<PAGE>
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-24915
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 7, 1997)
4,000,000 SHARES
BRE PROPERTIES, INC.
COMMON STOCK
-----------------
BRE PROPERTIES, INC. ( "BRE" OR THE "COMPANY") IS A FULLY INTEGRATED REAL ESTATE
OPERATING COMPANY WHICH OWNS, ACQUIRES, REHABILITATES AND MANAGES APARTMENT
COMMUNITIES IN TARGETED MARKETS IN CALIFORNIA, ARIZONA, WASHINGTON, OREGON
AND NEVADA. AS OF APRIL 15, 1997, BRE'S MULTIFAMILY PORTFOLIO INCLUDED 55
APARTMENT COMMUNITIES AGGREGATING 13,015 UNITS. THE COMPANY HAS
ELECTED TO OPERATE AS A REAL ESTATE INVESTMENT TRUST (A
"REIT") FOR FEDERAL INCOME TAX PURPOSES.
------------------------
OF THE 4,000,000 SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE (THE "COMMON
SHARES"), OF THE COMPANY OFFERED HEREBY (THE
"OFFERING"), 3,350,000 ARE BEING SOLD BY THE COMPANY AND 650,000 ARE
BEING SOLD BY A NON-MANAGEMENT SHAREHOLDER OF THE COMPANY (THE
"SELLING SHAREHOLDER"). THE COMPANY WILL NOT RECEIVE ANY PROCEEDS
FROM THE COMMON SHARES SOLD BY THE
SELLING SHAREHOLDER. SEE "SELLING SHAREHOLDER."
------------------------
THE COMMON SHARES ARE LISTED ON THE NEW YORK STOCK EXCHANGE (THE "NYSE") UNDER
THE SYMBOL "BRE." ON MAY 8, 1997, THE LAST REPORTED SALE PRICE OF THE COMMON
SHARES ON THE NYSE COMPOSITE TAPE WAS $24 3/4. SEE "PRICE RANGE OF
COMMON SHARES AND DISTRIBUTIONS." THE COMMON SHARES ARE SUBJECT TO
CERTAIN RESTRICTIONS ON OWNERSHIP DESIGNED TO PRESERVE THE
COMPANY'S STATUS AS A REIT FOR FEDERAL
INCOME TAX PURPOSES.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR A
DISCUSSION OF CERTAIN FACTORS RELATING TO AN INVESTMENT IN THE COMMON
SHARES.
-------------------
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 OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------
PRICE $24 1/2 A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) SHAREHOLDER (2)
------------------ --------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
PER SHARE........................ $24.500 $1.285 $23.215 $23.215
TOTAL (3)........................ $98,000,000 $5,140,000 $77,770,250 $15,089,750
</TABLE>
- ------------
(1) THE COMPANY AND THE SELLING SHAREHOLDER HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933. SEE "UNDERWRITING."
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $500,000.
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS AN OPTION, EXERCISABLE
WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
600,000 ADDITIONAL COMMON SHARES AT THE PRICE TO PUBLIC LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF
ANY. IF THE UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE TO
PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS, PROCEEDS TO COMPANY AND
PROCEEDS TO SELLING SHAREHOLDER WILL BE $112,700,000, $5,911,000,
$91,699,250 AND $15,089,750, RESPECTIVELY. SEE "UNDERWRITING."
------------------------
THE COMMON SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS, AND IF
ACCEPTED BY THE UNDERWRITERS NAMED HEREIN, AND SUBJECT TO APPROVAL OF CERTAIN
LEGAL MATTERS BY BROWN & WOOD LLP, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED
THAT DELIVERY OF THE COMMON SHARES WILL BE MADE ON OR ABOUT MAY 14, 1997 AT THE
OFFICES OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT
THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
-------------------
MORGAN STANLEY & CO.
INCORPORATED
ALEX. BROWN & SONS
INCORPORATED
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES INCORPORATED
MAY 8, 1997
<PAGE>
[A chart showing a bar graph comparing the number of multifamily properties and
units owned by the Company at the end of each year from 1992 to 1996 and as of
April 15, 1997. The chart also includes a comparison of multifamily units owned
by the Company before and after the Merger.]
[Map of the western United States indicating the locations of the current and
prospective markets of BRE Properties, Inc. with a chart showing the number of
multifamily units owned by the Company in each of its nine current markets as of
April 15, 1997.]
<PAGE>
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus Supplement or the accompanying
Prospectus in connection with the offer made by this Prospectus Supplement and
the accompanying Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Company, the Selling Shareholder or any of the Underwriters. This Prospectus
Supplement and the accompanying Prospectus do not constitute an offer to sell or
a solicitation of an offer to buy any security other than the Common Shares
offered hereby, nor do they constitute an offer to sell or a solicitation of any
offer to buy the Common Shares by anyone in any jurisdiction in which such offer
or solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus
Supplement or the accompanying Prospectus nor any sale or offer made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Supplement Summary.............................................................................. S-4
Recent Events.............................................................................................. S-6
Use of Proceeds............................................................................................ S-8
Capitalization............................................................................................. S-8
Price Range of Common Shares and Distributions............................................................. S-9
Selected Consolidated Financial and Other Data............................................................. S-10
Business and Properties.................................................................................... S-11
Executive Officers and Directors........................................................................... S-21
Selling Shareholder........................................................................................ S-23
Underwriting............................................................................................... S-24
Legal Matters.............................................................................................. S-25
PROSPECTUS
Available Information...................................................................................... 2
Incorporation of Certain Documents by Reference............................................................ 3
The Company................................................................................................ 4
Risk Factors............................................................................................... 4
Ratios of Earnings to Fixed Charges........................................................................ 10
Use of Proceeds............................................................................................ 10
Selling Shareholder........................................................................................ 10
Description of Debt Securities............................................................................. 10
Description of Preferred Shares............................................................................ 30
Description of Depositary Shares........................................................................... 35
Description of Common Stock Warrants....................................................................... 38
Description of Common Shares............................................................................... 39
Restrictions on Transfers of Capital Stock; Redemption..................................................... 42
Federal Income Tax Considerations.......................................................................... 43
Plan of Distribution....................................................................................... 49
Experts.................................................................................................... 50
Legal Matters.............................................................................................. 50
</TABLE>
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE COMMON SHARES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-3
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS AND INCORPORATED HEREIN AND THEREIN BY REFERENCE. THE
INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION, UNLESS OTHERWISE INDICATED. THE OFFERING OF
4,000,000 COMMON SHARES MADE HEREBY IS REFERRED TO HEREIN AS THE "OFFERING."
CAPITALIZED TERMS NOT DEFINED IN THE PROSPECTUS SUPPLEMENT SUMMARY AND USED IN
THE PROSPECTUS SUPPLEMENT SUMMARY SHALL HAVE THE MEANINGS SET FORTH ELSEWHERE IN
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS. REFERENCES IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS TO THE "COMPANY" AND "BRE"
INCLUDE BRE PROPERTIES, INC. AND ITS CONSOLIDATED SUBSIDIARIES UNLESS EXPRESSLY
STATED OR THE CONTEXT OTHERWISE REQUIRES. THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS, AS WELL AS CERTAIN OF THE INFORMATION INCORPORATED BY
REFERENCE HEREIN AND THEREIN, CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"). THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS. CERTAIN
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE ARE DISCUSSED IN THE SECTION ENTITLED
"RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS.
THE COMPANY
BRE Properties, Inc. ("BRE" or the "Company"), a Maryland corporation, is a
fully integrated real estate operating company which owns, acquires,
rehabilitates and manages apartment communities in nine targeted metropolitan
markets in the western United States. As of April 15, 1997, BRE's multifamily
portfolio included 55 apartment communities aggregating 13,015 units in
California, Arizona, Washington, Oregon and Nevada. Founded in 1970, the Company
has paid 107 consecutive quarterly dividends to its shareholders since
inception.
The Company's business objective is to become the preeminent owner and
operator of apartment communities in key growth markets of the western United
States. It seeks to achieve long-term and sustainable growth in shareholder
value through increasing levels of per share funds from operations and capital
appreciation. The Company believes that its future growth will be supported by
the continued implementation of its long-term strategic plan. Key
characteristics of the plan include:
- A research-driven investment focus that includes:
-- the acquisition of apartment communities in defined western United
States markets
-- the balancing of its multifamily portfolio across western metropolitan
markets with diverse economic and employment characteristics to minimize
individual market risk
-- the selective sale of properties which management believes have reached
maximum cash flow growth, with subsequent reinvestment of sales proceeds
into properties which management believes have greater long-term cash
flow growth prospects
- The achievement of operating improvements through the use of internal
property management; and
- The maintenance of a strong balance sheet for maximum financial
flexibility.
In March 1996, the Company completed its merger with Real Estate Investment
Trust of California (the "Merger"), which significantly advanced the objectives
of the Company's long-term strategic plan. From the Merger until April 15, 1997,
the Company:
- significantly increased the number of multifamily units owned from 5,664
to 13,015 units;
- completed the sale of approximately $191 million of selected assets;
- internalized property management; and
- established a critical mass of at least 1,000 multifamily units in seven
of its nine targeted markets, in order to achieve operating efficiencies.
S-4
<PAGE>
The following table summarizes certain information relating to the Company's
apartment communities:
<TABLE>
<CAPTION>
PERCENTAGE
OF NET
NUMBER OF NUMBER OF PERCENTAGE OF OPERATING
METROPOLITAN MARKET PROPERTIES(1) UNITS(1) TOTAL UNITS(1) INCOME(2)
- ------------------------------------------------------------------- --------------- ----------- ---------------- -------------
<S> <C> <C> <C> <C>
San Francisco Bay Area............................................. 5 1,921 15% 27%
Phoenix............................................................ 10 2,326 18 15
San Diego.......................................................... 9 1,899 14 14
Los Angeles/Orange County.......................................... 7 1,598 12 11
Seattle............................................................ 5 1,393 11 10
Sacramento......................................................... 6 1,143 9 8
Las Vegas.......................................................... 4 814 6 6
Tucson............................................................. 7 1,301 10 5
Portland........................................................... 2 620 5 4
--- ----------- --- ---
55 13,015 100% 100%
--- ----------- --- ---
--- ----------- --- ---
</TABLE>
- ------------------------
(1) As of April 15, 1997.
(2) Contribution to multifamily net operating income ("NOI") for the quarter
ended March 31, 1997. Includes pro forma NOI contribution from the April 14,
1997 acquisition of Red Hawk Ranch. References in this Prospectus Supplement
to the term "pro forma" in connection with the Red Hawk Ranch acquisition
represent anticipated property operating results, assuming the Company's
ownership of the property for the quarter ended March 31, 1997, based on the
budgeted property operating results for the quarter ending June 30, 1997.
THE OFFERING
<TABLE>
<S> <C>
Common Shares Offered by the Company......... 3,350,000
Common Shares Offered by the Selling
Shareholder................................ 650,000
Common Shares to be Outstanding After the
Offering................................... 36,375,457(1)
Use of Proceeds.............................. To repay indebtedness and for general
corporate purposes. See "Use of Proceeds" and
"Capitalization."
NYSE Symbol.................................. "BRE"
</TABLE>
- ------------------------
(1) As of March 31, 1997, Common Shares outstanding totaled 33,025,457, which
excludes 4,478,185 Common Shares issuable under the Company's stock option
and dividend reinvestment plans.
S-5
<PAGE>
RECENT EVENTS
DIVIDEND AND ANNUAL DIVIDEND RATE
In February 1997, BRE's Board of Directors increased the Company's regular
quarterly dividend rate by 4.5% to $.345 from $.33 per Common Share, equivalent
to $1.38 per Common Share on an annualized basis. On April 23, 1997, BRE's Board
of Directors declared a regular quarterly dividend for the second quarter of
1997 of $.345 per Common Share, to be paid on June 26, 1997 to shareholders of
record on June 6, 1997. Purchasers of the Common Shares in the Offering will be
entitled to receive such dividend if they are shareholders of record on June 6,
1997.
ACQUISITIONS
In March 1996, in connection with the Merger, the Company acquired
approximately $274.4 million aggregate book value in equity investments in real
estate, including 22 multifamily properties, totaling approximately 3,581 units.
From the Merger until April 15, 1997, the Company acquired the following
apartment communities:
<TABLE>
<CAPTION>
INVESTMENT
AS OF APRIL 15,
NUMBER OF 1997
PROPERTY METROPOLITAN MARKET DATE ACQUIRED UNITS (IN MILLIONS)
- ---------------------------- ------------------------------- ------------------ ----------- -------------------
<S> <C> <C> <C> <C>
Ballinger Commons Seattle April 1996 485 $ 29.4
Thrasher's Mill Seattle April 1996 214 10.3
Arcadia Cove Phoenix July 1996 432 24.8
Berkshire Court Portland July 1996 266 16.5
Foster's Landing San Francisco Bay Area September 1996 490 59.8
Sycamore Valley Los Angeles/Orange County September 1996 440 23.7
Newport Landing Phoenix November 1996 240 9.4
Promontory Point San Francisco Bay Area December 1996 400 43.6
Talavera Las Vegas February 1997 350 26.2
Red Hawk Ranch San Francisco Bay Area April 1997 453 58.7
----- ------
Total 3,770 $ 302.4
----- ------
----- ------
</TABLE>
S-6
<PAGE>
DISPOSITIONS
From the Merger until April 15, 1997, the Company disposed of the following
properties:
<TABLE>
<CAPTION>
SALES
PROCEEDS
(IN
PROPERTY LOCATION DATE CLOSED SQUARE FEET MILLIONS)
- -------------------------------------- ------------------------ ------------------ ------------- -----------
<S> <C> <C> <C> <C>
West Lake Village Daly City, CA July 1996 N/A $ 58.0
LSI Logic Fremont, CA August 1996 74,000 29.4(1)
Fremont 3 Fremont, CA August 1996 64,000 (1)
Oakcreek I Milpitas, CA August 1996 30,000 (1)
Oakcreek II Milpitas, CA August 1996 40,000 (1)
Santa Clara County Office Santa Clara, CA August 1996 27,000 (1)
Westridge San Diego, CA August 1996 52,000 (1)
Sorrento Technology San Diego, CA August 1996 93,000 (1)
Mini Cal Storage Bakersfield, CA September 1996 61,230 1.4
Grossman's Warehouse Ventura, CA November 1996 71,000 2.4
Santa Maria Business Park Santa Maria, CA December 1996 77,703 2.7
Psicor Ranch Bernardo, CA December 1996 45,860 4.2
Distribution Facility Santa Fe Springs, CA December 1996 10,000 0.5
525 Almanor Sunnyvale, CA December 1996 86,000 6.9
Peppertree Hayward, CA December 1996 54,000 2.1
Elsinore Valley Center Lake Elsinore, CA April 1997 68,500 1.7
The Hub Fremont, CA April 1997 490,000 69.6(2)
Central Shopping Center Ventura, CA April 1997 62,600 (2)
Santa Fe Springs Plaza Santa Fe Springs, CA April 1997 169,100 (2)
Montalvo Industrial Oxnard, CA April 1997 53,500 1.1
Villa Serra Cupertino, CA April 1997 N/A 10.9
------------- -----------
Total 1,629,493 $ 190.9
------------- -----------
------------- -----------
</TABLE>
- ------------------------
(1) Properties were sold as a single transaction for aggregate sales proceeds of
$29.4 million.
(2) Properties were sold as a single transaction for aggregate sales proceeds of
$69.6 million.
EARTHQUAKE AND FLOOD INSURANCE
Effective April 8, 1997, the Company increased its available coverage for
earthquake and flood insurance from $50 million to $60 million. The increased
coverage was obtained at no increase in policy premiums. The current policies
expire in August 1998. The Company intends to renew these policies; however, no
assurance can be given that similar coverage at similar rates and terms will be
available at the current policies' expiration.
S-7
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,350,000 Common Shares
offered hereby by the Company are estimated to be approximately $77.3 million
(approximately $91.2 million if the Underwriters' over-allotment option is
exercised in full). The Company will use such net proceeds to repay indebtedness
on its unsecured lines of credit and for general corporate purposes. The Company
will not receive any proceeds from the sale of the 650,000 Common Shares by the
Selling Shareholder.
As of March 31, 1997, the Company's unsecured lines of credit had the
following interest rates and maturities:
<TABLE>
<CAPTION>
LINE OF CREDIT INTEREST RATE MATURITY
- --------------------------------------------------------- ------------------- --------------
<S> <C> <C>
$120 million............................................. LIBOR+1.125% April 1998
$50 million.............................................. LIBOR+1.125% August 1997
$30 million.............................................. LIBOR+1% April 1999
</TABLE>
As of March 31, 1997, the Company had used a total of $147 million under
these lines of credit to finance acquisitions, and, to a lesser extent, as part
of its cash management program.
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company as of March 31, 1997 and as adjusted to give effect to the Offering
and the application of the net proceeds therefrom, as described under the
caption "Use of Proceeds." The table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto,
incorporated into the accompanying Prospectus by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, as amended, and
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Indebtedness:
Unsecured lines of credit.............................................................. $ 147,000 $ 69,730
Unsecured notes payable................................................................ 73,000 73,000
Mortgage loans payable................................................................. 114,575 114,575
---------- -----------
Total Indebtedness....................................................................... 334,575 257,305
---------- -----------
Shareholders' Equity:
Preferred Stock, $0.01 par value per share, 10,000,000 shares authorized,
no shares issued or outstanding...................................................... -- --
Common Shares, $0.01 par value per share, 50,000,000 authorized,
33,025,457 issued and outstanding, 36,375,457 as adjusted (1)(2)..................... 330 364
Additional paid-in capital............................................................. 390,133 467,369
Accumulated net income in excess of cumulative dividends............................... 75,660 75,660
---------- -----------
Total Shareholders' Equity............................................................... 466,123 543,393
---------- -----------
Total Capitalization..................................................................... $ 800,698 $ 800,698
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) The shareholders of the Company approved an increase in the number of
authorized Common Shares from 50,000,000 to 100,000,000 at the Company's
1997 Annual Meeting of Shareholders. The increase became effective on April
21, 1997.
(2) Excludes 4,478,185 Common Shares issuable under the Company's stock option
and dividend reinvestment plans.
S-8
<PAGE>
PRICE RANGE OF COMMON SHARES AND DISTRIBUTIONS
The Company's Common Shares are traded on the NYSE under the symbol "BRE."
On April 23, 1997, BRE's Board of Directors declared a regular quarterly
dividend for the second quarter of 1997 of $.345 per Common Share, to be paid on
June 26, 1997 to shareholders of record on June 6, 1997. Purchasers of the
Common Shares in the Offering will be entitled to receive such dividend if they
are shareholders of record on June 6, 1997.
The following table sets forth, for the calendar quarters indicated, the
high and low closing prices of the Common Shares as reported on the NYSE
Composite Tape, and the dividends paid or declared by the Company per Common
Share for each such calendar quarter. The prices reflect the two-for-one stock
split of the Common Shares effected in the form of a stock dividend to
shareholders of record on June 7, 1996.
<TABLE>
<CAPTION>
CLOSING PRICE
-------------------- DIVIDENDS PAID
QUARTERLY PERIOD HIGH LOW OR DECLARED
- -------------------------------------------------------------------------- --------- --------- ----------------
<S> <C> <C> <C>
1995
First Quarter............................................................. $ 15.970 $ 15.250 $.3150
Second Quarter............................................................ 15.580 14.940 .3150
Third Quarter............................................................. 16.880 15.380 .3150
Fourth Quarter............................................................ 18.070 15.880 .3150
1996
First Quarter............................................................. 19.080 17.630 .3395(1)
Second Quarter............................................................ 19.580 17.440 .3300
Third Quarter............................................................. 21.500 19.500 .3300
Fourth Quarter............................................................ 24.750 20.130 .3300
1997
First Quarter............................................................. 27.250 23.750 .3450
Second Quarter (through May 8)............................................ 25.250 23.500 .3450
</TABLE>
- ------------------------
(1) A portion of the dividend from this quarter ($.0245) was attributable to a
special cash dividend paid in connection with the Merger.
Since 1970, the year BRE was founded, the Company has made regular and
uninterrupted distributions to shareholders on a quarterly basis. However, the
payment of distributions by the Company has been and will continue to be at the
discretion of the Board of Directors and will depend on numerous factors,
including the cash flow of the Company, its financial condition, capital
requirements, the annual distribution requirements under the REIT provisions of
the Internal Revenue Code of 1986, as amended (the "Code") and other factors
that the Board of Directors may deem relevant. See "Federal Income Tax
Considerations" in the accompanying Prospectus.
