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PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b)(5)
(TO PROSPECTUS DATED JUNE 11, 1997) Registration No. 333-28167
$60,000,000
BRADLEY REAL ESTATE, INC.
SHARES OF COMMON STOCK, $0.01 PAR VALUE
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Bradley Real Estate, Inc. (the "Company"), a fully-integrated real estate
operating company and a leading owner and operator of community and neighborhood
shopping centers in the Midwest United States, may, from time to time during the
six month period following the date of this Prospectus Supplement, offer and
sell shares (the "Shares") of its common stock, $0.01 par value per share
("Common Stock"), having an aggregate sales price of up to $60,000,000. The
price per share at which the Shares may be offered and sold by the Company will
be specified in a Pricing Supplement to be delivered with this Prospectus
Supplement.
Shares of the Common Stock of the Company are listed on the New York Stock
Exchange ("NYSE") under the symbol "BTR."
Ownership of more than 9.8% of the Common Stock is restricted in order to
preserve the Company's status as a real estate investment trust ("REIT") for
federal income tax purposes. See "Description of Capital Stock -- Restrictions
on Transfer" in the accompanying Prospectus.
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SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR
CERTAIN FACTORS RELATING TO AN INVESTMENT IN THE SHARES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Company has entered into an Underwriting Agreement dated as of the date
hereof with PaineWebber Incorporated ("PaineWebber") pursuant to which, subject
to the terms and conditions set forth therein, upon receipt of a notice from the
Company (a "Securities Purchase Notice") specifying a number of Shares having a
gross sales price of not less than $5,000,000 nor more than $20,000,000,
PaineWebber, acting as underwriter, has agreed to purchase such Shares from the
Company at a fixed price per share equal to the closing price of a share of
Common Stock on the next or second next NYSE trading day following the date of
such Securities Purchase Notice, less a discount not to exceed 4.25%. The Shares
purchased hereunder by PaineWebber may be offered by PaineWebber from time to
time in one or more transactions on the NYSE, or otherwise, at fixed prices,
market prices prevailing at the time of sales, prices related to such prevailing
market prices or at negotiated prices.
The Company has agreed to indemnify PaineWebber against certain liabilities
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Underwriting."
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The Shares are offered by PaineWebber subject to prior sale, when, as and
if delivered to and accepted by it pursuant to a Securities Purchase Notice from
the Company, subject to approval of certain legal matters by counsel for
PaineWebber and certain other conditions. PaineWebber reserves the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the Shares will be made in New York, New York on
the date specified in the applicable Pricing Supplement.
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PAINEWEBBER INCORPORATED
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THE DATE OF THIS PROSPECTUS SUPPLEMENT IS OCTOBER 21, 1997
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IN CONNECTION WITH THE OFFERING, PAINEWEBBER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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The following information contained in this Prospectus Supplement is
qualified in its entirety by the detailed information appearing elsewhere in
this Prospectus Supplement or the accompanying Prospectus or incorporated
therein by reference. As used herein, the term "Company" includes Bradley Real
Estate, Inc., a Maryland corporation, and its subsidiaries, including Bradley
Operating Limited Partnership (the "Operating Partnership"), a Delaware limited
partnership, and its subsidiaries, or, as the context may require Bradley Real
Estate, Inc. only.
Statements made or incorporated in this Prospectus Supplement and the
accompanying Prospectus include forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Forward-looking statements include,
without limitation, statements containing the words "anticipates", "believes",
"expects", "intends", "future", and words of similar import which express
management's belief, expectations or intentions regarding the Company's future
performance or future events or trends. Forward-looking statements involve known
and unknown risks, uncertainties and other factors, including those factors
identified under "Risk Factors" in the accompanying Prospectus, which may cause
actual results, performance or achievements of the Company to differ materially
from anticipated future results, performance or achievements expressly or
implied by such forward-looking statements. In addition, the Company undertakes
no obligation to publicly update or revise any forward-looking statement,
whether as a result of new information, future events or otherwise.
THE COMPANY
Bradley Real Estate, Inc. is a fully-integrated real estate operating
company and a leading owner and operator of community and neighborhood shopping
centers in the Midwest region of the United States. As of the date of this
Prospectus Supplement, the Company owned 43 properties (41 shopping centers and
two office/retail properties) in 11 states, aggregating approximately 8.5
million square feet of gross leasable area ("GLA"). Title to such properties is
held by or for the benefit of the Operating Partnership, of which the Company is
the sole general partner and the owner of approximately 95% of the economic
interests in the Operating Partnership.
The Company's strategic objective is to become the dominant owner of
grocery-anchored, open-air community and neighborhood shopping centers in the
upper Midwest, generally consisting of the states of Illinois, Indiana, Iowa,
Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South
Dakota and Wisconsin. The Company currently owns properties in seven states in
this region. Through past experience as well as current research, the Company
believes that this region is economically strong and diverse and provides a
favorable environment for the acquisition, ownership and operation of retail
properties. The Company evaluates prospects in both metropolitan statistical
areas defined by the U.S. Census Bureau and secondary markets within this region
that offer opportunities for favorable investment returns and long-term cash
flow growth. The Company favors grocery-anchored centers because, based on its
past experience, such properties offer strong and predictable daily consumer
traffic and are less susceptible to external economic factors than other
shopping center properties.
The Company regularly evaluates, and engages in discussions with public and
private entities regarding possible portfolio or asset acquisitions or business
combinations. Since January 1, 1997, the Company has acquired 14 shopping
centers which meet its investment criteria and expects to complete additional
acquisitions during the remainder of the year, although there can be no
assurance that further acquisitions will be made within its target markets. See
"Recent Developments." The Company seeks to create an income stream diversity
across many Midwest markets in order to insulate the Company from economic
trends affecting any particular market.
The Company has elected to qualify as a REIT for federal income tax
purposes since its organization in 1961. The Company is the nation's oldest
continuously qualified REIT.
The Company is incorporated under the laws of the State of Maryland. Its
offices are located at Suite 600, 40 Skokie Boulevard, Northbrook, Illinois
60062-1626. Its telephone number is (847) 272-9800.
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RECENT DEVELOPMENTS
ORGANIZATIONAL STRUCTURE
The Company held title to all of its properties directly prior to its
merger acquisition of Tucker Properties Corporation ("Tucker") in March 1996
(the "Tucker Acquisition"). Tucker held all of its properties through a
partnership, Tucker Operating Limited Partnership, of which Tucker was the sole
general partner and, upon the merger of Tucker into the Company, the Company
succeeded Tucker as general partner of such partnership, whose name was then
changed to "Bradley Operating Limited Partnership" (the "Operating
Partnership"). From March 1996 until August 1997, the Company held title to some
of its properties (primarily those owned prior to the Tucker Acquisition)
directly and the remainder of its properties (primarily those acquired in and
subsequent to the Tucker Acquisition) through the Operating Partnership.
On August 29, 1997, the Company completed the contribution of its interest
in 18 properties previously owned directly by it to the Operating Partnership.
As a result of such contribution, the Company now holds all of its properties
through the Operating Partnership. The partnership agreement governing the
Operating Partnership (the "Operating Partnership Agreement") provides that the
interest of the limited partners therein is represented by a specified number of
partnership units, which after specified dates may in effect be exchanged by the
limited partners, on a 1-for-1 basis, for shares of Common Stock of the Company.
