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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1998
REGISTRATION NO. 333-68291
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AMB PROPERTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MARYLAND 94-3281941
(STATE OR OTHER JURISDICTION OF INCORPORATION OR I.R.S. EMPLOYER IDENTIFICATION NUMBER)
ORGANIZATION)
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505 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94111
(415) 394-9000
(Address, including zip code, and telephone number, including area code, of
Registrant's
principal executive offices)
DAVID S. FRIES, ESQ.
MANAGING DIRECTOR AND GENERAL COUNSEL
AMB PROPERTY CORPORATION
505 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94111
(415) 394-9000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
JEFFREY T. PERO, ESQ.
LAURA L. GABRIEL, ESQ.
LATHAM & WATKINS
505 MONTGOMERY STREET, SUITE 1900
SAN FRANCISCO, CALIFORNIA 94111
(415) 391-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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 of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement of 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,
please check the following box. [ ]
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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES AND THE SELLING STOCKHOLDERS MAY NOT RESELL 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 IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED DECEMBER 15, 1998
PROSPECTUS
AMB PROPERTY CORPORATION
2,542,163 SHARES OF COMMON STOCK
$0.01 PAR VALUE PER SHARE
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If holders of up to 2,542,163 common Units of limited partnership interest
in AMB Property, L.P. tender their Units for cash redemption, we may instead
elect to exchange the tendered Units on a one-for-one basis for shares of our
common stock, subject to adjustment. This prospectus relates to the possible
issuance of up to 2,542,163 shares of common stock that we may issue from time
to time to the selling stockholders named in this prospectus upon exchange of
their Units and also relates to the possible offer and sale of those shares from
time to time by the selling stockholders. This registration does not necessarily
mean that we will issue any of the shares or that the selling stockholders will
offer or sell any of the shares.
We are filing the registration statement of which this prospectus is a part
pursuant to a contractual obligation. We will not receive any proceeds from the
issuance of the shares of common stock to the selling stockholders or from the
sale of the shares by the selling stockholders but we have agreed to pay certain
registration expenses. We will acquire Units of limited partnership interest in
AMB Property, L.P. in exchange for any shares that we may issue to unit holders
pursuant to this prospectus.
To facilitate maintenance of our qualification as a Real Estate Investment
Trust (a "REIT") for federal income tax purposes, subject to certain exceptions,
we prohibit the ownership, actually or constructively, by any single person of
more than 9.8% (by value or number of shares, whichever is more restrictive) of
the issued and outstanding shares of our common stock and more than 9.8% (by
value or number of shares, whichever is more restrictive) of the issued and
outstanding shares of our Series A Preferred Stock. We will also prohibit,
subject to certain exceptions, the ownership, actually or constructively, of any
shares of our Series B Preferred Stock and any shares of our Series C Preferred
Stock by any single person so that no such person, taking into account all of
our stock so owned by such person, may own in excess of 9.8% of our issued and
outstanding capital stock.
Our common stock is listed on the New York Stock Exchange under the symbol
"AMB." On December 14, 1998, the last reported sales price of our common stock
on the New York Stock Exchange was $21 9/16 per share.
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INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is December , 1998
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Neither AMB Property Corporation nor the selling stockholders have authorized
any person to give any information or to make any representation not contained
or incorporated by reference in this prospectus. You must not rely upon any
information or representation not contained or incorporated by reference in this
prospectus as if we had authorized it. This prospectus is not an offer to sell
or the solicitation of an offer to buy any securities other than the registered
securities to which it relates and this prospectus is not an offer to sell or
the solicitation of an offer to buy securities in any jurisdiction where, or to
any person to whom, it is unlawful to make such offer or solicitation. You
should not assume that the information contained in this prospectus is correct
on any date after the date of this prospectus, even though this prospectus is
delivered or shares are sold pursuant to this prospectus on a later date.
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TABLE OF CONTENTS
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WHERE YOU CAN FIND MORE
INFORMATION................... 1
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE........ 1
FORWARD LOOKING STATEMENTS...... 3
RISK FACTORS.................... 5
THE COMPANY..................... 24
DESCRIPTION OF CAPITAL STOCK.... 27
DESCRIPTION OF CERTAIN
PROVISIONS OF THE PARTNERSHIP
AGREEMENT OF THE OPERATING
PARTNERSHIP................... 41
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REDEMPTION/EXCHANGE OF COMMON
UNITS FOR COMMON STOCK........ 54
CERTAIN PROVISIONS OF MARYLAND
LAW AND OF OUR CHARTER AND
BYLAWS........................ 66
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS................ 70
ERISA CONSIDERATIONS............ 86
SELLING STOCKHOLDERS............ 89
PLAN OF DISTRIBUTION............ 91
LEGAL MATTERS................... 92
EXPERTS......................... 92
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AMB and its logo are registered service marks of AMB Property Corporation.
Strategic Alliance Programs(TM), Development Alliance Program(TM), UPREIT
Alliance Program(TM), Institutional Alliance Program(TM), Customer Alliance
Program(TM) and Management Alliance Program(TM) are registered trademarks of the
Company.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy any document we file with the SEC at the SEC's public reference
rooms at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's regional offices at Seven World Trade Center, 13th
Floor, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. The SEC also maintains a
web site that contains reports, proxy and information statements, and other
information regarding registrants that file electronically with the SEC
(http://www.sec.gov). You can inspect reports and other information we file at
the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
We have filed a registration statement of which this prospectus is a part
and related exhibits with the SEC under the Securities Act of 1933, as amended
(the "Securities Act"). The registration statement contains additional
information about us. You may inspect the registration statement and exhibits
without charge at the office of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549, and you may obtain copies from the SEC at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with the SEC, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus. Any statement contained in a document which
is incorporated by reference in this prospectus is automatically updated and
superseded if information contained in this prospectus, or information that we
later file with the SEC, modifies or replaces this information. We incorporate
by reference the following documents we filed with the SEC:
- Annual Report on Form 10-K for the year ended December 31, 1997;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998;
- Current Report on Form 8-K filed on January 13, 1998;
- Current Report on Form 8-K filed on July 9, 1998;
- Current Report on Form 8-K filed on December 2, 1998;
- the description of our common stock contained in our Registration
Statement on Form 8-A filed with the SEC on October 28, 1997;
- the reports and financial statements for the Boston Industrial Portfolio,
the Jamesburg Property, Orlando Central Park, Totem Lake Malls, Dallas
Warehouse Portfolio (Garland Industrial Portfolio), Twin Cities
Office/Showroom Portfolio (Minnetonka Industrial Portfolio), Crysen
Corridor Warehouse, Cabot Industrial Portfolio, Cabot Business Park,
Manhattan Village Shopping Center, Weslayan Plaza and Silicon Valley R&D
Portfolio from our Registration Statement on Form S-11 (No. 333-58107);
and
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- all documents filed by us with the SEC pursuant to Sections 13(a), 13(c),
14 or 15(d) of the pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act") after the date of this prospectus and prior
to the termination of the offering.
To receive a free copy of any of the documents incorporated by reference in
this prospectus (other than exhibits, unless they are specifically incorporated
by reference in the documents), call or write AMB Property Corporation, 505
Montgomery Street, San Francisco, CA, Attention: Secretary (415/394-9000).
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Unless otherwise indicated or unless the context requires otherwise, all
references in this prospectus to "we," "us," "our" or the "Company" mean AMB
Property Corporation and its subsidiaries, including AMB Property, L.P. (which
we refer to as the "Operating Partnership") and its subsidiaries and, with
respect to the period prior to the Company's initial public offering, the
Company's predecessor, AMB Institutional Realty Advisors, Inc., and certain real
estate investment funds, trusts, corporations and partnerships that prior to the
Company's initial public offering owned properties that they contributed to the
Operating Partnership. In some instances, in order to avoid confusion between
AMB Property Corporation and the Operating Partnership, we refer to AMB Property
Corporation alone as the "Company." When we refer to our "Charter" we mean the
Company's Articles of Incorporation, as supplemented by the Articles
Supplementary establishing the terms of our 8 1/2% Series A Cumulative
Redeemable Preferred Stock (the "Series A Preferred Stock"), the Articles
Supplementary establishing the terms of our 8 5/8% Series B Cumulative
Redeemable Preferred Stock (the "Series B Preferred Stock") and the Articles
Supplementary establishing the terms of our 8.75% Series C Cumulative Redeemable
Preferred Stock (the "Series C Preferred Stock"). When we refer to "Units" we
mean the Operating Partnership's common units and preferred units, including the
8 1/2% Series A Cumulative Redeemable Preferred Units (the "Series A Preferred
Units"), the 8 5/8% Series B Cumulative Redeemable Preferred Units (the "Series
B Preferred Units") and any 8 3/4% Series C Cumulative Redeemable Preferred
Units (the "Series C Preferred Units"), and other partnership interests of the
Operating Partnership of different classes and series with rights, preferences
and privileges that the Company may determine in its capacity as general partner
of the Operating Partnership.
FORWARD LOOKING STATEMENTS
Some of the information included and incorporated by reference in this
prospectus contains forward-looking statements, such as those pertaining to our
(including certain of our subsidiaries') capital resources, portfolio
performance and results of operations. Likewise, the pro forma financial
statements and other pro forma information incorporated by reference in this
prospectus also contain forward-looking statements. In addition, all statements
regarding anticipated growth in our funds from operations and anticipated market
conditions, demographics and results of operations are forward-looking
statements. Forward-looking statements involve numerous risks and uncertainties
and you should not rely on them as predictions of future events. There is no
assurance that the events or circumstances reflected in forward-looking
statements will be achieved or will occur. You can identify forward-looking
statements by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends,"
"plans," "pro forma," "estimates" or "anticipates" or the negative of these
words and phrases or similar words or phrases. You can also identify
forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements are necessarily dependent on assumptions, data or
methods that may be incorrect or imprecise and we may not be able to realize
them. The following factors, among others, could cause actual results and future
events to differ materially from those set forth or contemplated in the
forward-looking statements: defaults on or non-renewal of leases by tenants,
increased interest rates and operating costs, our failure to obtain necessary
outside financing, difficulties in identifying properties to acquire and in
effecting acquisitions, our failure to successfully integrate acquired
properties and operations, risks and uncertainties affecting property
development and construction (including construction delays, cost overruns, our
inability to obtain necessary permits and public opposition to these
activities), our failure
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to qualify and maintain our status as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), environmental uncertainties, risks related to
natural disasters, financial market fluctuations, changes in real estate and
zoning laws and increases in real property tax rates. Our success also depends
upon economic trends generally, including interest rates, income tax laws,
governmental regulation, legislation, population changes and certain other
matters discussed below under "Risk Factors." We caution you not to place undue
reliance on forward-looking statements, which reflect our analysis only.
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RISK FACTORS
Before you invest in our common stock, you should be aware that purchasing
or owning our common stock involves various risks, including those described
below. You should consider carefully these risk factors together with all of the
other information included in this prospectus before you decide to purchase
shares of our common stock.
THE EXCHANGE OF COMMON LIMITED PARTNERSHIP UNITS FOR COMMON STOCK AND THE
REDEMPTION OF COMMON UNITS FOR CASH ARE TAXABLE TRANSACTIONS
The exchange of the common Units held by a limited partner of the Operating
Partnership for shares of our common stock, or a redemption of such units for
cash, will be treated for tax purposes as a sale of the common Units by the
limited partner. A limited partner will recognize gain or loss for income tax
purposes in an amount equal to the difference between the "amount realized" by
the limited partner in the exchange or redemption and the limited partner's
adjusted tax basis in the common Units exchanged or redeemed. Generally, the
amount realized by a limited partner on an exchange or redemption will be the
fair market value of the exchanged shares received in the exchange, or the
amount of cash received in the redemption, plus the amount of the Operating
Partnership's liabilities allocable to the common Units being exchanged or
redeemed. However, in the event that the Company elects to cause the Operating
Partnership to pay a limited partner cash for a portion of his or her common
Units, under certain circumstances, the limited partner may recognize gain only
to the extent the cash received for such common Units, plus the amount of any
reduction of Operating Partnership liabilities allocable to the limited partner,
exceed the limited partner's basis in all of his or her common Units prior to
such payment. The recognition of any loss resulting from an exchange of common
Units for shares of common stock or a redemption of common Units for cash is
subject to a number of limitations set forth in the Code. It is possible that
the amount of gain realized or even the tax liability resulting from the gain
could exceed the value of the shares of common stock received upon the exchange.
In addition, the ability of a limited partner to sell a substantial number of
shares of common stock in order to raise cash to pay tax liabilities associated
with the exchange of Units may be restricted and, as a result of stock price
fluctuations, the price the holder receives for the shares of common stock may
not equal the value of the Units at the time of exchange.
AN INVESTMENT IN COMMON STOCK IS DIFFERENT FROM AN INVESTMENT IN LIMITED
PARTNERSHIP UNITS
If a limited partner exchanges his or her common Units for shares of common
stock, he or she will become one of our stockholders rather than a limited
partner in the Operating Partnership. Although the nature of an investment in
our common stock is similar to an investment in limited partnership Units, there
are also differences between ownership of limited partnership Units and
ownership of our common stock. These differences include:
- form of organization;
- permitted investments;
- policies and restrictions;
- management structure;
- compensation and fees;
- investor rights; and
- federal income taxation.
See "Redemption/Exchange of Units for Common Stock -- Comparison of Ownership of
Common Units and Common Stock."
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GENERAL REAL ESTATE RISKS
There are Factors Outside of Our Control that Affect the Performance and
Value of Our Properties
Real property investments are subject to varying degrees of risk. The
yields available from equity investments in real estate depend on the amount of
income earned and capital appreciation generated by the related properties as
well as the expenses incurred in connection with the properties. If our
properties do not generate income sufficient to meet operating expenses,
including debt service and capital expenditures, our ability to pay
distributions to holders of our common stock could be adversely affected. Income
from, and the value of, our properties may be adversely affected by the general
economic climate, local conditions such as oversupply of industrial or retail
space or a reduction in demand for industrial or retail space, the
attractiveness of our properties to potential tenants, competition from other
properties, our ability to provide adequate maintenance and insurance and an
increase in operating costs. In addition, revenues from properties and real
estate values are also affected by factors such as the cost of compliance with
regulations, the potential for liability under applicable laws (including
changes in tax laws), interest rate levels and the availability of financing.
Our income would be adversely affected if a significant number of tenants were
unable to pay rent or if we were unable to rent our industrial or retail space
on favorable terms. Certain significant expenditures associated with an
investment in real estate (such as mortgage payments, real estate taxes and
maintenance costs) generally do not decline when circumstances cause a reduction
in income from the property.
We May Be Unable to Renew Leases or Relet Space as Leases Expire
We are subject to the risks that leases may not be renewed, space may not
be relet, or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. Leases on a total
of approximately 40.0% of the leased square footage of our properties as of
September 30, 1998 will expire on or prior to December 31, 2000, with leases on
15.0% of the leased square footage of our properties as of September 30, 1998
expiring during the 12 months ending September 30, 1999. In addition, numerous
properties compete with our properties in attracting tenants to lease space,
particularly with respect to retail centers. The number of competitive
commercial properties in a particular area could have a material adverse effect
on our ability to lease space in our properties and on the rents that we are
able to charge. Our financial condition, results of operations, cash flow and
ability to pay distributions on, and the market price of, our common stock could
be adversely affected if we are unable to promptly relet or renew the leases for
all or a substantial portion of expiring leases, if the rental rates upon
renewal or reletting is significantly lower than expected, or if our reserves
for these purposes prove inadequate.
Real Estate Investments are Illiquid
Because real estate investments are relatively illiquid, our ability to
vary our portfolio promptly in response to economic or other conditions is
limited. The limitations in the Code and related regulations on a REIT holding
property for sale may affect our ability to sell properties without adversely
affecting distributions to our stockholders. The relative illiquidity of our
holdings, Code prohibitions and related regulations could impede our ability to
respond to adverse changes in the performance of our investments and could
adversely affect our financial condition, results of operations, cash flow and
ability to pay distributions on, and the market price of, our common stock.
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A Significant Number of Our Properties are Located in California
Our properties located in California as of September 30, 1998 represented
approximately 22.4% of the aggregate square footage of our properties as of
September 30, 1998 and approximately 30.1% of our Annualized Base Rent.
Annualized Base Rent means the monthly contractual amount under existing leases
at September 30, 1998, multiplied by 12. This amount excludes expense
reimbursements and rental abatements. Our revenue from, and the value of, our
properties located in California may be affected by a number of factors,
including local real estate conditions (such as oversupply of or reduced demand
for commercial properties) and the local economic climate. Business layoffs,
downsizing, industry slowdowns, changing demographics and other factors may
adversely impact the local economic climate. A downturn in either the California
economy or in California real estate conditions could adversely affect our
financial condition, results of operations, cash flow and ability to pay
distributions on, and the market price of, our common stock. Certain of our
properties are also subject to possible loss from seismic activity.
Our Properties are Concentrated in the Industrial and Retail Sectors
Our properties are, and are likely to continue to be, concentrated
predominantly in the industrial and retail commercial real estate sectors. This
concentration may expose us to the risk of economic downturns in these sectors
to a greater extent than if our portfolio also included other property types. As
a result, economic downturns in these sectors could have an adverse effect on
our financial condition, results of operations, cash flow and ability to pay
distributions on, and the market price of, our common stock.
Some Potential Losses are Not Covered by Insurance
We carry comprehensive liability, fire, extended coverage and rental loss
insurance covering all of our properties, with policy specifications and insured
limits which we believe are adequate and appropriate under the circumstances
given relative risk of loss, the cost of such coverage and industry practice.
There are, however, certain losses that are not generally insured because it is
not economically feasible to insure against them, including losses due to riots
or acts of war. Certain losses such as losses due to floods or seismic activity
may be insured subject to certain limitations including large deductibles or co-
payments and policy limits. If an uninsured loss or a loss in excess of insured
limits occurs with respect to one or more of our properties, we could lose the
capital we invested in the properties, as well as the anticipated future revenue
from the properties and, in the case of debt which is with recourse to us, we
would remain obligated for any mortgage debt or other financial obligations
related to the properties. Moreover, as the general partner of the Operating
Partnership, we will generally be liable for all of the Operating Partnership's
unsatisfied obligations other than non-recourse obligations. Any such liability
could adversely affect our financial condition, results of operations, cash flow
and ability to pay distributions on, and the market price of, our common stock.
A number of our properties are located in areas that are known to be
subject to earthquake activity, including California where, as of September 30,
1998, 148 industrial buildings aggregating 11.6 million rentable square feet
(representing 19.3% of our properties based on aggregate square footage) and 11
retail centers aggregating 1.8 million rentable square feet (representing 3.1%
of our properties based on aggregate square footage) are located. We carry
replacement cost earthquake insurance on all of our properties located in areas
historically subject to seismic activity, subject to coverage limitations and
deductibles which we believe are commercially reasonable. This insurance
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coverage also applies to the properties managed by AMB Investment Management,
Inc. ("AMB Investment Management"), with a single aggregate policy limit and
deductible applicable to those properties and our properties. The Operating
Partnership owns 100% of the non-voting preferred stock of AMB Investment
Management. See "The Preferred Stock Subsidiaries." Through an annual analysis
prepared by outside consultants, we evaluate our earthquake insurance coverage
in light of current industry practice and determine the appropriate amount of
earthquake insurance to carry. We may incur material losses in excess of
insurance proceeds and we may not be able to continue to obtain insurance at
commercially reasonable rates.
We are Subject to Risks and Liabilities In Connection With Properties Owned
Through Joint Ventures, Limited Liability Companies and Partnerships
We have ownership interests in 19 joint ventures, limited liability
companies or partnerships, including an interest in one unconsolidated entity.
We may make additional investments through these ventures in the future and
presently plan to do so with clients of AMB Investment Management who share
certain approval rights over major decisions. Partnership, limited liability
company or joint venture investments may involve risks such as the following:
- our partners, co-members or joint venturers might become bankrupt (in
which event we and any other remaining general partners, members or joint
venturers would generally remain liable for the liabilities of the
partnership, limited liability company or joint venture);
- our partners, co-members or joint venturers might at any time have
economic or other business interests or goals which are inconsistent with
our business interests or goals;
- our partners, co-members or joint venturers may be in a position to take
action contrary to our instructions, requests, policies or objectives,
including our policy with respect to maintaining our qualification as a
REIT; and
- agreements governing joint ventures, limited liability companies and
partnerships often contain restrictions on the transfer of a joint
venturer's, member's or partner's interest or "buy-sell" or other
provisions which may result in a purchase or sale of the interest at a
disadvantageous time or on disadvantageous terms.
We will, however, generally seek to maintain sufficient control of our
partnerships, limited liability companies and joint ventures to permit us to
achieve our business objectives. Our organizational documents do not limit the
amount of available funds that we may invest in partnerships, limited liability
companies or joint ventures. The occurrence of one or more of the events
described above could have an adverse effect on our financial condition, results
of operations, cash flow and ability to pay distributions on, and the market
price of, our common stock.
We may be Unable to Consummate Acquisitions on Advantageous Terms
We intend to continue to acquire industrial and retail properties.
Acquisitions of industrial and retail properties entail risks that investments
will fail to perform in accordance with expectations. Estimates of the costs of
improvements necessary for us to bring an acquired property up to market
standards may prove inaccurate. In addition, there are general investment risks
associated with any new real estate investment. Further, we anticipate
significant competition for attractive investment opportunities from other major
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real estate investors with significant capital including both publicly traded
REITs and private institutional investment funds. We expect that future
acquisitions will be financed through a combination of borrowings and proceeds
from equity or debt offerings by us or the Operating Partnership (including
issuances of limited partnership Units), which could have an adverse effect on
our cash flow. We may not be able to acquire additional properties. Our
inability to finance any future acquisitions on favorable terms or the failure
of acquisitions to conform with our expectations or investment criteria could
adversely affect our financial condition, results of operations, cash flow and
ability to pay distributions on, and the market price of, our common stock.
We may be Unable to Complete Renovation and Development on Advantageous Terms
The real estate development business, including the renovation and
rehabilitation of existing properties, involves significant risks. These risks
include the following:
- we may not be able to obtain financing on favorable terms for development
projects and we may not complete construction on schedule or within
budget, resulting in increased debt service expense and construction
costs and delays in leasing such properties and generating cash flow;
- we may not be able to obtain, or we may experience delays in obtaining,
all necessary zoning, land-use, building, occupancy and other required
governmental permits and authorizations;
- new or renovated properties may perform below anticipated levels,
producing cash flow below budgeted amounts;
- substantial renovation as well as new development activities, regardless
of whether or not they are ultimately successful, typically require a
substantial portion of management's time and attention which could divert
management's time from our day-to-day operations; and
- activities that we finance through construction loans involve the risk
that, upon completion of construction, we may not be able to obtain
permanent financing or we may not be able to obtain permanent financing
on advantageous terms.
These risks could have an adverse effect on our financial condition,
results of operations, cash flow and ability to pay distributions on, and the
market price of, our common stock.
WE COULD INCUR MORE DEBT
We operate with a policy of incurring debt, either directly or through our
subsidiaries, only if upon such incurrence our debt-to-total market
capitalization ratio would be approximately 45% or less. The aggregate amount of
indebtedness that we may incur under our policy varies directly with the
valuation of our capital stock and the number of shares of capital stock
outstanding. Accordingly, we would be able to incur additional indebtedness
under our policy as a result of increases in the market price per share of our
common stock or other outstanding classes of capital stock, and future issuance
of shares of capital stock. In spite of the foregoing policy, our organizational
documents do not contain any limitation on the amount of indebtedness that we
may incur. Accordingly, our Board of Directors could alter or eliminate this
policy and would do so, for example, if it were necessary for us to continue to
qualify as a REIT. If we change this policy, we could become more highly
leveraged, resulting in an increase in debt service that could adversely
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affect our financial condition, results of operations, cash flow and ability to
pay distributions on, and the market price of, our common stock.
DEBT FINANCING
Scheduled Debt Payments Could Adversely Affect Our Financial Condition
We are subject to risks normally associated with debt financing, including
the risks that our cash flow will be insufficient to make distributions to our
stockholders, that we will be unable to refinance existing indebtedness on our
properties (which in all cases will not have been fully amortized at maturity)
and that the terms of refinancing will not be as favorable as the terms of
existing indebtedness.
As of September 30, 1998, we had total debt outstanding of approximately
$1.3 billion including:
- approximately $701.6 million of secured indebtedness (including
unamortized debt premiums of approximately $15.9 million) with an average
maturity of seven years and a weighted average interest rate of 7.9%;
- approximately $205 million outstanding under our unsecured $500 million
credit facility (the "Credit Facility") with a maturity date of November
2000 and a weighted average interest rate of 6.53%; and
- $400 million aggregate principal amount of unsecured senior debt
securities with maturities in June 2008, 2015 and 2018 and a weighted
average interest rate of 7.18%.
We are a guarantor of the Operating Partnership's obligations with respect
to the senior debt securities referenced above. If we are unable to refinance or
extend principal payments due at maturity or pay them with proceeds of other
capital transactions, we expect that our cash flow will not be sufficient in all
years to pay distributions to our stockholders and to repay all such maturing
debt. Furthermore, if prevailing interest rates or other factors at the time of
refinancing (such as the reluctance of lenders to make commercial real estate
loans) result in higher interest rates upon refinancing, the interest expense
relating to that refinanced indebtedness would increase. This increased interest
expense would adversely affect our financial condition, results of operations,
cash flow and ability to pay distributions on, and the market price of, our
common stock. In addition, if we mortgage one or more of our properties to
secure payment of indebtedness and we are unable to meet mortgage payments, the
property could be foreclosed upon or transferred to the mortgagee with a
consequent loss of income and asset value. A foreclosure on one or more of our
properties could adversely affect our financial condition, results of
operations, cash flow and ability to pay distributions on, and the market price
of, our common stock.
Rising Interest Rates Could Adversely Affect Our Cash Flow
As of September 30, 1998, we had $205.0 million outstanding under the
Credit Facility. In addition, we may incur other variable rate indebtedness in
the future. Increases in interest rates on this indebtedness could increase our
interest expense, which would adversely affect our financial condition, results
of operations, cash flow and ability to pay distributions on, and the market
price of, our common stock. Accordingly, we may in the future engage in
transactions to limit our exposure to rising interest rates.
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We Are Dependent on External Sources of Capital
In order to qualify as a REIT under the Code, we are required each year to
distribute to our stockholders at least 95% of our REIT taxable income
(determined without regard to the dividends-paid deduction and by excluding any
net capital gain). See "Certain Federal Income Tax Considerations -- Taxation of
the Company -- Annual Distribution Requirements." Because of this distribution
requirement, we may not be able to fund all future capital needs, including
capital needs in connection with acquisitions, from cash retained from
operations. As a result, to fund capital needs, we rely on third-party sources
of capital, which we may not be able to obtain on favorable terms or at all. Our
access to third-party sources of capital depends upon a number of factors,
including general market conditions and the market's perception of our growth
potential and our current and potential future earnings and cash distributions
and the market price of the shares of our capital stock. Additional debt
financing may substantially increase our leverage.
We Could Default on Cross-Collateralized and Cross-Defaulted Debt
As of September 30, 1998, we had 12 non-recourse secured loans which are
cross-collateralized by five pools consisting of 19 properties. As of September
30, 1998, we had $210.2 million outstanding on these loans. If we default on any
of these loans, we will be required to repay the aggregate of all indebtedness,
together with applicable prepayment charges, to avoid foreclosure on all the
cross-collateralized properties within the applicable pool. Foreclosure on our
properties, or our inability to refinance our loans on favorable terms, could
adversely impact our financial condition, results of operations, cash flow and
ability to pay distributions on, and the market price of, our common stock. In
addition, our credit facilities and the senior debt securities of the Operating
Partnership contain certain cross-default provisions which are triggered in the
event that our other material indebtedness is in default. These cross-default
provisions may require us to repay or restructure the credit facilities and the
senior debt securities in addition to any mortgage or other debt which is in
default, which could adversely affect our financial condition, results of
operations, cash flow and ability to pay distributions on, and the market price
of, our common stock.
CONTINGENT OR UNKNOWN LIABILITIES COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
Our predecessors have been in existence for varying lengths of time up to
15 years. At the time of our formation we acquired the assets of these entities
subject to all of their potential existing liabilities. There may be current
liabilities or future liabilities arising from prior activities that we are not
aware of and therefore are not disclosed in this prospectus. We assumed these
liabilities as the surviving entity in the various merger and contribution
transactions that occurred at the time of our formation. Existing liabilities
for indebtedness generally were taken into account (directly or indirectly) in
connection with the allocation of the Units and/or shares of our common stock in
the formation transactions, but no other liabilities were taken into account for
these purposes. We do not have recourse against our predecessors or any of their
respective stockholders or partners or against any individual account investors,
with respect to any unknown liabilities except to the extent
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provided by the indemnity escrow agreement entered into in connection with the
formation transactions. Unknown liabilities might include the following:
- liabilities for clean-up or remediation of undisclosed environmental
conditions;
- claims of tenants, vendors or other persons dealing with our predecessors
prior to the formation transactions that had not been asserted prior to
the formation transactions;
- accrued but unpaid liabilities incurred in the ordinary course of
business;
- tax liabilities; and
- claims for indemnification by the officers and directors of our
predecessors and others indemnified by these entities.
Certain tenants may claim that the formation transactions gave rise to a
right to purchase the premises that they occupy. We do not believe any such
claims would be material. See "-- Government Regulations -- We Could Encounter
Costly Environmental Problems" below regarding the possibility of undisclosed
environmental conditions potentially affecting the value of our properties.