S-9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following selected financial and other data have been derived from the
financial statements of the Company and should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, pro forma data and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included in the Company's filings under the Exchange Act and
incorporated by reference in the accompanying Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues.................................... $ 39,829 $ 49,806 $ 56,970 $ 65,387 $ 101,651 $ 18,825 $ 31,727
Real estate expenses........................ 11,191 15,230 17,256 21,540 31,030 5,765 9,615
--------- --------- --------- --------- --------- --------- ----------
Net operating income........................ 28,638 34,576 39,714 43,847 70,621 13,060 22,112
Interest expense............................ 6,074 5,656 5,599 7,973 16,325 2,453 5,889
Depreciation expense........................ 4,787 6,097 7,080 7,864 13,283 2,189 4,168
General and administrative expenses......... 3,239 3,292 4,469 4,221 3,999 1,034 1,114
Provision for investment loss............... -- -- -- 2,000 -- -- --
Net gain on sales of investments............ 14,199 506 1,646 221 52,825 -- --
--------- --------- --------- --------- --------- --------- ----------
Net income.................................. $ 28,737 $ 20,037 $ 24,212 $ 22,010 $ 89,839 $ 7,384 $ 10,941
--------- --------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- --------- ----------
Weighted average Common Shares
outstanding............................... 15,840 20,150 21,840 21,905 30,520 23,350 32,980
Per share:
Net income................................ $ 1.82 $ 0.99 $ 1.11 $ 1.01 $ 2.94 $ 0.32 $ 0.33
Dividend declared and paid................ 1.20 1.20 1.20 1.26 1.33 0.33 0.35
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT OTHER INFORMATION) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Investment in rental property, at cost........ $ 252,239 $ 310,003 $ 373,676 $ 371,438 $ 816,389 $ 657,480 $ 843,300
Total assets.................................. 231,477 293,628 343,853 354,895 783,714 626,611 809,861
Total indebtedness............................ 80,155 45,416 97,169 112,290 311,985 207,335 334,575
Shareholders' equity.......................... 148,164 245,156 243,436 239,248 464,114 410,237 466,123
Common Shares outstanding..................... 15,842 21,833 21,851 21,942 32,880 32,663 33,025
OTHER DATA
Cash provided by operating activities......... $ 23,412 $ 24,121 $ 31,063 $ 27,068 $ 47,887 $ 11,333 $ 14,899
Cash used in investing activities............. (27,072) (57,430) (66,740) (3,820) (132,082) (13,306) (27,499)
Cash (used in) provided by financing
activities.................................. (2,239) 42,216 25,821 (11,077) 68,322 (7,750) 13,658
Interest coverage (1)......................... 4.2x 5.5x 6.3x 5.0x 4.1x 4.9x 3.6x
Fixed charge coverage (2)..................... 3.7x 5.0x 5.2x 4.4x 3.7x 4.4x 3.3x
FUNDS FROM OPERATIONS
Net income.................................... $ 28,737 $ 20,037 $ 24,212 $ 22,010 $ 89,839 $ 7,384 $ 10,941
Plus: Depreciation of real estate............. 4,787 6,097 7,080 7,864 13,283 2,189 4,168
Provision for investment losses............... -- -- -- 2,000 -- -- --
Less: Net gain on sales of investments........ (14,199) (506) (1,646) (221) (52,825) -- --
--------- --------- --------- --------- --------- --------- ---------
Funds from operations (3)..................... $ 19,325 $ 25,628 $ 29,646 $ 31,653 $ 50,297 $ 9,573 $ 15,109
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER INFORMATION (AT END OF PERIOD)
Total apartment communities................... 8 13 21 23 53 47 54(4)
Total number of apartment units............... 2,334 3,442 5,067 5,475 12,212 9,245 12,562(4)
</TABLE>
- ------------------------------
(1) Interest coverage represents net income, less net gain on sales of
investments, plus the provision for investment loss, interest expense, and
depreciation, divided by interest expense.
(2) Fixed charge coverage represents net income, less net gain on sales of
investments, plus the provision for investment loss, interest expense, and
depreciation, divided by the sum of interest expense and scheduled principal
payments on debt.
(3) Management considers funds from operations ("FFO") to be an appropriate
supplemental measure of the performance of an equity REIT because it is
predicated on cash flow analyses which facilitate an understanding of the
operating performances of the Company's properties without giving effect to
non-cash items such as depreciation. FFO is defined by the National
Association of Real Estate Investment Trusts as net income (loss) (computed
in accordance with generally accepted accounting principles) excluding gains
or losses from debt restructuring and sales of property, plus depreciation
and amortization of real estate assets. FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles, and therefore should not be considered as a
substitute for net income as a measure of results of operations or for cash
flow from operations as a measure of liquidity. Additionally, the
application and calculation of FFO by other REITs may vary materially from
that of the Company, and therefore the Company's FFO and the FFO of other
REITs may not be directly comparable.
(4) Total does not reflect the April 14, 1997 acquisition of Red Hawk Ranch, a
453-unit apartment community located in the San Francisco Bay Area.
S-10
<PAGE>
BUSINESS AND PROPERTIES
GENERAL
BRE Properties, Inc. ("BRE" or the "Company"), a Maryland corporation, is a
fully integrated real estate operating company which owns, acquires,
rehabilitates and manages apartment communities in nine targeted metropolitan
markets in the western United States. As of April 15, 1997, BRE's multifamily
portfolio included 55 apartment communities aggregating 13,015 units in
California, Arizona, Washington, Oregon and Nevada. On that date, BRE also owned
ten commercial and retail properties and held limited partnership interests in
two shopping centers and one apartment community. Founded in 1970, the Company
has paid 107 consecutive quarterly dividends to its shareholders since
inception.
The Company's business objective is to become the preeminent owner and
operator of apartment communities in key growth markets of the western United
States. It seeks to achieve long-term and sustainable growth in shareholder
value through increasing levels of per share funds from operations and capital
appreciation. The Company believes that its future growth will be supported by
the continued implementation of its long-term strategic plan. Key
characteristics of the plan include:
- A research-driven investment focus that includes:
-- the acquisition of apartment communities in defined western United
States markets
-- the balancing of its multifamily portfolio across western
metropolitan markets with diverse economic and employment
characteristics to minimize individual market risk
-- the selective sale of properties which management believes have
reached maximum cash flow growth, with subsequent reinvestment of
sales proceeds into properties which management believes have greater
long-term cash flow growth prospects
- The achievement of operating improvements through the use of internal
property management; and
- The maintenance of a strong balance sheet for maximum financial
flexibility.
In March 1996, the Company completed its merger with Real Estate Investment
Trust of California (the "Merger"), which significantly advanced the objectives
of the Company's long-term strategic plan. From the Merger until April 15, 1997,
the Company:
- significantly increased the number of multifamily units owned from 5,664
to 13,015 units;
- completed the sale of approximately $191 million of selected assets;
- internalized property management; and
- established a critical mass of at least 1,000 multifamily units in seven
of its nine targeted markets, in order to achieve operating efficiencies.
INVESTMENT FOCUS
BRE's research-driven investment focus seeks to identify markets in the
western United States that exhibit strong demographic and economic trends.
Properties are selected based on proximity to major employment and
transportation centers and opportunities to increase cash flow by upgrading
property management, marketing or physical attributes. The Company does not
limit its investment focus to a single multifamily property type; rather it
selects those assets which it believes present opportunities for increasing
levels of cash flow. During 1996, the Company added approximately 6,700
apartment units, which represent approximately $440 million in assets, to its
multifamily portfolio.
METROPOLITAN MARKETS
The Company has focused its investments in the western United States because
it believes that the western markets will outperform the nation as a whole in
employment growth and multifamily household formations, providing the Company
with significant growth potential. The Company believes that it has the
opportunity to emerge as the preeminent owner and operator of apartment
communities in the western United States, due primarily to its existing presence
and growing operating efficiency in nine of the most
S-11
<PAGE>
populous and economically diverse markets in California, the Pacific Northwest
and the Mountain States. The Company currently owns apartment communities in the
San Francisco Bay Area, San Diego, Los Angeles/Orange County (including
Riverside/San Bernardino), Sacramento, Seattle, Portland, Phoenix, Las Vegas and
Tucson. BRE believes that these markets contain a combination of diverse
employment and economic characteristics that should produce growing cash flows
across various market cycles.
The following chart illustrates the projected employment and multifamily
household formation growth in BRE's current and prospective markets from 1997
through 2000. There can be no assurance that the forecasted employment or
multifamily household formation growth will, in fact, occur or that BRE will be
able to make suitable investments in such markets.
[Bar graph showing projected rates of growth of annual employment and
multifamily household formation for the period 1997-2000 in certain California,
Pacific Northwest and Mountain States Markets, and for the nation as a whole,
including a summary of the Company's first quarter 1997 NOI in such markets.]
S-12
<PAGE>
ACQUISITION STRATEGY
Over the last five years, the Company has increasingly focused its
investments in the multifamily sector. The following table demonstrates this
historical change in its multifamily portfolio composition:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------- ----------
MULTIFAMILY PROPERTIES 1992 1993 1994 1995 1996 1997
- -------------------------------------------------------------------- ---- ---- ---- ---- -- ----------
<S> <C> <C> <C> <C> <C> <C>
Percentage of portfolio at cost, at the end of the period........... 46% 55% 65% 72% 87% 88%
Percentage of total revenue, for the period......................... 53% 51% 71% 76% 77% 84%
</TABLE>
The following table illustrates the increase in apartment communities and
units in the Company's portfolio following the Merger:
[A chart showing bar graph comparing the number of multifamily properties and
units owned by the Company at the end of each year from 1992 to 1996 and as of
April 15, 1997. The chart also includes a comparison of multifamily units owned
by the Company before and after the Merger.]
S-13
<PAGE>
ACHIEVEMENT OF OPERATING EFFICIENCIES
The Company's strategy is to acquire a critical mass of at least 1,000
apartment units in each of its markets in order to achieve operating
efficiencies in purchasing power and human resource allocation. The chart below
compares BRE's ownership of apartment units in each of its markets as of
December 31, 1995 and April 15, 1997. As of December 31, 1995, the Company had
reached critical mass in only two of its markets. As of April 15, 1997, the
Company had achieved this level of operating efficiency in seven of its nine
markets.
[Bar graph showing geographic concentration of multifamily units owned by the
Company as of December 31, 1995 and April 15, 1997, including number of units
owned on each such date in nine defined markets.]
S-14
<PAGE>
NOI CONTRIBUTION BY REGION
While the Company believes that achieving critical mass in each of its
markets is important, it views its ability to rebalance individual properties
within its portfolio, as well as its overall exposure to different markets, as a
key element in its efforts to maximize NOI and to achieve higher overall
returns. Often the number of units in a given market, as a percentage of the
total multifamily portfolio, is not proportional to the percentage of the
multifamily portfolio's NOI generated by that market. For example, at April 15,
1997, the San Francisco Bay Area market represented 15% of the multifamily
portfolio by unit count, but 27% of the NOI generated by the Company's
multifamily portfolio. Conversely, the Tucson market represented 10% of the
multifamily portfolio by unit count, but only 5% of the multifamily portfolio's
NOI.
Over the past year, the Company has adjusted its multifamily portfolio in
order to selectively increase its NOI exposure to markets which it believes are
growing more rapidly, and to selectively decrease its NOI exposure to markets
which it believes are growing less rapidly. The following chart compares the NOI
contributed by each market as a percentage of the total NOI for the Company's
multifamily portfolio for each of the quarterly periods ended March 31, 1996 and
March 31, 1997.
[Bar graph comparing the NOI contributed by each of the defined markets of the
Company as a percentage of the NOI for the Company's multifamily portfolio for
each of the quarterly periods ended March 31, 1996 and March 31, 1997.]
RESEARCH DRIVEN
To create long-term shareholder value, the Company believes that investment
decisions should be driven by research and risk management considerations. BRE
employs a full-time Director of Research who evaluates potential markets based
on the following considerations, among others: inventory size, new construction,
supply constraints, and economic and demographic changes affecting resident
demand. The objective of in-house research is to balance the Company's portfolio
across western metropolitan markets with diverse economic and employment
characteristics to minimize individual market risk. The results of this research
are utilized by the Company's Investment Committee and Board of Directors to
assess the risks and rewards of potential investments. The Company believes that
its in-house research capabilities provide it with a competitive advantage in
balancing risk and reward within its targeted markets.
S-15
<PAGE>
PROPERTY EVALUATION PROCESS
Based on the Company's research-driven market selection, management
identifies specific properties which it believes will perform competitively
within their submarket. When a potential acquisition is identified, the Company
uses the following resources to review the property's merits:
Acquisitions. The Company's Acquisition Department evaluates the potential
acquisition for compliance with the Company's investment criteria, including
purchase price, competitive factors, prospects for NOI growth and long-term
contribution to the Company's cash flow.
Regional Property Management. The Company's Regional Property Management
evaluates the potential acquisition's performance prospects based on its
marketing attributes relative to competing properties within the submarket and
to other properties within the Company's portfolio. Such attributes include
community and unit amenities, floor plan design and market appeal.
Construction. The Company's Construction Department evaluates the physical
and environmental integrity of the potential acquisition in order to identify
opportunities and needs for rehabilitation. The Construction Department also
defines the scope, establishes the budget, and implements any rehabilitation.
DISPOSITIONS AND REDEPLOYMENT
The Company believes that dispositions play a critical role in its overall
strategy. From time to time the Company selects properties for sale which it
believes have reached maximum cash flow. Proceeds generated by such sales are
typically reinvested into properties that it believes have greater long-term
cash flow growth prospects.
INTERNAL PROPERTY MANAGEMENT
All of the Company's wholly owned multifamily properties are managed
internally. The Company has a regional management structure with seven local
offices to serve its target markets. By hiring experienced Regional Property
Managers at the local level, BRE believes it can more readily respond to changes
in local market conditions and better serve its local resident populations. The
Company supports its management team with computer systems, which track leasing,
rent collection, expense activity and turnover at each of its communities.
The Regional Property Managers develop and implement an annual business plan
for each asset which:
- Focuses on the growth of rental income and other revenues by keeping
rental rates at or above those of competitive properties;
- Maintains high physical and economic occupancy by integrating local market
knowledge and surveys with market research prepared by the Company's
Director of Research;
- Provides amenities and services designed to optimize revenues from target
resident profiles; and
- Controls expenses and allocates resources in order to increase the
operating margins of each asset.
Depending upon the nature of the particular property, the plan may include
selected renovations and improvements to undermanaged acquisition properties or
to properties which are currently underperforming their submarket. As part of
the plan, each Regional Property Manager is given wide operating authority and
responsibility to maximize growth in NOI under the direct review of senior
management.
BRE believes it has a unique ability to accommodate future growth due to the
strength of its property management structure. The Company demonstrated its
ability to integrate new property acquisitions rapidly following its successful
internalization of property management after the Merger and after the
S-16
<PAGE>
Company's subsequent acquisitions. The results of BRE's internal property
management system are illustrated by the following achievements in 1996:
- the rapid integration of approximately 8,600 units;
- the improvement in "same store" physical occupancy from 93% to 96%;
- gains in "same store" scheduled gross rents of approximately 4%; and
- a reduction in the ratio of real estate operating expenses to rental
revenue from 35% to 32%.
BALANCE SHEET STRENGTH AND FINANCIAL ACCOUNTING POLICIES
The Company's goal is to manage its capital structure prudently in order to
maintain maximum financial flexibility. To promote this goal, BRE maintains
conservative debt coverage ratios; as of March 31, 1997, the Company had a fixed
charge coverage ratio of 3.3:1 and an interest coverage ratio of 3.6:1. In
addition, the Company follows conservative accounting policies with respect to
the treatment of recurring operating expenses. For example, the replacement
costs for carpet, window coverings and appliances are charged to current
operating periods and are not capitalized.
The Company intends to manage its balance sheet in order to maintain
investment grade ratings, which maximizes the Company's flexibility in the
capital markets.
The Company's principal executive offices are located at One Montgomery
Street, Telesis Tower, Suite 2500, San Francisco, California 94104 and its
telephone number is (415) 445-6530.
S-17
<PAGE>
PROPERTIES
(AS OF APRIL 15, 1997)
<TABLE>
<CAPTION>
DATES INVESTMENT AT MORTGAGE
PROPERTIES BY METROPOLITAN NUMBER ACQUIRED/ APRIL 15, 1997 INDEBTEDNESS PHYSICAL
MARKET CITY OF UNITS CONSTRUCTED (IN THOUSANDS) (IN THOUSANDS) OCCUPANCY(1)
- -------------------------------- --------------- ------------- ----------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
APARTMENT COMMUNITIES--WHOLLY OWNED
CALIFORNIA
- --------------------------------
SAN FRANCISCO BAY AREA
Verandas Union City 282 1993/1989 $ 16,230 $ 11,835 97%
Sharon Green Menlo Park 296 1971/1970 7,225 18,846 96
Foster's Landing Foster City 490 1996/1987 59,841 -- 98
Promontory Point San Ramon 400 1996/1992 43,640 -- 86(2)
Red Hawk Ranch Fremont 453 1997/1995-97 58,700 -- 76(2)
------------- --------------- --------------- ------
TOTAL SAN FRANCISCO BAY AREA 1,921 185,636 30,681 97%
------------- --------------- --------------- ------
SAN DIEGO
Canyon Villas Chula Vista 183 1996/1981 15,421 -- 98%
Lakeview Village Spring Valley 300 1996/1985 19,925 -- 96
Countryside Village El Cajon 96 1996/1989 5,045 -- 99
Montanosa San Diego 472 1992/1990 30,242 16,833 94
Cimmaron San Diego 184 1993/1986 9,571 12,912 93
Hacienda San Diego 192 1993/1986 9,967 (3) 94
Westpark San Diego 96 1993/1986 4,983 (3) 98
Terra Nova Villas Chula Vista 232 1994/1985 14,707 9,240 95
Winchester San Diego 144 1994/1987 7,411 -- 98
------------- --------------- --------------- ------
TOTAL SAN DIEGO 1,899 117,272 38,985 95%
------------- --------------- --------------- ------
LOS ANGELES/ORANGE COUNTY
Park Glenn Camarillo 150 1996/1963 8,806 -- 98%
Santa Paula Village Santa Paula 56 1996/1970 2,751 -- 98
Windrush Village Colton 366 1996/1985 18,751 -- 95
The Summit Chino Hills 125 1996/1989 9,215 -- 94
Candlewood North Northridge 189 1996/1964-95 10,600 -- 95
Village Green La Habra 272 1972/1971 3,444 -- 95
Sycamore Valley Fountain Valley 440 1996/1969 23,708 -- 98
------------- --------------- --------------- ------
TOTAL LOS ANGELES/ORANGE
COUNTY 1,598 77,275 -- 96%
------------- --------------- --------------- ------
SACRAMENTO
Hazel Ranch Fair Oaks 208 1996/1985 12,377 -- 97%
Rocklin Gold Rocklin 121 1996/1990 7,801 -- 98
Shaliko Rocklin 151 1996/1990 10,264 -- 96
Quail Chase Folsom 90 1996/1990 6,527 -- 100
Canterbury Downs Roseville 173 1996/1993 11,541 -- 100
Selby Ranch Sacramento 400 1986/1971-74 21,334 12,379 97
------------- --------------- --------------- ------
TOTAL SACRAMENTO 1,143 69,844 12,379 98%
------------- --------------- --------------- ------
ARIZONA
- --------------------------------
PHOENIX
Los Senderos Phoenix 120 1996/1980 6,431 -- 96%
Shadow Bend Scottsdale 108 1996/1982 6,432 -- 96
Brentwood Phoenix 224 1996/1980 8,581 -- 95
Park Scottsdale Scottsdale 128 1996/1979 6,638 -- 98
Monte Vista Phoenix 60 1996/1972 1,580 -- 93
Posada del Este Phoenix 148 1996/1981 8,385 -- 95
Fairway Crossings Phoenix 310 1996/1985 18,321 -- 95
Scottsdale Cove Scottsdale 316 1991/1992-94 17,766 -- 95
Arcadia Cove Phoenix 432 1996/1996 24,813 -- 92
Newport Landing Glendale 480 1995/1987-96 22,655 -- 97
------------- --------------- --------------- ------
TOTAL PHOENIX 2,326 121,602 -- 95%
------------- --------------- --------------- ------
</TABLE>
S-18
<PAGE>
PROPERTIES
(AS OF APRIL 15, 1997)
<TABLE>
<CAPTION>
DATES INVESTMENT AT MORTGAGE
PROPERTIES BY METROPOLITAN NUMBER ACQUIRED/ APRIL 15, 1997 INDEBTEDNESS PHYSICAL
MARKET CITY OF UNITS CONSTRUCTED (IN THOUSANDS) (IN THOUSANDS) OCCUPANCY(1)
- -------------------------------- --------------- ------------- ----------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
TUCSON
Hacienda del Rio Tucson 248 1994/1983 $ 9,377 $ 5,520 89%
Colonia del Rio Tucson 176 1994/1985 8,917 5,183 85
Springhill Tucson 224 1994/1987 8,709 5,244 95
Casas Lindas Tucson 144 1994/1987 7,591 88
Camino Seco Village Tucson 168 1995/1984 6,720 4,161 90
Oracle Village Tucson 144 1994/1983 6,086 4,117 93
Fountain Plaza Tucson 197 1994/1975 4,608 3,097 92
------------- --------------- --------------- ------
TOTAL TUCSON 1,301 52,008 27,322 90%
------------- --------------- --------------- ------
WASHINGTON
- --------------------------------
SEATTLE
Parkwood Mill Creek 240 1989/1989 19,810 -- 90%
Shadowbrook Redmond 352 1987/1986 16,473 -- 99
Citywalk Seattle 102 1988/1988 5,412 -- 93
Thrasher's Mill Bothell 214 1996/1988 10,275 -- 94
Ballinger Commons Seattle 485 1996/1989 29,409 -- 97
------------- --------------- --------------- ------
TOTAL SEATTLE 1,393 81,379 -- 96%
------------- --------------- --------------- ------
OREGON
- --------------------------------
PORTLAND
Brookdale Glen Portland 354 1993/1985 14,095 -- 95%
Berkshire Court Wilsonville 266 1996/1996 16,487 -- 88(2)
------------- --------------- --------------- ------
TOTAL PORTLAND 620 30,582 -- 95%
------------- --------------- --------------- ------
NEVADA
- --------------------------------
LAS VEGAS
Cypress Springs II Las Vegas 144 1996/1993 9,834 -- 95%
Tango Las Vegas 136 1996/1990 8,659 4,135 96
Desert Lakes Las Vegas 184 1996/1991 14,265 -- 93
Talavera Las Vegas 350 1997/1996 26,172 -- 98
------------- --------------- --------------- ------
TOTAL LAS VEGAS 814 58,930 4,135 96%
------------- --------------- --------------- ------
TOTAL APARTMENT
COMMUNITIES--WHOLLY OWNED 13,015 794,528 113,502 95%
------------- --------------- --------------- ------
TOTAL APARTMENT
COMMUNITIES--PARTNERSHIPS
CALIFORNIA
- --------------------------------
Chateau de Ville Anaheim 258 1970 1,539 -- 95%
------------- --------------- --------------- ------
</TABLE>
S-19
<PAGE>
PROPERTIES
(AS OF APRIL 15, 1997)
<TABLE>
<CAPTION>
DATES INVESTMENT AT MORTGAGE
PROPERTIES BY METROPOLITAN ACQUIRED/ APRIL 15, 1997 INDEBTEDNESS PHYSICAL
MARKET CITY SQUARE FEET CONSTRUCTED (IN THOUSANDS) (IN THOUSANDS) OCCUPANCY(1)
- -------------------------------- --------------- ------------- ----------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS--WHOLLY OWNED
CALIFORNIA
- --------------------------------
LOS ANGELES/ORANGE COUNTY
El Camino Woodland Hills 125,000 1971/1970 $ 15,561 $ 1,073 98%
Vista Village Center Valencia 37,405 1996/1989 3,031 -- 96
------------- --------------- --------------- ------
TOTAL LOS ANGELES/ORANGE
COUNTY 162,405 18,592 1,073 97%
------------- --------------- --------------- ------
SHOPPING CENTERS--PARTNERSHIPS
ARIZONA
- --------------------------------
Westbar Phoenix 798,852 1995/1973 636 -- 99%
Metro Village Phoenix 136,120 1980/1975 476 -- 93
------------- --------------- --------------- ------
TOTAL ARIZONA 934,972 1,112 -- 98%
------------- --------------- --------------- ------
TOTAL SHOPPING CENTERS 1,097,377 19,704 1,073 98%
------------- --------------- --------------- ------
COMMERCIAL/INDUSTRIAL
CALIFORNIA
- --------------------------------
LOS ANGELES/ORANGE COUNTY
Santa Ana (Industrial) Santa Ana 35,993 1996/1985 1,117 -- 100%
Coast Auto Center Ventura 20,545 1996/1992 1,338 -- 100
Hawthorne/Del Amo (Retail) Torrance 15,950 1996/1985 1,500 -- 100
Santa Paula (Commercial) Santa Paula 6,692 1996/1963 323 -- 100
Vagabond Motor Hotel Ventura 88,426 1996/1921 600 -- N/A
------------- --------------- --------------- ------
TOTAL COMMERCIAL/INDUSTRIAL 167,606 4,878 -- 100%
------------- --------------- --------------- ------
MEDICAL OFFICE BUILDINGS
CALIFORNIA
- --------------------------------
LOS ANGELES/ORANGE COUNTY
Buenaventura Med. Clinic Ventura 31,000 1996/1960 1,200 -- 100%
Skypark Prof. Building Torrance 40,882 1996/1978 5,947 -- 95
Valencia Medical Center Valencia 36,500 1996/1985 4,939 -- 83
------------- --------------- --------------- ------
TOTAL MEDICAL OFFICE BUILDINGS 108,382 12,086 -- 92%
------------- --------------- --------------- ------
TOTAL PORTFOLIO 1,386,638 $ 833,380 $ 114,575
------------- --------------- ---------------
------------- --------------- ---------------
</TABLE>
- ------------------------------
(1) For multifamily properties, physical occupancy is calculated by dividing the
total occupied units by the total units in the portfolio. For commercial
properties, physical occupancy is calculated by dividing the total occupied
square footage by the total square footage in the portfolio. Totals under
this heading are based on weighted average physical occupancy.
