<PAGE>
As filed with the Securities and Exchange Commission on February 19, 1999
Registration No. 333-_________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
________________
PRENTISS PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 75-2261588
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3890 W. Northwest Highway, Suite 400 J. Kevan Dilbeck
Dallas, Texas 75220 Prentiss Properties Trust
(214) 654-0886 3890 W. Northwest Highway, Suite 400
(Address, including zip code, and Dallas, Texas 75220
telephone number, including area code, (214) 654-0886
of registrant's principal (Name, address, including zip code, and
executive offices) telephone number, including area code,
of agent for service)
Copy to:
Michael E. Dillard, P.C.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
(214) 969-2800
Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box: [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
Proposed Maximum
Aggregate Proposed Maximum Amount of
Title of Each Class Aggregate Amount Offering Price Aggregate Registration
of Securities to be Registered To be Registered(1) Per Share (2) Offering Price (2) Fee
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of Beneficial
Interest, $0.01 par value
per share (3) 92,258 $19.90625 $1,836,511 $511
================================================================================================================
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933, as amended, this
Registration Statement also relates to such additional shares as may be
issuable as a result of certain adjustments including, without limitation,
stock dividends, stock splits and distributions of options, warrants and
convertible securities.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low reported sales prices on the New
York Stock Exchange on February 17, 1999.
(3) The rights to purchase Junior Participating Cumulative Preferred Shares of
Beneficial Interest, Series B, par value $0.01 per share, are attached to
and trade with the common shares.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
Subject to Completion, Dated February 19, 1999
Prospectus
Prentiss Properties Trust
3890 W. Northwest Highway, Suite 400
Dallas, Texas 75220
(214) 654-0886
92,258 Shares
Common Shares of Beneficial Interest
This prospectus relates to 92,258 common shares of beneficial interest that we
may issue to the holders of 92,258 units of limited partnership interest in
Prentiss Properties Acquisition Partners, L.P. upon redemption of such units.
The common shares trade on the New York Stock Exchange under the symbol "PP."
____________________
Consider carefully the risk factors beginning on page 3 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ______________, 1999.
<PAGE>
Table of Contents
Page
----
Risk Factors.............................................................. 3
Forward-Looking Statements................................................ 3
About this prospectus..................................................... 4
The Company............................................................... 5
Use of Proceeds........................................................... 5
Description of Shares of Beneficial Interest.............................. 6
Registration Rights....................................................... 8
Restrictions on Ownership and Transfer.................................... 8
Description of Partnership Units.......................................... 11
Federal Income Tax Considerations......................................... 19
Plan of Distribution...................................................... 33
Legal Opinions............................................................ 34
Experts................................................................... 34
Where You Can Find More Information....................................... 34
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Risk Factors
You should carefully consider the following information in conjunction with
the other information contained in this prospectus, any prospectus supplement
and the documents and risk factors incorporated by reference herein, before
making any investment decision relating to the common shares.
Redeeming partnership units may cause adverse tax consequences.
If we exercise our right to acquire partnership units in exchange for cash
or common shares, your redemption of such partnership units will be treated for
tax purposes as a fully taxable sale of the partnership units. This means that
you would realize a gain in an amount equal to the sum of the cash received or
the value of the common shares received plus the amount of any operating
partnership liabilities allocable to the redeemed partnership units. The
following risks arise from the taxable nature of your redemption of partnership
units:
. The gain you recognize, or even the tax liability resulting from such
gain, could exceed the amount of cash and the value of the common shares
that the limited partner receives upon such disposition.
. Fluctuations in the market price of the common shares may limit your
ability to sell common shares in order to raise cash to pay tax
liabilities associated with the redemption of partnership units.
. The price you receive for such shares may not equal the value of the
partnership units you redeemed.
If we do not exercise our right to acquire partnership units tendered for
redemption for cash or common shares, and the operating partnership redeems such
partnership units for cash, the tax consequences may differ.
You may lose your rights and benefits as a limited partner of the operating
partnership if you redeem your partnership units.
Upon redemption of all or a portion of your partnership units, you may
receive cash or, if we or the general partner elects, common shares in exchange
for your partnership units. The following are the effects of receiving cash from
us or the operating partnership:
. You will not have any interest in us or the operating partnership,
except to the extent that you retain partnership units.
. You would not benefit from any subsequent increases in the value of
common shares.
. You would not receive any future distributions from us or the operating
partnership unless you retain or acquire in the future additional common
shares or partnership units.
If you receive common shares, you will become one of our shareholders
rather than a holder of partnership units in the operating partnership. Becoming
one of our shareholders would expose you to normal risks of share ownership
including the risk of potential decline in the market value of your common
shares.
Forward-Looking Statements
This prospectus, any prospectus supplement and the documents incorporated
by reference herein may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. When used in this prospectus, words such as "anticipate,"
"believe," "estimate," "expect," "intend," "predict," "project," and similar
expressions, as they relate to us or our management, identify forward-looking
statements. Such forward-looking statements are based on the beliefs of our
management as well as assumptions made by and information currently available to
us. These forward-looking statements are
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subject to certain risks, uncertainties and assumptions, including risks,
uncertainties and assumptions related to the following:
<TABLE>
<CAPTION>
<S> <C>
. Our reliance on major tenants; . Conflicts of interest;
. The geographic concentration of our properties; . Change in our investment, financing and borrowing
policies without shareholder approval;
. Risks associated with our real estate acquisition, . Our dependence on key personnel such as Michael V.
redevelopment, development and construction Prentiss and Thomas F. August;
activities;
. Factors that could cause poor operating performance . Our third-party property management, leasing,
of our properties; development and construction business and related
services;
. Our incurrence of debt; . Effect of market interest rates on price of
common shares;
. Limited ability of shareholders to effect a change . Effect of shares available for future sale on price
of control; of common shares; and
. Our failure to qualify as a REIT; . Potential capital stock dilution or decrease of
liquidity in connection with settlement of forward
agreements.
</TABLE>
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, expected or projected. Such forward-looking statements
reflect our current views with respect to future events and are subject to these
and other risks, uncertainties and assumptions, relating to our operations,
results of operations, growth strategy and liquidity. All subsequent written and
oral forward-looking statements attributable to us or individuals acting on our
behalf are expressly qualified in their entirety by this paragraph. You should
specifically consider the various factors identified in this prospectus, any
prospectus supplement and the documents incorporated by reference herein, which
could cause actual results to differ, including particularly those discussed in
the section entitled "Risk Factors" in this prospectus and in our filings under
the Exchange Act.
About This Prospectus
This prospectus is part of a registration statement that we filed with the
SEC utilizing a "shelf registration" process. Under this shelf process, we may,
from time to time, issue common shares to the holders of 92,258 units of limited
partnership interest in the operating partnership in exchange for any
partnership units the limited partners may tender for redemption. You should
read both this prospectus and any prospectus supplement together with additional
information described under the heading "Where You Can Find More Information."
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The Company
We are a self-administered and self-managed Maryland REIT that acquires,
owns, manages, leases, develops and builds office and industrial properties
throughout the United States. We are self-administered in that we provide our
own administrative services, such as accounting, tax and legal, internally
through our own employees. We are self-managed in that we internally provide all
the management and maintenance services that our properties require through our
own employees such as property managers, leasing professionals and engineers. As
of September 30, 1998, we owned interests in a diversified portfolio of 253
primarily suburban Class A office and suburban industrial properties, located in
20 major U.S. markets as follows:
<TABLE>
<CAPTION>
Number of Net Rentable Number of Percent
Buildings Square Feet Tenants Leased
---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Office Properties.......... 115 12.8 million 1,208 96%
Industrial Properties...... 124 8.9 million 349 96%
Office and Industrial
Development Projects...... 15* 1.9 million N/A N/A
--------------- --------------- -----
TOTAL................... 254* 23.6 million 1,557
=============== =============== =====
</TABLE>
___________________
* Includes one expansion project at an existing industrial property.
In addition to the properties that we own, we manage 258 office and industrial
properties, in 19 U.S. markets, that are owned by third parties. The managed
properties contain approximately 29.2 million "net rentable square feet." The
term "net rentable square feet" is used in the industry to refer to the area of
a property for which a tenant is required to pay rent and includes the actual
rentable area plus a portion of the common areas of the property allocated to
the tenant.
We operate principally through the operating partnership and its
subsidiaries and a subsidiary that acts as manager. Our regional management
offices are located in Los Angeles, Dallas, Chicago, Washington, D.C., Atlanta
and Philadelphia. We have approximately 700 employees with expertise in areas
such as acquisitions, development, facilities management, property management
and leasing.
Use of Proceeds
We will not receive any cash proceeds from the issuance of the common
shares to the limited partners but will acquire partnership units in exchange
for any common shares that we may issue to a redeeming limited partner. With
each such acquisition, our interest in the operating partnership will increase.
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Description of Shares of Beneficial Interest
General
The following summary of the material terms of the common shares is subject
to the detailed provisions of the following:
. our current declaration of trust;
. our current bylaws;
. our articles supplementary relating to our Series A Cumulative
Convertible Preferred Shares of beneficial interest, $0.01 par value
per share;
. our articles supplementary relating to our Junior Participating
Cumulative Preferred Shares of beneficial interest, Series B, $0.01
par value per share; and
. our articles supplementary relating to our 8.30% Series B Cumulative
Redeemable Perpetual Preferred Shares of beneficial interest, $0.01
par value per share.
The following summary does not purport to be complete or to give full effect to
the provisions of statutory or common law and should be read in conjunction with
the terms of our declaration of trust, bylaws and articles supplementary.
Our declaration of trust allows us to issue up to 100,000,000 common shares
and 20,000,000 preferred shares of beneficial interest, $0.01 par value per
share. As of September 30, 1998, there were 38,925,580 common shares, 3,773,585
Series A Preferred Shares, no Series B Junior Preferred Shares and no Series B
Preferred Shares issued by us and outstanding. As permitted by Maryland REIT
law, our declaration of trust allows our board of trustees, without any action
by our shareholders, to amend our declaration of trust to increase or decrease
the aggregate number of shares of beneficial interest or the number of shares of
any class of shares of beneficial interest that we may issue.
As a Maryland REIT, we are subject to Maryland REIT law and Maryland
corporation law, as amended. Both Maryland REIT law and our declaration of trust
provide that you will not be personally liable for any of our obligations solely
as a result of your status as our shareholder. Our bylaws further provide that
we must indemnify you against any claim or liability to which you may become
subject by reason of your being or having been a shareholder or former
shareholder. In addition, we must pay or reimburse you for all legal and other
expenses reasonably incurred by you in connection with any such claim or
liability successfully defended. It is our policy to include a clause in our
contracts which provides that shareholders will not be personally liable for
obligations entered into on our behalf. However, with respect to tort claims,
contractual claims where shareholder liability is not removed, claims for taxes
and statutory liability, you may, in some jurisdictions, be personally liable to
the extent that we do not satisfy such claims. Inasmuch as we carry public
liability insurance that we consider adequate, any risk of liability to you is
limited to situations in which our assets plus our insurance coverage would be
insufficient to satisfy the claims against us and our shareholders.
Common Shares
All common shares offered by this prospectus will be duly authorized, fully
paid and nonassessable, and the holders thereof will not have preemptive or
appraisal rights. As a holder of our common shares, you are entitled to the
following:
. To receive dividends if, as and when authorized and declared by our
board of trustees out of legally available assets. We intend to pay
quarterly dividends to the holders of our common shares.
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. To share ratably in our assets legally available for distribution to
our shareholders in the event of our liquidation, dissolution or
winding-up after payment of, or adequate provision for, all of our
known debts and liabilities.
. To one vote per share on all matters voted on by shareholders,
including elections of trustees. Our declaration of trust does not
allow cumulative voting in the election of trustees, which means the
holders of a majority of the outstanding common shares can elect all
of the trustees then standing for election.
Your rights to dividends and liquidation preferences are subject to the
preferential rights of any of our other shares or series of shares of beneficial
interest and to the provisions of our declaration of trust regarding shares-in-
trust. Your voting rights are subject to the provisions of our declaration of
trust regarding shares-in-trust.
Pursuant to Maryland REIT law, a REIT generally cannot amend its
declaration of trust or merge unless approved by the affirmative vote of
shareholders holding at least two-thirds of the shares entitled to vote on the
matter. A REIT may establish a lesser percentage, but not less than a majority
of all the votes entitled to be cast on the matter, in the REIT's declaration of
trust. Our declaration of trust provides for approval by a majority of all the
votes entitled to be cast on the matter in all situations permitting or
requiring action by the shareholders except with respect to the following, each
of which requires the affirmative vote of the holders of two-thirds of the
outstanding voting shares:
. The removal of trustees.
. Any amendment to specific sections of our declaration of trust that
relate to our board of trustees, restrictions on the transfer of
shares-in-trust, amendments, and our termination.
. Our termination.
Our board of trustees may, by a two-thirds vote, amend our declaration of trust
from time to time to qualify as a REIT under the Internal Revenue Code of 1986
or Maryland REIT law without the affirmative vote of our shareholders.
The transfer agent and registrar for the common shares is First Chicago
Trust Company of New York. The common shares trade on the New York Stock
Exchange under the symbol "PP." We will apply to the New York Stock Exchange to
list the additional common shares to be sold pursuant to any prospectus
supplement, and we anticipate that such shares will be so listed.
Preferred Share Purchase Rights
On February 6, 1998, we entered into a rights plan with First Chicago Trust
Company of New York, as rights agent, to enable our shareholders to receive fair
and equal treatment in the event of a third party's attempt to acquire us. The
rights plan could make it more difficult for a third party to acquire, or could
discourage a third party from acquiring, us or a large block of our common
shares.
On February 17, 1998, we distributed as a dividend one purchase right for
each outstanding common share. Each purchase right entitles the holder to
purchase one one-thousandth of a share of the Series B Junior Preferred Shares
at an exercise price of $85, subject to adjustment. The purchase rights are not
currently exercisable and are attached to and trade with the outstanding common
shares.
The purchase rights become exercisable if a person or group acquires,
obtains the right to acquire or announces a tender offer to acquire 10% or more
of our outstanding common shares. If the acquiror is Security Capital Preferred
Growth Incorporated, the threshold percentage is 11% instead of 10%. Each
purchase right would then entitle its holder to acquire Series B Junior
Preferred Shares at the exercise price or, at our option, common shares, cash,
property or other securities, having a value equal to twice the exercise price
of the purchase right.
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The purchase rights also become exercisable if we are acquired in a merger
or other business combination or if 50% or more of our assets or earning power
is transferred. Each purchase right would then entitle its holder, other than
the acquiring person, to purchase securities of the surviving company having a
market value equal to twice the exercise price of the purchase right.
Until exercisable, the purchase rights will be evidenced by the common
share certificates and will trade with the common share certificates. The
purchase rights will expire on February 17, 2008. We may redeem each purchase
right at a price of $0.001 at any time until ten days after an announcement that
a person or group has acquired a 10% position in us. As a result, the purchase
rights should not interfere with any merger or other business combination
approved by our board of trustees.
Preferred Shares
Our board of trustees may issue preferred shares in one or more series,
without shareholder approval. Our board of trustees may establish designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms and
conditions of redemption of our preferred shares. Thus, without shareholder
approval, our board of trustees could authorize the issuance of preferred shares
that could have the following effects:
. dilute the voting power and other rights of the holders of common
shares, and
. delay, defer or prevent a takeover or other transaction that holders
of some, or a majority, of the common shares might believe to be in
their best interests or in which holders of some, or a majority, of
the common shares might receive a premium for their common shares
over the then-market-price of such common shares.
As of September 30, 1998, our board of trustees had designated 3,773,585 Series
A Preferred Shares, all of which were outstanding, 1,900,000 Series B Preferred
Shares, none of which were outstanding, and 1,000,000 Series B Junior Preferred
Shares, none of which were outstanding.
Registration Rights
This summary of the material terms of the Registration Rights Agreement,
dated as of February 6, 1998, between us, the operating partnership, the general
partner and the limited partners does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of the
registration rights agreement.
Your partnership units became exchangeable for common shares on February 6,
1999. Pursuant to the registration rights agreement, we agreed to file with the
SEC a registration statement, of which this prospectus is a part, with respect
to our issuance of common shares to you upon redemption of your partnership
units. In addition, we agreed to file such amendments and supplements to the
registration statement as may be necessary to keep the registration statement
effective until the earlier of the following:
. the date when all the common shares covered by this prospectus are
issued or sold,
. the date on which all of you agree to the withdrawal of this
registration statement, or
. the date on which all of the common shares covered by this prospectus
could be sold in any three month period pursuant to Rule 144 under
the Securities Act.