Undisclosed material liabilities which are not covered by the indemnity escrow
agreement that we entered into with our predecessors in connection with the
formation transactions or undisclosed material liabilities in connection with
the acquisition of properties, entities and interests in properties or entities
could adversely affect our financial condition, results of operations, cash flow
and ability to pay distributions on, and the market price of, our common stock.
CONFLICTS OF INTEREST
Some of Our Executive Officers are Involved in Other Real Estate Activities and
Investments
Some of our executive officers own interests in real estate-related
businesses and investments. These interests include minority ownership of
Institutional Housing Partners, a residential housing finance company, and
ownership of AMB Development, Inc. and AMB Development, L.P., developers which
own property that we believe is not suitable for ownership by us. AMB
Development, Inc. and AMB Development, L.P. have agreed not to initiate any new
development projects following our initial public offering in November, 1997.
These entities have also agreed that they will not make any further investments
in industrial or retail properties other than those currently under development
at the time of our initial public offering. AMB Institutional Housing Partners,
AMB Development, Inc. and AMB Development, L.P. continue to use the name "AMB"
pursuant to royalty-free license arrangements with us. The continued involvement
in other real estate-related activities by some of our executive officers and
directors could divert management's attention from our day-to-day operations.
Most of our executive officers have entered into non-competition agreements with
us pursuant to which they have agreed not to engage in any activities, directly
or indirectly, in respect of commercial real estate, and not to make any
investment in respect of industrial or retail real estate, other than through
ownership of not more than 5% of the outstanding shares of a public company
engaged in such activities or through the existing investments referred to in
this prospectus. State law may limit our ability to enforce these agreements.
We could also, in the future, subject to the unanimous approval of the
disinterested members of the Board of Directors with respect to such
transaction, acquire property from executive officers, enter into leases with
executive officers, and/or engage in other related
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activities in which the interests pursued by the executive officers may not be
in the best interests of our stockholders.
Certain of Our Executive Officers and Directors May Have Conflicts of Interest
with Us in Connection with Other Properties that They Own or Control
AMB Development, L.P. owns interests in 11 retail development projects in
the U.S., each of which consists of a single free-standing Walgreens drugstore,
and, together with other entities controlled by nine of our executive officers,
a low income housing apartment building located in the San Francisco Bay Area.
In addition, Messrs. Abbey, Moghadam and Burke, each a founder and director, own
less than 1% interests in two partnerships which own office buildings in various
markets; these interests have negligible value. Luis A. Belmonte, an executive
officer, owns less than a 10% interest, representing an estimated value of
$75,000, in a limited partnership which owns an office building located in
Oakland, California. David S. Fries, an executive officer, owns an approximate
1% interest in a limited partnership that owns an apartment complex in Orange
County, California.
In addition, several of our executive officers individually own:
- less than 1% interests in the stocks of certain publicly-traded REITs and
residential developers;
- certain interests in and rights to developed and undeveloped real
property located outside the United States;
- interests in single-family homes and residential apartments in the San
Francisco Bay Area;
- certain passive interests, that we do not believe are material, in real
estate businesses in which such persons were previously employed; and
- certain other de minimis holdings in equity securities of real estate
companies.
Thomas W. Tusher, a member of our Board of Directors, is a limited partner
in a partnership in which Messrs. Abbey, Moghadam and Burke are general partners
and which owns a 75% interest in an office building. Mr. Tusher owns a 20%
interest in the partnership, valued as of September 30, 1998 at approximately
$1.2 million. Messrs. Abbey, Moghadam and Burke each have an approximately 26.7%
interest in the partnership, each valued as of September 30, 1998 at
approximately $1.6 million.
We believe that the properties and activities set forth above generally do
not directly compete with any of our properties. However, it is possible that a
property in which an executive officer or director, or an affiliate of such
person, has an interest may compete with us in the future if we were to invest
in a property similar in type and in close proximity to that property. In
addition, the continued involvement by our executive officers and directors in
such properties could divert management's attention from our day-to-day
operations. We are prohibited from acquiring any properties from our executive
officers or their affiliates without the approval of the disinterested members
of the Board of Directors with respect to that transaction.
Our Role as General Partner of the Operating Partnership May Conflict with the
Interests of Our Stockholders
As the general partner of the Operating Partnership, we have fiduciary
obligations to the Operating Partnership's limited partners, the discharge of
which may conflict with the interests of our stockholders. In addition, those
persons holding limited partnership Units
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will have the right to vote as a class on certain amendments to the Third
Amended and Restated Agreement of Limited Partnership of the Operating
Partnership (the "Partnership Agreement") and individually to approve certain
amendments that would adversely affect their rights. The limited partners may
exercise these voting rights in a manner that conflicts with the interests of
our stockholders. In addition, under the terms of the Partnership Agreement,
holders of limited partnership Units will have certain approval rights with
respect to certain transactions that affect all stockholders but which they may
not exercise in a manner which reflects the interests of all stockholders. See
"Description of Certain Provisions of the Partnership Agreement of the Operating
Partnership -- Removal of the General Partner; Transferability of our Interests;
Treatment of Units in Significant Transactions."
Our Directors, Executive Officers and Significant Stockholders Could Act in a
Manner that is Not in the Best Interest of All Stockholders
As of November 30, 1998, our three largest stockholders, Ameritech Pension
Trust, the City and County of San Francisco Employees' Retirement System and
Southern Company System Master Retirement Trust, beneficially owned
approximately 22.9% of our outstanding common stock (assuming the exchange of
all Units into shares of common stock). In addition, our executive officers and
directors beneficially owned 5.9% of our common stock as of the same date
(assuming the exchange of all Units into shares of common stock, before issuance
of any Performance Units to certain of our officers, as defined under the
caption "Description of Certain Provisions of the Partnership Agreement of the
Operating Partnership -- Performance Units"), and will have influence on our
management and operation and, as stockholders, will have influence on the
outcome of any matters submitted to a vote of the stockholders. This influence
might be exercised in a manner that is inconsistent with the interests of other
stockholders. Although there is no understanding or arrangement for these
directors, officers and stockholders and their affiliates to act in concert,
these parties would be in a position to exercise significant influence over our
affairs if they choose to do so.
We Could Suffer Losses if We Fail to Enforce the Terms of Certain Agreements
As holders of shares of our common stock and, potentially, Performance
Units, certain of our directors and officers could have a conflict of interest
with respect to their obligations as directors and officers to vigorously
enforce the terms of certain of the agreements relating to our formation
transactions. The potential failure to enforce the material terms of those
agreements could result in a monetary loss to us, which loss could have a
material adverse effect on our financial condition, results of operations, cash
flow and ability to pay distributions on, and the market price of, our common
stock.
OWNERSHIP OF COMMON STOCK
Limitations in Our Charter and Bylaws Could Prevent a Change in Control
Certain provisions of our Charter and Bylaws may delay, defer or prevent a
change in control or other transaction that could provide the holders of our
common stock with the opportunity to realize a premium over the then-prevailing
market price for our common stock. To maintain our qualification as a REIT for
federal income tax purposes, not more than 50% in value of our outstanding stock
may be owned, actually or constructively, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a
taxable year after the first taxable year for which a REIT election is made. See
"Certain Federal Income Tax Considerations -- Taxation of the
Company -- Requirements
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for Qualification as a REIT." Furthermore, after the first taxable year for
which a REIT election is made, our common stock must be held by a minimum of 100
persons for at least 335 days of a 12-month taxable year (or a proportionate
part of a short tax year). In addition, if we, or an owner of 10% or more of our
stock, actually or constructively owns 10% or more of one of our tenants (or a
tenant of any partnership in which we are a partner), the rent received by us
(either directly or through any such partnership) from that tenant will not be
qualifying income for purposes of the REIT gross income tests of the Code. To
facilitate maintenance of our qualification as a REIT for federal income tax
purposes, we will prohibit the ownership, actually or by virtue of the
constructive ownership provisions of the Code, by any single person of more than
9.8% (by value or number of shares, whichever is more restrictive) of the issued
and outstanding shares of our common stock and more than 9.8% (by value or
number of shares, whichever is more restrictive) of the issued and outstanding
shares of our Series A Preferred Stock, and we will also prohibit the ownership,
actually or constructively, of any shares of our Series B Preferred Stock and
any shares of our Series C Preferred Stock by any single person so that no such
person, taking into account all of our stock so owned by such person, may own in
excess of 9.8% of our issued and outstanding capital stock. We refer to this
limitation as the "ownership limit." Shares acquired or held in violation of the
ownership limit will be transferred to a trust for the benefit of a designated
charitable beneficiary. Any person who acquires shares in violation of the
ownership limit will not be entitled to any distributions on the shares or be
entitled to vote the shares or receive any proceeds from the subsequent sale of
the shares in excess of the lesser of the price paid for the shares or the
amount realized from the sale. A transfer of shares in violation of the above
limits may be void under certain circumstances. See "Description of Capital
Stock -- Restrictions on Ownership and Transfer of Capital Stock." The ownership
limit may have the effect of delaying, deferring or preventing a change in
control and, therefore, could adversely affect our stockholders' ability to
realize a premium over the then-prevailing market price for the shares of our
common stock in connection with such transaction. The Board of Directors has
waived the ownership limit applicable to our common stock with respect to
Ameritech Pension Trust, allowing it to own up to 14.9% of our common stock and,
under some circumstances, allowing it to own up to 19.6%. However, we
conditioned this waiver upon the receipt of undertakings and representations
from Ameritech Pension Trust which we believed were reasonably necessary in
order for us to conclude that the waiver would not cause us to fail to qualify
as a REIT.
Our Charter authorizes us to issue additional shares of common stock and
Series A Preferred Stock and to issue Series B Preferred Stock, Series C
Preferred Stock and one or more other series of preferred stock and to establish
the preferences, rights and other terms of any series of preferred stock that we
issue. See "Description of Capital Stock." Although our Board of Directors has
no intention to do so at the present time, it could establish a series of
preferred stock that could delay, defer or prevent a transaction or a change in
control that might involve a premium price for our common stock or otherwise be
in the best interests of our stockholders.
Our Charter, our Bylaws and Maryland law also contain other provisions that
may delay, defer or prevent a transaction, including a change in control, that
might involve payment of a premium price for our common stock or otherwise be in
the best interests of our stockholders. Those provisions include the following:
- the provision in the Charter that directors may be removed only for cause
and only upon a two-thirds vote of stockholders, together with Bylaw
provisions authorizing the Board of Directors to fill vacant
directorships;
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- the provision in the Charter requiring a two-thirds vote of stockholders
for any amendment of the Charter;
- the requirement in the Bylaws that the request of the holders of 50% or
more of our common stock is necessary for stockholders to call a special
meeting;
- the requirement of Maryland law that stockholders may only take action by
written consent with the unanimous approval of all stockholders entitled
to vote on the matter in question; and
- the requirement in the Bylaws of advance notice by stockholders for the
nomination of directors or proposal of business to be considered at a
meeting of stockholders.
These provisions may impede various actions by stockholders without
approval of our Board of Directors, which in turn may delay, defer or prevent a
transaction involving a change of control.
We Could Change Our Investment and Financing Policies without a Vote of
Stockholders
Subject to our fundamental investment policy to maintain our qualification
as a REIT (unless a change is approved by the Board of Directors under certain
circumstances), the Board of Directors will determine our investment and
financing policies, our growth strategy and our debt, capitalization,
distribution and operating policies. Although the Board of Directors has no
present intention to revise or amend these strategies and policies, the Board of
Directors may do so at any time without a vote of stockholders. Accordingly,
stockholders will have no control over changes in our strategies and policies
(other than through the election of directors), and any such changes may not
serve the interests of all stockholders and could adversely affect our financial
condition or results of operations, including our ability to distribute cash to
stockholders.
If We Issue Additional Securities, the Investment of Existing Stockholders Will
Be Diluted
We have authority to issue shares of common stock or other equity or debt
securities in exchange for property or otherwise. Similarly, we may cause the
Operating Partnership to issue additional Units in exchange for property or
otherwise. Existing stockholders will have no preemptive right to acquire any
additional securities issued by us or the Operating Partnership and any issuance
of additional equity securities could result in dilution of an existing
stockholder's investment.
The Large Number of Shares Available for Future Sale Could Adversely Affect the
Market Price of Our Common Stock
We can not predict the effect, if any, that future sales of shares of our
common stock, or the availability of shares of our common stock for future sale,
will have on its market price. Sales of a substantial number of shares of our
common stock in the public market (or upon exchange of Units) or the perception
that such sales (or exchanges) might occur could adversely affect the market
price of our common stock. In connection with our initial public offering, we
agreed that we would not, and each of our original executive officers and
independent directors agreed that they would not, without the consent of Morgan
Stanley & Co. Incorporated, offer, sell, contract to sell, pledge, grant any
option, right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any (other than in connection with mergers,
acquisitions, or similar transactions) shares of
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our common stock, or any securities convertible into or exercisable for shares
of our common stock until, in the case of our original executive officers,
November 21, 1999, and in our case and the case of our independent directors,
November 21, 1998.
The shares of common stock issued in the transactions involved in our
formation and all shares of common stock issuable upon the redemption of Units
will be deemed to be "restricted securities" within the meaning of Rule 144
under the Securities Act and may not be transferred unless registered under the
Securities Act or an exemption from registration is available, including any
exemption from registration provided under Rule 144. In general, upon
satisfaction of certain conditions, Rule 144 permits the holder to sell certain
amounts of restricted securities one year following the date of acquisition of
the restricted securities from us and, after two years, permits unlimited sales
by persons unaffiliated with us. On November 26, 1998, 74,710,153 shares of
common stock issued in our formation transactions became eligible for sale
pursuant to Rule 144, subject to the volume limitations and other conditions
imposed by Rule 144. Commencing generally on the first anniversary of the date
of acquisition of common Units (or such other date agreed to by the Operating
Partnership and the holders of the Units), the Operating Partnership may redeem
common Units at the request of the holders for cash (based on the fair market
value of an equivalent number of shares of common stock at the time of
redemption) or, at the Company's option, exchange the common Units for an equal
number of shares of common stock, subject to certain antidilution adjustments.
The Operating Partnership has issued 4,447,839 common Units to date, including
the 2,542,163 common Units held by the selling stockholders which became
exchangeable for shares of common stock on November 26, 1998. We have reserved
5,750,000 shares of common stock for issuance under our Stock Option and
Incentive Plan and, as of September 30, 1998, have granted to certain directors,
officers and employees options to purchase 3,133,750 shares of common stock (net
of forfeitures). To date we have granted 5,712 restricted shares of common
stock. In addition, we may issue additional shares of common stock or Units in
connection with the acquisition of properties. The registration statement of
which this prospectus is a part covers the issuance of 2,542,163 shares of
common stock upon the exchange of the common Units held by the selling
stockholders and the resale of those shares. In connection with the issuance of
common Units to other transferors of properties, and in connection with the
issuance of any Performance Units, we have agreed to file registration
statements covering the issuance of shares of common stock upon the exchange of
the common Units. We have also filed a registration statement with respect to
the shares of common stock issuable under our Stock Option and Incentive Plan.
These registration statements and registration rights generally allow shares of
common stock covered thereby, including shares of common stock issuable upon
exchange of Units, including Performance Units, or the exercise of options or
restricted shares of common stock, to be transferred or resold without
restriction under the Securities Act. However, pursuant to the terms and
conditions of the registration rights agreement that we entered into with the
selling stockholders, prior to the date upon which the Units would be eligible
for resale under Rule 144(k) under the Securities Act, as such rule may be
amended from time to time (or any similar rule or regulation hereafter adopted
by the SEC), each of the selling stockholders generally is limited to resales of
shares of common stock issued pursuant to this prospectus to the number of
shares which otherwise would be eligible for resale by that selling stockholder
pursuant to Rule 144, assuming the shares were issued on the same date as the
respective Units were issued. See "Plan of Distribution." We may also agree to
provide registration rights to any other person who may become an owner of
Units. See "Description of Certain Provisions of the Partnership
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Agreement of the Operating Partnership -- Common Limited Partnership Units --
Registration Rights."
Future sales of the shares of common stock described above could adversely
affect the market price of our common stock. The existence of Units, options and
shares of common stock reserved for issuance upon exchange of Units, and the
exercise of options and registration rights referred to above, also may
adversely affect the terms upon which we are able to obtain additional capital
through the sale of equity securities.
Various Market Conditions Affect the Price of Our Common Stock
As with other publicly-traded equity securities, the market price of our
common stock will depend upon various market conditions, which may change from
time to time. Among the market conditions that may affect the market price of
our common stock are the following:
- the extent of investor interest in us;
- the general reputation of REITs and the attractiveness of their equity
securities in comparison to other equity securities (including securities
issued by other real estate-based companies);
- our financial performance; and
- general stock and bond market conditions, including changes in interest
rates on fixed income securities which may lead prospective purchasers of
our common stock to demand a higher annual yield from future
distributions. Such an increase in the required yield from distributions
may adversely affect the market price of our common stock.
Other factors such as governmental regulatory action and changes in tax laws
could also have a significant impact on the future market price of our common
stock.
Earnings and Cash Distributions, Asset Value and Market Interest Rates Affect
the Price of Our Common Stock
The market value of the equity securities of a REIT generally is based
primarily upon the market's perception of the REIT's growth potential and its
current and potential future earnings and cash distributions, and is based
secondarily upon the real estate market value of the underlying assets. For that
reason, shares of our common stock may trade at prices that are higher or lower
than the net asset value per share. To the extent we retain operating cash flow
for investment purposes, working capital reserves or other purposes, these
retained funds, while increasing the value of our underlying assets, may not
correspondingly increase the market price of our common stock. Our failure to
meet the market's expectation with regard to future earnings and cash
distributions likely would adversely affect the market price of our common
stock. Another factor that may influence the price of our common stock will be
the distribution yield on our common stock (as a percentage of the price of our
common stock) relative to market interest rates. An increase in market interest
rates might lead prospective purchasers of our common stock to expect a higher
distribution yield, which would adversely affect the market price of our common
stock. If the market price of our common stock declines significantly, we might
breach certain covenants with respect to debt obligations, which might adversely
affect our liquidity and our ability to make future acquisitions and pay
distributions to our stockholders.
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We Could Invest in Real Estate Mortgages
We may invest in mortgages, and may do so as a strategy for ultimately
acquiring the underlying property. In general, investments in mortgages include
the risks that borrowers may not be able to make debt service payments or pay
principal when due, that the value of the mortgaged property may be less than
the principal amount of the mortgage note secured by the property and that
interest rates payable on the mortgages may be lower than our cost of funds to
acquire these mortgages. In any of these events, our funds from operations and
our ability to make distributions on, and the market price of, our common stock
could be adversely affected. "Funds from operations" means income (loss) from
operations before disposal of real estate properties, minority interests and
extraordinary items plus depreciation and amortization, excluding depreciation
of furniture, fixtures and equipment less funds from operations attributable to
minority interests in consolidated joint ventures which are not convertible into
shares of common stock.
GOVERNMENT REGULATIONS
Many laws and governmental regulations are applicable to our properties and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.
Costs of Compliance with Americans with Disabilities Act
Under the Americans with Disabilities Act of 1990 (the "Americans with
Disabilities Act"), places of public accommodation must meet certain federal
requirements related to access and use by disabled persons. Compliance with the
Americans with Disabilities Act might require us to remove structural barriers
to handicapped access in certain public areas where such removal is "readily
achievable." If we fail to comply with the Americans with Disabilities Act, we
might be required to pay fines to the government or damages to private
litigants. The impact of application of the Americans with Disabilities Act to
our properties, including the extent and timing of required renovations, is
uncertain. If we are required to make unanticipated expenditures to comply with
the Americans with Disabilities Act, our cash flow and the amounts available for
distributions to our stockholders may be adversely affected.
We Could Encounter Costly Environmental Problems
Federal, state and local laws and regulations relating to the protection of
the environment impose liability on a current or previous owner or operator of
real estate for contamination resulting from the presence or discharge of
hazardous or toxic substances or petroleum products at the property. A current
or previous owner may be required to investigate and clean up contamination at
or migrating from a site. These laws typically impose liability and clean-up
responsibility without regard to whether the owner or operator knew of or caused
the presence of the contaminants. Even if more than one person may have been
responsible for the contamination, each person covered by the environmental laws
may be held responsible for all of the clean-up costs incurred. In addition,
third parties may sue the owner or operator of a site for damages based on
personal injury, property damage and/or other costs, including investigation and
clean-up costs, resulting from environmental contamination present at or
emanating from that site.
Environmental Laws also govern the presence, maintenance and removal of
asbestos. These laws require that owners or operators of buildings containing
asbestos properly manage and maintain the asbestos, that they adequately inform
or train those who may
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come into contact with asbestos and that they undertake special precautions,
including removal or other abatement in the event that asbestos is disturbed
during renovation or demolition of a building. These laws may impose fines and
penalties on building owners or operators for failure to comply with these
requirements and may allow third parties to seek recovery from owners or
operators for personal injury associated with exposure to asbestos fibers. Some
of our properties may contain asbestos-containing building materials.
Some of our properties are leased or have been leased, in part, to owners
and operators of dry cleaners that operate on-site dry cleaning plants, to
owners and operators of gas stations or to owners or operators of other
businesses that use, store or otherwise handle petroleum products or other
hazardous or toxic substances. Some of these properties contain, or may have
contained, underground storage tanks for the storage of petroleum products and
other hazardous or toxic substances. These operations create a potential for the
release of petroleum products or other hazardous or toxic substances. Some of
our properties are adjacent to or near other properties that have contained or
currently contain underground storage tanks used to store petroleum products or
other hazardous or toxic substances. In addition, certain of our properties are
on, or are adjacent to or near other properties upon which others, including
former owners or tenants of the properties, have engaged or may in the future
engage in activities that may release petroleum products or other hazardous or
toxic substances.
All of our properties were subject to a Phase I or similar environmental
assessments by independent environmental consultants at the time of acquisition
or shortly after acquisition. Phase I assessments are intended to discover and
evaluate information regarding the environmental condition of the surveyed
property and surrounding properties. Phase I assessments generally include an
historical review, a public records review, an investigation of the surveyed
site and surrounding properties, and preparation and issuance of a written
report, but do not include soil sampling or subsurface investigations and
typically do not include an asbestos survey. We may perform additional Phase II
testing if recommended by the independent environmental consultant. Phase II
testing may include the collection and laboratory analysis of soil and
groundwater samples, completion of surveys for asbestos-containing building
materials, and any other testing that the consultant considers prudent in order
to test for the presence of hazardous materials. Some of the environmental
assessments of our properties do not contain a comprehensive review of the past
uses of the properties and/or the surrounding properties.
None of the environmental assessments of our properties has revealed any
environmental liability that we believe would have a material adverse effect on
our financial condition or results of operations taken as a whole, and we are
not aware of any such material environmental liability. Nonetheless, it is
possible that the assessments do not reveal all environmental liabilities and
that there are material environmental liabilities of which we are unaware.
Moreover, future laws, ordinances or regulations may impose material
environmental liability and the current environmental condition of our
properties may be affected by tenants, by the condition of land, by operations
in the vicinity of the properties (such as releases from underground storage
tanks), or by third parties unrelated to us. If the costs of compliance with
environmental laws and regulations now existing or adopted in the future exceed
our budgets for these items, our financial condition, results of operations,
cash flow and ability to pay distributions on, and the market price of, our
common stock could be adversely affected.
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Our Financial Condition could be Adversely Affected if We Fail to Comply with
Other Regulations
Our properties are also subject to various federal, state and local
regulatory requirements such as state and local fire and life safety
requirements. If we fail to comply with these requirements, we might incur fines
by governmental authorities or be required to pay awards of damages to private
litigants. We believe that our properties are currently in substantial
compliance with all such regulatory requirements. However, these requirements
may change or new requirements may be imposed which could require significant
unanticipated expenditures by us. Any such unanticipated expenditures could have
an adverse effect on our financial condition, results of operations, cash flow
and ability to pay distributions on, and the market price of, our common stock.
FEDERAL INCOME TAX RISKS
Our Failure to Qualify as a REIT Would Have Serious Adverse Consequences to Our
Stockholders
We intend to operate so as to qualify as a REIT under the Code. We believe
that we have been organized and have operated in a manner which would allow us
to qualify as a REIT under the Code beginning with our taxable year ended
December 31, 1997. However, it is possible that we have been organized or have
operated in a manner which would not allow us to qualify as a REIT, or that our
future operations could cause us to fail to qualify. Qualification as a REIT
requires us to satisfy numerous requirements (some on an annual and quarterly
basis) established under highly technical and complex Code provisions for which
there are only limited judicial and administrative interpretations, and involves
the determination of various factual matters and circumstances not entirely
within our control. For example, in order to qualify as a REIT, at least 95% of
our gross income in any year must be derived from qualifying sources, and we
must pay dividends to stockholders aggregating annually at least 95% of our REIT
taxable income (determined without regard to the dividends paid deduction and by
excluding capital gains). These provisions and the applicable treasury
regulations are more complicated in our case because we hold our assets in
partnership form. Legislation, new regulations, administrative interpretations
or court decisions could significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. However, we are not aware of any pending tax legislation that
would adversely affect our ability to operate as a REIT.
If we fail to qualify as a REIT in any taxable year, we will be subject to
federal income tax (including any applicable alternative minimum tax) on our
taxable income at regular corporate rates. Unless we are entitled to relief
under certain statutory provisions, we would be disqualified from treatment as a
REIT for the four taxable years following the year during which we lost
qualification. If we lose our REIT status, our net earnings available for
investment or distribution to stockholders would be significantly reduced for
each of the years involved. In addition, we would no longer be required to make
distributions to stockholders. See "Certain Federal Income Tax
Considerations -- Failure to Qualify."
We Pay Some Taxes
Even if we qualify as a REIT, we will be subject to certain federal, state
and local taxes on our income and property. In addition, the net taxable income,
if any, from the activities conducted through the Preferred Stock Subsidiaries
(which we discuss below
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under "-- Preferred Stock Subsidiaries") will be subject to federal and state
income tax. See "Certain Federal Income Tax Considerations -- Other Tax
Consequences."
WE ARE DEPENDENT ON OUR KEY PERSONNEL
We depend on the efforts of our executive officers, particularly Messrs.
Abbey, Moghadam and Burke, the Chairman of our Investment Committee, our Chief
Executive Officer and the Chairman of our Board of Directors, respectively.
While we believe that we could find suitable replacements for these key
personnel, the loss of their services or the limitation of their availability
could adversely affect our financial condition, results of operations, cash flow
and ability to pay distributions on, and the market price of, our common stock.
We do not have employment agreements with any of our executive officers.
WE MAY BE UNABLE TO MANAGE OUR GROWTH
Our business has grown rapidly and continues to grow through property
acquisitions. If we fail to effectively manage our growth, our financial
condition, results of operations, cash flow and ability to pay distributions on,
and the market price of, our common stock could be adversely affected.
THE PREFERRED STOCK SUBSIDIARIES
We do not Control the Activities of the Preferred Stock Subsidiaries
The Operating Partnership owns 100% of the non-voting preferred stock of
AMB Investment Management and Headlands Realty Corporation (representing
approximately 95% of the economic interest in each entity). We refer to these
entities as the "Preferred Stock Subsidiaries." Certain of our executive
officers and an officer of AMB Investment Management own all of the outstanding
voting common stock of AMB Investment Management (representing approximately 5%
of the economic interest in AMB Investment Management). Certain of our executive
officers and a director of Headlands Realty Corporation own all of the
outstanding voting common stock of Headlands Realty Corporation (representing
approximately 5% of the economic interest in Headlands Realty Corporation). The
ownership structure of the Preferred Stock Subsidiaries permits us to share in
the income of the Preferred Stock Subsidiaries while maintaining our status as a
REIT. We receive substantially all of the economic benefit of the businesses
carried on by the Preferred Stock Subsidiaries through our right to receive
dividends through the Operating Partnership. However, we are not able to elect
the Preferred Stock Subsidiaries' directors or officers and, as a result, we do
not have the ability to influence the operation of the Preferred Stock
Subsidiaries or to require that the Preferred Stock Subsidiaries' boards of
directors declare and pay cash dividends on the non-voting stock of the
Preferred Stock Subsidiaries held by the Operating Partnership. The boards of
directors and management of the Preferred Stock Subsidiaries might implement
business policies or decisions that would not have been implemented by persons
controlled by us and that may be adverse to the interests of our stockholders or
that may adversely impact our financial condition, results of operations, cash
flow and ability to pay distributions on, and the market price of, our common
stock. In addition, the Preferred Stock Subsidiaries are subject to tax on their
income, reducing their cash available for distribution to the Operating
Partnership.
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AMB Investment Management may not be able to Generate Sufficient Fees
Fees earned by AMB Investment Management depend on various factors
affecting the ability to attract and retain investment management clients and
the overall returns achieved on managed assets. These factors are beyond our
control. AMB Investment Management's failure to attract investment management
clients or achieve sufficient overall returns on managed assets could reduce its
ability to make distributions on the stock owned by the Operating Partnership
and could also limit co-investment opportunities to the Operating Partnership.
This would limit the Operating Partnership's ability to generate rental revenues
from such co-investments and use the co-investment program as a source to
finance property acquisitions and leverage acquisition opportunities.