(2) These properties are in lease up and are, therefore, excluded from the
physical occupancy totals.
(3) These properties are also security for the loan shown on the Cimmarron
property.
S-20
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS
The Company believes that an independent Board of Directors, whose interests
are aligned with those of shareholders, is essential to the creation of
long-term shareholder value. Therefore, eight of the Company's nine directors
are not employed by, or otherwise affiliated with, the Company ("Independent
Directors"). The directors' collective background and experience provide the
Company with advantages in a number of areas, including strategic planning,
capital markets expertise, and multifamily property acquisition and management.
To demonstrate the alignment of their interests with those of shareholders, the
Independent Directors have waived all cash compensation, including retainers and
meeting fees, and instead receive options to purchase Common Shares at current
market prices on the date of grant. The following table sets forth certain
information with respect to the executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------ --- ---------------------------------------------------------------------------
<S> <C> <C>
John McMahan.................. 59 Chairman of the Board; Independent Director.
Managing Principal -- The McMahan Group, real estate management
consultants, since 1996. President, John McMahan Associates, Inc., a
management consulting firm, and McMahan Real Estate Securities, Inc., a
real estate investment firm, from 1994 to 1996. President and Chief
Executive Officer, Mellon/McMahan Real Estate Advisors, Inc., a real estate
advisory firm, from 1990 to 1994.
Frank C. McDowell............. 48 President, Chief Executive Officer and Director.
Mr. McDowell was appointed to his current position in June 1995. From 1992
to 1995, Mr. McDowell was Chief Executive Officer and Chairman of the Board
of Cardinal Realty Services, Inc., a Columbus, Ohio-based apartment
management company and owner of multifamily housing. From 1988 to 1992, Mr.
McDowell was Senior Vice President, Head of Real Estate, of First
Interstate Bank of Texas.
Jay W. Pauly.................. 54 Senior Executive Vice President and Chief Operating Officer.
Mr. Pauly joined the Company in connection with the Merger. Prior thereto,
he served as President and Chief Executive Officer of Real Estate
Investment Trust of California ("RCT") from 1993 until the Merger. From
1990 to 1992, Mr. Pauly served as First Vice President and was on the
Executive Committee of Home Savings of America, and served as Chief
Executive Officer of Ahmanson Commercial Development Company, Ahmanson
Residential Development Company and Ahmanson Ranch.
LeRoy E. Carlson.............. 51 Executive Vice President, Chief Financial Officer and Secretary.
Mr. Carlson joined the Company in connection with the Merger. Prior
thereto, he served as Chief Financial Officer of the William Walters
Company from 1980 to 1990 and as Vice President and Chief Financial Officer
of RCT from 1990 to 1996. He is a Certified Public Accountant in the State
of California.
Byron M. Fox.................. 58 Executive Vice President, Acquisitions and Portfolio Strategy.
Mr. Fox has served in his current position since 1992. Prior thereto, Mr.
Fox served as a Senior Vice President of the Company from 1987 until 1992.
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ------------------------------ --- ---------------------------------------------------------------------------
<S> <C> <C>
John H. Nunn.................. 38 Senior Vice President, Property Management.
Mr. Nunn joined the Company in connection with the Merger. Prior thereto,
Mr. Nunn served as Vice President of Property Management of RCT from 1990
to 1996.
William E. Borsari............ 58 Independent Director; Owner and President, The Walters Management Company,
a real estate asset management company, since March 1987. Executive Vice
President of the William Walters Company from May 1973 to March 1987.
C. Preston Butcher............ 58 Independent Director; President and Chief Executive Officer, Lincoln
Property Company, N.C., Inc., a real estate developer, and President and
Chief Executive Officer, Lincoln Property Company Management Services,
Inc., a real estate management company, since 1968. Director, The Charles
Schwab Corporation, since 1988.
L. Michael Foley.............. 58 Independent Director; Principal, L. Michael Foley and Associates, real
estate and corporate consulting firm, since 1996. Senior Vice President and
Chief Financial Officer, Coldwell Banker Corporation, from 1995-1996.
Chairman and Chief Executive Officer, Sears Savings Bank, from 1989 to
1993. Senior Executive Vice President, Coldwell Banker Real Estate Group,
Inc., from 1986 to 1993. Executive Vice President, Homart Development Co.,
from 1983 to 1993.
Roger P. Kuppinger............ 56 Independent Director; Financial advisor to public and private companies
since February 1994. Senior Vice President and Managing Director, Sutro &
Co., Inc., an investment banking company, from 1969 to February 1994.
Director, Realty Income Corporation.
Malcolm R. Riley.............. 64 Independent Director; Partner Riley/Pearlman Company, a shopping center
developer and manager, since 1986. Chairman, La Cagnina/Riley & Associates,
since 1994.
Gregory Simon................. 55 Independent Director; Self-employed as a private investor, since 1991.
Senior Vice President, H.F. Ahmanson & Co. and Home Savings of America,
from 1983 to 1991.
Arthur G. von Thaden.......... 65 Independent Director; President and Chief Executive Officer of the Company
from 1970 to June 1995. Chief Executive Officer, BankAmerica Realty
Services, Inc., a real estate investment advisory firm, from 1970 to 1987.
</TABLE>
S-22
<PAGE>
SELLING SHAREHOLDER
The following table sets forth certain information regarding the beneficial
ownership of Common Shares by State Farm Insurance Companies Employee Retirement
Trust (the "Selling Shareholder") as of April 8, 1997, and as adjusted to
reflect the sale of the Common Shares offered hereby by the Selling Shareholder.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
SELLING ---------------------- NUMBER OF COMMON ----------------------
SHAREHOLDER NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ---------------------------------------------------- --------- ----------- ------------------ --------- -----------
<S> <C> <C> <C> <C> <C>
State Farm Insurance Companies Employee Retirement
Trust............................................. 942,570 2.9% 650,000 292,570 0.8%
</TABLE>
In addition, as of April 8, 1997, State Farm Mutual Automobile Insurance
Company ("State Farm") owned 3,226,388 Common Shares. The Selling Shareholder is
a retirement plan administered by State Farm for the benefit of its employees.
The trustees of the Selling Shareholder are vested with the responsibility for
investing the assets of the Selling Shareholder. Each of the Selling Shareholder
and State Farm expressly disclaims beneficial ownership of the Common Shares
owned by the other.
S-23
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters
named below have severally agreed to purchase, and the Company and the Selling
Shareholder have agreed to sell to them severally, the respective number of
Common Shares set forth opposite their respective names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS COMMON SHARES
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Morgan Stanley & Co. Incorporated............................................ 700,000
Alex. Brown & Sons Incorporated.............................................. 700,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................................... 700,000
Prudential Securities Incorporated........................................... 700,000
A.G. Edwards & Sons, Inc..................................................... 100,000
EVEREN Securities, Inc....................................................... 50,000
Hampshire Securities Corporation............................................. 50,000
Raymond James & Associates, Inc.............................................. 50,000
Janney Montgomery Scott Inc.................................................. 50,000
Jefferies & Company, Inc..................................................... 50,000
Edward D. Jones & Co., L.P................................................... 50,000
Legg Mason Wood Walker, Incorporated......................................... 50,000
Montgomery Securities........................................................ 100,000
PaineWebber Incorporated..................................................... 100,000
Robertson, Stephens & Company LLC............................................ 100,000
The Robinson-Humphrey Company, Inc........................................... 50,000
Salomon Brothers Inc......................................................... 100,000
Sands Brothers & Co., Ltd.................................................... 50,000
Scott & Stringfellow, Inc.................................................... 50,000
Smith Barney Inc............................................................. 100,000
Stifel, Nicolaus & Company Incorporated...................................... 50,000
Sutro & Co. Incorporated..................................................... 50,000
---------------
4,000,000
---------------
---------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Common Shares are subject to
the approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are committed to take and pay for all of the Common
Shares offered hereby (other than those covered by the over-allotment option
described below) if any are taken.
The Underwriters propose to offer part of the Common Shares directly to the
public at the public offering price set forth on the cover page of this
Prospectus Supplement and part to certain dealers at a price that represents a
concession not in excess of $.77 per share. Any Underwriter may allow, and such
dealers may reallow, a concession not in excess of $.10 per share to certain
other dealers.
The Company and the Selling Shareholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus Supplement, to purchase up to an
additional 600,000 Common Shares at the public offering price set forth on the
cover page of this Prospectus Supplement, less underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, incurred in the sale of the Common Shares. To
the extent such option is exercised, each
S-24
<PAGE>
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional Common Shares as the number
set forth opposite such Underwriter's name in the preceding table bears to the
total number of Common Shares offered hereby.
In order to facilitate the offering of the Common Shares, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Shares. Specifically, the Underwriters may over-allot in
connection with the Offering, creating a short position in the Common Shares for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Shares, the Underwriters may bid for, and purchase, Common
Shares in the open market. Any of these activities may stabilize or maintain the
market price of the Common Shares above independent market levels. The
Underwriters are not required to engage in these activities, and may end any of
these activities at any time.
The Company, the directors and executive officers of the Company and the
Selling Shareholder have agreed not to, during the period of 90 days from the
date of this Prospectus Supplement, without the prior written consent of Morgan
Stanley & Co. Incorporated, directly or indirectly, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any Common Shares or any securities convertible into or
exercisable or exchangeable for Common Shares or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequence of ownership of the Common Shares,
except for (A) the Common Shares offered hereby or (B) the issuance of Common
Shares by the Company pursuant to any employee stock option plans existing on
the date of this Prospectus Supplement.
LEGAL MATTERS
The legality of the Common Shares offered hereby will be passed upon by
Piper & Marbury, L.L.P., Baltimore, Maryland on behalf of the Company. Certain
legal matters will be passed upon by Chapman and Cutler, Chicago, Illinois on
behalf of the Selling Shareholder. Certain tax matters will be passed upon by
Farella Braun & Martel LLP, San Francisco, California. Brown & Wood LLP, San
Francisco, California, will act as counsel for the Underwriters.
S-25
<PAGE>
PROSPECTUS
BRE PROPERTIES, INC.
$300,000,000
DEBT SECURITIES, PREFERRED SHARES, DEPOSITARY SHARES,
COMMON STOCK WARRANTS AND COMMON STOCK
BRE Properties, Inc. (the "Company") may from time to time offer in one or
more series (i) its unsecured debt securities (the "Debt Securities"), which may
be senior debt securities ("Senior Debt Securities") or subordinated debt
securities ("Subordinated Debt Securities"), (ii) shares of its Preferred Stock,
$0.01 par value ("Preferred Shares"), (iii) depositary shares ("Depositary
Shares") representing fractional interests in Preferred Shares, (iv) warrants
("Common Stock Warrants") to purchase shares of its Common Stock, $0.01 par
value ("Common Shares"), or (v) Common Shares, on terms to be determined at the
time or times of offering. The Debt Securities, Preferred Shares, Depositary
Shares, Common Stock Warrants and Common Shares which may be offered by the
Company (collectively, the "Company Offered Securities"), may be offered,
separately or together, in separate classes or series, in amounts, at prices and
on terms to be set forth in a supplement to this Prospectus (a "Prospectus
Supplement"). A selling shareholder also may offer from time to time Common
Shares (the "Resale Shares") on terms to be determined at the time or times of
such offering or offerings. The prices, the amounts and other terms of such
offering or offerings will be set forth in the applicable Prospectus Supplement.
The aggregate public offering price of the Resale Shares and the Company Offered
Securities (together, the "Offered Securities") will not exceed $300,000,000,
and the number of Resale Shares will not exceed 650,000.
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, when applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Company or
repayment at the option of the holder thereof, terms for sinking fund payments,
terms for conversion into Preferred Shares or Common Shares, and the public
offering price; (ii) in the case of Preferred Shares, the specific series, title
and stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and the public offering price; (iii) in the case of Depositary
Shares, the whole or fractional Preferred Shares represented by each such
Depositary Share and the public offering price; (iv) in the case of Common Stock
Warrants, the duration, public offering price, exercise price and detachability
features, if applicable; and (v) in the case of Common Shares, the 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, when
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by that Prospectus Supplement.
The Offered Securities may be offered directly, through agents designated
from time to time by the Company, 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 will be set forth in or will be calculable from the
information set forth in the applicable Prospectus Supplement. No Offered
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of those Offered Securities. The
Company will not receive any of the proceeds from the sale of the Resale Shares.
SEE "Plan of Distribution" for possible indemnification arrangements with
underwriters, dealers and agents.
------------------------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER
"RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is May 7, 1997
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR AN APPLICABLE PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER
(AS DEFINED BELOW) OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS AND ANY
APPLICABLE PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY OR THEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS OR
ANY PROSPECTUS SUPPLEMENT NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission in
accordance with the Exchange Act 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. 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 Commission maintains a home page on
the Internet that contains such information with respect to registrants that
file electronically such as the Company at http://www.sec.gov. The Company's
Common Shares 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 has filed with the Commission a registration statement (as the
same may be amended from time to time, the "Registration Statement") (of which
this Prospectus is a part) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Offered Securities. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any contract or other document do not purport to be complete, and in
each instance reference is made to the copy of such contract or other document
filed or incorporated by reference as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. For further information regarding the Company
and the Offered Securities, reference is hereby made to the Registration
Statement and such exhibits and schedules, which may be obtained from the
Commission at its principal office in Washington, D.C. upon payment of the fees
prescribed by the Commission.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company with the
Commission and are incorporated herein by reference:
a. Report on Form 10-K for the fiscal year ended December 31, 1996, as amended
by the Report on Form 10-K/A filed on April 25, 1997.
b. Report on Form 10-Q for the fiscal year ended March 31, 1997, filed on April
25, 1997.
c. Current Report on Form 8-K filed on January 14, 1997, as amended by the
Current Report on Form 8-K/A, filed on February 13, 1997, and the Current
Report on Form 8-K/A, filed on April 23, 1997.
d. Current Report on Form 8-K/A filed on April 23, 1997, amending the Current
Report on Form 8-K/A, filed on December 10, 1996, and the Current Report on
Form 8-K, filed on October 15, 1996.
e. Current Report on Form 8-K/A filed on April 23, 1997, amending the Current
Report on Form 8-K/A, filed on May 21, 1996, and the Current Report on Form
8-K, filed on April 1, 1996.
f. Current Report on Form 8-K filed on April 25, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Offered Securities shall be deemed to be
incorporated by reference in this Prospectus and to be part hereof from the date
of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in 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.
The Company hereby undertakes to provide without charge to each person to
whom this Prospectus has been delivered, upon the written or oral request of
such person, a copy of any and all documents incorporated by reference in this
Prospectus (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to BRE Properties, Inc., One Montgomery Street,
Telesis Tower, Suite 2500, San Francisco, California 94104-5524, Attn: Charles
Wingard, Director of Financial Reporting, telephone number (415) 445-6530.
3
<PAGE>
THE COMPANY
BRE Properties, Inc., a Maryland corporation (the "Company" or "BRE"), is a
self-administered and self-managed real estate investment trust which owns and
operates apartment communities and other income producing properties in the
western United States. At April 15, 1997, BRE's portfolio consisted of 65
properties, including 55 apartment communities (aggregating 13,015 Company-owned
units), two shopping centers and eight medical office, light industrial and
warehouse/distribution properties. Of these properties, 37 are located in
California, 17 in Arizona, five in Washington, four in Nevada and two in Oregon.
The 65 properties contain, in the aggregate, approximately 11.4 million net
rentable square feet of improvements owned by the Company on approximately 700
acres of land. In addition, at April 15, 1997, the Company held limited
partnership interests in two shopping centers located in Arizona and one
apartment community located in California. BRE's principal executive offices are
located at One Montgomery Street, Telesis Tower, Suite 2500, San Francisco,
California 94104-5525, and its telephone number is (415) 445-6530.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below before purchasing any of the Offered Securities. The
Company cautions the reader that this list of factors may not be exhaustive,
particularly with respect to future filings.
REAL ESTATE INVESTMENT RISKS
GENERAL
Real property investments are subject to varying degrees of risk. The yields
available from equity investments in real estate depend upon the amount of
revenues generated and expenses incurred. If properties do not generate revenues
sufficient to meet operating expenses, including debt service and capital
expenditures, the Company's results of operations and ability to make
distributions to its shareholders will be adversely affected. The performance of
the economy in each of the areas in which the properties are located affects
occupancy, market rental rates and expenses and, consequently, has an impact on
the revenues from the properties and their underlying values. The financial
results of major local employers also may have an impact on the revenues and
value of certain properties.
Revenues from properties may be further adversely affected by a variety of
factors, including the general economic climate, local conditions in the areas
in which properties are located, such as oversupply of space or a reduction in
the demand for rental space, the attractiveness of the properties to residents
or users, competition from other available space, the ability of the Company to
provide adequate facilities maintenance, services and amenities, and insurance
premiums and real estate taxes. The Company's revenues would also be adversely
affected if residents or users were unable to pay rent or the Company was unable
to rent apartments or commercial properties on favorable terms. If the Company
were unable to promptly relet or renew the leases for a significant number of
apartment units or commercial properties, or if the rental rates upon such
renewal or reletting were significantly lower than expected rates, then the
Company's funds from operations would, and ability to make expected
distributions to shareholders may, be adversely affected. There is also a risk
that as leases on the properties expire, residents or users will vacate or enter
into new leases on terms that are less favorable to the Company. Operating
costs, including real estate taxes, insurance and maintenance costs, and
mortgage payments, if any, do not, in general, decline when circumstances cause
a reduction in income from a property. If a property is mortgaged to secure
payment of indebtedness, and the Company is unable to meet its mortgage
payments, a loss could be sustained as a result of foreclosure on the property.
In addition, revenues from properties and real estate values are also affected
by such factors as applicable laws, including tax laws, interest rate levels and
the availability of financing.
4
<PAGE>
In the normal course of business, the Company typically evaluates potential
acquisitions, enters into non-binding letters of intent, and may, at any time,
enter into contracts to acquire and may acquire additional properties. However,
no assurance can be given that the Company will have the financial resources to
make suitable acquisitions or that properties that satisfy the Company's
investment policies will be available for acquisition. Acquisitions of
properties entail risks that investments will fail to perform in accordance with
expectations. Such risks may include that construction costs may exceed original
estimates, possibly making a project uneconomical, financing may not be
available on favorable terms or at all and construction and lease-up may not be
completed on schedule. Estimates of the costs of improvements to bring an
acquired property up to standards established for the market position intended
for that property may prove inaccurate. In addition, there are general real
estate investment risks associated with any new real estate investment. Although
the Company undertakes an evaluation of the physical condition of each new
investment before it is acquired, certain defects or necessary repairs may not
be detected until after the investment is acquired, which could significantly
increase the Company's total acquisition costs and which could have a material
adverse effect on the Company and its ability to make distributions to
shareholders.
ILLIQUIDITY OF REAL ESTATE AND REINVESTMENT RISK
Real estate investments are relatively illiquid and, therefore, tend to
limit the ability of the Company to adjust its portfolio in response to changes
in economic or other conditions. Additionally, the Internal Revenue Code of
1986, as amended (the "Code") places certain limits on the number of properties
a REIT may sell without adverse tax consequences. To effect its current
operating strategy, the Company has in the past raised, and will seek to
continue to raise additional acquisition funds, both through outside financing
and through the orderly disposition of commercial and retail properties, and,
depending upon interest rates, current acquisition opportunities and other
factors, generally to reinvest the proceeds in multifamily properties. In this
respect, in the markets the Company has targeted for future acquisition of
multifamily properties, there is considerable buying competition from other real
estate companies, many of whom may have greater resources, experience or
expertise than the Company. In many cases, this competition for acquisition
properties has resulted in an increase in property prices and a decrease in
property yields. Due to the relatively low capitalization rates currently
prevailing in the pricing of potential acquisitions of multifamily properties
which meet the Company's investment criteria, no assurance can be given that the
proceeds realized from the disposition of commercial and retail properties can
be reinvested to produce economic returns comparable to those being realized
from the properties disposed of, or that the Company will be able to acquire
properties meeting its investment criteria. To the extent that the Company is
unable to reinvest proceeds from the disposition of commercial and retail
properties, or if properties acquired with such proceeds produce a lower rate of
return than the properties disposed of, such results may have a material adverse
effect on the Company and its ability to make distributions to shareholders. In
addition, a delay in reinvestment of such proceeds may have a material adverse
effect on the Company and its ability to make distributions to shareholders.
