series A Preferred Stock, Series B
Preferred Stock and any preferential rights of any other outstanding series of
capital stock, the holders of Common Stock are entitled to such distributions as
may be declared from time to time by the Board of Directors from funds
<PAGE> 12
13
available for distribution to such holders. The Company currently pays regular
quarterly dividends to holders of Common Stock.
In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to receive ratably the assets
remaining after satisfaction of all liabilities and payment of liquidation
preferences and accrued dividends, if any, on Series A Preferred Stock, Series B
Preferred Stock, Class B Common Stock and Class C Common Stock and any other
series of capital stock that has a liquidation preference. The rights of holders
of Common Stock are subject to the rights and preferences established by the
Board of Directors for any capital stock that may subsequently be issued by the
Company.
Subject to limitations prescribed by Maryland law and the Company's
Charter, the Board of Directors is authorized to reclassify any unissued portion
of the authorized shares of capital stock to provide for the issuance of shares
in other classes or series, including other classes or series of Common Stock,
to establish the number of shares in each class or 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 such class or series. The rights, preferences,
privileges and restrictions of such class or series will be fixed by the
articles supplementary relating to such class or series.
CLASS B COMMON STOCK
The following description of the Company's Class B Common Stock is in
all respects subject to and qualified in its entirety by reference to the
applicable provisions of the Company's Charter, including the Articles
Supplementary applicable to the Class B Common Stock, and Bylaws. The Company
has issued 2,000,000 shares of Class B Common Stock, par value $0.0001 per
share, all of which were outstanding as of September 30, 1996.
The Class B Common Stock ranks on a parity with the Company's Common
Stock with respect to dividends. The Class B Common Stock was sold in May 1995
to a limited number of institutional investors at a price per share of $25.00.
The initial per share dividend of the Class B Common Stock was set at $2.19,
which was at a rate that was equal to the dividend yield on shares of Common
Stock sold concurrently with the Class B Common Stock plus 0.25%. The dividend
per share on the Class B Common stock will be increased or decreased by the same
dollar amount as any increase or decrease in the dividend distributions made to
the holders of Common Stock. The Company currently pays regular dividends to
holders of Class B Common Stock.
In the event of any liquidation, dissolution or winding up of the
Company, the holders of Class B Common Stock are entitled to receive, prior and
in preference to the holders of Common Stock, an amount per share of Class B
Common Stock equal to all declared but unpaid dividends for each share of Class
B Common Stock. The Class B Common Stock has not been registered under the
Securities Act. The institutional investors who purchased the shares of Class B
Common Stock have certain demand registration rights for eight years following
the May 1995 sale of such shares to register in each instance Common Stock
having a market value of $1.0 million or more. Subject to certain limitations,
the Class B Common Stock may be converted into Common Stock three years after
the May 1995 sale or earlier upon the occurrence of certain events including a
change in management. The holders of Class B Common Stock are not entitled to
vote on matters voted on by stockholders of the Company.
<PAGE> 13
CLASS C COMMON STOCK
The following description of the Company's Class C Common Stock is in
all respects subject to and qualified in its entirety by reference to the
applicable provisions of the Company's Charter, including the Articles
Supplementary applicable to the Class C Common Stock, and Bylaws. The Company
has issued 1,176,470 shares of Class C Common Stock, par value $0.0001 per
share, all of which were outstanding as of September 30, 1996.
The Class C Common Stock ranks on a parity with the Company's Common
Stock and Class B Common Stock with respect to dividends. The Class C Common
Stock was sold in March 1996 to an institutional investor at a price per share
of $25.50. The initial per share dividend of the Class C Common Stock was set at
$1.73. The dividend per share on the Class C Common Stock is increased or
decreased by the same dollar amount as any increase or decrease in the dividend
distributions made to the holders of Common Stock. The Company currently pays
regular dividends to the holder of Class C Common Stock.
In the event of any liquidation, dissolution or winding up of the
Company, the holders of Class C Common Stock are entitled to receive, on a
parity with the holders of Class B Common Stock and prior and in preference to
the holders of Common Stock, an amount per share of Class C Common Stock equal
to all declared but unpaid dividends for each share of Class C Common Stock. The
Class C Common Stock has not been registered under the Securities Act. The
institutional investor who purchased the shares of Class C Common Stock has
certain demand registration rights for eight years following the March 1996 sale
of such shares to register in each instance Common Stock having a market value
of $1.0 million or more. Subject to certain limitations, the Class C Common
Stock may be converted into Common Stock three years after the March 1996 sale
or earlier upon the occurrence of certain events including a change in
management. The holders of Class C Common Stock are not entitled to vote on
matters voted on by stockholders of the Company.
SERIES A PREFERRED STOCK
For a description of the Company's Series A Preferred Stock, see
"Description of Series A Preferred Stock."
SERIES B PREFERRED STOCK
The following description of the Company's Series B Preferred Stock is
in all respects subject to and qualified in its entirety by reference to the
applicable provisions of the Charter, including the Company's Articles
Supplementary applicable to the Series B Preferred Stock, and Bylaws. The
Company is authorized to issue 5,000,000 shares of Series B Preferred Stock,
4,250,000 of which were issued and outstanding as of September 30, 1996. The
holders of the Series B Preferred Stock are entitled to receive cumulative,
preferential cash dividends, when and as declared by the Board of Directors, at
the rate of $2.3625 per share. The Company currently pays regular dividends to
holders of Series B Preferred Stock.
In the event of liquidation, dissolution or winding up of the Company,
the holders of Series B Preferred Stock are entitled to receive, on a parity
with the holders of Series A Preferred Stock, prior and in preference to any
distribution to the holders of Common Stock, an amount per share of Series B
Preferred Stock equal to the sum of $25.00 and any accrued but unpaid dividends
with respect thereto. The Company may redeem, subject to certain exceptions,
from any source of funds legally available therefor, on or at any time after
December 11, 2000, any or all outstanding shares of Series B Preferred Stock at
the option of the Company by paying in cash therefor an
<PAGE> 14
15
amount per share equal to the sum of $25.00 and any accrued but unpaid dividends
with respect thereto, without interest.
The Series B Preferred Stock is not convertible into or exchangeable
for any property or securities of the Company at the option of the holder.
However, in order to preserve the Company's status as a REIT as defined in the
Code, shares of Series B Preferred Stock may be exchanged for Excess Stock. See
"--Restrictions on Transfer." The holders of shares of Series B Preferred Stock
have no voting rights with respect to matters voted upon by the holders of
shares of Common Stock.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, not more than 50%
in value of its outstanding stock may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code) during the last half of a taxable
year, the stock must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of 12 months or during a proportionate part of
a shorter taxable year and certain percentages of the Company's gross income
must be from particular activities (see "Federal Income Tax Considerations --
Requirements for Qualification -- Gross Income Tests"). To enable the Company to
continue to qualify as a REIT, the Charter restricts the acquisition of shares
of common stock and preferred stock.
The Charter provides that, subject to certain exceptions specified in
the Charter, no stockholder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.9% of the value of the
outstanding common stock and preferred stock (the "Ownership Limit"). The Board
of Directors may waive the Ownership Limit if evidence satisfactory to the Board
of Directors and the Company's tax counsel is presented that such ownership will
not jeopardize the Company's status as a REIT. As a condition to such waiver,
the Board of Directors may require opinions of counsel satisfactory to it and/or
an undertaking from the applicant with respect to preserving the REIT status of
the Company. The Ownership Limit will not apply if the Board of Directors and
the stockholders of the Company determine that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as a
REIT. If shares of common stock or preferred stock in excess of the Ownership
Limit, or shares which would cause the Company to be beneficially owned by fewer
than 100 persons or cause the Company to become "closely held" under Section
856(h) of the Code, are issued or transferred to any person, such issuance or
transfer shall be null and void and the intended transferee will acquire no
rights to such shares.