Restrictions on Ownership and Transfer
In order to qualify as a REIT under the Internal Revenue Code, we must
satisfy requirements concerning the ownership of our outstanding shares of
beneficial interest. Specifically, no more than 50% in value of our
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outstanding shares of beneficial interest may be owned, directly or indirectly,
by five or fewer individuals or entities during the last half of a taxable year,
other than its 1996 taxable year, and we must be beneficially owned by 100 or
more persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year, other than our 1996 taxable year.
Because our board of trustees believes it is essential for us to continue
to qualify as a REIT, our declaration of trust contains an ownership limitation
that provides that no person may own more than 8.5% of the number of outstanding
common shares, other than Michael V. Prentiss, who currently may own up to 15%
of the number of outstanding common shares, or more than 9.8% of the number of
outstanding preferred shares of any series other than Security Capital, which
may own all of the Series A Preferred Shares. Our board of trustees may, but is
not required to, decrease the ownership limit applicable to Mr. Prentiss'
ownership of common shares to as low as 9.8% of the outstanding common shares
upon an increase in the number of outstanding common shares or a reduction of
the number of common shares owned, directly or indirectly, by Mr. Prentiss. Upon
any such adjustment, the ownership limitation applicable to other shareholders
with respect to the common shares will be increased proportionately to a maximum
of 9.8% of the number of outstanding common shares.
Our board of trustees may exempt a recipient of common shares from the
ownership limitation as long as we receive evidence that our REIT status will
not be lost as follows:
. receipt of a ruling from the IRS,
. an opinion of counsel, or
. other evidence satisfactory to our board of trustees.
Our board of trustees has exempted Security Capital from the ownership
limitation on the condition that Security Capital not own more than 11% of the
number of outstanding common shares. Our board of trustees may monitor, modify,
suspend or revoke Security Capital's 11% ownership limitation as may be required
to maintain our REIT status. Our board of trustees may not grant an exemption
from the ownership limitation to any proposed transferee if such exemption would
result in the termination of our status as a REIT.
Any transfer of common shares or preferred shares that causes any one of
the following conditions to exist will be null and void, and the intended
transferee will acquire no rights in such common shares or preferred shares:
. any person owning, directly or indirectly, common shares or preferred
shares in excess of the ownership limitation;
. our outstanding shares being owned by fewer than 100 persons,
determined without reference to any rules of attribution;
. our being "closely held" within the meaning of Section 856(h) of the
Internal Revenue Code; or
. our owning, directly or constructively, 10% or more of the ownership
interests in one of our tenants or the operating partnership's real
property, within the meaning of Section 856(d)(2)(B) of the Internal
Revenue Code.
If any purported transfer of common shares or preferred shares results in any of
the four above conditions, the common shares or preferred shares in excess of
the applicable limitation will be designated as "shares-in-trust" and
transferred automatically to a share trust effective on the day before the
purported transfer of such common shares or preferred shares. The record holder
of the common shares or preferred shares that are designated as shares-in-trust
will be required to submit such number of common shares or preferred shares to
us for registration in the name of the share trust. We will designate the
trustee of the share trust, but the trustee of the share trust will not be
affiliated with us. We will name one or more charitable organizations as the
share trust's beneficiary.
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Shares-in-trust will remain issued and outstanding common shares or
preferred shares and will be entitled to the same rights and privileges as all
other shares of the same class or series. The share trust will receive all
dividends and distributions on the shares-in-trust and will hold such dividends
and distributions in trust for the benefit of the share trust's beneficiary. The
share trustee will vote all shares-in-trust. The trustee of the share trust may
transfer the shares-in-trust, provided the transferee:
. purchases such shares-in-trust for valuable consideration, and
. acquires such shares-in-trust without such acquisition resulting in a
transferin a transfer to another share trust and resulting in the
redesignation of such common shares or preferred shares as shares-in-
trust.
The prohibited owner with respect to shares-in-trust:
. will be required to repay to the share trust the amount of any
dividends or distributions received by the prohibited owner that are
attributable to any shares-in-trust, and
. will generally receive from the share trustee the lower of (1) the
amount paid by the prohibited owner for the common shares designated
as shares-in-trust, or, in the case of a gift or devise, the "market
price," as defined in our declaration of trust, per share on the date
of such transfer, or (2) the amount received by the share trustee
from the sale of such shares-in-trust. Any amounts received by the
trustee of the share trust in excess of the amounts to be paid to the
prohibited owner will be distributed to the share trust's
beneficiary.
The shares-in-trust will be deemed to have been offered for sale to us, or
our designee, at a price per share equal to the lesser of the following:
. the price per share in the transaction that created such shares-in-
trust, or, in the case of a gift or devise, the market price per
share on the date of such transfer, or
. the market price per share on the date that we, or our designee,
accepts such offer.
We will have the right to accept such offer for a period of 90 days after the
date of the purported transfer which resulted in such shares-in-trust.
Any person who acquires or attempts to acquire common shares or preferred
shares in violation of the above restrictions, or any person who owned common
shares or preferred shares that were transferred to a share trust, is required
to immediately give written notice to us and to provide us such other
information as we may request in order to determine the effect, if any, of such
transfer on our status as a REIT.
Our declaration of trust requires all persons who own, directly or
indirectly, more than 5%, or such lower percentages as required pursuant to
regulations under the Internal Revenue Code, of the outstanding common shares
and preferred shares, within 30 days after January 1 of each year, to provide us
a written statement or affidavit stating their name and address, the number of
common shares and preferred shares owned, and a description of how such shares
are held. In addition, each direct or indirect shareholder must provide us such
additional information as we may request in order to determine the effect, if
any, of such ownership on our status as a REIT and to ensure compliance with the
ownership limitation.
The ownership limitation generally will not apply to the acquisition of
common shares or preferred shares by an underwriter that participates in a
public offering of such shares. In addition, our board of trustees, upon receipt
of a ruling from the IRS or an opinion of counsel and upon such other conditions
as our board of trustees may direct, may exempt a person from the ownership
limitation. However, our board of trustees may not grant an exemption from the
ownership limitation to any proposed transferee whose ownership, direct or
indirect, of our shares of beneficial interest in excess of the ownership
limitation would result in the termination of our status as a REIT. These
restrictions will continue to apply until our board of trustees determines that
it is no longer in our best
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interests to attempt to qualify, or to continue to qualify, as a REIT and there
is an affirmative vote of a majority of the votes entitled to be cast on such
matter at a regular or special meeting of our shareholders.
The ownership limitation could have the effect of delaying, deferring or
preventing a transaction or a change in control that might involve a premium
price for our common shares or otherwise be in the best interest of our
shareholders. All certificates representing common shares or preferred shares
will bear a legend referring to the restrictions described above.
Description of Partnership Units
The description of partnership units set forth below does not purport to be
complete and is subject to and qualified in its entirety by reference to the
operating partnership's limited partnership agreement, which is incorporated
herein by reference as an exhibit to the registration statement of which this
prospectus is a part.
General
You, as a limited partner, have an exchange right to require the operating
partnership to redeem all or a portion of your partnership units. Upon
redemption, you will receive for each partnership unit redeemed cash in an
amount equal to the market value of a common share, subject to adjustments for
stock dividends, stock splits and distributions of options, warrants and
convertible securities. The market value of the common shares for purposes of
redeeming partnership units will be equal to the average, for the ten trading
days prior to the day on which the redemption notice was received by the
operating partnership, of (1) the sale price, as reported by the New York Stock
Exchange, of the common shares, or (2) if no sale takes place on a particular
day, the average of the closing bid and ask prices, as reported by the New York
Stock Exchange.
Generally, we or the general partner may, by giving you notice within five
business days after receipt of your redemption notice, elect to acquire each
partnership unit presented to the operating partnership for redemption for cash
or for one common share, subject to adjustments in the event of stock dividends,
stock splits or reverse stock splits. We intend to elect to acquire, in exchange
for common shares, any partnership units presented to the operating partnership
for redemption by you. In order to protect our qualification as a REIT, you
cannot exercise your exchange right if our delivery of common shares to you
would violate any one of our restrictions on transfers. If you redeem your
partnership units, your right to receive distributions will cease. Upon the
receipt of common shares, you will have rights as a holder of common shares from
the time you acquire the common shares.
You must notify the operating partnership and the general partner of your
desire to redeem partnership units. In addition, you must request the redemption
of at least 1,000 partnership units or, if you hold less than 1,000 partnership
units, all of your partnership units. You may not deliver more than two notices
of redemption per calendar year. The date of the exchange is the first business
day of the month which is at least sixty business days after receipt of your
notice of redemption. However, if we or the general partner intend to pay cash
for your partnership units, we or the general partner may elect to delay the
date of the exchange by up to 180 days to allow us to issue additional common
shares to fund such cash redemption. The operating partnership may limit your
ability to exercise your exchange rights if necessary to ensure that none of the
ownership limitations or restrictions on transfers are violated and to ensure
that the operating partnership does not constitute a "publicly traded
partnership" under Section 7704 of the Internal Revenue Code. A publicly traded
partnership is a partnership whose interests trade on an established securities
market or are readily tradable on a secondary market or the substantial
equivalent thereof. A publicly traded partnership may be treated as a
corporation for federal income tax purposes.
Tax Consequences of Redemption
The following discussion summarizes material Federal income tax
considerations that may be relevant to a limited partner who exercises his right
to redeem his partnership units.
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Tax Treatment of Exchange or Redemption of Partnership Units.
. If we elect to purchase partnership units tendered for redemption and
such purchase is treated as a sale of the partnership units to us, it
will be fully taxable to the limited partner. The limited partner
will be treated as realizing for tax purposes an amount equal to the
sum of the cash value or the value of the common shares received in
the exchange plus the amount of any operating partnership liabilities
allocable to the redeemed partnership units.
. If we do not elect to purchase a limited partner's partnership units
tendered for redemption, and the operating partnership redeems such
partnership units for cash that we contribute to the operating
partnership to effect such redemption, the redemption would also
arguably be treated for tax purposes as a sale of such partnership
units to us in a fully taxable transaction. In that event, the
limited partner would be treated as realizing an amount equal to the
sum of the cash received in the exchange plus the amount of any
operating partnership liabilities allocable to the redeemed
partnership units.
. If we do not elect to purchase partnership units tendered for
redemption, and the operating partnership redeems a limited partner's
partnership units for cash that is not contributed by us to effect
the redemption, the tax consequences would be the same as described
above, except that, if the operating partnership redeems less than
all of a limited partner's partnership units, the limited partner
would not be permitted to recognize any loss occurring on the
transaction and would recognize taxable gain only to the extent that
the cash, plus the amount of any operating partnership liabilities
allocable to the redeemed partnership units, exceeded the limited
partner's adjusted basis in all of its partnership units immediately
before the redemption.
. The same tax consequences as above would result if we contributed
cash to the operating partnership to effect a redemption, and the
redemption transaction were treated as the redemption of a limited
partner's partnership units by the operating partnership rather than
a sale of partnership units to us.
Tax Treatment of Disposition of Partnership Units by a Limited Partner
Generally. If a partnership unit is disposed of in a manner that is treated as a
sale of the partnership unit, or a limited partner otherwise disposes of a
partnership unit other than in a transaction that is treated as a redemption of
the partnership unit, the determination of gain or loss from the sale or other
disposition will be based on the difference between the amount considered
realized for tax purposes and the adjusted tax basis in such partnership unit.
Upon the sale of a partnership unit, the "amount realized" will be measured by
the sum of the cash and fair market value of other property, such as common
shares, received plus the amount of any operating partnership liabilities
allocable to the partnership units sold. To the extent that the amount of cash
or property received plus the allocable share of any operating partnership
liabilities exceeds the limited partner's adjusted tax basis in the partnership
units disposed of, such limited partner will recognize gain. It is possible that
the amount of gain recognized or even the tax liability resulting from such gain
could exceed the amount of cash and/or the value of common shares received upon
such disposition.
Any gain or loss recognized upon a sale or other disposition of partnership
units will be treated as gain or loss attributable to the sale or disposition of
a capital asset. To the extent, however, that the amount realized upon the sale
of a partnership unit attributable to a limited partner's share of "unrealized
receivables" of the operating partnership exceeds the basis attributed to those
assets, such excess will be treated as ordinary income. It is possible that the
amount of ordinary income can exceed the net amount of gain realized on the
sale, in which event, such excess will be treated as a capital loss. Unrealized
receivables include, to the extent not previously included in operating
partnership income, any rights to payment for services rendered or to be
rendered. Unrealized receivables also include amounts that would be subject to
recapture as ordinary income if the operating partnership had sold its assets at
their fair market value at the time of the transfer of a partnership unit.
Basis of Partnership Units. In general, a limited partner that acquired its
partnership units by contribution of property and/or money to the operating
partnership had an initial tax basis in its partnership units equal to the
following:
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. the amount of money contributed, including the limited partner's
allocable share of recourse and nonrecourse liabilities of the
operating partnership, plus
. the limited partner's adjusted tax basis in any other property
contributed in exchange for such partnership units, less
. the amount of any money distributed and liabilities of the limited
partner assumed, or to which assets were taken subject to, by the
operating partnership, in connection with the acquisition of the
partnership units.
The initial tax basis of partnership units acquired by other means would have
been determined under the general rules of the Internal Revenue Code, including
the partnership provisions, governing the determination of tax basis. Other
rules, including the "disguised sale" rules, also may affect the initial tax
basis, and limited partners are urged to consult their own tax advisors
regarding their initial basis.
Generally, a limited partner's initial tax basis in his partnership units
is increased or decreased, but not below zero, on a going forward basis, as
follows:
<TABLE>
<CAPTION>
Increases in Initial Tax Basis Decreases in Initial Tax Basis
------------------------------ ------------------------------
<S> <C>
. such limited partner's share of operating . such limited partner's share of operating
partnership taxable and tax-exempt income and partnership distributions,
. increases in such limited partner's allocable . decreases in such limited partner's allocable
share of liabilities of the operating share of liabilities of the operating partnership,
partnership.
. such limited partner's share of losses of the
operating partnership and
. such limited partner's share of nondeductible
expenditures of the operating partnership that are
not chargeable to his capital account.
</TABLE>
Potential Application of the Disguised Sale Regulations to a Redemption of
Partnership Units. There is a risk that a redemption by the operating
partnership of partnership units issued in exchange for a contribution of
property to the operating partnership may cause the original transfer of
property to the operating partnership in exchange for partnership units to be
treated as a "disguised sale" of property. The Internal Revenue Code and the
Treasury Regulations thereunder concerning disguised sales generally provide
that a partner's contribution of property to a partnership and a simultaneous or
subsequent transfer of money or other consideration, which may include the
assumption of or taking subject to a liability, from the partnership to the
partner will be presumed to be a sale, in whole or in part, of such property by
the partner to the partnership. Further, the disguised sale regulations provide
generally that if money or other consideration is transferred by a partnership
to a partner within two years of the partner's contribution of property, the
transactions are presumed to be a sale of the contributed property unless the
facts and circumstances clearly establish that the transfers do not constitute a
sale. In addition, these disguised sale regulations require that any such
transfer of money or other consideration within the two year period be reported
to the IRS. The disguised sale regulations also provide that if two years have
passed between the transfer of money or other consideration and the contribution
of property, the transactions will be presumed not to be a sale unless the facts
and circumstances clearly establish that the transfers constitute a sale.
Accordingly, if a partnership unit is redeemed by the operating partnership
for a limited partner who holds partnership units that were issued in exchange
for a contribution of property to the operating partnership, the disguised sale
regulations may apply because the limited partner will thus receive cash
subsequent to a previous contribution of property to the operating partnership.
In that event, the IRS could contend that the contribution was
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<PAGE>
taxable as a disguised sale under the disguised sale regulations. Any gain
recognized thereby may be eligible for installment reporting under the Internal
Revenue Code. In addition, in such event, the disguised sale regulations might
apply to cause a portion of the proceeds received by a redeeming limited partner
to be characterized as original issue discount on a deferred obligation which
would be taxable as interest income in accordance with the original issue
discount provisions of the Internal Revenue Code. Each limited partner is
advised to consult its own tax advisors to determine whether redemption of its
partnership units could be subject to the disguised sale regulations.
Comparison of Ownership of Partnership Units and Common Shares
The nature of an investment in common shares is generally economically
equivalent to your investment in partnership units in the operating partnership.