The Company may seek to structure future dispositions as tax-free exchanges,
where appropriate, utilizing the nonrecognition provisions of Section 1031 of
the Code to defer income taxation on the disposition of the exchanged property.
For an exchange of such properties to qualify for tax-free treatment under
Section 1031 of the Code, certain technical requirements must be met. For
example, both the property exchanged and the property acquired must be held for
use in a trade or business or for investment, and the property acquired must be
identified within 45 days, and must be acquired within 180 days, after the
transfer of the exchanged property. If the technical requirements of Section
1031 of the Code are not met, then the exchanged property will be treated as
sold in a taxable transaction for a sales price equal to the fair market value
of the property received, in which event a distribution of cash to the
shareholders may be required to avoid a corporate-level income tax on the
resulting capital gain. Given the competition for properties meeting the
Company's investment criteria, it may be difficult for the Company to identify
suitable properties within the foregoing time frames in order to meet the
requirements of
5
<PAGE>
Section 1031. Even if a suitable tax-deferred exchange can be structured, as
noted above, no assurance can be given that the proceeds of any of these
dispositions will be reinvested to produce economic returns comparable to those
currently being realized from the properties which were disposed of.
COMPETITION
All of the properties currently owned by the Company are located in
developed areas. There are numerous other multifamily properties and real estate
companies, many of which have greater financial and other resources than the
Company, within the market area of each of the properties which will compete
with the Company for tenants and development and acquisition opportunities. The
number of competitive multifamily properties and real estate companies in such
areas could have a material effect on (i) the Company's ability to rent the
apartments and the rents charged and (ii) development and acquisition
opportunities. The activities of these competitors could cause the Company to
pay a higher price for a new property than it otherwise would have paid or may
prevent the Company from purchasing a desired property at all, which could have
a material adverse effect on the Company and its ability to make distributions
to shareholders.
GEOGRAPHIC CONCENTRATION; DEPENDENCE ON WESTERN UNITED STATES REGIONS
The Company's portfolio is principally located in the San Francisco Bay
Area, San Diego, Tucson, Phoenix, Seattle, Portland, Los Angeles/Orange County,
Sacramento and Las Vegas. The Company's performance could be adversely affected
by economic conditions in, and other factors relating to, these geographic
areas, including supply and demand for apartments in these areas, zoning and
other regulatory conditions and competition from other properties and
alternative forms of housing. In that regard, certain of these areas
(particularly the Los Angeles/Orange County and San Diego metropolitan areas)
have in the recent past experienced economic recessions and depressed conditions
in the local real estate markets. To the extent general economic or social
conditions in any of these areas deteriorate or any of these areas experiences
natural disasters, the value of the portfolio, the Company's results of
operations and its ability to make distributions to shareholders could be
adversely affected.
RISKS OF REAL ESTATE DEVELOPMENT AND ACQUISITION
Although the Company currently has no properties under development, the
Company may in the future seek to develop properties when market and economic
conditions warrant.
Real estate development involves significant risks in addition to those
involved in the ownership and operation of real estate. While the Company's
policies with respect to development activities are intended to limit some of
the risks otherwise associated with such activities, the Company nevertheless is
subject to certain risks, including lack of financing, construction delays,
budget overruns and lease-up. The occurrence of any of these risks could have a
material adverse effect on the Company and its ability to make distributions to
shareholders.
It is expected that, in the future, the Company's evaluation of real
property acquisition opportunities will be based, in part, upon the cost to
finance the acquisition and the yield expected to be derived from the ongoing
ownership of such real property. If the Company is unable to obtain sufficient
capital on acceptable terms, its ability to acquire new real estate or implement
other aspects of its objectives and strategies will be impaired. In addition,
even if sufficient capital is available on reasonable terms, no assurance can be
given that the costs to maintain the property so acquired or the yields actually
derived from the property will not deviate materially from expectations.
UNINSURED LOSS; LIMITED COVERAGE
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to its properties with certain policy
specifications, limits and deductibles. While the Company
6
<PAGE>
currently carries flood and earthquake insurance for its properties with an
aggregate annual limit of $60 million, subject to substantial deductibles, no
assurance can be given that such coverage will be available on acceptable terms
or at an acceptable cost, or at all, in the future, or if obtained, that the
limits of those policies will cover the full cost of repair or replacement of
covered properties. In addition, there may be certain extraordinary losses (such
as those resulting from civil unrest) that are not generally insured (or fully
insured against) because they are either uninsurable or not economically
insurable. Should an uninsured or underinsured loss occur to a property, the
Company could be required to use its own funds for restoration or lose all or
part of its investment in, and anticipated revenues from, the property and would
continue to be obligated on any mortgage indebtedness on the property. Any such
loss could have a material adverse effect on the Company and its ability to make
distributions to shareholders.
CHANGE IN LAWS
Increases in real estate taxes and income, service and transfer taxes cannot
always be passed through to residents or users in the form of higher rents, and
may adversely affect the Company's cash available for distribution and its
ability to make distributions to shareholders. Similarly, changes in laws
increasing the potential liability for environmental conditions existing on
properties or increasing the restrictions on discharges or other conditions, as
well as changes in laws affecting development, construction and safety
requirements, may result in significant unanticipated expenditures, which could
have a material adverse effect on the Company and its ability to make
distributions to shareholders. In addition, future enactment of rent control or
rent stabilization laws or other laws regulating multifamily housing may reduce
rental revenues or increase operating costs.
LAWS BENEFITING DISABLED PERSONS
A number of federal, state and local laws (including the Americans with
Disabilities Act) and regulations exist that may require modifications to
existing buildings or restrict certain renovations by requiring improved access
to such buildings by disabled persons. Legislation or regulations adopted in the
future may impose further burdens or restrictions on the Company with respect to
improved access by disabled persons. The costs of compliance with these laws and
regulations may be substantial, and limits or restrictions on completion of
certain renovations may limit implementation of the Company's investment
strategy in certain instances or reduce overall returns on its investments,
which could have a material adverse effect on the Company and its ability to
make distributions to shareholders. The Company reviews its properties
periodically to determine the level of compliance and, if necessary, takes
appropriate action to bring such properties into compliance. The Company's
management believes, based on property reviews to date, that the costs of such
compliance should not have a material adverse effect on the Company. Such
conclusions are based upon currently available information and data, and no
assurance can be given that further review and analysis of the Company's
properties, or future legal interpretations or legislative changes, will not
significantly increase the costs of compliance.
REAL ESTATE FINANCING RISKS
DEBT FINANCING AND MATURITIES
The Company is subject to the normal risks 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 indebtedness on its
properties, or unsecured indebtedness, will not be able to be renewed, repaid or
refinanced when due or that the terms of any renewal or refinancing will not be
as favorable as the terms of such indebtedness. If the Company were unable to
refinance its indebtedness on acceptable terms, or at all, the Company might be
forced to dispose of one or more of the properties on disadvantageous terms,
which might result in losses to the Company, which losses could have a material
adverse effect on the Company and its ability to make distributions to
shareholders. Furthermore, if a property is mortgaged to secure payment of
indebtedness and the Company is unable to meet mortgage payments, the mortgagee
could
7
<PAGE>
foreclose upon the property, appoint a receiver and receive an assignment of
rents and leases or pursue other remedies, all with a consequent loss of
revenues and asset value to the Company. Foreclosures could also create taxable
income without accompanying cash proceeds, thereby hindering the Company's
ability to meet the REIT distribution requirements of the Code.
RISK OF RISING INTEREST RATES
The Company has incurred and expects in the future to incur indebtedness
which bears interest at a variable rate. Accordingly, increases in interest
rates would increase the Company's interest costs (to the extent that the
related indebtedness was not protected by interest rate protection
arrangements), which could have a material adverse effect on the Company and its
ability to make distributions to shareholders or cause the Company to be in
default under certain debt instruments. In addition, an increase in market
interest rates may lead holders of the Company's Common Shares to demand a
higher yield on their shares from distributions by the Company, which could
adversely affect the market price for the Common Shares.
ADDITIONAL DEBT
The Company currently funds acquisition opportunities partially through
borrowings (including its lines of credit) as well as from other sources such as
sales of non-core properties. The organizational documents of the Company do not
contain any limitation on the amount of indebtedness that the Company may incur.
Accordingly, the Company could become more highly leveraged, resulting in an
increase in debt service, which could have a material adverse effect on the
Company and its ability to make distributions to shareholders and in an
increased risk of default on its obligations.
ENVIRONMENTAL RISKS
Under various federal, state and local laws, ordinances and regulations, a
current or previous owner or operator of real estate may be liable for the costs
of removal or remediation of certain hazardous or toxic substances in, on,
around or under 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, or failure to
remediate properly, such substances may adversely affect the owner's or
operator's ability to sell or rent the affected 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 also seek recovery from owners or operators of real
properties for personal injury associated with asbestos-containing materials and
other hazardous or toxic substances. The operation and subsequent removal of
certain underground storage tanks are also regulated by federal and state laws.
In connection with the current or former ownership (direct or indirect),
operation, management, development and/or control 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 claims for injuries to
persons and property.
The Company's current policy is to obtain a Phase I environmental study on
each property it seeks to acquire and to proceed accordingly. No assurance can
be given, however, that the Phase I environmental studies or other environmental
studies undertaken with respect to any of the Company's current or future
properties will reveal all or the full extent of potential environmental
liabilities, that any prior owner or operator of a property did not create any
material environmental condition unknown to the Company, that a material
environmental condition does not otherwise exist as to any one or more of such
properties or that environmental matters will not have a material adverse effect
on the Company and its ability to make distributions to shareholders. The
Company currently carries no insurance for environmental liabilities.
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Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may have liability with respect to properties
previously sold by its predecessors.
PROVISIONS WHICH COULD LIMIT A CHANGE IN CONTROL OR DETER A TAKEOVER
In order to maintain its qualification as a REIT, not more than 50% in value
of the outstanding capital stock of the Company may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities). In order to protect the Company against risk of losing its
status as a REIT due to a concentration of ownership among its shareholders, the
articles of incorporation of the Company provide, among other things, that if
the Board of Directors determines, in good faith, that direct or indirect
ownership of the Company's Common Shares have or may become concentrated to an
extent that would prevent the Company from qualifying as a REIT, the Board of
Directors may prevent the transfer of the Common Shares or call for redemption
(by lot or other means affecting one or more shareholders selected in the sole
discretion of the Board of Directors) of a number of Common Shares sufficient in
the opinion of the Board of Directors to maintain or bring the direct or
indirect ownership of the Common Shares into conformity with the requirements
for maintaining REIT status. These limitations may have the effect of precluding
acquisition of control of the Company by a third party without consent of the
Board of Directors.
In addition, certain other provisions contained in the Company's articles of
incorporation and bylaws, as well as its shareholder rights plan, may have the
effect of discouraging a third party from making an acquisition proposal for the
Company and may thereby inhibit a change in control of the Company. For example,
such provisions may (i) deter tender offers for Common Shares which offers may
be attractive to the shareholders, or (ii) deter purchases of large blocks of
Common Shares, thereby limiting the opportunity for shareholders to receive a
premium for their Common Shares over then-prevailing market prices.
TAX RISKS
TAX LIABILITIES AS A CONSEQUENCE OF FAILURE TO QUALIFY AS A REIT
Although management believes that the Company is organized and is operating
so as to qualify as a REIT under the Code, no assurance can be given that the
Company has in fact operated or will be able to continue to operate in a manner
so as to qualify or remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there are
only limited judicial or administrative interpretations and the determination of
various factual matters and circumstances not entirely within the Company's
control. For example, in order to qualify as a REIT, at least 95% of the
Company's taxable gross income in any year must be derived from qualifying
sources and the Company must make distributions to shareholders aggregating
annually at least 95% of its REIT taxable income (excluding net capital gains).
In addition, no assurance can be given that new legislation, new regulations,
administrative interpretations or court decisions will not change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification.
If the Company fails to qualify as a REIT, the Company will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates. In addition, unless entitled to relief under
certain statutory provisions, the Company would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce funds available for
investment or distributions to shareholders because of the additional tax
liability to the Company for the year or years involved. In addition,
distributions to shareholders would no longer be required to be made. To the
extent that distributions to shareholders
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would have been made in anticipation of qualifying as a REIT, the Company might
be required to borrow funds or to liquidate certain of its investments to pay
the applicable tax.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the quarter ended March
31, 1997 and the years ended December 31, 1996, 1995, 1994, 1993, and 1992 was
2.82, 3.20, 3.95, 4.96, 4.39, and 3.36, respectively. For the purposes of
computing these ratios, earnings have been calculated by adding fixed charges to
income before net gains (losses) on sales of investments. Fixed charges consist
of interest costs (including capitalized interest), amortization of debt expense
and one-third of the rental expense, which is deemed to be the interest
component of such rental expense.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement for any
offering of securities, the Company intends to use the net proceeds from the
sale of the Company Offered Securities for general corporate purposes, which may
include the acquisition of properties or interests therein (including using the
net proceeds for possible portfolio or asset acquisitions or in business
combinations) as suitable opportunities arise, the expansion and improvement of
certain properties in the Company's portfolio and the repayment of indebtedness.
The Company will not receive any of the proceeds from the sale of the Resale
Shares by the Selling Shareholder.
SELLING SHAREHOLDER
As of April 8, 1997, State Farm Insurance Companies Employee Retirement
Trust (the "Selling Shareholder") beneficially owned 942,570 Common Shares, of
which up to 650,000 Resale Shares may be offered hereby. The amount of the
Resale Shares which may be offered by the Selling Shareholder from time to time
for its account and the percentage of the class to be owned by the Selling
Shareholder after the completion of such offering or offerings will be set forth
in the applicable Prospectus Supplement. In addition, as of April 8, 1997, State
Farm Mutual Automobile Insurance Company ("State Farm") beneficially owned
3,226,388 Common Shares. The Selling Shareholder is a retirement plan
administered by State Farm for the benefit of its employees. The trustees of the
Selling Shareholder are vested with the responsibility for investing the assets
of the Selling Shareholder. The Selling Shareholder and State Farm each
expressly disclaims beneficial ownership of the Common Shares owned by the
other.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Debt Securities") or subordinated
Debt Securities ("Subordinated Debt Securities"). The Debt Securities will be
issued under one or more indentures. Senior Debt Securities and Subordinated
Debt Securities will be issued pursuant to separate indentures (respectively, a
"Senior Indenture" and a "Subordinated Indenture"), in each case between the
Company and a trustee (a "Trustee"), which may be the same Trustee. The Senior
Indenture and the Subordinated Indenture, as amended or supplemented from time
to time, are sometimes referred to collectively as the "Indentures." The
Indentures will be subject to and governed by the Trust Indenture Act of 1939,
as amended (the "TIA"). The statements made under this heading relating to the
Debt Securities and the Indentures are summaries of certain anticipated
provisions thereof, do not purport to be complete and are qualified in their
entirety by reference to the forms of Indentures and such Debt Securities, which
have been or will be included or incorporated by reference to exhibits to the
Registration Statement of which this Prospectus is a part and are or will be
available as described above under "Available Information."
The following description of Debt Securities sets forth certain general
terms and provisions of the series of Debt Securities to which any Prospectus
Supplement may relate. Certain other specific terms of
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any particular series of Debt Securities will be described in the applicable
Prospectus Supplement. The terms of the Debt Securities offered by any
Prospectus Supplement may differ from the terms set forth below, in which case
the terms set forth below shall be deemed to have been superseded to the extent
of any different terms set forth in such Prospectus Supplement.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable form of Indenture. As used in this
"Description of Debt Securities," all references to the "Company" shall mean BRE
Properties, Inc., excluding, unless otherwise expressly stated or the context
shall otherwise require, its subsidiaries.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company.
Each Indenture will provide that the Debt Securities issued thereunder 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 or as established in
one or more indentures supplemental to the applicable Indenture. The terms of
any Debt Securities within any series may differ from the terms of any other
Debt Securities in such series. 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. (SEE Section
301 of the forms of Indenture.) Any Trustee under either Indenture may resign or
be removed with respect to one or more series of Debt Securities issued under
such Indenture, and a successor Trustee may be appointed to act with respect to
such series.
Reference is made to each Prospectus Supplement for the specific terms of
the series of Debt Securities being offered thereby, including:
(1) The title of such Debt Securities and whether such Debt Securities
will be Senior Debt Securities or Subordinated Debt Securities;
(2) The aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) If other than 100% of the principal amount thereof, the portion of
the principal amount of such Debt Securities payable upon declaration of
acceleration of the maturity thereof or (if applicable) the portion of the
principal amount of such Debt Securities which is convertible into Common
Shares or other equity securities of the Company, or the method by which any
such portion shall be determined;
(4) If such Debt Securities are convertible, any limitation on the
ownership or transferability of the Common Shares or other equity securities
of the Company into which such Debt Securities are convertible in connection
with the preservation of the Company's status as a REIT;
(5) The date or dates, or the method for determining the date or dates,
on which the principal of such Debt Securities will be payable;
(6) 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;
(7) The date or dates, or the method for determining the 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 Regular Record 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;
(8) The place or places where (i) the principal of (and premium, if any)
or interest, if any, on such Debt Securities will be payable, (ii) such Debt
Securities may be surrendered for conversion (if
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applicable) or registration of transfer or exchange, and (iii) notices or
demands to or upon the Company in respect of such Debt Securities and the
applicable Indenture may be served;
(9) The period or periods within 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 Company, if the
Company is to have such an option;
(10) The obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a Holder thereof, and the period or periods within which,
the price or prices at which and the terms and conditions upon which such
Debt Securities will be redeemed, repaid or purchased, as a whole or in
part, pursuant to such obligation;
(11) If other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign currency
or units of two or more foreign currencies or a composite currency or
currencies, and the terms and conditions relating thereto;
(12) 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;
(13) Any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to the Events of Default or covenants set
forth in the applicable Indenture;
(14) Whether such Debt Securities will be issued in certificated or
book-entry form;
(15) Whether such Debt Securities will be in registered or bearer form or
both and, if and to the extent in registered form, the denominations thereof
if other than $1,000 and any integral multiple thereof and, if and to the
extent in bearer form, the denominations thereof and terms and conditions
relating thereto;
(16) The applicability, if any, of the defeasance and covenant defeasance
provisions of the applicable Indenture;
(17) The terms, if any, upon which such Debt Securities may be
convertible into Common Shares or other equity securities of the Company
(and the class thereof) and the terms and conditions upon which such
conversion will be effected, including, without limitation, the initial
conversion price or rate and the conversion period;
(18) Whether and under what circumstances the Company will pay Additional
Amounts on such Debt Securities in respect of any tax, assessment or
governmental charge and, if so, whether the Company will have the option to
redeem such Debt Securities in lieu of making such payment; and
(19) Any other terms of such Debt Securities.
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"). Any material U.S. federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as hereinafter set forth under the captions "Certain
Covenants--Aggregate Debt Test," "--Maintenance of Total Unencumbered Assets,"
"--Debt Service Test" and "--Secured Debt Test," which relate solely to the
Senior Indenture and the Senior Debt Securities issued thereunder, neither
Indenture will contain any provision that would limit the ability of the Company
to incur indebtedness or that will afford Holders of Debt Securities protection
in a highly leveraged or similar action involving the Company or in the event of
a change of control of the Company. However, certain restrictions on ownership
and transfers of the Company's Common Shares and the Company's other equity
securities designed to preserve its status as a REIT may act to prevent or
hinder a change of control. SEE
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"Description of Common Shares," "Description of Preferred Shares" and
"Description of Depositary Shares."
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
registered Debt Securities of any series will be issuable in denominations of
$1,000. (SEE Section 302 of the forms of Indenture.)
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest, if any, on any series of Debt
Securities will be payable at the corporate trust office of the applicable
Trustee or at the office of any transfer agent designated by the Company for
such purpose; provided that, at the option of the Company, 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. (SEE Sections 301, 305, 306, 307
and 1002 of the forms of Indenture.)
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
applicable Trustee, notice of which shall be given to the Holder of such Debt
Security not less than 10 days prior to such Special Record Date, or may be paid
at any time in any other lawful manner, all as more completely described in the
applicable Indenture. (SEE Section 307 of the forms of Indenture.)
Subject to certain limitations applicable to Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Trustee. In
addition, subject to certain limitations applicable to Debt Securities issued in
book-entry form, the Debt Securities of any series may be surrendered for
conversion or registration of transfer thereof at the corporate trust office of
the applicable Trustee. Every Debt Security surrendered for conversion,
registration of transfer or exchange must 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 Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. (SEE Section 305 of the forms of
Indenture.) If the applicable Prospectus Supplement refers to any transfer agent
(in addition to the Trustee) initially designated by the Company with respect to
any series of Debt Securities, the Company may at any time rescind the
designation of any such transfer agent or approve a change in the location at
which any such transfer agent acts, except that the Company will be required to
maintain a transfer agent in each Place of Payment for such series. The Company
may at any time designate additional transfer agents with respect to any series
of Debt Securities. (SEE Section 1002 of the forms of Indenture.)
Neither the Company nor any Trustee will be required (i) to issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) to 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) to issue, register the transfer of or exchange any Debt Security
which has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Debt Security not to be so repaid. (SEE Section 305 of
the forms of Indenture.)
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MERGER, CONSOLIDATION OR SALE
Each Indenture will provide that the Company will not, in any transaction or
series of related transactions, consolidate with, or sell, lease, assign,
transfer or otherwise convey all or substantially all of its assets to, or merge
with or into, any other Person unless (i) either the Company shall be the
continuing corporation, or the successor Person (if other than the Company)
formed by or resulting from any such consolidation or merger or which shall have
received the transfer of such assets is a corporation organized and existing
under the laws of the United States of America, any state thereof or the
District of Columbia and shall expressly assume, by supplemental indenture
delivered to the Trustee, the due and punctual payment of the principal of (and
premium, if any) and interest, if any, on all of the outstanding Debt Securities
issued under such Indenture and the due and punctual performance and observance
of all of the other covenants and conditions contained in such outstanding Debt
Securities and such Indenture; (ii) immediately after giving effect to such
transaction and treating any Debt (including Acquired Debt) which becomes an
obligation of the Company or any of its Subsidiaries as a result thereof as
having been incurred by the Company or such Subsidiary at the time of such
transaction, no Event of Default under the applicable 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 (iii) an officers'
certificate and legal opinion concerning such conditions shall be delivered to
each Trustee. In the event that the Company is not the continuing corporation,
then, for purposes of clause (ii) of the preceding sentence, the successor
corporation shall be deemed to be the "Company" referred to in such clause (ii).