The Charter also provides that shares involved in a transfer or change
in capital structure that results in a person owning in excess of the Ownership
Limit or would cause the Company to become "closely held" within the meaning of
Section 856(h) of the Code will automatically be exchanged for Excess Stock. All
Excess Stock will be transferred, without action by the stockholder, to the
Company as trustee of a trust for the exclusive benefit of the transferee or
transferees to whom the Excess Stock is ultimately transferred. While the Excess
Stock is held in trust, it will not be entitled to vote, it will not be
considered for purposes of any stockholder vote or the determination of a quorum
for such vote and it will not be entitled to participate in any distributions
made by the Company, except upon liquidation. The Company would have the right,
for a period of 90 days during the time the Excess Stock is held by the Company
in trust, to purchase all or any portion of the Excess Stock from the intended
transferee at the lesser of the price paid for the stock by the intended
transferee and the closing market price for the stock on the date the Company
exercises its option to purchase.
<PAGE> 15
The Ownership Limit provision of the Charter will not be automatically
removed even if the real estate investment trust provisions of the Code are
changed so as to no longer contain any ownership concentration limitation or if
the ownership concentration limitation is increased. Except as otherwise
described above, any change in the Ownership Limit would require an amendment to
the Charter. Such amendments to the Charter require the affirmative vote of
holders owning a majority of the total number of shares of all classes of stock
outstanding and entitled to vote thereon. In addition to preserving the
Company's status as a real estate investment trust, the Ownership Limit may have
the effect of precluding an acquisition of control of the Company without the
approval of the Board of Directors.
All certificates representing shares of common stock and preferred
stock will bear a legend referring to the restrictions described above.
All persons who own of record, more than 5% of the outstanding common
stock and preferred stock (or 1% if there are fewer than 2,000 stockholders or
one-half of 1% if there are 200 or less stockholders) must file an affidavit
with the Company containing the information specified in the Charter within 30
days after January 1 of each year. In addition, each stockholder shall upon
demand be required to disclose to the Company in writing such information with
respect to the direct, indirect and constructive ownership of shares as the
Board of Directors deems necessary to determine the Company's status as a real
estate investment trust and to insure compliance with the Ownership Limit.
DESCRIPTION OF SERIES A PREFERRED STOCK
The following description of the Company's Series A Preferred Stock is
in all respects subject to and qualified in its entirety by reference to the
applicable provisions of the Company's Charter, including the Articles
Supplementary applicable to the Series A Preferred Stock and the Bylaws. The
Company is authorized to issue 1,000,000 shares of Series A Preferred Stock, all
of which were issued and outstanding as of September 30, 1996 and held of record
by one private investor. The Series A Preferred Stock ranks senior to the
Company's Common Stock, Class B Common Stock and Class C Common Stock as to
dividends and liquidation amounts. The dividend per share on the Series A
Preferred Stock is equal to the dividend per share on the Common Stock as
multiplied by the number of shares of Common Stock into which each share of
Series A Preferred Stock is convertible, provided that the dividend rate on the
Series A Preferred Stock may not be less than the initial dividend rate thereof.
The dividends on the Series A Preferred Stock are cumulative. The Company
currently pays regular dividends to holders of Series A Preferred Stock.
In the event of any liquidation, dissolution or winding up of the
Company, the holders of Series A Preferred Stock are entitled to receive, prior
and in preference to any distribution to the holders of Series B Preferred
Stock, prior and in preference to any distribution to the holders of Common
Stock, Class B Common Stock and Class C Common Stock, an amount per share of
Series A Preferred Stock equal to the sum of $25.00 and any accrued but unpaid
dividends with respect thereto. The Company may redeem, subject to certain
exceptions, from any source of funds legally available therefor, on or at any
time after May 13, 1999, any or all outstanding shares of Series A Preferred
Stock at the option of the Company by paying in cash therefor an amount per
share equal to the sum of $25.00 and any accrued but unpaid dividends with
respect thereto.
Each share of Series A Preferred Stock is convertible, at the option of
the holder thereof at any time prior to a redemption date, into shares of Common
Stock based on a certain formula. Under such formula, the 1,000,000 outstanding
shares of Series A Preferred Stock are convertible into 1,219,512 shares of
Common Stock. The holder of each share of Series A Preferred Stock has the right
to one vote for each share of Common Stock into which such
<PAGE> 16
17
Series A Preferred Stock can be converted, and with respect to such vote, such
holder has the voting rights and powers of the holders of each share of Common
Stock, and is entitled to notice of any stockholders' meeting in accordance with
the Bylaws of the Company, and is entitled to vote, together with holders of
Common Stock, with respect to any question upon which holders of Common Stock
have the right to vote.
DESCRIPTION OF PARTNERSHIP UNITS
Substantially all of the Company's assets are held by, and all of its
operations are conducted through, the Operating Partnership. The Company is the
sole general partner of the Operating Partnership and as of September 30, 1996
held approximately 84.9% of the Units therein. The remaining Units are held by
persons (or their successors) who contributed interests in the Properties to the
Company in connection with, or subsequent to, the formation of the Operating
Partnership. The following sets forth a description of certain terms and
provisions of the Units and does not purport to be complete and is subject to
and qualified in its entirety by reference to applicable provisions of
California law and the First Amended and Restated Agreement of Limited
Partnership of Spieker Properties, L.P., as amended (the "Partnership
Agreement").
GENERAL
Holders of Units (other than the Company) hold limited partnership
interests in the Operating Partnership, and all holders of Units (including the
Company in its capacity as general partner) are entitled to share in cash
distributions from, and in the profits and losses of, the Operating Partnership.
The Company holds its entire interest in the Operating Partnership in the form
of a general partnership interest.
Holders of Units have the rights to which limited partners are entitled
under the Partnership Agreement and the California Revised Uniform Limited
Partnership Act. The Units have not been registered pursuant to the federal or
state securities laws and have not been listed on any exchange or quoted on any
national market system. The Partnership Agreement restricts the transfer of
Units, as described below.
RESTRICTIONS ON TRANSFER OF UNITS BY LIMITED PARTNERS
The limited partners in the Operating Partnership (the "Limited
Partners") who were executive officers of the Company at the time of the
formation of the Operating Partnership are prohibited from transferring all or a
portion of their Units prior to November 18, 1996 without obtaining the prior
consent of the Company, which consent may be withheld in the sole and absolute
discretion of the Company. The other original Limited Partners of the Company
are prohibited from transferring more than fifty percent (50%) of their Units
prior to November 18, 1996 without obtaining the prior consent of the Company,
which consent may be withheld in the sole and absolute discretion of the
Company. Notwithstanding these restrictions, the Limited Partners are permitted
to transfer all or a portion of their Units prior to such date to affiliates, to
other partners and in accordance with an employee benefit plan of the Company,
the Merit Plan. Following such date, and subject to compliance with certain
other requirements set forth in the Partnership Agreement, each Limited Partner
will have the right to transfer all or a portion of its Units without
restriction.
<PAGE> 17
EXCHANGE OF UNITS
Subject to certain limitations, Limited Partners may require that the
Operating Partnership convert a portion of their Units in the Operating
Partnership into shares of Common Stock issued by the Company (the "Conversion
Component") and to sell to the Company for cash the remainder of their Units in
the Operating Partnership (the "Sale Component"). The Conversion Component
enables a Limited Partner to convert his or her Units in the Operating
Partnership into shares of Common Stock until he or she owns up to 9.9% of the
outstanding Common Stock. The Sale Component, which can only be exercised if the
Limited Partner already owns 9.9% or more of the outstanding Common Stock,
enables the Limited Partner to sell all or a portion of his or her remaining
interests in the Operating Partnership to the Company for cash or Common Stock,
or a combination thereof, at the Company's election.