The Operating Partnership Agreement provides for distribution by the Operating
Partnership to be made to the holders of limited partner units at the same time
as, and in the same amount as, distributions by the Company on an equivalent
number of shares of Company Common Stock, and for all other distributions to be
made to the general partner. Accordingly, the Company's contribution of such
properties to the Operating Partnership was made without consideration, inasmuch
as the respective economic interests of the limited partners in the Operating
Partnership and of the Company as general Partner were not altered by such
contribution. The contribution had no effect upon the consolidated financial
statements of the Company. The Company had an approximately 95% ownership
interest in the Operating Partnership immediately following the contribution.
INVESTMENT GRADE RATING
The contribution of properties originally owned directly by the Company to
the Operating Partnership was motivated by the Company's desire to obtain an
investment grade credit rating for the Operating Partnership. The Company
believed that holding all of its properties in a single entity would enhance its
ability to obtain such a rating. In August 1997, Standard & Poor's Investment
Services assigned a corporate rating of "BBB-" to the Operating Partnership,
and, in September 1997, the Operating Partnership filed a "shelf" registration
statement with the Commission relating to debt securities which the Operating
Partnership may issue to the public from time to time. The Company anticipates
that all future debt securities will be issued by the Operating Partnership.
As a result of the investment grade rating assigned to the Operating
Partnership by Standard & Poor's, the interest rate on outstanding borrowings
under the Company's unsecured line of credit was lowered from 1.5% to 1.375%
over the London Interbank Offer Rate ("LIBOR") in effect from time to time.
ACQUISITIONS AND DISPOSITIONS
Since January 1, 1997 to the date of this Prospectus Supplement, the
Company has acquired 14 shopping center properties having an aggregate of
approximately 1,450,000 square feet of GLA for an aggregate acquisition cost of
approximately $95,600,000. These shopping centers are located in Illinois,
Indiana, Iowa, Minnesota, Missouri and Wisconsin. During the same period, the
Company has disposed of two New England shopping centers and one shopping center
in Illinois for an aggregate sales price of approximately $19,700,000. The
Company is currently marketing for sale its one remaining New England property
and one property in Indiana.
MONTGOMERY WARD BANKRUPTCY
On October 10, 1997, the Company received notice from Montgomery Ward &
Co., Incorporated ("Montgomery Ward"), which filed for voluntary reorganization
under Chapter 11 of the federal Bankruptcy
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Code in July 1997, announcing its intention to close its store at the Company's
Heritage Square shopping center in Naperville, Illinois on or before December
31, 1997. The Company's lease with Montgomery Ward, whose stated term runs until
2013, is for approximately 111,000 square feet in this 212,000 square foot
center, which is also anchored by Circuit City and Stroud's. The notice does not
state whether Montgomery Ward intends to reject the lease. The Montgomery Ward
lease provides for annual base rents of approximately $1.1 million. Management
of the Company believes that a decision by Montgomery Ward to reject the lease
would provide the Company with the opportunity to retenant the space with one or
more higher quality tenants. However, no assurances can be given as to the
period of time or costs to effect the retenanting of the space, that a successor
tenant or tenants would in fact be more creditworthy than Montgomery Ward, or
that a future lease or leases of the space would provide for economic terms as
favorable to the Company as the terms of the Montgomery Ward lease. See
generally "Risk Factors -- Real Estate Investment Considerations -- Financial
Condition and Bankruptcy of Tenants" in the attached Prospectus.
TAXPAYER RELIEF ACT OF 1997
In August 1997, the President signed the Taxpayer Relief Act of 1997 (the
"1997 Tax Act"). The 1997 Tax Act amends the Internal Revenue Code of 1986, as
previously amended, (the "Code") in a variety of respects, including
particularly with respect to the taxation of capital gain income. The 1997 Tax
Act also included numerous provisions that in general make it easier for
companies such as the Company to qualify as a REIT for federal income tax
purposes. The description of "Federal Income Tax Considerations" in this
Prospectus Supplement reflects changes in applicable law effected by the 1997
Tax Act and should be read instead of the comparably captioned section of the
accompanying Prospectus.
USE OF PROCEEDS
Pursuant to the Operating Partnership Agreement, the Company is required to
contribute all proceeds from the sale of the Shares to the Operating Partnership
in exchange for additional partnership units. Unless otherwise described in the
applicable Pricing Supplement, the Company, as general partner of the Operating
Partnership, intends to cause the Operating Partnership to use the net proceeds
from the sale of the Shares primarily to repay indebtedness that may then be
outstanding under the Company's line of credit, to acquire additional shopping
centers, to fund expansions and/or improvements to such shopping centers or to
shopping centers already owned by the Company, and/or to fund the selective
development of new shopping centers. Outstanding borrowings under the line of
credit bear interest at a variable rate, depending upon the rating assigned to
the Operating Partnership by recognized rating agencies, which rate is currently
1.375% over LIBOR.
Pending their use as described above, the net proceeds from the sale of the
Shares may be used for other general business purposes of the Operating
Partnership or invested in short-term securities.
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FEDERAL INCOME TAX CONSIDERATIONS
The 1997 Tax Act made changes to the Code, particularly with respect to the
taxation of capital gain income. Potential purchasers of Shares are urged to
read the following description of relevant federal income tax considerations,
rather than the description contained under the caption "Federal Income Tax
Considerations" in the accompanying Prospectus. References in the following
description to the "Code" include the Code as amended by the 1997 Tax Act.
Goodwin, Procter & Hoar LLP has confirmed to the Company that its opinion
expressed in the first paragraph of the following description is not altered by
virtue of the 1997 Tax Act.
The Company has elected to qualify as a REIT under the Code. In the opinion
of Goodwin, Procter & Hoar LLP, the Company has been organized in conformity
with the requirements for qualification as a REIT under the Code, and its manner
of operation has met and will continue to meet the requirements for
qualification and taxation as a REIT under the Code. This opinion is based on
various assumptions and is conditioned upon representations made by the Company
as to factual matters and the continuation of such factual matters. Investors
should be aware, however, that opinions of counsel are not binding upon the
Internal Revenue Service ("IRS") or any court. Moreover, such qualification and
taxation as a REIT in any tax year depends upon the Company's ability to meet in
its actual results for the tax year the various source of income, ownership of
assets, distribution and diversity of ownership requirements of the Code for
qualification as a REIT, which results will not be reviewed by Goodwin, Procter
& Hoar LLP. Accordingly, no assurance can be given that the actual results of
the Company for any particular tax year will in fact satisfy the requirements
for qualification. Likewise, although the Company believes that it has operated
in a manner which satisfies the REIT qualification requirements under the Code
since its organization in 1961, no assurance can be given that the Company's
qualification as a REIT will not be challenged by the IRS for taxable years
still subject to audit.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions that
currently govern the federal income tax treatment of the Company and its
stockholders. For the particular provisions that govern the federal income tax
treatment of the Company and its stockholders, reference is made to Sections 856
through 860 of the Code and the regulations thereunder. The following summary is
qualified in its entirety by such reference. This discussion does not address
any state tax considerations or issues that arise as a result of an investor's
special circumstances or special status under the Code.