(SEE Sections 801 and 803 of the forms of Indenture).
Upon any such merger, consolidation, sale, assignment, transfer, lease or
conveyance in which the Company is not the continuing corporation, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such sale, assignment, transfer, lease or other conveyance is made
shall succeed to, and be substituted for, and may exercise every right and power
of, the Company under the relevant Indenture with the same effect as if such
successor corporation had been named as the Company therein and thereafter
(except in the case of a lease) the Company shall be released from its
obligations under such Indenture and the Debt Securities.
CERTAIN COVENANTS
The Senior Indenture will contain the following covenants:
AGGREGATE DEBT TEST. The Company will not, and will not cause or permit any
of its Subsidiaries to, incur any Debt (including, without limitation, Acquired
Debt) if, immediately after giving effect to the incurrence of such Debt and the
application of the proceeds therefrom, the aggregate principal amount of all
outstanding Debt of the Company and its Subsidiaries (determined on a
consolidated basis in accordance with generally accepted accounting principles)
is greater than 60% of the sum of (without duplication) (i) the Total Assets of
the Company and its Subsidiaries as of the last day of the then most recently
ended fiscal quarter and (ii) the aggregate purchase price of any real estate
assets or mortgages receivable acquired, and the aggregate amount of any
securities offering proceeds received (to the extent such proceeds were not used
to acquire real estate assets or mortgages receivable or used to reduce Debt),
by the Company or any of its Subsidiaries since the end of such fiscal quarter,
including the proceeds obtained from the incurrence of such additional Debt,
determined on a consolidated basis in accordance with generally accepted
accounting principles.
DEBT SERVICE TEST. The Company will not, and will not cause or permit any
of its Subsidiaries to, incur any Debt (including, without limitation, Acquired
Debt) if the ratio of Consolidated Income Available for Debt Service to the
Annual Debt Service Charge for the four consecutive fiscal quarters most
recently ended prior to the date on which such additional Debt is to be incurred
shall have been less than 1.5:1 on a pro forma basis after giving effect to the
incurrence of such Debt and the application of the proceeds therefrom, and
calculated on the assumption that (i) such Debt and any other Debt (including,
without limitation, Acquired Debt) incurred by the Company or any of its
Subsidiaries since the first day of such
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four-quarter period and the application of the proceeds therefrom (including to
repay other Debt), and the repayment or retirement of any other Debt of the
Company or any of its Subsidiaries since the first day of such four-quarter
period, had occurred on the first day of such period (except that, in making
such computation, the amount of Debt under any revolving credit facility, line
of credit or similar facility shall be computed based upon the average daily
balance of such Debt during such period) and (ii) in the case of any acquisition
or disposition by the Company or any of its Subsidiaries of any asset or group
of assets, in any such case with a fair market value (determined in good faith
by the Company's Board of Directors) in excess of $1 million, since the first
day of such four-quarter period, whether by merger, stock purchase or sale or
asset purchase or sale or otherwise, such acquisition or disposition 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. If the Debt giving rise to the need to make the foregoing
calculation or any other Debt incurred after the first day of the relevant
four-quarter period bears interest at a floating rate then, for purposes of
calculating the Annual Debt Service Charge, the interest rate on such Debt shall
be computed on a pro forma basis as if the average rate which would have been in
effect during the entire such four-quarter period had been the applicable rate
for the entire such period.
SECURED DEBT TEST. The Company will not, and will not cause or permit any
of its Subsidiaries to, incur any Debt (including, without limitation, Acquired
Debt) secured by any Lien on any property or assets of the Company or any of its
Subsidiaries, whether owned on the date of the Indenture or thereafter acquired,
if, immediately after giving effect to the incurrence of such Debt and the
application of the proceeds therefrom, the aggregate principal amount
(determined on a consolidated basis in accordance with generally accepted
accounting principles) of all outstanding Debt of the Company and its
Subsidiaries which is secured by any Lien on any property or assets of the
Company or any of its Subsidiaries is greater than 40% of the sum of (without
duplication) (i) the Total Assets of the Company and its Subsidiaries as of the
last day of the then most recently ended fiscal quarter and (ii) the aggregate
purchase price of any real estate assets or mortgages receivable acquired, and
the aggregate amount of any securities offering proceeds received (to the extent
such proceeds were not used to acquire real estate assets or mortgages
receivable or used to reduce Debt), by the Company or any of its Subsidiaries
since the end of such fiscal quarter, including the proceeds obtained from the
incurrence of such additional Debt, determined on a consolidated basis in
accordance with generally accepted accounting principles.
MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. The Company and its Subsidiaries
must have Total Unencumbered Assets of not less than 150% of the aggregate
principal amount of all outstanding Unsecured Debt of the Company and its
Subsidiaries, determined on a consolidated basis in accordance with generally
accepted accounting principles.
The Subordinated Indenture will not contain any of the covenants described
above and will not contain any other limitation on the amount of Debt of any
kind which the Company or its Subsidiaries may incur. Neither Indenture will
limit the amount of dividends or other distributions which the Company may pay
to its shareholders.
Each Indenture will contain the following covenants:
EXISTENCE. Except as permitted under the provisions of such Indenture
described in "Merger, Consolidation or Sale" the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence, rights (charter and statutory) and franchises; provided,
however, that the Company will not be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business and that the loss thereof is not disadvantageous
in any material respect to the Holders of the Debt Securities outstanding under
the relevant Indenture.
MAINTENANCE OF PROPERTIES. The Company will cause all of its properties
used or useful in the conduct of its business or the business of any Subsidiary
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs,
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renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Company 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 Company and its Subsidiaries will not be prevented
from selling or otherwise disposing of for value its properties in the ordinary
course of business.
INSURANCE. The Company will, and will cause each of its Subsidiaries to,
keep all of their respective insurable properties insured against loss or damage
in amounts at least equal to their then full insurable value with financially
sound and reputable insurance companies; provided that neither the Company nor
any of its Subsidiaries shall be required to maintain earthquake insurance
coverage with respect to any property so long as (i) the Board of Directors of
the Company reasonably determines (as evidenced by a resolution delivered to the
Trustee) that earthquake insurance coverage for such property is not available
on commercially reasonable terms, and (ii) not less frequently than every three
months thereafter, the Board of Directors of the Company reasonably determines
(as evidenced by a resolution delivered to the Trustee) that earthquake
insurance coverage for such property is not available on commercially reasonable
terms. In the event that the obligation to maintain earthquake insurance
coverage with respect to any property shall have been suspended pursuant to the
proviso to the preceding sentences but the Company shall thereafter fail to
comply with its obligations under clause (ii) of such proviso (including,
without limitation, because the Board of Directors shall have determined that
earthquake coverage is available on commercially reasonable terms), then the
obligation to maintain earthquake insurance coverage with respect to such
property shall be immediately and automatically reinstated, subject to the right
of the Company thereafter to cause such obligation to again be suspended by
complying with the terms of such proviso.
PAYMENT OF TAXES AND OTHER CLAIMS. The Company will pay or discharge or
cause to be paid or discharged, before the same shall become delinquent, (i) all
taxes, assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the Company or any
Subsidiary, and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Company or any
Subsidiary, provided, however, that the Company will not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings.
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13 or 15(d) if the Company
were so subject, on or prior to the respective dates (the "Required Filing
Dates") by which the Company would have been so required so to file such
documents. The Company will also in any event (x) within 15 days after each
Required Filing Date (i) transmit by mail to all Holders of Senior Debt
Securities, as their names and addresses appear in the Security Register,
without cost to such Holders, copies of the annual reports and quarterly reports
which the Company would have been required to file with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act if the Company were subject to such
Sections and (ii) file with the applicable Trustee copies of the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
if the Company were subject to such Sections and (y) if filing such documents by
the Company with the Commission is not permitted under the Exchange Act,
promptly upon written request and payment of the reasonable cost of duplication
and delivery, supply copies of such documents to any prospective Holder of Debt
Securities under the relevant Indenture.
DEFINITIONS. As used herein,
"Acquired Debt" means Debt of a Person (i) existing at the time such Person
is merged or consolidated with or into, or becomes a Subsidiary of, the Company
or (ii) assumed by the Company or any of its Subsidiaries in connection with the
acquisition of assets from such Person. Acquired Debt shall be
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deemed to be incurred on the date the acquired Person is merged or consolidated
with or into, or becomes a Subsidiary of, the Company or the date of the related
acquisition, as the case may be.
"Annual Debt Service Charge" means, for any period, the interest expense of
the Company and its Subsidiaries for such period (including, without
duplication, (i) all amortization of debt discount, (ii) all accrued interest,
(iii) all capitalized interest, and (iv) the interest component of capitalized
lease obligations), determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income of the Company and its Subsidiaries for such period,
plus amounts which have been deducted and minus amounts which have been added
for (without duplication) (i) interest expense on Debt, (ii) provision for taxes
based on income, (iii) amortization of debt discount and deferred financing
costs, (iv) provisions for gains and losses on properties, (v) property
depreciation and amortization, (vi) the effect of any non-cash items resulting
from a change in accounting principles in determining Consolidated Net Income,
and (vii) amortization of deferred charges, all determined on a consolidated
basis in accordance with generally accepted accounting principles.
"Consolidated Net Income" for any period means the amount of net income (or
loss) of the Company and its Subsidiaries for such period, excluding (without
duplication) (i) gains and losses on sales of investments and extraordinary
items and (ii) the portion of net income (but not losses) of the Company and its
Subsidiaries allocable to minority interests in unconsolidated Persons to the
extent that cash dividends or distributions have not actually been received by
the Company or one of its Subsidiaries, all determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Debt" means, with respect to any Person, any indebtedness of such Person,
whether or not contingent, in respect of (i) borrowed money or evidenced by
bonds, notes, debentures or similar instruments, (ii) indebtedness secured by
any Lien on any property or asset owned by such Person, but only to the extent
of the lesser of (x) the amount of indebtedness so secured and (y) the fair
market value (determined in good faith by the board of directors of such Person
or, in the case of the Company or a Subsidiary, by the Company's Board of
Directors) of the property subject to such Lien, (iii) reimbursement
obligations, contingent or otherwise, in connection with any letters of credit
actually issued or amounts representing the balance deferred and unpaid of the
purchase price of any property except any such balance that constitutes an
accrued expense or trade payable, or (iv) any lease of property by such Person
as lessee which is required to be reflected on such Person's balance sheet as a
capitalized lease in accordance with generally accepted accounting principles,
and also includes, to the extent not otherwise included, any obligation of such
Person to be liable for, or to pay, as obligor, guarantor or otherwise (other
than for purposes of collection in the ordinary course of business), Debt of the
types referred to above of another Person (it being understood that Debt shall
be deemed to be incurred by such Person whenever such person shall create,
assume, guarantee or otherwise become liable in respect thereof).
"Lien" means any mortgage, deed of trust, lien, charge, pledge, security
interest or other encumbrance of any kind.
"Subsidiary" means (i) a corporation a majority of whose voting stock is at
the time, directly or indirectly, owned by the Company, by the Company and one
or more of its Subsidiaries, or by one or more Subsidiaries of the Company, and
(ii) any Person (other than a corporation) a majority of whose equity interests
are at the time, directly or indirectly, owned by the Company, by the Company
and one or more of its Subsidiaries, or by one or more Subsidiaries of the
Company.
"Total Assets" means the sum of (without duplication) (i) Undepreciated Real
Estate Assets and (ii) all other assets (excluding accounts receivable and
intangibles) of the Company and its Subsidiaries, all determined on a
consolidated basis in accordance with generally accepted accounting principles.
"Total Unencumbered Assets" means the sum of (without duplication) (i) those
Undepreciated Real Estate Assets which are not subject to a Lien securing Debt
and (ii) all other assets (excluding accounts
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receivable and intangibles) of the Company and its Subsidiaries not subject to a
Lien securing Debt, all determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Company and its
Subsidiaries on such date, before depreciation and amortization, all determined
on a consolidated basis in accordance with generally accepted accounting
principles.
"Unsecured Debt" means Debt of the Company or any of its Subsidiaries which
is not secured by a Lien on any property or assets of the Company or any of its
Subsidiaries.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (i) default for 30
days in the payment of any interest on or any Additional Amounts payable in
respect of any Debt Security of such series; (ii) default in the payment of any
principal of (or premium, if any, on) any Debt Security of such series at its
Maturity; (iii) default in making any sinking fund payment as required for any
Debt Security of such series; (iv) default in the performance of any other
covenant or warranty of the Company contained in the applicable Indenture (other
than a covenant or warranty included in such Indenture solely for the benefit of
a series of Debt Securities other than such series), continued for 60 days after
written notice as provided in such Indenture; (v) default under any evidence of
indebtedness of the Company or any of its Subsidiaries or any mortgage,
indenture or other instrument under which such indebtedness is issued or by
which such indebtedness is secured which results in the acceleration of
indebtedness in an aggregate principal amount exceeding $20,000,000 or which
constitutes a failure to pay at maturity or other scheduled payment date (after
expiration of any applicable grace period) indebtedness in an aggregate
principal amount exceeding $20,000,000, but only if such indebtedness is not
discharged or such acceleration is not rescinded or annulled within 10 days
after notice to the Company by the Trustee or to the Company and the Trustee by
the Holders of at least 10% in aggregate principal amount of the Outstanding
Debt Securities of such series; (vi) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee, of
the Company or of any Significant Subsidiary or of the respective property of
either; and (vii) any other Event of Default provided with respect to that
series of Debt Securities. (SEE Section 501 of the forms of Indenture.) The term
"Significant Subsidiary" means a significant subsidiary (as defined in
Regulation S-X promulgated under the Securities Act as in effect on January 1,
1996) of the Company.
If an Event of Default under any Indenture with respect to Debt Securities
of any series issued thereunder at the time outstanding occurs and is
continuing, then in every such case the applicable Trustee or the Holders of not
less than 25% in principal amount of the Outstanding Debt Securities of that
series may declare the principal amount (or, if the Debt Securities of that
series are Original Issue Discount Securities or Indexed Securities, such
portion of the principal amount as may be specified in the terms thereof) of all
of the Debt Securities of that series to be due and payable immediately by
written notice thereof to the Company (and to the applicable Trustee if given by
the Holders). However, at any time after such a declaration of acceleration with
respect to Debt Securities of such series has been made, the Holders of not less
than a majority in principal amount of Debt Securities of such series may
rescind and annul such declaration and its consequences if (i) the Company shall
have deposited with the applicable Trustee all required payments of the
principal of (and premium, if any) and interest, if any, on the Debt Securities
of such series, plus certain fees, expenses, disbursements and advances of such
Trustee and (ii) all Events of Default, other than the nonpayment of accelerated
principal (or specified portion thereof) with respect to Debt Securities of such
series have been cured or waived as provided in such Indenture. (SEE Section 502
of the forms of Indenture.) The Indentures will also provide that the Holders of
not less than a majority in principal amount of the 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
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premium, if any) or interest, if any, on any Debt Security of such series or (y)
in respect of a covenant or provision contained in the applicable Indenture that
cannot be modified or amended without the consent of the Holder of each
Outstanding Debt Security affected thereby. (SEE Section 513 of the forms of
Indenture.)
The Indentures will require each Trustee to give notice to the Holders of
Debt Securities issued thereunder within 90 days of a default under the
applicable Indenture unless such default shall have been cured or waived;
provided, however, that such Trustee may withhold notice to the Holders of any
such 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, if any, 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 a
Responsible Officer of such Trustee considers such withholding to be in the
interest of such Holders. (SEE Section 601 of the forms of Indenture.)
The Indentures will provide that no Holder of Debt Securities of any series
issued thereunder may institute any proceeding, judicial or otherwise, with
respect to such Indenture or for any remedy thereunder, except in the case of
the failure of the applicable Trustee, for 60 days, to act after it has received
a written request to institute proceedings in respect of an Event of Default
from the Holders of not less than 25% in principal amount of the Outstanding
Debt Securities of such series, as well as an offer of reasonable indemnity.
(SEE Section 507 of the forms of Indenture.) 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, if any, on
such Debt Securities held by that Holder at the respective due dates thereof.
(SEE Section 508 of the forms of Indenture.)
The Indentures will provide that, subject to provisions to each Indenture
relating to its duties in case of default, a Trustee thereunder is under no
obligation to exercise any of its rights or powers under an Indenture at the
request or direction of any Holders of any series of Debt Securities then
Outstanding under such Indenture, unless such Holders shall have offered to the
Trustee thereunder reasonable security or indemnity. (SEE Section 602 of the
forms of Indenture.) 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 such Trustee, or of exercising any trust or power conferred upon such
Trustee. However, a Trustee may refuse to follow any direction which is in
conflict with any law or the applicable Indenture, which may involve such
Trustee in personal liability or which may be unduly prejudicial to the Holders
of Debt Securities of such series not joining therein. (SEE Section 512 of the
forms of Indenture.)
Within 120 days after the close of each fiscal year, the Company must
deliver to each 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 applicable Indenture and, if so, specifying each such
default and the nature and status thereof. (SEE Section 1012 of the form of
Senior Indenture and Section 1009 of the form of Subordinated Indenture.)
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MODIFICATION OF THE FORMS OF INDENTURE
Modifications and amendments of an Indenture may be made only with the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities of each series issued thereunder which are affected
by such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the Holder of each such Debt Security
affected thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest, if any, (or premium, if any) on, any such Debt
Security, (ii) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on 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, (iii) change the Place of Payment, or the coin or currency, for
payment of principal of (or premium, if any) or interest, if any, on any such
Debt Security, (iv) impair the right to institute suit for the enforcement of
any payment on or with respect to any such Debt Security, (v) reduce the
percentage of Outstanding Debt Securities of any series necessary to modify or
amend the applicable Indenture with respect to such Debt Securities, 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
applicable Indenture; or (vi) modify any of the foregoing provisions or any of
the provisions relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect such action or
to provide that certain other provisions may not be modified or waived without
the consent of the Holder of such Debt Security. (SEE Section 902 of the forms
of Indenture.)
Each Indenture provides that the Holders of not less than a majority in
principal amount of Outstanding Debt Securities of any series issued thereunder
have the right to waive compliance by the Company with certain covenants in the
Senior Indenture applicable to such series, including those described in the
section of this Prospectus captioned "Description of Debt Securities--Certain
Covenants." (SEE Section 1014 of the form of Senior Indenture and Section 1013
of the form of Subordinated Indenture.)
Modifications and amendments of an Indenture may be made by the Company and
the applicable Trustee without the consent of any Holder of Debt Securities
issued thereunder for any of the following purposes: (i) to evidence the
succession of another Person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities issued thereunder or to surrender any right
or power conferred upon the Company in such Indenture; (iii) to add Events of
Default for the benefit of the Holders of all or any series of Debt Securities
issued thereunder; (iv) to add or change any provisions of such Indenture to
facilitate the issuance of Debt Securities issued thereunder in bearer form, or
to permit or facilitate the issuance of such Debt Securities in uncertificated
form, provided that such action shall not adversely affect the interests of the
Holders of such Debt Securities of any series in any material respect; (v) to
change or eliminate any provision of such Indenture, provided that no such
change or elimination shall become effective with respect to the Outstanding
Debt Securities of any series issued thereunder created prior thereto which are
entitled to the benefit of such provision; (vi) to secure the Debt Securities
issued thereunder; (vii) to establish the form or terms of Debt Securities of
any series issued thereunder, including the provisions and procedures, if
applicable, for the conversion of such Debt Securities into Common Shares or
Preferred Shares of the Company; (viii) to provide for the acceptance of
appointment by a successor Trustee or to facilitate the administration of the
trusts under an Indenture by more than one Trustee; (ix) to cure any ambiguity,
defect or inconsistency in such Indenture, provided that such action shall not
adversely affect the interests of Holders of Outstanding Debt Securities of any
series issued thereunder in any material respect; or (x) to supplement any of
the provisions of an Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities issued
thereunder, provided that such action shall not adversely affect the interests
of the Holders of the Debt Securities of any series issued thereunder in any
material respect. (SEE Section 901 of the forms of Indenture.)
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The Indentures will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series issued
thereunder have given any request, demand, authorization, direction, notice,
consent or waiver thereunder or whether a quorum is present at a meeting of
Holders of such 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 provided with respect to such Indexed
Security pursuant to such Indenture, and (iv) Debt Securities owned by the
Company or any other obligor upon the Debt Securities or any Affiliate of the
Company or of such other obligor shall be disregarded. (SEE Section 101 of the
forms of Indenture.)
The Indentures will contain provisions for convening meetings of the Holders
of Debt Securities of a series issued thereunder. (SEE Section 1501 of the forms
of Indenture.) A meeting may be called at any time by the applicable Trustee and
also, upon request, by the Company or the Holders of at least 10% in principal
amount of the Outstanding Debt Securities of such series, in any such case upon
notice given as provided in the applicable Indenture. (SEE Section 1502 of the
forms of Indenture.) Except for any consent that must be given by the Holder of
each Debt Security affected by certain modifications and amendments of such
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 applicable 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. (SEE Section 1504 of the forms of Indenture.)
Notwithstanding the provisions described above, the Indentures will provide
that 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 applicable 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 such Indenture. (SEE Section 1504 of the forms of
Indenture.)
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DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company will be permitted, at its option, to discharge certain obligations to
Holders of any series of Debt Securities issued under any Indenture that have
not already been delivered to the applicable 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 such 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, if any,
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. (SEE
Section 401 of the forms of Indenture.)