There are, however, some differences between ownership of partnership units and
ownership of common shares, some of which may be material to you. The tabular
comparison below highlights a number of significant differences between the
operating partnership and us relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, distributions, investor rights and Federal income taxation. The table
below also compares material legal rights associated with the ownership of
partnership units and common shares. These comparisons are intended to assist
you, as a limited partner, in understanding how your investment will be changed
if your partnership units are redeemed for common shares. This discussion is
summary in nature and is not a complete discussion of these matters, and you
should carefully review the balance of this prospectus and the registration
statement of which this prospectus is a part for additional information about
us.
<TABLE>
<CAPTION>
Partnership Units Common Shares
----------------- -------------
<S> <C> <C>
Form of The operating partnership is organized as a We are a Maryland REIT organized under
Organization Delaware limited partnership. You and other Maryland REIT law. We operate principally
holders of partnership units, other than the through the operating partnership. As of
general partner, hold a limited partnership September 30, 1998, we had a 96.09% limited
interest in the operating partnership. partnership interest in the operating partnership.
Length of The operating partnership has a stated termination We have a perpetual term and intend to
Investment date of December 31, 2050, although it may be continue our operations for an indefinite
terminated earlier upon an event of bankruptcy, time period.
reorganization, insolvency, following the sale of
substantially all of the assets of the operating
partnership, the exchange of all limited
partnership interests or by election of the
general partner. The operating partnership has no
plans for disposition of its assets.
Purpose and The purpose of the operating partnership includes Under our declaration of trust, we may
Permitted the conduct of any business that may be lawfully invest in and acquire, hold, manage,
Investments conducted by a limited partnership formed under administer, control and dispose of real
Delaware law. The business of the operating property and interests in real property,
partnership is to be conducted in such a manner including, engaging in business as a REIT
that will permit us to be classified as a REIT for under the Internal Revenue Code.
Federal income tax purposes. The operating
partnership may, subject to the foregoing
limitation, invest or enter into partnerships,
joint ventures or similar arrangements and may own
interests in any other entity.
Capital The operating partnership's limited partnership Our board of trustees may authorize the
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Contribution agreement provides that if the operating issuance of shares of beneficial interest
partnership requires additional funds, we or the of any class, whether now or hereafter
general partner may borrow such funds from a authorized, or securities or rights,
financial institution or other lender and lend convertible into shares of beneficial
such funds to the operating partnership on the interest, for such consideration as our
same terms and conditions as are applicable to the board of trustees may deem advisable and in
general partner's or our borrowing of such funds. accordance with our bylaws. We are not
Moreover, the general partner is authorized to restricted under our governing instruments
cause the operating partnership to issue from borrowing. The issuance of additional
partnership interests for less than fair market common shares or other similar equity
value if (1) we have concluded in good faith that securities may result in the dilution of
such issuance is in our best interest and the best your interest as a shareholder.
interest of the operating partnership and (2) the
general partner makes a capital contribution in an
amount equal to the proceeds of such issuance.
The general partner generally is obligated to
contribute or cause us to contribute the proceeds
of our share offerings as additional capital to
the operating partnership. Upon such contribution,
we or the general partner, as applicable, will
receive additional partnership units, and our or
the general partner's percentage interest in the
operating partnership will increase. Conversely,
your percentage interests in the operating
partnership will decrease in the event of
additional capital contributions by us or the
general partner.
Potential You are subject to potential dilution of your As a shareholder you would be subject to
Dilution limited partnership interests with respect to cash potential dilution if our board of
available for distribution if the general partner, trustees, in its discretion, decides to
in its sole discretion, causes the operating issue additional common shares or other
partnership to issue additional partnership units equity securities.
or other equity securities.
Management The general partner, as the sole general partner Our board of trustees has exclusive control
Control of the operating partnership, has full, exclusive over our business and affairs subject only
and complete responsibility and discretion in the to the restrictions in our declaration of
management and control of the operating trust and bylaws. Our board of trustees is
partnership. You generally have no authority as a classified into three classes. At each
limited partner to transact business for, or annual meeting of the shareholders, the
participate in the management activities or successors of the class of trustees whose
decisions of, the operating partnership. However, terms expire at that meeting will be
the consent of limited partners holding more than elected for a term of three years. Our
50% of the limited partnership units held by such board of trustees may alter or repeal our
partners is required for any amendment to the bylaws without shareholder action.
operating partnership's limited partnership
agreement that would:
. adversely affect your exchange rights,
. adversely affect your right to receive cash
distributions,
. alter the operating partnership's allocations
of income or loss, or
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C>
. impose any obligations on you to make
additional contributions to the capital of the
operating partnership.
Management The general partner will generally incur no As required by our declaration of trust,
Liability and liability to the operating partnership or any bylaws and allowed by Maryland REIT law, we
Indemnification limited partner for losses or liabilities incurred must indemnify any trustee, officer or
as a result of errors in judgment or of any act or shareholder against reasonable expenses
omission if the general partner acted in good incurred for such person's defense of a
faith. The operating partnership's limited proceeding related to such person's
partnership agreement also provides for the capacity. We must also indemnify any
indemnification of us and the general partner and trustee or officer against any claim or
our officers and directors from any and all liability unless the following is involved:
losses, arising from any claims, suits or
proceedings that relate to the operations of the . bad faith or deliberate dishonesty,
operating partnership. . receipt of an improper personal benefit
or
. reasonable cause to believe his act or
omission was unlawful.
Pursuant to a provision in our declaration
of trust, our trustees and officers will
not be liable to us or our shareholders for
money damages except for liability arising
from:
. actual receipt of an improper personal
benefit, or
. active and deliberate dishonesty
We may indemnify our employees and other
agents against liabilities incurred in
connection with their service in such
capacities.
Anti-takeover Because, as of September 30, 1998, we held a Our declaration of trust, bylaws and
Provisions 96.09% limited partnership interest in the Maryland corporation law contain a number
operating partnership and own 100% of the of provisions that may have the effect of
general partner, the existence of delaying or discouraging an unsolicited
anti-takeover provisions is not a significant proposal for the acquisition of us or the
consideration to the holders of partnership units. removal of our incumbent management. In
addition, preferred share purchase rights
are attached to the common shares which may
have anti-takeover effects.
Voting Rights You do not have voting rights relating to the As a shareholder, you would be entitled to
operation and management of the operating one vote per share on all matters voted on
partnership except in connection with matters by shareholders, including trustee
involving the following: elections, a merger or sale of
substantially all of our assets, amendments
. amendments to the operating partnership's to our declaration of trust and our
limited partnership agreement, dissolution. We are managed and controlled
. a general assignment for the benefits of by a board of trustees consisting of three
creditors or appointment of a custodian, classes having staggered terms of office.
Each class is elected by our
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
receiver or trustee, shareholders at their annual meetings. Each
. entering any proceedings for bankruptcy, common share has one vote. Our board of trustees
. admittance of any successor general partner or may classify and issue preferred shares in one
. dissolution of the operating partnership. or more series having voting power which
may differ from that of the common shares.
Amendment of the Any amendment to the operating partnership's . Our board of trustees may amend our
Operating limited partnership agreement requires the consent declaration of trust to maintain REIT
Partnership's of the general partner. The general partner may qualification by a two-thirds vote without
Limited amend the operating partnership's limited any shareholder action.
Partnership partnership agreement without your consent or the . Our board of trustees may amend our
Agreement or consent of any limited partner. However, limited declaration of trust to increase or
our Declaration partners holding more than 50% in interest in the decrease the aggregate number of shares of
of Trust operating partnership must consent to any beneficial interest or the number of shares
amendment that adversely affects the following of any class of beneficial interest that we
rights you hold as limited partner: have authority to issue without any
shareholder action.
. Your exchange rights, . Other amendments must generally be
. Your distribution rights, approved by affirmative vote of the holders
. Allocations of profits and losses to you or of not less than a majority of the votes
. Your obligations to make additional capital entitled to be cast on the matter. However,
contributions. any amendment to specified sections of our
declaration of trust relating to our board
of trustees, share transfer restrictions,
amendments, and our duration requires the
affirmative vote of two-thirds of all the
votes entitled to be cast on the matter.
Vote Required to Under Delaware law, the operating partnership may Under our declaration of trust, our board
Dissolve the be dissolved, other than in accordance with the of trustees must obtain the approval of
Operating terms of the operating partnership's limited holders of at least two-thirds of all of
Partnership or partnership agreement, only upon the unanimous our outstanding shares of beneficial
Us vote of the limited partners. interest in order to dissolve us.
Distributions The operating partnership must distribute cash Subject to the preferential rights of any
from operations at least on a quarterly basis. other shares or series of shares of
Distributions can be made in amounts determined by beneficial interest and to the provisions
the general partner and are payable to the of our declaration of trust regarding
partners in accordance with their respective shares-in-trust, you, as a shareholder,
percentage interests in the operating partnership. would be entitled to receive dividends if,
as and when authorized and declared by our
Upon liquidation of the operating partnership, board of trustees out of legally available
after payment of or adequate provision for debts assets. You would also be entitled to share
and obligations of the operating partnership, any ratably in our assets legally available for
remaining assets of the operating partnership will distribution to our shareholders in the
be distributed to all partners with positive event of our liquidation, dissolution or
capital accounts in accordance with their winding-up after payment of, or adequate
respective positive capital account balances. provision for, all of our known debts and
liabilities.
In order to qualify as a REIT, we must
distribute at least 95% of our taxable
income, excluding capital gains, and any
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C>
taxable income, including capital gains not
distributed, will be subject to corporate
income tax. We intend to pay quarterly
dividends to our shareholders.
Liability of Your liability for the operating partnership's As a shareholder, you would not be
Investors debts and obligations is generally limited to the personally liable for any of our
amount of your investments in the operating obligations solely as a result of your
partnership, together with your interest in the status as our shareholder. In addition, we
operating partnership's undistributed income, if must reimburse each shareholder or former
any. shareholder for all legal and other
expenses reasonably incurred by him in
connection with any claim or liability
successfully defended. In addition, it is
our policy to include a clause in our
contracts which provides that shareholders
will not be personally liable for
obligations entered into on our behalf.
However, with respect to tort claims,
contractual claims where shareholder
liability is not removed, claims for taxes
and statutory liability, the shareholders
may, in some jurisdictions, be personally
liable to the extent that we do not satisfy
such claims. Inasmuch as we carry public
liability insurance which we consider
adequate, any risk of your personal
liability is limited to situations in which
our assets plus our insurance coverage
would be insufficient to satisfy the claims
against us and our shareholders.
Liquidity You may transfer your interests in the operating The issuance of the common shares to you
partnership subject to the following limitations: will be registered under the Securities
Act, and the common shares will be freely
. Partnership units are not registered under the transferable, subject to the ownership
Securities Act, or any state securities laws limitations. The common shares are listed
and therefore may not be transferred unless on the New York Stock Exchange. The breadth
they are first registered under the Securities and strength of the secondary market will
Act, or an exemption from registration is depend, among other things, upon the number
available. of shares outstanding, our financial
. You may not transfer your partnership units if results and prospects, the general interest
the transfer would adversely affect our status in our real estate investments and our
as a REIT. dividend yield compared to that of other
debt and equity securities.
</TABLE>
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<PAGE>
Federal Income Tax Considerations
The following is a summary of the material federal income tax
considerations that may be relevant to a prospective holder of common shares.
This discussion does not address all aspects of taxation that may be relevant to
particular shareholders in light of their personal investment or tax
circumstances, or to shareholders, such as insurance companies, tax-exempt
organizations, except to the extent described below, financial institutions or
broker-dealers, foreign corporations, and persons who are not citizens or
residents of the United States, except to the extent described below, subject to
special treatment under the federal income tax laws.
This discussion is based on current provisions of the Internal Revenue
Code, existing, temporary, and currently proposed Treasury Regulations
promulgated under the Internal Revenue Code, the legislative history of the
Internal Revenue Code, existing administrative rulings and practices of the IRS,
and judicial decisions. No assurance can be given that future legislative,
judicial, or administrative actions or decisions, which may be retroactive in
effect, will not affect the accuracy of any statements in this prospectus with
respect to the transactions entered into or contemplated prior to the effective
date of such changes. Akin, Gump, Strauss, Hauer & Feld, L.L.P. has opined that
this summary of the material federal income tax consequences fairly summarizes
the federal income tax consideration that are likely to be material to a holder
of the common shares.
Because your income tax considerations may vary depending on your personal
investment or tax circumstances, we recommend you consult your own tax advisor
regarding the specific tax consequences to you of the purchase, ownership, and
sale of the common shares and of our election to be taxed as a REIT, including
the federal, state, local, foreign, and other tax consequences of such purchase,
ownership, sale, and election, and of potential changes in applicable tax laws.
Taxation of Prentiss Properties Trust
We have elected to be taxed as a REIT since our tax year ending on December
31, 1996. We believe that, commencing with such taxable year, we have been
organized and have operated in such a manner so as to qualify for taxation as a
REIT under the Internal Revenue Code, and we intend to continue to operate in
such a manner. In addition, Akin Gump has opined, based upon representations of
fact given by us to them, that we were organized and have operated in conformity
with the requirements for qualification as a REIT under the Internal Revenue
Code beginning with our taxable year ending December 31, 1996 and through the
date hereof and our current and proposed method of operation will enable us to
continue to qualify as a REIT. In rendering its opinion, Akin Gump has not
independently verified these facts. However, we can give no assurance the IRS
will agree that we have or will remain so qualified.
Qualification and taxation as a REIT depends upon our ability to
continuously meet the various REIT qualification tests, which include actual
annual operating results, distribution levels, and share ownership. No
assurance can be given that the actual results of our operations for any
particular taxable year will satisfy such requirements.
As a REIT, we generally are not subject to federal corporate income tax on
our net income that is distributed currently to our shareholders. That treatment
substantially eliminates the "double taxation", i.e., taxation at both the
corporate and shareholder levels, that generally results from an investment in a
corporation. However, we will be subject to federal income tax in the following
circumstances:
. we will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains.
. we may be subject to the "alternative minimum tax" on our
undistributed items of tax preference, if any.
19
<PAGE>
. if we have (1) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers
in the ordinary course of business or (2) other nonqualifying income
from foreclosure property, we will be subject to tax at the highest
corporate rate on such income.
. if we have net income from prohibited transactions, which are, in
general, sales or other dispositions of property, other than
foreclosure property, held primarily for sale to customers in the
ordinary course of business, such income will be subject to a 100%
tax.
. if we fail to satisfy the 75% gross income test or the 95% gross
income test, as discussed below, and nonetheless have maintained our
qualification as a REIT because other requirements have been met, we
will be subject to a 100% tax on (1) the gross income attributable to
the greater of the amount by which we fail the 75% or 95% gross
income test multiplied by (2) a fraction intended to reflect our
profitability.
. if we should fail to distribute during each calendar year at least
the sum of (1) 85% of our REIT ordinary income for such year, (2) 95%
of our REIT capital gain net income for such year, and (3) any
undistributed taxable income from prior periods, we would be subject
to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. To the extent that we elect to
retain and pay income tax on the net long-term capital gain that we
receive in a taxable year, such retained amounts will be treated as
having been distributed for purposes of the 4% excise tax.
. if we acquire any asset from a C corporation, i.e., a corporation
generally subject to full corporate-level tax, in a transaction in
which the basis of the asset in our hands is determined by reference
to the basis of the asset, or any other asset, in the hands of the C
corporation and we recognize gain on the disposition of such asset
during the 10-year period beginning on the date on which such asset
was acquired by us, then to the extent of such asset's "built-in-
gain", i.e., the excess of the fair market value of such asset at the
time of our acquisition over the adjusted basis in such asset at such
time, such gain will be subject to tax at the highest regular
corporate rate applicable, as provided in Treasury Regulations that
have not yet been promulgated. The results described above with
respect to the recognition of "built-in-gain" assume that we will
make an election pursuant to IRS Notice 88-19 if we were to make any
such acquisition.
Requirements for Qualification
The Internal Revenue Code defines a REIT as a corporation, trust, or
association
(1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares,
or by transferable certificates of beneficial interest;
(3) that would be taxable as a domestic corporation, but for the REIT
sections of the Internal Revenue Code;
(4) that is neither a financial institution under the Internal Revenue
Code nor an insurance company to which subchapter L of the Internal
Revenue Code applies;
(5) the beneficial ownership of which is held by 100 or more persons;
(6) not more than 50% in value of the outstanding shares of which is
owned, directly or indirectly, by five or fewer individuals or
entities, during the last half of each taxable year (the "5/50 Rule");
20
<PAGE>
(7) that makes an election to be a REIT, or has made such election for a
previous taxable year, and satisfies all relevant filing and other
administrative requirements established by the IRS that must be met in
order to elect and maintain REIT status;
(8) that uses a calendar year for federal income tax purposes and complies
with the recordkeeping requirements of the Internal Revenue Code and
Treasury Regulations promulgated thereunder; and
(9) that meets the Internal Revenue Code's income and asset tests.
