<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration Statement No. 333-04299
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE 20, 1996)
<TABLE>
<S> <C>
LOGO $200,000,000
SPIEKER PROPERTIES, L.P.
</TABLE>
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
------------------------
Spieker Properties, L.P., a California limited partnership (the "Operating
Partnership"), may offer from time to time up to $200,000,000 aggregate initial
offering price of its Medium-Term Notes Due Nine Months or More From Date of
Issue (the "Notes"). Such aggregate initial offering price is subject to
reduction as a result of the sale by the Operating Partnership of other Offered
Securities as described in the accompanying Prospectus. Each Note will mature on
any day nine months or more from the date of issue, as specified in the
applicable pricing supplement hereto (each, a "Pricing Supplement"), and may be
subject to redemption at the option of the Operating Partnership or repayment at
the option of the Holder thereof, in each case, in whole or in part, prior to
its Stated Maturity, as specified in the applicable Pricing Supplement. The
Notes will be denominated in U.S. dollars and will be issued in minimum
denominations of $1,000 and integral multiples thereof, unless otherwise
specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, Notes will
bear interest at fixed rates ("Fixed Rate Notes") or at floating rates
("Floating Rate Notes"). The applicable Pricing Supplement will specify whether
the rate of interest thereon is determined by reference to one or more of the CD
Rate, the CMT Rate, the Commercial Paper Rate, the Federal Funds Rate, LIBOR,
the Prime Rate or the Treasury Rate (each, an "Interest Rate Basis"), or any
other interest rate basis or formula, as adjusted by any Spread and/or Spread
Multiplier. Interest on each Floating Rate Note will accrue from its date of
issue and, unless otherwise specified in the applicable Pricing Supplement, will
be payable monthly, quarterly, semiannually or annually in arrears, as specified
in the applicable Pricing Supplement, and at Maturity. Unless otherwise
specified in the applicable Pricing Supplement, the rate of interest on each
Floating Rate Note will be reset daily, weekly, monthly, quarterly, semiannually
or annually, as specified in the applicable Pricing Supplement. Interest on each
Fixed Rate Note will accrue from its date of issue and, unless otherwise
specified in the applicable Pricing Supplement, will be payable semiannually in
arrears on January 15 and July 15 of each year and at its Stated Maturity. Notes
may also be issued that do not bear any interest currently or that bear interest
at a below market rate. See "Description of Notes."
The principal amount payable at Maturity, or the amount of interest payable
on any interest payment date with respect to the Notes may be determined by the
relationship between a specified currency and another currency, by the
difference in price of a specified commodity on certain dates, or by some other
index. The specific index (if any), the interest rate, or formula for the
determination of the interest rate, if any, applicable to each Note and the
other variable terms thereof will be established by the Operating Partnership on
the date of issue of such Note and will be specified in the applicable Pricing
Supplement.
Interest rates or formulae and other terms of Notes are subject to change by
the Operating Partnership, but no change will affect any Note already issued or
as to which an offer to purchase has been accepted by the Operating Partnership.
Each Note will be issued in fully registered book-entry form (a "Book-Entry
Note") or definitive form (a "Definitive Note"), unless otherwise specified in
the applicable Pricing Supplement. Each Book-Entry Note will be represented by
one or more fully registered global securities (the "Global Securities")
deposited with or on behalf of The Depository Trust Company ("DTC") and
registered in the name of DTC or the DTC's nominee. Interests in the Global
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by DTC (with respect to its participants) and DTC's
participants (with respect to beneficial owners). Registration of transfer of
Definitive Notes will be made at the Corporate Trust Office of the Trustee.
------------------------
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 SUPPLEMENT, THE PROSPECTUS OR ANY
SUPPLEMENT HERETO. 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 THE OFFERING MADE HEREBY. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
PRICE TO AGENT'S DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMMISSIONS(1)(2) OPERATING PARTNERSHIP(1)(3)
- ------------------------------------------------------------------------------------------------------------------------------
Per Note.................................. 100% .125%-.750% 99.875%-99.250%
- ------------------------------------------------------------------------------------------------------------------------------
Total..................................... $200,000,000 $250,000-$1,500,000 $199,750,000-$198,500,000
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Dean Witter Reynolds Inc., Goldman, Sachs & Co. and J.P. Morgan Securities
Inc. (the "Agents"), may purchase Notes, as principal, from the Operating
Partnership, for resale to investors and other purchasers at varying prices
relating to prevailing market prices at the time of resale as determined by
such Agent, or, if so specified in the applicable Pricing Supplement, for
resale at a fixed public offering price. Unless otherwise specified in the
applicable Pricing Supplement, any Note sold to an Agent as principal will
be purchased by such Agent at a price equal to 100% of the principal amount
thereof less a percentage of the principal amount equal to the commission
applicable to an agency sale (as described below) of a Note of identical
Stated Maturity. If agreed to by the Operating Partnership and an Agent,
such Agent may utilize its reasonable efforts on an agency basis to solicit
offers to purchase the Notes at 100% of the principal amount thereof, unless
otherwise specified in the applicable Pricing Supplement. The Operating
Partnership will pay a commission to such Agent, ranging from .125% to .750%
of the principal amount of a Note, depending upon its Stated Maturity, sold
through such Agent. Commissions with respect to Notes with stated maturities
in excess of 30 years that are sold through the Agent will be negotiated
between the Operating Partnership and the Agent at the time of such sale.
See "Supplemental Plan of Distribution."
(2) The Operating Partnership and Spieker Properties, Inc., a Maryland
corporation and general partner of the Operating Partnership, have jointly
and severally agreed to indemnify the Agents against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Supplemental Plan of
Distribution."
(3) Before deducting expenses payable by the Operating Partnership estimated at
$200,000.
The Notes are being offered on a continuous basis by the Operating
Partnership to or through the Agents. Unless otherwise specified in the
applicable Pricing Supplement, the Notes will not be listed on any securities
exchange and there can be no assurance that the Notes offered hereby will be
sold or that there will be a secondary market for the Notes. The Operating
Partnership reserves the right to cancel or modify the offer made hereby without
notice. The Operating Partnership or the applicable Agent, if it solicits the
offer on an agency basis, may reject any offer to purchase Notes in whole or in
part. The Operating Partnership has reserved the right to sell Notes directly to
investors on its own behalf in those jurisdictions where it is authorized to do
so. See "Supplemental Plan of Distribution."
------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
------------------------
The date of this Prospectus Supplement is June 20, 1996.
<PAGE> 2
IN CONNECTION WITH AN OFFERING OF NOTES PURCHASED BY THE AGENTS AS
PRINCIPAL ON A FIXED OFFERING PRICE BASIS, THE AGENTS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-2
<PAGE> 3
All references to the "Operating Partnership" include Spieker Properties,
L.P., those entities owned or controlled by Spieker Properties, L.P. and
predecessors of Spieker Properties, L.P., unless the context indicates
otherwise.
THE OPERATING PARTNERSHIP
GENERAL
Spieker Properties, L.P. (the "Operating Partnership") is managed by its
general partner, Spieker Properties, Inc. (the "Company"), a self-administered
and self-managed 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 March 31, 1996, the
Operating Partnership owned and operated 134 Properties (the "Properties," and
each a "Property") aggregating approximately 18.0 million rentable square feet
and comprised of 74 industrial Properties, 44 office Properties and 16 retail
Properties. The average occupancy rate of the Properties owned and operated by
the Company as of March 31, 1996 was approximately 96.5%. All of the Properties
are located in California, and in Washington, Oregon and Idaho (the "Pacific
Northwest"). The Operating Partnership believes that the Company is one of the
largest publicly-owned operators, owners and developers of commercial real
estate in California and the Pacific Northwest. The Operating Partnership
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.
The Operating Partnership holds directly or indirectly all of the Company's
interests in the Properties and substantially all of the Company's operations
relating to the Properties are conducted through the Operating Partnership. The
Operating Partnership is controlled by the Company as its sole general partner
and, as of March 31, 1996, the Company owned approximately 84.9% of the
partnership interests (the "Partnership Units") in the Operating Partnership.
THIS PROSPECTUS SUPPLEMENT CONTAINS BRIEF SUMMARIES OF CERTAIN MORE
DETAILED INFORMATION REGARDING THE OPERATIONS OF THE COMPANY CONTAINED IN THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE. SUCH SUMMARIES ARE QUALIFIED IN
THEIR ENTIRETY BY THE DETAILED INFORMATION CONTAINED IN SUCH INCORPORATED
DOCUMENTS.
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Notes
offered hereby for general corporate purposes, including the repayment of
indebtedness and the acquisition and development of additional properties. As of
March 31, 1996, the weighted average interest rate on the indebtedness expected
to be repaid with the net proceeds of the Offering was approximately 6.9% and
the weighted average maturity of such indebtedness was approximately 1.5 years.
S-3
<PAGE> 4
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements and, to the extent inconsistent therewith, replaces the
description of the general terms and provisions of the Debt Securities set forth
in the accompanying Prospectus, to which description reference is hereby made.
Unless different terms or additional terms are specified in the applicable
Pricing Supplement, the Notes will have the terms described below. References to
interest payments and interest related information do not apply to original
issue discount Notes which do not pay interest.
The Notes are to be issued as a series of Debt Securities (as defined
herein) under an indenture dated as of December 6, 1995 between the Operating
Partnership, the Company and State Street Bank and Trust Company, as trustee
(the "Trustee"), and the first, second and third supplemental indentures, each
dated as of December 11, 1995, the fourth supplemental indenture dated January
24, 1996 and the fifth supplemental indenture dated June 20, 1996 (collectively,
the "Indenture"). The Trustee is the trustee with respect to the Operating
Partnership's 6.65% Notes Due December 15, 2000, 6.80% Notes Due December 15,
2001, 6.95% Notes Due December 15, 2002 and 6.90% Notes Due January 15, 2004.
The following statements relating to the Notes and the Indenture are summaries
of certain provisions of the Notes and the Indenture and do not purport to be
complete, and where particular provisions of the Notes and of the Indenture are
referred to, such summaries are qualified in their entirety by reference to such
provisions. Capitalized terms used but not defined herein have the meanings
given to them in the Indenture or the Notes, as the case may be. The term "Debt
Securities," as used under this caption, refers to all securities issued and
issuable from time to time under the Indenture and includes the Notes.
GENERAL
The Notes to be issued under the Indenture will be unsecured and
unsubordinated obligations of the Operating Partnership and will rank equally
with all other unsecured and unsubordinated indebtedness of the Operating
Partnership from time to time outstanding. The Notes constitute a separate
series for purposes of the Indenture. The Indenture does not limit, other than
through the operation of applicable covenants, if any, the aggregate principal
amount of Debt Securities which may be issued thereunder and provides that the
Debt Securities may be issued in one or more series up to the aggregate
principal amount which may be authorized from time to time by the Operating
Partnership. The Operating Partnership may, from time to time, without the
consent of the holders of the Notes, provide for the issuance of Notes or other
Debt Securities under the Indenture in addition to the $200,000,000 aggregate
initial offering price of Notes authorized as of the date of this Prospectus
Supplement.
The Notes are currently limited to $200,000,000 aggregate initial offering
price. The Notes will be offered on a continuous basis and will mature on a day
nine months or more from the date of issue ("Stated Maturity"), as selected by
the purchaser and agreed to by the Operating Partnership and specified in the
applicable Pricing Supplement. Unless otherwise specified in the applicable
Pricing Supplement, the Notes will be denominated in, and payments of principal,
premium, if any, and/or interest, if any, will be made in, U.S. dollars.
Each interest bearing Note will bear interest at either (a) a fixed rate of
interest ("Fixed Rate Notes") or (b) a rate determined by reference to the
specified Base Rate (as defined herein) or two or more specified Base Rates,
which may in either case be adjusted by a Spread and/or Spread Multiplier (as
defined herein) ("Floating Rate Notes"). Notes may be issued at significant
discounts ("Original Issue Discount Notes") from their principal amount payable
at Stated Maturity (or on any prior date on which the principal or an
installment of principal of a Note becomes due and payable, whether by the
declaration of acceleration, call for redemption at the option of the Operating
Partnership, repayment at the option of the holder or otherwise) (each such
date, a "Maturity") and some Notes may not bear interest.
Interest rates or formulae and other terms of Notes are subject to change
by the Operating Partnership, but no change will affect any Note already issued
or as to which an offer to purchase has been accepted by the Operating
Partnership. Interest rates offered by the Operating Partnership with respect to
the Notes may
S-4
<PAGE> 5
differ depending upon, among other things, the aggregate principal amount of the
Notes purchased in any single transaction.
Each Note will be issued in fully registered book-entry form (a "Book-Entry
Note") or definitive form (a "Definitive Note"), in denominations of $1,000 and
integral multiples thereof, unless otherwise specified in the applicable Pricing
Supplement. Book-Entry Notes may be transferred or exchanged only through a
participating member of The Depository Trust Company (or such other depositary
as is identified in an applicable Pricing Supplement) (the "Depositary"). See
"-- Book-Entry System." Registration of transfer of Definitive Notes will be
made at the Corporate Trust Office of the Trustee, Two International Place,
Boston, Massachusetts or the Trustee's New York City office, 61 Broadway, New
York, New York 10006. No service charge will be made by the Operating
Partnership, the Trustee or the Security Registrar for any such registration of
transfer or exchange of Notes, but the Operating Partnership may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith (other than exchanges pursuant to the Indenture, not
involving any transfer).
Payments of principal of, and premium and interest, if any, on Book-Entry
Notes will be made by the Operating Partnership through the Trustee to the
Depositary. See "-- Book-Entry System." In the case of Definitive Notes, payment
of principal or premium, if any, at the Maturity of each Definitive Note will be
made in immediately available funds upon presentation and surrender of the
Definitive Note at the Corporate Trust Office of the Trustee, Two International
Place, Boston, Massachusetts or the Trustee's New York City office, 61 Broadway,
New York, New York 10006 or at such other place as the Operating Partnership may
designate. Payment of interest due at Maturity will be made to the person to
whom payment of the principal of the Definitive Note shall be made. Payment of
the interest due on Definitive Notes other than at Maturity will be made at the
office or agency referred to above maintained by the Operating Partnership for
such purpose or, at the option of the Operating Partnership, may be made by
check mailed to the address of the Holder entitled thereto as such address shall
appear in the Security Register. Notwithstanding the foregoing, a Holder of
$10,000,000 or more in aggregate principal amount of Notes (whether having
identical or different terms and provisions) will be entitled to receive
interest payments, if any, on any Interest Payment Date (as defined below) other
than at Maturity by wire transfer of immediately available funds if appropriate
wire transfer instructions have been received in writing by the Trustee not less
than 15 days prior to such Interest Payment Date. Any such wire transfer
instructions received by the Trustee shall remain in effect until revoked by
such Holder.
The Notes will not have an established trading market when issued, and
there can be no assurance of a secondary market for the Notes or the continued
liquidity of such market if one develops. See "Supplemental Plan of
Distribution."
Any credit ratings assigned to the Operating Partnership's medium-term note
program may not reflect the potential impact of all risks related to structure
and other factors on the market value of the Notes. Accordingly, prospective
investors should consult their own financial and legal advisors as to the risks
entailed by an investment in the Notes and the suitability of such Notes in
light of their particular circumstances.
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law, regulation or executive order to close in the
City of New York or the City of Boston, Massachusetts.
REDEMPTION
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of the Operating Partnership prior to their Stated Maturity only if an
Initial Redemption Date is specified in the applicable Pricing Supplement. If so
specified, the Notes will be subject to redemption at the option of the
Operating Partnership on any date on or after the applicable Initial Redemption
Date in whole or from time to time in part in increments of $1,000 or such other
minimum denomination specified in such Pricing Supplement (provided that any
remaining principal amount thereof shall be at least $1,000 or such minimum
denomination), at the applicable Redemption Price (as hereinafter defined),
together with unpaid interest accrued to the date of redemption. "Redemption
Price," with respect to any Note, means an amount equal to the Initial
Redemption Percentage specified in the
S-5
<PAGE> 6
applicable Pricing Supplement (as adjusted by the Annual Redemption Percentage
Reduction, if applicable) multiplied by the unpaid principal amount to be
redeemed; and, in addition, with respect to any Fixed Rate Note, if so specified
in the applicable Pricing Supplement, the Make-Whole Amount (as hereinafter
defined). The Initial Redemption Percentage, if any, applicable to a Note shall
decline at each anniversary of the Initial Redemption Date by an amount equal to
the applicable Annual Redemption Percentage Reduction, if any, until the
Redemption Price is equal to 100% of the unpaid principal amount to be redeemed.
From and after notice has been given as provided in the Indenture, if funds
for the redemption of any Notes called for redemption shall have been made
available on such redemption date, such Notes will cease to bear interest on the
date fixed for such redemption specified in such notice and the only right of
the Holders of the Notes will be to receive payment of the Redemption Price.
Notice of any optional redemption of any Notes will be given to Holders at
their addresses, as shown in the Security Register, not more than 60 nor less
than 30 calendar days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the Notes held by such Holder to be redeemed.
The Operating Partnership will notify the Trustee at least 45 days prior to
giving notice of redemption to the Holders (or such shorter period as
satisfactory to the Trustee) of the aggregate principal amount of Notes to be
redeemed and the redemption date. If less than all of the Notes of any series
are to be redeemed at the option of the Operating Partnership, the Trustee shall
select, in such manner as it shall deem fair and appropriate, the Notes of such
series to be redeemed in whole or in part. Notes may be redeemed in part in the
minimum authorized denomination for Notes or in any integral multiple thereof.
Any optional redemption feature of Notes might affect the market value of
such Notes. Since the Operating Partnership may be expected to redeem such Notes
when prevailing interest rates are relatively low, an investor might not be able
to reinvest the redemption proceeds at an effective interest rate as high as the
interest rate on such Notes.
"Make-Whole Amount" means, in connection with any optional redemption or
accelerated payment of any Note, the excess, if any, of (i) the aggregate
present value as of the date of such redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest (exclusive
of any interest accrued to the date of redemption or accelerated payment) that
would have been payable in respect of such dollar if such redemption or
accelerated payment had not been made, determined by discounting, on a
semiannual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date such notice of
redemption is given or declaration of acceleration is made) from the respective
dates on which such principal and interest would have been payable if such
redemption or accelerated payment had not been made, over (ii) the aggregate
principal amount of the Notes being redeemed or paid.