Each Indenture provides that, unless otherwise provided in the applicable
Prospectus Supplement, the Company may elect with respect to any series of Debt
Securities issued thereunder either (i) to defease and be discharged from any
and all obligations with respect to such Debt Securities (except, among other
things, for the obligation to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (SEE Section 1402 of the forms of Indenture) or (ii) to be
released from its obligations with respect to such Debt Securities under the
applicable covenants described above under the caption "Certain Covenants"
(except that the Company shall remain subject to the covenant to preserve and
keep in full force and effect its corporate existence, except as permitted under
the provisions described under "Consolidation, Merger or Sale") and, if provided
pursuant to Section 301 of such Indenture, its obligations with respect to any
other covenants applicable to the Debt Securities of such series, 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")
(SEE Section 1403 of the forms of Indenture), in either case upon the
irrevocable deposit by the Company with the applicable Trustee, in trust, of an
amount, in such currency or currencies, currency unit or units or composite
currency or currencies in which such Debt Securities are payable at Stated
Maturity, or Government Obligations (as defined below), or both, applicable to
such Debt Securities which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest, if any,
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 Company has
delivered to the applicable Trustee an Opinion of Counsel (as specified in the
applicable 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 such
Indenture. (SEE Section 1404 of the forms of Indenture.)
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency in which the 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
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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.
(SEE Section 101 of the forms of Indenture.)
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(i) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 of the applicable form of Indenture or the terms of such
Debt Security to receive payment in a currency, currency unit or composite
currency other than that in which such deposit has been made in respect of such
Debt Security, or (ii) a Conversion Event (as defined below) occurs in respect
of the currency, currency unit or composite currency in which such deposit has
been made, the indebtedness represented by such Debt Security shall be deemed to
have been, and will be, fully discharged and satisfied through the payment of
the principal of (and premium, if any) and interest, if any, on such Debt
Security as they become due out of the proceeds yielded by converting the amount
so deposited in respect of such Debt Security into the currency, currency unit
or composite currency in which such Debt Security becomes payable as a result of
such election or such cessation of usage based on the applicable market exchange
rate. (SEE Section 1405 of the forms of Indenture.) "Conversion Event" means the
cessation of use of (a) a currency, currency unit or composite currency both by
the government of the country which issued such currency and for the settlement
of actions by a central bank or other public institution of or within the
international banking community, (b) the ECU both within the European Monetary
System and for the settlement of transactions by public institutions of or
within the European Community or (c) any currency unit or composite currency
other than the ECU for the purposes for which it was established. Unless
otherwise described in the applicable Prospectus Supplement, all payments of
principal of (and premium, if any) and interest, if any, on any Debt Security
that are payable in a Foreign Currency that ceases to be used by its government
of issuance shall be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to the
Debt Securities of any series and such Debt Securities are declared due and
payable because of the occurrence of any Event of Default (other than an Event
of Default with respect to any covenant as to which there has been covenant
defeasance), the amount of monies and Government Obligations deposited with the
applicable Trustee to effect such covenant defeasance may not be sufficient to
pay amounts due on such Debt Securities at the time of their Stated Maturity or
at the time of the acceleration resulting from such Event of Default. In any
such event, the Company would remain liable to make payment of such amounts due
at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
RANKING OF DEBT SECURITIES
The Senior Debt Securities will be unsecured unsubordinated obligations of
the Company and will rank on a parity in right of payment with all other
unsecured and unsubordinated indebtedness of the Company. The Subordinated Debt
Securities will be unsecured obligations of the Company and will be subordinated
in right of payment to all existing and future Senior Indebtedness (as defined
below) of the Company. SEE "Subordination of Subordinated Securities."
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The Debt Securities are obligations exclusively of the Company. Although the
Company conducts most of its operations itself, rather than through
subsidiaries, a portion of its assets (amounting to less than 6% of its total
consolidated assets at March 31, 1997) are held by its subsidiaries.
Accordingly, the cash flow of the Company and the consequent ability to service
its debt, including the Debt Securities, are partially dependent on the earnings
of such subsidiaries and the Debt Securities will be effectively subordinated to
all existing and future indebtedness and other liabilities of such subsidiaries.
Although the Senior Indentures will, if any Senior Securities are issued, impose
limitations on the incurrence of additional indebtedness, both the Company and
its subsidiaries will retain the ability to incur substantial additional
indebtedness.
SUBORDINATION OF SUBORDINATED SECURITIES
The payment of the principal of (and premium, if any) and interest, if any,
on the Subordinated Debt Securities will be subordinated as set forth in the
Subordinated Indenture in right of payment to the prior payment of all Senior
Indebtedness of the Company whether outstanding on the date of the Subordinated
Indenture or thereafter incurred. (SEE Section 1701 of the Subordinated
Indenture.)
"Senior Indebtedness" is defined in the Subordinated Indenture to mean (i)
the principal of (and premium, if any) and unpaid interest, if any, on
indebtedness for money borrowed or evidenced by a bond, note, debenture or
similar instrument, (ii) purchase money and similar obligations, (iii)
obligations under capital leases, (iv) guarantees, assumptions or purchase
commitments relating to, or other transactions as a result of which the Company
is responsible for the payment of, indebtedness and obligations of others of the
types referred to in clauses (i) through (iii) above, (v) renewals, extensions
and refunding of any such indebtedness or obligations, (vi) interest in respect
of any such indebtedness or obligations accruing after the commencement of any
insolvency or bankruptcy proceedings and (vii) obligations associated with
derivative products such as interest rate and currency exchange contracts,
foreign exchange contracts, commodity contracts, and similar arrangements,
unless, in each case, the instrument by which the Company incurred, assumed or
guaranteed the indebtedness or obligations described in clauses (i) through
(vii) expressly provides that such indebtedness or obligation is subordinate or
junior in right of payment to all other indebtedness of the Company or is not
senior in right of payment to the Subordinated Debt Securities or ranks pari
passu with or subordinate to the Subordinated Debt Securities in right of
payment. At March 31, 1997, the Company had approximately $220,000,000 of Senior
Debt outstanding. There are no restrictions in the Subordinated Indenture upon
the incurrence of additional Senior Indebtedness.
The Subordinated Indenture will provide that, in the event (i) of any
distribution of assets of the Company upon any dissolution, winding up,
liquidation or reorganization of the Company, whether in bankruptcy, insolvency,
reorganization or receivership proceeding or upon an assignment for the benefit
of creditors or any other marshaling of the assets and liabilities of the
Company or otherwise, except a distribution in connection with a merger or
consolidation or a conveyance or transfer of all or substantially all of the
properties of the Company which complies with the requirements of Article Eight
of the Subordinated Indenture (described above under "Merger, Consolidation or
Sale") or (ii) that a default shall have occurred and be continuing with respect
to the payment of principal of (or premium, if any) or interest on any Senior
Indebtedness, or (iii) that the principal of the Subordinated Debt Securities of
any series issued under the Subordinated Indenture (or in the case of Original
Issue Discount Securities, the portion of the principal amount thereof referred
to in Section 502 of the form of Subordinated Indenture) shall have been
declared due and payable pursuant to Section 502 of the form of Subordinated
Indenture, and such declaration shall not have been rescinded and annulled as
provided in said Section 502, then:
(1) in a circumstance described in the foregoing clause (i) or (ii), the
holders of all Senior Indebtedness, and in the circumstance described in the
foregoing clause (iii), the holders of all Senior Indebtedness outstanding
at the time the principal of such Subordinated Debt Securities issued under
the Subordinated Indenture (or in the case of Original Issue Discount
Securities, such portion of the principal amount) shall have been so
declared due and payable, shall first be entitled to receive
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payment of the full amount due thereon in respect of principal (premium, if
any), interest and Additional Amounts, or provision shall be made for such
payment in money or money's worth, before the Holders of any of the
Subordinated Debt Securities are entitled to receive any payment on account
of the principal of (or premium, if any) or interest, if any, on or any
Additional Amount in respect of the indebtedness evidenced by the
Subordinated Debt Securities;
(2) any payment by, or distribution of assets of, the Company of any
kind or character, whether in cash, property or securities (other than
certain subordinated debt securities of the Company issued in a
reorganization or readjustment), to which the Holder of any of the
Subordinated Debt Securities would be entitled except for the subordination
provisions of Article Seventeen of the Subordinated Indenture shall be paid
or delivered by the person making such payment or distribution directly to
the holders of Senior Indebtedness (as provided in clause (1) above), or on
their behalf, ratably according to the aggregate amount remaining unpaid on
account of such Senior Indebtedness, to the extent necessary to make payment
in full of all Senior Indebtedness (as provided in clause (1) above)
remaining unpaid after giving effect to any concurrent payment or
distribution (or provisions therefor) to the holders of such Senior
Indebtedness, before any payment or distribution is made to or in respect of
the Holders of the Subordinated Debt Securities; and
(3) in the event that, notwithstanding the foregoing, any payment by, or
distribution of assets of, the Company of any kind or character is received
by the Holders of any of the Subordinated Debt Securities issued under the
Subordinated Indenture before all Senior Indebtedness is paid in full such
payment or distribution shall be paid over to the holders of such Senior
Indebtedness or on their behalf, ratably as aforesaid, for application to
the payment of all such Senior Indebtedness remaining unpaid until all such
Senior Indebtedness shall have been paid in full, after giving effect to any
concurrent payment or distribution (or provisions therefor) to the holders
of such Senior Indebtedness.
By reason of such subordination in favor of the holders of Senior
Indebtedness in the event of insolvency, certain general creditors of the
Company, including holders of Senior Indebtedness, may recover more, ratably,
than the Holders of the Subordinated Debt Securities.
CONVERTIBLE DEBT SECURITIES
The following provisions will apply to Debt Securities that will be
convertible into Common Shares or other equity securities of the Company
("Convertible Debt Securities") unless otherwise described in the Prospectus
Supplement for such Convertible Debt Securities.
The Holder of any Convertible Debt Securities will have the right,
exercisable at any time during the time period specified in the applicable
Prospectus Supplement, unless previously redeemed by the Company, to convert
such Convertible Debt Securities into Common Shares or other equity securities
of the Company at the conversion price or rate for each $1,000 principal amount
of Convertible Debt Securities set forth in such Prospectus Supplement. The
Holder of any Convertible Debt Security may convert a portion thereof which is
$1,000 or any integral multiple of $1,000. (SEE Section 301 of the form of
Senior Indenture and Section 1602 of the form of Subordinated Indenture.) In the
case of Convertible Debt Securities called for redemption, conversion rights
will expire at the close of business on the date fixed for the redemption
specified in the Prospectus Supplement, except that, in the case of repayment at
the option of the applicable Holder, such right will terminate upon the
Company's receipt of written notice of the exercise of such option. (SEE Section
301 of the form of Senior Indenture and Section 1602 of the form of Subordinated
Indenture.)
In certain events, the conversion price or rate will be subject to
adjustment as contemplated in the applicable Indenture. For Debt Securities
convertible into Common Shares, such events include the issuance of Common
Shares of the Company as a dividend; subdivisions and combinations of Common
Shares; the issuance to all holders of Common Shares of certain rights or
warrants entitling such holders to
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subscribe for or purchase Common Shares at a price per share less than the
current market price per Common Share; and the distribution to all holders of
Common Shares of shares of capital stock of the Company (other than Common
Shares), evidences of indebtedness or assets of the Company (excluding cash
dividends or distributions paid from retained earnings of the Company or
subscription rights or warrants other than those referred to above). In any of
such cases, no adjustment of the conversion price or rate will be required
unless an adjustment would require a cumulative increase or decrease of at least
1% in such price or rate. (SEE Section 301 of the Senior Indenture and Section
1605 of the Subordinated Indenture.) Fractional Common Shares will not be issued
upon conversion, but, in lieu thereof, the Company will pay cash adjustments.
(SEE Section 301 of the Senior Indenture and Section 1606 of the Subordinated
Indenture.) Unless otherwise specified in the applicable Prospectus Supplement,
Convertible Debt Securities surrendered for conversion between any record date
for an interest payment and the related interest payment date (except such
Convertible Debt Securities called for redemption on a redemption date during
such period) must be accompanied by payment of an amount equal to the interest
thereon to such interest payment date. (SEE Section 301 of the Senior Indenture
and Section 1604 of the Subordinated Indenture.)
To protect the Company's status as a REIT, a person may not own or convert
any Convertible Debt Security if as a result of such ownership or upon such
conversion such person would then be deemed to Beneficially Own (as defined in
the Indenture) more than 5.0% of the outstanding capital stock of the Company.
Common Shares or other equity securities of the Company that may be acquired
upon the conversion of Convertible Debt Securities directly or constructively
held by an investor, but not Common Shares or other equity securities of the
Company issuable with respect to the conversion of Convertible Debt Securities
held by others, are deemed to be outstanding (a) at the time of purchase of the
Convertible Debt Securities, and (b) prior to the conversion of the Convertible
Debt Securities, for purposes of determining the percentage ownership of Common
Shares or other equity securities of the Company held by such investor. SEE
"Federal Income Tax Considerations."
The adjustment provisions for Debt Securities convertible into equity
securities of the Company other than Common Shares will be determined at the
time of issuance of such Debt Securities and will be set forth in the applicable
Prospectus Supplement.
Except as set forth in the applicable Prospectus Supplement, any Convertible
Debt Securities called for redemption, unless surrendered for conversion on or
before the close of business on the redemption date, are subject to being
purchased from the Holder of such Convertible Debt Securities by one or more
investment bankers or other purchasers who may agree with the Company to
purchase such Convertible Debt Securities and convert them into Common Shares or
other equity securities of the Company, as the case may be. (SEE Section 1108 of
the forms of Indenture.)
Reference is made to the sections captioned "Description of Common Shares,"
"Description of Preferred Shares" and "Description of Depositary Shares" for a
general description of securities to be acquired upon the conversion of
Convertible Debt Securities, including a description of certain restrictions on
the ownership of the Common Shares and the Preferred Shares.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (each, a "Global Security") that will be
deposited with, or on behalf of, The Depository Trust Company, New York, New
York ("DTC"), or such other depository as may be identified in the applicable
Prospectus Supplement. Global Securities may be issued in either registered or
bearer form and in either temporary or permanent form. Unless otherwise provided
in such Prospectus Supplement, Debt Securities that are represented by a Global
Security will be issued in any authorized denomination and will be issued in
registered or bearer form.
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The Company anticipates that any Global Securities will be deposited with,
or on behalf of DTC, and that such Global Securities will be registered in the
name of Cede & Co., DTC's nominee. The Company further anticipates that the
following provisions will apply to the depository arrangements with respect to
any such Global Securities. Any additional or differing terms of the depository
arrangements will be described in the Prospectus Supplement relating to a
particular series of Debt Securities issued in the form of Global Securities.
So long as DTC or its nominee is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole Holder of
the Debt Securities represented by such Global Security for all purposes under
the applicable Indenture. Except as described below, owners of beneficial
interests in a Global Security will not be entitled to have Debt Securities
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Debt Securities in certificated
form and will not be considered the owners or Holders thereof under the
applicable Indenture. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in certificated form;
accordingly, such laws may limit the transferability of beneficial interests in
a Global Security.
Unless otherwise specified in the applicable Prospectus Supplement, each
Global Security will be exchangeable for certificated Debt Securities of the
same series only if (i) DTC notifies the Company that it is unwilling or unable
to continue as depository or DTC ceases to be a clearing agency registered under
the Exchange Act (if so required by applicable law or regulation) and, in either
case, a successor depository is not appointed by the Company within 90 days
after the Company receives such notice or becomes aware of such ineligibility,
(ii) the Company in its sole discretion determines that the Global Securities
shall be exchangeable for certificated Debt Securities or (iii) there shall have
occurred and be continuing an Event of Default under the Indenture with respect
to the Debt Securities of any series and beneficial owners representing a
majority in aggregate principal amount of such Debt Securities represented by
Global Securities advise DTC to cease acting as depository. Upon any such
exchange, owners of a beneficial interest in the Global Security or Securities
will be entitled to physical delivery of individual Debt Securities in
certificated form of like tenor, terms and rank, equal in principal amount to
such beneficial interest, and to have such Debt Securities in certificated form
registered in the names of the beneficial owners, which names shall be provided
by DTC's relevant Participants (as identified by DTC) to the applicable Trustee.
Unless otherwise described in the applicable Prospectus Supplement, Debt
Securities 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 to the Company:
DTC will act as securities depository for the Debt Securities. The Debt
Securities will be issued as fully registered securities registered in the name
of Cede & Co. (DTC's partnership nominee). One fully registered Debt Security
certificate will be issued with respect to each $200 million (or such other
amount as shall be permitted by DTC from time to time) of principal amount of
the Debt Securities of a series, and an additional certificate will be issued
with respect to any remaining principal amount of such series.
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
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Stock Exchange, Inc. and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others, such as securities brokers
and dealers, and 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 Commission.
Purchases of Debt Securities under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Debt Securities on
DTC's records. The ownership interest of each actual purchaser of each Debt
Security ("Beneficial Owner") is in turn recorded on the Direct and Indirect
Participants' records. A Beneficial Owner does not receive written confirmation
from DTC of its purchase, but 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 Debt
Securities are accomplished by entries made on the books of Direct and Indirect
Participants acting on behalf of Beneficial Owners. Beneficial Owners do not
receive certificates representing their ownership interests in Debt Securities,
except under the circumstances described above.
To facilitate subsequent transfers, the Debt Securities are registered in
the name of DTC's partnership nominee, Cede & Co. The deposit of the Debt
Securities with DTC and their registration in the name of Cede & Co. will effect
no change in beneficial ownership. DTC has no knowledge of the actual Beneficial
Owners of the Debt Securities; DTC records reflect only the identity of the
Direct Participants to whose accounts Debt Securities 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. consents or votes with respect to the Debt
Securities. 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 Debt Securities are credited on the record date (identified
on a list attached to the Omnibus Proxy).
Principal payments, premium payments, if any, and interest payments, if any,
on the Debt Securities will be made to DTC. DTC's practice is to credit Direct
Participants' accounts on the payment 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 payment date. Payments by Direct and Indirect
Participants to Beneficial Owners are 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 are the
responsibility of such Direct and Indirect Participants and not of DTC, the
applicable Trustee or the Company, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal
(premium, if any) and interest, if any, to DTC is the responsibility of the
Company or the applicable 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.
If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the Debt Securities of a series represented by Global Securities are
being redeemed, DTC's practice is to determine by lot the amount of the interest
of each Direct Participant in such issue to be redeemed.
To the extent that any Debt Securities provide for repayment or repurchase
at the option of the Holders thereof, a Beneficial Owner shall give notice of
any option to elect to have its interest in the Global Security repaid by the
Company, through its Participant, to the applicable Trustee, and shall effect
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delivery of such interest in a Global Security by causing the Direct Participant
to transfer the Participant's interest in the Global Security or Securities
representing such interest, on DTC's records, to such Trustee. The requirement
for physical delivery of Debt Securities in connection with a demand for
repayment will be deemed satisfied when the ownership rights in the Global
Security or Securities representing such Debt Securities are transferred by
Direct Participants on DTC's records.
DTC may discontinue providing its services as securities depository with
respect to the Debt Securities at any time by giving reasonable notice to the
Company or the applicable Trustee. Under such circumstances, in the event that a
successor securities depository is not appointed, Debt Security certificates are
required to be printed and delivered as described above.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Debt Security certificates will be printed and delivered as described above.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
None of the Company, the applicable Trustee or any applicable paying agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial interests in a Global Security, or
for maintaining, supervising or reviewing any records relating to such
beneficial interest.
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DESCRIPTION OF PREFERRED SHARES
The following description of Preferred Shares sets forth certain general
terms and provisions of the Preferred Shares to which any Prospectus Supplement
may relate, does not purport to be complete and is qualified in its entirety by
reference to the Company's Amended and Restated Articles of Incorporation (the
"Articles") and by the provisions of the form of articles supplementary pursuant
to which the terms of the Preferred Shares of any series will be established,
which have been or will be included or incorporated by reference as exhibits to
the Registration Statement of which this Prospectus is a part and are or will be
available as described above under "Available Information." Certain other
specific terms will be described in the applicable Prospectus Supplement. The
terms of the Preferred Shares offered in any Prospectus Supplement may differ
from the terms set forth below, in which case the terms set forth below shall be
deemed to have been superseded to the extent of any different terms set forth in
such Prospectus Supplement.
GENERAL
Under the Articles, the Board of Directors has the authority to issue up to
10,000,000 Preferred Shares, $0.01 par value per share. No Preferred Shares were
outstanding as of the date of this Prospectus. Preferred Shares may be issued
from time to time in one or more series, as authorized by the Board of Directors
of the Company and without any action or approval of shareholders of the
Company. Prior to the issuance of shares of such series, the Board of Directors
is required by the Maryland General Corporation Law and the Articles to fix for
each series, subject to the provisions of the Articles, the terms, rights,
restrictions and qualifications, including any preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms or conditions of redemption, as are permitted by Maryland law. The
Preferred Shares offered in any Prospectus Supplement will, when issued, be
fully paid and nonassessable and will have no preemptive rights.
The issuance of Preferred Shares, while providing flexibility in connection
with possible financings, acquisitions and other corporate purposes, could,
among other things, adversely affect the voting powers and other rights and
interests of holders of Common Shares and, under certain circumstances, could
make it more difficult for a third party to gain control of the Company and
could have the effect of delaying or preventing an attempted takeover of the
Company.
TERMS
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms, including:
(1) The class, series and title of such Preferred Shares;
(2) The number of shares of such Preferred Shares offered, the
liquidation preference per share and the offering price of such Preferred
Shares;
(3) The dividend rate or rates, period or periods and payment date or
dates or method of calculation thereof applicable to such Preferred Shares,
and whether dividends will be cumulative or non-cumulative;
(4) The date from which dividends on such Preferred Shares shall accrue,
if applicable;
(5) The procedures for any auction or remarketing of such Preferred
Shares;
(6) The provision for any sinking fund for such Preferred Shares;
(7) The provision for redemption, if applicable, of such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
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(9) Any terms and conditions upon which such Preferred Shares will be
convertible into Common Shares of the Company, including the conversion
price (or manner of calculation thereof);
(10) Whether interests in such Preferred Shares will be represented by
Depositary Shares;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of or on such Preferred Shares;
(12) A discussion of federal income tax considerations applicable to such
Preferred Shares;
(13) The relative ranking and preferences of such Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(14) 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.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares of any series 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 of the Company, and to all equity securities
ranking junior to such Preferred Shares with respect to dividend rights or
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 Shares with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company; and (iii) junior to all equity
securities issued by the Company which the terms of such Preferred Shares
specifically provide rank senior to the Preferred Shares with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company. The term "equity securities" does not include convertible debt
securities.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of assets
of the Company legally available for payment, cash dividends at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of the Company on such record dates as shall be fixed by the
Board of Directors of the Company.