Under the Code, if certain requirements are met in a taxable year,
including the requirement that the REIT distribute to its stockholders at least
95% of its real estate investment trust taxable income (computed without regard
to the dividends paid deduction and the Company's net capital gain) for the
taxable year, a REIT generally will not be subject to federal income tax with
respect to income that it distributes to its stockholders. However, the Company
may be subject to federal income tax under certain circumstances, including
taxes at regular corporate rates on any undistributed REIT taxable income or net
capital gains, the alternative minimum tax on its items of tax preference, and
taxes imposed on income and gain generated by certain extraordinary
transactions. As discussed below, however, stockholders may be credited for all
or a portion of the taxes paid by the Company on its retained net capital gains.
If the Company fails to qualify during any taxable year as a REIT, unless
certain relief provisions are available, it will be subject to tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates, which could have a material adverse effect upon its
stockholders. For additional discussion of certain issues relating to the
Company's qualification as a REIT that arise as a result of the Tucker
Acquisition, see "Risk Factors -- Adverse Consequences of Failure to Qualify as
a REIT and Other Tax Risks" in the accompanying Prospectus.
The Company may elect to retain and pay income tax on its net long-term
capital gains received during the taxable year. For taxable years beginning
after December 31, 1997, if the Company so elects for a taxable year, the
stockholders would include in income as long-term capital gains their
proportionate share of such portion of the Company's undistributed long-term
capital gains for the taxable year as the Company may designate. A stockholder
would be deemed to have paid his share of the tax paid by the Company on such
undistributed capital gains, which would be credited or refunded to the
stockholder. The stockholder's basis in his Common Stock would be increased by
the amount of undistributed long-term capital gains included in the
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stockholder's long-term capital gains, less such stockholder's share of the
capital gains tax paid by the Company. As discussed below, stockholders should
note that the 1997 Tax Act allows the IRS to prescribe regulations which could
alter the taxation of undistributed capital gains for individuals, estates and
certain trusts.
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. Stockholders out of current or accumulated earnings and
profits (and not designated as a capital gain dividends) will be taken into
account by such U.S. Stockholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. As
used herein, the term "U.S. Stockholder" means a holder of Common Stock that for
United States federal income tax purposes is (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, (iii) an estate, the income of which is subject to United States
federal income taxation regardless of its source or (iv) a trust, if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust and (v) is not an
entity that has a special status under the Code (such as a tax-exempt
organization or dealer in securities). Subject to the discussion below regarding
the changes to the capital gains tax rates, distributions that are designated as
capital gains dividends will be taxed as capital gains (to the extent they do
not exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the stockholder has held his or her Common Stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Capital gain dividends are not
eligible for the dividends-received deduction for corporations.
The 1997 Tax Act alters the taxation of capital gain income. Under the 1997
Tax Act, individuals (as well as estates and certain trusts) who hold capital
assets for more than 18 months may be taxed at a maximum long-term capital gain
rate of 20% on the sale or exchange of those investments. Gains from capital
assets held for more than 12 months but not more than 18 months may be taxed at
a maximum mid-term capital gain rate of 28%. The Act also provides a maximum
rate of 25% for "unrecaptured section 1250 gain" for individuals, trusts, and
estates and special rules for "qualified 5-year gain," and makes other changes
to prior law. The 1997 Tax Act allows the IRS to prescribe regulations on how
the 1997 Tax Act's new capital gain rates will apply to sales of capital assets
by "pass-through entities," which include REITs such as the Company. To date,
regulations have not yet been prescribed, and it remains unclear how the 1997
Tax Act's new rates will apply to capital gain dividends and undistributed
capital gains, including for example the extent, if any, to which capital gain
dividends and undistributed capital gains from the Company will be taxed to
individuals at the new rates for mid-term capital gains and unrecaptured section
1250 gain, rather than the long-term capital gain rates. Prospective investors
are urged to consult their own tax advisors with respect to the new rules
contained in the 1997 Tax Act.
Distributions, other than capital gain dividends, in excess of current and
accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's Common
Stock, but rather will reduce the adjusted basis of such stock. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a stockholder's Common Stock, the distribution will
be treated as long-term capital gain or loss if the shares of Common Stock have
been held for more than 12 months (or, in the case of individuals, estates and
certain trusts, mid-term capital gain or loss if the shares have been held for
more than 12 months but not more than 18 months and long-term capital gain or
loss if the shares have been held for more than 18 months) and otherwise as
short- term capital gain or loss. In addition, any dividend declared by the
Company in October, November or December of any year and payable to a
stockholder of record on a special date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the distribution is actually paid by the Company during
January of the following calendar year.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would be
carried over by the Company for potential offset against its future income
(subject to certain limitations). Taxable distributions from the Company and
gain from the disposition of Common Stock will not be treated as passive
activity income and, therefore, stockholders
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generally will not be able to apply any "passive activity losses" (such as
losses from certain types of limited partnerships in which the stockholder is a
limited partner) against such income. In addition, taxable distributions from
the Company generally will be treated as investment income for purposes of the
investment interest deduction limitations. Capital gain distributions and
capital gains from the disposition of Common Stock (and distributions treated as
such) will be treated as investment income for purposes of the investment
interest deduction limitations only if and to the extent the stockholder so
elects, in which case such capital gain distributions and capital gains will be
taxed at ordinary income rates to the extent of such election. The Company will
notify stockholders after the close of the Company's taxable year as to the
portions of the distributions attributable to that year that constitute ordinary
income, return of capital, and capital gain.
Investors are urged to consult their own tax advisors with respect to the
appropriateness of an investment in the Shares offered hereby and with respect
to the tax consequences arising under federal law and the laws of any state,
municipality or other taxing jurisdiction, including tax consequences resulting
from such investor's own tax characteristics. In particular, foreign investors
should consult their own tax advisors concerning the tax consequences of an
investment in the Company, including the possibility of United States income tax
withholding on Company distributions.
UNDERWRITING
Under the terms and subject to the conditions of an Underwriting Agreement
dated as of the date of this Prospectus (the "Underwriting Agreement") between
the Company and PaineWebber, PaineWebber, acting as underwriter, has agreed to
purchase from the Company up to a maximum aggregate number of Shares having an
aggregate gross sales price of up to $60,000,000 from time to time in one or
more transactions during the period ending six months after the date of the
Underwriting Agreement.
Pursuant to the Underwriting Agreement, the Company may indicate its desire
to sell a portion of the Shares by delivering to PaineWebber on any NYSE trading
day a "Securities Purchase Notice" specifying the number of Shares to be sold,
provided that each Securities Purchase Notice shall specify a number of Shares
having an aggregate gross sales price of not less than $5,000,000 nor more than
$20,000,000. Upon receipt of such notice, PaineWebber will become obligated to
purchase the specified number of Shares, subject to certain provisions which
allow for a temporary suspension of PaineWebber's obligation to purchase such
number of Shares.
The terms of each purchase and sale, including price, will be set forth in
a Pricing Supplement, which will be deemed a part of this Prospectus Supplement.