"Reinvestment Rate" means 0.25% (one-fourth of one percent) plus the
arithmetic mean of the yields under the respective headings "This Week" and
"Last Week" published in the Statistical Release under the caption "Treasury
Constant Maturities" for the maturity (rounded to the nearest month)
corresponding to the remaining life to maturity, as of the payment date of the
principal being redeemed or paid. If no maturity exactly corresponds to such
maturity, yields for the two published maturities most closely corresponding to
such maturity shall be calculated pursuant to the immediately preceding sentence
and the Reinvestment Rate shall be interpolated or extrapolated from such yields
on a straight-line basis, rounding in each of such relevant periods to the
nearest month. For the purposes of calculating the Reinvestment Rate, the most
recent Statistical Release published prior to the date of determination of the
Make-Whole Amount shall be used.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively traded United States government
securities adjusted to constant maturities or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by the Operating
Partnership.
S-6
<PAGE> 7
REPAYMENT
If provided in an applicable Pricing Supplement, the Notes will be subject
to repayment, in whole or in part, on a given day or days prior to their Stated
Maturity at the option of the Holders thereof in accordance with the terms of
such Notes on their respective optional repayment dates, if any, as agreed upon
by the Operating Partnership and the purchasers thereof at the time of such sale
(each an "Optional Repayment Date"). Such pricing Supplement will set forth the
terms of such repayment, including, but not limited to, the dates on which
repayment may be effected and the price at which such Notes may be repaid. If no
Optional Repayment Date is indicated with respect to a Note, such Note will not
be repayable at the option of the Holder thereof prior to its Stated Maturity.
Unless otherwise specified in the applicable Pricing Supplement, Notes subject
to repayment at the option of the Holders thereof on any Optional Repayment Date
will be repayable in whole or from time to time in part in increments of $1,000
or such other minimum denomination specified in the applicable Pricing
Supplement (provided that any remaining principal amount thereof shall be at
least $1,000 or such other minimum denomination), at a repayment price equal to
100% of the unpaid principal amount to be repaid, together with unpaid interest
accrued to the date of repayment. For any Note to be repaid, such Note must be
received, together with the form thereon entitled "Option to Elect Repayment"
duly completed, by the Trustee at its Corporate Trust Office or at its New York
City office, 61 Broadway, New York, New York 10006 (or such other address of
which the Operating Partnership shall from time to time notify the Holders) not
more than 60 nor less than 30 calendar days prior to the date of repayment.
Exercise of such repayment option by the Holder will be irrevocable. See also
"-- Original Issue Discount Notes."
Only DTC may exercise the repayment option in respect of Global Notes
representing Book-Entry Notes. Accordingly, Beneficial Owners (as defined below
under "-Book-Entry System") of Global Notes that desire to have all or any
portion of the Book-Entry Notes represented by such Global Notes repaid must
instruct the Participant (as hereinafter defined) through which they own their
interest to direct DTC to exercise the repayment option on their behalf by
delivering the related Global Note and duly completed election form to the
Trustee as aforesaid. In order to ensure that such Global Note and election form
are received by the Trustee on a particular day, the applicable Beneficial Owner
must so instruct the Participant through which it owns its interest before such
Participant's deadline for accepting instructions for that day. Different firms
may have different deadlines for accepting instructions from their customers.
Accordingly, Beneficial Owners should consult the Participants through which
they own their interest for the respective deadlines for such Participants. All
instructions given to Participants from Beneficial Owners of Global Notes
relating to the option to elect repayment shall be irrevocable. In addition, at
the time such instructions are given, each such Beneficial Owner shall cause the
Participant through which it owns its interest to transfer such Beneficial
Owner's interest in the Global Note or Global Notes representing the related
Book-Entry Notes, on DTC's records, to the Trustee. See "-- Book-Entry System."
If applicable, the Operating Partnership will comply with the requirements
of Rule 14e-1 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and any other securities laws or regulations in connection with
any such repayment.
Either the Operating Partnership or the Company may at any time purchase
Notes at any price or prices in the open market or otherwise; and Notes so
purchased may, at the discretion of the Operating Partnership or the Company, be
held, resold or surrendered to the Trustee for cancellation.
COVENANTS
LIMITATIONS ON INCURRENCE OF DEBT. The Operating Partnership will not, and
will not permit any Subsidiary to, incur any Debt (as defined below), other than
inter-company debt representing Debt to which the only parties are the Company,
the Operating Partnership and any of their Subsidiaries (but only so long as
such Debt is held solely by any of the Company, the Operating Partnership and
any Subsidiary) that is subordinate in right of payment to the Notes if,
immediately after giving effect to the incurrence of such additional Debt, the
aggregate principal amount of all outstanding Debt of the Operating Partnership
and its Subsidiaries on a consolidated basis is greater than 60% of the sum of
(i) Total Assets (as defined below) as
S-7
<PAGE> 8
of the end of the calendar quarter covered in the Operating Partnership's Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most
recently filed with the Trustee (or such reports of the Company if filed by the
Operating Partnership with the Trustee in lieu of filing its own reports) prior
to the incurrence of such additional Debt and (ii) the increase in Total Assets
from the end of such quarter including, without limitation, any increase in
Total Assets resulting from the incurrence of such additional Debt (such
increase, together with the Total Assets, is referred to as "Adjusted Total
Assets").
In addition to the foregoing limitation on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt if the ratio of Consolidated Income Available for Debt Service to the
Annual Service Charge (in each case as defined below) for the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 1.5 to 1, on a pro forma basis
after giving effect to the incurrence of such Debt and to the application of the
proceeds therefrom, and calculated on the assumption that (i) such Debt and any
other Debt incurred by the Operating Partnership or its Subsidiaries since the
first day of such four-quarter period and the application of the proceeds
therefrom, including to refinance other Debt, had been incurred at the beginning
of such period, (ii) the repayment or retirement of any other Debt by the
Operating Partnership or its Subsidiaries since the first day of such
four-quarter period had been incurred, repaid or retired at the beginning of
such period (except that, in making such computation, the amount of Debt under
any revolving credit facility shall be computed based upon the average daily
balance of such Debt during such period), (iii) the income earned on any
increase in Adjusted Total Assets since the end of such four-quarter period had
been earned, on an annualized basis, during such period, and (iv) in the case of
any acquisition or disposition by the Operating Partnership or any Subsidiary of
any asset or group of assets since the first day of such four-quarter period,
including, without limitation, by merger, stock purchase or sale, or asset
purchase or sale, such acquisition or disposition or any related repayment of
Debt had occurred as of the first day of such period with the appropriate
adjustments with respect to such acquisition or disposition being included in
such pro forma calculation.
In addition to the foregoing limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt secured by any mortgage, lien, charge, pledge, encumbrance or security
interest of any kind upon any of the property of the Operating Partnership or
any Subsidiary ("Secured Debt"), whether owned at the date of the Indenture or
thereafter acquired, if, immediately after giving effect to the incurrence of
such additional Secured Debt, the aggregate principal amount of all outstanding
Secured Debt is greater than 40% of Adjusted Total Assets.
For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Operating
Partnership or a Subsidiary whenever the Operating Partnership and its
Subsidiary shall create, assume, guarantee or otherwise become liable in respect
thereof.
MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. The Operating Partnership is
required to maintain Total Unencumbered Assets of not less than 165% of the
aggregate outstanding principal amount of all outstanding Unsecured Debt.
MODIFICATION AND WAIVER. Modification and amendments of the financial
covenants of the Operating Partnership described above may be made by the
Operating Partnership, the Company and the Trustee with the consent of the
Holders of not less than a majority in principal amount of the Notes which are
affected by such modification and amendment, provided that certain modifications
or amendments may not be made without the consent of the Holder of each Note
affected thereby. The Holders of not less than a majority in principal amount of
the Notes of a particular series have the right to waive compliance by the
Operating Partnership or the Company with certain covenants relating to such
series. See "Description of Debt Securities -- Modification of the Indenture" in
the accompanying Prospectus.
As used herein:
"ANNUAL SERVICE CHARGE" as of any date means the amount which is expensed
in any 12-month period for interest on Debt of the Operating Partnership and its
Subsidiaries.
S-8
<PAGE> 9
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Consolidated Net Income plus amounts which have been deducted for (a) interest
on Debt of the Operating Partnership and its Subsidiaries, (b) provision for
taxes of the Operating Partnership and its Subsidiaries based on income, (c)
amortization of Debt discount, (d) provisions for gains and losses on
properties, (e) depreciation and amortization, (f) the effect of any noncash
charge resulting from a change in accounting principles in determining
Consolidated Net Income for such period and (g) amortization of deferred
charges.
"CONSOLIDATED NET INCOME" for any period means the amount of consolidated
net income (or loss) of the Operating Partnership and its Subsidiaries for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles.
"DEBT" of the Operating Partnership or any Subsidiary means any
indebtedness of the Operating Partnership or such Subsidiary, as applicable,
whether or not contingent, in respect of (i) borrowed money evidenced by bonds,
notes, debentures or similar instruments, (ii) indebtedness secured by any
mortgage, pledge, lien, charge, encumbrance or any security interest existing on
property owned by the Operating Partnership or such Subsidiary, (iii) the
reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance that
constitutes an accrued expense or trade payable or (iv) any lease of property by
the Operating Partnership or such Subsidiary as lessee which is reflected in the
Operating Partnership's consolidated balance sheet as a capitalized lease in
accordance with generally accepted accounting principles, in the case of items
of indebtedness under (i) through (iii) above to the extent that any such items
(other than letters of credit) would appear as a liability on the Operating
Partnership's consolidated balance sheet in accordance with generally accepted
accounting principles, and also includes, to the extent not otherwise included,
any obligation by the Operating Partnership or such Subsidiary to be liable for,
or to pay, as obligor, guarantor or otherwise (other than for purposes of
collection in the ordinary course of business), indebtedness of another person
(other than the Operating Partnership or any Subsidiary).
"SUBSIDIARY" means a corporation, partnership or limited liability company,
a majority of the outstanding voting stock, partnership interests or membership
interests, as the case may be, of which is owned or controlled, directly or
indirectly, by the Operating Partnership or by one or more other Subsidiaries of
the Operating Partnership. For the purposes of this definition, "voting stock"
means stock having the voting power for the election of directors, general
partners, managers or trustees, as the case may be, whether at all times or only
so long as no senior class of stock has such voting power by reason of any
contingency.
"TOTAL ASSETS" as of any date means the sum of (i) Undepreciated Real
Estate Assets and (ii) all other assets of the Operating Partnership and its
Subsidiaries on a consolidated basis determined in accordance with generally
accepted accounting principles (but excluding intangibles and accounts
receivable).
"TOTAL UNENCUMBERED ASSETS" means the sum of (i) those Undepreciated Real
Estate Assets which have not been pledged, mortgaged or otherwise encumbered by
the owner thereof to secure Debt, excluding certain infrastructure assessment
bonds (totaling approximately $12.5 million as of March 31, 1996), and (ii) all
other assets of the Operating Partnership and its Subsidiaries determined in
accordance with generally accepted accounting principles (but excluding
intangibles and accounts receivable) which have not been pledged, mortgaged or
otherwise encumbered by the owner thereof to secure Debt.
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with generally
accepted accounting principles.
"UNSECURED DEBT" means Debt which is not secured by any mortgage, lien,
charge, pledge, encumbrance or security interest of any kind upon any of the
properties of the Operating Partnership or any Subsidiary.
Reference is made to the section entitled "Description of Debt
Securities -- Certain Covenants" in the accompanying Prospectus for a
description of additional covenants applicable to the Notes. Compliance with the
covenants described herein and such additional covenants with respect to the
Notes generally may not be waived by the Board of Directors of the Company, as
the General Partner of the Operating Partnership, or by
S-9
<PAGE> 10
the Trustee unless the Holders of at least a majority in principal amount of all
outstanding Notes consent to such waiver; provided, however, that the defeasance
and covenant defeasance provisions of the Indenture described under "Description
of Debt Securities -- Discharge, Defeasance and Covenant Defeasance" in the
accompanying Prospectus will apply to the Notes, including with respect to the
covenants described in this Prospectus Supplement. For a definition of what
constitutes an Event of Default under the Indenture, and the withholding of
notice of such Event of Default from the Holders of the Notes, see "Description
of Debt Securities -- Events of Default, Notice and Waiver" in the accompanying
Prospectus.
The Operating Partnership will deliver to the Trustee, within 120 days
after the end of each fiscal year, a brief certificate as to the Operating
Partnership's compliance or non-compliance with the conditions and covenants
under the Indenture. Further, upon any request by the Operating Partnership to
the Trustee to take any action under the Indenture, the Operating Partnership
will furnish to the Trustee (a) an Officers' Certificate stating that all
conditions precedent, if any, provided for in the Indenture relating to the
proposed action have been complied with, and (b) an opinion of counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with.
INTEREST
General
Unless otherwise specified in the applicable Pricing Supplement, each
interest-bearing Note will bear interest from the date of issue at the rate per
annum or, in the case of a Floating Rate Note, pursuant to the Base Rate (as
defined below) or interest rate formula, stated therein until the principal
thereof is paid or duly made available for payment. Unless otherwise specified
in an applicable Pricing Supplement, interest payments shall be the amount of
interest accrued from and including the next preceding Interest Payment Date in
respect of which interest has been paid (or from and including the date of issue
if no interest has been paid with respect to such Note), to but excluding the
Interest Payment Date or Maturity (an "Interest Accrual Period"), as the case
may be.
Interest will be payable in arrears on each date specified in the
applicable Pricing Supplement on which an installment of interest is due and
payable (each, an "Interest Payment Date") and at Maturity. Interest will be
payable to the person in whose name a Note is registered at the close of
business on the Regular Record Date next preceding each Interest Payment Date;
provided, however, that interest payable at Maturity will be payable to the
person to whom principal shall be payable. Unless otherwise specified in an
applicable Pricing Supplement, if the original issue date of a Note is between a
Regular Record Date and the related Interest Payment Date, the initial interest
payment will be made on the Interest Payment Date following the next succeeding
Regular Record Date to the registered holder on such next succeeding Regular
Record Date. Unless otherwise specified in the applicable Pricing Supplement,
the "Regular Record Date" will be the date 15 calendar days (whether or not a
Business Day) immediately preceding the related Interest Payment Date.
Fixed Rate Notes
Unless otherwise specified in the applicable Pricing Supplement, interest
on Fixed Rate Notes will be payable semiannually on each January 15 and July 15
and at Maturity. If any Interest Payment Date or Maturity of a Fixed Rate Note
falls on a day that is not a Business Day, the related payment of principal,
premium, if any, and/or interest will be made on the next succeeding Business
Day as if it were made on the date such payment was due and no interest shall
accrue on the amount so payable for the period from and after such Interest
Payment Date or Maturity, as the case may be. Unless otherwise specified in an
applicable Pricing Supplement, interest on each Fixed Rate Note will be
calculated on the basis of a 360-day year of twelve 30-day months.
Floating Rate Notes
Unless otherwise specified in an applicable Pricing Supplement, Floating
Rate Notes will be issued as described below. Interest on Floating Rate Notes
will be determined by reference to a "Base Rate," which may be one or more of
(a) the CD Rate, in which case such Note will be a "CD Rate Note;" (b) the
S-10
<PAGE> 11
Commercial Paper Rate, in which case such Note will be a "Commercial Paper Rate
Note;" (c) the CMT Rate, in which case such Note will be a "CMT Rate Note;" (d)
the Federal Funds Rate, in which case such Note will be a "Federal Funds Rate
Note;" (e) LIBOR, in which case such Note will be a "LIBOR Note;" (f) the Prime
Rate, in which case such Note will be a "Prime Rate Note;" (g) the Treasury
Rate, in which case such Note will be a "Treasury Rate Note;" or (h) such other
Base Rate or interest rate formula as may be set forth in the applicable Pricing
Supplement. In addition, a Floating Rate Note may bear interest by reference to
two or more Base Rates determined in the same manner as the Base Rates are
determined for the types of Notes described above.
The applicable Pricing Supplement and the related Note will specify the
Base Rate or Rates and the Spread and/or Spread Multiplier, if any, and the
maximum or minimum interest rate limitation, if any, applicable to each Floating
Rate Note. In addition, such Pricing Supplement and the applicable Note will
define or particularize for each Floating Rate Note the following terms, if
applicable: Initial Interest Rate, Index Maturity, Interest Payment Dates,
Interest Reset Dates, Interest Rate Reset Period, Regular Record Dates, and
Calculation Agent (if other than State Street Bank and Trust Company).
The interest rate on each Floating Rate Note will be calculated by
reference to the specified Base Rate or two or more specified Base Rates, in
either case plus or minus the Spread, if any, and/or multiplied by the Spread
Multiplier, if any. The "Spread" is the number of basis points to be added to or
subtracted from the related Base Rate or Rates applicable, to such Floating Rate
Note. The "Spread Multiplier" is the percentage of the related Base Rate or
Rates applicable to such Floating Rate Note by which such Base Rate or Rates
will be multiplied to determine the applicable interest rate on such Floating
Rate Note. The "Index Maturity" is the period to maturity of the instrument or
obligation with respect to which the related Base Rate or Rates is calculated.
The Spread, Spread Multiplier, Index Maturity and other variable terms of the
Floating Rate Notes are subject to change by the Operating Partnership from time
to time, but no such change will affect any Floating Rate Note previously issued
or as to which an offer has been accepted by the Operating Partnership.
Each applicable Pricing Supplement will specify whether the rate of
interest on each Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually, annually or such other period (each, an "Interest Reset
Period"), and the dates on which such interest rate will be reset (each, an
"Interest Reset Date"). Unless otherwise specified in an applicable Pricing
Supplement, the Interest Reset Date will be, in the case of Floating Rate Notes
which reset (a) daily, each Business Day; (b) weekly, the Wednesday of each week
(with the exception of weekly reset Treasury Rate Notes which will reset the
Tuesday of each week, except as specified below); (c) monthly, the third
Wednesday of each month; (d) quarterly, the third Wednesday of March, June,
September and December of each year, (e) semiannually, the third Wednesday of
each of the two months specified in the applicable Pricing Supplement; and (f)
annually, the third Wednesday of the month specified in the applicable Pricing
Supplement. If any Interest Reset Date for any Floating Rate Note would
otherwise be a day that is not a Business Day, such Interest Reset Date will be
postponed to the next succeeding Business Day, except that in the case of a
LIBOR Note (or a Note for which the interest rate is determined with reference
to LIBOR), if such Business Day is in the next succeeding calendar month, such
Interest Reset Date shall be the immediately preceding Business Day.