SHARES AVAILABLE FOR FUTURE SALE
As of September 30, 1996, there were (i) 31,811,861 shares of Common
Stock issued and outstanding, (ii) 1,000,000 shares of Series A Preferred Stock
issued and outstanding, (iii) 4,250,000 shares of Series B Preferred Stock,
issued and outstanding, (iv) 2,000,000 shares of Class B Common Stock issued and
outstanding and (v) 1,176,470 shares of Class C Common Stock issued and
outstanding. At any given time, there are reserved for issuance under the Plan
shares of the Company's Common Stock equal to 9.9% of the number of shares of
the Company's stock outstanding (including shares of Common Stock issuable upon
conversion of partnership units in the Operating Partnership, Series A Preferred
Stock, Class B Common Stock and Class C Common Stock, and all classes of
convertible securities of the Company that may be issued in the future) as of
the last day of the immediately preceding quarter reduced by the number of
shares of Common Stock reserved for issuance under other stock compensation
plans of the Company. As of September 30, 1996, the Company had reserved for
issuance under the Plan 3,450,000 shares of the Company's Common Stock and
150,000 shares of Common Stock were reserved for issuance under the Directors'
Stock Option Plan. In addition, 1,219,512 shares of Common Stock have been
reserved for issuance upon the conversion of the Series A Preferred Stock,
2,531,646 shares of Common Stock have been reserved for issuance upon the
conversion of Class B Common Stock and 1,176,470 shares of Common Stock have
been reserved for issuance upon the conversion of Class C Common Stock. Further,
6,549,819 shares of Common Stock have been reserved for issuance upon the
conversion of limited partnership units in the Operating Partnership.
In certain circumstances, holders of Shares may elect to sell their
shares in accordance with the exemptions provided by Rule 144 under the
Securities Act rather than pursuant to this Prospectus. In general, under Rule
144 as currently in effect, a person (or persons whose shares are aggregated in
accordance with the Rule) who has beneficially owned his or her shares for at
least two years, as well as any persons who may be deemed "affiliates" of the
Company (as defined in the Securities Act), would be entitled to sell within any
three month period a number of shares of Common Stock that does not exceed the
greater of 1% of the then outstanding number of shares or the average weekly
trading volume of the shares during the four calendar weeks preceding each such
sale. After shares are held for three years, a person who is not deemed an
"affiliate" of the Company is entitled to sell such shares under Rule 144
without regard to the volume limitations. As defined in Rule 144, an "affiliate"
of an issuer is a person that directly or indirectly, through the use of one or
more intermediaries, controls, or is controlled by, or is under common control
with, such issuer.
In addition, pursuant to registration statements on Form S-3 (Nos.
33-98372 and 333-04299) that the Company and the Operating Partnership have
filed as co-registrants (the "Company's Shelf Registration Statements"), the
Company may offer and sell shares of Common Stock (or securities convertible
into or exercisable
<PAGE> 18
19
for shares of Common Stock), together or separately, and in amounts, at prices
and on terms to be determined at the time of sale, up to an aggregate initial
offering price not to exceed approximately $392,113,750. Shares of Common Stock
offered and sold pursuant to the Company's Shelf Registration Statement may be
tradable without restriction under the Securities Act (subject to the Ownership
Limit).
As of September 30, 1996, pursuant to the Plan, options to purchase
1,764,500 shares of Common Stock have been granted or authorized to be granted
to the Company's officers and certain key employees and 3,450,000 shares of
Common Stock were reserved for future issuance under the Plan. Also, as of
September 30, 1996, pursuant to the Directors' Stock Option Plan, options to
purchase 14,000 shares of Common Stock have been granted or authorized to be
granted to the Company's directors and 150,000 shares of Common Stock were
reserved for future issuance under the Directors' Stock Option Plan.
No prediction can be made as to the effect, if any, that future sales
of shares of Common Stock, or the availability of shares for future sale, will
have on the market price prevailing from time to time. Sales of substantial
amounts of shares of Common Stock (including shares issued upon the redemption
of Units or the exercise of options), or the perception that such sales could
occur, could adversely affect prevailing market price of the shares.
REGISTRATION RIGHTS
The Company has filed the Registration Statement of which this
Prospectus is a part pursuant to its obligations under the Investor Rights
Agreement dated November 18, 1993 by and among the Company and certain holders
of Units (the "Limited Partners' Investors' Rights Agreement"). The following
summary does not purport to be complete and is qualified in its entirety by
reference to the Limited Partners' Investors' Rights Agreement.
Under the Limited Partners' Investors' Rights Agreement, the Company
agreed to pay all expenses of effecting the registration of the Shares (other
than underwriting discounts and commissions, fees and disbursements of counsel
retained by Limited Partners, and transfer taxes, if any) pursuant to the
Registration Statement. Pursuant to the Registration Rights Agreements, the
Company also agreed to indemnify each holder of Shares and any person who
controls any holder against certain losses, claims, damages and expenses arising
under the securities laws. In addition, each holder of Shares agreed to
indemnify the Company and the other holders of Shares, and the directors and
officers of the Company (including each director and officer of the Company who
signed the Registration Statement), and any person who controls the Company or
any holder against certain other losses, claims damages and expenses arising
under the securities laws with respect to written information furnished to the
Company by such holder.
The Company has no obligation under the Registration Rights Agreements
to retain any underwriter to effect the sale of the shares covered thereby.
<PAGE> 19
SELLING STOCKHOLDERS
The following table provides the names of and the number and percentage
of shares of Common Stock beneficially owned by each Selling Stockholder and
number and percentage of shares of Common Stock beneficially owned by each
Selling Stockholder upon completion of the offering, assuming each Selling
Stockholder exchanges and converts all of his or her Units for shares of Common
Stock and sells all of his or her Shares pursuant to this Prospectus. Since the
Selling Stockholders may sell all, or some or none of their Shares, no estimate
can be made of the aggregate number of Shares that are to be offered hereby or
that will be owned by each Selling Stockholder upon completion of the offering
to which this Prospectus relates. The number of Shares in the following table
represents the number of shares of Common Stock the person holds (if any) plus
the number of Shares into which Units held by the person may be exchanged or
converted, and the extent to which the person holds Units as opposed to shares
of Common Stock (if known) is set forth in the notes to the following table.
The Shares offered by this Prospectus may be offered from time to time
by the Selling Stockholders named below:
<TABLE>
<CAPTION>
Beneficial Ownership Beneficial Ownership
Prior to Offering After the Offering
---------------------------------- --------------------------------
Percentage of Percentage of
Number of Shares Number of Shares Number of Shares
Shares (1) Outstanding(2) Offered Hereby Shares(1) Outstanding(2)
-------------- ---------------- -------------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Warren E. Spieker, Jr.(3)..... 2,602,413 7.6% 140,000 2,462,413 7.2%
Bruce E. Hosford(4)........... 774,837 2.4 40,000 734,837 2.2
Dennis E. Singleton(5)........ 693,704 2.1 30,000 663,704 2.0
John G. Davenport(6).......... 194,718 * 25,000 169,718 *
Adrian J. Gordon(7)........... 32,388 * 10,738 21,650 *
</TABLE>
- --------------
*less than 1%
(1) Assumes exchange of all Units for shares of Common Stock into shares of
Common Stock.
(2) Assumes the exchange of only the partnership units in the Operating
Partnership owned by such owner into shares of Common Stock and the exercise of
only the options for Common Stock held by such owner and exercisable within 60
days of September 30, 1996. The total number of shares of Common Stock
outstanding used in calculating percentages assumes that none of the partnership
units in the Operating Partnership held by other unit holders, shares of Class B
Common Stock, Class C Common Stock or Series A Preferred Stock have been
exchanged for, or converted into, as the case may be, shares of Common Stock,
and that none of the options held by other persons have been exercised.
(3) Includes 2,445,088 shares of Common Stock that may be issued upon the
exchange of all of Mr. Spieker's partnership units in the Operating Partnership,
51,875 shares of Common Stock subject to options that are exercisable within 60
days of September 30, 1996, 100,000 shares of Common Stock, 4,000 shares of
restricted Common Stock, and 1,450 shares of Common Stock owned by Mr. Spieker's
wife and children and deemed to be beneficially owned by Mr. Spieker.