The Shares will be purchased at a fixed price per share equal to the per share
closing price of the Common Stock as reported on the composite tape of the NYSE
on the trading date immediately following the date of the Company's Securities
Purchase Notice, less the underwriting discount described below. In the event
that on such trading date the Common Stock would not qualify as "Actively-Traded
Securities" within the meaning of Rule 101(c)(1) of Regulation M under the
Exchange Act, the Underwriting Agreement provides that the price shall be the
closing price of the Common Stock as reported on the composite NYSE tape on the
second trading day following the date of the Company's Securities Purchase
Notice.
In connection with the sale of the Shares, PaineWebber will receive
compensation from the Company in the form of discounts, concessions, or
commissions, which shall not exceed 4.25% (or 4.0% for the first purchase and
sale of Shares made under the Underwriting Agreement) of the closing sale price
of the Common Stock on the NYSE on the date of pricing. PaineWebber may sell
Shares to or through dealers, and such dealers may receive compensation in the
form of discounts, concessions or commissions from PaineWebber and/or
commissions from the purchasers for whom they act as agents. PaineWebber and any
dealers or agents that participate in the distribution of the Shares may be
deemed to be underwriters and any discounts or commissions they receive from the
Company, may be deemed to be underwriting discounts and commissions, under the
Securities Act. The applicable underwriting discount and any other compensation
received from the Company will be described in the applicable Pricing
Supplement.
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The Shares purchased hereunder by PaineWebber may be offered by PaineWebber
from time to time in one or more transactions on the NYSE, or otherwise, at
fixed prices, market prices prevailing at the time of sales, prices related to
such prevailing market prices or at negotiated prices.
The Company has agreed to indemnify PaineWebber against certain
liabilities, including liabilities under the Securities Act or to contribute to
payments PaineWebber may be required to make in respect thereof. The Company has
also agreed to reimburse PaineWebber for certain expenses.
The Shares offered and sold hereby will be listed on the NYSE, subject to
official notice of issuance.
Until the distribution of the Shares subject to a Securities Purchase
Notice is completed, rules of the Securities and Exchange Commission may limit
the ability of PaineWebber to bid for and purchase Common Stock. As an exception
to these rules, PaineWebber is permitted, subject to certain restrictions, to
engage in certain transactions that stabilize the price of the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Stock.
If PaineWebber creates a short position in the Common Stock in connection
with the offering, i.e., if it sells more Shares than are set forth in the
applicable Pricing Supplement, PaineWebber may reduce that short position by
purchasing shares of Common Stock in the open market.
In general, purchases of a security for the purpose of stabilization could
cause the price of the security to be higher than it might be in the absence of
such purchases.
Neither the Company nor PaineWebber makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above might have on the price of the Common Stock. In addition, neither the
Company nor PaineWebber makes any representation that PaineWebber will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
In the ordinary course of its business, PaineWebber and its affiliates have
engaged and may in the future engage in investment banking, financial advisory
and other transactions with the Company for which customary compensation has
been, and will be, received.
LEGAL MATTERS
Certain legal matters, including the legality of the Shares, will be passed
upon for the Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
William B. King, whose professional corporation is a partner in Goodwin, Procter
& Hoar LLP, is Secretary of the Company and is the beneficial owner of
approximately 9,000 shares of Common Stock. Certain legal matters for
PaineWebber will be passed upon by Rogers & Wells, New York, New York. As to
certain matters of Maryland law, Rogers & Wells will rely upon the opinion of
Goodwin, Procter & Hoar LLP.
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PROSPECTUS
$234,460,000
BRADLEY REAL ESTATE, INC.
COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES REPRESENTING PREFERRED STOCK
WARRANTS OR RIGHTS
UNITS OF SECURITIES
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Bradley Real Estate, Inc. ("Bradley" or the "Company") may offer from time
to time in one or more series (i) shares of its common stock, $.01 par value per
share ("Common Stock"), (ii) shares of its preferred stock, $.01 par value per
share ("Preferred Stock" and, together with the Common Stock, the "Capital
Stock"), (iii) Preferred Stock represented by depositary shares ("Depositary
Shares"), (iv) warrants or rights ("Warrants") for Common Stock and/or Preferred
Stock and (v) units ("Units") consisting of two or more of the foregoing
securities, with an aggregate public offering price of up to $234,460,000 in
amounts, at prices and on terms to be determined at the time of offering. The
Common Stock, Preferred Stock, Depositary Shares, Warrants and Units
(collectively, the "Securities") may be offered separately or together, in
separate series, in amounts, at prices and on terms to be set forth in one or
more supplements to this Prospectus (each a "Prospectus Supplement").
The specific terms of the Securities for which this Prospectus is being
delivered will be set forth in the applicable Prospectus Supplement and will
include, where applicable: (i) in the case of Common Stock, the offering price;
(ii) in the case of Preferred Stock, the specific designation and stated value
per share, any dividend, liquidation, redemption, conversion, voting and other
rights, and the offering price; (iii) in the case of Depositary Shares, the
fractional shares of Preferred Stock represented by each such Depositary Share;
(iv) in the case of Warrants, the number and terms thereof, any applicable
designation thereof, and the designation and the number of securities issuable
upon their exercise, the exercise price, the terms of the offering and sale
thereof and, where applicable, the duration and detachability thereof; and (v)
in the case of Units, a description of the securities comprising such Units and
the offering price thereof. In addition, such specific terms may include
limitations on direct or beneficial ownership and restrictions on transfer of
the Securities, in each case as may be consistent with the Company's Articles of
Amendment and Restatement (the "Charter"), or as otherwise appropriate to
preserve the status of the Company as a real estate investment trust ("REIT")
for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
appropriate, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered directly by the Company, through agents
designated from time to time by the Company or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such Securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is June 11, 1997.
<PAGE> 11
AVAILABLE INFORMATION
No person has been authorized to give any information or to make any
representation not contained or incorporated by reference in this Prospectus or
the accompanying Prospectus Supplement and, if given or made, such information
or representation must not be relied upon as having been authorized by the
Company or any underwriter, dealer or agent. Neither the delivery of this
Prospectus or the accompanying Prospectus Supplement nor any sale made hereunder
of thereunder shall, under any circumstances, create an implication that the
information contained herein or in the accompanying Prospectus Supplement is
correct as of any date subsequent to the date hereof or thereof or that there
has been no change in the affairs of the Company since the date hereof or
hereof. Neither this Prospectus nor the accompanying Prospectus Supplement
constitutes an offer to sell or a solicitation of an offer to buy Securities in
any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to any person to whom it is unlawful to make such offer or solicitation.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC" or the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048,
and Northwest Atrium Center, 500 W. Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained upon written request
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a Web site that contains reports, proxy statements and other
information which the Company has filed electronically with the Commission. The
address of the Commission's Web site is: http://www.sec.gov. In addition, the
Common Stock is listed on the New York Stock Exchange (the "NYSE") under the
symbol "BTR," and such materials can be inspected and copied at the NYSE, 20
Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (No. 333-28167) under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the Securities. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. The
Registration Statement, including exhibits thereto, may be inspected and copied
at the locations described above. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. Pursuant to Rule
429 under the Securities Act, this Prospectus also relates to securities (which
are included within the Securities) registered by Registration Statement No.