Beginning with its 1998 taxable year, if we comply with the requirements
for ascertaining the ownership of our outstanding shares of beneficial interest
and do not know or have reason to know that we have violated the 5/50 Rule, we
will be deemed to satisfy the 5/50 Rule for the taxable year. We have issued
sufficient common shares with sufficient diversity of ownership to allow us to
satisfy requirements (5) and (6). In addition, our declaration of trust provides
for restrictions regarding transfer of our shares that are intended to assist us
in continuing to satisfy the share ownership requirements described in clauses
(5) and (6) above.
For purposes of determining stock ownership under the 5/50 Rule, a
supplemental unemployment compensation benefits plan, a private foundation, or a
portion of a trust permanently set aside or used exclusively for charitable
purposes is generally considered an individual. A trust that is a qualified
trust under the Internal Revenue Code, however, is generally not considered an
individual, and beneficiaries of such trust are treated as holding shares of a
REIT in proportion to their actuarial interests in such trust for purposes of
the 5/50 Rule.
We currently have three wholly-owned subsidiaries, the general partner, the
general partner of Prentiss Properties Real Estate Fund I, L.P. and the general
partner of Prentiss Austin Properties, L.P., and may have additional wholly-
owned subsidiaries in the future. The Internal Revenue Code provides that a
corporation that is a "qualified REIT subsidiary" shall not be treated as a
separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a "qualified REIT subsidiary" shall be treated as
assets, liabilities, and items of income, deduction, and credit of the REIT. A
"qualified REIT subsidiary" is a corporation all of the capital stock of which
is owned by the REIT. In applying the requirements described herein, any of our
"qualified REIT subsidiaries" will be ignored, and all assets, liabilities, and
items of income, deduction, and credit of such subsidiaries will be treated as
our assets, liabilities, and items of income, deduction, and credit. All of our
corporate subsidiaries are "qualified REIT subsidiaries." Those subsidiaries,
therefore, will not be subject to federal corporate income taxation, although
they may be subject to state and local taxation.
In the case of a REIT that is a partner in a partnership, the Treasury
Regulations provide that the REIT will be deemed to own its proportionate share,
determined on the basis of the REIT's capital interest in the partnership, of
the assets of the partnership and will be deemed to be entitled to the gross
income of the partnership attributable to such share. In addition, the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of the REIT tests of the Internal Revenue Code,
including satisfying the gross income and asset tests described below. Thus, our
proportionate share of the assets, liabilities, and items of income of the
operating partnership and the noncorporate subsidiaries of the operating
partnership will be treated as our assets, liabilities, and items of income for
purposes of applying the requirements described herein.
Income Tests
In order for us to qualify and to maintain our qualification as a REIT, two
requirements relating to our gross income must be satisfied annually. First, at
least 75% of our gross income, excluding gross income from prohibited
transactions, for each taxable year must consist of defined types of income
derived directly or indirectly from investments relating to real property or
mortgages on real property, including "rents from real property" and, interest
on obligations secured by mortgages on real property, or qualified temporary
investment income. Second, at least 95% of our gross income, excluding gross
income from prohibited transactions, for each taxable year must be derived from
such real property or temporary investments, and from dividends, other types of
interest, and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing.
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The rent we receive from our tenants will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if the following conditions are met:
. 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.
. the rent received from a tenant will not qualify as "rents from real
property" in satisfying the gross income tests if we, or a direct or
indirect owner of 10% or more of our shares of beneficial interest,
directly or constructively owns 10% or more of such tenant.
. if rent attributable to personal property, leased in connection with a
lease of a 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."
. for the rent to qualify as "rents from real property," we generally must
not operate or manage our properties or furnish or render services to
the tenants of such properties, other than through an "independent
contractor" who is adequately compensated and from whom we derive no
revenue.
The "independent contractor" requirement, however, does not apply to the extent
the services provided by us are "usually or customarily rendered" in connection
with the rental of space for occupancy only, e.g., furnishing water, heat,
light, and air conditioning and cleaning windows, public entrances, and lobbies,
and are not otherwise considered "rendered to the occupant", for example renting
parking spaces on a reserved basis to tenants. In addition, we may furnish or
render a very small amount of "noncustomary services" to the tenants of a
property other than through an independent contractor as long as the amount that
we receive for such services does not exceed 1% of our total receipts from the
property. For this purpose, the amount attributable to our noncustomary services
will be at least equal to 150% of our cost of providing the services.
We do not charge rent for any portion of 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 fixed percentage or percentages of receipts or sales, as
described above. Furthermore, we expect that, with respect to other properties
that we may acquire in the future, we will not charge rent for any portion of
any property that is based, in whole or in part, on the income or profits of any
person to the extent that the receipt of such rent would jeopardize our status
as a REIT. In addition, we currently do not receive any rent from a tenant which
would be considered a related party under the Internal Revenue Code, and we
expect that, to the extent that we receive rent from a tenant which would be
considered a related party under the Internal Revenue Code in the future, such
rent will not cause us to fail to satisfy either the 75% or 95% gross income
test. We also currently do not receive rent attributable to personal property
that is greater than 15% of the rent received under the applicable Lease. We
expect that, in the future, we will not allow the rent attributable to personal
property leased in connection with any lease of real property to exceed 15% of
the total rent received under the lease, if the receipt of such rent would cause
us to fail to satisfy either the 75% or 95% gross income test.
Through the operating partnership and the noncorporate subsidiaries, none
of which constitutes a qualifying independent contractor, we provide and will
provide in the future real estate services to our tenants. We believe that all
such services are "usually or customarily rendered" in connection with the
rental of space for occupancy only and are not otherwise "rendered to the
occupant," so that the provision of such services does not jeopardize the
qualification of the rent as "rents from real property." In the case of any
services that are not "usual and customary" under the foregoing rules, we employ
and will continue to employ qualifying independent contractors to provide such
services. Furthermore, we expect that we will not provide noncustomary services
with respect to other properties that we acquire in the future, other than
through a qualifying independent contractor, to the extent that the provision of
such services would cause us to fail to satisfy either the 75% or 95% gross
income test.
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If any portion of the rent does not qualify as "rents from real property"
because such rent is attributable to personal property and exceeds 15% of the
total rent received under the applicable lease, the portion of the rent that is
attributable to the personal property will not be qualifying income for purposes
of either the 75% or 95% gross income test. Thus, if the rent attributable to
such personal property, plus any other income received by us during a taxable
year that is not qualifying income for purposes of the 95% gross income test,
exceeds 5% of our gross income during such year, we would likely lose our REIT
status. If, however, any portion of the rent received under a lease does not
qualify as "rents from real property" because either the rent is considered
based on the income or profits of any person or the tenant is a Related Party
Tenant, none of the rent we receive under such lease would qualify as "rents
from real property." In that case, if the rent we receive under such a lease,
plus any other income we receive during the taxable year that is not qualifying
income for purposes of the 95% gross income test, exceeds 5% of our gross income
for such year, we would likely lose our REIT status. Finally, if any portion of
the rent does not qualify as "rents from real property" because we furnish
noncustomary services to the tenants of a property other than through a
qualifying independent contractor, none of the rent we receive with respect to
the related property would qualify as "rents from real property." In that case,
if the rent we receive with respect to the related property, plus any other
income we receive during the taxable year that is not qualifying income for
purposes of the 95% gross income test, exceeds 5% of our gross income for such
year, we would lose our REIT status.
Through our operating partnership, we may receive other types of income
that will not qualify for purposes of the 75% or 95% gross income test. In
particular, dividends paid with respect to the stock of Prentiss Properties
Limited, Inc. owned by the operating partnership will be qualifying income for
purposes of the 95% gross income test, but not the 75% gross income test. In
addition, the operating partnership has received and in the future will receive
indirectly, fees for the performance of services by a noncorporate subsidiary
with respect to properties that are owned, directly or indirectly, by the
operating partnership. Although the tax law is not entirely clear, to the extent
that the operating partnership owns, directly or indirectly, both an interest in
such properties and an interest in the Noncorporate Subsidiary providing the
services, such fees should be disregarded for purposes of the 75% and 95% gross
income tests. However, the remainder of such fees received by the operating
partnership, that is, any portion of the fees that is attributable to a third
party's ownership interest in our properties, will be nonqualifying income for
purposes of the 75% and 95% gross income tests. In addition, any fees received,
directly or indirectly, by the operating partnership in exchange for providing
services with respect to properties owned by unrelated third parties will not be
qualifying income for purposes of the 75% and 95% gross income tests.
Furthermore, to the extent that we receive interest that is accrued on the late
payment of the rent, such amounts will not qualify as "rents from real property"
and, thus, will not be qualifying income for purposes of the 75% gross income
test, however, that interest will be treated as interest that qualifies for the
95% gross income test. We believe that the aggregate amount of any such
nonqualifying income in any taxable year has not caused and will not cause us to
fail to satisfy either the 75% or 95% gross income test.
The net income derived from a prohibited transaction is subject to a 100%
tax. The term "prohibited transaction" generally includes a sale or other
disposition of property, other than foreclosure property, that is held primarily
for sale to customers in the ordinary course of a trade or business. We believe
that no asset owned by us or the operating partnership will be held for sale to
customers and that a sale of any such asset will not be in the ordinary course
of our or the operating partnership's business. Whether an asset is held
"primarily for sale to customers in the ordinary course of a trade or business"
depends, however, on the facts and circumstances in effect from time to time,
including those related to a particular asset. Nevertheless, we will attempt to
comply with the terms of safe-harbor provisions in the Internal Revenue Code
prescribing when asset sales will not be characterized as prohibited
transactions. Complete assurance cannot be given, however, that we can comply
with the safe-harbor provisions of the Internal Revenue Code or avoid owning
property that may be characterized as property held "primarily for sale to
customers in the ordinary course of a trade or business."
It is possible that, from time to time, we or the operating partnership
will enter into hedging transactions with respect to one or more of our assets
or liabilities. Any such hedging transaction could take a variety of forms,
including interest rate swap contracts, interest rate cap or floor contracts,
futures or forward contracts, and options. To the extent that we or the
operating partnership enters into an interest rate swap, cap agreement, option,
futures contract, forward rate agreement, or similar financial instrument to
reduce the interest rate risks with respect to indebtedness incurred or to be
incurred to acquire or carry real estate assets, any periodic income or gain
from the
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disposition of such contract should be qualifying income for purposes of the 95%
gross income test, but not the 75% gross income test. To the extent that we or
the operating partnership hedges with other types of financial instruments or in
other situations, it may not be entirely clear how the income from those
transactions will be treated for purposes of the various income tests that apply
to REITs under the Internal Revenue Code. We intend to structure any hedging
transactions in a manner that does not jeopardize our status as a REIT.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we nevertheless may qualify as a REIT for such year if we are
entitled to relief under the Internal Revenue Code. Those relief provisions
generally will be available if our failure to meet such tests is due to
reasonable cause and not due to willful neglect, we attach a schedule of the
sources of our income to our return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances we would be entitled to the
benefit of those relief provisions. Even if those relief provisions apply, a
100% tax would be imposed on:
. the gross income attributable to the greater of the amount by which we
fail the 75% or 95% gross income test multiplied by
-------------
. a fraction intended to reflect our profitability.
Asset Tests
We, at the close of each quarter of each taxable year, also must satisfy
the following two tests relating to the nature of our assets:
. at least 75% of the value of our total assets must be represented by
cash or cash items, which generally include receivables, government
securities, "real estate assets," (which generally includes interests in
real property, interests in mortgages on real property and shares of
other REITs) or, in cases where we raise new capital through stock or
long-term, at least five-year, debt offerings, temporary investments in
stock or debt instruments during the one-year period following our
receipt of such capital.
. of the investments not included in the 75% asset class, the value of any
one issuer's securities we owned may not exceed 5% of the value of our
total assets; and we may not own more than 10% of any one issuer's
outstanding voting securities, except for its interests in the operating
partnership, the noncorporate subsidiaries, and any qualified REIT
subsidiary.
For purposes of the 75% asset test, the term "interest in real property"
includes an interest in land and improvements thereon, such as buildings or
other inherently permanent structures, including items that are structural
components of such buildings or structures, a leasehold of real property, and an
option to acquire real property, or a leasehold of real property.
For purposes of the asset tests, we are deemed to own our proportionate
share of the assets of the operating partnership and each noncorporate
subsidiary, rather than our interests in those entities. At least 75% of the
value of our total assets have been and will be represented by real estate
assets, cash and cash items, including receivables, and government securities.
Through the operating partnership, we own 100% of the nonvoting stock of
Prentiss Properties Limited, Inc. and hold unsecured notes issued by Prentiss
Properties Limited, Inc. We do not own, directly or indirectly, any of the
voting stock of Prentiss Properties Limited, Inc. and believe that the value of
our ownership interest in Prentiss Properties Limited, Inc. does not exceed 5%
of the value of its total assets. In addition, we have not owned, and will not
own securities of any one issuer the value of which exceeds 5% of the value of
our total assets or more than 10% of any one issuer's outstanding voting
securities, except for our interests in the operating partnership, the
noncorporate subsidiaries, and any qualified REIT subsidiary. In addition, we
have represented that we will not acquire or dispose, or cause the operating
partnership to acquire or dispose, of assets in the future in a way that would
cause it to violate either asset test.
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If we should fail to satisfy the asset tests at the end of a calendar
quarter, such a failure would not cause us to lose our REIT status if:
. we satisfied the asset tests at the close of the preceding calendar
quarter and
. the discrepancy between the value of our assets and the asset test
requirements arose from changes in the market values of our assets and
was not wholly or partly caused by an acquisition of nonqualifying
assets.
If the condition described in the second clause is not satisfied, we still could
avoid disqualification by eliminating any discrepancy within 30 days after the
close of the calendar quarter in which it arose.
Distribution Requirements
In order to avoid corporate income taxation of our earnings, we are
required to distribute each taxable year dividends, other than capital gain
dividends and retained capital gains, to our shareholders in an aggregate amount
at least equal to:
. the sum of:
. 95% of our "REIT taxable income", computed without regard to the
dividends paid deduction and our net capital gain, and
. 95% of the net income, after tax, if any, from foreclosure property,
minus
-----
. the sum of items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before we timely file our federal income
tax return for such year and if paid on or before the first regular dividend
payment date after such declaration. To the extent that we do not distribute all
of our net capital gain or distribute at least 95%, but less than 100%, of our
"REIT taxable income," as adjusted, we will be subject to tax thereon at regular
corporate tax rates. Furthermore, if we should fail to distribute during each
calendar year at least the sum of:
. 85% of our REIT ordinary income for such year,
. 95% of our REIT capital gain income for such year, and
. any undistributed taxable income from prior periods,
we would be subject to a 4% nondeductible excise tax on the excess of such
required distribution over the amounts actually distributed. We have made, and
intend to continue to make, timely distributions sufficient to satisfy the
annual distribution requirement. We may elect to retain and pay income tax on
our long-term capital gains. Any such retained amount will be treated as having
been distributed by us for purposes of the 4% excise tax described above.
It is possible that, from time to time, we may experience timing
differences between the actual receipt of income and actual payment of
deductible expenses and the inclusion of that income and deduction of such
expenses in arriving at our REIT taxable income. Further, it is possible that,
from time to time, we may be allocated a share of net capital gain attributable
to the sale of depreciated property that exceeds our allocable share of cash
attributable to that sale. Therefore, we may have less cash than is necessary to
meet our annual 95% distribution requirement or to avoid corporate income tax or
the excise tax imposed on undistributed income. In such a situation, we may find
it necessary to arrange for short-term, or possibly long-term, borrowings or to
raise funds through the issuance of preferred shares or common shares.
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We may be able to rectify a failure to meet the distribution requirement
for a year by paying "deficiency dividends" to our shareholders in a later year,
which may be included in our deduction for dividends paid for the earlier year.
Although we may be able to avoid being taxed on amounts distributed as
deficiency dividends, we will be required to pay to the IRS interest based upon
the amount of any deduction taken for deficiency dividends.
Recordkeeping Requirements
Pursuant to applicable Treasury Regulations, we must maintain records and
request on an annual basis information from our shareholders designed to
disclose the actual ownership of our outstanding shares. We have complied and
intend to continue to comply with such requirements in the future.
Failure to Qualify
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, we will be subject to tax, including any
applicable alternative minimum tax, on our taxable income at regular corporate
rates. Distributions to our shareholders in any year in which we fail to qualify
will not be deductible nor will they be required to be made. In such event, to
the extent of our current and accumulated earnings and profits, all
distributions to shareholders will be taxable as ordinary income, and corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, we will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which we ceased to qualify as a REIT. It is not possible to state
whether in all circumstances we would be entitled to such statutory relief.