(4) Includes 712,462 shares of Common Stock that may be issued upon the exchange
of all of Mr. Hosford's partnership units in the Operating Partnership for
Common Stock, 51,875 shares of Common Stock subject to options that are
exercisable within 60 days of September 30, 1996, 9,500 shares of Common Stock,
and 1,000 shares of Common Stock held by Mr. Hosford as custodian for his
children, of which Mr. Hosford may be deemed to have beneficial ownership.
(5) Includes 631,429 shares of Common Stock that may be issued upon the exchange
of all of Mr. Singleton's partnership units in the Operating Partnership for
Common Stock, 51,875 shares of Common Stock subject to options that are
exercisable within 60 days of September
<PAGE> 20
21
30, 1996, 9,500 shares of Common Stock and 900 shares of Common Stock held by
Mr. Singleton as custodian for his children for which Mr. Singleton may be
deemed to have beneficial ownership.
(6) Includes 155,343 shares of Common Stock that may be issued upon the exchange
of all of Mr. Davenport's partnership units and 39,375 shares of Common Stock
subject to options that are exercisable within 60 days of September 30, 1996.
(7) Includes 10,738 shares of Common Stock that may be issued upon the exchange
of all of Mr. Gordon's partnership units in the Operating Partnership for Common
Stock, 21,250 shares of Common Stock subject to options that are exercisable
within 60 days of September 30, 1996, 300 shares of Common Stock and 100 shares
of Common Stock owned by Mr. Gordon's spouse and deemed beneficially owned by
Mr. Gordon.
<PAGE> 21
CERTAIN PROVISIONS OF THE COMPANY'S CHARTER AND BYLAWS
Certain provisions of the Company's Charter and Bylaws might discourage
certain types of transactions that involve an actual or threatened change of
control of the Company. The Ownership Limit may delay or impede a transaction or
a change in control of the Company that might involve a premium price for the
Company's capital stock or otherwise be in the best interest of the
stockholders. See "Description of Capital Stock -- Restrictions on Transfer."
Pursuant to the Company's Charter and Bylaws, the Company's Board of Directors
is divided into three classes of directors, each class serving staggered
three-year terms. The staggered terms of directors may reduce the possibility of
a tender offer or an attempt to change control of the Company. The issuance of
preferred stock by the Board of Directors may also have the effect of delaying,
deferring or preventing a change in control of the Company. See "Description of
Capital Stock."
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material Federal income tax considerations is
based on current law and does not purport to deal with all aspects of taxation
that may be relevant to particular stockholders in light of their personal
investment or tax circumstances, or to certain types of stockholders (including
insurance companies, financial institutions and broker-dealers) subject to
special treatment under the Federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE SHARES.
GENERAL
The Company believes that since its formation it has operated in a
manner that permits it to satisfy the requirements for taxation as a REIT under
the applicable provisions of the Code. The Company intends to continue to
operate to satisfy such requirement. No assurance can be given, however, that
such requirements will be met.
The sections of the Code relating to qualification and operation as a
REIT are highly technical and complex. The following sets forth the material
aspects of the Code sections that govern the Federal income tax treatment of a
REIT and its stockholders. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations thereunder, and administrative
and judicial interpretations thereof. Morrison & Foerster LLP has acted as tax
counsel to the Company in connection with Company's election to be taxed as a
REIT.
In the opinion of Morrison & Foerster LLP, commencing with the
Company's taxable year ended December 31, 1993, the Company has been organized
in conformity with the requirements for qualification as a REIT, and its method
of operation has and will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. It must be emphasized that
this opinion is based on various assumptions and is conditioned upon certain
representations made by the Company as to factual matters. Moreover, such
qualification and taxation as a REIT depends upon the Company's ability to meet,
through actual annual operating results, distribution levels and diversity of
stock ownership, the various qualification tests imposed under the Code
discussed below, the results of which will not be reviewed by Morrison &
Foerster LLP. Accordingly, no assurance can be given that the actual results of
the Company's operations for any particular taxable year will satisfy such
requirements. See " -- Failure to Qualify."
In brief, if certain detailed conditions imposed by the REIT provisions
of the Code are met, entities, such as the Company, that invest primarily in
real estate and that otherwise would be treated for Federal income tax
<PAGE> 22
23
purposes as corporations, are generally not taxed at the corporate level on
their "REIT taxable income" that is currently distributed to stockholders. This
treatment substantially eliminates the "double taxation" (i.e., taxation at both
the corporate and stockholder levels) that generally results from the use of
corporate investment vehicles.
If the Company fails to qualify as a REIT in any year, however, it will
be subject to Federal income tax as if it were a domestic corporation, and its
stockholders will be taxed in the same manner as stockholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities and the amount of cash available for distribution to
its stockholders could be reduced.
TAXATION OF THE COMPANY
In any year in which the Company qualifies as a REIT, in general it
will not be subject to Federal income tax on that portion of its net income that
it distributes to stockholders. This treatment substantially eliminates the
"double taxation" on income at the corporate and stockholder levels that
generally results from investment in a corporation. However, the REIT will be
subject to federal income tax as follows: First, the REIT will be taxed at
regular corporate rates on any undistributed real estate investment trust
taxable income, including undistributed net capital gains. Second, under certain
circumstances, the REIT may be subject to the "alternative minimum tax" on its
items of tax preference. Third, if the REIT has (i) net income from the sale or
other disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if the REIT has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property), such income will be subject to a 100% tax.
Fifth, if the REIT should fail to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), and has nonetheless maintained its
qualification as a real estate investment trust because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the REIT fails the 75% or 95%
test. Sixth, if the REIT should fail to distribute during each calendar year at
least the sum of (i) 85% of its real estate investment trust ordinary income for
such year, (ii) 95% of its real estate investment trust capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
the REIT would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if the REIT
acquires any asset from a C corporation (i.e., generally a corporation subject
to full corporate-level tax) in a transaction in which the basis of the asset in
the REIT's hands is determined by reference to the basis of the asset (or any
other property) in the hands of the C corporation, and the REIT recognizes gain
on the disposition of such asset during the 10 year period beginning on the date
on which such asset was acquired by the REIT, then, to the extent of any
built-in gain at the time of acquisition, such gain will be subject to tax at
the highest regular corporate rate, assuming the REIT will make an election
pursuant to IRS Notice 88-19.
<PAGE> 23
REQUIREMENTS FOR QUALIFICATION
The Code defines a real estate investment trust as a corporation, trust
or association (1) which is managed by one or more trustees or directors; (2)
the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 860 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals (as defined in
the Code) at any time during the last half of each taxable year; and (7) which
meets certain other tests, described below, regarding the nature of income and
assets. The Code provides that conditions (1) to (4), inclusive, must be met
during the entire taxable year and that condition (5) must be met during at
least 335 days of a taxable year of 12 months, or during a proportionate part of
a taxable year of less than 12 months. Conditions (5) and (6) will not apply
until after the first taxable year for which an election is made by the Company
to be taxed as a REIT.
In order to ensure compliance with the ownership tests described above,
the Company has placed certain restrictions on the transfer of the common stock
and preferred stock to prevent further concentration of stock ownership.
Moreover, to evidence compliance with these requirements, the Company must
maintain records which disclose the actual ownership of its outstanding common
stock and preferred stock. In fulfilling its obligations to maintain records,
the Company must and will demand written statements each year from the record
holders of designated percentages of its common stock and preferred stock
disclosing the actual owners of such common stock and preferred stock. A list of
those persons failing or refusing to comply with such demand must be maintained
as part of the Company's records. A stockholder failing or refusing to comply
with the Company's written demand must submit with his tax returns a similar
statement disclosing the actual ownership of common stock and preferred stock
and certain other information. In addition, the Company's Charter provides
restrictions regarding the transfer of its shares that are intended to assist
the Company in continuing to satisfy the share ownership requirements. See
"Description of Capital Stock -- Restrictions on Transfer."