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THE COMPANY
GENERAL
We are one of the largest publicly-traded real estate companies in the
United States. As of November 30, 1998, we owned 587 industrial buildings
located in 26 markets throughout the United States, including 40 industrial
buildings acquired since September 30, 1998, and 38 retail centers located in 16
markets throughout the United States, including one center acquired since
September 30, 1998. As of September 30, 1998, our industrial buildings,
principally warehouse distribution properties, encompassed approximately 53.1
million rentable square feet and, as of the same date, were 95.9% leased to over
1,500 tenants. As of September 30, 1998, our retail centers, principally
grocer-anchored community shopping centers, encompassed approximately 6.9
million rentable square feet and, as of the same date, were 94.8% leased to over
900 tenants. We own substantially all of our assets, and conduct substantially
all of our business, through the Operating Partnership and its subsidiaries.
We are engaged in the business of acquiring and operating industrial
buildings and community shopping centers in target markets nationwide. We are
led by Hamid R. Moghadam, our Chief Executive Officer and one of our three
founders. Douglas D. Abbey and T. Robert Burke, our other two founders, also
play active roles in our operations as the Chairman of our Investment Committee
and the Chairman of our Board of Directors, respectively. Our 10 executive
officers have an average of 23 years of experience in the real estate industry
and have worked together for an average of nine years building the AMB real
estate business.
The Company was organized in November 1997 and commenced operations upon
the completion of the initial public offering on November 26, 1997. We operate
as a self-administered and self-managed real estate company and believe that we
have qualified and that we will continue to qualify as a REIT for federal income
tax purposes beginning with the year ended December 31, 1997.
STRATEGIC ALLIANCE PROGRAMS(TM)
We believe that our strategy of forming strategic alliances with local and
regional real estate experts and institutional investors provides us with growth
opportunities, access to private capital and flexibility in the markets in which
we operate. We have been a leader in forming these alliances through the
following Strategic Alliance Programs(TM).
- Institutional Alliance Program(TM): Our strategy for our Institutional
Alliance Program(TM) is to form joint ventures with institutional
investors through the co-investment program of AMB Investment Management.
This program provides access to private capital, including during those
times when the public markets are less attractive.
- UPREIT Alliance Program(TM): Through our UPREIT Alliance Program(TM), we
issue Operating Partnership Units in exchange for properties, thereby
providing additional growth for our portfolio.
- Development Alliance Program(TM): Our strategy for our Development
Alliance Program(TM) is to enhance our development capability by forming
alliances with development firms with a strong local presence and
expertise.
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- Customer Alliance Program(TM): Through our Customer Alliance Program(TM),
we seek to build long-term working relationships with major tenants with
the assistance of leading local and national leasing firms.
- Management Alliance Program(TM): Our strategy for our Management Alliance
Program(TM) is to develop close relationships with, and outsource
property management to, local property managers that we believe are among
the best in their respective markets. These local property managers
provide us with local market information related to tenant activity and
acquisition and development opportunities as well as economies of scale.
THE PREFERRED STOCK SUBSIDIARIES
AMB Investment Management provides real estate investment management
services on a fee basis to clients, including certain clients of our
predecessor, AMB Institutional Realty Advisors, Inc. These clients did not
participate in our formation transactions. In general, we presently intend to
co-invest with clients of AMB Investment Management, to the extent the clients
newly commit investment capital, through partnerships, limited liability
companies and joint ventures. We generally use a co-investment formula with each
client whereby we will own at least a 20% interest in all ventures. As of
September 30, 1998, we had consummated four co-investment transactions through
one partnership. Headlands Realty Corporation invests in properties and may in
the future engage in or acquire interests in entities that engage in the
management, leasing and development of properties and similar activities.
RECENT DEVELOPMENTS
Sale of Senior Debt Securities by the Operating Partnership. On June 30,
1998, the Operating Partnership sold $400 million aggregate principal amount of
senior debt securities in an underwritten public offering. The Operating
Partnership used the net proceeds to repay borrowings under the Credit Facility
incurred in connection with property acquisitions.
Sale of Series A Preferred Stock by the Company. On July 27, 1998, we sold
4,000,000 shares (the "Series A Preferred Shares") of Series A Preferred Stock
at a price of $25.00 per share in an underwritten public offering. We
contributed the net proceeds to the Operating Partnership which used the funds
to repay borrowings under the Credit Facility incurred in connection with
property acquisitions and for general corporate purposes.
Sale of Series B Preferred Units by the Operating Partnership. On November
12, 1998, the Operating Partnership completed a private placement of 1,300,000
Series B Preferred Units to a single investor at a price of $50.00 per Unit. See
"Description of Certain Provisions of the Partnership Agreement of the Operating
Partnership -- Series B Preferred Units." The Operating Partnership used the net
proceeds of approximately $63.3 million to repay borrowings under the Credit
Facility, for general corporate purposes.
Sale of Series C Preferred Units by AMB Property II, L.P. On November 24,
1998, AMB Property II, L.P. ("AMB Property II") completed a private placement of
2,200,000 8 3/4% Series C Cumulative Redeemable Preferred Units (the "AMB
Property II Series C Preferred Units") to two investors at a price of $50.00 per
unit. See "Description of Capital Stock -- Preferred Stock -- Series C Preferred
Stock." The Company owns 100% of the common stock of AMB Property Holding
Corporation, which has an approximate
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1% general partnership interest in AMB Property II. The Operating Partnership
has an approximate 99% limited partnership interest in AMB Property II.
Acquisition and Development Activity. From September 30, 1998 to November
30, 1998, we invested approximately $173.2 million in 40 industrial buildings
aggregating 3.5 million rentable square feet and approximately $17.4 million in
one retail center comprised of 0.1 million rentable square feet.
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DESCRIPTION OF CAPITAL STOCK
We have summarized certain terms and provisions of our capital stock in
this section. This summary is not complete. For more detail you should refer to
the Maryland General Corporation Law (the "MGCL"), our Charter and our Bylaws,
which we have filed as exhibits to the registration statement of which this
prospectus is a part. See "Where You Can Find More Information."
COMMON STOCK
Our Charter provides that we are authorized to issue 500,000,000 shares of
common stock, $.01 par value per share. As of November 30, 1998, we had
85,874,513 shares of common stock issued and outstanding. Each outstanding share
of common stock entitles the holder to one vote on all matters presented to
stockholders generally for a vote, including the election of directors. Except
as otherwise required by law and except as provided in any resolution adopted by
the Board of Directors establishing any other class or series of stock, the
holders of common stock possess the exclusive voting power, subject to the
provisions of the Charter regarding the ownership of shares of common stock in
excess of the ownership limit or any other limit specified in the Charter, or
otherwise permitted by the Board of Directors. Holders of shares of common stock
do not have any conversion, exchange, sinking fund, redemption or appraisal
rights or any preemptive rights to subscribe for any of our securities or
cumulative voting rights in the election of directors. All shares of common
stock that are issued and outstanding are duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares or series
or classes of stock, including the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock (see "-- Preferred Stock"), and
to the provisions of the Charter regarding ownership of shares of common stock
in excess of the ownership limit, or such other limit specified in the Charter
or as otherwise permitted by the Board of Directors, we may pay distributions to
the holders of shares of common stock if and when authorized and declared by the
Board of Directors out of funds legally available for distribution. We intend to
continue to make quarterly distributions on outstanding shares of common stock.
Under the MGCL, stockholders are generally not liable for our debts or
obligations. If we liquidate, subject to the right of any holders of preferred
stock, including the Series A Preferred Stock, the Series B Preferred Stock and
the Series C Preferred Stock (see "-- Preferred Stock") to receive preferential
distributions, each outstanding share of common stock will be entitled to
participate pro rata in the assets remaining after payment of, or adequate
provision for, all of our known debts and liabilities, including debts and
liabilities arising out of our status as general partner of the Operating
Partnership.
Subject to the provisions of our Charter regarding the ownership of shares
of common stock in excess of the ownership limit, or such other limit specified
in the Charter, or as otherwise permitted by the Board of Directors as described
below, all shares of common stock have equal distribution, liquidation and
voting rights, and have no preference or exchange rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of at least two-thirds of the
votes entitled to be cast on the matter unless a lesser percentage (but not less
than a majority of all of the votes entitled to be cast on the matter) is set
forth in the corporation's charter. Under the MGCL, the term
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"substantially all of the Company's assets" is not defined and is, therefore,
subject to Maryland common law and to judicial interpretation and review in the
context of the unique facts and circumstances of any particular transaction. Our
Charter does not provide for a lesser percentage in any of the above situations.
Our Charter authorizes the Board of Directors to reclassify any unissued
shares of common stock into other classes or series of classes of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
class or series.
PREFERRED STOCK
Our Charter provides that we are authorized to issue 100,000,000 shares of
preferred stock, $.01 par value per share, of which 4,600,000 shares are of a
separate class designated as Series A Preferred Stock, 1,300,000 shares are of a
separate class designated as Series B Preferred Stock and 2,200,000 shares are
of a separate class designated as Series C Preferred Stock. The Series B
Preferred Stock is issuable in exchange, on a one for one basis, subject to
adjustment, for the Series B Preferred Units. The Series C Preferred Stock is
issuable in exchange, on a one for one basis, subject to adjustment, for the AMB
Property II Series C Preferred Units. As of November 30, 1998, we had 4,000,000
shares of Series A Preferred Stock issued and outstanding. As of the same date,
we had 1,300,000 shares of Series B Preferred Stock and 2,200,000 shares of
Series C Preferred Stock reserved for issuance but not issued or outstanding. We
may issue additional shares of preferred stock from time to time, in one or more
classes, as authorized by the Board of Directors. Prior to the issuance of
shares of each class of preferred stock, the Board of Directors is required by
the MGCL and the Charter to fix for each class the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
distributions, qualifications and terms or conditions of redemption, as
permitted by Maryland law. Because the Board of Directors has the power to
establish the preferences, powers and rights of each class of preferred stock,
it may afford the holders of any class of preferred stock preferences, powers
and rights, voting or otherwise, senior to the rights of holders of shares of
common stock. The issuance of preferred stock could have the effect of delaying
or preventing a change of control that might involve a premium price for holders
of shares of common stock or otherwise be in their best interest.
Series A Preferred Stock. The Series A Preferred Stock ranks, with respect
to dividends and in the event we voluntarily or involuntarily liquidate,
dissolve or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the Series A Preferred
Stock;
- junior to all equity securities issued by us which rank senior to the
Series A Preferred Stock; and
- on a parity with all equity securities issued by us (including the Series
B Preferred Stock and the Series C Preferred Stock) other than those
referred to in the bullet points above. The term "equity securities" does
not include convertible debt securities.
Holders of the Series A Preferred Stock are entitled to receive, when and
as authorized by the Board of Directors out of funds legally available for
dividends, cumulative preferential cash dividends at the rate of 8 1/2% of the
liquidation preference per
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annum (equivalent to $2.125 per annum per share of Series A Preferred Stock).
Dividends on the Series A Preferred Stock accumulate on a daily basis and are
payable quarterly in arrears on the 15th day of each January, April, July and
October. Except as provided below, unless full cumulative dividends on the
Series A Preferred Stock have been or at the same time are declared and paid or
declared and a sum sufficient for payment set apart for payment for all past
dividend periods and the then current dividend period, no dividends (other than
in common stock or other equity securities ranking junior to the Series A
Preferred Stock) may be declared or paid or set aside for payment or other
dividend be declared or made upon the common stock or any other equity
securities ranking junior to or on a parity with the Series A Preferred Stock
(including the Series B Preferred Stock and the Series C Preferred Stock), nor
may any common stock or any other equity securities ranking junior to or on a
parity with the Series A Preferred Stock (including the Series B Preferred Stock
and the Series C Preferred Stock) be redeemed, purchased or otherwise acquired
for any consideration (or any monies be paid to or made available for a sinking
fund for the redemption of any such securities) by us (except by conversion into
or exchange for other equity securities ranking junior to the Series A Preferred
Stock and pursuant to the provisions of our Charter providing for limitations on
ownership and transfer in order to ensure that we remain qualified as a REIT).
When dividends are not paid in full (or a sum sufficient for such full payment
is not so set apart) upon the Series A Preferred Stock and any other equity
securities ranking on a parity with the Series A Preferred Stock (including the
Series B Preferred Stock and the Series C Preferred Stock), all dividends
declared upon the Series A Preferred Stock and any other equity securities
ranking on a parity with the Series A Preferred Stock (including the Series B
Preferred Stock and the Series C Preferred Stock) will be declared pro rata so
that the amount of dividends declared per share of Series A Preferred Stock and
each such other equity securities shall bear to each other the same ratio that
accumulated dividends per share of Series A Preferred Stock and such other
equity securities (which shall not include any accumulation in respect of unpaid
dividends for prior dividend periods if such other equity securities do not have
a cumulative dividend) bear to each other. Dividends on the Series A Preferred
Stock will accumulate whether or not we have funds legally available for the
payment of dividends and whether or not we declare dividends. If we designate
any portion of a dividend as a "capital gain dividend," a holder's share of the
capital gain dividend will be an amount that bears the same ratio to the total
amount of dividends (as determined for federal income tax purposes) paid to the
holder for the year as the aggregate amount designated as a capital gain
dividend bears to the aggregate amount of all dividends (as determined for
federal income tax purposes) paid on all classes of shares for the year.
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up, the holders of the Series A Preferred Stock are entitled to receive out
of our assets legally available for distribution to our stockholders remaining
after payment or provision for payment of all of our debts and liabilities, a
liquidation preference, in cash, of $25.00 per share, plus an amount equal to
any accumulated and unpaid dividends to the date of such payment, before any
distribution of assets is made to holders of common stock or any other equity
securities that rank junior to the Series A Preferred Stock. After payment of
the full amount of the liquidating distributions to which they are entitled, the
holders of the Series A Preferred Stock will have no right or claim to any of
our remaining assets. Our consolidation or merger with or into any other entity,
a merger of another entity with or into us, a statutory share exchange or the
sale, lease, transfer or conveyance of all or substantially all of our property
or business do not constitute a liquidation, dissolution or winding up for
purposes of triggering the liquidation preference.
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If we voluntarily or involuntarily liquidate, dissolve or wind up and our
assets are insufficient to make full payment to holders of the Series A
Preferred Stock and the corresponding amounts payable on all shares of other
classes or series of equity securities ranking on a parity with the Series A
Preferred Stock, then the holders of the Series A Preferred Stock and all other
such classes or series of equity securities will share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be entitled.
The Series A Preferred Stock has no stated maturity and is not subject to
mandatory redemption or any sinking fund. We cannot redeem the Series A
Preferred Stock prior to July 27, 2003. On and after July 27, 2003, we can
redeem the Series A Preferred Stock for cash at our option, in whole or from
time to time in part, at a redemption price of $25.00 per share, plus
accumulated and unpaid dividends, if any, to the redemption date. We must pay
the redemption price (other than the portion of the redemption price consisting
of accumulated and unpaid dividends) solely out of the sale proceeds of other
equity securities, which may include other classes or series of preferred stock.
In certain circumstances related to our maintenance of our ability to qualify as
a REIT for federal income tax purposes, we may redeem shares of Series A
Preferred Stock. See "-- Restrictions on Ownership and Transfer of Capital
Stock."
Holders of Series A Preferred Stock have no voting rights, except as
described below. If we do not pay dividends on the Series A Preferred Stock for
six or more quarterly periods (whether or not consecutive), holders of the
Series A Preferred Stock (voting separately as a class with all other classes or
series of equity securities upon which like voting rights have been conferred
and are exercisable) will be entitled to vote for the election of two additional
directors to serve on our Board of Directors until we have eliminated all
dividend arrearages with respect to the Series A Preferred Stock. So long as any
shares of Series A Preferred Stock remain outstanding, we may not, without the
affirmative vote or consent of at least two-thirds of the votes entitled to be
cast by the holders of outstanding shares of Series A Preferred Stock (the
Series A Preferred Stock voting separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the Series A Preferred Stock;
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the Series A Preferred Stock;
- create, authorize or issue any obligation or security convertible into,
exchangeable or exercisable for, or evidencing the right to purchase, any
class or series of stock ranking senior to the Series A Preferred Stock;
or
- amend, alter or repeal the provisions of our Charter, whether by merger
or consolidation or otherwise, so as to materially and adversely affect
any right, preference, privilege or voting power of the Series A
Preferred Stock.
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as shares of Series A Preferred Stock (or shares
issued by a surviving entity in substitution for shares of the Series A
Preferred Stock) remain outstanding with the terms materially unchanged, taking
into account that upon the occurrence of such an event, we may not be the
surviving entity, the occurrence of any such event will not be considered to
materially and adversely affect rights, preferences, privileges or voting powers
of holders of Series A Preferred Stock. Any increase in the amount of the
authorized preferred stock, the creation or issuance of any other class or
series of preferred stock or
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any increase in the amount of authorized Series A Preferred Stock or any other
class or series of preferred stock, in each case ranking on a parity with or
junior to the Series A Preferred Stock will not be considered to materially and
adversely affect such rights, preferences, privileges or voting powers.
In accordance with the terms of the Partnership Agreement, we contributed
the net proceeds of the sale of the Series A Preferred Shares to the Operating
Partnership and the Operating Partnership issued to us Series A Preferred Units
that mirror the rights, preferences and other terms of the Series A Preferred
Stock. The Operating Partnership is required to make all required distributions
on the Series A Preferred Units prior to any distribution of cash or assets to
the holders of any other Units or any other equity interests in the Operating
Partnership, except for any other series of preferred Units ranking on a parity
with the Series A Preferred Units as to dividends or voluntary or involuntary
liquidation, dissolution or winding up of the Operating Partnership. The
Operating Partnership has no preferred Units, other than the Series A Preferred
Units and the Series B Preferred Units, outstanding or any other equity
interests ranking prior to any other Units or any other equity interests in the
Operating Partnership.
Series B Preferred Stock. We currently have no shares of Series B Preferred
Stock issued or outstanding. The Series B Preferred Stock is issuable upon
exchange of the Series B Preferred Units, as described under "Description of
Certain Provisions of the Partnership Agreement of the Operating
Partnership -- Series B Preferred Units -- Exchange Rights." The Series B
Preferred Stock ranks, with respect to dividends and in the event we voluntarily
or involuntarily liquidate, dissolve or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the Series B Preferred
Stock;
- junior to all equity securities issued by us which rank senior to the
Series B Preferred Stock; and
- on a parity with all equity securities issued by us (including the Series
A Preferred Stock and the Series C Preferred Stock) other than those
referred to in the bullet points above. The term "equity securities" does
not include convertible debt securities.
If ever issued, the Series B Preferred Stock will entitle the holders to
receive, when and as authorized by the Board of Directors out of funds legally
available for dividends, cumulative preferential cash dividends at the rate of
8 5/8% of the liquidation preference per annum (equivalent to $4.3125 per annum
per share of Series B Preferred Stock). Dividends on the Series B Preferred
Stock accumulate on a daily basis and are payable quarterly in arrears on the
15th day of each January, April, July and October. Except as provided below,
unless full cumulative dividends on the Series B Preferred Stock have been or at
the same time are declared and paid or declared and a sum sufficient for payment
set apart for payment for all past dividend periods and the then current
dividend period, no distributions (other than in common stock or other equity
securities ranking junior to the Series B Preferred Stock) may be declared or
paid or set aside for payment or other dividend be declared or made upon the
common stock or any other equity securities ranking junior to or on a parity
with the Series B Preferred Stock (including the Series A Preferred Stock and
the Series C Preferred Stock), nor may any common stock or any other equity
securities ranking junior to or on a parity with the Series B Preferred Stock
(including the Series A Preferred Stock and the Series C Preferred Stock) be
redeemed, purchased or otherwise acquired for any consideration (or any monies
be paid
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to or made available for a sinking fund for the redemption of any such
securities) by us (except by conversion into or exchange for other equity
securities ranking junior to the Series B Preferred Stock and pursuant to the
provisions of our Charter providing for limitations on ownership and transfer in
order to ensure that we remain qualified as a REIT). When dividends are not paid
in full (or a sum sufficient for such full payment is not so set apart) upon the
Series B Preferred Stock and any other equity securities ranking on a parity
with the Series B Preferred Stock (including the Series A Preferred Stock and
the Series C Preferred Stock), all dividends declared upon the Series B
Preferred Stock and any other equity securities ranking on a parity with the
Series B Preferred Stock (including the Series A Preferred Stock and the Series
C Preferred Stock) will be declared pro rata so that the amount of dividends
declared per share of Series B Preferred Stock and each such other equity
securities shall bear to each other the same ratio that accumulated dividends
per share of Series B Preferred Stock and such other equity securities (which
shall not include any accumulation in respect of unpaid dividends for prior
dividend periods if such other equity securities do not have a cumulative
dividend) bear to each other. Dividends on the Series B Preferred Stock will
accumulate whether or not we have funds legally available for the payment of
dividends and whether or not we declare dividends. If we designate any portion
of a dividend as a "capital gain dividend," a holder's share of the capital gain
dividend will be an amount that bears the same ratio to the total amount of
dividends (as determined for federal income tax purposes) paid to the holder for
the year as the aggregate amount designated as a capital gain dividend bears to
the aggregate amount of all dividends (as determined for federal income tax
purposes) paid on all classes of shares for the year.
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up following the issuance of the Series B Preferred Stock, the holders of
the Series B Preferred Stock will be entitled to receive out of our assets
legally available for distribution to our stockholders remaining after payment
or provision for payment of all of our debts and liabilities, a liquidation
preference, in cash, of $50.00 per share, plus an amount equal to any
accumulated and unpaid dividends to the date of such payment, before any
distribution of assets is made to holders of common stock or any other equity
securities that rank junior to the Series B Preferred Stock. After payment of
the full amount of the liquidating distributions to which they are entitled, the
holders of the Series B Preferred Stock will have no right or claim to any of
our remaining assets. Our consolidation or merger with or into any other entity,
a merger of another entity with or into us, a statutory share exchange or the
sale, lease, transfer or conveyance of all or substantially all of our property
or business do not constitute a liquidation, dissolution or winding up for
purposes of triggering the liquidation preference.
If we voluntarily or involuntarily liquidate, dissolve or wind up following
the issuance of Series B Preferred Stock and our assets are insufficient to make
full payment to the holders of the Series B Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of equity
securities ranking on a parity with the Series B Preferred Stock as to
liquidation rights (including the Series A Preferred Stock and the Series C
Preferred Stock) then the holders of the Series B Preferred Stock and all other
such classes or series of equity securities will share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be entitled.
The Series B Preferred Stock has no stated maturity and is not subject to
mandatory redemption or any sinking fund. If issued, we cannot redeem the Series
B Preferred Stock prior to November 12, 2003. On and after November 12, 2003, we
can redeem the
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Series B Preferred Stock for cash at our option, in whole or from time to time
in part, at a redemption price of $50.00 per share, plus accumulated and unpaid
dividends, if any, to the redemption date. We must pay the redemption price
(other than the portion of the redemption price consisting of accumulated and
unpaid dividends) solely out of the sale proceeds of other equity securities,
which may include other classes or series of preferred stock. In certain
circumstances related to our maintenance of our ability to qualify as a REIT for
federal income tax purposes, we may redeem shares of Series B Preferred Stock.
See "-- Restrictions on Ownership and Transfer of Capital Stock."
Holders of Series B Preferred Stock will have no voting rights, except as
described below. If we do not pay dividends on the Series B Preferred Stock for
six or more quarterly periods (whether or not consecutive), holders of the
Series B Preferred Stock (voting separately as a class with all other classes or
series of equity securities upon which like voting rights have been conferred
and are exercisable) will be entitled to vote for the election of two additional
directors to serve on our Board of Directors until we have eliminated all
dividend arrearages with respect to the Series B Preferred Stock. So long as any
shares of Series B Preferred Stock remain outstanding, we may not, without the
affirmative vote or consent of at least two-thirds of the votes entitled to be
cast by the holders of the outstanding shares of Series B Preferred Stock (the
Series B Preferred Stock voting separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the Series B Preferred Stock;
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the Series B Preferred Stock;
- designate or create, or increase the authorized or issued amount of, or
reclassify, any authorized shares into, any preferred stock ranking on a
parity with the Series B Preferred Stock or create, authorize or issue
any obligations or securities convertible into any such shares, but only
to the extent such stock is issued to one of our affiliates; or
- either consolidate, merge into or with, or convey, transfer or lease our
assets substantially as an entirety, to any corporation or other entity,
or amend, alter or repeal the provisions of our Charter, whether by
merger or consolidation or otherwise, in each case so as to materially
and adversely affect the powers, special rights, preferences, privileges
or voting power of the Series B Preferred Stock.
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as we are either the surviving entity and shares of
Series B Preferred Stock remain outstanding with the terms materially unchanged
or the resulting, surviving or transferee entity is a corporation organized
under the laws of any state and substitutes for the Series B Preferred Stock
other preferred stock having substantially the same terms and rights as the
Series B Preferred Stock, the occurrence of any such event will not be
considered to materially and adversely affect rights, preferences, privileges or
voting powers of holders of Series B Preferred Stock. Any increase in the amount
of authorized preferred stock, the creation or issuance of any other class or
series of preferred stock or any increase in an amount of authorized shares of
each class or series, in each case ranking on a parity with or junior to the
Series B Preferred Stock will not be considered to materially and adversely
affect such rights, preferences, privileges or voting powers.
We have granted certain registration rights with respect to any shares of
Series B Preferred Stock that we may issue upon exchange of the Series B
Preferred Units. See
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"Description of Certain Provisions of the Partnership Agreement of the Operating
Partnership -- Series B Preferred Units -- Registration Rights."
Series C Preferred Stock. We currently have no shares of Series C Preferred
Stock issued or outstanding. The Series C Preferred Stock is issuable upon
exchange of the AMB Property II Series C Preferred Units. The AMB Property II
Series C Preferred Units are exchangeable in whole at any time on or after
November 24, 2008, at the option of 51% of the holders of all outstanding AMB
Property II Series C Preferred Units, on a one for one basis, subject to
adjustment, for shares of our Series C Preferred Stock. In addition, the AMB
Property II Series C Preferred Units are exchangeable in whole at any time at
the option of 51% of the holders of all outstanding AMB Property II Series C
Preferred Units if:
- any AMB Property II Series C Preferred Unit shall not have received full
distributions with respect to six prior quarterly distribution periods
(whether or not consecutive); or
- AMB Property Holding Corporation, the general partner of AMB Property II,
or one of its subsidiaries takes the position, and a holder or holders of
AMB Property II Series C Preferred Units receive an opinion of
independent counsel that AMB Property II is, or upon the happening of a
certain event likely will be, a "publicly traded partnership" within the
meaning of the Code.
The AMB Property II Series C Preferred Units are exchangeable in whole for
shares of Series C Preferred Stock at any time after November 24, 2001 and prior
to November 24, 2008 at the option of 51% of the holders of all outstanding AMB
Property II Series C Preferred Units if those holders deliver to AMB Property
Holding Corporation a private letter ruling or an opinion of independent counsel
to the effect that an exchange of the AMB Property II Series C Preferred Units
at that time would not cause the AMB Property II Series C Preferred Units to be
considered "stock and securities" within the meaning of the Code for purposes of
determining whether the holder of AMB Property II Series C Preferred Units is an
"investment company" under the Code.
The AMB Property II Series C Preferred Units are also exchangeable in whole
at any time for shares of Series C Preferred Stock, if initial purchasers of the
AMB Property II Series C Preferred Units holding 51% of all outstanding AMB
Property II Series C Preferred Units determine, (regardless of whether held by
the initial purchasers) if:
- AMB Property II reasonably determines that the assets and income of AMB
Property II for a taxable year after 1998 would not satisfy the income
and assets tests of the Code for such taxable year if AMB Property II
were a REIT; or
- any holder of AMB Property II Series C Preferred Units delivers to AMB
Property II and AMB Property Holding Corporation an opinion of
independent counsel to the effect that (based on the assets and income of
AMB Property II for a taxable year after 1998) AMB Property II would not
satisfy the income and assets tests of the Code for such taxable year if
AMB Property II were a REIT and that such failure would create a
meaningful risk that a holder of AMB Property II Series C Preferred Units
would fail to maintain qualification as a REIT.
In lieu of an exchange for Series C Preferred Stock, AMB Property II may
redeem AMB Property II Series C Preferred Units for cash in an amount equal to
the original capital account balance of the holder of AMB Property II Series C
Preferred Units. A
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holder of AMB Property II Series C Preferred Units will not be entitled to
exchange the units for Series C Preferred Stock if the exchange would result in
a violation of the ownership limit. See "Description of Capital
Stock -- Restrictions on Ownership and Transfer of Capital Stock."
The Series C Preferred Stock ranks, with respect to dividends and in the
event we voluntarily or involuntarily liquidate, dissolve or wind up:
- senior to all classes or series of common stock and to all of our equity
securities that provide that they rank junior to the Series C Preferred
Stock;
- junior to all equity securities issued by us which rank senior to the
Series C Preferred Stock; and
- on a parity with all equity securities issued by us (including the Series
A Preferred Stock and the Series B Preferred Stock) other than those
referred to in the bullet points above. The term "equity securities" does
not include convertible debt securities until converted into equity
securities.