The interest rate applicable to each Interest Accrual Period commencing on
the Interest Reset Date applicable to such Interest Accrual Period will be the
rate determined on the applicable "Interest Determination Date." Unless
otherwise specified in an applicable Pricing Supplement, the Interest
Determination Date with respect to the CD Rate, Commercial Paper Rate, CMT Rate,
Federal Funds Rate and the Prime Rate will be the second Business Day preceding
each Interest Reset Date for the related Note; and the Interest Determination
Date with respect to LIBOR will be the second London Business Day preceding each
Interest Reset Date. "London Business Day" means any day on which dealing in
deposits in U.S. dollars are transacted in the London interbank market. With
respect to the Treasury Rate, unless otherwise specified in an applicable
Pricing Supplement, the Interest Determination Date will be the day of the week
in which the Interest Reset Date falls on which Treasury Bills (as defined
below) normally would be auctioned (Treasury Bills are normally sold at auction
on Monday of each week, unless that day is a legal holiday, in which case the
auction is normally held on the following Tuesday, except that such auction may
be held on the preceding
S-11
<PAGE> 12
Friday); provided, however, that if as a result of a legal holiday an auction is
held on the Friday of the week preceding the related Interest Reset Date, the
related Interest Determination Date shall be such preceding Friday; and
provided, further, that if an auction shall fall on any Interest Reset Date,
then the related Interest Reset Date shall instead be the first Business Day
following such auction. The Interest Determination Date pertaining to a Floating
Rate Note, the interest rate of which is determined with reference to two or
more Base Rates, will be the latest Business Day which is at least two Business
Days prior to the Interest Reset Date for such Note on which each Base Rate is
determinable. Each Base Rate shall be determined and compared on such date, and
the applicable interest rate shall take effect on the related Interest Reset
Date.
A Floating Rate Note may also have either or both of the following: (a) a
maximum limit, or ceiling, on the rate of interest which may accrue during any
Interest Accrual Period, and (b) a minimum limit, or floor, on the rate of
interest which may accrue during any Interest Accrual Period. In addition to any
maximum interest rate that may be applicable to any Floating Rate Note pursuant
to the above provisions, the interest rate on Floating Rate Notes will in no
event be higher than the maximum rate permitted by New York law, as the same may
be modified by United States law of general application.
Except as provided below or in the applicable Pricing Supplement, interest
will be payable, in the case of Floating Rate Notes which reset (a) daily,
weekly or monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year, as specified in
the applicable Pricing Supplement; (b) quarterly, on the third Wednesday of
March, June, September and December of each year; (c) semiannually, on the third
Wednesday of each of the two months of each year specified in the applicable
Pricing Supplement; and (d) annually, on the third Wednesday of the month
specified in the applicable Pricing Supplement and, in each case, at Maturity.
If any Interest Payment Date (other than at Maturity) with respect to a
Floating Rate Note falls on a day that is not a Business Day, such Interest
Payment Date will be postponed to the following Business Day, except that, in
the case of a LIBOR Note (or a Note for which the interest rate is determined
with reference to LIBOR), if such Business Day is in the next succeeding
calendar month, such Interest Payment Date shall be the immediately preceding
Business Day. If the Maturity of a Floating Rate Note falls on a day that is not
a Business Day, the payment of principal, premium, if any, and interest will be
made on the next succeeding Business Day, and no interest on such payment shall
accrue for the period from and after such Maturity.
The interest rate in effect with respect to a Floating Rate Note on each
day that is not an Interest Reset Date will be the interest rate determined as
of the Interest Determination Date pertaining to the immediately preceding
Interest Reset Date and the interest rate in effect on any day that is an
Interest Reset Date will be the interest rate determined as of the Interest
Determination Date pertaining to such Interest Reset Date, subject in either
case to any maximum or minimum interest rate limitation referred to above;
provided, however, that the interest rate in effect with respect to a Floating
Rate Note for the period from the date of issue to the first Interest Reset Date
will be the Initial Interest Rate (as defined herein) specified in the
applicable Pricing Supplement and the related Note.
With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its principal amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day from the date of issue, or from the last date to which interest has been
paid, to the date for which accrued interest is being calculated. Unless
otherwise specified in an applicable Pricing Supplement, the interest factor for
each such day is computed by dividing the interest rate applicable to such day
by 360, in the case of CD Rate Notes, Commercial Paper Rate Notes, Federal Funds
Rate Notes, LIBOR Notes and Prime Rate Notes, or by the actual number of days in
the year in the case of Treasury Rate Notes and CMT Rate Notes. Unless otherwise
specified in the applicable Pricing Supplement, the interest factor for Notes
for which the interest rate is calculated with reference to the lowest of two or
more Base Rates will be calculated in each period in the same manner as if only
the lowest of the applicable Base Rates applied.
All percentages resulting from any calculation on Floating Rate Notes will
be rounded to the nearest one hundred-thousandth or a percentage point with five
one-millionths of a percentage point rounded upwards (e.g., 7.654325% (or
.07654325) would be rounded to 7.65433% (or .0765433)), and all dollar amounts
used
S-12
<PAGE> 13
in or resulting from such calculation on Floating Rate Notes will be rounded to
the nearest cent (with one-half cent being rounded upward).
Unless otherwise specified in the applicable Pricing Supplement, State
Street Bank and Trust Company will be the "Calculation Agent." Upon the request
of the Holder of any Floating Rate Note, the Calculation Agent will provide the
interest rate then in effect and, if determined, the interest rate that will
become effective as a result of a determination made for the next succeeding
Interest Reset Date with respect to such Floating Rate Note. Unless otherwise
specified in an applicable Pricing Supplement, the "Calculation Date," if
applicable, pertaining to any Interest Determination Date will be the earlier of
(a) the tenth calendar day after such Interest Determination Date, or, if such
day is not a Business Day, the next succeeding Business Day or (b) the Business
Day immediately preceding the applicable Interest Payment Date or the Maturity,
as the case may be.
The interest rate in effect with respect to a Floating Rate Note from the
date of issue to the first Interest Reset Date (the "Initial Interest Rate")
will be specified in the applicable Pricing Supplement. The interest rate for
each subsequent Interest Reset Date will be determined by the Calculation Agent
as follows:
CD Rate. CD Rate Notes will bear interest at the interest rates
(calculated with reference to the CD Rate and the Spread and/or Spread
Multiplier, if any) specified in such CD Rate Notes and in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Determination Date relating to a CD Rate
Note or any Interest Determination Date for a Floating Rate Note for which the
interest rate is determined with reference to the CD Rate (a "CD Rate Interest
Determination Date"), the rate on such date for negotiable certificates of
deposit having the Index Maturity specified in the applicable Pricing Supplement
as published by the Board of Governors of the Federal Reserve System in
"Statistical Release H.15(519), Selected Interest Rates" or any successor
publication ("H.15(519)") under the heading "CDs (Secondary Market)." In the
event such rate is not published by 3:00 p.m., New York City time, on the
Calculation Date pertaining to such CD Rate Interest Determination Date, then
the CD Rate will be the rate on such CD Rate Interest Determination Date for
negotiable certificates of deposit of the Index Maturity specified in the
applicable Pricing Supplement as published by the Federal Reserve Bank of New
York in its daily statistical release "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or any successor publication ("Composite Quotations")
under the heading "Certificates of Deposit." If such rate is not published in
either H.15(519) or Composite Quotations by 3:00 p.m., New York City time, on
such Calculation Date, then the CD Rate on such CD Rate Interest Determination
Date will be calculated by the Calculation Agent and will be the arithmetic mean
of the secondary market offered rates as of 10:00 a.m., New York City time, on
such CD Rate Interest Determination Date, of three leading nonbank dealers in
negotiable United States dollar certificates of deposit in New York, New York
(which may include one or more of the Agents or their affiliates) selected by
the Calculation Agent for negotiable certificates of deposit of major United
States money center banks in the market for negotiable certificates of deposit
with a remaining maturity closest to the Index Maturity specified in the
applicable Pricing Supplement in an amount that is representative for a single
transaction in that market at that time; provided, however, that if the dealers
selected as aforesaid by the Calculation Agent are not quoting as mentioned in
this sentence, the CD Rate in effect for the applicable period will be the CD
Rate in effect on such CD Rate Interest Determination Date.
CMT Rate. CMT Rate Notes will bear interest at the interest rates
(calculated with reference to the CMT Rate and the Spread and/or Spread
Multiplier, if any) specified in such CMT Rate Notes and in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any Interest Determination Date relating to a Floating
Rate Note for which the interest rate is determined with reference to the CMT
Rate (a "CMT Rate Interest Determination Date"), the rate displayed on the
Designated CMT Telerate Page under the caption ". . . Treasury Constant
Maturities . . . Federal Reserve Board Release H.15 . . . Mondays Approximately
3:45 p.m.," under the column for the Designated CMT Maturity Index for (i) if
the Designated CMT Telerate Page is 7055, the rate on such CMT Rate Interest
S-13
<PAGE> 14
Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the
week, or the month, as applicable, ended immediately preceding the week in which
the related CMT Rate Interest Determination Date occurs. If such rate is no
longer displayed on the relevant page or is not displayed by 3:00 p.m., New York
City time, on the related Calculation Date, then the CMT Rate for such CMT Rate
Interest Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index as published in the relevant H.15(519). If such
rate is no longer published or is not published by 3:00 p.m., New York City
time, on the related Calculation Date, then the CMT Rate on such CMT Rate
Interest Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index (or other United States Treasury rate for the
Designated CMT Maturity Index) for the CMT Rate Interest Determination Date with
respect to such Interest Reset Date as may then be published by either the Board
of Governors of the Federal Reserve System or the United States Department of
the Treasury that the Calculation Agent determines to be comparable to the rate
formerly displayed on the Designated CMT Telerate Page and published in the
relevant H.15(519). If such information is not provided by 3:00 p.m., New York
City time, on the related Calculation Date, then the CMT Rate on the CMT Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be a yield to maturity, based on the arithmetic mean of the secondary market
closing offer side prices as of approximately 3:30 p.m., New York City time, on
such CMT Rate Interest Determination Date reported, according to their written
records, by three leading primary United States government securities dealers
(each, a "Reference Dealer") in The City of New York (which may include one or
more of the Agents) selected by the Calculation Agent (from five such Reference
Dealers selected by the Calculation Agent and eliminating the highest quotation
(or, in the event of equality, one of the highest) and the lowest quotation (or,
in the event of equality, one of the lowest)), for the most recently issued
direct noncallable fixed rate obligations of the United States ("Treasury
Notes") with an original maturity of approximately the Designated CMT Maturity
Index and a remaining term to maturity of not less than such Designated CMT
Maturity Index minus one year. If the Calculation Agent is unable to obtain
three such Treasury Note quotations, the CMT Rate on such CMT Rate Interest
Determination Date will be calculated by the Calculation Agent and will be a
yield to maturity based on the arithmetic mean of the secondary market offer
side prices as of approximately 3:30 p.m., New York City time, on such CMT Rate
Interest Determination Date of three Reference Dealers in The City of New York
(from five such Reference Dealers selected by the Calculation Agent and
eliminating the highest quotation (or, in the event of equality, one of the
highest) and the lowest quotation (or, in the event of equality, one of the
lowest)), for Treasury Notes with an original maturity of the number of year
that is the next highest to the Designated CMT Maturity Index and a remaining
terms to maturity closest to the Designated CMT Maturity Index and in an amount
of at least $100 million. If three or four (and not five) of such Reference
Dealers are quoting as described above, then the CMT Rate will be based on the
arithmetic mean of the offer prices obtained and neither the highest nor the
lowest of such quotes will be eliminated; provided however, that if fewer than
three Reference Dealers so selected by the Calculation Agent are quoting as
mentioned herein, the CMT Rate determined as of such CMT Rate Interest
Determination Date will be the CMT Rate in effect on such CMT Rate Interest
Determination Date. If two Treasury Notes with an original maturity as described
in the second preceding sentence have remaining terms to maturity equally close
to the Designated CMT Maturity Index, the quotes for the Treasury Note with the
shorter remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page specified in the applicable Pricing Supplement (or any other
page as may replace such page on that service for the purpose of displaying
Treasury Constant Maturities as reported in H.15(519)) for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519). If no such
page is specified in the applicable Pricing Supplement, the Designated CMT
Telerate Page shall be 7052, for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable Pricing Supplement with respect to which the CMT
Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be 2 years.
S-14
<PAGE> 15
Commercial Paper Rate. Commercial Paper Rate Notes will bear interest at
the interest rates (calculated with reference to the Commercial Paper Rate and
the Spread and/or Spread Multiplier, if any) specified in such Commercial paper
Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Determination Date
relating to a Commercial Paper Rate Note or any Interest Determination Date for
a Floating Rate Note for which the interest rate is determined with reference to
the Commercial Paper Rate (a "Commercial Paper Rate Interest Determination
Date"), the Money Market Yield (as defined below) on such date of the rate for
commercial paper having the Index Maturity specified in the applicable Pricing
Supplement as published in H.15(519) under the heading "Commercial Paper." In
the event that such rate is not published by 3:00 p.m., New York City time, on
the Calculation Date pertaining to such Commercial Paper Rate Interest
Determination Date, then the Commercial Paper Rate will be the Money Market
Yield on such Commercial Paper Rate Interest Determination Date of the rate for
commercial paper of the Index Maturity specified in the applicable Pricing
Supplement as published in the Composite Quotations under the heading
"Commercial Paper" (with an Index Maturity of one month or three months being
deemed to be equivalent to an Index Maturity of 30 days or 90 days,
respectively). If such rate is not published in either H.15(519) or Composite
Quotations by 3:00 p.m., New York City time, on such Calculation Date, then the
Commercial Paper Rate will be calculated by the Calculation Agent and will be
the Money Market Yield of the arithmetic mean of the offered rates, as of 11:00
a.m., New York City time, on such Commercial Paper Rate Interest Determination
Date, of three leading dealers of commercial paper in New York, New York (which
may include one or more of the Agents) selected by the Calculation Agent for
commercial paper of the specified Index Maturity placed for an industrial issuer
whose bond rating is "AA," or the equivalent, from a nationally recognized
statistical rating agency; provided, however, that if the dealers selected as
aforesaid by the Calculation Agent are not quoting as mentioned in this
sentence, the Commercial Paper Rate in effect for the applicable period will be
the Commercial Paper Rate in effect on such Commercial Paper Rate Interest
Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage rounded,
if necessary, to the nearest one hundred-thousandth of a percentage point)
calculated in accordance with the following formula:
<TABLE>
<C> <C> <S>
D x 360
-------------- x 100
Money Market Yield = 360 - (D x M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper
quoted on a bank discount basis and expressed as a decimal and "M" refers to the
actual number of days in the interest period for which interest is being
calculated.
Federal Funds Rate. Federal Funds Rate Notes will bear interest at the
interest rates (calculated with reference to the Federal Funds Rate and the
Spread and/or Spread Multiplier, if any) specified in such Federal Funds Rate
Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Federal
Funds Rate" means, with respect to any Interest Determination Date relating to a
Federal Funds Rate Note or any Interest Determination Date for a Floating Rate
Note for which the interest rate is determined with reference to the Federal
Funds Rate (a "Federal Funds Rate Interest Determination Date"), the rate of
interest on that day for Federal Funds as published in H.15(519) under the
heading "Federal Funds (Effective)." In the event such rate is not published by
3:00 p.m., New York City time, on the Calculation Date pertaining to such
Federal Funds Rate Interest Determination Date, then the Federal Funds Rate will
be the rate on such Federal Funds Rate Interest Determination Date as published
in Composite Quotations under the heading "Federal Funds/Effective Rate." If
such rate is not published in either H.15(519) or Composite Quotations by 3:00
p.m., New York City time, on such Calculation Date, the Federal Funds Rate on
such Federal Funds Rate Interest Determination Date will be calculated by the
Calculation Agent and will be the arithmetic mean of the rates for the last
transaction in overnight federal funds arranged by three leading brokers of
federal funds transactions in New York, New York (which may include one or more
of the Agents or their affiliates) selected by the Calculation Agent as of 9:00
a.m., New York City time, on such Federal Funds Rate Interest
S-15
<PAGE> 16
Determination Date; provided, however, that if the brokers so selected as
aforesaid by the Calculation Agent are not quoting as mentioned in this
sentence, the Federal Funds Rate in effect for the applicable period will be the
Federal Funds Rate in effect on such Federal Funds Rate Interest Determination
Date.
LIBOR. LIBOR Notes will bear interest at the interest rates (calculated
with reference to LIBOR and the Spread and/or Spread Multiplier, if any)
specified in such LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
means the rate determined by the Calculation Agent in accordance with the
following provisions:
(i) With respect to an Interest Determination Date relating to a LIBOR
Note or any Interest Determination Date for a Floating Rate Note for which
the interest rate is determined with reference to LIBOR (a "LIBOR Interest
Determination Date"). LIBOR will be either: (a) if "LIBOR Reuters" is
specified in the applicable Pricing Supplement, the arithmetic mean of the
offered rates for deposits in U.S. dollars having the Index Maturity
designated in the applicable Pricing Supplement, commencing on the second
London Business Day immediately following that LIBOR Interest Determination
Date, that appear on the Reuters Screen LIBO Page as of 11:00 a.m., London
time, on that LIBOR Interest Determination Date, if at least two such
offered rates appear on the Reuters Screen LIBO Page, or (b) if "LIBOR
Telerate" is specified in the applicable Pricing Supplement or if neither
"LIBOR Reuters" nor "LIBOR Telerate" is specified in the applicable Pricing
Supplement as the method for calculating LIBOR, the rate for deposits in
U.S. Dollars having the Index Maturity designated in the applicable Pricing
Supplement commencing on the second London Business Day immediately
following that LIBOR Interest Determination Date, that appears on the
Telerate Page 3750 as of 11:00 a.m., London time, on that LIBOR Interest
Determination Date. "Reuters Screen LIBO Page" means the display designated
as page "LIBO" on the Reuters Monitor Money Rates Service (or such other
page as may replace the LIBOR page on that service for the purpose of
displacing London interbank offered rates of major banks). "Telerate Page
3750" means the display designated as page "3750" on the Telerate Service
(or such other page as may replace the 3750 page on that service or such
other service or services as may be nominated by the British Bankers'
Association for the purpose of displaying London interbank offered rates
for U.S. dollar deposits). If neither LIBOR Reuters nor LIBOR Telerate is
specified in the applicable Pricing Supplement, LIBOR will be determined as
if LIBOR Telerate has been specified. If fewer than two offered rates
appear on the Reuters Screen LIBO Page, or if no rate appears on the
Telerate Page 3750, as applicable, LIBOR in respect of that LIBOR Interest
Determination Date will be determined as if the parties had specified the
rate described in (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which
fewer than two offered rates appear on the Reuters Screen LIBO Page, as
specified in (i)(a) above or on which no rate appears on Telerate Page
3750, as specified in (i)(b) above, as applicable, LIBOR will be determined
on the basis of the rates at which deposits in U.S. dollars having the
Index Maturity designated in the applicable Pricing Supplement are offered
at approximately 11:00 a.m., London time, on that LIBOR Interest
Determination Date by four major banks in the London interbank market
selected by the Calculation Agent ("Reference Banks") to prime banks in the
London interbank market commencing on the second London Business Day
immediately following that LIBOR Interest Determination Date and in a
principal amount equal to an amount of not less than $1,000,000 that is
representative for a single transaction in such market at such time. The
Calculation Agent will request the principal London office of each of the
Reference Banks to provide a quotation of its rate. If at least two such
quotations are provided, LIBOR in respect of that LIBOR Interest
Determination Date will be the arithmetic mean of such quotations If fewer
than two quotations are provided, LIBOR in respect of that LIBOR Interest
Determination Date will be the arithmetic mean of the rates quoted at
approximately 11:00 a.m., New York City time, on the LIBOR Interest
Determination Date by three major banks in the City of New York selected by
the Calculation Agent for loans in U.S. dollars to leading European banks
having the Index Maturity designated in the applicable Pricing Supplement
commencing on the second London Business Day immediately following that
LIBOR Interest Determination Date and in a principal amount equal to an
amount of not less than $1,000,000 that is representative for a single
transaction in such market at such
S-16
<PAGE> 17
time; provided, however, that if the banks selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, LIBOR in
effect for the applicable period will be LIBOR in effect on such LIBOR
Interest Determination Date.