33-87084.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act (Commission File No. 1-10328) are incorporated in
this Prospectus by reference: (i) the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996; (ii) the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997; (iii) the Company's Proxy
Statement dated March 31, 1997 with respect to its Annual Meeting of
Stockholders on May 14, 1997; and (iv) the description of the Company's Common
Stock contained or incorporated by reference in the Company's Registration
Statement on Form 8-A, filed August 8, 1994, including any amendments thereto.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of all Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
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<PAGE> 12
Any statement contained herein or in a document incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in an applicable Prospectus Supplement) or in any subsequently filed
document that is incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus or any Prospectus Supplement, except as so
modified or superseded.
The Company will provide, without charge, to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, at the request
of such person, a copy of any or all of the documents incorporated herein by
reference (other than exhibits thereto, unless such exhibits are specifically
incorporated by reference into such documents). Written requests for such copies
should be directed to Ms. Marianne Dunn, Senior Vice President, Bradley Real
Estate, Inc., Suite 600, 40 Skokie Boulevard, Northbrook, Illinois 60062-1626,
telephone (847) 272-9800.
THE COMPANY
Bradley Real Estate, Inc. is a fully-integrated real estate operating
company and a leading owner and operator of community and neighborhood shopping
centers in the Midwest region of the country. At the date of this Prospectus,
the Company owns 35 properties in 12 states, aggregating approximately 8 million
square feet of gross leasable area ("GLA").
Bradley's strategic objective is to become the dominant owner of
grocery-anchored, open-air community and neighborhood shopping centers in the
10-state Midwest region consisting of Illinois, Indiana, Iowa, Kansas,
Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wisconsin. The
Company currently owns properties in seven of the 10 states in this region.
Through past experience in this region as well as current research, the Company
believes that this Midwest region is economically strong and diverse and
provides a favorable investment environment with growth potential. The Company
evaluates both Metropolitan Statistical Areas and secondary markets within this
region that offer opportunities for long-term cash flow growth. The Company
favors grocery-anchored centers because, based on its past experience, such
properties offer strong and predictable daily consumer traffic and are less
susceptible to external economic factors than other shopping center properties.
Bradley regularly evaluates, and engages in discussions with public and
private entities regarding, possible portfolio or asset acquisitions or business
combinations. During 1997, the Company has acquired four shopping centers which
meet its investment criteria and expects to complete additional acquisitions
during the year, although there can be no assurance that further acquisitions
will be made within its target markets. The Company seeks to create an income
stream sufficiently diversified across its Midwest markets to achieve
sustainable growth through varied economic conditions.
The Company has elected to qualify as a REIT for federal income tax
purposes since its organization in 1961. The Company believes that it is the
nation's oldest continually qualified REIT.
The Company is incorporated under the laws of the State of Maryland. Its
offices are located at Suite 600, 40 Skokie Boulevard, Northbrook, Illinois
60062-1626. Its telephone number is (847) 272-9800.
Reference is made to the applicable Prospectus Supplement accompanying this
Prospectus for additional information concerning the Company as of the date of
such Prospectus Supplement.
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<PAGE> 13
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of Securities primarily to
repay indebtedness incurred in connection with the acquisition or improvement of
shopping centers, to acquire additional shopping centers and to fund expansions
and/or improvements to such shopping centers or to certain shopping centers
already owned by the Company.
Pending their use as described above, the net proceeds from the sale of any
Securities may be used for other general corporate purposes of the Company or
invested in short-term securities.
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED
- --------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
- ------- ------- ------- ------- ------- -----------------------
<S> <C> <C> <C> <C> <C>
1.16:1 2.72:1 2.70:1 2.55:1 2.92:1 3.39:1
</TABLE>
To date, the Company has not issued any shares of Preferred Stock.
Accordingly, the ratios of earnings to combined fixed charges and Preferred
Stock dividends are unchanged from the ratios shown above. For purposes of
computing these ratios, earnings have been calculated by adding fixed charges
(excluding capitalized interest) to income before income taxes and extraordinary
items. Fixed charges consist of interest costs, whether expensed or capitalized,
the interest component of rental expense, if any, and amortization of debt
discounts and issue costs, whether expensed or capitalized.
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<PAGE> 14
RISK FACTORS
GENERAL
As in every business, there are risk factors that face the Company and its
operations. By setting forth below some of the factors that could cause the
actual results of the Company's operations or plans to differ materially from
the Company's expectations as set forth in statements in this Prospectus or the
applicable Prospectus Supplement or in documents incorporated by reference
herein or therein that may be considered to be "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, the Company seeks to avail itself of the "safe harbor" provided in
the Private Securities Litigation Reform Act of 1995.
SUBSTANTIAL DEBT OBLIGATIONS AND TERM OF DEBT
The Company's obligations for borrowed money aggregated approximately
$184.3 million at March 31, 1997 and $188.9 million at December 31, 1996, as
compared to $39.4 million at December 31, 1995. The percentage of debt to total
market capitalization of the Company was approximately 30% at March 31, 1997 and
32% at December 31, 1996, as compared to 20% at December 31, 1995. This increase
in the Company's leverage and its ratio of debt to total market capitalization
could increase the risk of default under its indebtedness. Failure to pay debt
obligations when due could result in the Company losing its interest in the
properties collateralizing such obligations.
The Company believes that the ratio of debt to total market capitalization
is an important factor to consider in evaluating a REIT's debt level because
this ratio is one indicator of a company's ability to borrow funds. The Company
believes that using the ratio of debt to book value of assets is not as reliable
an indicator of a REIT's debt level because the book value of a REIT's assets
indicates only the depreciated value of the REIT's property without
consideration of the market value of such assets at a particular point in time.
The use of the ratio of debt to total market capitalization of a company is more
variable than the book value because it is dependent on the current stock price
of a company. Accordingly, there can be no assurance that the use of the ratio
of debt to total market capitalization in evaluating the Company's debt level
will adequately protect it from being too highly leveraged.
A significant liability of the Company is a $100 million 7.3% mortgage note
(the "REMIC Note") secured by six of the Company's properties that matures in
September 2000. The Company has historically been able to refinance debt when it
has become due on terms which it believes to be commercially reasonable. There
can be no assurance that the Company will continue to be able to repay or to
refinance its indebtedness relating to the REMIC Note or any of its other
indebtedness on commercially reasonable or any other terms.
The Company's unsecured line of credit bears interest at a variable rate.
The balance outstanding under the line of credit at March 31, 1997 was $55.3
million, and the Company may increase outstanding borrowings to $150 million. To
the extent the Company's exposure to increases in interest rates is not
eliminated through interest rate protection or cap agreements, such increases
will adversely affect the Company's net income, funds from operations ("FFO")
and cash available for distribution and may affect the amount of distributions
it can make to its stockholders.
The Company's line of credit requires the Company to maintain interest rate
protection, at a rate satisfactory to the lead lender, with respect to 67% of
the Company's outstanding balance under the line. The Company has entered into
an interest rate protection agreement with The First National Bank of Boston
(the "Bank") with respect to $57 million of indebtedness whereby the Bank will
reimburse the Company the amount by which the then applicable three month LIBOR
rate exceeds 7.5%. In addition, the Company has entered into an interest rate
swap agreement with the Bank with respect to $43 million, thereby fixing the
interest rate on $43 million through April 14, 1998. There can be no assurance
that these interest rate protection provisions will be effective
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<PAGE> 15
The foregoing risks associated with the debt obligations of the Company may
adversely affect the market price of the Company's Common Stock and may inhibit
the Company's ability to raise capital and issue equity in both the public and
private markets.