If ever issued, the Series C Preferred Stock will entitle the holders to
receive, when and as authorized by the Board of Directors out of funds legally
available for dividends, cumulative preferential cash dividends at the rate of
8.75% of the liquidation preference per annum (equivalent to $4.375 per annum
per share of Series C Preferred Stock). Dividends on the Series C Preferred
Stock accumulate on a daily basis and are payable quarterly in arrears on the
15th day of each January, April, July and October. Except as provided below,
unless full cumulative dividends on the Series C Preferred Stock have been or at
the same time are declared and paid or declared and a sum sufficient for payment
set apart for payment for all past dividend periods and the then current
dividend period, no distributions (other than in common stock or other equity
securities ranking junior to the Series C Preferred Stock) may be declared or
paid or set aside for payment or other dividend be declared or made upon the
common stock or any other equity securities ranking junior to or on a parity
with the Series C Preferred Stock (including the Series A Preferred Stock and
the Series B Preferred Stock), nor may any common stock or any other equity
securities ranking junior to or on a parity with the Series C Preferred Stock
(including the Series A Preferred Stock and the Series B Preferred Stock) be
redeemed, purchased or otherwise acquired for any consideration (or any monies
be paid to or made available for a sinking fund for the redemption of any such
securities) by us (except by conversion into or exchange for other equity
securities ranking junior to the Series C Preferred Stock and pursuant to the
provisions of our Charter providing for limitations on ownership and transfer in
order to ensure that we remain qualified as a REIT). When dividends are not paid
in full (or a sum sufficient for such full payment is not so set apart) upon the
Series C Preferred Stock and any other equity securities ranking on a parity
with the Series C Preferred Stock (including the Series A Preferred Stock and
the Series C Preferred Stock), all dividends declared upon the Series C
Preferred Stock and any other equity securities ranking on a parity with the
Series C Preferred Stock (including the Series A Preferred Stock and the Series
B Preferred Stock) will be declared pro rata so that the amount of dividends
declared per share of Series C Preferred Stock and each such other equity
securities shall bear to each other the same ratio that accumulated dividends
per share of Series C Preferred Stock and such other equity securities (which
shall not include any accumulation in respect of unpaid dividends for prior
dividend periods if such other equity securities do not have a cumulative
dividend) bear to each other. Dividends on the Series C Preferred Stock will
accumulate whether or not we have funds legally available for the payment of
dividends and whether or not we
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declare dividends. If we designate any portion of a dividend as a "capital gain
dividend," a holder's share of the capital gain dividend will be an amount that
bears the same ratio to the total amount of dividends (as determined for federal
income tax purposes) paid to the holder for the year as the aggregate amount
designated as a capital gain dividend bears to the aggregate amount of all
dividends (as determined for federal income tax purposes) paid on all classes of
shares for the year.
In the event that we voluntarily or involuntarily liquidate, dissolve or
wind up following the issuance of Series C Preferred Stock, the holders of the
Series C Preferred Stock will be entitled to receive out of our assets legally
available for distribution to our stockholders remaining after payment or
provision for payment of all of our debts and liabilities, a liquidation
preference, in cash, of $50.00 per share, plus an amount equal to any
accumulated or accrued and unpaid dividends to the date of such payment, before
any distribution of assets is made to holders of common stock or any other
equity securities that rank junior to the Series C Preferred Stock. After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of the Series C Preferred Stock will have no right or
claim to any of our remaining assets. Our consolidation or merger with or into
any other entity, a merger of another entity with or into us, a statutory share
exchange or the sale, lease, transfer or conveyance of all or substantially all
of our property or business do not constitute a liquidation, dissolution or
winding up for purposes of triggering the liquidation preference.
If we voluntarily or involuntarily liquidate, dissolve or wind up following
the issuance of Series C Preferred Stock and our assets are insufficient to make
full payment to holders of the Series C Preferred Stock and the corresponding
amounts payable on all shares of other classes or series of equity securities
ranking on a parity with the Series C Preferred Stock as to liquidation rights
(including the Series A Preferred Stock and the Series B Preferred Stock) then
the holders of the Series C Preferred Stock and all other such classes or series
of equity securities will share ratably in any such distribution of assets in
proportion to the full liquidating distributions to which they would otherwise
be entitled.
The Series C Preferred Stock has no stated maturity and is not subject to
mandatory redemption or any sinking fund. If issued, we cannot redeem the Series
C Preferred Stock prior to November 24, 2003. On and after November 24, 2003, we
can redeem the Series C Preferred Stock for cash at our option, in whole or from
time to time in part, at a redemption price of $50.00 per share, plus
accumulated and unpaid dividends, if any, to the redemption date. We must pay
the redemption price (other than the portion of the redemption price consisting
of accumulated and unpaid dividends) solely out of the sale proceeds of other
equity securities, which may include other classes or series of preferred stock.
In certain circumstances related to our maintenance of our ability to qualify as
a REIT for federal income tax purposes, we may redeem shares of Series C
Preferred Stock. See "-- Restrictions on Ownership and Transfer of Capital
Stock."
Holders of Series C Preferred Stock will have no voting rights, except as
described below. If we do not pay dividends on the Series C Preferred Stock for
six or more quarterly periods (whether or not consecutive), holders of the
Series C Preferred Stock (voting separately as a class with all other classes or
series of equity securities upon which like voting rights have been conferred
and are exercisable) will be entitled to vote for the election of two additional
directors to serve on our Board of Directors until we have eliminated all
dividend arrearages with respect to the Series C Preferred Stock. So long as any
shares of Series C Preferred Stock remain outstanding, we may not, without the
affirmative vote or consent of at least two-thirds of the votes entitled to be
cast by the
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holders of the outstanding shares of Series C Preferred Stock (the Series C
Preferred Stock voting separately as a class):
- authorize or create, or increase the authorized or issued amount of, any
class or series of stock ranking senior to the Series C Preferred Stock;
- reclassify any of our authorized stock into any class or series of stock
ranking senior to the Series C Preferred Stock;
- designate or create, or increase the authorized or issued amount of, or
reclassify, any authorized shares into, any preferred stock ranking on a
parity with the Series C Preferred Stock or create, authorize or issue
any obligations or securities convertible into any such shares, but only
to the extent such stock is issued to one of our affiliates; or
- either consolidate, merge into or with, or convey, transfer or lease our
assets substantially, as an entirety, to any corporation or other entity,
or amend, alter or repeal the provisions of our Charter, whether by
merger or consolidation or otherwise, in each case so as to materially
and adversely affect the powers, special rights, preferences, privileges
or voting power of the Series C Preferred Stock.
With respect to the occurrence of any of the events set forth in the fourth
bullet point above, so long as we are either the surviving entity and shares of
Series C Preferred Stock remain outstanding with the terms materially unchanged
or the resulting, surviving or transferee entity is a corporation, business
trust or like entity organized under the laws of any state and substitutes for
the Series C Preferred Stock other preferred stock or preferred shares having
substantially the same terms and rights as the Series C Preferred Stock, the
occurrence of any such event will not be considered to materially and adversely
affect rights, preferences, privileges or voting powers of holders of Series C
Preferred Stock. Any increase in the amount of authorized preferred stock, the
creation or issuance of any other class or series of preferred stock or any
increase in an amount of authorized shares of each class or series, in each case
ranking on a parity with or junior to the Series C Preferred Stock will not be
considered to materially and adversely affect such rights, preferences,
privileges or voting powers.
We have agreed to file a registration statement registering the resale of
the shares of Series C Preferred Stock issuable to the holders of AMB Property
II Series C Preferred Units as soon as practicable but not later than 60 days
after the date the AMB Property II Series C Preferred Units are exchanged for
shares of Series C Preferred Stock. We have also agreed to use our best efforts
to cause the registration statement to be declared effective within 120 days
after the date of the exchange.
RESTRICTIONS ON OWNERSHIP AND TRANSFER OF CAPITAL STOCK
In order for us to qualify as a REIT under the Code, no more than 50% in
value of all classes of our outstanding shares of capital stock may be owned,
actually or constructively, by five or fewer individuals (as defined in the Code
to include certain entities) during the last half of a taxable year (other than
the first year for which we have made an election to be treated as a REIT). In
addition, if we, or an owner of 10% or more of our capital stock, actually or
constructively own 10% or more of one of our tenants (or a tenant of any
partnership or limited liability company in which we are a partner or member),
the rent received by us (either directly or through the partnership or limited
liability company) from the tenant will not be qualifying income for purposes of
the gross income tests for REITs contained in the Code. A REIT's stock also must
be beneficially
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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 the
first year for which an election to be treated as a REIT has been made).
Because our Board of Directors believes it is desirable for us to qualify
as a REIT, our Charter, subject to certain exceptions as discussed below,
provides that no person may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% (by value or number of
shares, whichever is more restrictive) of either our issued and outstanding
common stock or our issued and outstanding Series A Preferred Stock. We will
also prohibit the ownership, actually or constructively, of any shares of our
Series B Preferred Stock and any shares of our Series C Preferred Stock by any
single person so that no such person, taking into account all of our stock so
owned by such person, may own in excess of 9.8% of our issued and outstanding
capital stock. The constructive ownership rules under the Code are complex and
may cause stock owned actually or constructively by a group of related
individuals and/or entities to be owned constructively by one individual or
entity. As a result, the acquisition of less than 9.8% of our common stock,
Series A Preferred Stock or capital stock (or the acquisition of an interest in
an entity that owns, actually or constructively, common stock, Series A
Preferred Stock or capital stock) by an individual or entity, could,
nevertheless cause that individual or entity, or another individual or entity,
to own constructively in excess of 9.8% of our outstanding common stock, Series
A Preferred Stock or capital stock, as the case may be, and thereby subject the
common stock, Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock to the applicable ownership limit. The Board of Directors may,
but in no event will be required to, waive the applicable ownership limit with
respect to a particular stockholder if it determines that such ownership will
not jeopardize our status as a REIT and the Board of Directors otherwise decides
such action would be in our best interest. As a condition of such waiver, the
Board of Directors may require an opinion of counsel satisfactory to it and/or
undertakings or representations from the applicant with respect to preserving
our REIT status. The Board of Directors has waived the ownership limit
applicable to our common stock with respect to Ameritech Pension Trust, allowing
it to own up to 14.9% of our common stock and, under some circumstances,
allowing it to own up to 19.6%. However, we conditioned this waiver upon the
receipt of undertakings and representations from Ameritech Pension Trust which
we believed were reasonably necessary in order for us to conclude that the
waiver would not cause us to fail to qualify as a REIT.
Our Charter also provides that:
- no person may actually or constructively own common stock, Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
that would result in us being "closely held" under Section 856(h) of the
Code or otherwise cause us to fail to qualify as a REIT;
- no person may transfer common stock, Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock if a transfer would result in
shares of our capital stock being owned by fewer than 100 persons; and
- any person who acquires or attempts or intends to acquire actual or
constructive ownership of common stock, Series A Preferred Stock, Series
B Preferred Stock or Series C Preferred Stock that will or may violate
any of the foregoing restrictions on transferability and ownership is
required to notify us immediately and provide us with such other
information as we may request in order to determine the effect of the
transfer on our status as a REIT. The foregoing restrictions on
transferability
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and ownership will not apply if our Board of Directors determines that it
is no longer in our best interest to attempt to qualify, or to continue
to qualify, as a REIT. Except as otherwise described above, any change in
the applicable ownership limit would require an amendment to our Charter,
which requires the affirmative vote of holders owning at least two-thirds
of the shares of our outstanding capital stock entitled to vote on the
amendment.
Under our Charter, if any attempted transfer of shares of stock or any
other event would otherwise result in any person violating an ownership limit,
any other limit imposed by our Board of Directors or the other restrictions in
the Charter, then any such attempted transfer will be void and of no force or
effect with respect to the purported transferee (the "Prohibited Transferee") as
to that number of shares that exceeds the applicable ownership limit or such
other limit (referred to as "Excess Shares"). Under those circumstances, the
Prohibited Transferee will acquire no right or interest (or, in the case of any
event other than an attempted transfer, the person or entity holding record
title to any shares in excess of the applicable ownership limit (the "Prohibited
Owner") will cease to own any right or interest) in the Excess Shares. Any
Excess Shares described above will be transferred automatically, by operation of
law, to a trust, the beneficiary of which will be a qualified charitable
organization selected by us (the "Beneficiary"). This automatic transfer will be
considered to be effective as of the close of business on the business day prior
to the date of the violating transfer or event. Within 20 days of receiving
notice from us of the transfer of shares to the trust, the trustee of the trust
will be required to sell the Excess Shares to a person or entity who could own
the shares without violating the applicable ownership limit, or any other limit
imposed by our Board of Directors, and distribute to the Prohibited Transferee
an amount equal to the lesser of the price paid by the Prohibited Transferee for
the Excess Shares or the sales proceeds received by the trust for the Excess
Shares. In the case of any Excess Shares resulting from any event other than a
transfer, or from a transfer for no consideration (such as a gift), the trustee
will be required to sell Excess Shares to a qualified person or entity and
distribute to the Prohibited Owner an amount equal to the lesser of the
applicable market price of the Excess Shares as of the date of the event or the
sales proceeds received by the trust for the Excess Shares. In either case, any
proceeds in excess of the amount distributable to the Prohibited Transferee or
Prohibited Owner will be distributed to the Beneficiary. Prior to a sale of any
Excess Shares by the trust, the trustee will be entitled to receive, in trust
for the Beneficiary, all dividends and other distributions paid by us with
respect to the Excess Shares, and also will be entitled to exercise all voting
rights with respect to the Excess Shares. Subject to Maryland law, effective as
of the date that the shares have been transferred to the trust, the trustee will
have the authority (at the trustee's sole discretion) to rescind as void any
vote cast by a Prohibited Transferee or Prohibited Owner prior to the time that
we discover that the shares have been automatically transferred to the trust and
to recast the vote in accordance with the desires of the trustee acting for the
benefit of the Beneficiary. However, if we have already taken irreversible
corporate action, then the trustee will not have the authority to rescind and
recast the vote. If we pay the Prohibited Transferee or Prohibited Owner any
dividend or other distribution before we discover that the shares were
transferred to the trust, the Purported Transferee or Prohibited Owner will be
required to repay the trustee upon demand for distribution to the Beneficiary.
If the transfer to the trust is not automatically effective (for any reason), to
prevent violation of the applicable ownership limit or any other limit provided
in our Charter or imposed by the Board of Directors, then our Charter provides
that the transfer of the Excess Shares will be void ab initio.
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In addition, shares of stock held in the trust will be considered to have
been offered for sale to us, or our designee, at a price per share equal to the
lesser of (1) the price per share in the transaction that resulted in the
transfer to the trust (or, in the case of a devise or gift, the market price at
the time of such devise or gift) and (2) the applicable market price on the date
that we, or our designee, accept the offer. We have the right to accept the
offer until the trustee has sold the shares held in the trust. Upon that sale to
us, the interest of the Beneficiary in the shares sold will terminate and the
trustee will distribute the net proceeds of the sale to the Prohibited
Transferee or Prohibited Owner.
If any attempted transfer of shares would cause us to be beneficially owned
by fewer than 100 persons, our Charter provides that the transfer will be null
and void in its entirety and the intended transferee will acquire no rights to
the stock.
All certificates representing shares will bear a legend referring to the
restrictions described above. The ownership limitations described above could
delay, defer or prevent a transaction or a change in control that might involve
a premium price for the shares or otherwise be in the best interest of
stockholders.
Under our Charter, owners of outstanding shares must, upon our demand,
provide us with a completed questionnaire containing information regarding
ownership of the shares, as set forth in the treasury regulations. In addition,
each stockholder must upon demand disclose to us in writing such information
that we may request in order to determine the effect, if any, of the
stockholder's actual and constructive ownership of shares of common stock,
Series A Preferred Stock, Series B Preferred Stock and/or Series C Preferred
Stock on our status as a REIT and to ensure compliance with each ownership
limit, or any other limit specified in the Charter or required by the Board of
Directors.
TRANSFER AGENT, REGISTRAR, CONVERSION AGENT AND DIVIDEND DISBURSING AGENT
The transfer agent, registrar and dividend disbursing agent for our common
stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock is BankBoston, N.A., an affiliate of First National Bank of Boston.
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DESCRIPTION OF CERTAIN PROVISIONS OF THE
PARTNERSHIP AGREEMENT OF THE OPERATING PARTNERSHIP
Substantially all of our assets are held, and all of our operations are
conducted, by or through the Operating Partnership. We are the sole general
partner of the Operating Partnership and owned, as of November 30, 1998, an
approximate 95.1% interest in the Operating Partnership. As the sole general
partner, we have the exclusive right and power to manage the Operating
Partnership. Our interest in the Operating Partnership is designated as a
general partner interest. Except with respect to distributions of cash and
allocations of income and loss, and except as otherwise noted in this
prospectus, the description in this section of common limited partnership Units
is also applicable to Performance Units, and holders of Performance Units will
be treated as limited partners. We have summarized certain terms and provisions
of the Partnership Agreement. This summary is not complete and is qualified by
the provisions of the Partnership Agreement. For more detail, you should refer
to the Partnership Agreement itself, which we have filed as an exhibit to the
registration statement of which this prospectus is a part. See "Where You Can
Find More Information."
GENERAL
Holders of limited partnership Units hold limited partnership interests in
the Operating Partnership, and all holders of partnership interests (including
us in our capacity as general partner) are entitled to share in cash
distributions from, and in the profits and losses of, the Operating Partnership.
The number of general partnership Units (the "GP Units") held by us is
approximately equal to the total number of outstanding shares of our common
stock and preferred stock. Accordingly, the distributions that we pay per share
of common stock are expected to be equal to the distributions per unit that the
Operating Partnership pays on the common Units, and the distributions that we
pay per share of Series A Preferred Stock, any Series B Preferred Stock and any
Series C Preferred Stock are expected to be equal to the distributions per unit
that the Operating Partnership pays on the Series A Preferred Units, the Series
B Preferred Units and any Series C Preferred Units, respectively. The Units have
not been registered pursuant to federal or state securities laws, and they will
not be listed on the New York Stock Exchange or any other exchange or quoted on
any national market system. However, the shares of common stock, Series B
Preferred Stock and Series C Preferred Stock that we may issue upon exchange of
the common Units, Series B Preferred Units and AMB Property II Series C
Preferred Units may be sold in registered transactions or transactions exempt
from registration under the Securities Act. The limited partners of the
Operating Partnership have the rights to which limited partners are entitled
under the Partnership Agreement and the Delaware Uniform Limited Partnership Act
(the "Partnership Act"). The Partnership Agreement imposes certain restrictions
on the transfer of Units, as described below.
PURPOSE, BUSINESS AND MANAGEMENT
The Operating Partnership is organized as a Delaware limited partnership
pursuant to the terms of the Partnership Agreement. We are the sole general
partner of the Operating Partnership and conduct substantially all of our
business through the Operating Partnership, except for investment advisory
services (which we conduct through AMB Investment Management) and certain other
activities that we conduct through Headlands Realty Corporation.
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The primary purpose of the Operating Partnership is, in general, to
acquire, purchase, own, operate, manage, develop, redevelop, invest in, finance,
refinance, sell, lease and otherwise deal with industrial and retail properties
and assets related to those properties, and interests in those properties and
assets. The Operating Partnership is authorized to conduct any business that a
limited partnership formed under the Partnership Act may lawfully conduct,
except that the Partnership Agreement requires of the Operating Partnership to
conduct its business in such a manner that will permit the Company to be
classified as a REIT under Section 856 of the Code, unless the Company ceases to
qualify as a REIT for reasons other than the conduct of the business of the
Operating Partnership. Subject to the foregoing limitation, the Operating
Partnership may enter into partnerships, joint ventures or similar arrangements
and may own interests directly or indirectly in any other entity.
As the general partner of the Operating Partnership we have the exclusive
power and authority to conduct the business of the Operating Partnership,
subject to the consent of the limited partners in certain limited circumstances
(as discussed below) and except as expressly limited in the Partnership
Agreement.
We have the right to make all decisions and take all actions with respect
to the Operating Partnership's acquisition and operation of our properties and
all other assets and businesses of or related to the Operating Partnership. No
limited partner may take part in the conduct or control of the business or
affairs of the Operating Partnership by virtue of being a holder of Units. In
particular, each limited partner expressly acknowledged in the Partnership
Agreement that as general partner, we are acting on behalf of the Operating
Partnership's limited partners and our stockholders, collectively, and are under
no obligation to consider the tax consequences to limited partners when making
decisions for the benefit of the Operating Partnership. We intend to make
decisions in our capacity as general partner of the Operating Partnership so as
to maximize our profitability and the profitability of the Operating Partnership
as a whole, independent of the tax effects on the limited partners. The Company
and the Operating Partnership have no liability to a limited partner as a result
of any liabilities or damages incurred or suffered by, or benefits not derived
by, a limited partner as a result of an action or inaction of the Company as
general partner of the Operating Partnership as long as the Company acted in
good faith. Limited partners have no right or authority to act for or to bind
the Operating Partnership.
Limited partners of the Operating Partnership have no authority to transact
business for, or participate in the management activities or decisions of, the
Operating Partnership, except as provided in the Partnership Agreement or as
required by applicable law.
ENGAGING IN OTHER BUSINESSES; CONFLICTS OF INTEREST
We may not conduct any business other than in connection with the
ownership, acquisition and disposition of Operating Partnership interests as a
general partner and the management of the business of the Operating Partnership,
its operation as a public reporting company with a class (or classes) of
securities registered under the Exchange Act its operation as a REIT and
activities that are incidental to these activities (including ownership of any
interest in AMB Property Holding Corporation, AMB Property Holding II
Corporation, the Preferred Stock Subsidiaries or a title holding, management or
finance subsidiary organized as a partnership, limited liability company or
corporation) without the consent of the holders of a majority of the limited
partnership interests. Unless they otherwise agree in writing, each limited
partner, and its affiliates, is free to engage in any business or activity, even
if the business or activity competes with or is enhanced by
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the business of the Operating Partnership. The Partnership Agreement does not
prevent another person or entity that acquires control of the Company in the
future from conducting other businesses or owning other assets, even if it would
be in the best interests of the limited partners for the Operating Partnership
to own those businesses or assets. In the exercise of our power and authority
under the Partnership Agreement, we may contract and otherwise deal with or
otherwise obligate the Operating Partnership to entities in which we or any one
or more of our officers, directors or stockholders may have an ownership or
other financial interest, whether direct or indirect.
OUR REIMBURSEMENT; TRANSACTIONS WITH US AND OUR AFFILIATES
We do not receive any compensation for our services as general partner of
the Operating Partnership. However, as a partner in the Operating Partnership,
we have rights to allocations and distributions as a partner of the Operating
Partnership. In addition, the Operating Partnership reimburses us for all
expenses we incur relating to our activities as general partner, our continued
existence and qualification as a REIT and all other liabilities that we incur in
connection with the pursuit of our business and affairs. We may retain persons
or entities that we select (including ourselves, any entity in which we have an
interest, or any entity with which we are affiliated) to provide services to or
on behalf of the Operating Partnership. The Operating Partnership will reimburse
us for all expenses incurred relating to the ongoing operation of the Operating
Partnership and any issuance of additional partnership interests in the
Operating Partnership. These expenses include those incurred in connection with
the administration and activities of the Operating Partnership, such as the
maintenance of the Operating Partnership's books and records, management of the
Operating Partnership's property and assets, and preparation of information
regarding the Operating Partnership provided to the partners in the preparation
of their individual tax returns. Except as expressly permitted by the
Partnership Agreement, however, our affiliates will not engage in any
transactions with the Operating Partnership except on terms that are fair and
reasonable to the Operating Partnership and no less favorable to the Operating
Partnership than it would obtain from an unaffiliated third party.
OUR EXCULPATION AND INDEMNIFICATION
The Partnership Agreement generally provides that we, as general partner of
the Operating Partnership, will incur no liability to the Operating Partnership
or any limited partner for losses sustained, liabilities incurred, or benefits
not derived as a result of errors in judgment or for any mistakes of fact or law
or for anything that we may do or not do in connection with the business and
affairs of the Operating Partnership if we carry out our duties in good faith.
Our liability in any event is limited to our interest in the Operating
Partnership. We have no liability for the loss of any limited partner's capital.
In addition, we are not responsible for any misconduct, negligent act or
omission of any of our consultants, contractors or agents, or any of the
Operating Partnership's consultants, contractors or agents, and we have no
obligation other than to use good faith in the selection of all contractors,
consultants and agents. We may consult with counsel, accountants, appraisers,
management consultants, investment bankers, and other consultants and advisors
that we select. An opinion by a consultant on a matter that we believe is within
the consultant's professional or expert competence is considered to be complete
protection as to any action that we take or fail to take based on the opinion
and in good faith.
The Partnership Agreement also requires the Operating Partnership to
indemnify us, our directors and officers, and other persons that we may from
time to time designate
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against any loss or damage, including reasonable legal fees and court costs
incurred by the person by reason of anything the person may do or not do for or
on behalf of the Operating Partnership or in connection with its business or
affairs unless it is established that:
- the act or omission of the indemnified person was material to the matter
giving rise to the proceeding and either the indemnified person committed
the act or omission in bad faith or as the result of active and
deliberate dishonesty;
- the indemnified person actually received an improper personal benefit in
money, property or services; or
- in the case of any criminal proceeding, the indemnified person had
reasonable cause to believe that the act or omission was unlawful. Any
indemnification claims must be satisfied solely out of the assets of the
Operating Partnership.
SALES OF ASSETS; LIQUIDATION
Under the Partnership Agreement, as general partner we generally have the
exclusive authority to determine whether, when and on what terms, the Operating
Partnership will sell its assets (including our properties, which we own through
the Operating Partnership). However, we have agreed, in connection with the
contribution of properties from taxable investors in our formation transactions
and certain property acquisitions for Units (with an estimated aggregate value
of approximately $253.7 million), not to dispose of certain assets in a taxable
sale or exchange for a mutually agreed upon period and, thereafter, to use
commercially reasonable or best efforts to minimize the adverse tax consequences
of any sale. We may enter into similar or other agreements in connection with
other acquisitions of properties for Units.
A merger of the Operating Partnership with another entity generally
requires an affirmative vote of the partners (other than the preferred limited
partners) holding a majority of the outstanding percentage interest (including
the interest held directly or indirectly by us) of all partners other than
preferred limited partners, subject to certain consent rights of holders of
Units as described below under "Amendment of the Partnership Agreement." A
dissolution or liquidation of the Operating Partnership, including a sale or
disposition of all or substantially all of the Operating Partnership's assets
and properties, generally requires an affirmative vote of the limited partners
(other than the preferred limited partners) holding a majority of the
outstanding percentage interest of all limited partners other than preferred
limited partners.
CAPITAL CONTRIBUTION
The Partnership Agreement provides that if the Operating Partnership
requires additional funds at any time or from time to time in excess of funds
available to the Operating Partnership from borrowings or capital contributions,
we may borrow funds from a financial institution or other lender or through
public or private debt offerings and lend the funds to the Operating Partnership
on the same terms and conditions as are applicable to our borrowing of the
funds. As an alternative to borrowing funds required by the Operating
Partnership, we may contribute the amount of the required funds as an additional
capital contribution to the Operating Partnership. If we contribute additional
capital to the Operating Partnership, our partnership interest in the Operating
Partnership will be increased on a proportionate basis. Conversely, the
partnership interests of the limited partners will be decreased on a
proportionate basis if we make additional capital contributions.
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DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
The Partnership Agreement generally provides that the Operating Partnership
will make quarterly distributions of Available Cash (as defined below), as
determined in the manner provided in the Partnership Agreement, to the partners
of the Operating Partnership in proportion to their percentage interests in the
Operating Partnership (which for any partner is determined by the number of
Units it owns relative to the total number of Units outstanding). If any
preferred Units are outstanding, the Operating Partnership will pay
distributions to holders of preferred Units in accordance with the rights of
each class of preferred Units (and, within each such class, pro rata in
proportion to the respective percentage interest of each holder), with any
remaining Available Cash distributed in accordance with the previous sentence.
"Available Cash" is generally defined as net cash flow from operations, plus any
reduction in reserves, and minus interest and principal payments on debt,
capital expenditures, any additions to reserves and other adjustments. Other
than as described below, neither we nor the limited partners are currently
entitled to any preferential or disproportionate distributions of Available Cash
with respect to the Units.
SERIES A PREFERRED UNITS
In connection with the sale of the Series A Preferred Shares, we received
Series A Preferred Units in the Operating Partnership that mirror the rights,
preferences and other terms of the Series A Preferred Stock. The Series A
Preferred Units rank, with respect to distribution rights and rights upon
liquidation, winding up or dissolution of the Operating Partnership:
- senior to the common Units and to all Units that provide that they rank
junior to the Series A Preferred Units;
- junior to all Units which rank senior to the Series A Preferred Units;
and
- on a parity with the Series B Preferred Units, any Series C Preferred
Units that the Operating Partnership may issue to us (see "-- Series C
Preferred Units") and all other Units expressly designated by the
Operating Partnership to rank on a parity with the Series A Preferred
Units.
We receive preferred distributions of cash and preferred allocations of
income on the Series A Preferred Units in an amount equal to the dividends
payable by us on the Series A Preferred Stock. If we acquire any Series B
Preferred Units from the holders pursuant to the exercise of their exchange
rights, or if the Operating Partnership issues any Series C Preferred Units to
us, we will receive preferred distributions of cash and preferred allocations of
income on the Series B Preferred Units or Series C Preferred Units in an amount
equal to the dividends payable by us on the Series B Preferred Stock or Series C
Preferred Stock. See "-- Series C Preferred Units."
As a consequence, we will receive distributions from the Operating
Partnership sufficient to pay dividends on the Series A Preferred Stock and any
Series B Preferred Stock and Series C Preferred Stock before any other partner
in the Operating Partnership (other than holders of parity preferred units,
including the Series B Preferred Units) receives a distribution. In addition, if
necessary, income will be specially allocated to us and losses will be allocated
to the other partners of the Operating Partnership in amounts necessary to
ensure that, to the extent possible, the balance in our capital account will at
all times be equal to or in excess of the amount payable by us on the Series A
Preferred Stock and any Series B Preferred Stock and Series C Preferred Stock
upon liquidation or
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redemption. See "Certain Federal Income Tax Considerations -- Tax Aspects of the
Operating Partnership and the Joint Ventures -- Allocations of Operating
Partnership Income, Gain, Loss and Deduction."