Prime Rate. Prime Rate Notes will bear interest at the rates (calculated
with reference to the Prime Rate and the Spread and/or Spread Multiplier, if
any) specified in such Prime Rate Notes and the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date relating to a Prime
Rate Note or any Floating Rate Note for which the interest rate is determined
with reference to the Prime Rate (a "Prime Rate Interest Determination Date"),
the rate on such date as such rate is published in H.15(519) under the heading
"Bank Prime Loan." If such rate is not published prior to 3:00 p.m., New York
City time, on the related Calculation Date, then the Prime Rate shall be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 (as hereinafter defined) as such bank's
prime rate or base lending rate as in effect for such Prime Rate Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME1 for such Prime Rate Interest Determination Date, then the Prime Rate
shall be the arithmetic mean of the prime rates quoted on the basis of the
actual number of days in the year divided by a 360-day year as of the close of
business on such Prime Rate Interest Determination Date by four major money
center banks in The City of New York selected by the Calculation Agent. If fewer
than four such quotations are so provided, then the Prime Rate shall be the
arithmetic mean of four prime rates quoted on the basis of the actual number of
days in the year divided by a 360-day year as of the close of business on such
Prime Rate Interest Determination Date as furnished in The City of New York by
the major money center banks, if any, that have provided such quotations and by
as many substitute banks or trust companies as necessary in order to obtain four
such prime rate quotations, provided such substitute banks or trust companies
are organized and doing business under the laws of the United States, or any
State thereof, each having total equity capital of at least $500 million and
being subject to supervision or examination by Federal or State authority,
selected by the Calculation Agent to provide such rate or rates; provided,
however, that if the banks or trust companies so selected by the Calculation
Agent are not quoting as mentioned in this sentence, the Prime Rate determined
as of such Prime Rate Interest Determination Date will be the Prime Rate in
effect on such Prime Rate Interest Determination Date.
"Reuters Screen USPRIME1" means the display designated as page "USPRIME1"
on the Reuter Monitor Money Rates Service (or such other page as may replace the
USPRIME1 page on that service for the purpose of displaying prime rates or base
lending rates of major United States banks).
Treasury Rate. Treasury Rate Notes will bear interest at the rates
(calculated with reference to the Treasury Rate and the Spread and/or Spread
Multiplier, if any) specified in such Treasury Rate Notes and in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Treasury
Rate" means, with respect to any Interest Determination Date relating to a
Treasury Rate Note or any Interest Determination Date for a Floating Rate Note
for which the interest rate is determined with reference to the Treasury Rate (a
"Treasury Rate Interest Determination Date"), the rate applicable to the most
recent auction of direct obligations of the United States ("Treasury Bills")
having the Index Maturity specified in the applicable Pricing Supplement, as
such rate is published in H.15(519) under the heading "Treasury Bills-auction
average (investment)" or, if not published by 3:00 p.m., New York City time, on
the Calculation Date pertaining to such Treasury Rate Interest Determination
Date, the auction average rate (expressed as a bond equivalent on the basis of a
year of 365 or 366 days, as applicable, and applied on a daily basis) as
otherwise announced by the United States Department of the Treasury. In the
event that the results of the auction of Treasury Bills having the specified
Index Maturity are not reported as provided by 3:00 p.m., New York City time, on
such Calculation Date, or if no such auction is held in a particular week, then
the Treasury Rate shall be calculated by the Calculation Agent and shall be a
yield to maturity (expressed as a bond equivalent on the basis of a year of 365
or 366 days, as applicable, and applied on a daily basis) of the arithmetic mean
of the secondary market bid rates, as of approximately 3:30 p.m., New York City
time, on such Treasury Rate Interest Determination Date, of
S-17
<PAGE> 18
three leading primary United States government securities dealers (which may
include one or more of the Agents) selected by the Calculation Agent, for the
issue of Treasury Bills with a remaining maturity closest to the specified Index
Maturity; provided, however, that if the dealers selected as aforesaid by the
Calculation Agent are not quoting as mentioned in this sentence, the Treasury
Rate in effect for the applicable period will be the Treasury Rate in effect on
such Treasury Rate Interest Determination Date.
"Index Maturity" means, with respect to the Notes, the period to maturity
of the instrument or obligation on which the interest rate index is based, as
specified in the applicable Pricing Supplement. "H.15(519)" means the weekly
statistical release entitled "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication, published by the Board of Governors of the
Federal Reserve System.
OTHER/ADDITIONAL PROVISIONS; ADDENDUM
Any provisions with respect to the Notes, including the specification and
determination of one or more interest rate bases, the calculation of the
interest rate applicable to a Floating Rate Note, the Interest Payment Dates,
the Stated Maturity, or any other term relating thereto, may be modified and/or
supplemented as specified under "Other/Additional Provisions" on the face
thereof or in an Addendum relating thereto, if so specified on the face thereof.
Such provisions will be described in the applicable Pricing Supplement.
ORIGINAL ISSUE DISCOUNT NOTES
Notes may be issued at a price less than their stated redemption price at
maturity, resulting in the Notes being treated as issued with original issue
discount for federal income tax purposes. Such discounted Notes may currently
pay no interest or interest at a rate which at the time of issuance is below
market rates and such Notes may provide that upon redemption or repayment prior
to their Stated Maturity or upon acceleration of the maturity of such Notes, an
amount less than the stated principal amount thereof shall become due and
payable. If notes are issued with original issue discount, holders of such Notes
will be required to include the amount of original issue discount, in income in
accordance with applicable provisions of the Internal Revenue Code of 1986, as
amended, and the Treasury Regulations promulgated thereunder. Special Federal
income tax and other considerations applicable to any such discounted Notes are
described in "United States Taxation."
INDEXED NOTES
Notes also may be issued with the principal amount payable at Maturity,
premium, if any, and/or interest to be paid thereon to be determined with
reference to the price or prices of specified commodities (including baskets of
commodities) or securities (including baskets of securities), interest rate
indices, interest rate or exchange rate swap indices, the exchange rate of one
or more specified currencies (including baskets of currencies or a composite
currency such as the European Currency Unit) relative to an indexed currency, or
such other price or exchange rate or other financial index or indices (each an
"Index") as may be specified in such Note ("Indexed Notes"), as set forth in a
Pricing Supplement with respect to an Indexed Note. Holders of such Notes may
receive a principal amount at Maturity that is greater than or less than the
face amount of such Notes depending upon the relative value at Maturity of the
specified Index. Information as to the method for determining the principal
payable at Maturity and, where applicable, certain historical information with
respect to the specified indexed item or items and tax considerations associated
with investment in Indexed Notes, will be set forth in the applicable Pricing
Supplement with respect to an Indexed Note.
Notwithstanding anything to the contrary contained herein or in the
Prospectus, for purposes of determining the rights of a Holder of a Note indexed
as to principal in respect of voting for or against amendments to the Indenture
and modifications and the waiver or rights thereunder, the principal amount of
such Indexed Notes shall be deemed to be equal to the face amount thereof upon
issuance. The amount of principal payable at Maturity will be specified in the
applicable Pricing Supplement.
S-18
<PAGE> 19
RISKS RELATING TO INDEXED NOTES
CERTAIN RISKS ASSOCIATED WITH A PARTICULAR INDEXED NOTE MAY BE SET FORTH
MORE FULLY IN THE APPLICABLE PRICING SUPPLEMENT. INDEXED NOTES MAY PRESENT A
HIGH LEVEL OF RISK, AND INVESTORS IN CERTAIN INDEXED NOTES MAY LOSE THEIR ENTIRE
INVESTMENT. INVESTORS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS
TO THE RISKS ENTAILED BY AN INVESTMENT IN INDEXED NOTES AND THE SUITABILITY OF
INDEXED NOTES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
Loss of Principal or Interest
The direction and magnitude of the change in the value of the relevant
Index will determine either or both the principal amount of an Indexed Note
payable at maturity or the amount of interest payable on an interest payment
date. The terms of a particular Indexed Note may or may not include a guaranteed
return of a percentage of the face amount at maturity or a minimum interest
rate. Accordingly, the Holder of an Indexed Note may lose all or a portion of
the principal invested in an Indexed Note and may receive no interest thereon.
Volatility
Certain Indices are highly volatile. The expected principal amount payable
at maturity of, or the interest rate on, an Indexed Note based on a volatile
Index may vary substantially from time to time. Because the principal amount
payable at the maturity of, or interest payable on, an Indexed Note is generally
calculated based on the value of the relevant Index on a specified date or over
a limited period of time, volatility in the Index increases the risk that the
return on the Indexed Notes may be adversely affected by a fluctuation in the
level of the relevant index. Additionally, if the formula used to determine the
principal, premium or interest payable with respect to Indexed Notes contains a
multiple or leverage factor, the effect of any change in the applicable Index
may be increased. The historical experience of the relevant currencies,
commodities or interest rate indices should not be taken as an indication of
future performance of such currencies, commodities or interest rate indices
during the term of any Indexed Note.
The volatility of an Index may be affected by political or economic events,
including governmental actions, or by the activities of participants in the
relevant markets, any of which could adversely affect the value of an Indexed
Note.
Illiquidity
The secondary market for Indexed Notes will be affected by a number of
factors, independent of the creditworthiness of the Company and the value of the
applicable Index, including the volatility of the applicable Index, the time
remaining to the maturity of such Notes, the amount outstanding of such Notes
and market interest rates.
Under certain circumstances, Indexed Notes may be illiquid and investors in
Indexed Notes may not be able to sell such Notes at a particular price or at any
price.
Availability and Composition of Indices
Certain Indices reference several different currencies, commodities,
securities or other financial instruments. The compiler of such an Index
typically reserves the right to alter the composition of the Index and the
manner in which the value of the Index is calculated. Such an alteration may
result in a decrease in the value of or return on an Indexed Note which is
linked to such Index.
An Index may become unavailable due to such factors as war, natural
disasters, cessation of publication of the Index, or suspension of or disruption
in trading in the currency or currencies, commodity or commodities, security or
securities or other financial instrument or instruments comprising or underlying
such Index. If an Index becomes unavailable, the determination of principal of
or interest on an Indexed Note may be delayed or an alternative method may be
used to determine the value of the unavailable Index. Alternative methods of
valuation are generally intended to produce a value similar to the value
resulting from reference to
S-19
<PAGE> 20
the relevant Index. However, it is unlikely that such alternative methods of
valuation will produce values identical to those which would be produced were
the relevant Index to be used. An alternative method of valuation may result in
a decrease in the value of or return on an Indexed Note.
Certain Indexed Notes are linked to Indices which are not commonly utilized
or have been recently developed. The lack of a trading history may make it
difficult to anticipate the volatility or other risks to which such a Note is
subject. In addition, there may be less trading in such Indices or instruments
underlying such Indices, which could increase the volatility of such Indices and
decrease the value of or return on Indexed Notes relating thereto.
BOOK-ENTRY SYSTEM
Unless otherwise specified in an applicable Pricing Supplement, upon
issuance, all Book-Entry System having the same Original Issue Date, Stated
Maturity and otherwise having identical terms and provisions will be represented
by a single global security (each, a "Global Note"). Each Global Note
representing Book-Entry System will be deposited with, or on behalf of, The
Depositary Trust Company (the "DTC"). Except as set forth below, a Global Note
may not be transferred except as a whole by the DTC to a nominee of the DTC or
by a nominee of the DTC to the DTC or another nominee of the DTC or by the DTC
or any nominee to a successor of the DTC or a nominee of such successor.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or its nominee, as the case may be, will be considered the sole Holder of the
Notes represented by such Global Note for all purposes under the Indenture and
the beneficial owners of the Notes will be entitled only to those rights and
benefits afforded to them in accordance with DTC's regular operating procedures.
Upon specified written instructions of a Participant (defined below), DTC will
have its nominee assist Participants in the exercise of certain Holders' rights,
such as a demand for acceleration or an instruction to the Trustee. Except as
provided below, owners of beneficial interests in a Global Note will not be
entitled to have Notes represented by such Global Note registered in their
names, will not receive or be entitled to receive physical delivery of Notes of
such series in certificated form and will not be considered the registered
owners or Holders thereof under the Indenture.
If (i) DTC is at any time unwilling or unable to continue as depository or
if any time DTC ceases to be a clearing agency registered under the Exchange
Act, and a successor depository is not appointed by the Company within 90 days,
(ii) an Event of Default under the Indenture or the Supplemental Indenture with
respect to the Notes has occurred and is continuing and the beneficial owners
representing a majority in principal amount of the Notes represented by Global
Note advise DTC to cease acting as depository or (iii) the Operating
Partnership, in its sole discretion, determines at any time that the Notes shall
no longer be represented by a Global Note, the Operating Partnership will issue
individual Notes of the applicable amount and in certificated form in exchange
for the related Global Note. In any such instance, an owner of a beneficial
interest in such Global Note will be entitled to physical delivery of individual
Notes in certificated form of like series and tenor, equal in principal amount
to such beneficial interest and to have such Notes in certificated form
registered in its name. Notes so issued in certificated form will be issued in
denominations of $1,000 or any integral multiple thereof, and will be issued in
registered form only, without coupons.
The following is based on information furnished by DTC:
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act, DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the
S-20
<PAGE> 21
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Securities and
Exchange Commission.
Purchases of Notes under the DTC system must be made by or though Direct
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual purchaser of each Note ("Beneficial Owner") is
in turn recorded on the Direct and Indirect Participant's records. A Beneficial
Owner does not receive written confirmation from DTC of its purchase, but such
Beneficial Owner is expected to receive a written confirmation providing details
of the transaction, as well as periodic statements of its holdings, from the
Direct or Indirect Participant through which such Beneficial Owner entered into
the transaction. Transfers of ownership interests in Notes are accomplished by
entries made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners do not receive certificates representing their ownership
interests in the Notes, except in the event that use of the book-entry system
for the Notes is discontinued.
To facilitate subsequent transfers, the Notes are registered in the name of
DTC's partnership nominee, Cede & Co. The deposit of the Notes with DTC and
their registration in the name of Cede & Co. effects no change in beneficial
ownership. DTC has no knowledge of the actual Beneficial Owners of the Notes;
DTC records reflect only the identity of the Direct Participants to whose
accounts the Notes are credited, which may or may not be the Beneficial Owners.
The Participants remain responsible for keeping account of their holdings on
behalf of their customers.
Delivery of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants and
Indirect Participants to Beneficial Owners are governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the Notes.
Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy") to the issuer
as soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose accounts
the Notes are credited on the record date (identified on a list attached to the
Omnibus Proxy).
Principal and interest payments on the Notes will be made by the Operating
Partnership to the Trustee and from the Trustee to DTC. DTC's practice is to
credit Direct Participant's accounts on the payable date in accordance with
their respective holdings as shown on DTC's records unless DTC has reason to
believe that it will not receive payment on the payable date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC, the Trustee or the Operating
Partnership subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of principal and interest to DTC is the
responsibility of the Operating Partnership or the Trustee, disbursement of such
payments to Direct Participants is the responsibility of DTC, and disbursement
of such payments to the Beneficial Owners is the responsibility of Direct and
Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Notes at any time by giving reasonable notice to the Operating
Partnership or the Trustee. Under such circumstances, in the event that a
successor securities depository is not appointed, Note certificates are required
to be printed and delivered.
The Operating Partnership may decide to discontinue use of the system of
book-entry transfers through DTC (or a successory securities depository). In
that event, Note certificates will be printed and delivered.
None of the Operating Partnership, the Company, the Agents or the Trustee
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial interests in Global Note, or for
maintaining, supervising or reviewing any records relating to such beneficial
interests.
S-21
<PAGE> 22
UNITED STATES TAXATION
Set forth below is a summary of certain U.S. federal income tax
considerations of importance to holders of the Notes. The summary concerns
holders who hold the Notes as capital assets and not special classes of holders,
such as dealers in securities or currencies, persons who hold the Notes as a
hedge against currency risks or who hedge any currency risks of holding the
Notes, banks, tax-exempt investors or U.S. holders (as defined below) whose
functional currency is other than the U.S. dollar. The summary also does not
deal with holders of the Notes other than original purchasers. The discussion
below is based upon the United States Internal Revenue Code of 1986, as amended
(the "Code"), and final, temporary and proposed U.S. Treasury Regulations, which
are subject to change possibly with retroactive effect. Persons considering the
purchase of the Notes should consult their own tax advisors concerning the
application of U.S. federal income tax laws to their particular situations as
well as any consequences arising under the laws of any other taxing
jurisdiction.
U.S. TAX CONSIDERATIONS FOR U.S. HOLDERS
Interest
Interest on the Notes will generally be taxable to a U.S. holder as
ordinary interest income at the time it is accrued or received, depending on the
U.S. holder's method of accounting for tax purposes.
As used herein, "U.S. holder" means a beneficial owner of a Note who or
that is a citizen or resident of the United States, a domestic corporation or is
otherwise subject to U.S. federal income taxation on a net income basis in
respect of the Note. As used herein, the term "non-U.S. holder" means a holder
that is not a U.S. holder.
Original Issue Discount
General. Notes with a term greater than one year may be issued with
original issue discount ("OID") for federal income tax purposes. OID is the
excess of the "stated redemption price at maturity" of a Note over its "issue
price." If this excess is less than 0.25% of the Note's stated redemption price
at maturity multiplied by the number of complete years to its maturity (a "de
minimis amount"), the amount of OID is considered to be zero. The "stated
redemption price at maturity" of a Note is defined as all amounts payable on the
Note however designated other than payments of "qualified stated interest."