RESTRICTIONS ON ABILITY OF THE COMPANY TO DISPOSE OF PROPERTIES
Pursuant to the terms of the indenture governing the REMIC Note (the "REMIC
Indenture"), the Company cannot prepay principal payments on the REMIC Note, and
the properties collateralizing the REMIC Note cannot be sold until October 1997.
If the Company wishes either to prepay all or part of the $100 million principal
of the REMIC Note or to sell any of the properties collateralizing the REMIC
Note after such date, it will incur significant prepayment penalties. The
prepayment of principal of the REMIC Note requires an additional payment of the
greater of either (i) 1% of the amount of principal being prepaid or (ii) the
product of (A) the difference between the outstanding principal balance of the
REMIC Note before prepayment and the present value of all remaining interest and
principal payments thereon and (B) the amount of principal being prepaid divided
by the outstanding principal balance of the REMIC Note. After October 1997, in
order to release any of the properties collateralizing the REMIC Note from the
lien so that such properties may be sold, the REMIC Indenture requires that
certain additional conditions be met, including that (x) the aggregate amount of
principal repaid on the REMIC Note equal at least 125% of the amount of
principal allocated to the property to be released and (y) certain debt service
coverage ratios continue to be satisfied.
Fourteen of the Company's properties were acquired in March 1996 when
Tucker Properties Corporation ("Tucker"), another equity REIT, merged into the
Company (the "Tucker Acquisition"). Such properties were actually owned either
by Tucker Operating Limited Partnership, a Delaware limited partnership of which
Tucker was general partner and owner of more than 95% of the economic interest,
or by Tucker Financing Partnership, a general partnership of which Tucker and
Tucker Operating Limited Partnership were general partners. The Company
succeeded to Tucker's interest in each of these partnerships whose names were
respectively changed to Bradley Operating Limited Partnership ("BOLP" or the
"Operating Partnership") and Bradley Financing Partnership ("BFP").
Pursuant to the terms of the Tucker Acquisition, the Company, as the
general partner of the Operating Partnership, may not elect to dissolve the
Operating Partnership or sell all or substantially all of the assets of the
Operating Partnership without the consent of a majority in interest of the
limited partners, except in connection with a merger or other business
combination of the Company, until March 15, 1998. Thus the Company is restricted
from disposing of all or substantially all of the properties held by the
Operating Partnership.
To simplify the ownership structure of its properties, 18 of which are
currently directly owned by the Company, the Company is considering contributing
substantially all the properties directly owned by it to the Operating
Partnership and thereafter owning such properties through the Operating
Partnership. Prior to effecting such contribution, the Company would expect to
obtain the agreement of a majority in interest of the limited partners that no
further consent would be required for the subsequent disposition of any of the
contributed properties, but there can be no assurance that such agreement will
be obtained.
POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
Certain provisions contained in the Company's Charter and Bylaws (the
"Bylaws") may have the effect of discouraging a third party from making an
acquisition proposal for the Company and may thereby inhibit a change in control
of the Company. These provisions include the following: (i) the Company's
Charter provides for three classes of Directors with the term of office of one
class expiring each year, (ii) the Company's Bylaws provide that the holders of
not less than 25% of the outstanding shares of Common Stock may call a special
meeting of the Company's stockholders and (iii) the Charter generally limits any
holder from acquiring more than 9.8% of the value of all outstanding capital
stock of the Company. With respect to clause (ii) in the preceding sentence, a
recent change in the Maryland General Corporation Law, under which
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<PAGE> 16
the Company is organized, authorizes the Directors of the Company to amend the
Bylaws to increase the number of outstanding shares of Common Stock required to
call a special meeting from 25% to a majority.
These provisions could have a potential anti-takeover effect on the
Company. The staggered Board provision in the Charter prevents stockholders from
voting on the election of more than one class of directors at each annual
meeting of stockholders and thus may have the effect of keeping the members of
the Board of Directors of the Company in control for a longer period of time.
The staggered Board provision and the provision in the Bylaws requiring holders
of at least 25% of the outstanding shares of Common Stock to call a special
meeting of stockholders may have the effect of making it more difficult for a
third party to acquire control of the Company without the consent of its Board
of Directors, including certain acquisitions which stockholders deem to be in
their best interest. In addition, the ownership limits in the Charter may also
(x) deter certain tender offers for the shares of Common Stock which might be
attractive to certain stockholders, or (y) limit the opportunity for
stockholders to receive a premium for their shares of Common Stock that might
otherwise exist if an investor were attempting to assemble a block of shares in
excess of 9.8% of the value of the outstanding shares of Common Stock or
otherwise effect a change in control.
The provisions of the Maryland General Corporation Law relating to certain
"business combinations" and "control share" acquisitions involving corporations
organized under the laws of that state may also inhibit a change in control of
the Company.
REAL ESTATE INVESTMENT CONSIDERATIONS
Dependence on Midwestern Region and Retail Industry
The substantial majority of the Company's properties are located in the
midwestern region of the United States and such properties consist predominantly
of community and neighborhood shopping centers. The Company's performance
therefore is linked to economic conditions in the Midwest and in the market for
retail space generally. The market for retail space has been adversely affected
by the ongoing consolidation in the retail sector, the adverse financial
condition of certain large companies in this sector and the excess amount of
retail space in certain markets. To the extent that these conditions impact the
market rents for retail space, they could result in a reduction of net income,
FFO and cash available for distribution and thus affect the amount of
distributions the Company can make to its stockholders.
In addition, the Company predominantly owns and operates shopping centers
catering to retail tenants. To the extent that the investing public may have a
negative perception of the retail sector, the value of shares of common stock of
the Company may be negatively impacted, thereby resulting in such shares trading
at a discount below the inherent value of the assets of the Company as a whole.
Financial Condition and Bankruptcy of Tenants
Since substantially all of the Company's income has been, and will continue
to be, derived from rental income from retail shopping centers, the Company's
net income, FFO and cash available for distribution would be adversely affected
if a significant number of tenants were unable to meet their obligations to the
Company or if the Company were unable to lease, on economically favorable terms,
a significant amount of space in its shopping centers. In addition, in the event
of default by a tenant, the Company may experience delays and incur substantial
costs in enforcing its rights as landlord.
At any time, a tenant of the Company's properties may seek the protection
of the bankruptcy laws, which could result in the rejection and termination of
the tenant lease. Such an event could cause a reduction of net income, FFO and
cash available for distribution and thus affect the amount of distributions the
Company can make to its stockholders. No assurance can be given that any present
tenant which has filed for bankruptcy protection will continue making payments
under its lease or that any tenants will not file for bankruptcy protection in
the future or, if any tenants file, that they will continue to make rental
payments in a timely manner. In addition, a tenant may, from time to time,
experience a downturn in its business, which may weaken its financial condition
and result in a reduction or failure to make rental payments when due. If a
lessee or sublessee defaults in its obligations to the Company, the Company may
experience delays in
7
<PAGE> 17
enforcing its right as lessor or sublessor and may incur substantial costs and
experience significant delays associated with protecting its investment,
including costs incurred in renovating and releasing the property.