SERIES B PREFERRED UNITS
General. The Series B Preferred Units rank, with respect to distribution
rights and rights upon liquidation, winding up or dissolution of the Operating
Partnership:
- senior to the common Units and to all Units that provide that they rank
junior to the Series B Preferred Units;
- junior to all Units which rank senior to the Series B Preferred Units;
and
- on a parity with the Series A Preferred Units, any Series C Preferred
Units and all other Units expressly designated by the Operating
Partnership to rank on a parity with the Series B Preferred Units.
Subject to the rights of holders of parity preferred Units (including the
Series A Preferred Units and any Series C Preferred Units), holders of the
Series B Preferred Units are entitled to receive, when, as and if declared by
the Operating Partnership, acting through us as general partner, cumulative
preferential cash distributions in an amount equal to 8 5/8% per annum on an
amount equal to $50.00 per Series B Preferred Unit then outstanding (equivalent
to $4.3125 per annum). These distributions are payable on the 15th day of
January, April, July and October of each year.
Exchange Rights. The Series B Preferred Units are exchangeable in whole at
any time on or after November 12, 2008, at the option of 51% of the holders of
all outstanding Series B Preferred Units, on a one for one basis, subject to
adjustment, for shares of our Series B Preferred Stock. In addition, the Series
B Preferred Units are exchangeable in whole at any time at the option of 51% of
the holders of all outstanding Series B Preferred Units if:
- any Series B Preferred Unit shall not have received full distributions
with respect to six prior quarterly distribution periods (whether or not
consecutive); or
- we or one of our subsidiaries take the position, and a holder or holders
of Series B Preferred Units receive an opinion of independent counsel
that the Operating Partnership is, or upon the happening of a certain
event likely will be, a "publicly traded partnership" within the meaning
of the Code.
The Series B Preferred Units are exchangeable in whole for shares of Series
B Preferred Stock at any time after November 12, 2001 and prior to November 12,
2008 at the option of 51% of the holders of all outstanding Series B Preferred
Units if those holders deliver to us as general partner a private letter ruling
or an opinion of independent counsel to the effect that an exchange of the
Series B Preferred Units at that time would not cause the Series B Preferred
Units to be considered "stock and securities" within the meaning of the Code for
purposes of determining whether the holder of Series B Preferred Units is an
"investment company" under the Code.
With certain limitations, the Series B Preferred Units are also
exchangeable in whole at any time for shares of Series B Preferred Stock
(regardless of whether held by the initial purchaser) if:
- the initial purchaser of the Series B Preferred Units reasonably
concludes that there exists an imminent and substantial risk that the
initial purchaser's interest in the
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Operating Partnership represents or will represent more than 19.5% of the
total profits or capital interests in the Operating Partnership for a
taxable year;
- the initial purchaser of the Series B Preferred Units delivers to us an
opinion to the effect that there is a substantial risk that the initial
purchaser's interest in the Operating Partnership represents or will
represent more than 19.5% of the total profits or capital interests in
the Operating Partnership for a taxable year; and
- we, as the general partner, agree with the conclusions in the bullet
points above; provided, that we may not unreasonably withhold our
agreement.
In lieu of an exchange for Series B Preferred Stock, we may elect to cause
the Operating Partnership to redeem Series B Preferred Units for cash in an
amount equal to the original capital account balance of the Series B Preferred
Units plus all accrued and unpaid distributions to the date of redemption. A
holder of Series B Preferred Units will not be entitled to exchange the Units
for Series B Preferred Stock if the exchange would result in a violation of the
ownership limit. See "Description of Capital Stock -- Restrictions on Ownership
and Transfer of Capital Stock."
Redemption. On or after November 12, 2003, the Operating Partnership has
the right to redeem the Series B Preferred Units, in whole or in part from time
to time, at a redemption price payable in cash equal to the capital account
balance of the holder, provided that the amount shall not be less than $50.00
per Series B Preferred Unit. The Operating Partnership must pay the redemption
price solely out of the sale proceeds of our capital stock or interests in the
Operating Partnership and from no other source. The Operating Partnership may
not redeem fewer than all of the Series B Preferred Units unless the Operating
Partnership has paid all accumulated and unpaid distributions on all Series B
Preferred Units for all quarterly distribution periods terminating on or prior
to the date of redemption.
Limited Approval Rights. For so long as any Series B Preferred Units are
outstanding, without the affirmative vote of the holders of at least two-thirds
of the Series B Preferred Units outstanding at the time, the Operating
Partnership may not:
- authorize, create or increase the authorized or issued amount of, or
reclassify, any class or series of partnership interests, or create,
authorize or issue any obligations or security convertible into or
evidencing the right to purchase any partnership interests, ranking prior
to the Series B Preferred Units;
- authorize, create or increase the authorized or issued amount of, or
reclassify, any class or series of partnership interests, or create,
authorize or issue any obligations or security convertible into or
evidencing a right to purchase any partnership interests, ranking equal
to the Series B Preferred Units, but only to the extent that such
securities are issued to an affiliate of the Operating Partnership, other
than us to the extent that the issuance is to allow us to issue
corresponding shares of Series B Preferred Stock to persons who are not
affiliates of the Operating Partnership; or
- either consolidate, merge into or with, or convey, transfer or lease its
assets substantially as an entirety to, any corporation or other entity
or amend, alter or repeal the provisions of the Partnership Agreement, in
a manner that would materially and adversely affect the powers, special
rights, preferences, privileges or voting power of the Series B Preferred
Units. So long as the Operating Partnership is the surviving entity and
the Series B Preferred Units remain outstanding on the
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same terms, or the resulting, surviving or transferee entity is a
partnership, limited liability company or other pass-through entity and
substitutes the Series B Preferred Units for other interests in such
entity, with substantially the same terms and rights, then the occurrence
of any of the events listed above in this bullet point will not be
considered to materially and adversely affect such rights, privileges or
voting powers.
Other than as discussed above or elsewhere in this prospectus, the holders
of Series B Preferred Units have no voting rights other than with respect to
certain matters that would adversely affect them or as otherwise provided by
applicable law.
Liquidation Preference. The distribution and income allocation provisions
of the Partnership Agreement have the effect of providing each Series B
Preferred Unit with a liquidation preference to each holder of such Units equal
to the holder's capital contributions, plus any accrued but unpaid
distributions, in preference to any other class or series of partnership
interest of the Operating Partnership, other than any Series A Preferred Units
and any Series C Preferred Units.
Registration Rights. We have agreed to file a registration statement
registering the resale of the shares of Series B Preferred Stock issuable to the
holders of Series B Preferred Units as soon as practicable but not later than 60
days after the date the Series B Preferred Units are exchanged for shares of
Series B Preferred Stock. We have also agreed to use our best efforts to cause
the registration statement to be declared effective within 120 days after the
date of the exchange.
SERIES C PREFERRED UNITS
As described under "Description of Capital Stock -- Preferred
Stock -- Series C Preferred Stock," holders of AMB Property II Series C
Preferred Units may exchange their units for shares of our Series C Preferred
Stock. If we issue Series C Preferred Stock, we will:
- contribute 99% of the AMB Property II Series C Preferred Units to the
Operating Partnership in exchange for Series C Preferred Units in the
Operating Partnership that mirror the rights, preferences and other terms
of the Series C Preferred Stock; and
- contribute 1% of the AMB Property II Series C Preferred Units to AMB
Property Holding Corporation.
Any Series C Preferred Units will rank on a parity with the Series A
Preferred Units and Series B Preferred Units. As a consequence, we would receive
distributions from the Operating Partnership that we would use to pay dividends
on any Series C Preferred Stock and the Series A Preferred Stock before any
other partner in the Operating Partnership (other than holders of parity
preferred units, including the Series B Preferred Units).
COMMON LIMITED PARTNERSHIP UNITS
Redemption/Exchange Rights
Holders of common Units have the right, commencing generally on or before
the first anniversary of the holder becoming a limited partner of the Operating
Partnership (or such other date agreed to by the Operating Partnership and the
applicable Unit holders), to require the Operating Partnership to redeem part or
all of their common Units for cash (based upon the fair market value of an
equivalent number of shares of common stock at the time of redemption) or we
may, in our sole and absolute discretion (subject to the
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limits on ownership and transfer of common stock set forth in our Charter) elect
to exchange those common Units for shares of common stock (on a one-for-one
basis, subject to adjustment in the event of stock splits, stock dividends,
issuance of certain rights, certain extraordinary distributions and similar
events). See "Redemption/Exchange of Common Units for Common Stock." We
presently anticipate that we will elect to issue shares of common stock in
exchange for common Units in connection with each redemption request, rather
than having the Operating Partnership pay cash. With each redemption or
exchange, our percentage ownership interest in the Operating Partnership will
increase. Common limited partners may exercise this redemption/exchange right
from time to time, in whole or in part, subject to the limitations that limited
partners may not exercise the right if exercise would result in any person
actually or constructively owning shares of common stock in excess of the
ownership limit or any other amount specified by the Board of Directors,
assuming common stock was issued in the exchange. Holders of Performance Units
also have limited redemption/exchange rights, as discussed under the caption
"-- Performance Units" below.
Registration Rights
We have granted to common limited partners certain registration rights with
respect to the shares of stock issuable upon exchange of common Units or
otherwise. We have agreed to file and generally keep continuously effective
generally beginning on or as soon as practicable after one year after issuance
of common Units a registration statement covering the issuance of shares of
common stock upon exchange of the Units and the resale of the shares.
This prospectus is a part of the registration statement registering the
shares issuable to limited partners of the Operating Partnership who hold common
Units issued on November 26, 1997 in connection with our formation. Pursuant to
the terms and conditions of such registration rights, prior to the date upon
which the shares of common stock issuable upon exchange of the common Units
would be eligible for resale under Rule 144(k) under the Securities Act, as such
rule may be amended from time to time (or any similar rule or regulation
hereafter adopted by the SEC), each of the selling stockholders generally is
limited to resales of shares of common stock issued pursuant to this prospectus
to the number of shares which otherwise would be eligible for resale by that
selling stockholder pursuant to Rule 144, assuming the shares were issued on the
same date as the respective common Units were issued. In addition, we have
agreed to file a registration statement covering shares of common stock issuable
upon exchange of Performance Units. We may also agree to provide registration
rights to any other person who may become an owner of Units, provided the person
provides us with satisfactory undertakings. See "Risk Factors -- Ownership of
Common Stock -- The Large Number of Shares Available for Future Sale Could
Adversely Affect the Market Price of Our Common Stock." We will bear expenses
incident to our registration obligations upon exercise of registration rights,
including the payment of federal securities law and state Blue Sky registration
fees, except that we will not bear any underwriting discounts or commissions or
transfer taxes relating to registration of the shares.
PERFORMANCE UNITS
Notwithstanding the foregoing discussion of distributions and allocations
of income or loss of the Operating Partnership, depending on the trading price
of our common stock after November 26, 1998 (the first anniversary of our
initial public offering), certain of our officers, in their capacity as limited
partners of the Operating Partnership, may receive
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performance units ("Performance Units") as of each of February 26, May 26,
August 26 and November 26, 1999. The Performance Units are similar to common
Units in many respects, including the right to share in operating distributions,
and allocations of operating income and loss, of the Operating Partnership on a
pro rata basis with common Units, and certain redemption and exchange rights,
including limited rights to cause the Operating Partnership to redeem the
Performance Units for cash or, at the Company's option, to exchange the
Performance Units for shares of common stock. Any redemption rights with respect
to Performance Units, however, will be dependent upon an increase in the value
of the assets of the Operating Partnership (in some cases measured by reference
to the trading price of the shares of common stock) after the issuance of the
Performance Units. If there is no increase, the holders of Performance Units
will not be entitled to receive any proceeds upon the liquidation of the
Operating Partnership or the redemption of their Performance Units.
Immediately prior to our initial public offering, certain investors owned
assets that were subject to advisory agreements with AMB Institutional Realty
Advisors, Inc. containing an incentive fee provision or a "catch up adjustment."
We refer to these investors as "Performance Investors." Allmerica Financial Life
Insurance and Annuity Company, which is a selling stockholder under this
registration statement, is a Performance Investor. If officers receive
Performance Units, an equal number of GP Units allocable to the Company and
Units allocable to Performance Investors who are limited partners in the
Operating Partnership will be transferred to the Operating Partnership. 55,963
of Allmerica's Units are held in an escrow account for possible transfer to the
Operating Partnership. If any of our GP Units are transferred to the Operating
Partnership as a result of the issuance of Performance Units, an equal number of
shares of common stock (the "Performance Shares") will be transferred to us by
the applicable Performance Investors. Accordingly, no Company stockholder or
limited partner in the Operating Partnership (other than Performance Investors,
to the extent of their obligations to transfer Performance Shares to the Company
or the Operating Partnership, as applicable) will be diluted as a result of the
issuance of Performance Units.
REMOVAL OF THE GENERAL PARTNER; TRANSFERABILITY OF OUR INTERESTS; TREATMENT OF
LIMITED PARTNERSHIP UNITS IN SIGNIFICANT TRANSACTIONS
The limited partners may not remove us as general partner, with or without
cause, other than with our consent. The Partnership Agreement provides that we
may not withdraw from the Operating Partnership (whether by sale, statutory
merger, consolidation, liquidation or otherwise) without the consent of a
majority in interest of the limited partners other than the preferred limited
partners. However, except as set forth below, we may transfer or assign our
general partner interest in connection with a merger, consolidation or sale of
substantially all of our assets without limited partner consent.
Neither the Company nor the Operating Partnership may engage in any merger,
consolidation or other combination with or into another person, or effect any
reclassification, recapitalization or change of its outstanding equity
interests, and the Company may not sell all or substantially all of its assets
(each a "Termination Transaction") unless in connection with the Termination
Transaction all holders of limited partnership Units other than preferred Units
either will receive, or will have the right to elect to receive, for each Unit
an amount of cash, securities or other property equal to the product of the
number of shares of common stock into which each Unit is then exchangeable and
the greatest amount of cash, securities or other property paid to the holder of
one share in consideration of one share pursuant to the Termination Transaction.
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If, in connection with the Termination Transaction, a purchase, tender or
exchange offer shall have been made to and accepted by the holders of the
outstanding shares of common stock, each holder of limited partnership Units
other than preferred Units will receive, or will have the right to elect to
receive, the greatest amount of cash, securities or other property that the
holder would have received had it exercised its right to redemption and received
shares of common stock in exchange for its Units immediately prior to the
expiration of the purchase, tender or exchange offer and had accepted the
purchase, tender or exchange offer. Any Performance Units issued will also have
the benefit of these provisions, irrespective of the capital account then
applicable to the Performance Units.
A Termination Transaction may also occur if the following conditions are
met:
- substantially all of the assets directly or indirectly owned by the
surviving entity are held directly or indirectly by the Operating
Partnership or another limited partnership or limited liability company
which is the survivor of a merger, consolidation or combination of assets
with the Operating Partnership;
- the holders of common Units, including the holders of any Performance
Units issued, own a percentage interest of the surviving partnership
based on the relative fair market value of the net assets of the
Operating Partnership and the other net assets of the surviving
partnership immediately prior to the consummation of the transaction;
- the rights, preferences and privileges of the holders in the surviving
partnership, including the holders of Performance Units issued or to be
issued, are at least as favorable as those in effect immediately prior to
the consummation of such transaction and as those applicable to any other
limited partners or non-managing members of the surviving partnership
(except, as to Performance Units, for such differences with Units
regarding liquidation, redemption or exchange as are described in this
prospectus); and
- such rights of the common limited partners, including the holders of
Performance Units issued or to be issued, include at least one of the
following:
- the right to redeem their interests in the surviving partnership for
the consideration available to them pursuant to the preceding
paragraph; or
- the right to redeem their Units for cash on terms equivalent to those
in effect immediately prior to the consummation of the transaction,
or, if the ultimate controlling person of the surviving partnership
has publicly traded common equity securities, the common equity
securities, with an exchange ratio based on the relative fair market
value of the securities and the common stock.
Our Board of Directors will reasonably determine fair market values and
rights, preferences and privileges of the common limited partners as of the time
of the Termination Transaction and, to the extent applicable, the values will be
no less favorable to the holders of common Units than the relative values
reflected in the terms of the Termination Transaction.
In addition, in the event of a Termination Transaction, the arrangements
with respect to Performance Units and Performance Shares (as defined under
"-- Performance Units") will be equitably adjusted to reflect the terms of the
transaction, including, to the extent that the shares are exchanged for
consideration other than publicly traded common equity, the transfer or release
of remaining Performance Shares, and resulting issuance of any Performance
Units, as of the consummation of the Termination Transaction.
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DUTIES AND CONFLICTS
Except as otherwise provided by our conflicts of interest policies with
respect to directors and officers and as provided in the non-competition
agreements described under "Risk Factors -- Conflicts of Interest -- Some of Our
Executive Officers are Involved in Other Real Estate Activities and
Investments," any limited partner of the Operating Partnership may engage in
other business activities outside the Operating Partnership, including business
activities that directly compete with the Operating Partnership.
MEETINGS; VOTING
As general partner, we may call meetings of the limited partners of the
Operating Partnership, on our own motion, or upon written request of limited
partners owning at least 25% of the then outstanding Units. Limited partners may
vote either in person or by proxy at meetings. Limited partners may take any
action that they are required or permitted to take either at a meeting of the
limited partners or without a meeting if consents in writing setting forth the
action taken are signed by limited partners owning not less than the minimum
number of Units that would be necessary to authorize or take the action at a
meeting of the limited partners at which all limited partners entitled to vote
on the action were present. On matters for which limited partners are entitled
to vote, each limited partner has a vote equal to the number of Units the
limited partner holds. A transferee of Units who has not been admitted as a
substituted limited partner with respect to the Units will have no voting rights
with respect to the Units, even if the transferee holds other Units as to which
it has been admitted as a limited partner. The Partnership Agreement does not
provide for, and we do not anticipate calling, annual meetings of the limited
partners.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed by the Company or
by limited partners owning at least 25% of the then outstanding Units entitled
to vote. Generally, the Partnership Agreement may be amended with our approval,
as general partner, and partners (including us but not including the preferred
limited partners) holding a majority of the percentage interest of all partners
other than preferred limited partners. Certain provisions regarding, among other
things, our rights and duties as general partner (e.g., restrictions on our
power to conduct businesses other than as denoted herein) or the dissolution of
the Operating Partnership, may not be amended without the approval of limited
partners (other than preferred limited partners) holding a majority of the
percentage interests of the limited partners other than preferred limited
partners. As general partner, we have the power, without the consent of the
limited partners, to amend the Partnership Agreement as may be required to,
among other things:
- add to our obligations as general partner or surrender any right or power
granted to us as general partner;
- reflect the admission, substitution, termination or withdrawal of
partners in accordance with the terms of the Partnership Agreement;
- establish the rights, powers, duties and preferences of any additional
partnership interests issued in accordance with the terms of the
Partnership Agreement;
- reflect a change of an inconsequential nature that does not materially
adversely affect any limited partner, or cure any ambiguity, correct or
supplement any provisions of the Partnership Agreement not inconsistent
with law or with other
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provisions of the Partnership Agreement, or make other changes concerning
matters under the Partnership Agreement that are not otherwise
inconsistent with the Partnership Agreement or applicable law; or
- satisfy any requirements of federal, state or local law.
We must approve, and each limited partner that would be adversely affected
must approve, certain amendments to the Partnership Agreement, including
amendments effected directly or indirectly through a merger or sale of assets of
the Operating Partnership or otherwise, that would, among other things,
- convert a limited partner's interest into a general partner's interest;
- modify the limited liability of a limited partner;
- alter the interest of a partner in profits or losses, or the rights to
receive any distributions (except as permitted under the Partnership
Agreement with respect to the admission of new partners or the issuance
of additional Units, either of which actions will have the effect of
changing the percentage interests of the partners and thereby altering
their interests in profits, losses and distributions); or
- alter the limited partner's redemption right.
These protections apply to both holders of common Units and holders of
Performance Units. In addition, no amendment may be effected, directly or
indirectly, through a merger or sale of assets of the Operating Partnership or
otherwise, which would adversely affect the rights of former stockholders of AMB
Institutional Realty Advisors to receive Performance Units.
BOOKS AND REPORTS
The Operating Partnership's books and records are maintained at the
principal office of the Operating Partnership, which is located at 505
Montgomery Street, San Francisco, California 94111. All elections and options
available to the Operating Partnership for federal or state income tax purposes
may be taken or rejected by the Operating Partnership in our sole discretion as
general partner. The limited partners have the right, subject to certain
limitations, to receive copies of the most recent SEC filings by us and the
Operating Partnership, the Operating Partnership's federal, state and local
income tax returns, a list of limited partners, the Partnership Agreement, the
partnership certificate and all amendments and certain information about the
capital contributions of the partners. We may keep confidential from the limited
partners any information that we believe to be in the nature of trade secrets or
other information the disclosure of which the we in good faith believe is not in
the best interests of the Operating Partnership or which the Operating
Partnership is required by law or by agreements with unaffiliated third parties
to keep confidential.
We will use reasonable efforts to furnish to each limited partner, within
90 days after the close of each taxable year, the tax information reasonably
required by the limited partners for federal and state income tax reporting
purposes.
TERM
The Operating Partnership will continue in full force and effect for
approximately 99 years or until sooner dissolved pursuant to the terms of the
Partnership Agreement.
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REDEMPTION/EXCHANGE OF COMMON UNITS FOR COMMON STOCK
TERMS OF THE EXCHANGE
Beginning on November 26, 1998, the limited partners of the Operating
Partnership who hold common Units issued on November 26, 1997 (the selling
stockholders under this prospectus) may require the Operating Partnership to
redeem up to 2,542,163 of their common Units for cash by delivering to the
Company, as general partner of the Operating Partnership, a notice of
redemption. Upon receipt of the notice of redemption, the Company may, in its
sole and absolute discretion (subject to the limitations on ownership and
transfer of common stock set forth in the Charter), elect to exchange those
common Units for shares of common stock on a one-for-one basis, subject to
adjustment as described under "Description of Certain Provisions of the
Partnership Agreement of the Operating Partnership -- Common Limited Partnership
Units -- Redemption/Exchange Rights."
A tendering partner will have the right to receive, on the day of receipt
by the Company of a notice of redemption, the number of shares of common stock
which corresponds to the number of common Units that the Company has elected to
exchange in lieu of a cash redemption. Any shares of common stock issued by the
Company to a limited partner will be duly authorized, validly issued, fully paid
and nonassessable shares, free of any pledge, lien, encumbrance or restriction
other than those provided in the Charter, the Bylaws, the Securities Act,
relevant state securities or blue sky laws and any applicable registration
rights agreement with respect to the shares entered into by the tendering
partner. Notwithstanding any delay in delivery, the tendering partner will be
considered to be owner of shares and rights for all purposes, including rights
to vote or consent and receive dividends as of the date the Company received the
notice of redemption.
Each tendering partner will continue to own all Units subject to any
redemption or exchange, and be treated as a limited partner with respect to the
Units for all purposes, until the limited partner transfers the Units to us and
we pay for them or exchange them, and until that time, the partner will have no
rights as a stockholder.
CERTAIN CONDITIONS TO THE EXCHANGE
The consummation of a redemption or exchange as described above upon the
Company's receipt of a notice of redemption from a tendering partner is subject
to the following conditions:
- in order to protect the Company's status as a REIT, no tendering partner
will be entitled to effect a redemption for cash or an exchange for
common stock, if the ownership or right to acquire common stock would
cause the tendering partner or any other person to violate the ownership
limit;
- without the consent of the Company, no tendering partner may effect a
redemption for less than 10,000 Units, or if the tendering partner holds
less than 10,000 Units, all of the Units held by the tendering partner;
- without the consent of the Company, no tendering partner may effect a
redemption during the period after the record date established by the
Company for a distribution from the Operating Partnership to the partners
in the Operating Partnership and before the record date established by
the Company for a
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distribution to its common stockholders of some or all of its portion of
such distribution; and
- the consummation of any redemption or exchange will be subject to the
expiration or termination of any waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
COMPARISON OF OWNERSHIP OF COMMON UNITS AND COMMON STOCK
Generally, the nature of an investment in common stock of the Company is
similar in several respects to an investment in common Units of the Operating
Partnership. Holders of common stock and holders of common Units generally
receive the same distributions and stockholders and holders of common Units
generally share in the risks and rewards of ownership in the enterprise being
conducted by the Company through the Operating Partnership. However, there are
also differences between ownership of common Units and ownership of common
stock, some of which may be material to investors.
The information below highlights a number of the significant differences
between the Operating Partnership and the Company relating to, among other
things, form of organization, management control, voting rights, liquidity and
federal income tax considerations. These comparisons are intended to assist
limited partners in understanding how their investment will be changed if they
exchange their common Units for shares of common stock in the Company. THIS
DISCUSSION IS SUMMARY IN NATURE AND DOES NOT CONSTITUTE A COMPLETE DISCUSSION OF
THESE MATTERS, AND HOLDERS OF UNITS SHOULD CAREFULLY REVIEW THE REST OF THIS
PROSPECTUS AND THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART FOR
ADDITIONAL IMPORTANT INFORMATION ABOUT THE COMPANY.
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FORM OF ORGANIZATION AND ASSETS OWNED
OPERATING PARTNERSHIP
The Operating Partnership is organized as a Delaware limited partnership. The
Operating Partnership owns substantially all of the Company's assets and
conducts substantially all of the Company's business. The Operating
Partnership's purpose is to conduct any business that may be lawfully conducted
by a limited partnership organized pursuant to the Delaware Revised Uniform
Limited Partnership Act, provided that the Operating Partnership must conduct
its business in a manner that permits the Company to be qualified as a REIT
unless the Company ceases to qualify as REIT for reasons other than the conduct
of the business of the Operating Partnership.
COMPANY
The Company is a Maryland corporation. The Company has elected to be taxed as a
REIT under the Code, commencing with its taxable year ending December 31, 1997,
and intends to maintain its qualification as a REIT. The Company's only
substantial asset is its interest in the Operating Partnership, which gives the
Company an indirect investment in the properties owned by the Operating
Partnership. Under its Charter, the Company may engage in any lawful activity
permitted by the MGCL.
ADDITIONAL EQUITY
OPERATING PARTNERSHIP
The Operating Partnership is authorized to issue Units and other partnership
interests (including partnership interests of different series or classes that
may be senior to common Units) as determined by the Company as its general
partner, in its sole discretion. The Operating Partnership may issue Units and
other partnership interests to the Company, as long as the Operating Partnership
issues such interests in connection with a comparable issuance of shares of the
Company and the Company contributes to the Operating Partnership proceeds raised
in connection with the issuance of such shares.
COMPANY
The Board of Directors may issue, in its discretion, additional shares of common
stock or additional shares of preferred stock; provided, that the total number
of shares issued does not exceed the authorized number of shares of capital
stock set forth in the Company's Charter. As long as the Operating Partnership
is in existence, the Company will contribute to the Operating Partnership the
proceeds of all equity capital raised by the Company in exchange for Units in
the Operating Partnership.
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MANAGEMENT CONTROL
OPERATING PARTNERSHIP
All management powers over the business and affairs of the Operating Partnership
are exclusively vested in the Company as the general partner, and no limited
partner of the Operating Partnership has any right to participate in or exercise
control or management power over the business and affairs of the Operating
Partnership except as provided below under "-- Voting Rights." The general
partner may not be removed by the limited partners with or without cause.
COMPANY
The Board of Directors has exclusive control over the Company's business affairs
subject only to the restrictions in the Charter and Bylaws. At each annual
meeting of stockholders, the Company's stockholders elect the Company's
directors for one year terms. The Board of Directors may alter or eliminate its
policies without a vote of the stockholders. Accordingly, except for their vote
in the election of directors, stockholders have no control over the ordinary
business policies of the Company. The Company cannot change its policy of
maintaining its status as a REIT, however, without the approval of holders of
two-thirds of the shares of the Company's capital stock outstanding and entitled
to vote on the change.
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FIDUCIARY DUTIES
OPERATING PARTNERSHIP
Under Delaware law, the general partner of the Operating Partnership is
accountable to the Operating Partnership as a fiduciary and, consequently, is
required to exercise good faith and integrity in all of its dealings with
respect to partnership affairs. However, under the Partnership Agreement, the
general partner is not liable for monetary damages for losses sustained,
liabilities incurred or benefits not derived by partners as a result of errors
of judgment or mistakes of fact or law or any act or omission, provided that the
general partner has acted in good faith. Each limited partner expressly
acknowledged in the Partnership Agreement that as general partner, the Company
is acting on behalf of the Operating Partnership's limited partners and the
Company's stockholders, collectively, and is under no obligation to consider the
tax consequences to limited partners when making decisions for the benefit of
the Operating Partnership. The Company intends to make decisions in its capacity
as general partner of the Operating Partnership so as to maximize its
profitability and the profitability of the Operating Partnership as a whole,
independent of the tax effects on the limited partners.
COMPANY
Under Maryland law, the directors must perform their duties in good faith, in a
manner that they reasonably believe to be in the best interests of the Company
and with the care of an ordinarily prudent person in a like position. Directors
of the Company who act in such a manner generally will not be liable to the
Company for monetary damages arising from their activities.
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VOTING RIGHTS
OPERATING PARTNERSHIP
Under the Partnership Agreement, the common limited partners have voting rights
only as to the dissolution of the Operating Partnership, the sale of all or
substantially all of the Operating Partnership's assets or merger of the
Operating Partnership, and amendments of the Partnership Agreement, as described
more fully below. Otherwise, all decisions relating to the operation and
management of the Operating Partnership are made by the general partner. As of
November 30, 1998, the Company owned an approximate 95.1% general partner
interest in the Operating Partnership. As Units are redeemed or exchanged by
limited partners, the Company's percentage ownership of the Units will increase.