"Issue price" is defined as the first offering price to the public (excluding
bond houses and brokers) at which a substantial amount of the Notes have been
sold. "Qualified stated interest" is stated interest that is unconditionally
payable in cash or in property (other than debt instruments of the issuer) at
least annually at a single fixed rate (a single fixed rate is a rate that takes
into account the length of time between payments). If a Note has certain
interest payment characteristics (e.g., interest holidays, interest payable in
additional Notes or stepped interest rates), then the Note may also be treated
as having OID for federal income tax purposes even if such Note was issued at an
issue price which does not otherwise result in OID. Payments of qualified stated
interest on a Note are taxable to a U.S. holder as ordinary interest income at
the time such payments are accrued or received (in accordance with the U.S.
holder's regular method of tax accounting).
Accrual of OID. U.S. holders are required to include OID in income on or
before the receipt of cash attributable to such income regardless of such U.S.
holder's method of accounting for tax purposes. The amount of OID includible in
income by the initial U.S. holder of a Note is the sum of the daily portions of
OID which accrues under a constant yield method with respect to such Note for
each day during the accrual period or portion of the accrual period in which
such U.S. holder held such Note. The amount of OID which accrues in an accrual
period is an amount equal to the excess (if any) of (a) the product of the
Note's "adjusted issue price" at the beginning of such accrual period and its
yield of maturity (determined on the basis of compounding at the end of each
accrual period and properly adjusted to take into account the length of the
particular accrual period), over (b) the sum of the qualified stated interest
payments, if any, allocable to the accrual period. The daily portion of OID is
determined by allocating to each day in the accrual period a ratable portion of
the Note's OID allocable to the accrual period. The "adjusted issue price" of a
Note at the beginning of any accrual period is the sum of the issue price of
such Note plus the OID allocable to all prior accrual periods reduced by
payments on the Note other than qualified stated interest. An "accrual period"
S-22
<PAGE> 23
may be of any length and the accrual periods may even vary in length over the
term of the debt instrument, provided that each accrual period is no longer than
one year and each scheduled payment of principal or interest occurs at the first
day or the last day of an accrual period. Under these rules, U.S. holders will
generally have to include in income increasingly greater amounts of OID in
successive accrual periods.
Variable Rate Notes. A "Variable Rate Note" is a Note that: (i) has an
issue price that does not exceed the total noncontingent principal payments by
more than the lesser of (1) the product of (x) the total noncontingent principal
payments, (y) the number of complete years to maturity from the issue date and
(z) .015, or (2) 15 percent of the total noncontingent principal payments; (ii)
provides for stated interest compounded or paid at least annually at (1) one or
more "qualified floating rates," (2) a single fixed rate and one or more
qualified floating rates, (3) a single "objective rate" or (4) a single fixed
rate and a single objective rate that is a "qualified inverse floating rate;"
and (iii) the Note must not otherwise provide for any principal payments that
are contingent.
A qualified floating rate or objective rate in effect at any time during
the term of the instrument must be set at a "current value" of that rate. A
"current value" of a rate is the value of the rate on any day that is no earlier
than 3 months prior to the first day on which that value is in effect and no
later than 1 year following that first day.
Under recently issued Treasury Regulations, for a Note issued on or after
August 13, 1996, a variable rate is a "qualified floating rate" if (i)
variations in the value of the rate can reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds in the currency
in which the Note is denominated or (ii) it is equal to the product of such a
rate and either (a) a fixed multiple that is greater than .65 but not more than
1.35, or (b) a fixed multiple greater than .65 but not more than 1.35, increased
or decreased by a fixed rate. (For a Note issued on or after the date of
publication of this Prospectus, but before August 13, 1996, "zero" should
substitute both references to ".65.") A rate is not a qualified floating rate,
however, if the rate is subject to certain restrictions (including caps, floors,
governors, or other similar restrictions) unless such restrictions are fixed
throughout the term of the Note or are not reasonably expected as of the issue
date of significantly affect the yield on the Note.
Also under recently issued Treasury Regulations, for a Note issued on or
after August 13, 1996, an "objective rate" is a rate, other than qualified
floating rate, that is determined using a single, fixed formula and that is
based on objective financial or economic information. However, an objective rate
does not include a rate that is within the control of the issuer or a related
party. (For a Note issued on or after the date of publication of this
Prospectus, but before August 13, 1996, an objective rate is a rate, other than
a qualified floating rate, determined as above, but based on (i) one or more
qualified floating rate, (ii) one or more rates each of which would be a
qualified floating rate for a debt instrument denominated in a currency other
than the currency in which the debt instrument is denominated, (iii) the yield
or changes in the price of one or more actively traded items of personal
property other than stock or debt of the issue of a related party, or (iv) a
combination of objective rates.) Further, a variable rate is not an objective
rate if it is reasonably expected that the average value of the rate during the
first half of the Note's term will be either significantly less than or
significantly greater than the average value of the rate during the final half
of the Note's term. An objective rate is a "qualified inverse floating rate" if
(i) the rate is equal to a fixed rate minus a qualified floating rate, and (ii)
the variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the cost of newly borrowed funds. Under these
rules, Commercial Paper Rate Notes, Prime Rate Notes, LIBOR Notes, Treasury Rate
Notes, CD Rate Notes, and Federal Funds Rate Notes will generally be treated as
Variable Rate Notes.
In general, if a Variable Rate Note provides for stated interest at a
single qualified floating rate or objective rate at least annually, all stated
interest on the Note is qualified stated interest and the amount of qualified
stated interest and OID, if any, that accrues during an accrual period is
determined by assuming that the variable rate is a fixed rate equal to, in the
case of a qualified floating rate or qualified inverse floating rate, the value
as of the issue date of the qualified floating rate or qualified inverse
floating rate, or, in the case of any other objective rate, a fixed rate that
reflects the yield reasonably expected for the Note.
S-23
<PAGE> 24
The foregoing rules will not be applicable to any Note considered to be a
"qualifying debt instrument" component of an "integrated transaction," pursuant
to Treasury regulations on the integration of qualifying debt instruments.
The applicable Pricing Supplement will describe the rules for determining
the amount of interest and OID accruals on a Variable Rate Note which does not
provide for stated interest at a single qualified floating rate or objective
rate and does not provide for interest at a fixed rate, or a Variable Rate Note
which provides for stated interest either at one or more qualified floating
rates or at a qualified inverse floating rate in addition provides for stated
interest at a single fixed rate (other than at a single fixed rate for an
initial period).
Notes Subject to Contingencies Including Optional Redemptions
In general, if a Note provides for an alternative payment schedule or
schedules applicable upon the occurrence of a contingency or contingencies and
the timing and amounts of the payments that comprise each payment schedule are
known as of the issue date, the yield and maturity of the Note are computed
based on the single payment schedule, including the stated payment schedule, for
the Note which is significantly more likely than not to occur under all the
facts and circumstances. (However, any payments subject to a remote or
incidental contingency are generally ignored.) Notwithstanding this general
rule, if the Operating Partnership or the Holder has an unconditional option or
options that, if exercised, would require payments to be made on the Note under
an alternative payment schedule or schedules, then (i) in the case of an option
or options of the Operating Partnership, the Operating Partnership will be
deemed to exercise or not exercise an option or combination of options in that
manner that minimizes the yield on the Note and (ii) in the case of an option or
options of the Holder, the Holder will be deemed to exercise or not exercise an
option or combination of options in the manner that maximizes the yield on the
Note. For purposes of those calculations, the yield on the Note is determined by
using any date on which the Note may be redeemed or repurchased as the maturity
date and the amount payable on such date in accordance with the terms of the
Note as the principal amount payable at maturity.
If a contingency (including the exercise of an option) actually occurs or
does not occur contrary to an assumption made according to the above rules (a
"change in circumstances") then, except to the extent that a portion of the Note
is repaid as a result of the change in circumstances and solely for purposes of
the accrual of OID, the yield and maturity of the Note are redetermined by
treating the Note as retired and reissued on the date of the change in
circumstances for an amount equal to the Note's adjusted issue price on that
date.
Furthermore, if the Note provides for an alternative payment schedule or
schedules not covered by the above rules, the Note will generally be subject to
Treasury regulations on contingent payment debt instruments. Moreover, if a
Note, including an Indexed Note, provides for variable interest or is otherwise
contingent and does not qualify as a Variable Rate Note, then such Variable Rate
Note will be treated as a contingent payment debt instrument. Generally, if a
Note is treated as a contingent payment debt instrument, interest payments
thereon will be treated as contingent interest payments. Under recently issued
Treasury regulations, any contingent interest payments on a note would be
includable in income in a taxable year whether or not the amount of any payment
is fixed or determinable in that year. The amount of interest included in income
in any particular accrual period would be determined by constructing a projected
payment schedule that produces a "comparable yield," all as determined under the
Treasury regulations. If the actual amount of a contingent payment turns out not
to equal the amounts that were anticipated under the projected payment schedule,
appropriate adjustments are made to reflect the difference. These rules will
apply to contingent payment debt instruments issued on or after August 13, 1996.
Acquisition Discount on Short Term Notes
Notes that have a fixed maturity of one year or less ("Short-Term Notes")
generally will be issued with acquisition discount. U.S. holders who are accrual
basis taxpayers, cash basis taxpayers making an appropriate election under the
Code and taxpayers in certain specified classes will be required to include
acquisition discount in income currently on a straight-line basis, unless an
election is made to accrue such discount under a constant yield method (based on
daily compounding). Individuals and non-electing cash basis taxpayers
S-24
<PAGE> 25
holding Short-Term Notes are not required to include accrued acquisition
discount in income until the cash payments attributable to such discount are
received, which payments will be treated as ordinary income. A U.S. holder who
does not recognize acquisition discount currently will be required to recognize
ordinary income on the sale, exchange or retirement of the Short-Term Note to
the extent of accrued acquisition discount, and may be subject to limitations on
the deductibility of interest of indebtedness incurred to purchase or carry such
Notes.
Market Discount and Acquisition Premium
If a U.S. holder purchases a Note that was not issued with OID for an
amount that is less than its issue price (or, in the case of subsequent
purchaser, its stated redemption price at maturity) or, in the case of a Note
that was issued with OID, its revised issue price as of the purchase date, the
amount of the difference will be treated as a "market discount." If the market
discount exceeds a de minimis amount, any gain on the sale, exchange or
retirement of the Note is treated as ordinary interest income at the time of the
disposition to the extent of the accrued market discount, unless the U.S. holder
elects to accrue market discount on a current basis. Such an election will apply
to all debt instruments with market discount acquired by the electing U.S.
holder on or after the first day of the first taxable year to which the election
applies. This election may not be revoked without the consent of the Internal
Revenue Service (the "Service"). In addition, a U.S. holder not electing current
inclusion is required to defer deductions until maturity of the Note or its
earlier disposition for a portion of such holder's interest expense on any
indebtedness incurred to purchase or carry such Note. Market discount is
normally accrued on a straight-line basis, but a holder may elect to use a
constant yield method. Such election will apply only the Note with respect to
which it is made and may not be revoked.
If a U.S. holder acquires a Note issued with OID for an amount above the
adjusted issue price, but less than or equal to the sum of all amounts payable
other than qualified stated interest, such U.S. holder may be considered to have
purchased the Note at an "acquisition premium." The amount of OID which such
holder (not making the election described below under "Election to Treat All
Interest as OID") must otherwise include in its gross income with respect to the
Note for any taxable year (or potion thereof in which the holder holds the Note)
will be reduced (but not below zero) by the portion of acquisition premium
properly allocable to such period.
Bond Premium. If a U.S. holder acquires a Note for an amount that is
greater than the stated redemption price at maturity, such U.S. holder will be
considered to have purchased the Note with "amortizable bond premium" equal to
the amount of such excess. Such a U.S. holder may elect to amortize this premium
over the remaining life of the Note (using a constant yield method) as an offset
to income otherwise includible in the U.S. holder's income. Any election to
amortize bond premium will apply to all bonds (other than bonds the interest on
which is excludable from gross income) held by the U.S. holder at the beginning
of the first taxable year to which the election applies and to all such bonds
thereafter acquired by the U.S. holder, and may not be revoked without the
consent of the Service.
Election to Treat All Interest as OID
U.S. holders may generally elect to include all interest and discount
(including stated interest, acquisition discount, OID, de minimis OID, market
discount, de minimis market discount, and unstated interest, as adjusted by any
amortizable bond premium or acquisition premium on a debt instrument) in income
by using the constant yield method applicable to OID, subject to certain
limitations and exceptions.
This election will generally apply only to the Note or the class or group
of Notes with respect to which it is made and may not be revoked without the
consent of the Service. If this election is made this respect to a Note with
amortizable bond premium, the electing holder will be deemed to have made the
election discussed above under "Bond Premium" with respect to all debt
instruments with amortizable bond premium (other than debt instruments the
interest on which is excludable from gross income) held by the electing U.S.
holder as of the beginning of the taxable year in which the Note with respect to
which the election is made is acquired or thereafter acquired.
S-25
<PAGE> 26
If the election to apply the constant yield method to all interest on a
Note is made with respect to a Market Discount Note, the electing U.S. holder
will be treated as having made the election discussed above under "Market
Discount and Acquisition Premium" to include market discount in income currently
over the life of all debt instruments held or thereafter acquired by such U.S.
holder.
Disposition or Repayment of a Note
U.S. holders of Notes may recognize gain or loss on the sale, redemption,
exchange or other disposition of a Note. This gain or loss is measured by the
difference between the amount realized (except to the extent attributable to
accrued interest) and the U.S. holder's adjusted tax basis in the Note. A U.S.
holder's adjusted tax basis for determining gain or loss on a sale or
disposition of a Note generally will be such holder's cost increased by any
amounts included in income, other than qualified stated interest, and reduced by
any amortized premium and cash received other than qualified stated interest.
Gain or loss on the sale, exchange or redemption of a Note generally will be
long term capital gain or loss if the Note has been held for more than one year,
except to the extent that gain represents accrued market discount or acquisition
discount not previously included in the U.S. holder's income.
Indexed Notes
The applicable Pricing Supplement will contain a discussion of any special
United States federal income tax rules with respect to Notes that are not
subject to the rules governing Variable Rate Notes payments or which are
determined by reference to any index.
U.S. TAX CONSIDERATIONS FOR FOREIGN HOLDERS
Set forth below is a summary of certain U.S. federal income tax
consequences for non-U.S. holders of the Notes.
Assuming certain certification requirements are satisfied (which generally
can be satisfied by providing Internal Revenue Service Form W-8, identifying the
beneficial owner of the instrument as a non-U.S. person and disclosing the
non-U.S. holder's name and address), and assuming that the Note is not subject
to the rules of Section 871(h)(4)(A) of the Code (relating to interest payments
that are determined by reference to the income, profits, changes in value of
property or other attributes of the debtor or a related party) under current
U.S. federal income and estate tax laws.
(i) Payments of principal and interest (including OID) on a Note to a
non-U.S. holder will not be subject to U.S. federal income tax or
withholding tax, provided that, in the case of interest and OID, (a) the
payments are not effectively connected with a U.S. trade or business, (b)
the holder does not actually or constructively own 10% or more of the
capital or profits interest of the Operating Partnership and (c) the holder
is not a controlled foreign corporation related to the Operating
Partnership.
(ii) A non-U.S. holder of a Note will not be subject to U.S. federal
income tax on gain realized on the sale, exchange or redemption of a Note
unless such gain is effectively connected with a U.S. trade or business or,
in the case of a non-U.S. holder who is an individual, such holder is
present in the United States for a total of 183 days or more during the
taxable year in which such gain is realized and other conditions apply; and
(iii) A Note held by an individual who at the time of death is not a
citizen or resident of the United States will not be subject to U.S.
federal estate tax as a result of such individual's death, unless the
individual actually or constructively owns 10% or more of the capital or
profits interest of the Operating Partnership or the interest received on
such Note is effectively connected with the conduct by such holder of a
U.S. trade or business.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current U.S. federal income tax law, a 31% "backup" withholding tax
is applied to certain interest and principal payments made to, and to the
proceeds of sales before maturity by, certain U.S. persons if such
S-26
<PAGE> 27
persons fail to supply taxpayer identification numbers and other information.
Interest paid with respect to a Note and received by a non-U.S. holder will not
be subject to information reporting or backup withholding if the payor has
received appropriate certification statements (described above) and provided
that the payor does not have actual knowledge that the holder is a U.S. person.
SUPPLEMENTAL PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis for sale by the Operating
Partnership to or through Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Dean Witter Reynolds Inc., Goldman, Sachs & Co. and J.P.
Morgan Securities Inc. (the "Agents"). Any Agent may purchase Notes, as
principal, from the Operating Partnership from time to time for resale to
investors and other purchasers at varying prices relating to prevailing market
prices at the time of resale as determined by such Agent, or, if so specified in
the applicable Pricing Supplement, for resale at a fixed offering price. If
agreed to by the Operating Partnership and the applicable Agent, such Agent may
also utilize its reasonable efforts on an agency basis to solicit offers to
purchase the Notes at 100% of the principal amount thereof, unless otherwise
specified in the applicable Pricing Supplement. The Operating Partnership will
pay a commission to such Agent, ranging from .125% to .750% of the principal
amount of each Note, depending upon its Stated Maturity, sold through such
Agent. Commissions with respect to Notes with Stated Maturities in excess of 30
years that are sold through an Agent will be negotiated between the Operating
Partnership and such Agent at the time of such sale.
Unless otherwise specified in the applicable Pricing Supplement, any Note
sold to any Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage of the principal
amount equal to the commission applicable to an agency sale of a Note of
identical Stated Maturity. An Agent may sell Notes it has purchased from the
Operating Partnership as principal to other dealers for resale to investors and
other purchasers, and may allow any portion of the discount received in
connection with such purchase from the Operating Partnership to such dealers.
After the initial offering of Notes, the offering price (in the case of Notes to
be resold on a fixed offering price basis), the concession and the discount may
be changed.
The Operating Partnership reserves the right to withdraw, cancel or modify
the offer made hereby without notice and may reject offers in whole or in part
(whether placed directly with the Operating Partnership or through an Agent). An
Agent will have the right, in its discretion reasonably exercised, to reject in
whole or in part any offer to purchase Notes received by it on an agency basis.
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in U.S. dollars in The City of New York on the date of
settlement. See "Description of Notes -- General."
Upon issuance, the Notes will not have an established trading market. The
Notes will not be listed on any securities exchange. The Agents may from time to
time purchase and sell Notes in the secondary market, but the Agents are not
obligated to do so, and there can be no assurance that there will be a secondary
market for the Notes or that there will be liquidity in the secondary market if
one develops. From time to time, an Agent may make a market in the Notes, but
the Agents are not obligated to do so and may discontinue any market-making
activity at any time.