Taxation of Taxable U.S. Shareholders
As long as we qualify as a REIT, distributions made to our taxable U.S.
shareholders out of current or accumulated earnings and profits, and not
designated as capital gain dividends or retained capital gains, will be taken
into account by such U.S. shareholders as ordinary income and will not be
eligible for the dividends received deduction generally available to
corporations. As used herein, the term "U.S. shareholder" means a holder of
common shares that for U.S. federal income tax purposes is:
. a citizen or resident of the U.S.,
. a corporation, partnership, or other entity created or organized in or
under the laws of the U.S. or of any political subdivision thereof,
. an estate whose income from sources without the United States is
includible in gross income for U.S. federal income tax purposes
regardless of its connection with the conduct of a trade or business
within the United States, or
. any trust with respect to which (A) a U.S. court is able to exercise
primary supervision over the administration of such trust and (B) one or
more U.S. fiduciaries have the authority to control all substantial
decisions of the trust.
Distributions that are designated as capital gain dividends generally will be
taxed as long-term capital gains, to the extent they do not exceed our actual
net capital gain for the taxable year, without regard to the period for which
the shareholder has held his common shares. However, corporate shareholders may
be required to treat up to 20% of capital gain dividends as ordinary income. We
may elect to retain and pay income tax on our net long-term capital gains. In
that case, our shareholders would include in income their proportionate share of
our undistributed long-term capital gains. In addition, the shareholders would
be deemed to have paid their proportionate share of the tax paid by us, which
would be credited or refunded to the shareholders. Each shareholder's basis in
his shares would be increased by the amount of the undistributed long- term
capital gain included in the shareholder's income, less the shareholder's share
of the tax paid by us.
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Distributions in excess of current and accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's common shares, but rather will reduce the
adjusted basis of such shares. To the extent that such distributions in excess
of current and accumulated earnings and profits exceed the adjusted basis of a
shareholder's common shares, such distributions will be included in income as
gains from the sale or exchange of a capital asset, assuming the common shares
are capital assets in the hands of the shareholder. In addition, any
distribution we declare in October, November, or December of any year and
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by us and received by the shareholder on December 31 of
such year, provided that the distribution is actually paid by us during January
of the following calendar year.
Shareholders may not include in their individual income tax returns any of
our net operating losses or capital losses. Instead, we would carry over such
losses for potential offset against its future income. Taxable distributions
from us and gain from the disposition of the common shares will not be treated
as passive activity income and, therefore, shareholders generally will not be
able to apply any "passive activity losses", such as losses from limited
partnerships which engage in passive activities in which a shareholder is a
limited partner, against such income. In addition, taxable distributions from us
generally will be treated as investment income for purposes of the investment
interest limitations. Capital gains from the disposition of common shares, or
distributions treated as such, however, will be treated as investment income
only if the shareholder so elects, in which case such capital gains will be
taxed at ordinary income rates. We have notified and will continue to notify
shareholders after the close of our taxable year as to the portions of the
distributions attributable to that year that constitute ordinary income, return
of capital, and capital gain.
Taxation of Shareholders on the Disposition of the Common Shares
In general, any gain or loss realized upon a taxable disposition of the
common shares by a shareholder who is not a dealer in securities will be treated
as capital gain or loss if the common shares have been held as a capital asset.
Such gain or loss will generally constitute long-term capital gain or loss and
will be taxable at a rate of 20% if the common shares have been held for more
than twelve months. Otherwise, such a gain will be taxed at the holder's regular
marginal tax rate. However, any loss upon a sale or exchange of common shares by
a shareholder who has held such shares for six months or less, after applying
holding period rules, will be treated as a long- term capital loss to the extent
of distributions from us required to be treated by such shareholder as long-term
capital gain. All or a portion of any loss realized upon a taxable disposition
of the common shares may be disallowed if other common shares are purchased
within 30 days before or after the disposition.
Capital Gains and Losses
The highest marginal individual income tax rate is 39.6%. The maximum tax
rate on net capital gains applicable to noncorporate taxpayers is 20% for sales
and exchanges of assets held for more than one year. The maximum tax rate on
long-term capital gain from the sale or exchange of depreciable real property,
held for more than 18 months is 25% to the extent that such gain would have been
treated as ordinary income if the property were "section 1245 property." With
respect to distributions designated by us as capital gain dividends and any
retained capital gains that we are deemed to distribute, we may designate,
subject to limits, whether such a distribution is taxable to its noncorporate
stockholders at a 20%, or 25% tax rate. Thus, the tax rate differential between
capital gain and ordinary income for noncorporate taxpayers may be significant.
In addition, the characterization of income as capital or ordinary may affect
the deductibility of capital losses. Capital losses not offset by capital gains
may be deducted against a noncorporate taxpayer's ordinary income only up to a
maximum annual amount of $3,000. Unused capital losses may be carried forward.
All net capital gain of a corporate taxpayer is subject to tax at ordinary
corporate rates. A corporate taxpayer can deduct capital losses only to the
extent of capital gains, with unused losses being carried back three years and
forward five years.
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Information Reporting Requirements and Backup Withholding
We report and will continue to report to our U.S. shareholders and to the
IRS the amount of distributions 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
distributions paid unless such holder is a corporation or is otherwise exempt
categories and, when required, demonstrates this fact or provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with the applicable requirements of the
backup withholding rules. If you are a Shareholder, and do not provide us with
his correct taxpayer identification number, you may be subject to penalties
imposed by the IRS. Any amount paid as backup withholding will be creditable
against your income tax liability. In addition, we may be required to withhold a
portion of capital gain distributions to you if you fail to certify your
nonforeign status to us. The Service has issued final regulations which alter
the current system of backup withholding compliance and will be effective for
distributions made after December 31, 1998 to foreign shareholders.
Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts generally are exempt from
federal income taxation. However, they are subject to taxation on their
unrelated business taxable income. While many investments in real estate
generate unrelated business taxable income, the IRS has issued a published
ruling that dividend distributions from a REIT to an exempt employee pension
trust do not constitute unrelated business taxable income, provided that the
shares of the REIT are not otherwise used in an unrelated trade or business of
the exempt employee pension trust. Based on that ruling, amounts distributed by
us to tax-exempt entities generally should not constitute unrelated business
taxable income. However, if tax-exempt entities finances its acquisition of the
common shares with debt, a portion of its income from us will constitute
unrelated business taxable income pursuant to the "debt-financed property"
rules. Furthermore, social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts, and qualified group legal services
plans that are exempt from taxation under paragraphs section 501(c) (7), (9),
(17), and (20), respectively, of the Internal Revenue Code are subject to
different unrelated business taxable income rules, which generally will require
them to characterize distributions from us as unrelated business taxable income.
In addition, a pension trust that owns more than 10% of our shares may be
required to treat a percentage of the dividends from us as unrelated business
taxable income. That percentage is the gross income derived by us from an
unrelated trade or business, determined as if we were a pension trust, divided
by our gross income for the year in which the dividends are paid. The unrelated
business taxable income rule applies to a pension trust holding more than 10% of
our stock only if (1) the unrelated business taxable income percentage is at
least 5%, (2) we qualify as a REIT by reason of the modification of the 5/50
Rule that allows the beneficiaries of the pension trust to be treated as holding
our shares in proportion to their actuarial interests in the pension trust, and
(3) we are a "pension-held" REIT, that is, either (A) one pension trust owns
more than 25% of the value of our shares or (B) a group of pension trusts
individually holding more than 10% of the value of our shares collectively own
more than 50% of the value of our shares. Because the Ownership Limitation
prohibits any pension trust from owning more than 8.5% of the common shares or
more than 9.8% of any class or series of the Preferred Shares, we should not be
a "pension-held" REIT.
Taxation of Non-U.S. Shareholders
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively referred to as foreign shareholders) are complex and
no attempt will be made herein to provide more than a summary of such rules.
Prospective foreign 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.
If you are a foreign shareholder, distributions that are not attributable
to gain from our sales or exchanges of U.S. real property interests and that we
do not designate as capital gains dividends or retained capital gains will be
treated as dividends of ordinary income to the extent that they are made out of
our current or accumulated earnings and profits. Such distributions ordinarily
will be subject to a withholding tax equal to 30% of the gross
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amount of the distribution unless an applicable tax treaty reduces or eliminates
that tax. However, if income from the investment in the common shares is treated
as effectively connected with the foreign shareholder's conduct of a U.S. trade
or business, the foreign shareholder generally will be subject to federal income
tax at graduated rates, in the same manner as U.S. shareholders are taxed with
respect to such distributions, and also may be subject to the 30% branch profits
tax in the case of a foreign shareholder that is a non-U.S. corporation. We
expect to withhold U.S. income tax at the rate of 30% on the gross amount of any
such distributions made to a foreign shareholder unless a lower treaty rate
applies and any required form evidencing eligibility for that reduced rate is
filed with us or the foreign shareholder files an IRS Form 4224 with us claiming
that the distribution is effectively connected income. The Service has issued
final regulations that modify the manner in which we comply with the withholding
requirements. Those regulations are effective for distributions made after
December 31, 1998. Distributions in excess of our 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 common
shares, but rather will reduce the adjusted basis of such shares. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a foreign shareholder's common shares, such
distributions will give rise to tax liability if the foreign shareholder would
otherwise be subject to tax on any gain from the sale or disposition of his
common shares, as described below. Because it generally cannot be determined at
the time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the entire amount of any
distribution normally will be subject to withholding at the same rate as a
dividend. Amounts so withheld, however, are refundable to the extent it is
determined subsequently that such distribution was, in fact, in excess of our
current and accumulated earnings and profits.
We are required to withhold 10% of any distribution in excess of our
current and accumulated earnings and profits. Consequently, although we intend
to withhold at a rate of 30% on the entire amount of any distribution, to the
extent that we do not do so, any portion of a distribution not subject to
withholding at a rate of 30% will be subject to withholding at a rate of 10%.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges by us of U.S. real property
interests will be taxed to a foreign shareholder under the provisions of the
Foreign Investment in Real property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
distributions attributable to gain from sales of U.S. real property interests
are taxed to a foreign shareholder as if such gain were effectively connected
with a U.S. business. Foreign shareholders thus would be taxed at the normal
capital gain rates applicable to U.S. shareholders, subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals. Distributions subject to FIRPTA also may be
subject to the 30% branch profits tax in the hands of a non-U.S. corporate
shareholder not entitled to treaty relief or exemption. We are required to
withhold 35% of any distribution that is designated by us as a capital gains
dividend. The amount withheld is creditable against the Non-U.S. Shareholder's
FIRPTA tax liability.
Gain recognized by a foreign shareholder upon a sale of his common shares
generally will not be taxed under FIRPTA if we are a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held directly or
indirectly by non-U.S. persons. However, because the common shares will be
publicly traded, no assurance can be given that we are or will continue to be a
"domestically controlled REIT." In addition, a foreign shareholder that owned,
actually or constructively, 5% or less of the common shares or preferred shares
at all times during a specified testing period will not be subject to tax under
FIRPTA if the common shares or preferred shares, as applicable, are "regularly
traded" on an established securities market. Furthermore, gain not subject to
FIRPTA will be taxable to a foreign shareholder if (1) investment in the common
shares is effectively connected with the foreign shareholder's U.S. trade or
business, in which case the foreign shareholder will be subject to the same
treatment as U.S. shareholders with respect to such gain, or (2) the foreign
shareholder is a nonresident alien individual who was present in the U.S. for
183 days or more during the taxable year and other conditions apply, in which
case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains. If the gain on the sale of the common shares were to
be subject to taxation under FIRPTA, the foreign shareholder would be subject to
the same treatment as U.S. shareholders with respect to such gain, subject to
applicable alternative minimum tax, a special alternative minimum tax in the
case of nonresident alien individuals, and the possible application of the 30%
branch profits tax in the case of non-U.S. corporations.
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Possible Legislation or Other Action Affecting Tax Consequences
The rules dealing with Federal income taxation are constantly under review
by persons involved in the legislative process and by the IRS and the U.S.
Treasury Department. Changes to the Federal laws and interpretations thereof
could adversely affect an investment in us. For example, a proposal issued by
President Clinton on February 2, 1998, if enacted into law, may adversely affect
our ability to expand the present activities of our management subsidiaries. We
cannot predict whether, when, in what forms, or with what effective dates, the
tax laws applicable to us or an investment in us will be changed.
Other Tax Consequences
We, the general partner, the operating partnership, Prentiss Properties
Limited, Inc., a noncorporate subsidiary, or our shareholders may be subject to
state or local taxation in various state or local jurisdictions, including those
in which we, it or they own property, transact business, or reside. Such state
and local tax treatment may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in us.
In particular, the State of Texas imposes a franchise tax upon corporations
and limited liability companies that do business in Texas, including REITs that
are organized as corporations. While we are organized as a Maryland real estate
investment trust and are therefore not subject to the Texas franchise tax, we
own, directly or indirectly, qualified REIT subsidiaries and limited liability
companies that are subject to the tax. The Texas franchise tax imposed on a
corporation doing business in Texas generally is equal to the greater of (1)
.25% of "taxable capital", generally, financial accounting net worth with
adjustments, apportioned to Texas; or (2) 4.5% of "taxable earned surplus",
generally, federal taxable income with adjustments, apportioned to Texas. A
corporation's taxable capital and taxable earned surplus are apportioned to
Texas based upon a fraction, the numerator of which is the corporation's gross
receipts from business transacted in Texas and the denominator of which is the
corporation's gross receipts from all sources.
Tax Aspects of the Operating Partnership and the Noncorporate Subsidiaries
The following discussion summarizes material federal income tax
considerations applicable to our direct or indirect investment in the operating
partnership and the Noncorporate Subsidiaries, each of the operating partnership
and the noncorporate subsidiaries is referred to herein as a "partnership". The
discussion does not cover state or local tax laws or any federal tax laws other
than income tax laws.
Classification as a Partnership
We will be entitled to include in our income our distributive share of each
partnership's income and to deduct our distributive share of each partnership's
losses only if each Partnership is classified for federal income tax purposes as
a partnership rather than as a corporation or an association taxable as a
corporation. An entity will be classified as a partnership rather than as a
corporation for federal income tax purposes if the entity is treated as a
partnership under Treasury regulations, effective January 1, 1997, relating to
entity classification and is not a "publicly traded" partnership.
In general, under the entity classification regulations, we will be treated
as a partnership for federal income tax purposes. The federal income tax
classification of an entity that was in existence prior to January 1, 1997, the
effective date of the entity classification regulations, such as the
partnerships, will be respected for all periods prior to January 1, 1997 if:
. the entity had a reasonable basis for its claimed classification,
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. the entity and all members of the entity recognized the federal tax
consequences of any changes in the entity's classification within the 60
months prior to January 1, 1997, and
. neither the entity nor any of its members was notified in writing by a
taxing authority on or before May 8, 1996 that the classification of the
entity was under examination.
Each partnership in existence on January 1, 1997 reasonably claimed partnership
classification under the entity classification regulations in effect prior to
January 1, 1997, and such classification should be respected for federal income
tax purposes. In addition, no partnership was notified by a taxing authority on
or before May 8, 1996 that its classification was under examination. The
partnerships intend to continue to be classified as partnerships and no
partnership will elect to be treated as an association taxable as a corporation
for federal income tax purposes under the entity classification regulations. We
have represented to Akin, Gump that, to the best of our knowledge, each
partnership will be treated as a "partnership" for federal income tax purposes.
A publicly traded partnership is a partnership whose interests trade on an
established securities market or are readily tradable on a secondary market, or
the substantial equivalent thereof. A publicly traded partnership will be
treated as a corporation for federal income tax purposes unless at least 90% of
such partnership's gross income for a taxable year consists of "qualifying
income" under the publicly traded partnership provisions of the Internal Revenue
Code, which generally includes any income that is qualifying income for purposes
of the 95% gross income test applicable to REITs. The U.S. Treasury Department
has issued regulations that provide limited safe harbors from the definition of
a publicly traded partnership. Pursuant to one of those safe harbors, interests
in a partnership will not be treated as readily tradable on a secondary market
or the substantial equivalent thereof if all interests in the partnership were
issued in a transaction, or transactions, that was not required to be registered
under the Securities Act, and the partnership does not have more than 100
partners at any time during the partnership's taxable year. In determining the
number of partners in a partnership, a person owning an interest in a flow-
through entity, that is, a partnership, grantor trust, or S corporation, that
owns an interest in the partnership is treated as a partner in such partnership
only if substantially all of the value of the owner's interest in the flow-
through entity is attributable to the flow-through entity's interest, direct or
indirect, in the partnership and a principal purpose of the use of the flow-
through entity is to permit the partnership to satisfy the 100-partner
limitation. Each partnership qualifies for this private placement exclusion. If
a partnership is considered a publicly traded partnership under the publicly
traded partnership regulations because it is deemed to have more than 100
partners, such partnership should not be treated as a corporation because it
should have a sufficient amount of passive-type income to meet the qualifying
income exception to publicly traded partnership status.