If additional Units are issued to third parties, the Company's percentage
ownership of the Units will decrease.
COMPANY
The Company is managed and controlled by a Board of Directors. Directors are
elected by the stockholders at annual meetings of the Company. Maryland law
requires that certain major corporate transactions, including most amendments to
the Charter, may not be consummated without the approval of stockholders as set
forth below. All holders of common stock have one vote per share, and the
Charter permits the Board of Directors to classify and issue preferred stock in
one or more series having voting power which may differ from that of the common
stock. See "Description of Capital Stock."
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The following is a comparison of the voting rights of the common limited
partners of the Operating Partnership and the common stockholders of the Company
as they relate to certain major transactions:
A. AMENDMENT OF THE PARTNERSHIP AGREEMENT OR THE CHARTER.
OPERATING PARTNERSHIP
The Partnership Agreement may be amended through a proposal by the general
partner or any limited partners holding 25% or more of the then outstanding
Units entitled to vote. Generally, the Partnership Agreement may be amended with
the approval of the Company as general partner and partners (including the
Company but not including the preferred limited partners) holding a majority of
the percentage interest of all partners other than preferred limited partners.
Certain provisions regarding, among other things, the rights and duties of the
Company as general partner and the dissolution of the Operating Partnership, may
not be amended without the approval of the limited partners (other than
preferred limited partners) holding a majority of the percentage interests of
the limited partners other than preferred limited partners. Certain amendments
that affect the fundamental rights of a limited partner must be approved by the
Company and each limited partner that would be adversely affected. The Company
may, without the limited partners' consent, amend the Partnership Agreement to
establish rights, powers, duties and preferences of additional partnership
interests issued in accordance with the Partnership Agreement and to reflect
certain ministerial matters.
COMPANY
Amendments to the Company's Charter must be advised by the Board of Directors
and approved by the vote of at least two-thirds of the votes entitled to be cast
on the matter at a meeting of stockholders.
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B. VOTE REQUIRED TO DISSOLVE THE OPERATING PARTNERSHIP OR THE COMPANY.
OPERATING PARTNERSHIP
The general partner may not elect to dissolve the Operating Partnership without
the prior consent of limited partners (other than the preferred limited
partners) holding a majority of the outstanding percentage interest of all
limited partners other than preferred limited partners.
COMPANY
Under Maryland Law, the Company may be dissolved by the affirmative vote of a
majority of the Board of Directors declaring the dissolution to be advisable and
approval of holders of at least two-thirds of the total number of shares of
capital stock outstanding and entitled to vote on the matter. The Partnership
Agreement provides that the Company may not withdraw from the Operating
Partnership (whether by sale, statutory merger, consolidation, liquidation or
otherwise) without the consent of limited partners (other than the preferred
limited partners) holding a majority of the outstanding percentage interest of
all limited partners other than preferred limited partners. However, as
described below under "-- Vote Required to Sell Assets or Merge," the Company
may transfer or assign its general partner interest in connection with a merger,
consolidation or sale of substantially all of its assets without limited partner
consent, upon certain terms and conditions.
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C. VOTE REQUIRED TO SELL ASSETS OR MERGE.
OPERATING PARTNERSHIP
Under the Partnership Agreement, the sale, exchange, transfer or other
disposition of all or substantially all of the Operating Partnership's assets
requires the consent of the partners (other than the preferred limited partners)
holding a majority of the percentage interest of all partners other than
preferred limited partners. The merger, consolidation or other combination of
the Operating Partnership also requires the consent of the partners (other than
the preferred limited partners) holding a majority of the percentage interest of
all partners other than preferred limited partners.
COMPANY
Under Maryland law, the sale of all or substantially all of the assets of the
Company or merger or consolidation of the Company requires the approval of the
Board of Directors and the stockholders by the affirmative vote of two-thirds of
all the votes entitled to be cast on the matter. The stockholders are not
required to approve the sale of less than all or substantially all of the
Company's assets.
Pursuant to the Partnership Agreement, the Company may not withdraw from the
Operating Partnership and may not transfer all or any portion of its interest in
the Operating Partnership (whether by sale, statutory merger, consolidation,
liquidation or otherwise) without the consent of limited partners (other than
the preferred limited partners) holdings a majority of the outstanding
percentage interest of all limited partners other than preferred limited
partners. However, the Company may transfer or assign its general partner
interest in connection with a merger, consolidation or sale of substantially all
of its assets without limited partner consent if the conditions described under
"Description of Certain Provisions of the Partnership Agreement of the Operating
Partnership -- Removal of the General Partner; Transferability of Our Interests;
Treatment of Limited Partnership Units in Significant Transactions" are met.
These conditions generally relate to receipt by the common limited partners of
property that the partner would have received had it exchanged its common Units
for shares of common stock immediately prior to the transaction.
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COMPENSATION, FEES AND DISTRIBUTIONS
OPERATING PARTNERSHIP
The general partner does not receive any compensation for its services as
general partner of the Operating Partnership. As a partner in the Operating
Partnership, however, the general partner has the same right to allocations and
distributions as other partners of the Operating Partnership. In addition, the
Operating Partnership will reimburse the Company for all expenses it incurs
relating to its activities as general partner, its continued existence and
qualification as a REIT and all other liabilities that it incurs in connection
with the pursuit of its business and affairs. The Operating Partnership will
reimburse the Company for all expenses incurred relating to the ongoing
operation of the Company and any issuance of additional partnership interests in
the Operating Partnership. These expenses include those incurred in connection
with the administration and activities of the Operating Partnership, such as the
maintenance of the Operating Partnership's books and records, management of the
Operating Partnership's property and assets, and preparation of information
regarding the Operating Partnership provided to the partners in the preparation
of their individual tax returns. Except as expressly permitted by the
Partnership Agreement, however, the Company's affiliates will not engage in any
transactions with the Operating Partnership except on terms that are fair and
reasonable to the Operating Partnership and no less favorable to the Operating
Partnership than it would obtain from an unaffiliated third party.
COMPANY
The outside directors and officers of the Company receive compensation for their
services.
LIABILITY OF INVESTORS
OPERATING PARTNERSHIP
Under the Partnership Agreement and applicable Delaware law, the liability of
the limited partners for the Operating Partnership's debts and obligations is
generally limited to the amount of their investment in the Operating
Partnership.
COMPANY
Under Maryland law, stockholders are generally not personally liable for the
debts or obligations of the Company.
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LIQUIDITY
OPERATING PARTNERSHIP
Subject to certain conditions, limited partners may generally transfer their
Units to accredited investors, provided that the Company has a right of first
refusal for any proposed transfer. Limited partners may transfer their Units
without the Company's consent in the following situations:
- - transfers to the general partner,
- - transfers to an affiliate controlled by the limited partner or to immediate
family members;
- - transfers to a trust for the benefit of a charitable beneficiary or to a
charitable foundation; or
- - transfers pursuant to a pledge to an unaffiliated lending institution as
collateral or security for a loan or other extension of credit.
COMPANY
A limited partner is entitled to freely transfer the shares of common stock
received by that partner in exchange for Units, subject to prospectus delivery
and other requirements for registered securities. The common stock is listed on
the New York Stock Exchange. The breadth and strength of this secondary market
will depend, among other things, upon the number of shares outstanding, the
Company's financial results and prospects, the general interest in the Company's
and other real estate investments, and the Company's dividend yield compared to
that of other debt and equity securities.
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TAXES
OPERATING PARTNERSHIP
The Operating Partnership itself is not subject to federal income taxes.
Instead, each holder of Units includes its allocable share of the Operating
Partnership's taxable income or loss in determining its individual federal
income tax liability. Cash distributions from the Operating Partnership are
generally not taxable to a holder of Units except to the extent they exceed the
holder's basis in its interest in the Operating Partnership (which will include
such holder's allocable share of the Operating Partnership's nonrecourse debt).
Income and loss from the Operating Partnership generally is subject to the
"passive activity" limitations. Under the "passive activity" rules, partners can
generally offset income and loss from the Operating Partnership that is
considered "passive income" against income and loss from other investments that
constitute "passive activities." However, this offset will not be available if
the Operating Partnership becomes a publicly traded partnership (as defined in
the Code).
Holders of Units are required, in some cases, to file state income tax returns
and/or pay state income taxes in the states in which the Operating Partnership
owns property, even if they are not residents of those states.
COMPANY
Distributions made by the Company to its taxable domestic stockholders out of
current or accumulated earnings and profits will be taken into account by them
as ordinary income. Distributions that are designated as capital gain dividends
generally will be taxed as gains from the sale or disposition of a capital
asset. Distributions in excess of current or accumulated earnings and profits
will be treated as a nontaxable return of basis to the extent of a stockholder's
adjusted basis in its common stock, with the excess taxed as capital gain. See
"Certain Federal Income Tax Considerations -- Taxation of Taxable U.S.
Stockholders."
Dividends paid by the Company will be treated as "portfolio" income and
stockholders cannot offset these dividends with losses from "passive
activities."
Stockholders who are individuals generally will not be required to file state
income tax returns and/or pay state income taxes outside of their state of
residence with respect to the Company's operations and distributions. The
Company may be required to pay state income taxes in certain states.
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF
OUR CHARTER AND BYLAWS
We have summarized certain terms and provisions of the MGCL and our Charter
and Bylaws. This summary is not complete and is qualified by the provisions of
our Charter and Bylaws, and the MGCL. For more detail, you should refer to our
Charter and Bylaws, which we have filed as exhibits to the registration
statement of which this prospectus is a part. See "Where You Can Find More
Information."
BOARD OF DIRECTORS
The Charter provides that the number of our directors shall be established
by the Bylaws, but cannot be less than the minimum number required by the MGCL,
which in the case of the Company is three. Our Bylaws currently provide that the
Board of Directors consists of not fewer than five nor more than 13 members who
are elected to a one-year term at each annual meeting of our stockholders. A
majority of the entire Board of Directors may fill any vacancy (except for a
vacancy caused by removal). Our Bylaws provide that a majority of the Board of
Directors must be "Independent Directors." An "Independent Director" is a
director who is not:
- an employee, officer or affiliate of us or one of our subsidiaries or
divisions;
- a relative of a principal executive officer; or
- an individual member of an organization acting as advisor, consultant or
legal counsel, receiving compensation on a continuing basis from us in
addition to director's fees.
REMOVAL OF DIRECTORS
While our Charter and the MGCL empower our stockholders to fill vacancies
in the Board of Directors that are caused by the removal of a director, our
Charter precludes stockholders from removing incumbent directors except upon a
substantial affirmative vote. Specifically, our Charter provides that
stockholders may remove a director only for cause and only by the affirmative
vote of at least two-thirds of the votes entitled to be cast in the election of
directors, subject to the rights of the holders of shares of our preferred stock
to elect and remove directors elected by such holders under certain
circumstances. The MGCL does not define the term "cause." As a result, removal
for "cause" is subject to Maryland common law and to judicial interpretation and
review in the context of the unique facts and circumstances of any particular
situation. This provision, when coupled with the provision in our Bylaws
authorizing the Board of Directors to fill vacant directorships, precludes
stockholders from removing incumbent directors except upon a substantial
affirmative vote and filling the vacancies created by removal with their own
nominees.
OPT OUT OF BUSINESS COMBINATIONS AND CONTROL SHARE ACQUISITION STATUTES
We have elected in our Bylaws not to be governed by the "control share
acquisition" provisions of the MGCL (Sections 3-701 through 3-709), and the
Board of Directors has determined, by irrevocable resolution, that we will not
be governed by the "business combination" provision of the MGCL (Section 3-602),
each of which could have the effect of delaying or preventing a change of
control. Our Bylaws provide that we cannot at a future date determine to be
governed by either provision without the approval of a majority of the
outstanding shares entitled to vote. In addition, the irrevocable resolution
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adopted by the Board of Directors may only be changed by the approval of a
majority of the outstanding shares entitled to vote.
AMENDMENT TO OUR CHARTER AND BYLAWS
Our Charter may not be amended without the affirmative vote of at least
two-thirds of the shares of capital stock outstanding and entitled to vote on
the amendment, voting together as a single class. Our Bylaws may be amended by
the vote of a majority of the Board of Directors or by a vote of a majority of
the shares of our capital stock entitled to vote on the amendment, except with
respect to the following Bylaw provisions (each of which requires the approval
of a majority of the shares of capital stock entitled to vote on the amendment):
- provisions opting out of the control share acquisition statute;
- the requirement in our Bylaws that our independent directors approve
transactions involving our executive officers or directors or any limited
partners of the Operating Partnership and their affiliates;
- provisions governing amendment of our Bylaws.
MEETINGS OF STOCKHOLDERS
Our Bylaws provide for annual meetings of stockholders to elect the Board
of Directors and transact other business as may properly be brought before the
meeting. The President, the Board of Directors and the Chairman of the Board may
call a special meeting of stockholders. The holders of 50% or more of our
outstanding stock entitled to vote may also make a written request to call a
special meeting of stockholders.
The MGCL provides that stockholders may act by unanimous written consent
without a meeting with respect to any action that they are required or permitted
to take at a meeting, if each stockholder entitled to vote on the matter signs
the consent setting forth the action and each stockholder entitled to notice of
the meeting but not entitled to vote at the meeting signs a written waiver of
any right to dissent.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
Our Bylaws provide that with respect to an annual meeting of stockholders,
nominations of persons for election to the Board of Directors and the proposal
of business to be considered by stockholders may be made only:
- pursuant to the notice of the meeting;
- by or at the direction of the Board of Directors; or
- by a stockholder who is entitled to vote at the meeting and has complied
with the advance notice procedures set forth in our Bylaws.
Our Bylaws also provide that with respect to special meetings of
stockholders, only the business specified in the notice of meeting may be
brought before the meeting.
The provisions in our Charter regarding amendments to the Charter and the
advance notice provisions of our Bylaws could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of the
shares of common stock might receive a premium for their shares over the then
prevailing market price or which holders might believe to be otherwise in their
best interests.
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DISSOLUTION OF THE COMPANY
Under the MGCL, we may be dissolved by the affirmative vote of a majority
of the entire Board of Directors declaring dissolution to be advisable and
directing that the proposed dissolution be submitted for consideration at any
annual or special meeting of stockholders. We may also be dissolved, upon proper
notice, by the affirmative vote of the holders of two-thirds of the total number
of shares of capital stock outstanding and entitled to vote on the dissolution,
voting as a single class.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY
Our officers and directors are indemnified under the MGCL, our Charter and
the Partnership Agreement against certain liabilities. Our Charter and Bylaws
require us to indemnify our directors and officers to the fullest extent
permitted from time to time by the MGCL.
The MGCL permits a corporation to indemnify its directors and officers and
certain other parties 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:
- the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty;
- the director or officer actually received an improper personal benefit in
money, property or services; or
- in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
A corporation may indemnify a director or officer against judgments,
penalties, fines, settlements and reasonable expenses that the director or
officer actually incurs in connection with the proceeding unless the proceeding
is one by or in the right of the corporation and the director or officer has
been adjudged to be liable to the corporation. In addition, a corporation may
not indemnify a director or officer with respect to any proceeding charging
improper personal benefit to the director or officer in which the director or
officer was adjudged to be liable on the basis that personal benefit was
received. The termination of any proceeding by conviction, or upon a plea of
nolo contendere or its equivalent, or an entry of any order of probation prior
to judgment, creates a rebuttable presumption that the director or officer did
not meet the requisite standard of conduct required for indemnification to be
permitted.
The MGCL permits the charter of a Maryland corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, subject to specified
restrictions. Our Charter contains this provision. The MGCL does not, however,
permit the liability of directors and officers to the corporation or its
stockholders to be limited to the extent that:
- it is proved that the person actually received an improper personal
benefit in money, property or services;
- a judgment or other final adjudication is entered in a proceeding based
on a finding that the person's action, or failure to act, was committed
in bad faith or was the result of active and deliberate dishonesty and
was material to the cause of action adjudicated in the proceeding; or
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- in the case of any criminal proceeding, the director had reasonable cause
to believe that the act or failure to act was unlawful.
This provision does not limit our ability or our stockholders to obtain
other relief, such as an injunction or rescission. The Partnership Agreement
also provides for our indemnification, as general partner, and our officers and
directors to the same extent indemnification is provided to our officers and
directors in our Charter, and limits our liability and the liability of our
officers and directors to the Operating Partnership and the partners of the
Operating Partnership to the same extent liability of our officers and directors
to us and our stockholders is limited under our Charter. See "Description of
Certain Provisions of the Partnership Agreement of the Operating
Partnership -- Our Exculpation and Indemnification."
Insofar as the foregoing provisions permit indemnification for liability
arising under the Securities Act of directors, officers or persons controlling
us, we have been informed that, in the opinion of the SEC, this indemnification
is against public policy as expressed in the Securities Act and is therefore
unenforceable.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations
regarding the Company and the common stock we are registering is based on
current law, is for general information only and is not tax advice. The
information set forth below, to the extent that it constitutes matters of law,
summaries of legal matters or legal conclusions, is the opinion of Latham &
Watkins. The tax treatment to holders of common stock or common Units will vary
depending on a holder's particular situation and this discussion does not
purport to deal with all aspects of taxation that may be relevant to a holder of
common stock or common Units in light of his or her personal investments or tax
circumstances, or to certain types of stockholders, subject to special treatment
under the federal income tax laws except to the extent discussed under the
headings "-- Taxation of Tax-Exempt Stockholders" and "-- Taxation of Non-U.S.
Stockholders." Stockholders subject to special treatment include, without
limitation, insurance companies, financial institutions or broker-dealers,
tax-exempt organizations, stockholders holding securities as part of a
conversion transaction, or a hedge or hedging transaction or as a position in a
straddle for tax purposes, foreign corporations or partnerships and persons who
are not citizens or residents of the United States. In addition, the summary
below does not consider the effect of any foreign, state, local or other tax
laws that may be applicable to holders of our common stock.
The information in this section is based on the Code, current, temporary
and proposed Treasury Regulations promulgated under the Code, the legislative
history of the Code, current administrative interpretations and practices of the
Internal Revenue Service (the "IRS") (including its practices and policies as
expressed in certain private letter rulings which are not binding on the IRS
except with respect to the particular taxpayers who requested and received such
rulings), and court decisions, all as of the date of this prospectus. Future
legislation, Treasury Regulations, administrative interpretations and practices
and/or court decisions may adversely affect, perhaps retroactively, the tax
considerations described herein. We have not requested, and do not plan to
request, any rulings from the IRS concerning our tax treatment and the
statements in this prospectus are not binding on the IRS or a court. Thus, we
can provide no assurance that these statements will not be challenged by the IRS
or sustained by a court if challenged by the IRS.
YOU ARE ADVISED TO CONSULT YOUR TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF THE DISPOSITION OF COMMON UNITS AND THE ACQUISITION,
OWNERSHIP AND SALE OF OUR COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH DISPOSITION, ACQUISITION, OWNERSHIP
AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAX CONSIDERATIONS OF THE EXERCISE OF REDEMPTION RIGHTS
The exchange of the common Units held by a limited partner of the Operating
Partnership for shares of our common stock, or a redemption of such units for
cash, will be treated for tax purposes as a sale of the common Units by the
limited partner. A limited partner will recognize gain or loss for income tax
purposes in an amount equal to the difference between the "amount realized" by
the limited partner in the exchange or redemption and the limited partner's
adjusted tax basis in the common Units exchanged or redeemed. Generally, the
amount realized by a limited partner on an exchange or
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redemption will be the fair market value of the exchanged shares received in the
exchange, with the amount of cash received in the redemption, plus the amount of
the Operating Partnership's liabilities allocable to the common Units being
exchanged or redeemed. However, in the event that the Company elects to cause
the Operating Partnership to pay a limited partner cash for a portion of his or
her common Units, under certain circumstances, the limited partner may recognize
gain only to the extent the cash received for such common Units, plus the amount
of any reduction of Operating Partnership liabilities allocable to the limited
partner, exceed the limited partner's basis in all of his or her common Units
prior to such payment. The recognition of any loss resulting from an exchange of
common Units for shares of common stock or a redemption of common Units for cash
is subject to a number of limitations set forth in the Code. The character of
any such gain or loss as capital or ordinary will depend on the nature of the
assets of the Operating Partnership at the time of the redemption or exchange.
TAXATION OF THE COMPANY
General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with our taxable year ended December 31, 1997. We believe
we have been organized and have operated in a manner which allows us to qualify
for taxation as a REIT under the Code commencing with our taxable year ended
December 31, 1997. We intend to continue to operate in this manner. However, our
qualification and taxation as a REIT depends upon our ability to meet (through
actual annual operating results, asset diversification, distribution levels and
diversity of stock ownership) the various qualification tests imposed under the
Code. Accordingly, there is no assurance that we have operated or will continue
to operate in a manner so as to qualify or remain qualified as a REIT. See
"-- Failure to Qualify."
The sections of the Code that relate to the qualification and operation as
a REIT are highly technical and complex. The following sets forth the material
aspects of the sections of the Code that govern the federal income tax treatment
of a REIT and its stockholders. This summary is qualified in its entirety by the
applicable Code provisions, relevant rules and regulations promulgated under the
Code, and administrative and judicial interpretations of the Code.
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on our net income that is currently distributed
to our stockholders. This treatment substantially eliminates the "double
taxation" (once at the corporate level when earned and once again at the
stockholder level when distributed) that generally results from investment in a
corporation. However, the Company will be subject to federal income tax as
follows:
First, we will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains.
Second, we may be subject to the "alternative minimum tax" on our items of
tax preference under certain circumstances.
Third, if we have (a) net income from the sale or other disposition of
"foreclosure property" (defined generally as property we acquired through
foreclosure or after a default on a loan secured by the property or a lease of
the property) which is held primarily for sale to customers in the ordinary
course of business or (b) other nonqualifying income from foreclosure property,
we will be subject to tax at the highest corporate rate on this income.
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Fourth, we will be subject to a 100% tax on any net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property).
Fifth, we will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which we fail the 75% or 95%
gross income test multiplied by (b) a fraction intended to reflect our
profitability, if we fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), but have maintained our qualification as a
REIT because we satisfied certain other requirements.
Sixth, we would be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed if we fail to distribute
during each calendar year at least the sum of (i) 85% of our REIT ordinary
income for the year, (ii) 95% of our REIT capital gain net income for the year,
and (iii) any undistributed taxable income from prior periods.
Seventh, if we acquire any asset (a "Built-In Gain Asset") from a
corporation which is or has been a C corporation (i.e., generally a corporation
subject to full corporate-level tax) in a transaction in which the basis of the
Built-In Gain Asset in our hands is determined by reference to the basis of the
asset in the hands of the C corporation, and we subsequently recognize gain on
the disposition of the asset during the ten-year period (the "Recognition
Period") beginning on the date on which we acquired the asset, then we will be
subject to tax at the highest regular corporate tax rate on this gain to the
extent of the Built-In Gain (i.e., the excess of (a) the fair market value of
the asset over (b) our adjusted basis in the asset, in each case determined as
of the beginning of the Recognition Period). The results described in this
paragraph with respect to the recognition of Built-In Gain assume that we will
make an election pursuant to IRS Notice 88-19.
Requirements for Qualification as a REIT. The Code defines a REIT as a
corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to
evidence its beneficial ownership;
(3) that would be taxable as a domestic corporation, but for Sections 856
through 859 of the Code;
(4) that is not a financial institution or an insurance company within the
meaning of certain provisions of the Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is owned,
actually or constructively, by five or fewer individuals (as defined in
the Code to include certain entities) during the last half of each
taxable year; and
(7) that meets certain other tests, described below, regarding the nature
of its income and assets and the amount of its distributions.
The Code provides that conditions (1) to (4), inclusive, must be met during
the entire taxable year and that condition (5) must be met during at least 335
days of a taxable year of twelve months, or during a proportionate part of a
taxable year of less than twelve months. Conditions (5) and (6) do not apply
until after the first taxable year for which an election is made to be taxed as
a REIT. For purposes of condition (6), pension
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funds and certain other tax-exempt entities are treated as individuals, subject
to a "look-through" exception with respect to pension funds.
We believe that we have satisfied each of the above conditions. In
addition, our charter provides for restrictions regarding ownership and transfer
of shares. These restrictions are intended to assist us in continuing to satisfy
the share ownership requirements described in (5) and (6) above. These ownership
and transfer restrictions are described in "Description of Capital
Stock -- Restrictions on Ownership and Transfer of Capital Stock." These
restrictions, however, may not ensure that we will, in all cases, be able to
satisfy the share ownership requirements described in (5) and (6) above. If we
fail to satisfy these share ownership requirements, our status as a REIT will
terminate. However, if we comply with the rules contained in applicable Treasury
Regulations that require us to ascertain the actual ownership of our shares and
we do not know, or would not have known through the exercise of reasonable
diligence, that we failed to meet the requirement described in condition (6)
above, we will be treated as having met this requirement. See "-- Failure to
Qualify."
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. We have and will continue to have a calendar
taxable year.
Termination of S Status. Prior to its merger into the Company in connection
with our formation transactions, AMB Institutional Realty Advisors, Inc.
believed that it validly elected to be taxed as an S corporation and that such
election had not been revoked or otherwise terminated (except as provided
below). In order to allow us to become a REIT, AMB Institutional Realty
Advisors, Inc. revoked its S election shortly before its merger into the
Company. If AMB Institutional Realty Advisors, Inc. was not an S corporation in
1997 (the calendar year in which our formation transactions occurred), we likely
would not qualify as a REIT for our taxable year ended December 31, 1997 and
perhaps subsequent years. See "-- Failure to Qualify." In connection with our
initial public offering, Latham & Watkins rendered an opinion regarding AMB
Institutional Realty Advisors, Inc.'s federal income tax status as an S
corporation, which opinion was based upon certain representations made by AMB
Institutional Realty Advisors, Inc. as to factual matters and upon the opinion
of counsel for certain shareholders of AMB Institutional Realty Advisors, Inc.,
with respect to matters relating to the tax status of such shareholders.
Ownership of Interests in Partnerships and Qualified REIT Subsidiaries. In
the case of a REIT which is a partner in a partnership, IRS regulations provide
that the REIT will be deemed to own its proportionate share of the assets of the
partnership. Also, the REIT will be deemed to be entitled to the income of the
partnership attributable to its proportionate share. The character of the assets
and gross income of the partnership retains the same character in the hands of
the REIT for purposes of Section 856 of the Code, including satisfying the gross
income tests and the asset tests. Thus, our proportionate share of the assets
and items of income of the Operating Partnership (including the Operating
Partnership's share of these items for any partnership in which it owns an
interest) are treated as our assets and items of income for purposes of applying
the requirements described in this prospectus (including the income and asset
tests described below). We have included a brief summary of the rules governing
the federal income taxation of partnerships and their partners below in "--Tax
Aspects of the Operating Partnerships and the Joint Ventures." We have direct
control of the Operating Partnership and will continue to operate it consistent
with the requirements for qualification as a REIT. However, we are a limited
partner or non-managing member in certain of our joint ventures. If a joint
venture takes or expects to take actions which could jeopardize our
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status as a REIT or subject us to tax, we may be forced to dispose of our
interest in such joint venture. In addition, it is possible that a joint venture
could take an action which could cause us to fail a REIT income or asset test,
and that we would not become aware of such action in a time frame which would
allow us to dispose of our interest in the joint venture or take other
corrective action on a timely basis. In such a case, we could fail to qualify as
a REIT. The Company owns 100% of the stock of two subsidiaries that are
qualified REIT subsidiaries (each, a "QRS") and may acquire stock of one or more
new subsidiaries. A corporation will qualify as a QRS if 100% of its stock is
held by the Company. A QRS will not be treated as a separate corporation, and
all assets, liabilities and items of income, deduction and credit of a QRS will
be treated as assets, liabilities and such items (as the case may be) of the
Company for all purposes of the Code, including the REIT qualification tests.
For this reason, references under "Certain Federal Income Tax Considerations" to
our income and assets shall include the income and assets of any QRS. A QRS will
not be subject to federal income tax, and our ownership of the voting stock of a
QRS will not violate the restrictions against ownership of securities of any one
issuer which constitute more than 10% of such issuer's voting securities or more
than 5% of the value of our total assets, as described below under "-- Asset
Tests."
Income Tests. We must satisfy two gross income requirements annually to
maintain our qualification as a REIT. First, in each taxable year we must derive
directly or indirectly at least 75% of our gross income (excluding gross income
from prohibited transactions) from investments relating to real property or
mortgages on real property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments. Second,
each taxable year we must derive at least 95% of our gross income (excluding
gross income from prohibited transactions) from these real property investments,
dividends, interest and gain from the sale or disposition of stock or securities
(or from any combination of the foregoing). The term "interest" generally does
not include any amount received or accrued (directly or indirectly) if the
determination of the amount depends in whole or in part on the income or profits
of any person. However, an amount received or accrued generally will not be
excluded from the term "interest" solely by reason of being based on a fixed
percentage or percentages of receipts or sales.
Rents we receive 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 Code provides that rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the
REIT, or an actual or constructive owner of 10% or more of the REIT,
actually or constructively owns 10% or more of the interests in such
tenant (a "Related Party Tenant");
- if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to personal
property will not qualify as "rents from real property"; and
- for rents received to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render
services to the tenants of
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the property (subject to a 1% de minimis exception), other than through
an independent contractor from whom the REIT derives no revenue. The REIT
may, however, directly perform certain services that are "usually or
customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the
occupant" of the property.