Each Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). The Operating
Partnership and the Company have jointly and severally agreed to indemnify the
Agents against certain liabilities (including liabilities under the Securities
Act), or to contribute to payments the Agents may be required to make in respect
thereof. The Operating Partnership has agreed to reimburse the Agents for
certain other expenses.
The Operating Partnership has reserved the right to sell Notes directly to
investors on its own behalf in those jurisdictions where it is authorized to do
so.
S-27
<PAGE> 28
In the ordinary course of its business, the Agents and their respective
affiliates have engaged and may in the future engage in investment and
commercial banking transactions with the Operating Partnership, the Company and
certain of their affiliates.
Concurrently with the offering of Notes described herein, the Operating
Partnership may issue and sell other Offered Securities described in the
accompanying Prospectus and such sales may reduce the aggregate initial offering
price of the Notes offered hereby.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Operating Partnership and the Company by Morrison & Foerster LLP, Palo Alto,
California. Certain legal matters will be passed upon for the Agents by Latham &
Watkins, San Francisco, California.
S-28
<PAGE> 29
PROSPECTUS
$782,113,750
LOGO SPIEKER PROPERTIES, INC.
COMMON STOCK, PREFERRED STOCK,
DEPOSITARY SHARES, WARRANTS AND GUARANTEES
SPIEKER PROPERTIES, L.P.
DEBT SECURITIES
------------------------
Spieker Properties, Inc. (the "Company") may from time to time offer in one
or more series or classes (i) shares of its common
stock, par value $0.0001 per share (the "Common Stock"), (ii) shares or
fractional shares of its preferred stock, par value $0.0001 per share (the
"Preferred Stock"), (iii) shares of Preferred Stock represented by Depositary
Shares (the "Depositary Shares"), (iv) warrants to purchase Preferred Stock or
Common Stock (the "Warrants"), and (v) unconditional guarantees (the
"Guarantees") of unsecured Debt Securities (as defined below) issued by Spieker
Properties, L.P. (the "Operating Partnership") in amounts, at prices and on
terms to be determined at the time of offering, with an aggregate public
offering price of up to $392,113,750 (or its equivalent in another currency
based on the exchange rate at the time of sale) in amounts, at prices and on
terms to be determined at the time of offering. The Operating Partnership may
from time to time offer in one or more series unsecured non-convertible
investment grade debt securities, which may be either senior debt securities
("Senior Securities") or subordinated debt securities ("Subordinated
Securities," and together with the Senior Securities, the "Debt Securities"),
with an aggregate public offering price of up to $390,000,000 (or its equivalent
in another currency based on the exchange rate at the time of sale) in amounts,
at prices and on terms to be determined at the time of offering. The Debt
Securities may be guaranteed by Guarantees of the Company as to payment of
principal, premium, if any, and interest. The Common Stock, Preferred Stock,
Depositary Shares, Warrants, and Debt Securities (collectively, the "Offered
Securities") may be offered, separately or together, in separate series in
amounts, at prices and on terms to be set forth in one or more supplements to
the Prospectus (each a "Prospectus Supplement").
The specific terms of the Offered Securities in respect to which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable (i) in the case of Common Stock,
the specific title and stated value and any initial public offering price; (ii)
in the case of Preferred Stock, the specific title and stated value, any
dividend, liquidation, redemption, conversion, voting and other rights, and any
initial public offering price; (iii) in the case of Depositary Shares, the
fractional share of Preferred Stock represented by each such Depositary Share;
(iv) in the case of Warrants, the duration, offering price, exercise price and
detachability; and (v) in the case of Debt Securities the specific title,
aggregate principal amount, currency, form (which may be registered or bearer,
or certificated or global), authorized denominations, maturity, rate (or manner
of calculation thereof) and time of payment of interest, terms for redemption at
the option of the Operating Partnership or repayment at the option of the
holder, terms for sinking fund payments, covenants, applicability of any
Guarantees and any initial public offering price. In addition, such specific
terms may include limitations on direct or beneficial ownership and restrictions
on transfer of the Offered Securities, in each case as may be appropriate to
preserve the status of the Company as a real estate investment trust ("REIT")
for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States Federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company or the Operating Partnership, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Offered Securities, their names, and any applicable purchase
price, fee, commission or discount arrangement between or among them, will be
set forth, or will be calculable from the information set forth, in the
applicable Prospectus Supplement. See "Plan of Distribution." No Offered
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of such series of Offered
Securities.
------------------------
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 DATE OF THIS PROSPECTUS IS JUNE 20, 1996.
<PAGE> 30
AVAILABLE INFORMATION
The Company and the Operating Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith the Company and the Operating Partnership
file 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 Company's Common Stock and
Series B Preferred Stock are 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 and the Operating Partnership have filed with the Commission
registration statements on Form S-3 (the "Registration Statements") (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 Statements,
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 Statements, each such statement being
qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company, the Operating
Partnership and the Offered Securities, reference is hereby made to the
Registration Statements 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 the Company's Annual Report on Form 10-K/A
(Amendment No. 1) filed with the Commission on June 20, 1996;
b. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996;
c. The Company's Current Report on Form 8-K dated June 19, 1996;
d. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A (File No. 1-12528); and
e. The description of the Company's Series B Preferred Stock contained
in the Company's Registration Statement on Form 8-A (File No. 1-12528).
The documents listed below have been filed by the Operating Partnership
under the Exchange Act with the Commission and are incorporated by reference
herein.
a. The Operating Partnership's Annual Report on Form 10-K for the year
ended December 31, 1995, and the Operating Partnership's Annual Report on
Form 10-K/A (Amendment No. 1) filed with the Commission on June 20, 1996;
b. The Operating Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996; and
c. The Operating Partnership's Current Report on Form 8-K dated June
19, 1996.
2
<PAGE> 31
Each document filed by the Company or the Operating Partnership 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 of all Offered
Securities to which this Prospectus relates shall be deemed to be incorporated
by reference in this Prospectus and to be part hereof from the date of filing
such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in 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.
3
<PAGE> 32
THE COMPANY AND THE OPERATING PARTNERSHIP
Spieker Properties, Inc. (the "Company") is a self-administered and
self-managed equity real estate investment trust ("REIT") that was formed in
1993 to continue and to expand the business of owning, operating, managing,
leasing, acquiring, developing and redeveloping commercial property previously
conducted by Spieker Partners. As of March 31, 1996, the Company owned and
operated 134 income-producing properties (the "Properties"), aggregating
approximately 18.0 million rentable square feet and comprised of 74 industrial
Properties, 44 office Properties and 16 retail Properties. All of the Properties
are located in California, and in Washington, Oregon and Idaho (the "Pacific
Northwest").
The Company conducts substantially all of its activities through Spieker
Properties, L.P. (the "Operating Partnership") in which it owns an approximate
84.9% general partnership interest. An approximate 15.1% limited partnership
interest in the Operating Partnership is owned by senior members of the
Company's management and certain outside investors. As the sole general partner
of the Operating Partnership, the Company has control over the management of the
Operating Partnership and over each of the Properties.
The Company's 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 telephone number is (415) 854-5600.
USE OF PROCEEDS
The Company intends to invest the net proceeds of any sale of Common Stock,
Preferred Stock, Depositary Shares or Warrants in the Operating Partnership.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Operating Partnership intends to use such net proceeds and the net proceeds from
the sale of any Debt Securities for general corporate purposes including,
without limitation, the acquisition and development of industrial, office and
retail properties and the repayment of debt. Net proceeds from the sale of the
Offered Securities initially may be temporarily invested in short-term
securities.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's and the Operating Partnership's ratio of earnings to fixed
charges for the three months ended March 31, 1996 was 2.52x and for the years
ended December 31, 1994 and December 31, 1995 was 1.29x and 1.61x, respectively.
The Company's ratio of earnings to combined fixed charges and preferred stock
dividends for the three months ended March 31, 1996 was 1.90x and for the years
ended December 31, 1994 and December 31, 1995 was 1.26x.
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges (excluding capitalized interest) to income (loss) from
operations, before extraordinary items. Fixed charges consist of interest costs,
whether expensed or capitalized, the interest component of rental expense, and
amortization of debt discounts and deferred financing fees, whether expensed or
capitalized.
Prior to the completion of the Company's initial public offering ("IPO") in
November 1993, the Company's predecessors (collectively, "SPP") operated in a
manner as to minimize net taxable income to the owners. As a result, although
the Company's properties historically have generally positive net cash flow, SPP
had net losses for the years ended December 31, 1991 through 1993. Consequently,
the computation of the ratio of earnings to fixed charges indicates that
earnings were inadequate to cover fixed charges by approximately $17.0 million,
$9.4 million and $13.5 million for 1991, 1992 and 1993 (which includes the
Company's results of operations for the period of November 19, 1993 through
December 31, 1993, during which the Company had no outstanding preferred stock),
respectively.
The Company's IPO and the other transactions undertaken concurrently with
the IPO permitted the Company to significantly deleverage properties, resulting
in a significantly improved ratio of earnings to fixed charges.
4
<PAGE> 33
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 Offered Securities.
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 and the Operating Partnership's ability
to make payments of any interest and principal on any Debt Securities 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 45% of the Properties as of March 31, 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.
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.
5
<PAGE> 34
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.
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.
6
<PAGE> 35
DESCRIPTION OF DEBT SECURITIES
The following sets forth certain general terms and provisions of the
Indenture under which the Debt Securities are to be issued. The particular terms
of the Debt Securities will be set forth in a Prospectus Supplement relating to
such Debt Securities.
The Debt Securities are to be issued under an Indenture dated December 6,
1995, as amended or supplemented from time to time (the "Indenture"), among the
Operating Partnership, the Company and State Street Bank and Trust Company
chosen by the Operating Partnership and the Company and qualified to act as
trustee under the Trust Indenture Act of 1939, as amended (the "TIA") (together
with any other trustee(s) appointed in a supplemental indenture with respect to
a particular series, the "Trustee"). The Indenture is available for inspection
at the corporate trust office of the Trustee, or as described above under
"Available Information." The Indenture is subject to, and governed by, the TIA.
The Operating Partnership and the Company will execute the Indenture if and when
the Operating Partnership issues the Debt Securities. The statements made
hereunder relating to the Indenture and the Debt Securities to be issued
hereunder are summaries of certain provisions thereof and do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Indenture and such Debt Securities. All section
references appearing herein are to sections of the Indenture, and capitalized
terms used but not defined herein shall have the respective meanings set forth
in the Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership. Except for any series of Debt Securities which is specifically
subordinated to other indebtedness of the Operating Partnership, the Debt
Securities will rank pari passu with all other unsecured and unsubordinated
indebtedness of the Operating Partnership. Under the Indenture, the Debt
Securities may be issued without limit as to aggregate principal amount, in one
or more series, in each case as established from time to time in or pursuant to
authority granted by a resolution of the Board of Directors of the Company as
sole general partner of the Operating Partnership or as established in one or
more indentures supplemental to the Indenture. All Debt Securities of one series
need not be issued at the same time and, unless otherwise provided, a series may
be reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section
301).
The Debt Securities may be unconditionally guaranteed by the Company as to
payment of principal, premium, if any, and interest. (Section 1601).
The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee will be appointed to act with respect
to such series (Section 608). In the event that two or more persons are acting
as Trustee with respect to different series of Debt Securities, each such
Trustee shall be a trustee of a trust under the Indenture separate and apart
from the trust administered by any other Trustee (Section 609), and, except as
otherwise indicated herein, any action described herein to be taken by the
Trustee may be taken by each such Trustee with respect to, and only with respect
to, the one or more series of Debt Securities for which it is Trustee under the
Indenture.
TERMS
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities, whether such Debt Securities
are Senior Securities or Subordinated Securities and whether such Debt
Securities are guaranteed by a Guarantee;
(2) the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
7
<PAGE> 36
(3) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount thereof,
the portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
(4) the date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the Interest Payment Dates
on which any such interest will be payable, the Regular Record Dates for
such Interest Payment Dates, or the method by which such Dates shall be
determined, the Person to whom such interest shall be payable, and the
basis upon which interest shall be calculated if other than that of a
360-day year of twelve 30-day months;
(7) the place or places where (i) the principal of (and premium, if
any) and interest, if any, on such Debt Securities will be payable, (ii)
such Debt Securities may be surrendered for registration of transfer,
exchange or conversion and (iii) notices or demands to or upon the
Operating Partnership in respect of such Debt Securities, any applicable
Guarantees and the Indenture may be served;
(8) the period or periods within which, or the date or dates on which,
the price or prices at which and the terms and conditions upon which such
Debt Securities may be redeemed, as a whole or in part, at the option of
the Operating Partnership, if the Operating Partnership is to have such an
option;
(9) the obligation, if any, of the Operating Partnership to redeem,
repay or repurchase such Debt Securities pursuant to any sinking fund or
analogous provisions or at the option of a Holder thereof, and the period
or periods within which, or the date or dates on which, the price or prices
at which and the terms and conditions upon which such Debt Securities are
required to be redeemed, repaid or purchased, as a whole or in part,
pursuant to such obligation;
(10) if other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and/or payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts shall be determined;
(12) any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to the Events of Default or covenants or
other provisions set forth in the Indenture;
(13) whether such Debt Securities will be issued in certificated
and/or book-entry form;
(14) whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(15) the applicability, if any, of the defeasance and covenant
defeasance provisions of Article XIV of the Indenture, or any modification
thereof;
(16) the terms and conditions, if any, upon which such Debt Securities
may be subordinated to other indebtedness of the Operating Partnership;
(17) whether and under what circumstances the Operating Partnership
will pay Additional Amounts as contemplated in the Indenture on such Debt
Securities in respect of any tax, assessment or governmental charge and, if
so, whether the Operating Partnership will have the option to redeem such
Debt Securities in lieu of making such payment; and
8
<PAGE> 37
(18) any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special U.S. federal income tax,
accounting and other considerations applicable to the Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
The Indenture does not contain any provisions that would limit the ability
of the Operating Partnership to incur indebtedness or that would afford Holders
of Debt Securities protection in the event of a highly leveraged or similar
transaction involving the Operating Partnership. However, restrictions on
ownership and transfers of the Company's common stock and preferred stock,
designed to preserve the Company's status as a REIT, may prevent or hinder a
change of control. Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of or additions to
the Events of Default or covenants of the Operating Partnership that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
GUARANTEES
The Debt Securities may be unconditionally and irrevocably guaranteed by
Guarantees of the Company, on a senior or subordinated basis, which will
guarantee the due and punctual payment of principal of, premium, if any, and
interest on such Debt Securities, and the due and punctual payment of any
sinking fund payments thereon, when and as the same shall become due and payable
whether at a maturity date, by declaration of acceleration, call for redemption
or otherwise. The applicability and terms of any such Guarantee relating to a
series of Debt Securities will be set forth in the Prospectus Supplement
relating to such Debt Securities. (Section 1601).
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee, provided that, at
the option of the Holder, payment of interest may be made by check mailed to the
address of the Person entitled thereto as it appears in the Security Register or
by wire transfer of funds to such Person at an account maintained within the
United States (Sections 301, 305, 307 and 1002).
All amounts paid by the Operating Partnership to a paying agent or a
Trustee for the payment of the principal of or any premium or interest on any
Debt Security which remain unclaimed at the end of two years after the
principal, premium or interest has become due and payable will be repaid to the
Operating Partnership, and the holder of the Debt Security thereafter may look
only to the Operating Partnership for payment thereof. (Section 1003).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture
(Sections 101 and 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series, of a like aggregate principal amount
and tenor, of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the Trustee. In addition, subject to
certain limitations imposed upon Debt Securities issued in book-entry form, the
Debt Securities of any series may be surrendered for conversion or
9
<PAGE> 38
registration of transfer thereof at the corporate trust office of the Trustee
referred to above. Every Debt Security surrendered for conversion, redemption,
registration of transfer or exchange shall be duly endorsed or accompanied by a
written instrument of transfer. No service charge will be made for any
registration of transfer or exchange of any Debt Securities, but the Operating
Partnership may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith (Section 305). If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the Trustee) initially designated by the Operating Partnership with respect to
any series of Debt Securities, the Operating Partnership may at any time rescind
the designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Operating
Partnership will be required to maintain a transfer agent in each Place of
Payment for such series. The Operating Partnership may at any time designate
additional transfer agents with respect to any series of Debt Securities
(Section 1002).
Neither the Operating Partnership nor the Trustee shall be required to (i)
issue, register the transfer of or exchange Debt Securities of any series during
a period beginning at the opening of business 15 days before any selection of
Debt Securities of that series to be redeemed and ending at the close of
business of the day of mailing of the relevant notice of redemption; (ii)
register the transfer of or exchange any Debt Security, or portion thereof,
called for redemption, except the unredeemed portion of any Debt Security being
redeemed in part; or (iii) issue, register the transfer of or exchange any Debt
Security which has been surrendered for repayment at the option of the Holder,
except that portion, if any, of such Debt Security which is not to be so repaid
(Section 305).
MERGER, CONSOLIDATION OR SALE
The Operating Partnership may consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
person, provided (a) either the Operating Partnership shall be the continuing
person, or the successor (if other than the Operating Partnership) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets shall expressly assume payment of the principal of (and
premium, if any) and interest on all of the Debt Securities and the due and
punctual performance and observance of all of the covenants and conditions
contained in the Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness which becomes an obligation of the
Operating Partnership or any Subsidiary as a result thereof as having been
incurred by the Operating Partnership or such Subsidiary at the time of such
transaction, no Event of Default under the Indenture, and no event which, after
notice or the lapse of time, or both, would become such an Event of Default,
shall have occurred and be continuing; and (c) an officers' certificate of the
Company as General Partner of the Operating Partnership and an opinion of
counsel covering such conditions shall be delivered to the Trustee (Sections 801
and 803).
CERTAIN COVENANTS
Existence. Except as permitted under "Merger, Consolidation or Sale," the
Indenture requires each of the Operating Partnership and the Company (if the
Company has guaranteed any Debt Securities) to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
(partnership and statutory) and franchises; provided, however, that each of the
Operating Partnership and the Company shall not be required to preserve any
right or franchise if the Board of Directors of the Company determines that the
preservation thereof is no longer desirable in the conduct of the business of
the Operating Partnership and that the loss thereof is not disadvantageous in
any material respect to the Holders of the Debt Securities (Section 1004).
Maintenance of Properties. The Indenture requires each of the Operating
Partnership and the Company (if the Company has guaranteed any Debt Securities)
to cause all of its material properties used or useful in the conduct of its
business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order, all as in the judgment of the Operating
Partnership may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that the Operating Partnership or the Company, as the case may be, and
its Subsidiaries
10
<PAGE> 39
shall not be prevented from selling or otherwise disposing of their properties
for value in the ordinary course of business. (Section 1006).