If for any reason one of the partnerships are taxable as corporations,
rather than as partnerships, for federal income tax purposes, we would likely
not be able to qualify as a REIT. In addition, any change in a partnership's
status for tax purposes might be treated as a taxable event, in which case we
might incur a tax liability without any related cash distribution. Further,
items of income and deduction of such partnership would not pass through to its
partners, and its partners would be treated as shareholders for tax purposes.
Consequently, such partnership would be required to pay income tax at corporate
tax rates on its net income, and distributions to its partners would constitute
dividends that would not be deductible in computing such partnership's taxable
income.
Income Taxation of the Partnerships and their Partners
Partners, not Partnerships, Subject to Tax. A partnership is not a taxable
entity for federal income tax purposes. Rather, we will be required to take into
account its allocable share of each Partnership's income, gains, losses,
deductions, and credits for any taxable year of such Partnership ending within
or with our taxable year, without regard to whether we have received or will
receive any distribution from such Partnership.
Partnership Allocations. Although a partnership agreement generally will
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes under the partnership provisions of the
Internal Revenue Code and Treasury Regulations if they do not comply with those
provisions. If an allocation is not recognized for federal income tax purposes,
the item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of
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the facts and circumstances relating to the economic arrangement of the partners
with respect to such item. Each partnership's allocations of taxable income and
loss are intended to comply with the requirements of the partnership provisions
of the Internal Revenue Code and the Treasury Regulations.
Tax Allocations with Respect to Contributed Properties. Pursuant to the
partnership provisions of the Internal Revenue Code, income, gain, loss, and
deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the partnership must
be allocated in a manner such that the contributor is charged with, or benefits
from, the unrealized gain or unrealized loss associated with the property at the
time of the contribution. The amount of such unrealized gain or unrealized loss
is generally equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution.
Under the operating limited partnership agreement, depreciation or
amortization deductions of the operating partnership generally are allocated
among the partners in accordance with their respective interests in the
operating partnership, except to the extent that the operating partnership is
required under the partnership provisions of the Internal Revenue Code and
Treasury Regulations to use a method for allocating tax depreciation deductions
attributable to our properties that results in our receiving a
disproportionately large share of such deductions. In addition, gain on the sale
of a property contributed to the operating partnership in exchange for Units
will be specially allocated to the contributor to the extent of any "built-in"
gain with respect to such property for federal income tax purposes. Depending on
the allocation method elected under the Internal Revenue Code, it is possible
that we may be allocated lower amounts of depreciation deductions for tax
purposes with respect to contributed properties than would be allocated to us if
such properties were to have a tax basis equal to their fair market value at the
time of contribution and may be allocated taxable gain in the event of a sale of
such contributed properties in excess of the economic profit allocated to us as
a result of such sale. These allocations may cause us to recognize taxable
income in excess of cash proceeds, which might adversely affect our ability to
comply with the REIT distribution requirement, although we do not anticipate
that this event will occur. The foregoing principles also will affect the
calculation of our earnings and profits for purposes of determining which
portion of our distributions is taxable as a dividend. The allocations described
in this paragraph may result in a higher portion of our distributions being
taxed as dividends than would have occurred had we purchased our properties for
cash.
Basis in Operating Partnership Interest. Our adjusted tax basis in our
partnership interest in the operating partnership generally is equal to (1) the
amount of cash and the basis of any other property contributed to the operating
partnership by us, (2) increased by (A) our allocable share of the operating
partnership's income and (B) our allocable share of indebtedness of the
operating partnership, and (3) reduced, but not below zero, by (A) our allocable
share of the operating partnership's loss and (B) the amount of cash distributed
to us, including constructive cash distributions resulting from a reduction in
our share of indebtedness of the operating partnership.
If the allocation of our distributive share of the operating partnership's
loss would reduce the adjusted tax basis of our partnership interest in the
operating partnership below zero, the recognition of such loss will be deferred
until such time as the recognition of such loss would not reduce our adjusted
tax basis below zero. To the extent that the operating partnership's
distributions, or any decrease in our share of the indebtedness of the operating
partnership, would reduce our adjusted tax basis below zero, such distributions,
including such constructive distributions, will constitute taxable income to us.
Such distributions and constructive distributions normally will be characterized
as capital gain, and if our partnership interest in the operating partnership
has been held for longer than the one-year long-term capital gain holding
period, the distributions and constructive distributions will constitute long-
term capital gain.
Sale of the Operating Partnership's or a Noncorporate Subsidiary's Property
Generally, any gain realized by a partnership on the sale of property held
for more than one year will be long-term capital gain, except for any portion of
such gain that is treated as depreciation or cost recovery recapture. Any gain
recognized by a partnership on the disposition of the contributed properties,
and any gain recognized upon the disposition of the properties acquired by a
Partnership for cash, over and above the gain allocated to the contributor, as
discussed above, will be allocated among the partners in accordance with their
respective percentage
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interests in the partnership. Our bylaws provide that any decision to sell any
real estate asset in which a trustee, or officer, or any affiliate of the
foregoing, has a direct or indirect interest, will be made by a majority of the
trustees including a majority of the Independent Trustees.
Our share of any gain realized by a partnership on the sale of any property
held by the partnership as inventory or other property held primarily for sale
to customers in the ordinary course of the Partnership's trade or business will
be treated as income from a prohibited transaction that is subject to a 100%
penalty tax. Such prohibited transaction income also may have an adverse effect
upon our ability to satisfy the income tests for REIT status. We, however, do
not presently intend to acquire or hold or to allow a partnership to acquire or
hold any property that represents inventory or other property held primarily for
sale to customers in the ordinary course of our or the Partnership's trade or
business.
Manager
The operating partnership owns 100% of the nonvoting stock of Prentiss
Properties Limited, Inc., which stock represents in the aggregate a 95% economic
interest in Prentiss Properties Limited, Inc. The operating partnership also
holds notes issued by Prentiss Properties Limited, Inc. in the aggregate initial
principal amount of $34.75 million. By virtue of its ownership of the operating
partnership, we are considered to own its pro rata share of such stock and
notes.
As noted above, for us to qualify as a REIT the value of the equity and
debt securities of Prentiss Properties Limited, Inc. held, directly or
indirectly, by us may not exceed 5% of the total value of our assets. In
addition, we may not own, directly or indirectly, more than 10% of the voting
stock of Prentiss Properties Limited, Inc. We do not own, directly or through
the operating partnership, any of the voting securities of Prentiss Properties
Limited, Inc. In addition, we believe that the value of the equity and debt
securities of Prentiss Properties Limited, Inc. is significantly less than 5% of
the total value of its assets. However, if the IRS were to successfully
challenge these determinations and conclude that the value of the equity and
debt securities of Prentiss Properties Limited, Inc. exceeded 5% of our total
assets, we would likely fail to qualify as a REIT.
Prentiss Properties Limited, Inc. is organized as a corporation and pays
federal, state and local income taxes on its taxable income at normal corporate
rates. Any such taxes reduce amounts available for distribution by Prentiss
Properties Limited, Inc., which in turn reduce amounts available for
distribution to our shareholders.
Plan of Distribution
This prospectus relates to our or the general partner's possible issuance
of up to 92,258 common shares to the following limited partners to the extent
that they tender the partnership units opposite their respective names to the
operating partnership for redemption:
<TABLE>
<CAPTION>
Common Shares Issuable
----------------------
upon Redemption of
------------------
Limited Partners Partnership Units Held Partnership Units
---------------- ---------------------- -----------------
<S> <C> <C>
Newport National Corporation 36,366 36,366
The F.M. (Bruce) Brusseau Trust 16,735 16,735
Scott R. Brusseau 15,049 15,049
Jeffry A. Brusseau 13,962 13,962
Elliott Investment Company 9,514 9,514
D. Kent Dahlke 632 632
------ ------
Total 92,258 92,258
====== ======
</TABLE>
Pursuant to the operating partnership's limited partnership agreement, the
above limited partners contributed interests in assets to the capital of the
operating partnership in exchange for the partnership units
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opposite their respective names. Pursuant to the registration rights agreement,
we agreed to file with the SEC a registration statement, of which this
prospectus is a part, with respect to the issuance of common shares to the
limited partners upon redemption of their partnership units.
We will not receive any cash proceeds from the issuance of the common
shares to you but will acquire one partnership unit in exchange for each common
share that we issue. Consequently, with each redemption, our interest in the
operating partnership will increase. We will pay all costs, expenses and fees in
connection with the registration of the common shares.
Legal Opinions
The legality of the issuance of the common shares will be passed upon by
Akin, Gump, Strauss, Hauer & Feld, L.L.P., who will rely on Ballard Spahr
Andrews & Ingersoll, LLP, Baltimore, Maryland, as to matters of Maryland law.
Experts
Our consolidated and combined financial statements as of December 31, 1997
and 1996 and for the year ended December 31, 1997 and the period October 22,
1996, inception of operations, to December 31, 1996, and our predecessor company
for the period January 1, 1996 through October 21, 1996, and the year ended
December 31, 1995, included in our Annual Report on Form 10-K and 10-K/A for the
year ended December 31, 1997, the combined statements of revenue and certain
operating expenses of the Natomas Properties and the selected 1997 Pending
Acquisitions included in our Registration Statement on Form S-11 filed on March
26, 1997 and amended April 16, 1997, the combined statements of revenue and
certain operating expenses of the Terramics Properties and the selected
properties acquired subsequent to June 30, 1997 and the statement of revenue and
certain operating expenses of the World Savings Center Property included in our
Current Report on Form 8-K filed November 3, 1997, the combined statements of
revenue and certain operating expenses of the Silicon Valley Properties and the
Newport National Properties and the statement of revenue and certain operating
expenses of the Carrara Place Property included in our Current Report on Form 8-
K, filed February 10, 1998, the combined statement of revenues and certain
operating expenses of the Willow Oaks Properties and the statement of revenues
and certain operating expenses of the Ordway Property included in our Current
Report on Form 8-K, filed October 9, 1998 and amended December 24, 1998, and the
statements of revenue and certain operating expenses of the 7101 Wisconsin
Avenue Property and the One O'Hare Centre Property and the combined statements
of revenue and certain operating expenses of the Calverton Office Park
Properties and the Fidinam Office Portfolio included in our current Report on
Form 8-K, filed February 16, 1999, all incorporated by reference in this
prospectus, have been incorporated herein in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants given on the authority of
that firm as experts in accounting and auditing.
Where You Can Find More Information
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from our web site at http://www.pplinc.com or at the SEC's web site at
http://www.sec.gov.
We filed a registration statement on Form S-3 to register with the SEC the
common shares. This prospectus is a part of that registration statement. As
allowed by SEC rules, this prospectus does not contain all of the information
you can find in the registration statement or the exhibits to the registration
statement.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below and any future filings made
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with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act from
the date hereof until our offering is completed.
1. Our Annual Report on Form 10-K and 10-K/A , File No. 001-14516, for the
year ended December 31, 1997, as amended by Amendment No. 1, filed on
December 24, 1998, and Amendment No. 2 filed on January 25, 1999.
2. Our Quarterly Reports on Form 10-Q and 10-Q/A, File No. 001-14516, for
the quarters ended March 31, June 30 and September 30, 1998.
3. Our Current Reports filed since January 1, 1998 as follows:
. Form 8-K, File No. 001-14516, filed on January 15, 1998;
. Form 8-K, File No. 001-14516, filed on February 10, 1998;
. Form 8-K, File No. 001-14516, filed on February 17, 1998;
. Form 8-K, File No. 001-14516, filed on February 25, 1998;
. Form 8-K, File No. 001-14516, filed on July 1, 1998;
. Form 8-K, File No. 001-14516, filed on October 9, 1998, as amended by
Amendment No. 1 filed on December 24, 1998, and Amendment No. 2 filed
on January 25, 1999; and
. Form 8-K, File No. 001-14516, filed January 16, 1999.
4. In addition to the above Current Reports, the following include
statements of revenue and expenses for acquisitions during the fiscal
year ending December 31, 1997 which were individually significant or
significant in the aggregate:
. Form S-11, File No. 333-23989, filed on March 26, 1997, as amended by
Form S-11/A, File No. 333-23989, filed on April 16, 1997;
. Form 8-K, File No. 001-14516, filed on April 16, 1997 as amended by
Form 8-K/A, File No. 001-14156, filed on June 12, 1997; and
. Form 8-K, File No. 001-14516, filed on November 3, 1997.
5. The description of the common shares contained in our registration
statement on Form 8-A, File No. 001-14516, filed on October 17, 1996,
under the Exchange Act, including any reports filed under the Exchange
Act for the purpose of updating such description.
6. The description of the Series B Junior Preferred Shares contained in our
registration statement on Form 8-A, File No. 000-23813, filed on
February 17, 1998, as amended by our registration statement of Form 8-A,
File No. 001-14516, filed on March 10, 1998, including any reports filed
under the Exchange Act for the purpose of updating such description.
You may request a copy of these filings, at no cost, by writing or
telephoning:
Prentiss Properties Trust
3890 W. Northwest Highway, Suite 400
Dallas, Texas
(214) 654-0886
You should rely on the information incorporated by reference or provided in
this prospectus or any prospectus supplement. We have authorized no one to
provide you different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus or Any prospectus supplement is accurate
as of any date other than the date on the front of the document.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following sets forth the estimated expenses, other than underwriting
discounts and commissions, in connection with the issuance and distribution of
the securities being registered hereby, all of which be paid for by Prentiss
Properties Trust (the "Company"):
SEC registration fee.......................................... $ 511
Accounting fees and expenses.................................. 4,000
Blue Sky fees and expenses.................................... 1,000
Legal fees and expenses....................................... 25,000
Printing...................................................... 5,000
Miscellaneous................................................. 1,489
--------
TOTAL.................................................... $ 37,000
========
Item 15. Indemnification of Officers and Directors
Maryland REIT law permits a Maryland real estate investment trust to
include in its Declaration of Trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages except
for liability resulting from (a) actual receipt of an improper benefit or profit
in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
declaration of trust of the Company contains such a provision which eliminates
such liability to the maximum extent permitted by Maryland REIT law.
The Company's declaration of trust authorizes it, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former Trustee or officer or (b) any individual who, while a
Trustee of the Company and at the request of the Company, serves or has served
another real estate investment trust, corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a trustee, director,
officer or partner of such real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a trustee, director, officer or partner of such real estate investment trust,
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise from and against any claim or liability to which such person may
become subject or which such person may incur by reason of his status as present
or former shareholder. The bylaws of the Company obligate it, to the maximum
extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former Trustee or officer who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
Trustee of the Company and at the request of the Company, serves or has served
another real estate investment trust, corporation partnership, joint venture,
trust, employee benefit plan or any other enterprise as a trustee, director,
officer or partner of such real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise and
who is made a party to the proceeding by reason of his service in that capacity.
The Company's declaration of trust and bylaws also permit the Company to
indemnify and advance expenses to any person who served a predecessor of the
Company in any of the capacities described above and to any employee or agent of
the Company or a predecessor of the Company. The Company's bylaws require the
Company to indemnify a Trustee or officer who has been successful, on the merits
or otherwise, in the defense of any proceeding to which he is made a party by
reason of his service in that capacity.
Maryland REIT law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as is permitted by Maryland General Corporation Law
II-1
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for directors and officers of Maryland corporations. Maryland General
Corporation Law permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service in
those or other capacities unless it is established that (a) the act or omission
of the director or officer was material to the matter giving rise to the
proceeding and (i) was committed in bad faith or (ii) was the result of active
and deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to believe
that the act or omission was unlawful. However, a Maryland corporation may not
indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that a personal benefit
was improperly received unless a court orders indemnification and then only for
expenses. In accordance with Maryland General Corporation Law, the bylaws of the
Company require it, as a condition to advancing expenses, to obtain (a) a
written affirmation by the Trustee or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the Company as
authorized by the Company's bylaws and (b) a written undertaking by or on his
behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Exhibits
- ------- --------
*3.1 -- Form of Amended and Restated Declaration of Trust of the
Company (filed as Exhibit 3.1 to the Company's Registration
Statement on Amendment No. 1 of Form S-11, File No. 333-09863,
and incorporated by reference herein).