Potential Negative Effect of One North State Property
During 1996, more than 10% of the total revenue of the Company was derived
from rents and expense reimbursement from tenants of the Company's mixed-use
retail and office building located at One North State Street in downtown
Chicago, which is one of the properties securing the REMIC Note. The total rents
currently being paid by certain of this property's tenants may be in excess of
current market rates. The leases of these tenants begin to expire in 2001. One
office tenant, Arthur Andersen, however, has exercised an option to terminate
its lease, effective as of April 1, 1998, and has paid the Company a $1.8
million cancellation fee. Pursuant to the terms of the REMIC Indenture, this
termination fee was paid into a reserve account which is required to be used,
among other things, to pay for tenant alterations, leasing commissions and other
lease inducements directly related to this space. Any unused amount of this
reserve account must be used to repay the principal amounts owed under the REMIC
Note. The inability of the Company to lease such property, or a significant
reduction in the amount of rent and expense reimbursements paid by the tenants
of such property, could have an adverse impact on the operating results of the
Company.
Vacancies and Lease Renewals
The Company is continually faced with expiring tenant leases at its
properties. Some lease expirations provide the Company with the opportunity to
increase rentals or to hold the space available for a stronger long-term
tenancy. In other cases, there may be no immediately foreseeable strong tenancy
for space, and the space may remain vacant for a longer period than anticipated
or may be able to be re-leased only at less favorable rents. In such situations,
the Company may be subject to competitive and economic conditions over which it
has no control. Accordingly, there is no assurance that the effects of possible
vacancies or lease renewals at such properties may not reduce the rental income,
net income, FFO and funds available for distribution below levels anticipated by
the Company.
Possible Environmental Liabilities
Under various federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. Such laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The
presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to use such property as collateral in its borrowings. All of the
Company's properties, including those acquired in the Tucker Acquisition, have
been subjected to Phase I or similar environmental audits (which involve
inspection without soil sampling or ground water analysis) by independent
environmental consultants. Except as described below, these environmental audit
reports have not revealed any potential significant environmental liability, nor
is management aware of any environmental liability with respect to the
properties that it believes would have a material adverse effect on the
Company's business, assets or results of operations. No assurance can be given
that existing environmental studies with respect to the properties reveal all
environmental liabilities or that a prior owner of any such property did not
create a material environmental condition not known to the Company.
Phase II site assessments of the Commons of Chicago Ridge property acquired
from Tucker have disclosed the presence of contaminants in fill material and
soil at the property that could be associated with the property's former use as
a landfill and as the former site of an asphalt plant and storage tanks for
petroleum products (which storage tanks have been removed from the property),
but not at such levels as would require reporting to environmental agencies.
These Phase II site assessments also disclosed the presence in groundwater of
contaminants similar to those detected in the soil samples. Environmental
assessments of the property have also detected methane gas, probably associated
with the former use of the property as landfill. A regular maintenance program
was implemented by Tucker and is being continued by the Company to control the
migration and effect of the methane gas. There can be no assurance that an
environmental regulatory
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<PAGE> 18
agency such as the Illinois Environmental Protection Agency will not in the
future require further investigation to determine the source and vertical and
horizontal extent of the contamination. If any such investigation is required
and confirms the existence of contaminants at the levels disclosed in the Phase
II site assessments, it is possible that the relevant agency could require the
Company to take action to address the contamination, which action could range
from ongoing monitoring to remediation of the contamination. Based on the
information currently available, management does not believe that the cost of
responding to such contamination would be material to the Company.
In connection with the execution of the merger agreement relating to the
Tucker Acquisition, the Company and certain individuals who had previously
provided a limited indemnity to Tucker for environmental liabilities at Commons
of Chicago Ridge (the "Individuals") have agreed to share the cost of having an
outside consultant conduct a new Phase II investigation of the soil and
groundwater of the property and to prepare a report recommending what action the
Company should take with respect to such matters. In the event that the Company
decides to implement any of the recommendations of such consultant (the
"Recommended Work"), the Individuals have agreed to pay fifty percent of the
costs of the Recommended Work, with the Individuals' aggregate liability for the
Recommended Work limited to a maximum of $200,000.
The Individuals have also agreed to indemnify the Company and its
subsidiaries and affiliates against all claims, losses, costs and expenses
incurred by such parties arising out of any administrative, regulatory or
judicial action, suit, investigation or proceeding in connection with any
applicable environmental health or safety law regarding hazardous substances,
materials, wastes or petroleum products, or any common law right of action
regarding such substances, materials, wastes or products, whether brought by a
governmental or regulatory authority or by a third party, that is initiated on
or before October 4, 2003, with respect to conditions or acts at the Commons of
Chicago Ridge which existed prior to October 4, 1993. In connection with this
indemnification obligation, the Company has agreed to keep the Individuals
reasonably informed of various activities relating to the property and to
consult with the Individuals with respect to any potential claims, settlements
and remediation which could trigger the indemnification obligations of the
Individuals. There can be no assurance that the Individuals will be in a
position to honor their indemnity obligations or that the liabilities may not
exceed the limit of their indemnity obligations. Regardless of such
indemnification, based on the information currently available, management of the
Company does not believe that the environmental liabilities and expenses
relating to the Commons of Chicago Ridge property would have a material effect
on the liquidity, financial condition or operating results of the Company.
Limitations on Insurance
The Company carries comprehensive general liability coverage and umbrella
liability coverage on all of its properties with limits of liability which the
Company deems adequate to insure against liability claims and provide for cost
of defense. Similarly, the Company is insured against the risk of direct
physical damage in amounts the Company estimates to be adequate to reimburse the
Company on a replacement basis for costs incurred to repair or rebuild each
property, including loss of rental income during the reconstruction period.
Currently, the Company also insures the properties for loss caused by earthquake
or flood in the aggregate amount of $10 million per occurrence. Because of the
high cost of this type of insurance coverage and the wide fluctuations in price
and availability, the Company has made the determination that the risk of loss
due to earthquake and flood does not justify the cost to increase coverage
limits any further under current market conditions. Should the availability and
pricing of this coverage become more cost advantageous, management would
re-evaluate its position.
UNCERTAINTY OF MEETING ACQUISITION OBJECTIVES
The Company continually seeks prospective acquisitions of additional
shopping centers and portfolios of shopping centers which the Company believes
can be purchased as attractive initial yields and/or which demonstrate the
potential for revenue and cash flow growth through implementation of renovation,
expansion, re-tenanting and re-leasing programs similar to those that the
Company has undertaken with respect to properties in its existing portfolio.
There can be no assurance that the Company will effect any potential
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<PAGE> 19
acquisition that it may evaluate. The evaluation process involves costs which
are non-recoverable in the case of acquisitions which are not consummated. In
addition, notwithstanding the Company's adherence to its criteria for evaluation
and due diligence regarding potential acquisitions, there can be no assurance
that any acquisition that is consummated will meet the Company's expectations.