Dividends on any series of the Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are non-cumulative, then the holders of
such series of the Preferred Shares will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Shares of any series are outstanding, no full dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Shares of such series for any period unless (i) if such series of
Preferred Shares has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Preferred Shares of
such series for all past dividend periods and the then current dividend period
or (ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient
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for the payment thereof is set apart for such payment on the Preferred Shares of
such series. When dividends are not paid in full (or a sum sufficient for such
full payment is not so set apart) upon Preferred Shares of any series and the
shares of any other series of Preferred Shares ranking on a parity as to
dividends with the Preferred Shares of such series, all dividends declared upon
Preferred Shares of such series and any other series of Preferred Shares ranking
on a parity as to dividends with such Preferred Shares shall be declared pro
rata so that the amount of dividends declared per share of Preferred Shares of
such series and such other series of Preferred Shares shall in all cases bear to
each other the same ratio that accrued dividends per share on the Preferred
Shares of such series (which shall not include any accumulation in respect of
unpaid dividends for prior dividend periods if such Preferred Shares does not
have a cumulative dividend) and such other series of Preferred Shares bear to
each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on Preferred Shares of such
series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in Common Shares or other shares of capital
stock ranking junior to the Preferred Shares of such series as to dividends and
upon liquidation, dissolution and winding up) shall be declared or paid or set
aside for payment nor shall any other distribution be declared or made upon the
Common Shares, or any other capital stock of the Company ranking junior to or on
a parity with the Preferred Shares of such series as to dividends or upon
liquidation, dissolution or winding up, nor shall any Common Shares, or any
other shares of capital stock of the Company ranking junior to or on a parity
with the Preferred Shares of such series as to dividends or upon liquidation,
dissolution or winding up be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any such shares) by the Company (except by conversion into or
exchange for other capital stock of the Company ranking junior to the Preferred
Shares of such series as to dividends and upon liquidation, dissolution and
winding up).
Any dividend payment made on shares of a series of Preferred Shares shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Shares
will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of shares of such
Preferred Shares that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Shares do not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any series is payable only from the net
proceeds of the issuance of shares of capital stock of the Company, the terms of
such Preferred Shares may provide that, if no such shares of capital stock shall
have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Shares shall automatically and mandatorily
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be converted into the applicable shares of capital stock of the Company pursuant
to conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all shares of such
series of Preferred Shares shall have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, and
(ii) if a series of Preferred Shares does not have a cumulative dividend, full
dividends on all shares of the Preferred Shares of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period, no
shares of such series of Preferred Shares shall be redeemed unless all
outstanding shares of Preferred Shares of such series are simultaneously
redeemed; PROVIDED, HOWEVER, that the foregoing shall not prevent the purchase
or acquisition of Preferred Shares of such series to preserve the REIT status of
the Company or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding shares of Preferred Shares of such series. In
addition, unless (i) if such series of Preferred Shares has a cumulative
dividend, full cumulative dividends on all outstanding shares of such series of
Preferred Shares have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, and (ii) if such
series of Preferred Shares does not have a cumulative dividend, full dividends
on the Preferred Shares of such series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, the Company shall not
purchase or otherwise acquire directly or indirectly any Preferred Shares of
such series (except by conversion into or exchange for capital shares of the
Company ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation, dissolution and winding up); PROVIDED, HOWEVER, that the
foregoing shall not prevent the purchase or acquisition of shares of Preferred
Shares of such series to preserve the REIT status of the Company or pursuant to
a purchase or exchange offer made on the same terms to holders of all
outstanding shares of Preferred Shares of such series.
If fewer than all of the outstanding shares of Preferred Shares of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares), or by any other equitable manner determined by
the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Shares to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such Preferred
Shares are to be surrendered for payment of the redemption price; (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date; and (vi) the date upon which the holder's conversion rights, if any, as to
such shares shall terminate. If fewer than all the shares of Preferred Shares of
any series are to be redeemed, the notice mailed to each such holder thereof
shall also specify the number of Preferred Shares to be redeemed from each such
holder. If notice of redemption of any Preferred Shares has been given and if
the funds necessary for such redemption have been set aside by the Company in
trust for the benefit of the holders of any Preferred Shares so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such Preferred Shares, and all rights of the holders of such shares
will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Shares or
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any other class or series of capital stock of the Company ranking junior to the
Preferred Shares of any series in the distribution of assets upon any
liquidation, dissolution or winding up of the Company, the holders of such
series of Preferred Shares shall be entitled to receive out of assets of the
Company legally available for distribution to shareholders, liquidating
distributions in the amount of the liquidation preference per share, if any, set
forth in the applicable Prospectus Supplement, plus an amount equal to all
dividends accrued and unpaid thereon (which, in the case of Preferred Shares for
which dividends are noncumulative, shall not include any accumulation in respect
of unpaid dividends for prior dividend periods). After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of Preferred Shares will have no right or claim to any of the remaining assets
of the Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding shares of Preferred Shares of any series and the corresponding
amounts payable on all shares of other classes or series of capital stock of the
Company ranking on a parity with such Preferred Shares in the distribution of
assets, then the holders of such Preferred Shares and all other such classes or
series of capital stock shall share ratably in any such distribution of assets
in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Shares of any series, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to such Preferred Shares upon liquidation, dissolution or winding
up, according to their respective rights and preferences. For such purposes, the
consolidation or merger of the Company with or into any other corporation, trust
or entity, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Shares, so long as any
shares of Preferred Shares of such series remain outstanding, the Company will
not, without the affirmative vote or consent of the holders of at least
two-thirds of the shares of such series of Preferred Shares outstanding at the
time, given in person or by proxy, either in writing or at a meeting (such
series voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of capital stock ranking
prior to such series of Preferred Shares with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized capital stock of the Company into such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or repeal
the provisions of the Articles or the designating amendment for such series of
Preferred Shares, whether by merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Shares or the holders thereof, PROVIDED,
HOWEVER, that (x) any increase in the amount of the authorized Preferred Shares
or the creation or issuance of any other series of Preferred Shares, or (y) any
increase in the amount of authorized shares of such series or any other series
of Preferred Shares, in each case ranking on a parity with or junior to the
Preferred Shares of such series with respect to payment of dividends and the
distribution of assets upon liquidation, dissolution and winding up, shall not
be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Shares shall
have been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
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CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Shares
is convertible into Common Shares or any other class or series of capital stock
of the Company will be set forth in the applicable Prospectus Supplement
relating thereto. Such terms will include the number of Common Shares or any
other class or series of capital stock of the Company into which the shares of
Preferred Shares are convertible, the conversion price (or manner of calculation
thereof), the conversion period, provisions as to whether conversion will be at
the option of the holders of the Preferred Shares or the Company, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such series of Preferred Shares.
RESTRICTIONS ON OWNERSHIP
The Preferred Shares are subject to certain restrictions on transfer, and
are subject to redemption (at redemption prices to be specified in the
applicable Prospectus Supplement) at the option of the Company, to the extent
the Board of Directors deems necessary to permit the Company to comply with the
REIT provisions of the Internal Revenue Code of 1986, as amended (the "Code").
SEE "Restrictions on Transfers of Capital Stock; Redemption." In addition, the
applicable Prospectus Supplement may set forth additional restrictions on
transfer and related provisions applicable to the Preferred Shares offered
thereby intended to permit the Company to comply with such provisions.
TRANSFER AGENT
The transfer agent and registrar for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Shares, as specified in the applicable Prospectus
Supplement. Preferred Shares represented by Depositary Shares will be deposited
under a separate Deposit Agreement (each, a "Deposit Agreement") among the
Company, the depositary named therein (such depositary or its successor, the
"Preferred Shares Depositary") and the holders from time to time of the
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 the particular series of Preferred Shares represented by
the Depositary Shares evidenced by such Depositary Receipt, to all the rights
and preferences of the Preferred Shares 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 Shares by the Company to the Preferred Shares
Depositary, the Company will cause the Preferred Shares Depositary to issue, on
behalf of the Company, the Depositary Receipts. The following description of
certain terms of any Deposit Agreement and the related Depositary Shares and
Depositary Receipts does not purport to be complete, and is qualified in its
entirety by reference to the form of Deposit Agreement (including the form of
Depositary Receipt) which has been or will be filed or incorporated by reference
as an exhibit to the Registration Statement of which this Prospectus is a part
and is or will be available as described below under "Available Information."
The terms of the Depositary Shares offered in any Prospectus Supplement may
differ from the terms set forth below, in which case the terms set forth below
shall be deemed to have been superseded to the extent of any different terms set
forth in such Prospectus Supplement.
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DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Shares Depositary will distribute all cash dividends or other
cash distributions received with respect to the Preferred Shares to the record
holders of the Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of 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 the Preferred Shares
Depositary.
In the event of a distribution other than in cash, the Preferred Shares
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 Shares Depositary, unless the Preferred Shares
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Shares Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Shares Depositary (unless the related Depositary Shares have
previously been called for redemption), the holder thereof will be entitled to
delivery at such office, to or upon such holder's order, of the number of whole
or fractional Preferred Shares 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 Preferred Shares on the basis of the proportion of Preferred Shares
represented by each Depositary Share as specified in the applicable Prospectus
Supplement, but holders of such Preferred Shares 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 number of Preferred Shares to be withdrawn,
the Preferred Shares 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 Preferred Shares held by the Preferred Shares
Depositary, the Preferred Shares Depositary will redeem as of the same
redemption date the number of Depositary Shares representing the Preferred
Shares so redeemed, provided the Company shall have paid in full to the
Preferred Shares Depositary the redemption price of the Preferred Shares to be
redeemed plus an amount equal to any accrued and unpaid dividends (or, with
respect to Preferred Shares as to which dividends are non-cumulative, dividends
for the current dividend period only) thereon to the date fixed for redemption.
The redemption price per Depositary Share will be equal to the applicable
fraction of the redemption price and any other amounts per share payable with
respect to the Preferred Shares. If less than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected by the
Preferred Shares Depositary by lot or in such other manner as the Preferred
Share Depositary deems equitable.
After the date fixed for redemption, 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 Shares Depositary.
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VOTING OF THE UNDERLYING PREFERRED SHARES
Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Preferred Shares 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
Preferred Shares. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for the Preferred Shares) will be entitled to instruct the Preferred Shares
Depositary as to the exercise of the voting rights pertaining to the amount of
Preferred Shares represented by such holder's Depositary Shares. The Preferred
Shares Depositary will vote the amount of Preferred Shares 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 Shares Depositary in order to enable the Preferred Shares Depositary
to do so. The Preferred Shares Depositary will abstain from voting the amount of
Preferred Shares represented by such Depositary Shares to the extent it does not
receive specific instructions from the holders of Depositary Receipts evidencing
such Depositary Shares.
LIQUIDATION PREFERENCE
In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, each holder of a Depositary Receipt will be
entitled to the applicable fraction of the liquidation preference accorded each
Preferred Share represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED SHARES
The Depositary Shares, as such, are not convertible into Common Shares or
any other securities or property of the Company. Nevertheless, if so specified
in the applicable Prospectus Supplement relating to an offering of Depositary
Shares, the Depositary Receipts may be surrendered by holders thereof to the
Preferred Shares Depositary with written instructions to the Preferred Shares
Depositary to instruct the Company to cause conversion of the Preferred Shares
represented by the Depositary Shares evidenced by such Depositary Receipts into
whole Common Shares, other Preferred Shares of the Company or other shares of
capital 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 Shares
to effect such conversion. If the Depositary Shares evidenced by a Depositary
Receipt are to be converted in part only, one or more new Depositary Receipts
will be issued for any Depositary Shares not to be converted. No fractional
Common Shares 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 Shares on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Shares and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and the Preferred Shares
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts will not be effective unless such
amendment has been approved by the existing holders of at least a majority of
the Depositary Shares evidenced by the Depositary Receipts then outstanding.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Shares Depositary if (i) such
termination is to preserve the Company's status as a REIT or (ii) holders of a
majority of the outstanding Depositary Receipts issued thereunder consent to
such termination, whereupon the Preferred Shares Depositary shall deliver or
make available to each
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holder of Depositary Receipts, upon surrender of the Depositary Receipts held by
such holder, such number of whole or fractional Preferred Shares as are
represented by the Depositary Shares evidenced by such Depositary Receipts. 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 the related Preferred Shares in
connection with any liquidation, dissolution or winding up of the Company and
such distribution shall have been distributed to the holders of Depositary
Receipts evidencing the Depositary Shares representing such Preferred Shares or
(iii) each related Preferred Share shall have been converted into capital stock
of the Company not so represented by Depositary Shares.
CHARGES OF PREFERRED SHARES 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 Shares 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 Shares Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Shares 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 Shares Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Shares Depositary. A successor
Preferred Shares 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 Shares Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Shares Depositary with respect to the related Preferred Shares.
Neither the Preferred Shares Depositary nor the Company will be liable if,
by law or any circumstances beyond its control, it is prevented from or delayed
in performing its obligations under the Deposit Agreement. The obligations of
the Company and the Preferred Shares Depositary under the Deposit Agreement will
be limited to performing their duties thereunder in good faith and without gross
negligence or willful misconduct, and the Company and the Preferred Shares
Depositary will not be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or Preferred Shares
represented thereby unless reasonably satisfactory indemnity is furnished. The
Company and the Preferred Shares Depositary may rely on written advice of
counsel or accountants, or information provided by persons presenting Preferred
Shares represented thereby for deposit, holders of Depositary Receipts or other
persons believed to be competent to give such information, and on documents
believed to be genuine and signed by a proper party.
If the Preferred Shares 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 Shares Depositary shall
be entitled to act on such claims, requests or instructions received from the
Company.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Shares. Common Stock Warrants may be issued independently or together with any
other Company Offered Securities
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offered by any Prospectus Supplement and may be attached to or separate from
such Company Offered Securities. Each series of Common Stock 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 Common Stock Warrants of such
series and will not assume any obligation or relationship of agency or trust for
or with any holders or beneficial owners of Common Stock Warrants. The following
sets forth certain general terms and provisions of the Common Stock Warrants
offered hereby. Further terms of the Common Stock Warrants and the applicable
Warrant Agreements will be set forth in the applicable Prospectus Supplement.
The following description of certain terms of any Common Stock Warrants and
the related Warrant Agreement does not purport to be complete and is qualified
in its entirety by reference to the form of Warrant Agreement (including the
form of Common Stock Warrant) which has been or will be filed or incorporated by
reference as an exhibit to the Registration Statement of which this Prospectus
is a part and which is or will be available as described under "Available
Information."
The terms of the Common Stock Warrants offered in any Prospectus Supplement
may differ from the terms set forth below, in which case the terms set forth
below shall be deemed to have been superseded to the extent of any different
terms set forth in such Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which such Prospectus Supplement is being
delivered, including, where applicable, the following: (i) the title of such
Common Stock Warrants; (ii) the aggregate number of such Common Stock Warrants;
(iii) the price or prices at which such Common Stock Warrants will be issued;
(iv) the number of Common Shares purchasable upon exercise of such Common Stock
Warrants; (v) the designation and terms of the other Company Offered Securities
with which such Common Stock Warrants are issued and the number of such Common
Stock Warrants issued with each such Company Offered Security; (vi) whether such
Common Stock Warrants will be attached to any other Company Offered Securities
and the date, if any, on and after which such Common Stock Warrants and the
related Company Offered Securities will be separately transferable; (vii) the
price at which each Common Share purchasable upon exercise of such Common Stock
Warrants may be purchased; (viii) the date on which the right to exercise such
Common Stock Warrants shall commence and the date on which such right shall
expire; (ix) if applicable, the minimum or maximum amount of such Common Stock
Warrants which may be exercised at any one time; (x) information with respect to
book-entry procedures, if any; and (xi) any other terms of such Common Stock
Warrants, including terms, procedures and limitations relating to the exchange
and exercise of such Common Stock Warrants.
Reference is made to the section captioned "Description of Common Shares"
for a general description of the Common Shares to be acquired upon the exercise
of the Common Stock Warrants, including a description of certain restrictions on
the ownership of Common Shares. Common Shares that may be acquired upon the
exercise of Common Stock Warrants directly or constructively held by an investor
will be deemed by the Company to be outstanding (i) at the time of acquisition
of the Common Stock Warrants, and (ii) prior to the exercise of the Common Stock
Warrants, for purposes of determining the percentage ownership of Common Shares
held by such investor.
DESCRIPTION OF COMMON SHARES
GENERAL
The following description of the Common Shares sets forth certain general
terms and provisions of the Common Shares to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Shares will be
issuable upon conversion of Debt Securities or Preferred Shares of the Company
or upon the exercise of Common Stock Warrants issued by the Company. The
statements below describing the Common Shares, the Rights (as defined below) and
the Rights Agreement (as
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defined below) do not purport to be complete and are in all respects subject to
and qualified in their entirety by reference to the applicable provisions of the
Articles, the Bylaws and the Rights Agreement dated as of August 14, 1989 (the
"Rights Agreement") between the Company and Chase Mellon Shareholder Services
L.L.C. ("Chase Mellon") (formerly Chemical Trust Company of California), as
successor rights agent, as supplemented, copies of which have been filed or
incorporated by reference as exhibits to the Registration Statement of which
this Prospectus is a part and are available as described above under "Available
Information."
The Articles authorize the issuance of up to 100,000,000 Common Shares,
$0.01 par value. As of March 31, 1997, there were 33,025,457 Common Shares
issued and outstanding. In addition, as of March 31, 1997, there were 3,015,136
Common Shares reserved for issuance upon the exercise of options under the
Company's stock option plans and 1,463,049 Common Shares were reserved for
issuance under the Company's Dividend Reinvestment Plan. The Common Shares are
listed on the NYSE under the symbol "BRE." Chase Mellon is the transfer agent
and registrar of the Common Shares.
Holders of Common Shares are entitled to receive dividends ratably, when, as
and if declared by the Board of Directors of the Company, out of assets of the
Company legally available for payment, subject to any preferential rights of any
outstanding Preferred Shares. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the holders of Common
Shares are entitled to share ratably in any assets of the Company available for
distribution to shareholders after payment of or provision for all liabilities
of the Company and any amounts owing in respect of any outstanding Preferred
Shares. The Common Shares offered in any Prospectus Supplement will not have
preemptive or conversion rights.
Holders of Common Shares are entitled to one vote for each share held on all
matters submitted to a vote of the holders of Common Shares and, except as
otherwise required by law or as provided by the express provisions of any series
of Preferred Shares, the holders of the Common Shares will exclusively possess
all voting power of the shareholders of the Company. Holders of Common Shares do
not have cumulative voting rights in the election of directors.
As described above under "Description of Preferred Shares," the Board of
Directors may, without the approval of the shareholders of the Company, from
time to time authorize the issuance of one or more series of Preferred Shares
with such rights, restrictions and other terms as may be determined by the Board
of Directors. The issuance of Preferred Shares, while providing flexibility in
connection with possible financings, acquisitions and other corporate purposes,
could, among other things, adversely affect the voting powers and other rights
and interests of holders of Common Shares and, under certain circumstances,
could make it more difficult for a third party to gain control of the Company
and could have the effect of delaying or preventing an attempted takeover of the
Company.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
Several provisions of the Articles and Bylaws may have the effect of
deterring a takeover of the Company. These provisions include (i) the
requirement that 70% of the outstanding shares of voting stock approve certain
mergers, sales of assets or other business combinations with shareholders owning
10% or more of then outstanding voting shares, unless the transaction is
recommended by a majority of the disinterested directors or meets certain fair
price criteria, (ii) a requirement that directors of the Company may be removed
by the shareholders only for "cause" and that vacancies in the Board of
Directors may be filled only by action of the remaining directors, (iii) the
requirement that 70% of the outstanding shares of voting stock approve
amendments to certain provisions of the Articles, (iv) the classification of the
Company's Board of Directors into three classes serving staggered three-year
terms, (v) a prohibition on certain stock repurchases by the Company from a
holder of 5% or more of the outstanding voting shares for a price exceeding fair
market value unless certain conditions are met, and (vi) a requirement that
shareholder action without a meeting be taken by unanimous written consent.
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Maryland law imposes certain restrictions on business combinations with a
greater than ten percent shareholder unless a company's charter states that it
has elected not to be governed by such provisions. The Company has made such an
election in the Articles and therefore is not subject to such provisions.
Maryland law eliminates the voting rights of any shares of voting stock held
by a person to the extent such shares exceed 20% of the outstanding voting stock
of the company, and permits a company to redeem any such shares at the fair
value of the stock, unless a company's charter states that it has elected not to
be governed by such provisions. The Company has made such an election in the
Articles and therefore is not subject to such provisions.
SHAREHOLDER RIGHTS PLAN
On August 14, 1989, the Company's Board of Directors declared a dividend
distribution to shareholders of record on September 7, 1989 of one common share
purchase right (a "Right") for each outstanding Common Share. Each Right
entitled the holder to purchase from the Company one Common Share at a cash
purchase price of $90.00 per share, subject to adjustment. Following the
Company's stock dividend of one Common Share for each Common Share outstanding
in June 1996, such cash purchase price was adjusted to $45.00 per share, subject
to adjustment. The terms of the Rights are set forth in the Rights Agreement.
The Rights are not exercisable until the Distribution Date referred to below and
will expire at the close of business on September 7, 1999, unless earlier
redeemed by the Company as described below (the "Final Expiration Date").
Until the Distribution Date (or earlier redemption or expiration of the
Rights), (i) the Rights will be issued with newly issued Common Shares and (ii)
the Rights will be evidenced by the Common Share certificates and the transfer
of Common Share certificates will also constitute the transfer of the Rights
associated with such Common Shares. As soon as practicable after the
Distribution Date, Rights certificates will be mailed to holders of record of
the Common Shares as of the close of business on the Distribution Date.
The Rights will separate from the Common Shares and a Distribution Date (as
defined in the Rights Agreement) will occur, in general, upon the earlier of (i)
10 days following a public announcement that a person (an "Acquiring Person")
has acquired 32% or more of the outstanding Common Shares (the "Stock
Acquisition Date"), (ii) 10 business days following the commencement of a tender
or exchange offer for 40% or more of the outstanding Common Shares or (iii) 10
business days after the Board of Directors determines that a person has become
an "Adverse Person" (as defined in the Rights Agreement).