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and the asset tests, described below. Thus,
the Company's proportionate share of the assets, liabilities and items of income
of the Operating Partnership will be treated as assets, liabilities and items of
income of the Company for purposes of applying the requirements described below.
<PAGE> 24
25
ASSET TESTS
At the close of each quarter of the Company's taxable year, the Company
must satisfy two tests relating to the nature of its assets. First, at least 75%
of the value of the Company'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 (as well as certain temporary
investments in stock or debt instruments purchased with the proceeds of new
capital raised by the Company). Second, although the remaining 25% of the
Company's assets generally may be invested without restriction, securities in
this class may not exceed either (i) 5% of the value of the Company's total
assets as to any one non-government issuer, or (ii) 10% of the outstanding
voting securities of any one issuer. The Company's investment in the Properties
through its interest in the Operating Partnership constitutes qualified assets
for purposes of the 75% asset test. In addition, the Company may own 100% of
"qualified real estate investment trust subsidiaries" as defined in the Code.
All assets, liabilities, and items of income, deduction, and credit of such a
qualified REIT subsidiary will be treated as owned and realized directly by the
Company. The Company's investment in Spieker Northwest, Inc. is not a qualifying
asset for purposes of the 75% test. The Company expects, however, that such
investment will continue to represent less than 5% of the Company's total assets
and, together with any other nonqualifying assets, will continue to represent
less than 25% of the Company's total assets.
GROSS INCOME TESTS
There are three separate percentage tests relating to the sources of
the Company's gross income which must be satisfied for each taxable year. For
purposes of these tests, where the Company invests in a partnership, the Company
will be treated as receiving its share of the income and loss of the
partnership, and the gross income of the partnership will retain the same
character in the hands of the Company as it has in the hands of the partnership.
See "-- Tax Aspects of the Company's Investment in the Operating Partnerships --
General."
THE 75% TEST. At least 75% of the Company's gross income for the
taxable year must be "qualifying income." Qualifying income generally includes
(i) rents from real property (except as modified below); (ii) interest on
obligations collateralized by mortgages on, or interests in, real property;
(iii) gains from the sale or other disposition of interests in real property and
real estate mortgages, other than gain from property held primarily for sale to
customers in the ordinary course of the Company's trade or business ("dealer
property"); (iv) dividends or other distributions on shares in other REITs, as
well as gain from the sale of such shares; (v) abatements and refunds of real
property taxes; (vi) income from the operation, and gain from the sale, of
property acquired at or in lieu of a foreclosure of the mortgage collateralized
by such property ("foreclosure property"); and (vii) commitment fees received
for agreeing to make loans collateralized by mortgages on real property or to
purchase or lease real property.
Rents received from a tenant will not, however, qualify as rents from
real property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant (a "related party tenant"). 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
generally will not qualify as rents from real property (or as
<PAGE> 25
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. Rent or
interest will not be disqualified, however, 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, the Company generally must not
operate or manage the property or furnish or render services to tenants, other
than through an "independent contractor" from whom the Company derives no
revenue. The "independent contractor" requirement, however, does not apply to
the extent that the services provided by the Company are "usually or customarily
rendered" in connection with the rental of space for occupancy only, and are not
otherwise considered "rendered to the occupant."
The Company, through the Operating Partnership (which will not be an
independent contractor), will provide certain services with respect to the
Properties and any newly acquired Properties. The Company believes that the
services provided by the Operating Partnership are usually or customarily
rendered in connection with the rental of space of occupancy only, and therefore
that the provision of such services will not cause the rents received with
respect to the Properties to fail to qualify as rents from real property for
purposes of the 75% and 95% gross income tests. The Company does not intend to
rent to related party tenants or to charge rents that would not qualify as rents
from real property because the rents are based on the income or profits of any
person (other than rents that are based on a fixed percentage or percentages of
receipts or sales).
THE 95% TEST. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company'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 and interest on any
obligation not collateralized by an interest on real property are included for
purposes of the 95% test, but not for purposes of the 75% test. For purposes of
determining whether the Company 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 certain property held by
the Company for at least four years and foreclosure property. See "-- Taxation
of the Company" and "-- Tax Aspects of the Company's Investment in the Operating
Partnership -- Sale of the Properties."
The Company believes that it and the Operating Partnership has held and
managed the Properties in a manner that has given rise to rental income
qualifying under the 75% and 95% gross income tests. Gains on sales of the
Properties will generally qualify under the 75% and 95% gross income tests.
Even if the Company fails to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may still qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. These
relief provisions will generally be available if: (i) the Company's failure to
comply was due to reasonable cause and not to willful neglect; (ii) the Company
reports the nature and amount of each item of its income included in the 75% and
95% gross income tests on a schedule attached to its tax return; and (iii) any
incorrect information on this schedule is not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. If these
relief provisions apply, the Company will, however, still 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.
THE 30% TEST. The Company must derive less than 30% of its gross income
for each taxable year from the sale or other disposition of (i) real property
held for less than four years (other than foreclosure property and involuntary
conversions), (ii) stock or securities held for less than one year, and (iii)
property in a prohibited transaction. The Company does not anticipate that it
will have any substantial difficulty in complying with this test.
<PAGE> 26
27
ANNUAL DISTRIBUTION REQUIREMENTS
The Company, in order to qualify as a REIT, is required to distribute
dividends (other than capital gain dividends) to its stockholders each year in
an amount at least equal to (A) the sum of (i) 95% of the Company's REIT taxable
income (computed without regard to the dividends paid deduction and the REIT's
net capital gain) and (ii) 95% of the net income (after tax), if any, from
foreclosure property, minus (B) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Company 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 the Company 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. Furthermore, if the REIT should fail to distribute during each calendar year
at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95%
of its REIT capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, the REIT would be subject to a 4% excise tax
on the excess of such required distribution over the amounts actually
distributed.
The Company believes that it has made timely distributions sufficient
to satisfy the annual distribution requirements. In this regard, the partnership
agreement of the Operating Partnership authorizes the Company, as general
partner, to take such steps as may be necessary to cause the Operating
Partnership to distribute to its partners an amount sufficient to permit the
Company to meet these distribution requirements. It is possible that in the
future the Company 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 the
Company's REIT taxable income on the other hand. Further, as described below, it
is possible that, from time to time, the Company may be allocated a share of net
capital gain attributable to the sale of depreciated property that exceeds its
allocable share of cash attributable to that sale. To avoid any problem with the
95% distribution requirement, the Company will closely monitor the relationship
between its REIT taxable income and cash flow and, if necessary, will borrow
funds (or cause the Operating Partnership or other affiliates to borrow funds)
in order to satisfy the distribution requirement. The Company (through the
Operating Partnership) may be required to borrow funds at times when market
conditions are not favorable.
If the Company fails to meet the 95% distribution requirement as a
result of an adjustment to the Company's tax return by the Service, the Company
may retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
<PAGE> 27
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable
year and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company, nor will they be
required to be made. In such event, to the extent of the Company's current and
accumulated earnings and profits, all distributions to stockholders 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, the Company also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether the Company would be entitled to such statutory relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENT IN THE OPERATING PARTNERSHIP
The following discussion summarizes certain Federal income tax
considerations applicable solely to the Company's investment in the Operating
Partnership. The discussion does not cover state or local tax laws or any
Federal tax laws other than income tax laws.
GENERAL
The Company holds a direct ownership interest in the Operating
Partnership. In general, partnerships are "pass-through" entities which are not
subject to Federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss, deduction and credit of
a partnership, and are potentially subject to tax thereon, without regard to
whether the partners receive a distribution from the partnership. The Company
includes its proportionate share of the foregoing Operating Partnership items
for purposes of the various REIT income tests and in the computation of its REIT
taxable income. See "-- Taxation of the Company" and "-- Requirements for
Qualification -- Gross Income Tests." Any resultant increase in the Company's
REIT taxable income increases its distribution requirements (see "Requirements
for Qualification -- Annual Distribution Requirements"), but is not subject to
Federal income tax in the hands of the Company provided that such income is
distributed by the Company to its stockholders. Moreover, for purposes of the
REIT asset tests (see "Requirements for Qualification -- Asset Tests"), the
Company includes its proportionate share of assets held by the Operating
Partnership.