Insurance. The Indenture requires the Operating Partnership and each of its
Subsidiaries to keep its insurable Properties insured against loss or damage
with commercially reasonable amounts and types of insurance provided by insurers
of recognized responsibility. (Section 1007).
Payment of Taxes and Other Claims. The Indenture requires each of the
Operating Partnership and the Company (if the Company has guaranteed any Debt
Securities) to pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (i) all taxes, assessments and governmental
charges levied or imposed upon it or any Subsidiary or upon its income, profits
or property or that of any Subsidiary and (ii) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Operating Partnership or any Subsidiary; provided, however, that
the Operating Partnership or the Company shall not be required to pay or
discharge or cause to be paid or discharged any tax, assessment, charge or claim
whose amount or applicability is being contested in good faith. (Section 1008).
Provision of Financial Information. The Operating Partnership will file
with the Trustee copies of annual reports, quarterly reports and other documents
(the "Financial Reports") which the Operating Partnership files with the
Commission or would be required to file with the Commission pursuant to Sections
13 or 15(d) of the Exchange Act if the Operating Partnership were subject to
such Sections; provided, however, that if the Operating Partnership is not
subject to such Sections, it may, in lieu of filing Financial Reports of the
Operating Partnership with the Trustee, file Financial Reports of the Company if
they would be materially the same as those that would have been filed by the
Operating Partnership with the Commission pursuant to Sections 13 or 15(d) of
the Exchange Act.
Additional Covenants. Reference is made to the applicable Prospectus
Supplement for information with respect to any additional covenants specific to
a particular series of Debt Securities.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the Prospectus Supplement, the Indenture
provides that the following events are "Events of Default" with respect to any
series of Debt Securities issued thereunder: (a) default for 30 days in the
payment of any interest on any Debt Security of such series; (b) default in the
payment of any principal of (or premium, if any, on) any Debt Security of such
series when due; (c) default in making any sinking fund payment as required for
any Debt Security of such series; (d) default in the performance of any other
covenant or warranty of the Operating Partnership or the Company contained in
the Indenture with respect to any Debt Security of such series, continued for 60
days after written notice as provided in the Indenture; (e) default in the
payment of an aggregate principal amount exceeding $10,000,000 of any evidence
of indebtedness of the Operating Partnership or the Company (if the Company or
any subsidiary of the Company has guaranteed any indebtedness of the Operating
Partnership) or any mortgage, indenture, note, bond, capitalized lease or other
instrument under which such indebtedness is issued or by which such indebtedness
is secured, such default having continued after the expiration of any applicable
grace period and having resulted in the acceleration of the maturity of such
indebtedness, but only if such indebtedness is not discharged or such
acceleration is not rescinded or annulled; (f) certain events of bankruptcy,
insolvency or reorganization, or court appointment of a receiver, liquidator or
trustee of the Operating Partnership and the Company (if the Company has
guaranteed any Debt Securities), or any Significant Subsidiary or all or
substantially all of any of their respective property; and (g) any other Event
of Default provided with respect to a particular series of Debt Securities
(Section 501). The term "Significant Subsidiary" means each significant
Subsidiary (as defined in Regulation S-X promulgated under the Securities Act)
of the Operating Partnership or the Company, as the case may be. (Section 101).
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time Outstanding occurs and is continuing, then in every
such case the Trustee or the Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of that series may declare the
principal amount (or, if the Debt Securities of that series are Original Issue
Discount Securities or Indexed Securities,
11
<PAGE> 40
such portion of the principal amount as may be specified in the terms thereof)
of all of the Debt Securities of that series to be due and payable immediately
by written notice thereof to the Company (if the Company has guaranteed any Debt
Securities under such Indenture) and the Operating Partnership (and to the
Trustee if given by the Holders). However, any time after such a declaration of
acceleration with respect to Debt Securities of such series has been made, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the Holders of not less then a majority in principal amount of
Outstanding Debt Securities of such series may rescind and annul such
declaration and its consequences if (a) the Operating Partnership shall have
paid or deposited with the Trustee all required payments of the principal of
(and premium, if any) and interest on the Debt Securities of such series plus
certain fees, expenses, disbursements and advances of the Trustee and (b) all
Events of Default, other than the nonpayment of accelerated principal or
interest with respect to Debt Securities of such series have been cured or
waived as provided in the Indenture (Section 502). The Indenture also provides
that the Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may waive any past default with
respect to such series and its consequences, except a default (x) in the payment
of the principal of (or premium, if any) or interest on any Debt Security of
such series or (y) in respect of a covenant or provision contained in the
Indenture that cannot be modified or amended without the consent of the Holder
of each Outstanding Debt Security affected thereby (Section 513).
The Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the Indenture; provided, however, that the
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if the Responsible Officers of the Trustee consider
such withholding to be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the Indenture
or for any remedy thereunder, except in the case of failure of the Trustee, for
60 days, to act after it has received a written request to institute proceedings
in respect of an Event of Default from the Holders of not less than a majority
in principal amount of the Outstanding Debt Securities of that series, as well
as an offer of reasonable indemnity (Section 507). This provision will not
prevent, however, any Holder of Debt Securities from instituting suit for the
enforcement of payment of the principal of (and premium, if any) and interest on
such Debt Securities at the respective due date thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any Holders of Debt
Securities of any series then Outstanding under the Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or of exercising any trust or power conferred upon the Trustee.
However, the Trustee may refuse to follow any direction which is in conflict
with any law or the Indenture, which may involve the Trustee in personal
liability or which may be unduly prejudicial to the Holders of Debt Securities
of such series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, the Operating
Partnership and the Company (if the Company has guaranteed any Debt Securities)
must deliver to the Trustee a certificate, signed by one of several specified
officers of the Company, stating whether or not such officer has knowledge of
any default under the Indenture and, if so, specifying each such default and the
nature and status thereof (Section 1005).
MODIFICATION OF THE INDENTURE
Modifications and amendments of provisions of the Indenture applicable to
any series may be made only with consent of the Holders of not less than a
majority in principal amount of all Outstanding Debt Securities which are
affected by such modification or amendment; provided, however, that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected thereby, (a) change
12
<PAGE> 41
the Stated Maturity of the principal of, or any installment of principal of or
interest (or premium, if any) on, any such Debt Security; (b) reduce the
principal amount of, or the rate or amount of interest on, or any premium
payable on redemption of, any such Debt Security, or reduce the amount of
principal of an Original Issue Discount Security that would be due and payable
upon declaration of acceleration of the maturity thereof or would be provable in
bankruptcy, or adversely affect any right of repayment of the Holder of any such
Debt Security; (c) change the Place of Payment, or the coin or currency, for
payment of principal of, premium, if any, or interest on any such Debt Security;
(d) impair the right to institute suit for the enforcement of any payment on or
with respect to any such Debt Security on or after the Stated Maturity thereof;
(e) reduce the above-stated percentage of Outstanding Debt Securities of any
series necessary to modify or amend the Indenture, to waive compliance with
certain provisions thereof or certain defaults and consequences thereunder or to
reduce the quorum or voting requirements set forth in the Indenture; or (f)
modify any of the foregoing provisions or any of the provisions relating to the
waiver of certain past defaults or certain covenants, except to increase the
required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the Holder of
such Debt Security (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of a particular series have the right to waive compliance by the
Operating Partnership or the Company with certain covenants in the Indenture
relating to such series (Section 1010).
Modifications and amendments of the Indenture may be made by the Operating
Partnership and the Company (if the Company has guaranteed any Debt Securities)
and the Trustee without the consent of any Holder of Debt Securities for any of
the following purposes: (i) to evidence the succession of another Person to the
Operating Partnership as obligor under the Indenture or succession of another
Person as Guarantor; (ii) to add to the covenants of the Operating Partnership
and the Company (if the Company has guaranteed any Debt Securities) for the
benefit of the Holders of all or any series of Debt Securities or to surrender
any right or power conferred upon the Operating Partnership or the Company in
the Indenture; (iii) to add Events of Default for the benefit of the Holders of
all or any series of Debt Securities; (iv) to add or change any provisions of
the Indenture to facilitate the issuance of Debt Securities in bearer form, or
to permit or facilitate the issuance of Debt Securities in uncertificated form,
provided that such action shall not adversely affect the interests of the
Holders of the Debt Securities of any series in any material respect; (v) to
change or eliminate any provisions of the Indenture, provided that any such
change or elimination shall become effective only when there are not Debt
Securities Outstanding of any series created prior thereto which are entitled to
the benefit of such provision; (vi) to secure the Debt Securities or Guarantees;
(vii) to establish the form or terms of Debt Securities of any series and any
related Guarantees; (viii) to provide for the acceptance of appointment by a
successor Trustee or facilitate the administration of the trust under the
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in the Indenture, provided that such action shall not adversely
affect the interests of Holders of Debt Securities of any series in any material
respect; and (x) to supplement any of the provisions of the Indenture to the
extent necessary to permit or facilitate defeasance and discharge of any series
of such Debt Securities, provided that such action shall not adversely affect
the interests of the Holders of the Debt Securities of any series in any
material respect (Section 901).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a Foreign Currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise
13
<PAGE> 42
provided with respect to such Indexed Security pursuant to Section 301 of the
Indenture, and (iv) Debt Securities owned by the Operating Partnership or any
other obligor upon the Debt Securities or any Affiliate of the Operating
Partnership or of such other obligor shall be disregarded (Section 101).
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). A meeting may be called at any time
by the Trustee, and also, upon request, by the Operating Partnership or the
Holders of at least 25% in principal amount of the Outstanding Debt Securities
of such series, in any such case upon notice given as provided in the Indenture
(Section 1502). Except for any consent that must be given by the Holder of each
Debt Security affected by certain modifications and amendments of the Indenture,
any resolution presented at a meeting or adjourned meeting duly reconvened at
which a quorum is present may be adopted by the affirmative vote of the Holders
of a majority in principal amount of the Outstanding Debt Securities of that
series; provided, however, that, except as referred to above, any resolution
with respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the Holders of a
specified percentage, which is less than a majority, in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of
the Holders of such specified percentage in principal amount of the Outstanding
Debt Securities of that series. Any resolution passed or decision taken at any
meeting of Holders of Debt Securities of any series duly held in accordance with
the Indenture will be binding on all Holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be Persons holding or representing a majority in principal amount
of the Outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the Holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the Indenture expressly provides may be made, given or taken by the Holders of a
specified percentage in principal amount of all Outstanding Debt Securities
affected thereby, or of the Holders of such series and one or more additional
series: (i) there shall be no minimum quorum requirement for such meeting and
(ii) the principal amount of the Outstanding Debt Securities of such series that
vote in favor of such request, demand, authorization, direction, notice,
consent, waiver or other action shall be taken into account in determining
whether such request, demand, authorization, direction, notice, consent, waiver
or other action has been made, given or taken under the Indenture (Section
1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise provided in the Prospectus Supplement, the Operating
Partnership or the Company (if the Company has guaranteed any Debt Securities
under such Indenture) may discharge certain obligations to Holders of any series
of Debt Securities that have not already been delivered to the Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or are scheduled for redemption within one year) by
irrevocably depositing with the Trustee, in trust, funds in such currency or
currencies, currency unit or units or composite currency or currencies in which
such Debt Securities are payable in an amount sufficient to pay the entire
indebtedness on such Debt Securities in respect of principal (and premium, if
any) and interest to the date of such deposit (if such Debt Securities have
become due and payable) or to the Stated Maturity or Redemption Date, as the
case may be (Section 401).
The Indenture provides that, unless otherwise provided in the Prospectus
Supplement, if the provisions of Article Fourteen are made applicable to the
Debt Securities of any series pursuant to Section 301 of the Indenture, the
Operating Partnership may elect either (a) to decease and be discharged from any
and all obligations with respect to such Debt Securities (except for the
obligation to pay Additional Amounts, if any, upon the occurrence of certain
events of tax, assessment or governmental charge with respect to payments on
such Debt Securities and the obligations to register the transfer or exchange of
such Debt Securities, to
14
<PAGE> 43
replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to
maintain an office or agency in respect of such Debt Securities to compensate
the Trustee and to hold moneys for payment in trust) ("defeasance") (Section
1402) or (b) to be released from its obligations with respect to such Debt
Securities under Sections 1006 through 1008, inclusive, of the Indenture (being
the restrictions described under "Certain Covenants") or, if provided pursuant
to Section 301 of the Indenture, its obligations with respect to any other
covenant, and any omission to comply with such obligations shall not constitute
a default or an Event of Default with respect to such Debt Securities ("covenant
defeasance") (Section 1403), in either case upon the irrevocable deposit by the
Operating Partnership or the Company, as the case may be, with the Trustee, in
trust, of any amount, in such currency or currencies, currency unit or units or
composite currency or currencies in which such Debt Securities are payable at
Stated Maturity, or Government Obligations (as defined below), or both
applicable to such Debt Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any) and interest on
such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Operating
Partnership has delivered to the Trustee an Opinion of Counsel (as specified in
the Indenture) to the effect that the Holders of such Debt Securities will not
recognize income, gain or loss for U.S. Federal income tax purposes as a result
of such defeasance or covenant defeasance and will be subject to U.S. Federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance or covenant defeasance had not
occurred, and such Opinion of Counsel, in the case of defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the Foreign
Currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Operating Partnership or the Company, as the case may be, has deposited
funds and/or Government Obligations to effect defeasance or covenant defeasance
with respect to Debt Securities of any series, (a) the Holder of a Debt Security
of such series is entitled to, and does, elect pursuant to Section 301 of the
Indenture or the terms of such Debt Security to receive payment in a currency,
currency unit or composite currency other than that in which such deposit has
been made in respect of such Debt Security, or (b) a Conversion Event (as
defined below) occurs in respect of the currency, currency unit or composite
currency in which such deposit has been made, the indebtedness represented by
such Debt Security shall be deemed to have been, and will be, fully discharged
and satisfied through the payment of the principal of (and premium, if any) and
interest on such Debt Security as the same becomes due out of the proceeds
yielded by converting the amount so deposited in respect of such Debt Security
into the currency, currency unit or composite currency in which such Debt
Security becomes payable as a result of such election or such cessation of usage
based on the applicable market exchange rate (Section 1405). "Conversion Event"
means the cessation of use of (i) a currency, currency unit or composite
currency either by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions or within the international
15
<PAGE> 44
banking community, (ii) the ECU either within the European Monetary System or
for the settlement of transactions by public institutions of or within the
European Communities or (iii) any currency unit or composite currency other than
the ECU for the purposes for which it was established. (Section 101.) Unless
otherwise provided in the applicable Prospectus Supplement, all payments of
principal of (and premium, if any) and interest on any Debt Security that is
payable in a Foreign Currency that cease to be used by its government of
issuance shall be made in U.S. dollars.
In the event the Operating Partnership or the Company, as the case may be,
effects covenant defeasance with respect to any Debt Securities and such Debt
Securities are declared due and payable because of the occurrence of any Event
of Default other than the Event of Default described in clause (d) under "Events
of Default, Notice and Waiver" with respect to Section 1006 through 1008 of the
Indenture (which Sections would no longer be applicable to such Debt Securities)
or described in clause (g) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
Debt Securities are payable, and Government Obligations on deposit with the
Trustee, will be sufficient to pay amounts due on such Debt Securities at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
such Debt Securities at the time of the acceleration resulting from such Event
of Default. However, the Operating Partnership and the Company (if the Company
has guaranteed any Debt Securities) would remain liable to make payment of such
amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of a particular series.
SUBORDINATION
The terms and conditions, if any, upon which the Debt Securities are
subordinated to other indebtedness of the Operating Partnership will be set
forth in the applicable Prospectus Supplement relating thereto. Such terms will
include a description of the indebtedness ranking senior to the Debt Securities,
the restrictions on payments to the Holders of such Debt Securities while a
default with respect to such senior indebtedness in continuing, the
restrictions, if any, on payments to the Holders of such Debt Securities
following an Event of Default, and provisions requiring Holders of such Debt
Securities to remit certain payments to holders of senior indebtedness.
DESCRIPTION OF COMMON STOCK
GENERAL
As of March 31, 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
("Series B Preferred Stock"), par value $0.0001 per share, (iv) 2,000,000 shares
of Class B Common Stock, par value $0.0001 per share, (v) 1,500,000 shares of
Class C Common Stock, par value $0.0001 per share and (vi) 330,000,000 shares of
excess stock (the "Excess Stock").
As of March 31, 1996, there were (i) 31,773,361 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 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
16
<PAGE> 45
under other stock compensation plans of the Company. As of May 22, 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 was reserved for issuance
under the Spieker Properties, Inc. 1993 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.
COMMON STOCK
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of Preferred Stock or Depositary Shares or upon the
exercise of Warrants issued by the Company. 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." Chemical Mellon Shareholder
Services, L.L.C. 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 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. A Prospectus Supplement
will specify the terms of such class or series.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
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 --
17
<PAGE> 46
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 in certain limited situations 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.
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.
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 more than 200 but fewer than 2,000
stockholders or one-half of 1% if there are 200 or less stockholders of record)
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 ensure compliance with the
Ownership Limit.
The articles supplementary, if applicable, for the Offered Securities may
also contain provisions that further restrict the ownership and transfer of the
Offered Securities. The applicable Prospectus Supplement will specify any
additional ownership limitation relating to the Offered Securities.
18
<PAGE> 47
DESCRIPTION OF CLASS B COMMON STOCK, CLASS C COMMON STOCK,
SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK
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, 1995.
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 an
institutional investor 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 percent. The dividend per share on the Class
B 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 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, on a parity with
the holders of Class C Common Stock and 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 investor who purchased the shares of Class B Common Stock has
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 holder of Class B Common Stock is not entitled to vote on matters voted on
by stockholders of the Company.
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 March 31, 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.
19
<PAGE> 48
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 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 March 31, 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 on a parity with
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 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 shareholders' 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.
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, of
which 4,250,000 shares were issued and outstanding as of March 31, 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, of
$2.3625 per share. The Company currently pays regular dividends to holders of
Series B Preferred Stock.
In the event of any 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, Class B Common Stock and Class C
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 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 other 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
1986 Internal Revenue Code, as amended (the "Code"), the Series B Preferred
Stock may be exchanged for Excess Stock. See "Description of Common
Stock -- General." The holders of shares of Series
20
<PAGE> 49
B Preferred Stock have no voting rights with respect to matters voted upon by
the holders of shares of Common Stock.
DESCRIPTION OF PREFERRED STOCK
GENERAL
Subject to limitations prescribed by Maryland law and the Company's
Charter, the Board of Directors is authorized to issue, from the authorized but
unissued shares of capital stock of the Company, Preferred Stock in such classes
or series as the Board of Directors may determine and to establish from time to
time the number of shares of Preferred Stock to be included in any such 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 the shares of any such class or
series, and such other subjects or matters as may be fixed by resolution of the
Board of Directors. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company.