*3.2 -- Articles Supplementary to the Amended and Restated Declaration
of Trust Classifying and Designating the Series A Preferred
Shares (filed as Exhibit 3.1 to the Company's Current Report on
Form 8-K filed January 15, 1998 and incorporated by reference
herein).
*3.3 -- Articles Supplementary, dated February 17, 1998, Classifying
and Designating a Series of Preferred Shares of Beneficial
Interest as Junior Participating Cumulative Convertible
Redeemable Preferred Shares of Beneficial Interest, Series B, and
Fixing Distribution and Other Preferences and Rights of Such
Shares (filed as Exhibit 3 to the Company's Registration
Statement on Form 8-A filed on February 17, 1998, File No. 000-
23813).
*3.4 -- Articles Supplementary, dated June 25, 1998, Classifying and
Designating a Series of Preferred Shares of Beneficial Interest
as Series B Cumulative Redeemable Perpetual Preferred Shares of
Beneficial Interest and Fixing Distribution and Other Preferences
and Rights of Such Shares (filed as Exhibit 3.5 to the Company's
Form 10-Q filed August 12, 1998 and incorporated by reference
herein).
*3.5 -- Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement on Amendment No. 1 of Form S-11, File No.
333-09863, and incorporated by reference herein).
*4.1 -- Form of common shares Certificate (filed as Exhibit 4.1 to the
Company's Registration Statement on Amendment No. 1 of Form S-11,
File No. 333-09863, and incorporated by reference herein).
*4.2 -- Rights Agreement, dated February 6, 1998, between the Company
and First Chicago Trust Company of New York, as Rights Agent
(filed as Exhibit 4.1 to the Company's Registration Statement on
Form 8-A filed on February 17, 1998 and incorporated by reference
herein).
*4.4 -- Form of Rights Certificate (included as Exhibit A to the
Rights Agreement).
5 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
II-2
<PAGE>
8 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. regarding
tax matters.
10.1 -- Registration Rights Agreement, dated February 6, 1998, between
the Prentiss Properties Trust, Prentiss Properties Acquisition
Partners, L.P., Prentiss Properties I, Inc., Newport National
Corporation, The F.M. (Bruce) Brusseau Trust, Scott R. Brusseau,
Jeffry A. Brusseau, Elliott Investment Company, and D. Kent
Dahlke.
*10.2 -- Second Amended and Restated Agreement of Limited Partnership
of Prentiss Properties Acquisition Partners, L.P. (filed as
Exhibit 10.2 to the Company's Annual Report on Form 10-K, filed
March 25, 1997).
*10.3 -- First Amendment to the Second Amended and Restated Agreement
of Limited Partnership of Prentiss Properties Acquisition
Partners, L.P. (filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K, filed January 15, 1998).
*10.4 -- Second Amendment to the Second Amended and Restated Agreement
of Limited Partnership of Prentiss Properties Acquisition
Partners, L.P. (filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q, filed August 12, 1998).
23.1 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included
in Exhibits 5 and 8).
23.2 -- Consent of Ballard Spahr Andrews & Ingersoll, LLP.
23.3 -- Consent of PricewaterhouseCoopers LLP.
24 -- Power of Attorney (included on the signature page of this
Registration Statement).
- -----------------------------
* Previously filed.
(b) Financial Statement Schedules
None
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement (notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement); and
II-3
<PAGE>
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that the undertakings set forth in subparagraphs (i) and (ii)
above do not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports filed
with or furnished to the SEC by the registrant pursuant to Section 13 or 15(d)
of the Exchange Act that are incorporated by reference in this registration
statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby further undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in this registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that the in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted against the registrant by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
The undersigned registrant further hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the city of Dallas, state of Texas, on February 19, 1999.
PRENTISS PROPERTIES TRUST
By: /s/ THOMAS F. AUGUST
--------------------------------
Thomas F. August
President and Chief Operating Officer
Each person whose signature appears below hereby constitutes and appoints
Michael V. Prentiss, Thomas F. August and Gregory S. Imhoff, or any of them, his
true and lawful attorney-in-fact, for him and in his name, place and stead, to
sign any and all amendments (including post-effective amendments) to this
Registration Statement, to sign any Registration Statements filed pursuant to
Rule 462(b) of the Securities Act of 1933, and to cause the same to be filed
with the Securities and Exchange Commission, hereby granting to said attorneys-
in-fact full power and authority to do and perform all and every act and thing
whatsoever requisite or desirable to be done in and about the premises as fully
to all intents and purposes as the undersigned might or could do in person,
hereby ratifying and confirming all acts and things that said attorneys-in-fact
may do or cause to be done by virtue of these presents.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below on February 19, 1999 by the
following persons in the capacities indicated.
Name Title
- ---- -----
/s/ MICHAEL V. PRENTISS Chairman of the Board and Chief Executive Officer
- --------------------------- (Principal Executive Officer)
Michael V. Prentiss
/s/ THOMAS F. AUGUST President, Chief Operating Officer and Trustee
- ---------------------------
Thomas F. August
/s/ THOMAS J. HYNES, JR. Trustee
- ---------------------------
Thomas J. Hynes, Jr.
/s/ BARRY J.C. PARKER Trustee
- ---------------------------
Barry J.C. Parker
/s/ LEONARD M. RIGGS, JR. Trustee
- ---------------------------
Leonard M. Riggs, Jr.
II-5
<PAGE>
/s/ RONALD G. STEINHART Trustee
- ---------------------------
Ronald G. Steinhart
/s/ LAWRENCE A. WILSON Trustee
- ---------------------------
Lawrence A. Wilson
/s/ MARK R. DORAN Executive Vice President, Chief Financial Officer
- --------------------------- and Treasurer (Principal Financial Officer)
Mark R. Doran
/s/ RICHARD J. BARTEL Executive Senior Vice President--Financial
- --------------------------- Operations and Administration, and Chief
Richard J. Bartel Administrative Officer
/s/ THOMAS P. SIMON Vice President
- --------------------------- (Chief Accounting Officer)
Thomas P. Simon
II-6
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibits
- ------- --------
*3.1 -- Form of Amended and Restated Declaration of Trust of the
Company (filed as Exhibit 3.1 to the Company's Registration
Statement on Amendment No. 1 of Form S-11, File No. 333-09863,
and incorporated by reference herein).
*3.2 -- Articles Supplementary to the Amended and Restated Declaration
of Trust Classifying and Designating the Series A Preferred
Shares (filed as Exhibit 3.1 to the Company's Current Report on
Form 8-K filed January 15, 1998 and incorporated by reference
herein).
*3.3 -- Articles Supplementary, dated February 17, 1998, Classifying
and Designating a Series of Preferred Shares of Beneficial
Interest as Junior Participating Cumulative Convertible
Redeemable Preferred Shares of Beneficial Interest, Series B, and
Fixing Distribution and Other Preferences and Rights of Such
Shares (filed as Exhibit 3 to the Company's Registration
Statement on Form 8-A filed on February 17, 1998, File No. 000-
23813).
*3.4 -- Articles Supplementary, dated June 25, 1998, Classifying and
Designating a Series of Preferred Shares of Beneficial Interest
as Series B Cumulative Redeemable Perpetual Preferred Shares of
Beneficial Interest and Fixing Distribution and Other Preferences
and Rights of Such Shares (filed as Exhibit 3.5 to the Company's
Form 10-Q filed August 12, 1998 and incorporated by reference
herein).
*3.5 -- Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement on Amendment No. 1 of Form S-11, File No.
333-09863, and incorporated by reference herein).
*4.1 -- Form of common shares Certificate (filed as Exhibit 4.1 to the
Company's Registration Statement on Amendment No. 1 of Form S-11,
File No. 333-09863, and incorporated by reference herein).
*4.2 -- Rights Agreement, dated February 6, 1998, between the Company
and First Chicago Trust Company of New York, as Rights Agent
(filed as Exhibit 4.1 to the Company's Registration Statement on
Form 8-A filed on February 17, 1998 and incorporated by reference
herein).
*4.4 -- Form of Rights Certificate (included as Exhibit A to the
Rights Agreement).
5 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
8 -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. regarding
tax matters.
10.1 -- Registration Rights Agreement, dated February 6, 1998, between
the Prentiss Properties Trust, Prentiss Properties Acquisition
Partners, L.P., Prentiss Properties I, Inc., Newport National
Corporation, The F.M. (Bruce) Brusseau Trust, Scott R. Brusseau,
Jeffry A. Brusseau, Elliott Investment Company, and D. Kent
Dahlke.
*10.2 -- Second Amended and Restated Agreement of Limited Partnership
of Prentiss Properties Acquisition Partners, L.P. (filed as
Exhibit 10.2 to the Company's Annual Report on Form 10-K, filed
March 25, 1997).
*10.3 -- First Amendment to the Second Amended and Restated Agreement
of Limited Partnership of Prentiss Properties Acquisition
Partners, L.P. (filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K, filed January 15, 1998).
<PAGE>
*10.4 -- Second Amendment to the Second Amended and Restated Agreement
of Limited Partnership of Prentiss Properties Acquisition
Partners, L.P. (filed as Exhibit 10.3 to the Company's Quarterly
Report on Form 10-Q, filed August 12, 1998).
23.1 -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included
in Exhibits 5 and 8).
23.2 -- Consent of Ballard Spahr Andrews & Ingersoll, LLP.
23.3 -- Consent of PricewaterhouseCoopers LLP.
24 -- Power of Attorney (included on the signature page of this
Registration Statement).
- ---------------------------
* Previously filed.
<PAGE>
Exhibit 5
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
ATTORNEYS AT LAW
A REGISTERED LIMITED LIABILITY PARTNERSHIP
INCLUDING PROFESSIONAL CORPORATIONS
1700 PACIFIC AVENUE
SUITE 4100
DALLAS, TEXAS 75201-4675
(214) 969-2800
FAX (214) 969-4343
www.akingump.com
WRITER'S DIRECT DIAL NUMBER (214) 969 - 2800
February 19, 1999
Prentiss Properties Trust
3890 West Northwest Highway, Suite 400
Dallas, Texas 75220
Re: Prentiss Properties Trust
Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Prentiss Properties Trust, a Maryland real
estate investment trust (the "Company"), in connection with the Registration
Statement on Form S-3 (the "Registration Statement"), filed by the Company under
the Securities Act of 1933, as amended, relating to the issuance from time to
time of up to an aggregate of 92,258 common shares of beneficial interest of the
Company, par value $0.01 per share (the "Common Shares"), that may be issued to
certain holders of 92,258 units of limited partnership interest (the
"Partnership Units") in Prentiss Properties Acquisition Partners, L.P. (the
"Operating Partnership") in exchange for and upon the tendering for redemption
of the Partnership Units by Newport National Corporation, The F.M. (Bruce)
Brusseau Trust, Scott R. Brusseau, Jeffry A. Brusseau, Elliott Investment
Company, and D. Kent Dahlke.
We have, as counsel, examined originals or copies, certified or otherwise
identified to our satisfaction, of such corporate records, agreements, documents
and other instruments, and such certificates or comparable documents of public
officials and of officers and representatives of the Company, and have made such
inquiries of such officers and representatives as we have deemed relevant and
necessary as a basis for the opinion hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of documents submitted to us as certified or photostatic
copies and the authenticity of the originals of such latter documents. In
addition, we have assumed that the Common Shares will be issued for at least the
par value thereof. As to all questions of fact material to this opinion that
have not been
<PAGE>
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
Prentiss Properties Trust
February 19, 1999
Page 2
independently established, we have relied upon certificates or comparable
documents of officers and representatives of the Company.
Based upon such examination and representations, we advise you that, in our
opinion, the Common Shares have been duly authorized and, upon issuance in
accordance with the terms of the Second Amended and Restated Agreement of
Limited Partnership of the Operating Partnership, such Common Shares will be
(assuming that upon any such issuance the total number of Common Shares issued
and outstanding will not exceed the total number of Common Shares that the
Company is then authorized to issue under the Amended and Restated Declaration
of Trust of the Company) validly issued, fully paid and nonassessable.
In rendering the foregoing opinion, we have relied solely upon the opinion
of Ballard Spahr Andrews and Ingersoll, LLP with respect to matters of Maryland
law, and our opinions are subject to the same assumptions, qualifications, and
limitations as those set forth in their opinion.
We consent to the filing of this opinion with the Commission as Exhibit 5
to the Registration Statement and the reference to this firm under the caption
"Legal Matters" in the Prospectus contained therein.
Very truly yours,
/s/ AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
<PAGE>
Exhibit 8
[LETTERHEAD OF AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.]
February 19, 1999
Prentiss Properties Trust
3890 W. Northwest Highway
Suite 400
Dallas, Texas 75220
Dear Sir or Madam:
You have requested our opinion that Prentiss Properties Trust ("PPT")
was organized and has operated in conformity with the requirements for
qualification as a "real estate investment trust" (a "REIT") under the Internal
Revenue Code of 1986, as amended (the "Code"), beginning with its taxable year
ending December 31, 1996 and through the date hereof and its current and
proposed method of operation will enable PPT to continue to qualify as a REIT.
In rendering our opinion, we have examined such documents as we have deemed
necessary. We have assumed the current and continued correctness of the
representations made to us by PPT and we have made no independent verification
as to the correctness of such representations. Where any such factual
representation is qualified to the best knowledge of a person, we have assumed
that the representation is correct without regard to such qualification.
Further, we assume that all representations by PPT as to value are correct and
we have made no independent verification as to such values.
Our opinion is based on the provisions of the Code, Treasury
Regulations promulgated under the Code, judicial authority and currently
published revenue rulings and procedures, all as of the date of this letter, and
all of which may change at any time. Any change in the relevant facts
(including any assumptions upon which this opinion is, in part, based) or law
could change our conclusions and would render our opinion inapplicable. This
opinion represents our best legal judgment and has no binding effect on the IRS.
Accordingly, no assurance can be given that the IRS or a court would concur with
the conclusions reached herein.
<PAGE>
Prentiss Properties Trust
Page 2
February 19, 1999
Based on the foregoing, assuming that the election and actions of PPT
represented to us are and will be observed and completed as applicable in a
timely fashion, we are of the opinion that (i) PPT was organized and has
operated in conformity with the requirements for qualification as a REIT under
the Code beginning with its taxable year ending December 31, 1996 and through
the date hereof and its current and proposed method of operation will enable PPT
to continue to qualify as a REIT and (ii) the descriptions of the law and the
legal conclusions discussed in the Form S-3 Registration Statement filed with
the SEC on February 19, 1999 (the "Registration Statement") under the captions
"Description of Partnership Units - Tax Consequences of Redemption" and "Federal
Income Tax Considerations" fairly summarize the federal income tax
considerations that are likely to be material to a holder of the Partnership
Units or Common Shares, as the case may be.
We express no opinion as to any other matter. No reference may be
made to this opinion letter in any financial statement, or document, nor may
this opinion letter be distributed in any manner without our prior written
consent, except (i) such opinion may be furnished to the IRS in connection with
an examination and (ii) we consent to the filing of this opinion as an Exhibit
to the Registration Statement.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
/s/ AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
<PAGE>
Exhibit 10.1
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
the 6 day of February, 1998 by and among PRENTISS PROPERTIES ACQUISITION
PARTNERS, L.P., a Delaware limited partnership (the "Seller"), PRENTISS
PROPERTIES TRUST, a Maryland real estate investment trust ("the Company"),
PRENTISS PROPERTIES I, INC., a Delaware corporation and sole general partner of
the Seller (the "General Partner"), and the limited partners listed on Exhibit
"A" hereto (the "Limited Partners"). The Limited Partners and their permitted
transferees and assignees are herein referred to individually as a "Holder" and
collectively, as "Holders".
R E C I T A L S :
- - - - - - - -
WHEREAS, pursuant to the Second Amended and Restated Agreement of
Limited Seller of Buyer Seller of Prentiss Properties Acquisition Partners,
L.P., dated as of October 22, 1996 (the "Partnership Agreement"), the Limited
Partners have contributed to the capital of the Seller interests in certain
assets in exchange for the Units of limited partnership interest in the Seller
as set forth on Exhibit "A" hereto (the "Seller Units");
WHEREAS, the parties hereto desire to set forth certain rights of the
Limited Partners as holders of the Seller Units;
NOW, THEREFORE, for and in consideration of the mutual promises and
agreements contained in this Agreement, the parties hereto agree as follows:
A G R E E M E N T :
- - - - - - - - -
ARTICLE I
DEFINITIONS
-----------
Capitalized terms not otherwise defined when first used herein shall
have the meanings set forth in the Partnership Agreement.