ENTITY CLASSIFICATION
The Company's interest in the Operating Partnership involves special
tax considerations, including the possibility of a challenge by the Internal
Revenue Service (the "Service") of the status of the Operating Partnership as a
partnership (as opposed to an association taxable as a corporation) for Federal
income tax purposes. If the Operating Partnership were to be treated as an
association, it would be taxable as a corporation. In such a situation, the
Operating Partnership would be required to pay income tax at corporate rates on
its net income, and distributions to its partners would constitute dividends
that would not be deductible in computing net income. In addition, the character
of the Company's assets and items of gross income would change, which would
preclude the Company from satisfying the asset test and possibly the income
tests (see "-- Requirements for Qualification -- Asset Tests" and "-- Gross
Income Tests"), and in turn would prevent the Company from qualifying as a REIT.
See "-- Requirements for Qualification -- Failure to Qualify" above for a
discussion of the effect of the Company's failure to meet such tests for a
taxable year.
<PAGE> 28
29
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES
Pursuant to Section 704(c) of the Code, income, gain, loss and
deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the partnership
(such as the Properties), must be allocated in a manner such that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of contributed
property at the time of contribution, and the adjusted tax basis of such
property at the time of contribution (a "Book-Tax Difference"). Such allocations
are solely for Federal income tax purposes and do not affect the book capital
accounts or other economic or legal arrangements among the partners. The
Operating Partnership was formed by way of contributions of appreciated property
(including the Properties). Consequently, the partnership agreement of the
Operating Partnership requires such allocations to be made in a manner
consistent with Section 704(c) of the Code.
In general, the Limited Partners of the Operating Partnership will be
allocated lower amounts of depreciation deductions for tax purposes and
increased taxable income and gain on sale by the Operating Partnership of the
contributed assets (including the Properties). This will tend to eliminate the
Book-Tax Difference over the life of the Operating Partnership. However, the
special allocation rules under Section 704(c) do not always entirely rectify the
Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed assets
in the hands of the Operating Partnership may cause the company to be allocated
lower depreciation and other deductions, and possibly greater amounts of taxable
income in the event of a sale of such contributed assets in excess of the
economic or book income allocated to it as a result of such sale. This may cause
the Company to recognize taxable income in excess of cash proceeds, which might
adversely affect the Company's ability to comply with the REIT distribution
requirements. See "-- Requirements for Qualification -- Annual Distribution
Requirements." In addition, the application of Section 704(c) to the Operating
Partnership is not entirely clear and may be affected by authority that may be
promulgated in the future.
SALE OF THE PROPERTIES
Generally, any gain realized by the Operating Partnership on the sale
of property held by the Operating Partnership for more than one year will be
long-term capital gain, except for any portion of such gain that is treated as
depreciation or cost recovery recapture. The Company's share of any gain
realized by the Operating Partnership on the sale of any dealer property
generally will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. See "Taxation of the Company" and "--
Requirements for Qualification -- Gross Income Tests -- The 95% Test." Under
existing law, whether property is dealer property is a question of fact that
depends on all the facts and circumstances with respect to the particular
transaction. The Operating Partnership intends to hold the Properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning and operating the Properties, and to make such
occasional sales of the Properties as are consistent with the Company's
investment objectives. Based upon such investment objectives, the Company
believes that in general the Properties should not be considered dealer property
and that the amount of income from prohibited transactions, if any, will not be
material.
<PAGE> 29
TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic stockholders 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. Stockholders that are corporations will not
be entitled to a dividends received deduction. Distributions that are designated
as capital gain dividends will be taxed as long-term capital gains (to the
extent they do not exceed the Company's actual net capital gain for the taxable
year) without regard to the period for which the stockholder has held its stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. To the extent that the Company 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
stockholder, reducing the tax basis of a stockholder's Common Stock by the
amount of such distribution (but not below zero), with distributions in excess
of the stockholders' tax basis taxable as capital gains (if the Common Stock is
held as a capital asset). In addition, any dividend declared by the Company in
October, November or December of any year and payable to a stockholder of record
on a specific date in any such month shall be treated as both paid by the
Company and received by the stockholder on December 31 of such year, provided
that the dividend is actually paid by the Company during January of the
following calendar year. Stockholders may not include in their individual income
tax returns any net operating losses or capital losses of the Company.
In general, any loss upon a sale or exchange of Common Stock by a
stockholder who has held such stock 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 the Company required to be treated by such
stockholder as long-term capital gains.
BACKUP WITHHOLDING
The Company will report to its domestic stockholders and to the Service
the amount of dividends paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such stockholder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(b) 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 stockholder that does not
provide the Company with its correct taxpayer identification number may also be
subject to penalties imposed by the Service. Any amount paid as backup
withholding will be creditable against the stockholder's income tax liability.
<PAGE> 30
31
OTHER TAX CONSIDERATIONS
DIVIDEND REINVESTMENT PROGRAM
Under the Company's dividend reinvestment program, stockholders
participating in the program will be deemed to have received the gross amount of
any cash distributions which would have been paid by the Company to such
stockholders had they not elected to participate. These deemed distributions
will be treated as actual distributions from the Company to the participating
stockholders and will retain the character and tax effect applicable to
distributions from the Company generally. See "Federal Income Tax Considerations
- -- Taxation of Stockholders." Participants in the dividend reinvestment program
are subject to Federal income tax on the amount of the deemed distributions to
the extent that such distributions represent dividends or gains, even though
they receive no cash. Shares of Common Stock received under the program will
have a holding period beginning with the day after purchase, and a tax basis
equal to their cost (which is the gross amount of the deemed distribution).
STATE AND LOCAL TAXES
The Company and its stockholders 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 the Company and its
stockholders may not conform to the Federal income tax consequences discussed
above. Consequently, prospective stockholders should consult their own tax
advisers regarding the effect of state and local tax laws on an investment in
the Common Stock of the Company.
<PAGE> 31
PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time by the
holders thereof of up to 245,738 Shares of Common Stock that may be issued by
the Company to the holders of up to 245,738 Units in the Operating Partnership,
if and to the extent such holders tender such Units for exchange into shares of
Common Stock. The Company has registered the Shares for sale pursuant to certain
registration rights agreements, but registration of such Shares does not
necessarily mean that any of such Shares will be issued by the Company, unless
required by the holders, or offered or sold by the holders thereof.
The Company will not receive any proceeds from the offering by the
Selling Stockholders or from the issuance of the Shares to holders of Units. The
Shares may be sold from time to time to purchasers directly by any of the
Selling Stockholders. Alternatively, the Selling Stockholders may from time to
time offer the Shares through dealers or agents, who may receive compensation in
the form of commissions from the Selling Stockholders and/or the purchasers of
Shares for whom they may act as agent. The Selling Stockholders and any dealers
or agents that participate in the distribution of Shares may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of Shares by them and any commissions received by any such dealers or
agents might be deemed to be underwriting commissions under the Securities Act.
The distribution of the Shares also may be effected from time to time
in one or more underwritten transactions at a fixed price or prices, which may
be changed, or at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Any such
underwritten offering may be on a "best efforts" or a "firm commitment" basis.
In connection with any such underwritten offering, underwriters or agents may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders or from purchasers of Shares for whom they may act as
agents. Underwriters may sell Shares 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
agents.
At a time a particular offer of Shares is made, a Prospectus
Supplement, if required, will be distributed that will set forth the name and
names of any dealers or agents and any commissions and other terms constituting
compensation from the Selling Stockholders and any other required information.