In the event that, among other things, (i) the Company survives a merger or
business combination with an Acquiring Person or an Adverse Person without any
exchange of its outstanding Common Shares for other securities, cash or
property, (ii) any person becomes the owner of 40% or more of the then
outstanding Common Shares, (iii) an Acquiring Person or an Adverse Person
engages in one of a number of self-dealing transactions set forth in the Rights
Agreement, or (iv) during such time as there is an Acquiring Person or an
Adverse Person, an event occurs which results in such person's ownership
interest being increased by more than 1%, each Right will entitle the holder to
receive, upon exercise, Common Shares having a value equal to two times the
exercise price of the Right. In the event that, at any time following the Stock
Acquisition Date or the date on which the Board of Directors determines that a
person is an Adverse Person, (i) the Company is acquired in a merger or other
business combination, (ii) the Company survives a merger or business combination
in which Common Shares are exchanged for other securities, cash or property or
(iii) 50% or more of the Company's assets or earning power is sold or
transferred, each Right will entitle the holder to receive, upon exercise,
common shares of the acquiring person having a value equal to two times the
exercise price of the Right.
In general, the Company may redeem the Rights in whole, but not in part, at
a price of $.01 per Right, at any time until ten days following the earlier of
the Stock Acquisition Date, the date on which a person is determined to be an
Adverse Person or the Final Expiration Date.
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The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on redemption of the Rights by the Board of
Directors or on the acquisition by such person or group of a substantial number
of Rights.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK; REDEMPTION
The Articles provide that any shareholder must, upon demand, disclose to the
Board of Directors of the Company in writing such information with respect to
its direct and indirect ownership of the shares of the Company's stock as the
Board of Directors deems necessary to permit the Company to comply (or to verify
compliance) with the REIT provisions of the Code, and the regulations
promulgated thereunder or the requirements of any other taxing authority. The
Articles further provide that, if the Board of Directors in good faith
determines that direct or indirect ownership of shares of the Company's stock
has or may become concentrated to an extent that would prevent the Company from
qualifying as a REIT (SEE "Federal Income Tax Considerations"), the Board of
Directors is authorized to prevent the transfer of stock or to call for
redemption (by lot or by other means affecting one or more shareholders selected
in the sole discretion of the Board of Directors) of a number of shares of stock
sufficient in the opinion of the Board of Directors to maintain or bring the
direct or indirect ownership of the Company's stock into conformity with the
requirements for maintaining REIT status. If Common Shares are called for
redemption, the redemption price shall be (i) the last reported sale price of
the shares on the last business day prior to the redemption date on the
principal national securities exchange on which the shares are listed or
admitted to trading, (ii) if the shares are not so listed or admitted to trading
but are reported in the Nasdaq system, the last sale price on the last business
day prior to the redemption date, or if there is no sale on such day then at the
last bid price on such day as reported in the Nasdaq National Market, (iii) if
the shares are not so reported or listed or admitted to trading, the mean
between the highest bid and lowest asked prices on such last business day as
reported by the National Quotation Bureau Incorporated or a similar organization
selected by the Board of Directors for such purpose, or (iv) if not determined
by the foregoing methods, as determined in good faith by the Board of Directors.
From and after the date fixed for redemption by the Board of Directors, the
holder of any shares of stock so called for redemption will cease to be entitled
to dividends, distributions, voting rights and other benefits with respect to
such shares, excepting only the right to payment of the redemption price without
interest.
The Bylaws provide that, whenever it is determined by the Board of Directors
to be reasonably necessary to protect the REIT tax status of the Company, the
Board of Directors may require a statement or affidavit from each holder or
proposed transferee of shares of stock setting forth the number of shares
already owned by such holder or transferee or any related person. The Bylaws
further provide that if, in the opinion of the Board of Directors, which will be
conclusive upon any proposed transferor or transferee of shares, any proposed
transfer would jeopardize the status of the Company as a REIT under the Code,
the Board of Directors may refuse to permit such transfer; that any attempt to
transfer as to which the Board of Directors has refused its permission will be
void and of no effect to transfer any legal or beneficial interest in the
shares; and that all contracts for the sale or other transfer of shares are
subject to these restrictions.
These provisions may have the effect of preventing acquisition of control of
the Company unless the Board of Directors determines that maintenance of REIT
status is no longer in the best interests of the Company.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material federal income tax
considerations to the Company and its security holders relating to the Offered
Securities and the treatment of the Company as a REIT. It is not intended to
represent a detailed description of the federal income tax consequences
applicable to a particular shareholder of the Company in view of a shareholder's
particular circumstances, or to certain types of shareholders (including
insurance companies, tax-exempt organizations, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the federal
income tax laws. The discussion in this section is based on current provisions
of the Code, current and proposed Treasury Regulations, court decisions and
other administrative rulings and interpretations, all of which are subject to
change either prospectively or retroactively. There can be no assurance that any
such change, future Code provision or other legal authority will not alter
significantly the tax considerations described herein.
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OWN TAX ADVISOR, REGARDING THE SPECIFIC TAX
CONSEQUENCES, IN VIEW OF SUCH PROSPECTIVE PURCHASER'S INDIVIDUAL CIRCUMSTANCES,
OF THE PURCHASE, OWNERSHIP AND SALE OF THE OFFERED SECURITIES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
GENERAL
The Company has elected to be taxed as a real estate investment trust under
Section 856 through 860 of the Code, commencing with its initial taxable year
ended since its formation on May 22, 1970. The Company believes that it is
organized and is operating in such a manner as to qualify for taxation as a REIT
under the Code. The Company intends to continue to operate in such a manner, but
no assurance can be given that it will operate in a manner so as to qualify or
remain qualified as a REIT.
In the opinion of Farella Braun & Martel LLP, based on certain assumptions
and representations, the Company was reorganized in Delaware in 1987 in
conformity with the requirements for qualification as a "Real Estate Investment
Trust" under the Code, and the Company has qualified as a REIT for its fiscal
years ended July 31, 1993, July 31, 1994 and July 31, 1995, its short taxable
year ended December 31, 1995 and its taxable year ended December 31, 1996 (the
years, to the best knowledge of counsel, that are still subject to audit by the
Internal Revenue Service), and the Company is organized and operates in a manner
that will enable it to qualify to be taxed as a REIT under the Code for its
taxable year ending December 31, 1997 and thereafter provided the Company
continues to meet the asset composition, source of income, shareholder
diversification, distributions, record keeping, and other requirements of the
Code necessary for the Company to qualify as a REIT. 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 including, but not
limited to, those set forth below in this discussion of "Federal Income Tax
Considerations" and those concerning the Company's business and properties as
set forth and incorporated by reference in this Prospectus. 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 Farella Braun &
Martel LLP. Accordingly, no assurance can be given that the actual results of
the Company's operations for any particular taxable year will satisfy such
requirements. SEE "Failure to Qualify."
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TAXATION OF THE COMPANY
A REIT, such as the Company, generally will not be subject to federal
corporate income tax on its taxable income that is currently distributed to its
shareholders. This treatment substantially eliminates the "double taxation" (at
the corporate and shareholder levels) that generally results from an investment
in a corporation. However, the Company will be subject to federal income tax in
several ways, including the following: First, the Company will be taxed at
regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax." Third, if the Company
has: (i) net income from the sale or other disposition of "foreclosure property"
which is held primarily for sale to customers in the ordinary course of business
or (ii) other non-qualifying income from foreclosure property, it will be
subject to tax on such income at the highest corporate rate. Fourth, if the
Company 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% corporate level tax. Fifth, if the Company
should fail to satisfy the 75% gross income test or the 95% gross income test
(each discussed below) but has nonetheless maintained its qualification as a
REIT by satisfying certain other requirements, it will be subject to a 100% tax
on an amount equal to the gross income attributable to the greater of the amount
by which the Company fails the 75% or 95% test, multiplied by a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute during each calendar year at least the sum of: (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year and (iii) any undistributed taxable income from prior periods, it
will be subject to a 4% excise tax on the excess of such required distribution
over the amounts actually distributed. Seventh, if the Company 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
Company'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 Company recognizes
gain on the disposition of such asset during the ten-year period beginning on
the date the asset was acquired by the Company, then the excess of (i) the fair
market value of such asset as of the beginning of such period over (ii) the
Company's adjusted basis in such asset as of the beginning of such period will
be subject to tax at the highest regular corporate tax rate.
REQUIREMENTS FOR QUALIFICATION
A REIT is defined in the Code as a corporation, trust or association: (i)
which is managed by one or more trustees or directors; (ii) the beneficial
ownership of which is evidenced by transferable shares or by transferable
certificates of beneficial interest; (iii) which would be taxable as a domestic
corporation, but for Sections 856 through 859 of the Code; (iv) which is neither
a financial institution nor an insurance company subject to certain provisions
of the Code; (v) the beneficial ownership of which is held by 100 or more
persons; (vi) not more than 50% in value of the outstanding stock of which is
owned during the last half of each taxable year, directly or indirectly, by or
for five or fewer individuals (as defined in the Code to include certain
entities); and (vii) which meets certain income and asset tests described below.
Conditions (i) through (iv) above must be met during the entire taxable year and
condition (v) must be met during at least 335 days of a taxable year of 12
months, or during a proportionate part of a taxable year of less than 12 months.
However, conditions (v) and (vi) do not apply until after the first taxable year
for which an election is made to be taxed as a REIT.
INCOME TESTS
In order to maintain qualification as a REIT, the Company annually must
satisfy three gross income requirements. First, at least 75% of the Company's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived directly or indirectly from investments relating to
real property or mortgages on real property (including "rents from real
property" and, in certain circumstances, interest ) or from certain types of
temporary investments. Second, at least 95% of the Company's
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gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived from such real property investments, dividends,
interest and gain from sale or disposition of stock or securities (or from any
combination of the foregoing). Third, short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
on the sale or other disposition of real property held for less than four years
(apart from involuntary conversions and sales of foreclosure property) must
represent less than 30% of the Company's gross income (including gross income
from prohibited transactions) for each taxable year.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, 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." Finally, for rents received to qualify as
"rents from real property," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives no income;
provided, however, the Company may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant" of
the property. The Company does not and will not charge rent for any property
that is based in whole or in part on the income or profits of any person (except
by reason of being based on a percentage of receipts or sales, as described
above), and the Company does not and will not rent any personal property (other
than personal property leased in connection with the lease of real property, the
amount of which is less than 15% of the total rent received under the lease).
The Company directly performs services under certain of its leases, but such
services are not rendered to the occupant of the property.
Furthermore, these services are usual and customary management services
provided by landlords renting space for occupancy in the geographic areas in
which the Company owns property. To the extent that the performance of any
services provided by the Company would cause amounts received from its tenants
to be excluded from rents from real property, the Company will hire independent
contractors from whom the Company derives no revenue to perform such services.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if the Company's failure to meet such
tests was attributable to reasonable cause and not to willful neglect, the
Company attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not attributable to fraud with intent
to evade tax. It is not possible, however, to determine whether, in all
circumstances, the Company would be entitled to the benefit of those relief
provisions. As discussed above in "General," even if those relief provisions
apply, a tax would be imposed with respect to excess net income.
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ASSET TESTS
At the close of each quarter of its taxable year, the Company must also
satisfy three 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 to the extent the mortgage
balance does not exceed the value of the associated real property, shares in
other REITs, cash, cash items, government securities and certain securities
attributable to temporary investment of new capital. Second, not more than 25%
of the Company's total assets may be represented by securities other than those
in the 75% asset class. Third, of the investments included in the 25% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets and the Company may not own
more than 10% of any one issuer's outstanding voting securities.
As set forth above, the ownership of more than 10% of the voting securities
of any one issuer by a REIT is prohibited by the asset tests. However, the
Company owns stock in certain subsidiaries that are, in the opinion of Farella
Braun & Martel LLP (based on cetain representations by the Company), "qualified
REIT subsidiaries" as defined in the Code, and as "qualified REIT subsidiaries,"
such subsidiaries are not treated as separate corporations for federal income
tax purposes. Thus, the Company's ownership of stock of a "qualified REIT
subsidiary" will not cause the Company to fail the asset tests.
ANNUAL DISTRIBUTION REQUIREMENTS
In order to qualify as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its shareholders each year in
an amount at least equal to: (i) the sum of (a) 95% of the Company's "REIT
taxable income" (computed without regard to the dividends paid deduction and the
Company's net capital gain) and (b) 95% of the net income (after tax), if any,
from foreclosure property, minus (ii) the sum of certain items of non-cash
income. 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 thereon at regular
ordinary and capital gains corporate tax rates. Furthermore, if the Company
fails 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
Company will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed (including for this purpose
as amounts distributed, amounts taxed at regular ordinary and capital gains
corporate tax rates). The Company intends to make timely distributions
sufficient to satisfy these annual distribution requirements.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement because of
timing differences between (i) the actual receipt of income and the actual
payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at the taxable income of the Company. In
the event that such timing differences occur, in order to meet the 95%
distribution requirement the Company may find it necessary to arrange for
short-term, or possibly long-term, borrowings or to pay dividends in the form of
taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a certain year by paying "deficiency
dividends" to shareholders in a later year, which may be included in the
Company's deduction for dividends paid for the earlier year. Thus, the Company
may be able to avoid being taxed on amounts distributed as deficiency dividends.
However, the Company will be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
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 corporate alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to shareholders in any year in
which the
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Company fails to qualify will not be deductible by the Company nor will they be
required to be made by the Company. In such event, to the extent of current and
accumulated earnings and profits, all distributions to shareholders will be
taxable as ordinary income, and, subject to certain limitations, a corporate
distributee may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, the Company will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. Whether the Company would be entitled
to such statutory relief cannot be foreseen.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to its
taxable domestic shareholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will result in ordinary income to
such shareholders. Corporate shareholders will not be entitled to the "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 shareholder has held its shares. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions by the Company in excess of its
current and accumulated earnings and profits will not be taxable to a
shareholder to the extent that such distributions do not exceed the adjusted
basis of the shareholder's shares, but rather, will be a non-taxable reduction
in a shareholder's adjusted basis in such shares to the extent thereof and
thereafter will be taxed as capital gain.
Any dividend declared by the Company in October, November or December of any
year payable to a shareholder of record on a specified date in any such month
will be treated as both paid by the Company and received by the shareholder on
or before December 31 of such year, provided that the dividend is actually paid
by the Company by January 31 of the following calendar year.
Shareholders may not include any net operating losses or capital losses of
the Company in their individual income tax returns. In general, any loss upon
the sale or exchange of shares by a shareholder who has held such shares for six
months or less (after applying certain holding period rules) will be treated as
a long-term capital loss to the extent distributions from the Company are
required to be treated by such shareholder as long-term capital gain.
BACKUP WITHHOLDING
The Company will report to its domestic shareholders and to the IRS the
amount of dividends paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder: (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (ii) provides a
taxpayer identification number, certifies to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide the Company with a
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, the Company may be required to
withhold a portion of capital gain distributions to any shareholders who fail to
certify their non-foreign status to the Company. SEE "Taxation of Foreign
Shareholders."
TAXATION OF PENSION TRUSTS
For purposes of the "five or fewer" test described above, beneficiaries of a
domestic pension trust that owns shares in the Company generally will be treated
as owning such shares in proportion to their actuarial interests in the trust.
In addition, amounts distributed by the Company to a tax-exempt pension trust
generally do not constitute "unrelated business taxable income" ("UBTI") to such
trust unless the trust
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owns more than ten percent of the Company's Common Shares, in which case a
portion of such amounts distributed may be treated as UBTI.
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals or foreign corporations, foreign partnerships and other
foreign shareholders (collectively, "Non-U.S. Shareholders") are complex and no
attempt is made herein to provide more than a summary of such rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in the Common Shares, including any reporting requirements.
It is currently anticipated that the Company will qualify as a "domestically
controlled REIT" (i.e., a REIT in which at all times during a specified testing
period less than 50% of the value of the capital stock of which is owned
directly or indirectly by Non-U.S. Shareholders) and therefore gain from the
sale of Common Shares by a Non-U.S. Shareholder generally will not be subject to
United States taxation unless such gain is treated as "effectively connected"
with the Non-U.S. Shareholder's United States trade or business.
Distributions that are not attributable to gain from the sale or exchange by
the Company of United States real property interests (and are not designated as
capital gain dividends) ("Non-Capital Distributions") will be treated as
dividends of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions generally
will be subject to a United States withholding tax equal to 30% of the gross
amount of the distribution, subject to reduction or elimination under an
applicable tax treaty. However, if dividends from the investment in the shares
are treated as "effectively connected" with the Non-U.S. Shareholder's conduct
of a United States trade or business, such dividends will be subject to regular
U.S. income taxation (foreign corporations may also be subject to the 30% branch
profits tax). The Company will withhold United States income tax at the rate of
30% on the gross amount of any Non-Capital Distributions paid to a Non-U.S.
Shareholder unless: (i) a lower treaty rate applies and the Non-U.S. Shareholder
files certain information evidencing its entitlement to such lower treaty rate,
or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with the Company
claiming that the distribution is "effectively connected" income. Distributions
which exceed current and accumulated earnings and profits of the Company will
not be taxable to the extent that they do not exceed the adjusted basis of
shares, but rather will reduce (but not below zero) the adjusted basis of such
shares. To the extent that such distributions exceed the adjusted basis of a
Non-U.S. Shareholder's shares, they generally will give rise to United States
tax liability if the Non-U.S. Shareholder would otherwise be subject to tax on
gain from the sale or disposition of his shares in the Company, as described
above. Because the Company will withhold 30% (or lower treaty rate) of all
Non-Capital Distributions, to the extent the Company makes distributions in
excess of its earnings and profits, generally the amount withheld will exceed a
Non-U.S. Shareholder's U.S. tax liability on such distributions and such
shareholder can seek a refund from the IRS to the extent the amount withheld on
its distributions exceeds its U.S. tax liability.
Distributions by the Company to a Non-U.S. Shareholder that are attributable
to gain from sales or exchanges by the Company of a United States real property
interest are subject to income and withholding tax under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
those distributions, if any, which are treated as gain recognized from the sale
of a United States real property interest, are taxed as income "effectively
connected" with a United States business. Non-U.S. Shareholders would thus be
taxed at the normal capital gain rates applicable to U.S. shareholders (subject
to the applicable alternative minimum tax and a special alternative minimum tax
for nonresident alien individuals). Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a foreign corporate
shareholder not entitled to treaty exemption. The Company will withhold 35% of
any distribution to a Non-U.S. Shareholder that could be designated by the
Company as a capital gain
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dividend. This amount is creditable against the Non-U.S. Shareholder's FIRPTA
tax liability. A refund may be available if the amount withheld exceeds the
Non-U.S. Shareholder's federal tax liability.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various jurisdictions, including those in which it or they transact business
or reside. The state and local tax treatment of the Company and its shareholders
may not conform to the federal income tax consequences discussed above.
Prospective shareholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in the Company.
PLAN OF DISTRIBUTION
The Company or the Selling Shareholder 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 or through dealers or
through a combination of any such methods of sale. Any such underwriter or agent
involved in the offer and sale of the Offered Securities will be named in the
applicable Prospectus Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, or from time to time at market prices prevailing
at the time of sale or at prices related to the prevailing market prices at the
time of sale, or at negotiated prices. The Company or the Selling Shareholder
also may, from time to time, authorize agents to offer and sell the Offered
Securities upon the terms and conditions set forth in an applicable Prospectus
Supplement. In connection with the sale of Offered Securities, underwriters and
agents may be deemed to have received compensation from the Company or the
Selling Shareholder, as applicable, in the form of discounts or commissions and
may also receive commissions from purchasers of Offered Securities for whom they
may act as agents. Underwriters may sell Offered Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions from the underwriters or commissions from the purchasers for whom
they may act as agent.
Any compensation paid by the Company or the Selling Shareholder to
underwriters or agents in connection with the offering of Offered Securities and
any discounts, concessions or commissions allowed by underwriters to
participating dealers will be set forth in the applicable Prospectus Supplement.
Underwriters, dealers and agents participating in the distribution of the
Offered Securities may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of the
Offered Securities may be deemed to be underwriting discounts and commissions
under the Securities Act. Underwriters, dealers and agents may be entitled,
under agreements entered into with the Company or the Selling Shareholder, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company may
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Offered Securities from the
Company pursuant to delayed delivery contracts ("Contracts") providing for
payment and delivery on such future date or dates stated in such Prospectus
Supplement. Each Contract will be for an amount not less than, and the aggregate
amount of the Offered Securities sold pursuant to Contracts shall be not less or
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.
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,
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the Company shall have sold to such underwriters the total amount of the Offered
Securities less the amount thereof covered by Contracts.
Certain of the underwriters, dealers and agents and their affiliates may
engage in transactions with and perform services for the Company, the Selling
Shareholder and their respective subsidiaries in the ordinary course of
business.
EXPERTS
The financial statements and related financial schedule of BRE Properties,
Inc. appearing in BRE Properties, Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996, as amended, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. The statement of gross income and direct
operating expenses of Promontory Point Apartments for the year ended December
31, 1996, appearing in BRE Properties, Inc.'s Current Report on Form 8-K/A dated
February 13, 1997, as amended, has been audited by Ernst & Young LLP, as set
forth in their report thereon included therein and incorporated herein by
reference. The statement of gross income and direct operating expenses of
Foster's Landing Apartments for the year ended December 31, 1995, appearing in
BRE Properties, Inc.'s Current Report on Form 8-K/A dated December 9, 1996, as
amended, has been audited by Ernst & Young LLP, as set forth in their report
thereon included therein and incorporated herein by reference. The statement of
gross income and direct operating expenses of Red Hawk Ranch for the year ended
December 31, 1996, appearing in BRE Properties, Inc.'s Current Report on Form
8-K dated April 25, 1997, has been audited by Ernst & Young LLP, as set forth in
there report thereon included therein and incorporated herein by reference. Such
financial statements and schedule referred to above are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the Offered Securities as well as certain legal matters
described under "Federal Income Tax Considerations" will be passed upon for the
Company by Farella Braun & Martel LLP, San Francisco, California. Brown & Wood
LLP, San Francisco, California, will act as counsel for any underwriters or
agents.
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[Bar graph showing geographic concentration of multifamily units owned by the
Company as of December 31, 1995 and April 15, 1997, including numbers of units
owned on each such date in nine defined markets.]
[Bar graph comparing the net operating income (NOI) contributed by each of the
defined markets of the Company as a percentage of the NOI for the Company's
multifamily portfolio for each of the quarterly periods ended March 31, 1996 and
March 31, 1997.]
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[BRE LOGO]