ARTICLE II
SHELF REGISTRATION
------------------
2.1. Shelf Registration. The Company agrees to file with the
Commission a shelf registration statement pursuant to Rule 415 of the Securities
Act, or similar rule that may be adopted by the Commission (the "Shelf
Registration"), at a time and in a manner reasonably designed to cause the Shelf
Registration to be declared effective by the Commission on or about the first
anniversary of the date of this Agreement, with respect to the issuance by the
Company of at least the number of REIT Shares issuable to the Limited Partners
upon redemption of the Seller
<PAGE>
Units (the "Exchange Shares"). The Company will use its reasonable efforts to
cause the Shelf Registration to be declared effective under the Securities Act
as soon as reasonably possible after filing. The Company will use its reasonable
efforts to keep the Shelf Registration continuously effective until the earlier
of (a) the date when all of the Exchange Shares covered thereby are issued or
sold thereunder, (b) the date on which all Limited Partners then holding Seller
Units agree to the withdrawal of the Registration Statement or (c) the first
date on which all of the Exchange Shares covered thereby could, in the opinion
of counsel for the Company, be sold in any three month period pursuant to Rule
144 under the Securities Act or any successor rule thereto (the "Shelf
Registration Period"). The Company further agrees to supplement or make
amendments to the Shelf Registration, if required by the rules, regulations, or
instructions applicable to the registration form utilized by the Company or by
the Securities Act or rules and regulations thereunder for the Shelf
Registration. In addition, the Company agrees to file any additional Shelf
Registration as may be necessary from time to time to register additional
Exchange Shares issuable as a result of any change in the Conversion Ratio. No
provision of this Article II shall require the Company to file a registration
statement on any form other than Form S-3 or a successor form thereto.
2.2. Registration and Qualification Procedures. The Company will:
(a) use its reasonable efforts to cause the Shelf Registration
to be declared effective by the Commission as soon after filing as
reasonably possible;
(b) use its reasonable efforts to keep the Shelf Registration
effective and the related prospectus current throughout the Shelf
Registration Period;
(c) furnish to each Limited Partner such numbers of copies of
the relevant prospectuses, and supplements or amendments thereto, and such
other related documents as they may reasonably request; and
(d) use its reasonable efforts to register or qualify the
securities covered by the Shelf Registration under applicable state
securities or blue sky laws; provided, however, that the Company shall not
be required to (i) qualify as a foreign corporation or consent to a general
and unlimited service of process in any jurisdiction in which it would not
otherwise be required to be qualified or so consent or (ii) qualify as a
dealer in securities.
2.3. Allocation of Expenses. The Seller or the Company shall pay
all expenses in connection with the Shelf Registration, including, without
limitation (a) Commission registration fees, (b) printing expenses, (c)
accounting and legal fees and expenses for the Company and the Seller (but not
the fees and expenses of any accountant or attorney engaged by any Limited
Partner) and (d) expenses of complying with applicable securities or blue sky
laws in connection with the Shelf Registration; provided, however, neither the
Seller nor the Company shall be liable for (i) any discounts or commissions to
any broker attributable to any sale of Exchange Shares, or (ii) any fees or
expenses incurred by holders of Exchange Shares in connection with such
registration which, according to the written instructions of any regulatory
authority, the Seller or the Company is not permitted to pay.
-2-
<PAGE>
2.4. Indemnification. In connection with the Shelf Registration,
the Company, the General Partner, and the Seller agree to indemnify holders of
Seller Units and Exchange Shares in accordance with the provisions of Article
III hereof.
ARTICLE III
INDEMNIFICATION
---------------
3.1. Indemnification by the Company, the General Partner, and the
Seller. The Company, the General Partner, and the Seller agree to indemnify and
hold harmless the Limited Partners, the directors and officers of any corporate
Limited Partner, and each Person (if any) who controls a corporate Limited
Partner within the meaning of Section 15 of the Securities Act, against any and
all losses, claims, damages, or liabilities to which they or any of them may
become subject under the Securities Act or any other statute or common law,
including any amount paid in settlement of any litigation, commenced or
threatened, if such settlement is effected with the written consent of the
Company, and to reimburse them for any legal or other expenses incurred by them
in connection with investigating any claims and defending any actions, insofar
as any such losses, claims, damages, liabilities, or actions arise out of or are
based upon third party claims arising out of or attributable to (a) any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement filed hereunder to register the Exchange Shares or any
post-effective amendment thereto or in any filing made in connection with the
qualification of the offering under blue sky or other securities laws of
jurisdictions in which the Exchange Shares are offered (a "Blue Sky Filing"), or
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, or (b) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, if used prior to the effective date of such registration
statement, or contained in any final prospectus (as amended or supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto) if used within the period during which the Company is
required to keep the registration statement to which such prospectus relates
current, or the omission or alleged omission to state therein (if so used) a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the indemnification agreement contained in this Section 3.1 shall not apply
to such losses, claims, damages, liabilities, or actions arising out of, or
based upon, any such untrue statement or alleged untrue statement, or any such
omission or alleged omission, if such statement or omission was made in reliance
upon and in conformity with information furnished to the Company by the Limited
Partners specifically for use in connection with preparation of any registration
statement, any preliminary prospectus or final prospectus contained in any
registration statement, any such amendment or supplement thereto or any Blue Sky
Filing.
3.2. Indemnification Procedures.
Each indemnified party shall, with reasonable promptness after its
receipt of written notice of the commencement of any action against such
indemnified party in respect of which indemnity may be sought from an
indemnifying party on account of an indemnity agreement contained herein, notify
the indemnifying party in writing of the commencement thereof.
-3-
<PAGE>
The omission to notify the indemnifying party shall not relieve it
from any liability which it may have to any indemnified party unless the failure
to give notice materially adversely affects the ability of the indemnifying
party to defend a claim which is the subject of indemnification hereunder (in
which case the indemnifying party shall be relieved of its obligation only to
the extent of offsetting any loss, damage, or liability it suffers as a
consequence of the failure against its monetary obligation to the indemnified
party).
In case any such action shall be brought against any indemnified party
and the indemnified party shall so notify an indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and to the extent it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party and, after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
hereunder for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, except as provided below.
The indemnified party shall have the right to employ separate counsel
in any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be paid by the indemnified party unless (i) the
indemnifying party agrees to pay the same, (ii) the indemnifying party fails to
assume the defense of such action with counsel reasonably satisfactory to the
indemnified party, or (iii) the named parties to any such action (including any
impleaded parties) have been advised by such counsel that representation of such
indemnified party and the indemnifying party by the same counsel would be
inappropriate under applicable standards of professional conduct (in which case
the indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party). No indemnifying party shall be
liable for any settlement entered into without its consent.
The indemnity agreements contained herein shall be in addition to any
liabilities which the indemnifying party may have pursuant to law.
3.3. Contribution. If for any reason the indemnification provisions
contemplated herein are either unavailable or insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, or liabilities
referred to therein, then the party that otherwise would be required to provide
indemnification or the indemnifying party (in either case, for purposes of this
section, the "Indemnifying Party") in respect of such losses, claims, damages,
or liabilities, shall contribute to the amount paid or payable by the party that
would otherwise be entitled to indemnification or the indemnified party (in
either case, for purposes of this section, the "Indemnified Party") as a result
of such losses, claims, damages, liabilities, or expense, in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party and the
Indemnified Party, as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact related to information supplied by the Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and Opportunity Unit to correct or prevent such statement or
omission. The amount paid or payable
-4-
<PAGE>
by a party as a result of the losses, claims, damages, liabilities, and expenses
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this section were determined by pro rata allocation
(even if the holders or any underwriters or all of them were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. No person or entity determined to have committed a
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
ARTICLE IV
GENERAL
-------
4.1. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be delivered by hand,
transmitted by facsimile transmission, or sent prepaid by international courier,
to the Limited Partners at their addresses as set forth on the books of the
Seller. Notices to the Company, the Seller and the General Partner shall be
delivered at or mailed to Prentiss Properties I, Inc., 3980 West Northwest
Highway, Suite 400, Dallas, Texas 75220, Attention: Office of the President.
The Company, the Seller and the General Partner may specify a different address
by written notice to the Limited Partners. Any Limited Partners may specify a
different address by written notice to the Company. Any notice, request, demand
or other communication delivered or sent in the manner aforesaid shall be deemed
given or made (as the case may be) when delivered by hand or confirmed by
facsimile transmission, or, in the case of delivery by courier, when actually
delivered to the address of the intended recipient.
4.2. Entire Agreement. This Agreement and exhibits attached hereto
constitute the entire agreement of the parties and supersede all prior written
agreements and prior and contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof.
4.3. Pronouns and Plurals. When the context in which words are used
in this Agreement indicates that such is the intent, words in the singular
number shall include the plural and the masculine gender shall include the
neuter or female gender as the context may require.
4.4. Headings. The article and section headings in this Agreement
are for convenience only and shall not be used in construing the scope of this
Agreement or any particular article or section.
4.5. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original copy and all of
which together shall constitute one and the same instrument binding on all
parties hereto, notwithstanding that all parties shall not have signed the same
counterpart.
-5-
<PAGE>
4.6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
4.7. Assignment and Confirmation. This Agreement may be assigned by
a Limited Partner only upon the written consent of the Company. It shall be a
condition to any Person succeeding to the rights of a Limited Partner as
permitted herein that such Person, if requested by the Company, execute a
counterpart to this Agreement and become a party hereto.
4.8. Amendment. This Agreement may be amended by written agreement
executed by the Company, the General Partner, the Seller and each Limited
Partner to be bound thereby.
4.9. Authority; Binding Effect. Each party hereto represents and
warrants to the other parties that it has the full legal right, power and
authority to execute this Agreement, that this Agreement has been duly
authorized, executed and delivered on behalf of such party and constitutes a
valid and binding agreement of such party enforceable in accordance with its
terms.
4.10. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement.
4.11. Application of Agreement. This Agreement shall apply only to
the Seller Units listed on Exhibit "A" and the Exchange Shares issuable in
respect thereof.
4.12. Lock Up. If any Limited Partner desires to sell, in any thirty
(30) day period, more than fifty percent (50%) of the total number of Exchange
Shares that such Limited Partner is entitled to receive, then such Limited
Partner shall provide written notice of such intention to the Company prior to
selling any Exchange Shares. The Limited Partners agree that the certificates
representing any Exchange Shares may bear a legend referring to the foregoing
restriction.
IN WITNESS WHEREOF, each party has duly executed this Agreement as of
the day and year first above written.
PRENTISS PROPERTIES TRUST,
a Maryland real estate investment trust
By: /s/ DAVID L. ROBERTSON
--------------------------------------------------
Name: DAVID L. ROBERTSON
--------------------------------------------
Title: SVP
-------------------------------------------
By:
--------------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
[SIGNATURES CONTINUED]
-6-
<PAGE>
PRENTISS PROPERTIES
PARTNERS, L.P.
By: PRENTISS PROPERTIES I, INC.,
its general partner
By: /s/ DAVID G. ROBERTSON
----------------------------------------------
Name: David G. Robertson
---------------------------------------
Title: SVP
---------------------------------------
LIMITED PARTNERS
NEWPORT NATIONAL CORPORATION,
a California Corporation
By: /s/ SCOTT R. BRUSSEAU
----------------------------------------------
Scott R. Brusseau, President
By: /s/ JEFFRY A. BRUSSEAU
----------------------------------------------
Jeffry A. Brusseau, Secretary
/s/ F.M. BRUSSEAU
-------------------------------------------------
F.M. Brusseau, Trustee of the F.M. (Bruce)
Brusseau Trust, established September 17, 1985
/s/ SCOTT R. BRUSSEAU
-------------------------------------------------
Scott R. Brusseau
/s/ JEFFRY A. BRUSSEAU
-------------------------------------------------
Jeffry A. Brusseau
ELLIOT INVESTMENT COMPANY,
a California limited partnership
By: /s/ ROBERT A. ELLIOTT
----------------------------------------------
Robert A. Elliott
General Partner
/s/ D. KENT DAHLKE
-------------------------------------------------
D. Kent Dahlke
-7-
<PAGE>
EXHIBIT A TO
REGISTRATION RIGHTS AGREEMENT
LIMITED PARTNERSHIP UNITS
-------------------------
Limited Partner Units
-------------- -----
Newport National Corporation 36,366
The F.M. (Bruce) Brusseau Trust 16,735
Scott R. Brusseau 15,049
Jeffry A. Brusseau 13,962
Elliott Investment Company 9,514
D. Kent Dahlke 632
GRAND TOTAL UNITS 92,258
======
EXHIBIT "A"
-----------
<PAGE>
EXHIBIT B TO
REGISTRATION RIGHTS AGREEMENT
NOTICE OF EXERCISE OF REDEMPTION RIGHT
--------------------------------------
The undersigned hereby irrevocably (i) presents for redemption _______
Units of limited partnership interest ("Units") in Prentiss Properties
Acquisition Partners, L.P. (the "Seller") in accordance with the terms of the
Registration Rights Agreement, dated ______________________, 1998 ("Agreement")
and the "Exchange Right" referred to in Section 8.05 of the Second Amended and
Restated Agreement of Limited Partnership of the Seller (the "Partnership"),
(ii) surrenders such Units and all right, title and interest therein, (iii)
surrenders herewith any certificate or other writing evidencing the Units (and
requests that any Units so evidenced that are not redeemed be evidenced by the
issuance of a new certificate or writing) and (iv) directs that the "Cash
Amount" or "REIT Shares Amount" (as determined by the General Partner), as
defined in the Agreement, deliverable upon exercise of the Redemption Rights be
delivered to the address specified below, and if REIT Shares are to be
delivered, such Company Shares be registered or placed in the name(s) and at the
address(es) specified below.
Dated: Name of Limited Partner:
------------------
----------------------------------------
----------------------------------------
(Signature of Limited Partner)
(Mailing Address)
----------------------------------------
----------------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
----------------------------------------
If REIT Shares are to be issued, issue
to:
----------------------------------------
Please insert social security or
identifying number:
----------------------------------------
EXHIBIT "B"
-----------
<PAGE>
EXHIBIT 23.2
[BSAI Letterhead]
February 19, 1999
Prentiss Properties Trust
3890 W. Northwest Highway, Suite 400
Dallas, Texas 75220
Re: Prentiss Properties Trust: Registration Statement on Form S-3:
92,258 Common Shares of Beneficial Interest
Ladies and Gentlemen:
We hereby consent to the use of the name of our firm in the above-
referenced Registration Statement under the caption "Legal Opinions." In giving
this consent, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the 1933 Act.
Very truly yours,
/s/ BALLARD SPAHR ANDREWS & INGERSOLL, LLP
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-3 of our reports dated (i) February 5, 1998, except as to Note 23 for
which the date is February 18, 1998, on our audits of the consolidated and
combined financial statements and financial statements schedule of Prentiss
Properties Trust and the Predecessor Company, (ii) March 12, 1997 on our audit
of the combined statement of revenues and certain operating expenses of the
Natomas Properties, (iii) March 17, 1997 on our audit of the combined statement
of revenues and certain operating expenses of the Selected 1997 Pending
Acquisitions, (iv) October 3, 1997 on our audits of the statement of revenues
and certain operating expenses of the World Savings Center Property and the
combined statement of revenues and certain operating expenses of the Selected
Properties Acquired Subsequent to June 30, 1997, (v) October 20, 1997 on our
audit of the combined statement of revenues and certain operating expenses of
the Silicon Valley Properties, (vi) October 22, 1997 on our audit of the
combined statement of revenues and certain operating expenses of the Terramics
Properties (vii) February 6, 1998 on our audits of the combined statement of
revenues and certain operating expenses of the Newport National Properties and
the statement of revenues and certain operating expenses of the Carrara Place
Property, (viii) August 12, 1998 on our audit of the statement of revenues and
certain operating expenses of the Ordway Property, (ix) September 30, 1998 on
our audit of the combined statement of revenues and certain operating expenses
of the Willow Oaks Properties, (x) February 5, 1999 on our audits of the
combined statement of revenues and certain operating expenses of the Calverton
Office Park Properties and the statement of revenues and certain operating
expenses of the 7101 Wisconsin Avenue Property, and (xi) February 12, 1999 on
our audits of the statement of revenues and certain operating expenses of the
One O'Hare Centre Property and the combined statement of revenues and certain
operating expenses of the Fidinam Office Portfolio. We also consent to the
reference to our firm under the caption "Experts".
/s/ PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 19, 1999