The Shares may be sold from time to time at varying prices determined at the
time of sale or at negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, the Shares may be sold only through registered or licensed brokers
or dealers. In addition, in certain states, the Shares may not be sold unless
they have been registered or qualified for sale in such state or an exemption
from such registration or qualification requirement is available and is complied
with.
The Shares may also be sold in one or more of the following
transactions: (a) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such stock as agent but may position
and resell all or a portion of the block as principal to facilitate the
transaction; (b) purchases by any such broker-dealer as principal and resale by
such broker-dealer for its own account pursuant to a Prospectus Supplement; (c)
a special offering, an exchange distribution or a secondary distribution in
accordance with applicable NYSE or other stock exchange rules; (d) ordinary
brokerage transactions and transactions in which any such broker-dealer solicits
purchasers; (e) sales "at the market" to or through a market maker or into an
existing trading market, on an exchange or otherwise, for such shares; and (f)
sales in other ways not involving market makers or established trading markets,
including direct sales to purchasers. In effecting sales, broker-dealers engaged
by the Selling Stockholders may arrange for other broker-dealers to participate.
<PAGE> 32
33
The Company may from time to time issue up to 245,738 Shares upon the
acquisition of Units tendered for exchange. The Company will acquire the
exchanging holder's Unit in exchange for each Share that the Company issues in
connection with such exchange. Consequently, with each exchange, the Company's
interest in the Operating Partnership will increase.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company included in the Company's Annual Reports on Form 10-K
and Form 10-K/A for the year ended December 31, 1995 and incorporated by
reference herein, the combined statement of revenues and certain expenses for
nine acquired properties and two investments in mortgages included in the
Company's Current Report on Form 8-K dated June 18, 1996, incorporated by
reference herein, and the combined statements of revenues and certain expenses
for six acquired properties and two investments in mortgages included in the
Company's Current Reports on Form 8-K dated July 15, 1996, incorporated by
reference herein, have been audited by Arthur Andersen LLP, independent public
accountants, to the extent and for the periods indicated in their reports and
have been included or incorporated herein in reliance on such reports given on
the authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
pursuant to this Prospectus will be passed upon for the Company by Morrison &
Foerster LLP, Palo Alto, California. In addition, the description of the
Company's qualification and taxation as a REIT under the Code contained in this
Prospectus under the caption entitled "Federal Income Tax Considerations --
General" is based upon the opinion of Morrison & Foerster LLP.
<PAGE> 33
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated fees and expenses payable
by the Company in connection with the issuance and distribution of the Common
Stock registered hereby. All of such fees and expenses are estimates, except the
Securities Act registration fee.
<TABLE>
<S> <C>
Securities Act Registration Fee.................................................. $ 2,201
Printing and duplicating fees.................................................... 1,500
Legal fees and expenses.......................................................... 20,000
Accounting fees and expenses..................................................... 3,000
Miscellaneous expenses........................................................... 3,299
---------
Total....................................................................... $ 30,000
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHTH, Section 6 of the Charter of the Company limits the
liability of a director or officer to the Company or its stockholders for money
damages to the full extent permitted by Maryland law. No amendment of the
Charter of the Company shall limit or eliminate the right to this limitation of
liability with respect to acts or omissions occurring prior to such amendment or
repeal. Section 2-405.2 of the Corporations and Associations Article and Section
5-349 of the Courts and Judicial Proceedings Article of the Annotated Code of
Maryland permits the Company to limit the liability of a director or officer to
the Company or its stockholders for money damages, with certain limitations.
Article EIGHTH, Section 5 of the Charter of the Company provides
indemnification for a director or officer of the Company to the full extent
permitted by Maryland law. No amendment of the Charter of the Company shall
limit or eliminate the right to this indemnification with respect to acts or
omissions occurring prior to such amendment or repeal. Article IX of the Bylaws
of the Company contains provisions which implement the indemnification
provisions of the Charter. Section 2-418 of the Corporations and Associations
Article of the Annotated Code of Maryland permits (and in part requires) the
Company to provide information to a director or officer, with certain
limitations.
The Company has entered into indemnification agreements with each of
the directors and executive officers of the Company to provide them with
indemnification to the full extent permitted by the Charter and Bylaws of the
Company.
The Company has obtained an insurance policy to provide liability
coverage for directors and officers of the Company.
II-1
<PAGE> 34
ITEM 16. EXHIBITS
<TABLE>
<S> <C> <C> <C>
3.1 -- Articles of Incorporation of Spieker Properties, Inc. (incorporated by reference to
Exhibit 3.1 to Spieker Properties, Inc.'s Registration Statement on Form S-11 (File No.
33-67906))
3.2 -- Articles of Amendment of Spieker Properties, Inc. (incorporated by reference to Exhibit
3.2 to Spieker Properties, Inc.'s Registration Statement on Form S-3 (File No. 333-09425))
3.3 -- Articles Supplementary of Spieker Properties, Inc. for Series A Preferred Stock
(incorporated by reference to Exhibit 4.2 to Spieker Properties, Inc.'s Report on Form
10-Q for the quarter ended March 31, 1994)
3.4 -- Articles Supplementary of Spieker Properties, Inc. for Class B Common Stock (incorporated
by reference to Exhibit 4.2 to Spieker Properties, Inc.'s Report on Form 10-Q for the
quarter ended March 31, 1995)
3.5 -- Articles Supplementary of Spieker Properties, Inc. for Series B Preferred Stock
(incorporated by reference to Exhibit 3.5 to Spieker Properties, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1995)
3.6 -- Articles Supplementary of Spieker Properties, Inc. for Class C Common Stock (incorporated
by reference to Exhibit 3.6 to Spieker Properties, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1996)
3.7 -- Bylaws of Spieker Properties, Inc. (incorporated by reference to Exhibit 3.2 to Spieker
Properties Inc.'s Registration Statement on Form S-11 (File No. 33-67906))
5.1 -- Opinion of Morrison & Foerster LLP
8.1 -- Opinion of Morrison & Foerster LLP relating to certain tax matters
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Morrison & Foerster LLP (included in Exhibit 5.1)
24.1 -- Power of Attorney (included on page II-5)
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required in Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement. Notwithstanding the foregoing,
II-2
<PAGE> 35
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) any deviation from the low or high and of the estimated maximum
offering price may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate changes in volume
and price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement;
provided, however, that subparagraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed by the Registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of these securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby further undertakes that, for the
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual reports pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
to this registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance under Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described under Item 15 of this
registration statement, or otherwise (other than insurance), the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such
II-3
<PAGE> 36
indemnification by it is against public policy as expressed in such Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE> 37
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Menlo Park, State of California, on the 17th day of
October, 1996.
SPIEKER PROPERTIES, INC.
By: /s/ Craig G. Vought
----------------------------------
Craig G. Vought
Executive Vice President and
Chief Financial Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Spieker Properties, Inc.,
do hereby constitute and appoint Warren E. Spieker, Jr., Dennis E. Singleton and
Craig G. Vought, and each of them, our true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for each of us
and in each of our names, places and stead, in any and all capacities, to sign
any and all amendments to this Registration Statement, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as each of us might or could do in person,
hereby ratifying and confirming all that each of said attorneys-in-fact and
agents, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Warren E. Spieker, Jr.
--------------------------
Warren E. Spieker, Jr. Chairman of the Board, Director and Chief Executive October 17, 1996
Officer (Principal Executive Officer)
/s/ John K. French October 17, 1996
--------------------------
John K. French Director, Executive Vice President and Chief
Operating Officer
/s/ Dennis E. Singleton October 17, 1996
--------------------------
Dennis E. Singleton Director, Executive Vice President and Chief
Investment Officer
/s/ Elke Strunka
-------------------------- October 17, 1996
Elke Strunka Vice President and Principal Accounting Officer
(Principal Accounting Officer)
</TABLE>
II-5
<PAGE> 38
<TABLE>
<S> <C> <C>
/s/ Craig G. Vought October 17, 1996
--------------------------
Craig G. Vought Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Richard J. Bertero October 17, 1996
--------------------------
Richard J. Bertero Director
/s/ Harold M. Messmer October 17, 1996
--------------------------
Harold M. Messmer Director
/s/ David M. Petrone October 17, 1996
--------------------------
David M. Petrone Director
/s/ William S. Thompson October 17, 1996
--------------------------
William S. Thompson, Jr. Director
</TABLE>
II-6
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C> <C> <C>
3.1 -- Articles of Incorporation of Spieker Properties, Inc. (incorporated by reference to
Exhibit 3.1 to Spieker Properties, Inc.'s Registration Statement on Form S-11 (File No.