We do not and will not, and as general partner of the Operating
Partnership, will not permit the Operating Partnership to:
- charge rent for any property that is based in whole or in part on the
income or profits of any person (except by reason of being based on a
percentage of receipts or sales, as described above);
- rent any property to a Related Party Tenant;
- derive rental income attributable to personal property (other than
personal property leased in connection with the lease of real property,
the amount of which is less than 15% of the total rent received under the
lease); or
- perform services considered to be rendered to the occupant of the
property, other than through an independent contractor from whom we
derive no revenue.
Notwithstanding the foregoing, we may have taken and may continue to take
certain of the actions set forth above to the extent these actions will not,
based on the advice of our tax counsel, jeopardize our status as a REIT.
AMB Investment Management is the sole general partner of, and conducts its
operations through, AMB Investment Management Limited Partnership (the
"Investment Management Partnership.") The Investment Management Partnership
conducts the asset management business and receives fees (including incentive
fees) in exchange for the provision of certain services to asset management
clients. In addition, Headlands Realty Corporation may provide certain services
in exchange for a fee or derive other income which would not qualify under the
REIT gross income tests. Such fees and other income do not accrue to us, but we
derive our allocable share of dividend income from the Preferred Stock
Subsidiaries through our interest in the Operating Partnership. Such dividend
income qualifies under the 95%, but not the 75%, REIT gross income test. The
Operating Partnership may provide certain management or administrative services
to the Investment Management Partnership and Headlands Realty Corporation. The
fees derived by the Operating Partnership as a result of the provision of such
services will be nonqualifying income to us under both the 95% and 75% REIT
income tests. The amount of such dividend and fee income will depend on a number
of factors which cannot be determined with certainty, including the level of
services provided by the Investment Management Partnership, Headlands Realty
Corporation and the Operating Partnership. We will monitor the amount of the
dividend income from the Preferred Stock Subsidiaries and the fee income
described above, and will take actions intended to keep this income (and any
other nonqualifying income) within the limitations of the REIT income tests.
However, there can be no assurance that such actions will in all cases prevent
us from violating a REIT income test.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for the year if we are
entitled to relief under certain provisions of the Code. Generally, we may avail
ourselves of the relief provisions if:
- our failure to meet these tests was due to reasonable cause and not due
to willful neglect;
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- we attach a schedule of the sources of our income to our federal income
tax 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 these relief provisions. For example, if we fail to
satisfy the gross income tests because nonqualifying income that we
intentionally incur exceeds the limits on nonqualifying income, the IRS could
conclude that our failure to satisfy the tests was not due to reasonable cause.
If these relief provisions do not apply to a particular set of circumstances, we
will not qualify as a REIT. As discussed above in "-- Taxation of the
Company -- General," even if these relief provisions apply, and we retain our
status as a REIT, a tax would be imposed with respect to our excess net income.
We may not always be able to maintain compliance with the gross income tests for
REIT qualification despite our periodic monitoring of our income.
Prohibited Transaction Income. Any gain realized by us on the sale of any
property held as inventory or other property held primarily for sale to
customers in the ordinary course of business (including our share of any such
gain realized by the Operating Partnership) will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. This prohibited
transaction income may also adversely affect our ability to satisfy the income
tests for qualification as a REIT. Under existing law, whether property is held
as inventory or primarily for sale to customers in the ordinary course of a
trade or business is a question of fact that depends on all the facts and
circumstances surrounding the particular transaction. The Operating Partnership
intends to hold its properties for investment with a view to long-term
appreciation, to engage in the business of acquiring, developing and owning its
properties and to make occasional sales of the properties as are consistent with
the Operating Partnership's investment objectives. However, the IRS may contend
that that one or more of these sales is subject to the 100% penalty tax.
Asset Tests. At the close of each quarter of our taxable year, we also must
satisfy three tests relating to the nature and diversification of our assets.
First, at least 75% of the value of our total assets must be represented by real
estate assets, cash, cash items and government securities. For purposes of this
test, real estate assets include stock or debt instruments that are purchased
with the proceeds of a stock offering or a long-term (at least five years)
public debt offering, but only for the one-year period beginning on the date we
receive such proceeds. Second, not more than 25% of our total assets may be
represented by securities, other than those securities includable in the 75%
asset test. Third, of the investments included in the 25% asset class, the value
of any one issuer's securities 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.
The Operating Partnership owns 100% of the non-voting preferred stock of
each of the Preferred Stock Subsidiaries, and by virtue of its ownership of
interests in the Operating Partnership, the Company is considered to own its pro
rata share of such stock. See "Structure of the Company." The stock of each of
the Preferred Stock Subsidiaries held by us is not a qualifying real estate
asset. The Operating Partnership does not and will not own any of the voting
securities of either of the Preferred Stock Subsidiaries, and therefore we will
not be considered to own more than 10% of the voting securities of either of the
Preferred Stock Subsidiaries. In addition, we believe that the value of our pro
rata share of the securities of each of the Preferred Stock Subsidiaries held by
the Operating
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Partnership does not, in either case, exceed 5% of the total value of our
assets, and will not exceed such amount in the future. No independent appraisals
have been obtained to support this conclusion. There can be no assurance that
the IRS will not contend that the value of the securities of one or both of the
Preferred Stock Subsidiaries held by us exceeds the 5% value limitation. The 5%
value test must be satisfied not only on the date that we (directly or through
the Operating Partnership) acquire securities in the applicable Preferred Stock
Subsidiary, but also each time we increase our ownership of securities of such
Preferred Stock Subsidiary, including as a result of increasing our interest in
the Operating Partnership. For example, our indirect ownership of securities of
each Preferred Stock Subsidiary will increase as a result of our capital
contributions to the Operating Partnership or as limited partners exercise their
redemption/exchange rights. Although we believe that we presently satisfy the 5%
value test and plan to take steps to ensure that we satisfy such test for any
quarter with respect to which retesting is to occur, there can be no assurance
that such steps will always be successful, or will not require a reduction in
the Operating Partnership's overall interest in either or both of the Preferred
Stock Subsidiaries.
After initially meeting the asset tests at the close of any quarter, we
will not lose our status as a REIT for failure to satisfy the asset tests at the
end of a later quarter solely by reason of changes in asset values. If we fail
to satisfy the asset tests because we acquire securities or other property
during a quarter (including an increase in our interests in the Operating
Partnership), we can cure this failure by disposing of sufficient nonqualifying
assets within 30 days after the close of that quarter. We believe we have
maintained and intend to continue to maintain adequate records of the value of
our assets to ensure compliance with the asset tests and to take such other
actions within the 30 days after the close of any quarter as may be required to
cure any noncompliance. If we fail to cure noncompliance with the asset tests
within this time period, we would cease to qualify as a REIT.
Annual Distribution Requirements. To maintain our qualification as a REIT,
we are required to distribute dividends (other than capital gain dividends) to
our stockholders in an 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 our net income (after tax), if any, from
foreclosure property, minus the excess of the sum of certain items of noncash
income (i.e., income attributable to leveled stepped rents, original issue
discount on purchase money debt, or a like-kind exchange that is later
determined to be taxable) over 5% of "REIT taxable income" as described above.
These distributions must be paid in the taxable year to which they relate,
or in the following taxable year if they are declared before we timely file our
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. Except as provided below, these distributions
are taxable to our stockholders (other than tax-exempt entities, as discussed
below) in the year in which paid. This is so even though these distributions
relate to the prior year for purposes of our 95% distribution requirement. The
amount distributed must not be preferential -- e.g., every stockholder of the
class of stock to which a distribution is made must be treated the same as every
other stockholder of that class, and no class of stock may be treated otherwise
than in accordance with its dividend rights as a class. 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 ordinary and capital gain corporate tax rates. We believe we
have made and intend to continue to make timely distributions sufficient to
satisfy these annual distribution requirements. In this regard, the Partnership
Agreement
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authorizes us, as general partner of the Operating Partnership, to take such
steps as may be necessary to cause the Operating Partnership to distribute to
its partners an amount sufficient to permit us to meet these distribution
requirements.
We expect that our REIT taxable income will be less than our cash flow due
to the allowance of depreciation and other non-cash charges in computing REIT
taxable income. Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy the distribution
requirements described above. However, from time to time, we may not have
sufficient cash or other liquid assets to meet these distribution requirements
due to timing differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and deduction of
expenses in arriving at our taxable income. If these timing differences occur,
in order to meet the distribution requirements, we may need to arrange for
short-term, or possibly long-term, borrowings or need to pay dividends in the
form of taxable stock dividends.
Under certain circumstances, we may be able to rectify a failure to meet
the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid being taxed
on amounts distributed as deficiency dividends. However, we will be required to
pay interest based upon the amount of any deduction taken for deficiency
dividends.
Furthermore, we would be subject to a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if we should fail to
distribute during each calendar year (or in the case of distributions with
declaration and record dates falling in the last three months of the calendar
year, by the end of January immediately following such year) at least the sum of
85% of our REIT ordinary income for such year, 95% of our REIT capital gain
income for the year and any undistributed taxable income from prior periods. Any
REIT taxable income and net capital gain on which this excise tax is imposed for
any year is treated as an amount distributed during that year for purposes of
calculating such tax.
Earnings and Profits Distribution Requirement. In order to qualify as a
REIT, we cannot have at the end of any taxable year any undistributed "earnings
and profits" that are attributable to a "C corporation" taxable year (i.e., a
year in which a corporation is neither a REIT nor an S corporation). In
connection with our formation transactions, we succeeded to various tax
attributes of AMB Institutional Realty Advisors, Inc., AMB Current Income Fund,
Inc. ("CIF") and AMB Value Added Fund, Inc. ("VAF") (if the mergers of CIF and
VAF into AMB Institutional Realty Advisors, Inc. (the "Private REIT Mergers")
were treated as tax-free reorganizations under the Code), including any
undistributed C corporation earnings and profits of such corporations. If AMB
Institutional Realty Advisors, Inc. qualified as an S corporation for each year
in which its activities would have created earnings and profits, and each of CIF
and VAF qualified as a REIT during its existence and its merger into us was
treated as a tax-free reorganization under the Code, then those corporations
would not have any undistributed C corporation earnings and profits. If,
however, either CIF or VAF failed to qualify as a REIT throughout the duration
of its existence, or AMB Institutional Realty Advisors, Inc. failed to qualify
as an S corporation for any year in which its activities would have created
earnings and profits, then we would have acquired undistributed C corporation
earnings and profits that, if not distributed by us prior to the end of its
first taxable year, would prevent us from qualifying as a REIT.
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We believe that each of CIF and VAF qualified as a REIT throughout the
duration of its existence and that, in any event, neither CIF nor VAF had any
undistributed C corporation earnings and profits at the time of the applicable
Private REIT Merger. We believe that AMB Institutional Realty Advisors, Inc.
qualified as an S corporation since its 1989 taxable year and that its
activities prior to such year did not create any earnings and profits. In
addition, in connection with our initial public offering, counsel to CIF and VAF
rendered opinions with respect to the qualification of those corporations as
REITs for federal income tax purposes, and Latham & Watkins rendered an opinion
with respect to AMB Institutional Realty Advisors, Inc.'s status as an S
corporation for federal income tax purposes. Those opinions were based on
certain representations and assumptions. However, the IRS may contend otherwise
on a subsequent audit of AMB Institutional Realty Advisors, Inc., CIF or VAF.
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 stockholders in any year in which we fail to qualify
will not be deductible by us and we will not be required to distribute any
amounts to our stockholders. As a result, our failure to qualify as a REIT would
reduce the cash available for distribution by us to our stockholders. In
addition, if we fail to qualify as a REIT, all distributions to stockholders
will be taxable as ordinary income to the extent of our current and accumulated
earnings and profits, and subject to certain limitations of the Code, 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 lost our qualification. It is not possible to state whether
in all circumstances we would be entitled to this statutory relief.
TAX ASPECTS OF THE OPERATING PARTNERSHIP AND THE JOINT VENTURES
General. Substantially all of our investments will be held indirectly
through the Operating Partnership. In addition, the Operating Partnership holds
certain of its investments indirectly through joint ventures. In general,
partnerships are "pass-through" entities which are not subject to federal income
tax. Rather, partners are allocated their proportionate shares of the items of
income, gain, loss, deduction and credit of a partnership, and are potentially
subject to tax thereon, without regard to whether the partners receive a
distribution from the partnership. We will include in our income our
proportionate share of the foregoing partnership items for purposes of the
various REIT income tests and in the computation of our REIT taxable income.
Moreover, for purposes of the REIT asset tests, we will include our
proportionate share of assets held by the Operating Partnership and joint
ventures. See "-- Taxation of the Company."
Entity Classification. Our interests in the Operating Partnership and the
joint ventures involve special tax considerations, including the possibility of
a challenge by the IRS of the status of the Operating Partnership or a
partnership as a partnership (as opposed to an association taxable as a
corporation) for federal income tax purposes. If the Operating Partnership or a
partnership were treated as an association, it would be taxable as a corporation
and therefore be subject to an entity-level tax on its income. In such a
situation, the character of our assets and items of gross income would change
and preclude us from satisfying the asset tests and possibly the income tests
(see "-- Taxation of the Company -- Asset Tests" and "-- Income Tests"). This,
in turn, would prevent us from
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qualifying as a REIT. See "-- Failure to Qualify" for a discussion of the effect
of our failure to meet these tests for a taxable year. In addition, a change in
the Operating Partnership's or a partnership's status for tax purposes might be
treated as a taxable event. If so, we might incur a tax liability without any
related cash distributions.
Treasury Regulations that apply for tax periods beginning on or after
January 1, 1997 provide that a domestic business entity not otherwise classified
as a corporation and which has at least two members (an "Eligible Entity") may
elect to be taxed as a partnership for federal income tax purposes. Unless it
elects otherwise, an Eligible Entity in existence prior to January 1, 1997 will
have the same classification for federal income tax purposes that it claimed
under the entity classification Treasury Regulations in effect prior to this
date. In addition, an Eligible Entity which did not exist, or did not claim a
classification, prior to January 1, 1997, will be classified as a partnership
for federal income tax purposes unless it elects otherwise. The Operating
Partnership and each of our joint ventures intend to claim classification as a
partnership under the Final Regulations, and, as a result, we believe such
partnerships will be classified as partnerships for federal income tax purposes.
Allocations of Operating Partnership Income, Gain, Loss and Deduction. The
Partnership Agreement provides for preferred distributions of cash and preferred
allocations of income to the Company with respect to its Series A Preferred
Units and to the holders of Series B Preferred Units. In addition, to the extent
the Company issues Series C Preferred Stock in exchange for AMB Property II
Series C Preferred Units, the Operating Partnership will issue Series C
Preferred Units to the Company, and the Partnership Agreement will be amended to
provide for similar preferred distributions of cash and preferred allocations of
income to the Company with respect to its Series C Preferred Units. As a
consequence, the Company will receive distributions from the Operating
Partnership and attributable to its other assets that we would use to pay
dividends on shares of Series A Preferred Stock and any shares of Series B
Preferred Stock or Series C Preferred Stock issued by the Company before any
other partner in the Operating Partnership (other than a holder of Series B
Preferred Units, if such units are not then held by the Company) receives a
distribution. In addition, if necessary, income will be specially allocated to
the Company, and losses will be allocated to the other partners of the Operating
Partnership, in amounts necessary to ensure that the balance in the capital
account of the Company will at all times be equal to or in excess of the amount
payable by the Company on the Series A Preferred Stock and any Series B
Preferred Stock or Series C Preferred Stock then issued by the Company upon
liquidation or redemption. As long as the Company does not hold the Series B
Preferred Units, similar preferred distributions and allocations will be made
for the benefit of the holders of such units. All remaining items of operating
income and loss will be allocated to the holders of common Units in proportion
to the number of Units or Performance Units held by each such unitholder. All
remaining items of gain or loss relating to the disposition of the Operating
Partnership's assets upon liquidation will be allocated first to the partners in
the amounts necessary, in general, to equalize the Company's and the limited
partners' per unit capital accounts, with any special allocation of gain to the
holders of Performance Units being offset by a reduction in the gain allocation
to the Company and unitholders which were Performance Investors. Certain limited
partners have agreed to guarantee debt of the Operating Partnership, either
directly or indirectly through an agreement to make capital contributions to the
Operating Partnership under limited circumstances. As a result of these
guarantees or contribution agreements, and notwithstanding the foregoing
discussion of allocations of income and loss of the Operating Partnership to
holders of common Units, such limited partners could under limited circumstances
be allocated a disproportionate
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amount of net loss upon a liquidation of the Operating Partnership, which net
loss would have otherwise been allocable to the Company.
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. This reallocation will be determined by
taking into account all of the facts and circumstances relating to the economic
arrangement of the partners with respect to such item. The Operating
Partnership's allocations of taxable income and loss are intended to comply with
the requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated under this section of the Code.
Tax Allocations with Respect to the Properties. Under Section 704(c) of the
Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership, must be allocated in a manner so that the
contributing partner is charged with the unrealized gain or benefits from the
unrealized loss associated with the property at the time of the contribution.
The amount of the unrealized gain or unrealized loss is generally equal to the
difference between the fair market value of contributed property at the time of
contribution and the adjusted tax basis of the property at the time of
contribution (a "Book-Tax Difference"). These allocations are solely for federal
income tax purposes and do not affect the book capital accounts or other
economic or legal arrangements among the partners. The Operating Partnership was
formed by way of contributions of appreciated property. Moreover, subsequent to
the formation of the Operating Partnership, additional appreciated property has
been contributed to the Operating Partnership in exchange for interests in the
Operating Partnership. The Partnership Agreement requires that these allocations
be made in a manner consistent with Section 704(c) of the Code.
In general, the partners of the Operating Partnership (including the
Company) which contributed assets having an adjusted tax basis less than their
fair market value at the time of contribution will be allocated depreciation
deductions for tax purposes which are lower than such deductions would have been
if determined on a pro rata basis. In addition, in the event of the disposition
of any of the contributed assets which have such a Book-Tax Difference, all
income attributable to such Book-Tax Difference generally will be allocated to
such contributing partners. These allocations will tend to eliminate the
Book-Tax Difference over the life of the Operating Partnership. However, the
special allocation rules of Section 704(c) do not always entirely eliminate the
Book-Tax Difference on an annual basis or with respect to a specific taxable
transaction such as a sale. Thus, the carryover basis of the contributed assets
in the hands of the Operating Partnership may cause the Company or other
partners to be allocated lower depreciation and other deductions, and possibly
an amount of taxable income in the event of a sale of such contributed assets in
excess of the economic or book income allocated to the Company or other partners
as a result of such sale. Such an allocation might cause the Company or other
partners to recognize taxable income in excess of cash proceeds, which might
adversely affect the Company's ability to comply with the REIT distribution
requirements. See "-- Taxation of the Company -- Requirements for Qualification"
and "-- Annual Distribution Requirements."
Treasury Regulations issued under Section 704(c) of the Code provide
partnerships with a choice of several methods of accounting for Book-Tax
Differences, including retention of the "traditional method" or the election of
certain methods which would permit any distortions caused by a Book-Tax
Difference to be entirely rectified on an annual basis or with respect to a
specific taxable transaction such as a sale. We and the
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Operating Partnership have determined to use the "traditional method" for
accounting for Book-Tax Differences for the properties initially contributed to
the Operating Partnership and for certain assets contributed subsequently. We
and the Operating Partnership have not yet decided what method will be used to
account for Book-Tax Differences for properties acquired by the Operating
Partnership in the future.
Any property acquired by the Operating Partnership in a taxable transaction
will initially have a tax basis equal to its fair market value, and Section
704(c) of the Code will not apply.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
As used below, the term "U.S. Stockholder" means a holder of shares of
common stock who (for United States federal income tax purposes):
- is a citizen or resident of the United States;
- is a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any state thereof or in the
District of Columbia, unless, in the case of a partnership, Treasury
Regulations provide otherwise;
- is an estate the income of which is subject to United States federal
income taxation regardless of its source; or
- is a trust whose administration is subject to the primary supervision of
a United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in Treasury
Regulations, certain trusts in existence on August 20, 1996, and treated as
United States persons prior to this date that elect to continue to be treated as
United States persons, shall also be considered U.S. Stockholders.
Distributions Generally. As long as we qualify as a REIT, distributions out
of our current or accumulated earnings and profits, other than capital gain
dividends discussed below, will constitute dividends taxable to our taxable U.S.
Stockholders as ordinary income. These distributions will not be eligible for
the dividends-received deduction in the case of U.S. Stockholders that are
corporations. For purposes of determining whether distributions to holders of
common stock are out of current or accumulated earnings and profits, our
earnings and profits will be allocated first to the outstanding preferred stock
(if any) and then to the common stock.
To the extent that we make distributions in excess of our current and
accumulated earnings and profits, these distributions will be treated first as a
tax-free return of capital to each U.S. Stockholder. This treatment will reduce
the adjusted basis which each U.S. Stockholder has in his shares of stock for
tax purposes by the amount of the distribution (but not below zero).
Distributions in excess of a U.S. Stockholder's adjusted basis in his shares
will be taxable as capital gains (provided that the shares have been held as a
capital asset) and will be taxable as long-term capital gain if the shares have
been held for more than one year. Dividends we declare in October, November, or
December of any year and payable to a stockholder of record on a specified date
in any of these months shall be treated as both paid by us and received by the
stockholder on December 31 of that year, provided we actually pay the dividend
on or before January 31 of the following calendar year. Stockholders may not
include in their own income tax returns any of our net operating losses or
capital losses.
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Capital Gain Distributions. Distributions that we properly designate as
capital gain dividends will be taxable to taxable U.S. Stockholders as gains (to
the extent that they do not exceed our actual net capital gain for the taxable
year) from the sale or disposition of a capital asset. Depending on the period
of time we have held the assets which produced these gains, and on certain
designations, if any, which we may make, these gains may be taxable to
non-corporate U.S. stockholders at a 20% or 25% rate. U.S. Stockholders that are
corporations may, however, be required to treat up to 20% of certain capital
gain dividends as ordinary income. For a discussion of the manner in which that
portion of any dividends designated as capital gain dividends will be allocated
among the holders of our preferred stock and common stock, see "-- Description
of Capital Stock."
Passive Activity Losses and Investment Interest Limitations. Distributions
we make and gain arising from the sale or exchange by a U.S. Stockholder of our
shares will not be treated as passive activity income. As a result, U.S.
Stockholders generally will not be able to apply any "passive losses" against
this income or gain. Distributions we make (to the extent they do not constitute
a return of capital) generally will be treated as investment income for purposes
of computing the investment interest limitation. Gain arising from the sale or
other disposition of our shares, however, will not be treated as investment
income under certain circumstances.
Retention of Net Long-Term Capital Gains. We may elect to retain, rather
than distribute as a capital gain dividend, our net long-term capital gains. If
we make this election, we would pay tax on our retained net long-term capital
gains. In addition, to the extent we designate, a U.S. Stockholder generally
would:
- include its proportionate share of our undistributed long-term capital
gains in computing its long-term capital gains in its return for its
taxable year in which the last day of our taxable year falls (subject to
certain limitations as to the amount that is includable);
- be deemed to have paid the capital gains tax imposed on us on the
designated amounts included in the U.S. Stockholder's long-term capital
gains;
- receive a credit or refund for the amount of tax deemed paid by it;
- increase the adjusted basis of its common stock by the difference between
the amount of includable gains and the tax deemed to have been paid by
it; and
- in the case of a U.S. Stockholder that is a corporation, appropriately
adjust its earnings and profits for the retained capital gains in
accordance with Treasury Regulations to be prescribed by the IRS.
DISPOSITIONS OF COMMON STOCK
If you are a U.S. Stockholder and you sell or dispose of your shares of
common stock, you will recognize gain or loss for federal income tax purposes in
an amount equal to the difference between the amount of cash and the fair market
value of any property you receive on the sale or other disposition and your
adjusted basis in the shares for tax purposes. This gain or loss will be capital
if you have held the common stock as a capital asset and will be long-term
capital gain or loss if you have held the common stock for more than one year.
However, if you are a U.S. Stockholder and you recognize loss upon the sale or
other disposition of common stock that you have held for six months or less
(after applying certain holding period rules), the loss you recognize will be
treated as a long-term capital loss, to the extent you received distributions
from us which were required to be treated as long-term capital gains.
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BACKUP WITHHOLDING
We report to our U.S. Stockholders and the IRS the amount of dividends paid
during each calendar year, and the amount of any tax withheld. Under the backup
withholding rules, a stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless the holder is a corporation or
comes within certain other 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 applicable
requirements of the backup withholding rules. A U.S. Stockholder that does not
provide us with his correct taxpayer identification number may also be subject
to penalties imposed by the IRS. Backup withholding is not an additional tax.
Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, we may be required to withhold
a portion of capital gain distributions to any stockholders who fail to certify
their non-foreign status. See "-- Taxation of Non-U.S. Stockholders."
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt stockholder
(except certain tax-exempt stockholders described below) has not held its shares
as "debt financed property" within the meaning of the Code (generally, shares of
common stock, the acquisition of which was financed through a borrowing by the
tax exempt stockholder) and the shares are not otherwise used in a trade or
business, dividend income from us will not be UBTI to a tax-exempt stockholder.
Similarly, income from the sale of shares will not constitute UBTI unless a
tax-exempt stockholder has held its shares as "debt financed property" within
the meaning of the Code or has used the shares in its trade or business.
For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Code
Section 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, income from an
investment in our shares will constitute UBTI unless the organization is able to
properly deduct amounts set aside or placed in reserve for certain purposes so
as to offset the income generated by its investment in our shares. These
prospective investors should consult their own tax advisors concerning these
"set aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" shall be treated as UBTI as to certain types of trusts which
hold more than 10% (by value) of the interests in the REIT.
A REIT will not be a "pension held REIT" if it is able to satisfy the "not
closely held" requirement without relying upon the "look-through" exception with
respect to certain trusts. As a result of certain limitations on the transfer
and ownership of stock contained in our charter, we do not expect to be
classified as a "pension held REIT," and, as a result, the tax treatment
described above should be inapplicable to our stockholders.
TAXATION OF NON-U.S. STOCKHOLDERS
The preceding discussion does not address the rules governing United States
federal income taxation of the ownership and disposition of common stock by
persons that are not U.S. Stockholders ("Non-U.S. Stockholders"). In general,
Non-U.S. Stockholders may be subject to special tax withholding requirements on
distributions from the Company and
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with respect to their sale or other disposition of common stock of the Company,
except to the extent reduced or eliminated by an income tax treaty between the
United States and the Non-U.S. Stockholder's country. A Non-U.S. Stockholder who
is a stockholder of record and is eligible for reduction or elimination of
withholding must file an appropriate form with the Company in order to claim
such treatment. Non-U.S. Stockholders should consult their own tax advisors
concerning the federal income tax consequences to them of an acquisition of
shares of Common Stock, including the federal income tax treatment of
dispositions of interests in, and the receipt of distributions from, the
Company.
OTHER TAX CONSEQUENCES
We may be subject to state or local taxation in various state or local
jurisdictions, including those in which we transact business and our
stockholders may be subject to state or local taxation in various state or local
jurisdictions, including those in which they reside. Our state and local tax
treatment may not conform to the federal income tax consequences discussed
above. In addition, your state and local tax treatment may not conform to the
federal income tax consequences discussed above. Consequently, you should
consult your own tax advisors regarding the effect of state and local tax laws
on an investment in our shares.
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ERISA CONSIDERATIONS
The following is a summary of material considerations arising under the
Employee Retirement Income Securities Act of 1974, as amended ("ERISA") and the
prohibited transaction provisions of Section 4975 of the Code that may be
relevant to a prospective purchaser (including a prospective purchaser that is
not an employee benefit plan which is subject to ERISA, but is a tax-qualified
retirement plan or an individual retirement account, individual retirement
annuity, medical savings account or education individual retirement account
(collectively, an "IRA")). This discussion does not purport to deal with all
aspects of ERISA or Section 4975 of the Code or, to the extent not preempted,
state law that may be relevant to particular employee benefit plan stockholders
(including plans subject to Title I of ERISA, other employee benefit plans and
IRAs subject to the prohibited transaction provisions of Section 4975 of the
Code, and governmental plans and church plans that are exempt from ERISA and
Section 4975 of the Code but that may be subject to state law requirements) in
light of their particular circumstances.
A FIDUCIARY MAKING THE DECISION TO INVEST IN SHARES OF COMMON STOCK ON
BEHALF OF A PROSPECTIVE PURCHASER WHICH IS AN ERISA PLAN, A TAX QUALIFIED
RETIREMENT PLAN, AN IRA OR OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO CONSULT ITS
OWN LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA,
SECTION 4975 OF THE INTERNAL REVENUE CODE, AND (TO THE EXTENT NOT PRE-EMPTED)
STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP OR SALE OF SHARES OF COMMON
STOCK BY SUCH PLAN OR IRA. Plans should also consider the entire discussion
under the heading "Certain Federal Income Tax Considerations," as material
contained in that section is relevant to any decision by an employee benefit
plan, tax-qualified retirement plan or IRA to purchase our common stock.
EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS AND IRAS
Each fiduciary of an employee benefit plan subject to Title I of ERISA (an
"ERISA Plan") should carefully consider whether an investment in shares of
common stock is consistent with its fiduciary responsibilities under ERISA. In
particular, the fiduciary requirements of Part 4 of Title I of ERISA require
that
- an ERISA Plan make investments that are prudent and in the best interests
of the ERISA Plan, its participants and beneficiaries;
- an ERISA Plan make investments that are diversified in order to reduce
the risk of large losses, unless it is clearly prudent for the ERISA Plan
not to do so;
- an ERISA Plan's investments are authorized under ERISA and the terms of
the governing documents of the ERISA Plan; and
- the fiduciary not cause the ERISA Plan to enter into transactions
prohibited under Section 406 of ERISA.