Preferred Stock, upon issuance against full payment of the purchase price
therefor, will be fully paid and nonassessable. The specific terms of a
particular class or series of Preferred Stock will be described in the
Prospectus Supplement relating to that class or series, including a Prospectus
Supplement providing that Preferred Stock may be issuable upon the exercise of
Warrants issued by the Company. The description of Preferred Stock set forth
below and the description of the terms of a particular class or series of
Preferred Stock set forth in a Prospectus Supplement do not purport to be
complete and are qualified in their entirety by reference to the articles
supplementary relating to that class or series.
The preferences and other terms of the Preferred Stock of each class or
series will be fixed by the articles supplementary relating to such class or
series. A Prospectus Supplement, relating to each class or series, will specify
the terms of the Preferred Stock as follows:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(3) The dividend rate(s), period(s), and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) Whether such Preferred Stock is cumulative or not and, if
cumulative, the date from which dividends on such Preferred Stock shall
accumulate;
(5) The provision for a sinking fund, if any, for such Preferred
Stock;
(6) The provision for redemption, if applicable, of such Preferred
Stock;
(7) Any listing of such Preferred Stock on any securities exchange;
(8) The terms and conditions, if applicable, upon which such Preferred
Stock will be converted into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
(9) A discussion of any material Federal income tax considerations
applicable to such Preferred Stock;
(10) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Company as a REIT;
(11) The relative ranking and preferences of such Preferred Stock as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(12) Any limitations on issuance of any class or series of preferred
stock ranking senior to or on a parity with such class or series of
Preferred Stock as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company;
21
<PAGE> 50
(13) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock; and
(14) Any voting rights of such Preferred Stock.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of common stock and excess stock of the Company, and to all equity
securities ranking junior to such Preferred Stock with respect to dividend
rights and rights upon liquidation, dissolution or winding up of the Company;
(ii) on a parity with all equity securities issued by the Company the terms of
which specifically provide that such equity securities rank on a parity with the
Preferred Stock with respect to dividends rights or rights upon liquidation,
dissolution or winding up of the Company; and (iii) junior to all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank senior to the Preferred Stock with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any shares of any class or
series of Preferred Stock are convertible into Common Stock will be set forth in
the applicable Prospectus Supplement relating thereto. Such terms will include
the number of shares of Common Stock into which the shares of Preferred Stock
are convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders of such class or series of Preferred Stock or the Company, the
events requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such class or series of Preferred
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 of the
Company. See "Description of Common Stock -- Restrictions on Transfer." The
applicable Prospectus Supplement will also specify any additional ownership
limitation relating to a series of Preferred Stock.
22
<PAGE> 51
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue Depositary Shares, each of which will represent a
fractional interest of a share of a particular class or series of Preferred
Stock, as specified in the applicable Prospectus Supplement. Shares of a class
or series of Preferred Stock represented by Depositary Shares will be deposited
under a separate Deposit Agreement (each, a "Deposit Agreement") among the
Company, the depositary named therein (the "Preferred Stock Depositary") and the
holders from time to time of the depositary receipts issued by the Preferred
Stock Depositary which will evidence the Depositary Shares ("Depositary
Receipts"). Subject to the terms of the Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular class or series of Preferred Stock represented by the
Depositary Shares evidenced by such Depositary Receipt, to all the rights and
preferences of the class or series of the Preferred Stock represented by such
Depositary Shares (including dividend, voting, conversion, redemption and
liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to a Preferred Stock
Depositary, the Company will cause such Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the statements made hereunder relating to the Deposit Agreement and
the Depositary Receipt to be issued thereunder are summaries of certain
anticipated provisions thereof and do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the applicable Deposit Agreement and related Depositary Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of a class or series of Preferred Stock
to the record holders of Depositary Receipts evidencing the related Depositary
Shares in proportion to the number of the such Depositary Receipts owned by such
holders, subject to certain obligations of holders to file proofs, certificates
and other information and to pay certain charges and expenses to such Preferred
Stock Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless such Preferred Stock
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Stock Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any class or series of Preferred Stock converted into
Excess Stock or otherwise converted or exchanged.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption or converted or converted into Excess
Stock or otherwise), the holders thereof will be entitled to delivery at such
office, to or upon each such holder's order, of the number of whole or
fractional shares of the class or series of Preferred Stock and any money or
other property represented by the Depositary Shares evidenced by such Depositary
Receipts. Holders of Depositary Receipts will be entitled to receive whole or
fractional shares of the related class or series of Preferred Stock on the basis
of the proportion of Preferred Stock represented by each Depositary Share as
specified in the applicable Prospectus Supplement, but holders of such shares of
Preferred Stock will not thereafter be entitled to receive Depositary Shares
therefor. If the Depositary Receipts delivered by the holder evidence a number
of Depositary Shares in excess of the number of Depositary Shares representing
the
23
<PAGE> 52
number of shares of Preferred Stock to be withdrawn, the Preferred Stock
Depositary will deliver to such holder at the same time a new Depositary Receipt
evidencing such excess number of Depositary Shares.
REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by the
Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of the
same redemption date the number of the Depositary Shares representing shares of
such class or series of Preferred Stock so redeemed, provided the Company shall
have paid in full to the Preferred Stock Depositary the redemption price of the
Preferred Stock to be redeemed plus an amount equal to any accrued and unpaid
dividends thereon to the date fixed for redemption. The redemption price per
Depositary Share will be equal to the corresponding proportion of the redemption
price and any other amounts per share payable with respect to such class or
series of Preferred Stock. If fewer than all the Depositary Shares are to be
redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company that will not result in
the issuance of any Excess Stock.
From and after the date fixed for redemption, all dividends in respect of
the shares of a class of series of Preferred Stock so called for redemption will
cease to accrue, the Depositary Shares so called for redemption will no longer
be deemed to be outstanding and all rights of the holders of the Depositary
Receipts evidencing the Depositary Shares so called for redemption will cease,
except the right to receive any moneys payable upon such redemption and any
money or other property to which the holders of such Depositary Receipts were
entitled upon such redemption upon surrender thereof to the Preferred Stock
Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of a class or
series of Preferred Stock deposited with the Preferred Stock Depositary are
entitled to vote, the Preferred Stock Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Receipts evidencing the Depositary Shares which represent such class or series
of Preferred Stock. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for such class or series of Preferred Stock) will be entitled to instruct
the Preferred Stock Depositary as to the exercise of the voting rights
pertaining to the amount of Preferred Stock represented by such holder's
Depositary Shares. The Preferred Stock Depositary will vote the amount of such
class or series of Preferred Stock represented by such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the amount of Preferred
Stock represented by such Depositary Shares to the extent it does not receive
specific instructions from the holders of Depositary Receipts evidencing such
Depositary Shares. The Preferred Stock Depositary will not be responsible for
any failure to carry out any instruction to vote, or for the manner or effect of
any such vote made, as long as any such action or non-action is in good faith
and does not result from negligence or willful misconduct of the Preferred Stock
Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock
or any other securities or property of the Company, except in connection with
certain exchanges in connection with the preservation of the Company's status as
a REIT. See "Description of Common Stock -- Restrictions on Transfer."
Nevertheless, if so specified in the applicable Prospectus Supplement relating
to an offering of Depositary
24
<PAGE> 53
Shares, the Depositary Receipts may be surrendered by holders thereof to the
applicable Preferred Stock Depositary with written instructions to the Preferred
Stock Depositary to instruct the Company to cause conversion of a class or
series of Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipts into whole shares of Common Stock, other shares of a class
or series of Preferred Stock (including Excess Stock) of the Company or other
shares of stock, and the Company has agreed that upon receipt of such
instructions and any amounts payable in respect thereof, it will cause the
conversion thereof utilizing the same procedures as those provided for delivery
of Preferred Stock to effect such conversion. If the Depositary Shares evidenced
by a Depositary Receipt are to be converted in part only, a Depositary Receipt
or Receipts will be issued for any Depositary Shares not to be converted. No
fractional shares of Common Stock will be issued upon conversion, and if such
conversion will result in a fractional share being issued, an amount will be
paid in cash by the Company equal to the value of the fractional interest based
upon the closing price of the Common Stock on the last business day prior to the
conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing Depositary Shares which represent
the Preferred Stock and any provision of the Deposit Agreement may at any time
be amended by agreement between the Company and the Preferred Stock Depositary.
However, any amendment that materially and adversely alters the rights of the
holders of Depositary Receipts or that would be materially and adversely
inconsistent with the rights granted to the holders of the related Preferred
Stock will not be effective unless such amendment has been approved by the
existing holders of at least two-thirds of the applicable Depositary Shares
evidenced by the applicable Depositary Receipts then outstanding. No amendment
shall impair the right, subject to certain anticipated exceptions in the Deposit
Agreements, of any holder of Depositary Receipts to surrender any Depositary
Receipt with instructions to deliver to the holder the related class or series
of Preferred Stock and all money and other property, if any, represented
thereby, except in order to comply with law. Every holder of an outstanding
Depositary Receipt at the time any such amendment becomes effective shall be
deemed, by continuing to hold such Depositary Receipt, to consent and agree to
such amendment and to be bound by the applicable Deposit Agreement as amended
thereby.
The Deposit Agreement may be terminated by the Company upon not less than
30 days' prior written notice to the Preferred Stock Depositary if (i) such
termination is necessary to preserve the Company's status as a REIT or (ii) a
majority of each series class or of Preferred Stock subject to such Deposit
Agreement consents to such termination, whereupon the Preferred Stock Depositary
will deliver or make available to each holder of Depositary Receipts, upon
surrender of the Depositary Receipts held by such holder, such number of whole
or fractional shares of each Preferred Stock as are represented by the
Depositary Shares evidenced by such Depositary Receipts together with any other
property held by preferred Stock Depositary with respect to such Depositary
Receipts. The Company has agreed that if the Deposit Agreement is terminated to
preserve the Company's status as a REIT, then the Company will use its best
efforts to list each class or series of Preferred Stock issued upon surrender of
the related Depositary Shares. In addition, the Deposit Agreement will
automatically terminate if (i) all outstanding Depositary Shares shall have been
redeemed, (ii) there shall have been a final distribution in respect of each
class or series of Preferred Stock in connection with any liquidation,
dissolution or winding up of the Company and such distribution shall have been
distributed to the holders of the Depositary Receipts evidencing the Depositary
Shares representing such class or series of Preferred Stock or (iii) each share
of the related Preferred Stock shall have been converted into stock of the
Company not so represented by Depositary Shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Stock Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of the
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
25
<PAGE> 54
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Stock Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Stock Depositary. A successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Stock Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of a class or
series of Preferred Stock represented by the Depositary Shares), gross
negligence or willful misconduct, and the Company and the Preferred Stock
Depositary will not be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of a class or
series of Preferred Stock represented thereby unless satisfactory indemnity is
furnished. The Company and the Preferred Stock Depositary may rely on written
advice of counsel or accountants, or information provided by persons presenting
shares of Preferred Stock represented thereby for deposit, holders of Depositary
Receipts or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event a Preferred Stock Depositary shall receive conflicting claims,
requests or instructions from any holders of Depositary Receipts, on the one
hand, and the Company, on the other hand, the Preferred Stock Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
DESCRIPTION OF WARRANTS
The Company has no Warrants outstanding (other than options issued under
the Company's employee stock option plan). The Company may issue Warrants for
the purchase of Preferred Stock or Common Stock. Warrants may be issued
independently or together with any other Offered Securities offered by any
Prospectus Supplement and may be attached to or separate from such Offered
Securities. Each series of Warrants will be issued under a separate warrant
agreement (each, a "Warrant Agreement") to be entered into between the Company
and a warrant agent specified in the applicable Prospectus Supplement (the
"Warrant Agent"). The Warrant Agent will act solely as an agent of the Company
in connection with the Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any provisions of the
Warrants offered hereby. Further terms of the Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following: (1) the title of such Warrants; (2) the
aggregate number of such Warrants; (3) the price or prices at which such
Warrants will be issued; (4) the designation, terms and number of shares of
Preferred Stock or Common Stock purchasable upon exercise of such Warrants; (5)
the designation and terms of the Offered Securities, if any, with which such
Warrants are issued and the number of such Warrants issued with each such
Offered Security; (6) the date, if any, on and after which such Warrants and the
related Preferred Stock or Common Stock will be separately transferable; (7) the
price at which each share of Preferred Stock or Common Stock purchasable upon
exercise of such Warrants may be purchased; (8) the date on which the right to
exercise such Warrants shall commence and the date on which such right shall
expire; (9) the minimum or maximum amount of such Warrants which
26
<PAGE> 55
may be exercised at any one time; (10) information with respect to book-entry
procedures, if any; (11) a discussion of certain Federal income tax
considerations; and (12) any other terms of such Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Warrants.
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 Common 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
Preferred Stock -- General."
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. Certain Federal Income Tax
Considerations relevant to holders of the Offered Securities will be provided in
the applicable Prospectus Supplement relating thereto.
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 OFFERED SECURITIES.
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 has acted as tax counsel
to the Company in connection with the Company's election to be taxed as a REIT.
In the opinion of Morrison & Foerster, 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. 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."
27
<PAGE> 56
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 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.
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
28
<PAGE> 57
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
Common 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.
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 nongovernment 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 REIT 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);
29
<PAGE> 58
(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 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
30
<PAGE> 59
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.
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.
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
31
<PAGE> 60
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.
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 certain of
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 certain of 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
32
<PAGE> 61
Partnership of the contributed assets (including certain of 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.
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.
33
<PAGE> 62
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.
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.
PLAN OF DISTRIBUTION
The Company and the Operating Partnership may sell the Offered Securities
to one or more underwriters for public offering and sale by them or may sell the
Offered Securities to investors directly or through agents, which agents may be
affiliated with the Company or the Operating Partnership. Any such underwriter
or agent involved in the offer and sale of the Offered Securities will be named
in the applicable Prospectus Supplement.
Sales of Offered Securities offered pursuant to any applicable Prospectus
Supplement may be effected from time to time in one or more transactions at a
fixed price or prices which may be changed, at prices related to the prevailing
market prices at the time of sale, or at negotiated prices. The Company and the
Operating Partnership also may, from time to time, authorize underwriters acting
as the Company's agents to offer and sell the Offered Securities upon the terms
and conditions as set forth in the applicable Prospectus Supplement. In
connection with the sale of Offered Securities, underwriters may be deemed to
have received compensation from the Company or from the Operating Partnership in
the form of underwriting discounts or commissions and may also receive
commissions from purchasers of Offered Securities for whom they may act as
agent. Underwriters may sell Offered Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company or the Operating
Partnership to underwriters or agents in connection with the offering of Offered
Securities, and any discounts, concessions or commissions
34
<PAGE> 63
allowed by underwriters to participating dealers, will be set forth in the
applicable Prospectus Supplement. Underwriters, dealers and agents participating
in the distribution of the Offered Securities may be deemed to be underwriters,
and any discounts and commissions received by them and any profit realized by
them on resale of the Offered Securities may be deemed to be underwriting
discounts and commissions under the Securities Act. Underwriters, dealers and
agents may be entitled, under agreements entered into with the Company and the
Operating Partnership, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act. Any
such indemnification agreements will be described in the applicable Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Offered Securities will be a new issue with no established trading
market, other than the Common Stock and Series B Preferred Stock which are
listed on the New York Stock Exchange. Any shares of Common Stock and Series B
Preferred Stock sold pursuant to a Prospectus Supplement will be listed on such
exchange, subject to official notice of issuance. The Company or the Operating
Partnership may elect to list any other series of Preferred Stock and any series
of Debt Securities, Depositary Shares or Warrants on any exchange, but neither
is obligated to do so. It is possible that one or more underwriters may make a
market in a series of Offered Securities, but will not be obligated to do so and
may discontinue any market making at any time without notice. Therefore, no
assurance can be given as to the liquidity of the trading market for the Offered
Securities.
If so indicated in the applicable Prospectus Supplement, the Company or the
Operating Partnership, as the case may be, may authorize dealers acting as the
Company's or the Operating Partnership's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company or the Operating
Partnership at the public offering price set forth in such Prospectus Supplement
pursuant to Delayed Delivery Contracts ("Contracts") providing for payment and
delivery on the date or dates stated in such Prospectus Supplement. Each
Contract will be for an amount not less than, and the aggregate principal amount
of Offered Securities sold pursuant to Contracts shall be not less nor more
than, the respective amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to the approval of the Company or the Operating
Partnership, as the case may be. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Offered Securities covered by
its Contracts shall not at the time of delivery be prohibited under the laws of
any jurisdiction in the United States to which such institution is subject, and
(ii) if the Offered Securities are being sold to underwriters, the Company or
the Operating Partnership, as the case may be, shall have sold to such
underwriters the total principal amount of the Offered Securities less the
principal amount thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for, the Company or the
Operating Partnership in the ordinary course of business.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company and the Operating Partnership included in the Company's
and the Operating Partnership's respective Annual Reports on Form 10-K for the
year ended December 31, 1995, and Amendment No. 1 to the Operating Partnership's
Annual Report on Form 10-K/A filed with the Commission on June 20, 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 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 Offered Securities will be passed upon for the Company
and the Operating Partnership by Morrison & Foerster, 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.
35
<PAGE> 64
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR
THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT,
THE APPLICABLE PRICING SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE OPERATING PARTNERSHIP, THE COMPANY OR ANY AGENT. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR THE PROSPECTUS
NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE
AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE
OPERATING PARTNERSHIP OR THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS
SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Operating Partnership............. S-3
Use of Proceeds....................... S-3
Description of Notes.................. S-4
United States Taxation................ S-22
Supplemental Plan of Distribution..... S-27
Legal Matters......................... S-28
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company and the Operating
Partnership......................... 4
Use of Proceeds....................... 4
Ratio of Earnings to Fixed Charges.... 4
Special Considerations................ 5
Description of Debt Securities........ 7
Description of Common Stock........... 16
Description of Class B Common Stock,
Class C Common Stock, Series A
Preferred Stock and Series B
Preferred Stock..................... 19
Description of Preferred Stock........ 21
Description of Depositary Shares...... 23
Description of Warrants............... 26
Certain Provisions of the Company's
Charter and Bylaws.................. 27
Federal Income Tax Considerations..... 27
Plan of Distribution.................. 34
Experts............................... 35
Legal Matters......................... 35
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
LOGO
$200,000,000
SPIEKER PROPERTIES, L.P.
MEDIUM-TERM NOTES
DUE NINE MONTHS
OR MORE FROM DATE
OF ISSUE
---------------------------
PROSPECTUS SUPPLEMENT
---------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
JUNE 20, 1996
------------------------------------------------------
------------------------------------------------------