33-67906))
3.2 -- Articles of Amendment of Spieker Properties, Inc. (incorporated by reference to Exhibit
3.2 to Spieker Properties, Inc.'s Registration Statement on Form S-3 (File No. 333-09425))
3.3 -- Articles Supplementary of Spieker Properties, Inc. for Series A Preferred Stock
(incorporated by reference to Exhibit 4.2 to Spieker Properties, Inc.'s Report on Form
10-Q for the quarter ended March 31, 1994)
3.4 -- Articles Supplementary of Spieker Properties, Inc. for Class B Common Stock (incorporated
by reference to Exhibit 4.2 to Spieker Properties, Inc.'s Report on Form 10-Q for the
quarter ended March 31, 1995)
3.5 -- Articles Supplementary of Spieker Properties, Inc. for Series B Preferred Stock
(incorporated by reference to Exhibit 3.5 to Spieker Properties, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1995)
3.6 -- Articles Supplementary of Spieker Properties, Inc. for Class C Common Stock (incorporated
by reference to Exhibit 3.6 to Spieker Properties, Inc.'s Annual Report on Form 10-K for
the year ended December 31, 1996)
3.7 -- Bylaws of Spieker Properties, Inc. (incorporated by reference to Exhibit 3.2 to Spieker
Properties Inc.'s Registration Statement on Form S-11 (File No. 33-67906))
5.1 -- Opinion of Morrison & Foerster LLP
8.1 -- Opinion of Morrison & Foerster LLP relating to certain tax matters
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Morrison & Foerster LLP (included in Exhibit 5.1)
24.1 -- Power of Attorney (included on page II-5)
</TABLE>
<PAGE> 1
EXHIBIT 5.1
October 17, 1996
Spieker Properties, Inc.
2180 Sand Hill Road, Suite 200
Menlo Park, California 94025
Dear Sirs:
We are acting as counsel to Spieker Properties, Inc., a Maryland
corporation (the "Company"), in connection with the offer and sale from time to
time by the holders of up to 245,738 shares of common stock (the "Shares"), par
value $.0001 per share ("Common Stock"), that may be issued by Spieker
Properties, Inc. (the "Company") to certain holders of up to 245,738 units of
limited partnership interest (the "Units") in Spieker Properties, L.P. (the
"Operating Partnership"), if and to the extent that such holders tender such
Units for exchange into shares of Common Stock. The Shares are the subject of a
Registration Statement (the "Registration Statement") filed by the Company on
Form S-3 under the Securities Act of 1933, as amended.
In our capacity as your counsel in connection with such registration,
we are familiar with the proceedings taken and proposed to be taken by the
Company in connection with the authorization and issuance of the Shares and for
the purposes of this opinion, have assumed such proceedings will be timely
completed in the manner presently proposed. In addition, we have made such legal
and factual examinations and inquiries, including an examination of originals or
copies certified or otherwise identified to our satisfaction of such documents,
corporate records and instruments, as we have deemed necessary or appropriate
for purposes of this opinion.
Based upon and subject to the foregoing and to the assumptions,
limitations and conditions set forth herein, we are of the opinion that upon the
issuance of the Shares as described in the Registration Statement, the Shares
will be validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the reference to us under the heading "Legal
Matters" in the Registration Statement, the Prospectus constituting a part
thereof and any amendments thereto.
Very truly yours,
Morrison & Foerster LLP
<PAGE> 1
EXHIBIT 8.1
October 17, 1996
Spieker Properties, Inc.
Spieker Properties, L.P.
2180 Sand Hill Road, Suite 200
Menlo Park, California 94025
Ladies and Gentlemen:
We are acting as counsel to Spieker Properties, Inc., a
Maryland corporation (the "Company") in connection with the offer and sale from
time to time by the holders of up to 245,738 shares of common stock (the
"Shares"), par value $.0001 per share ("Common Stock"), that may be issued by
Spieker Properties, Inc. (the "Company") to certain holders of up to 245,738
units of limited partnership interest (the "Units") in Spieker Properties, L.P.
(the "Operating Partnership"), if and to the extent that such holders tender
such Units for exchange into shares of Common Stock. The Shares are the subject
of a Registration Statement (the "Registration Statement") filed by the Company
on Form S-3 under the Securities Act of 1933, as amended (the "Act"). We have
been requested to provide you with our opinion as to whether the Company
currently qualifies as a real estate investment trust ("REIT"), within the
meaning of Section 856(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and has so qualified for each of the past three taxable years.
Capitalized terms not otherwise defined herein shall have the meaning given to
them in the Registration Statement.
For purposes of the opinion set forth below, we have relied,
with your consent, upon the accuracy and completeness of the statements and
representations (which statements and representations we have neither
investigated nor verified) contained in the certificate of the Company dated
October 17, 1996 (the "Certificate"). We have also relied upon the accuracy of
the Registration Statement.
Based upon such statements, representations and assumptions,
and subject to, the next two succeeding paragraphs, we are of the opinion that,
as of the date hereof and for its taxable years ended December 31, 1993,
December 31, 1994 and December 31, 1995, the Company has operated in a manner
that has qualified it as a REIT under the Code, and if it continues to operate
in the same manner, it will continue to so qualify.
Our opinion is based upon the documents referred to above and
the current provisions of the Code, Treasury Regulations promulgated thereunder,
published pronouncements of the Internal Revenue Service and case law, any of
which may be changed
<PAGE> 2
at any time, possibly with retroactive effect. You should also be aware that
opinions of counsel are not binding upon the Internal Revenue Service or the
courts. Any change in applicable law, or any inaccuracy in the statements,
representations and assumptions on which we have relied may affect the
continuing validity of the opinion set forth herein.
This opinion addresses only the operation of the Company in a
manner that qualifies it as a REIT as of the date hereof and during each of the
past three taxable years. We undertake no obligation to update this opinion, or
to ascertain after the date hereof whether circumstances occurring after such
date may affect the conclusions set forth herein.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. In giving this consent, we do not thereby admit
that we are in the category of persons whose consent is required under Section 7
of the Act.
Very truly yours,
Morrison & Foerster LLP
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement on Form S-3 and related Prospectus of Spieker
Properties, Inc. (the "Company") for the registration of shares of the Company's
common stock which may be issued upon conversion of certain units of interest in
Spieker Properties, L.P., and sold from time to time by the holders of such
shares of common stock.
We also consent to the incorporation by reference to our report dated
January 25, 1996, with respect to the consolidated financial statement and
schedule of the Company, which report is included in the Company's Annual
Reports on Form 10-K and Form 10-K/A (Amendment No. 1) for the year ended
December 31, 1995 and incorporated by reference in the Registration Statement.
We also consent to the incorporation by reference of our report dated
June 14, 1996 on the combined statement of revenues and certain expenses for the
six acquired properties and two investments in mortgages, which report is
included in the Company's Current Report on Form 8-K dated June 18, 1996 and
incorporated by reference in the Registration Statement.
We also consent to the incorporation by reference of our report dated
July 11, 1996 on the combined statements of revenues and certain expenses for
The City Portfolio, which report is included in the Company's Current Reports on
Form 8-K dated July 15, 1996 and incorporated by reference in the Registration
Statement.
San Francisco, California ARTHUR ANDERSEN LLP
October 15, 1996