In determining whether an investment in shares of common stock is prudent
for purposes of ERISA, the appropriate fiduciary of an ERISA Plan should
consider all of the facts and circumstances, including whether the investment is
reasonably designed, as a part of the ERISA Plan's portfolio for which the
fiduciary has investment responsibility, to meet the objectives of the ERISA
Plan, taking into consideration the risk of loss and opportunity for gain (or
other return) from the investment, the diversification, cash flow
86
<PAGE> 90
and funding requirements of the ERISA Plan, and the liquidity and current return
of the ERISA Plan's portfolio. A fiduciary should also take into account the
nature of our business, the length of our operating history and other matters
described under "Risk Factors."
The fiduciary of an IRA or of an employee benefit plan not subject to Title
I of ERISA because it is a governmental or church plan (if no election has been
made under Section 410(d) of the Code) or because it does not cover common law
employees (a "Non-ERISA Plan") should consider that such an IRA or Non-ERISA
Plan may only make investments that are either authorized or not prohibited by
the appropriate governing documents, not prohibited under Section 4975 of the
Code and permitted under applicable state law.
STATUS OF THE COMPANY UNDER ERISA
A prohibited transaction may occur if our assets are deemed to be assets of
the investing ERISA Plans and disqualified persons deal with such assets. In
certain circumstances where an ERISA Plan holds an interest in an entity, the
assets of the entity are deemed to be ERISA Plan assets (the "look-through
rule"). Under those circumstances, any person that exercises authority or
control with respect to the management or disposition of the assets is an ERISA
Plan fiduciary. ERISA Plan assets are not defined in ERISA or the Code, but the
United States Department of Labor has issued regulations, effective March 13,
1987, that outline the circumstances under which an ERISA Plan's interest in an
entity will be subject to the look-through rule.
The Department of Labor regulations apply only to the purchase by an ERISA
Plan of an "equity interest" in an entity, such as stock of a REIT. However, the
Department of Labor regulations provide an exception to the look-through rule
for equity interests that are "publicly-offered securities." The Department of
Labor regulations also provide exceptions to the look-through rule for equity
interests in certain types of entities, including any entity which qualifies as
either a "real estate operating company" (a "REOC") or a "venture capital
operating company" (a "VCOC").
Under the Department of Labor regulations, a "publicly-offered security" is
a security that is:
- freely transferable;
- part of a class of securities that is widely-held; and
- either part of a class of securities that is registered under section
12(b) or 12(g) of the Exchange Act or sold to an ERISA Plan as part of an
offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of
securities of which such security is a part is registered under the
Exchange Act within 120 days (or such longer period allowed by the SEC)
after the end of the fiscal year of the issuer during which the offering
of such securities to the public occurred.
Whether a security is considered "freely transferable" depends on the facts
and circumstances of each case. Under the Department of Labor regulations, if
the security is part of an offering in which the minimum investment is $10,000
or less, then any restriction on or prohibition against any transfer or
assignment of such security for the purposes of preventing a termination or
reclassification of the entity for federal or state tax purposes will not
ordinarily prevent the security from being considered freely transferable.
Additionally, limitations or restrictions on the transfer or assignment of a
security which
87
<PAGE> 91
are created or imposed by persons other than the issuer of the security or
persons acting for or on behalf of the issuer will ordinarily not prevent the
security from being considered freely transferable. A class of securities is
considered "widely-held" if it is a class of securities that is owned by 100 or
more investors independent of the issuer and of one another.
Under the Department of Labor regulations, a REOC is defined as an entity
which on certain testing dates has at least 50% of its assets (other than
short-term investments pending long-term commitment or distribution to
investors), valued at cost, invested in real estate which is managed or
developed and with respect to which the entity has the right to substantially
participate directly in the management or development activities and which, in
the ordinary course of its business, is engaged directly in real estate
management or development activities. A VCOC is defined as an entity which on
certain testing dates has at least 50% of its assets (other than short-term
investments pending long-term commitment or distribution to investors), valued
at cost, invested in one or more operating companies with respect to which the
entity has management rights and which, in the ordinary course of its business,
actually exercises its management rights with respect to one or more of the
operating companies in which it invests.
We expect that the shares of our common stock offered in this prospectus
will meet the criteria of the publicly-offered securities exception to the
look-through rule. First, the common stock should be considered to be freely
transferable, as the minimum investment will be less than $10,000 and the only
restrictions upon its transfer are those required under federal tax laws to
maintain our status as a REIT, resale restrictions under applicable federal
securities laws with respect to securities not purchased pursuant to this
prospectus and those owned by our officers, directors and other affiliates, and
voluntary restrictions agreed to by the selling stockholders regarding volume
limitations. See "Description of Certain Provisions of the Partnership Agreement
of the Operating Partnership -- Registration Rights." Second, we expect the
common stock to be held by 100 or more investors and we expect that at least 100
or more of these investors will be independent of us and of one another. Third,
the shares of common stock will be part of an offering of securities to the
public pursuant to an effective registration statement under the Securities Act
and the common stock is registered under the Exchange Act. In addition, we have
obtained management rights with respect to the Operating Partnership and conduct
our affairs in such a manner that we will qualify as either a REOC or VCOC under
the Department of Labor regulations. Accordingly, we believe that if an ERISA
Plan purchases the common stock, our assets should not be deemed to be ERISA
Plan assets and, therefore, that any person who exercises authority or control
with respect to our assets should not be an ERISA Plan fiduciary.
88
<PAGE> 92
SELLING STOCKHOLDERS
"Selling stockholders" are those persons who may receive shares of our
common stock registered pursuant to this registration statement upon exchange of
Units. The following table provides the names of the selling stockholders, the
maximum number of shares of common stock issuable to each of the selling
stockholders in the exchange and the aggregate number of shares of common stock
that will be owned by the selling stockholders after the exchange. The number of
shares on the following table represents the number of shares of common stock
into which Units held by the person are exchangeable. Since the selling
stockholders may sell all, some or none of their shares, we cannot estimate the
aggregate number of shares that the selling stockholders will offer pursuant to
this prospectus or that each selling stockholder will own upon completion of the
offering to which this prospectus relates.
The selling stockholders named below may from time to time offer the shares
of common stock offered by this prospectus:
<TABLE>
<CAPTION>
MAXIMUM
NUMBER OF AGGREGATE
SHARES OF NUMBER OF PERCENTAGE OF
COMMON STOCK SHARES OF OUTSTANDING
SHARES OF ISSUABLE IN THE COMMON STOCK COMMON STOCK
COMMON STOCK EXCHANGE AND OWNED OWNED
OWNED PRIOR TO AVAILABLE FOR FOLLOWING THE FOLLOWING THE
NAME THE EXCHANGE(a) RESALE EXCHANGE(a)(b) EXCHANGE(a)(b)
---- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
David Brown........................ -- 54,779 54,779 *
Daniel Sarhad...................... -- 294 294 *
Craig Duncan....................... -- 10,307 10,307 *
GP Met Phase One 95, Ltd........... -- 84,484 84,484 *
GP Met 4/12, Ltd................... -- 70,772 70,772 *
Charles R. Wichman and Frederick B.
Wichman as trustees for the
Holbrook W. Goodale 54 Trust..... -- 53,274 53,274 *
Holbrook W. Goodale and Frederick
B. Wichman as trustees for the
Charles R. Wichman 54 Trust...... -- 53,274 53,274 *
Charles R. Wichman and Holbrook W.
Goodale as trustees for the
Frederick B. Wichman 54 Trust.... -- 53,274 53,274 *
Charles R. Wichman and Frederick B.
Wichman as trustees for the
Holbrook W. Goodale 57 Trust..... -- 186,654 186,654 *
Holbrook W. Goodale and Frederick
B. Wichman as trustees for the
Charles R. Wichman 57 Trust...... -- 186,654 186,654 *
Charles R. Wichman and Holbrook W.
Goodale as trustees for the
Frederick B. Wichman 57 Trust.... -- 186,654 186,654 *
Charles R. Wichman and Frederick B.
Wichman as trustees for the
Holbrook W. Goodale 58 Trust..... -- 186,654 186,654 *
</TABLE>
89
<PAGE> 93
<TABLE>
<CAPTION>
MAXIMUM
NUMBER OF AGGREGATE
SHARES OF NUMBER OF PERCENTAGE OF
COMMON STOCK SHARES OF OUTSTANDING
SHARES OF ISSUABLE IN THE COMMON STOCK COMMON STOCK
COMMON STOCK EXCHANGE AND OWNED OWNED
OWNED PRIOR TO AVAILABLE FOR FOLLOWING THE FOLLOWING THE
NAME THE EXCHANGE(a) RESALE EXCHANGE(a)(b) EXCHANGE(a)(b)
---- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Holbrook W. Goodale and Frederick
B. Wichman as trustees for the
Charles R. Wichman 58 Trust...... -- 186,654 186,654 *
Charles R. Wichman and Holbrook W.
Goodale as trustees for the
Frederick B. Wichman 58 Trust.... -- 186,654 186,654 *
Allmerica Financial Life Insurance
and Annuity Company.............. -- 559,628 559,628 *
The Gamble Family Limited
Partnership...................... -- 482,153 482,153 *
--------- ---------
Total..................... 2,542,163 2,542,163 2.9%
========= =========
</TABLE>
- -------------------------
(a) Based on information available to the Company as of November 30, 1998.
(b) Assumes the selling stockholders exchange all of their Units for shares of
common stock. Also assumes that no transactions with respect to common stock
or Units occur other than the exchange.
* Less than 1%.
AMB Institutional Realty Advisors, Inc., one of our predecessors, acted as
an investment advisor to the Selling Stockholders prior to our formation
transactions. AMB Investment Management provides investment advisory services to
Allmerica Financial Life Insurance and Annuity Company. David Brown, Daniel
Sarhad and Craig Duncan have ownership interests in or are otherwise associated
with an entity that provides property management and leasing services with
respect to certain of our properties, and to which we pay customary
compensation.
90
<PAGE> 94
PLAN OF DISTRIBUTION
This prospectus relates to:
- the possible issuance by us of up to 2,542,163 shares of common stock if,
and to the extent that, holders of up to 2,542,163 Units tender their
Units for cash redemption and we elect, in our sole and absolute
discretion, to exchange the Units for common stock in lieu of a cash
redemption; and
- the offer and sale from time to time of those 2,542,163 shares of common
stock by the selling stockholders.
We are registering the shares of common stock to provide the holders with
freely tradeable securities, but the registration of these shares does not
necessarily mean that any of these shares will be offered or sold by the
holders.
Pursuant to the terms and conditions of the registration rights agreement
dated as of November 26, 1997 among the Company, the Operating Partnership and
the selling stockholders, prior to the date upon which the Units would be
eligible for resale under Rule 144(k) under the Securities Act, as such rule may
be amended from time to time (or any similar rule or regulation hereafter
adopted by the SEC), each of the selling stockholders generally is limited to
resales of any shares of common stock issued pursuant to this prospectus to the
number of shares which otherwise would be eligible for resale by that limited
partner pursuant to Rule 144, assuming the shares were issued on the same date
as the respective Units were issued. See "Risk Factors -- Ownership of Common
Stock -- The Large Number of Shares Available for Future Sale Could Adversely
Affect the Market Price of Our Common Stock."
We will not receive any proceeds from the issuance of the shares of common
stock to the selling stockholders or from the sale of the shares by the selling
stockholders, but we have agreed to pay certain expenses of the registration of
the shares. The selling stockholders may from time to time sell the shares
directly to purchasers. Alternatively, the selling stockholders may from time to
time offer the shares through dealers or agents, who may receive compensation in
the form of commissions from the selling stockholders and for the purchasers of
the shares for whom they may act as agent. The selling stockholders and any
dealers or agents that participate in the distribution of the shares may be
deemed to be "underwriters" within the meaning of the Securities Act and any
profit on the sale of the common stock by them and any commissions received by
any such dealers or agents might be deemed to be underwriting commissions under
the Securities Act.
In connection with distribution of the shares of common stock covered by
this prospectus, the selling stockholders may enter into hedging transactions
with broker-dealers, and the broker-dealers may engage in short sales of the
common stock in the course of hedging the positions they assume with the selling
stockholders. The selling stockholders also may sell the common stock short and
deliver the common stock to close out such short positions. The selling
stockholders also may enter into option or other transactions with
broker-dealers that involve the delivery of the shares to the broker-dealers,
who may then resell or otherwise transfer the shares. The selling stockholders
also may loan or pledge the shares to a broker-dealer and the broker-dealer may
sell the shares so loaned or upon a default may sell or otherwise transfer the
pledged shares.
91
<PAGE> 95
LEGAL MATTERS
Ballard, Spahr, Andrews & Ingersoll, LLP, Baltimore, Maryland will issue an
opinion to us regarding certain matters of Maryland law. Latham & Watkins will
issue an opinion to us regarding certain tax matters described under "Certain
Federal Income Tax Considerations."
EXPERTS
The audited financial statements and schedules incorporated by reference in
this prospectus and elsewhere in the registration statement to the extent and
for the periods indicated in their reports have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing in giving said
reports.
92
<PAGE> 96
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and registration of the securities being registered
hereunder. All amounts shown are estimates except the Securities and Exchange
Commission registration fee.
<TABLE>
<S> <C>
SEC Registration Fee................................. $ 15,216
NYSE Listing Fee..................................... $ 8,500
Printing and Engraving Expenses...................... $100,000
Legal Fees and Expenses (other than Blue Sky)........ $ 40,000
Accounting and Fees and Expenses..................... $ 10,000
Blue Sky Fees and Expenses........................... $ 5,000
Miscellaneous........................................ $ 21,284
--------
Total...................................... $200,000
========
</TABLE>
All of the costs identified above will be paid for by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 2-418 of the MGCL permits a corporation to indemnify its directors
and officers and certain other parties 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 (i) the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and (a) was committed in bad faith or (b) was the result of
active and deliberate dishonesty; (ii) the director or officer actually received
an improper personal benefit in money, property or services; or (iii) in the
case of any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the proceeding;
provided, however, that if the proceeding is one by or in the right of the
corporation, indemnification may not be made with respect to any proceeding in
which the director or officer has been adjudged to be liable to the corporation.
In addition, a director or officer may not be indemnified with respect to any
proceeding charging improper personal benefit to the director or officer,
whether or not involving action in the director's or officer's official
capacity, in which the director or officer was adjudged to be liable on the
basis that personal benefit was received. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
any order of probation prior to judgment, creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for indemnification to be permitted.
In addition, Section 2-418 of the MGCL requires that, unless prohibited by
its charter, a corporation indemnify any director or officer who is made a party
to any proceeding by reason of service in that capacity against reasonable
expenses incurred by the director or officer in connection with the proceeding,
in the event that the director or officer is successful, on the merits or
otherwise, in the defense of the proceeding.
II-1
<PAGE> 97
The Company's Charter and Bylaws provide in effect for the indemnification
by the Company of the directors and officers of the Company to the fullest
extent permitted by applicable law. The Company has purchased directors' and
officers' liability insurance for the benefit of its directors and officers.
The Company has entered into indemnification agreements with each of its
executive officers and directors. The indemnification agreements require, among
other matters, that the Company indemnify its executive officers and directors
to the fullest extent permitted by law and reimburse the executive officers and
directors for all related expenses as incurred, subject to return if it is
subsequently determined that indemnification is not permitted.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*4.1 Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Registrant's Registration
Statement on Form S-11
(No. 333-35915)).
*4.2 Articles Supplementary establishing and fixing the rights
and preferences of the 8 1/2% Series A Cumulative Redeemable
Preferred Stock (incorporated by reference to Exhibit 3.4(4)
of the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998).
*4.3 Articles Supplementary establishing and fixing the rights
and preferences of the 8 5/8% Series B Cumulative Redeemable
Preferred Stock.
*4.4 Articles Supplementary establishing and fixing the rights
and preferences of the 8.75% Series C Cumulative Redeemable
Preferred Stock.
*4.5 Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 of the Registrant's Registration Statement on
Form S-11 (No. 333-35915)).
*4.6 Specimen common stock certificate (incorporated by reference
to Exhibit 3.3 of the Registrant's Registration Statement on
Form S-11 (No. 333-35915)).
*4.7 Form of Registration Rights Agreement among the Registrant
and the persons named therein (incorporated by reference to
exhibit 10.2 to the Registrant's Registration Statement on
Form S-11 (No. 333-35915)) .
*4.8 Indenture dated as of June 30, 1998 by and among the
Operating Partnership, the Company and State Street Bank and
Trust Company of California, N.A., as trustee (incorporated
by reference to Exhibit 4.1 of the Registrant's Registration
Statement on Form S-11 (No. 333-49163)).
*4.9 First Supplemental Indenture dated as of June 30, 1998 by
and among the Operating Partnership, the Company and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-11 (No.
333-49163)).
*4.10 Second Supplemental Indenture dated as of June 30, 1998 by
and among the Operating Partnership, the Company and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-11 (No.
333-49163)).
*4.11 Third Supplemental Indenture dated as of June 30, 1998 by
and among the Operating Partnership, the Company and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-11 (No.
333-49163)).
</TABLE>
II-2
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*4.12 Specimen of 7.10% Notes due 2008 (included in the First
Supplemental Indenture incorporated by reference as Exhibit
4.2 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
*4.13 Specimen of 7.50% Notes due 2018 (included in the Second
Supplemental Indenture incorporated by reference as Exhibit
4.3 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
*4.14 Specimen of 6.90% Reset Put Securities due 2015 (included in
the Third Supplemental Indenture incorporated by reference
as Exhibit 4.4 to the Company's Registration Statement on
Form S-11 (No. 333-49163)).
5.1 Opinion of Ballard, Spahr, Andrews & Ingersoll, LLP
regarding the validity of the common stock being registered.
*8.1 Opinion of Latham & Watkins regarding certain federal income
tax matters.
*23.1 Consent of Arthur Andersen, LLP.
23.2 Consent of Ballard, Spahr, Andrews & Ingersoll, LLP
(included in Exhibit 5.1).
*23.3 Consent of Latham & Watkins (included in Exhibit 8.1).
*24.1 Power of Attorney.
*99.1 Third Amended and Restated Agreement of Limited Partnership
of AMB Property, L.P.
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(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 paragraphs (a)(i) and (a)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 99
(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 undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration statement shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
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 Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are 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 hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance under Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, 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 in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Exchange Act of 1934, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director. officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Exchange Act of 1934, and will be governed by the final adjudication
of such issue.
II-4
<PAGE> 100
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 Amendment No. 1 to
this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized in the City of San Francisco, State of California, on
the 15th day of December, 1998.
AMB PROPERTY CORPORATION
By: *
-----------------------------------
Hamid R. Moghadam
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to this Registration Statement has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board December 15, 1998
- --------------------------------------------- and Director
T. Robert Burke
* President, Chief December 15, 1998
- --------------------------------------------- Executive Officer and
Hamid R. Moghadam Director (Principal
Executive Officer)
* Chairman of Investment December 15, 1998
- --------------------------------------------- Committee and Director
Douglas D. Abbey
* Chief Financial Officer December 15, 1998
- --------------------------------------------- (Principal Financial
S. Davis Carniglia Officer)
* Vice President and December 15, 1998
- --------------------------------------------- Director of Financial
Michael A. Coke Management Reporting
(Principal Accounting
Officer)
* Director December 15, 1998
- ---------------------------------------------
Daniel H. Case, III
* Director December 15, 1998
- ---------------------------------------------
Robert H. Edelstein, Ph.D.
</TABLE>
II-5
<PAGE> 101
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director December 15, 1998
- ---------------------------------------------
Lynn M. Sedway
* Director December 15, 1998
- ---------------------------------------------
Jeffrey L. Skelton, Ph.D.
* Director December 15, 1998
- ---------------------------------------------
Thomas W. Tusher
* Director December 15, 1998
- ---------------------------------------------
Caryl B. Welborn
*By: /s/ DAVID S. FRIES
---------------------------------------
David S. Fries
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 102
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*4.1 Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Registrant's Registration
Statement on Form S-11 (No. 333-35915)).
*4.2 Articles Supplementary establishing and fixing the rights
and preferences of the 8 1/2% Series A Cumulative Redeemable
Preferred Stock (incorporated by reference to Exhibit 3.4(4)
of the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998).
*4.3 Articles Supplementary establishing and fixing the rights
and preferences of the 8 5/8% Series B Cumulative Redeemable
Preferred Stock.
*4.4 Articles Supplementary establishing and fixing the rights
and preferences of the 8.75% Series C Cumulative Redeemable
Preferred Stock.
*4.5 Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 of the Registrant's Registration Statement on
Form S-11 (No. 333-35915)).
*4.6 Specimen common stock certificate (incorporated by reference
to Exhibit 3.3 of the Registrant's Registration Statement on
Form S-11 (No. 333-35915)).
*4.7 Form of Registration Rights Agreement among the Registrant
and the persons named therein (incorporated by reference to
exhibit 10.2 to the Registrant's Registration Statement on
Form S-11 (No. 333-35915)).
*4.8 Indenture dated as of June 30, 1998 by and among the
Operating Partnership, the Company and State Street Bank and
Trust Company of California, N.A., as trustee (incorporated
by reference to Exhibit 4.1 of the Registrant's Registration
Statement on Form S-11 (No. 333-49163)).
*4.9 First Supplemental Indenture dated as of June 30, 1998 by
and among the Operating Partnership, the Company and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-11 (No.
333-49163)).
*4.10 Second Supplemental Indenture dated as of June 30, 1998 by
and among the Operating Partnership, the Company and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-11 (No.
333-49163)).
*4.11 Third Supplemental Indenture dated as of June 30, 1998 by
and among the Operating Partnership, the Company and State
Street Bank and Trust Company of California, N.A., as
trustee (incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-11 (No.
333-49163)).
*4.12 Specimen of 7.10% Notes due 2008 (included in the First
Supplemental Indenture incorporated by reference as Exhibit
4.2 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
*4.13 Specimen of 7.50% Notes due 2018 (included in the Second
Supplemental Indenture incorporated by reference as Exhibit
4.3 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
*4.14 Specimen of 6.90% Reset Put Securities due 2015 (included in
the Third Supplemental Indenture incorporated by reference
as Exhibit 4.4 to the Company's Registration Statement on
Form S-11 (No. 333-49163)).
5.1 Opinion of Ballard, Spahr, Andrews & Ingersoll, LLP
regarding the validity of the common stock being registered.
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*8.1 Opinion of Latham & Watkins regarding certain federal income
tax matters.
*23.1 Consent of Arthur Andersen, LLP.
23.2 Consent of Ballard, Spahr, Andrews & Ingersoll, LLP
(included in Exhibit 5.1).
*23.3 Consent of Latham & Watkins (included in Exhibit 8.1).
*24.1 Power of Attorney.
*99.1 Third Amended and Restated Agreement of Limited Partnership
of AMB Property, L.P.
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
Exhibit 5.1
December 3, 1998
AMB Property Corporation
505 Montgomery Street
San Francisco, California 94111
Re: AMB Property Corporation, a Maryland corporation (the "Company")-
Registration Statement on Form S-3 pertaining to the issuance of up
to 2,542,163 shares (the "Shares") of common stock of the Company,
par value $.01 per share (the "Common Stock")filed on or about
December 2, 1998
Ladies and Gentlemen:
You have requested our opinion, as special Maryland corporate counsel to
AMB Property Corporation, a Maryland corporation (the "Company"), with respect
to the matters set forth below in connection with the registration of the
issuance and resale of the Shares, covered by the above-referenced Registration
Statement (the "Registration Statement"), filed by the Company with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"). The Shares are to be issued in exchange for up
to 2,542,163 units of limited partnership interest (the "Units") in AMB
Property, L.P., a Delaware limited partnership (the "Operating Partnership").
Unless otherwise defined herein, capitalized terms used herein shall have the
meanings assigned to them in the Registration Statement.
In our capacity as special Maryland corporate counsel to the Company, and
as a basis for the opinion hereinafter set forth, we have examined originals, or
copies certified or otherwise identified to our satisfaction, of the following
documents (collectively, the "Documents"):
(i) The Registration Statement and the related form of prospectus (the
"Prospectus") included therein in the form in which it was transmitted to the
Commission under the Act;
(ii) The charter of the Company (the "Charter"), consisting of Articles of
Incorporation filed with the Maryland State Department of Assessments and
Taxation (the "Department") on November 24, 1997, and Articles Supplementary
filed on July 23, 1998, November 12, 1998, and November 25, 1998;
(iii) The Bylaws of the Company (the "Bylaws"), which were duly adopted by
the Board of Directors of the Company on November 24, 1997;
(iv) Certain resolutions adopted and actions taken by the Board of
Directors of the Company (the "Board of Directors") on or before the date hereof
and in full force and effect on the date hereof including, but not limited to,
those certain resolutions adopted by the Board of Directors on November 24, 1997
relating to the sale, issuance and registration of the Shares, certified as of a
recent date by an officer of the Company (the "Resolutions");
(v) A status certificate of recent date issued by the Department to the
effect that the Company is duly incorporated and existing under the laws of the
State of Maryland;
(vi) The form of certificate representing a share of Common Stock,
certified as of a recent date by an officer of the Company;
(vii) The Third Amended and Restated Partnership Agreement of the Operating
Partnership certified as of a recent date by an Officer of the Company (the
"Partnership Agreement");
(viii) A Certificate of Officers of the Company of recent date to the
effect that, among other things, the Charter and Bylaws of the Company and the
resolutions and actions by the Board of Directors which we have examined are
true, correct and complete, have not been rescinded or modified and are in full
force and effect on the date of such certificate; and
(ix) Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
<PAGE> 2
AMB Property Corporation
December 3, 1998
Page 2
In expressing the opinion set forth below, we have assumed, and so far as
is known to us there are no facts inconsistent with, the following:
(a) Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding;
(b) Each individual executing any of the Documents on behalf of a party
(other than the Company) is duly authorized to do so;
(c) Each individual executing any of the Documents, whether on behalf of
such individual or another person, is legally competent to do so;
(d) All Documents submitted to us as originals are authentic. The form and
content of the Documents submitted to us as unexecuted drafts do not differ in
any respect relevant to this opinion from the form and content of such Documents
as executed and delivered. All Documents submitted to us as certified or
photostatic copies conform to the original documents. All signatures on all such
Documents are genuine. All public records reviewed or relied upon by us or on
our behalf are true and complete. All statements and information contained in
the Documents are true and complete. There are no modifications of or amendments
to the Documents, and there has been no waiver of any of the provisions of the
Documents, by action or omission of the parties or otherwise;
(e) The Resolutions adopted and the actions taken and to be taken by the
Board of Directors including, but not limited to, the adoption of all
resolutions and the taking of all action necessary to authorize the issuance and
sale of the Shares have occurred at duly called meetings at which a quorum of
the incumbent directors of the Company were or are present and acting
throughout, or by unanimous written consent of all incumbent directors, all in
accordance with the Charter and Bylaws of the Company and applicable law; and
(f) The number of shares of Common Stock to be offered and sold under the
Registration Statement will not, in the aggregate, exceed the number of shares
of Common Stock authorized in the Charter of the Company, less the number of
shares of Common Stock authorized and reserved for issuance and/or issued and
outstanding on the date on which the Shares are authorized or the date on which
the Shares are issued and delivered, and none of the Shares will be issued, sold
or transferred in violation of the provisions of the Charter of the Company.
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions, limitations and
qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under
and by virtue of the laws of the State of Maryland and is in good
standing with the SDAT.
2. The Shares are duly authorized and, upon issuance in accordance with
the Prospectus, the Resolutions, the Partnership Agreement and the
Charter, and upon due execution, countersignature and delivery of
certificates representing the Shares, when and if delivered against
payment of the consideration therefor as set by the Board of
Directors, the Shares will be validly issued, fully paid and
nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and further consent to the filing of this opinion as an exhibit to
applications to the securities commissioners of the various states of the United
States for registration of the Securities. We also consent to the identification
of our firm as Maryland counsel to the Company in the section of the Prospectus
(which is a part of the Registration Statement) entitled "Legal Matters." In
giving these consents, we do not admit that we are within the category of
persons whose consent is required by Section 7 of the Act.
This opinion is limited to the present corporate laws of the State of
Maryland and we express no opinion with respect to the laws of any other
jurisdiction. Furthermore, the opinions presented in this letter are limited to
the
<PAGE> 3
AMB Property Corporation
December 3, 1998
Page 3
matters specifically set forth herein and no other opinion shall be inferred
beyond the matters expressly set forth herein. Without limiting the generality
of the foregoing, we express no opinion with respect to any securities laws or
with respect to the action required for the Operating Partnership to authorize,
execute or deliver any of the Units or any other document, instrument or
agreement.
The opinions set forth in this letter are rendered as of the date hereof
and are necessarily limited to laws now in effect and facts and circumstances
presently existing and brought to our attention. We assume no obligation to
supplement this opinion if any applicable law is changed after the date hereof
or if we become aware of any facts or circumstances which now exist or which
occur or arise in the future and may change the opinions expressed herein after
the date hereof.
The opinions expressed in this letter are for your use and the use of your
securities counsel, Latham & Watkins, in connection with the filing of the
Registration Statement and the rendering of opinions by Latham & Watkins in
connection therewith, and may not be relied upon by you or Latham & Watkins for
any other purpose, without our prior written consent.
Very truly yours,
/s/ BALLARD SPAHR ANDREWS & INGERSOLL, LLP