COMPETITION
All of the properties owned by the Company are located in developed areas.
There are numerous other retail properties and real estate companies within the
market area of each such property which compete with the Company for tenants and
development and acquisition opportunities. The number of competitive retail
properties and real estate companies in such areas could have a material effect
on (i) the Company's ability to rent space at the properties and the amount of
rents charged and (ii) development and acquisition opportunities. The Company
competes for tenants and acquisitions with others who have greater resources
than the Company.
ADVERSE CONSEQUENCE OF FAILURE TO QUALIFY AS A REIT AND OTHER TAX RISKS
The Company believes that it has operated in a manner that permits it to
qualify as a REIT under the Internal Revenue Code of 1986, as amended (the
"Code") for each taxable year since its formation in 1961. Although management
of the Company believes that the Company is organized and is operating in such a
manner, no assurance can be given that the Company will be able to continue to
operate in a manner so as to qualify or remain so qualified. Qualification as a
REIT involves the application of highly technical and complex Code provisions
for which there are only limited judicial or administrative interpretations and
the determination of various factual matters and circumstances not entirely
within the Company's control. For example, in order to qualify as a REIT, at
least 95% of the Company's gross income in any year must be derived from
qualifying sources and the Company must distribute annually to stockholders 95%
of its REIT taxable income (excluding net capital gains). In addition, no
assurance can be given that new legislation, new regulations, administrative
interpretations or court decisions will not change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. The Company, however, is not aware of any currently pending tax
legislation that would adversely affect its ability to continue to operate as a
REIT.
If the Company fails to qualify as a REIT, it will be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at corporate rates. In addition, unless entitled to relief under certain
statutory provisions, it will also be disqualified from treatment as a REIT for
the four taxable years following the year during which qualification is lost.
This treatment would reduce the net earnings of the Company available for
investment or distribution to stockholders because of the additional tax
liability for the year or years involved. In addition, annual distributions to
stockholders would no longer be required. To the extent that distributions to
stockholders would have been made in anticipation of the Company's qualifying as
a REIT, the Company might be required to borrow funds or to liquidate certain of
its investments to pay the applicable tax. The failure to qualify as a REIT
would also constitute a default under certain debt obligations of the Company.
In connection with the Tucker Acquisition, Tucker represented to the
Company that, since its formation, it had operated so to qualify as a REIT under
the Code up to the time of the Tucker Acquisition. If, in fact, Tucker failed to
qualify as a REIT in any year in which it elected so to qualify, it would have
become liable to pay taxes as a regular non-REIT corporation, and the
liabilities of Tucker that the Company assumed upon effectiveness of the Tucker
Acquisition include such tax liability. Moreover, Tucker's failure to qualify as
a REIT could disqualify the Company as a REIT for the period following the
Tucker Acquisition. The Company's acquisition of Tucker's general partner
interest in the Operating Partnership and Tucker's indirect interests in certain
subsidiary partnerships of the Operating Partnership involve special tax
considerations, including the qualification of each such partnership as a
"partnership" for federal income tax purposes, which also could impact the
Company's ability to qualify as a REIT.
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The failure to qualify as a REIT would have a material adverse effect on an
investment in the Company as the taxable income of the Company would be subject
to federal income taxation at corporate rates, and, therefore, the amount of
cash available for distribution to its stockholders would be reduced or
eliminated.
DESCRIPTION OF CAPITAL STOCK
The description of the Company's Capital Stock set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Charter and Bylaws, each as amended and restated.
GENERAL
Under its Charter, the Company has authority to issue up to 150 million
shares of stock, consisting of 80 million shares of Common Stock, 50 million
shares of "Excess Stock" (as described below), and 20 million shares of
Preferred Stock. Under Maryland law, stockholders generally are not responsible
for a corporation's debts or obligations. As of the date of this Prospectus,
there are approximately 21.7 million shares of Common Stock issued and
outstanding and no Preferred Stock is outstanding.
COMMON STOCK
All shares of Common Stock offered hereby have been duly authorized and
will, when issued and paid for as described in the applicable Prospectus
Supplement, be fully paid and nonassessable. Subject to the preferential rights
of any shares or series of Preferred Stock and to the provisions of the
Company's Charter regarding Excess Stock, holders of shares of Common Stock are
entitled to receive dividends on Common Stock if, as and when authorized and
declared by the Board of Directors of the Company out of assets legally
available therefor and to share ratably in the assets of the Company legally
available for distribution to its stockholders in the event of its liquidation,
dissolution or winding-up after payment of, or adequate provision for, all known
debts and liabilities of the Company.
Subject to the provisions of the Company's Charter regarding Excess Stock,
each outstanding share of Common Stock entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of
directors, and, except as provided with respect to any other class or series of
stock, the holders of Common Stock will possess exclusive voting power. There is
no cumulative voting in the election of directors, which means that the holders
of a majority of the outstanding shares of Common Stock can, subject to any
rights of holders of Preferred Stock, elect all of the directors then standing
for election, and the holders of the remaining shares of Common Stock will not
be able to elect any directors.
See "-- Restrictions on Transfer" below for a description of certain
provisions of the Company's Charter designed to preserve the status of the
Company as a qualified REIT that limit the transfer of, and provide the Company
with a right to redeem, shares of Capital Stock (including shares of Common
Stock) and that also provide for the conversion of such stock to Excess Stock,
in certain circumstances.
Subject to the Company's Charter regarding Excess Stock, all shares of
Common Stock have equal dividend, distribution, liquidation and other rights,
and have no preferences, appraisal or exchange rights. Holders of Common Stock
have no conversion, sinking fund or redemption rights, or preemptive rights to
subscribe for any securities of the Company.
The Company furnishes its stockholders with annual reports containing
audited consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm and quarterly reports for the first three
quarters of each fiscal year containing unaudited financial information.
Pursuant to the Maryland General Corporation Law ("MGCL") and the Company's
Charter, the 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 holders of shares entitled to cast a
majority of all the votes entitled to be cast.
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The transfer agent and registrar for the Common Stock is The First National
Bank of Boston, c/o Boston EquiServe, P.O. Box 8040, Boston, MA 02266.
PREFERRED STOCK
General. Shares of Preferred Stock may be issued from time to time, in one
or more series, as authorized by the Board of Directors of the Company. Prior to
issuance of shares of each series, the Board of Directors is required by the
MGCL and the Company's Charter to fix for each series, subject to the provisions
of the Company's Charter regarding Excess Stock, the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption, as permitted by Maryland law. The Preferred Stock will, when issued,
be fully paid and nonassessable by the Company and will have no preemptive
rights, other than as determined by the Board of Directors. The Board of
Directors could authorize the issuance of shares of Preferred Stock with terms
and conditions that could have the effect of discouraging a takeover or other
transaction that holders of Common Stock might believe to be in their best
interests or in which holders of some, or a majority, of the shares of Common
Stock might receive a premium for their shares over the then market price of
such shares of Common Stock.
Terms. The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Charter and Bylaws and any applicable
amendment to the Charter designating terms of a series of Preferred Stock (a
"Designating Amendment").
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(5) The voting rights, if any, of such Preferred Stock;
(6) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(7) The provision for a sinking fund, if any, for such Preferred
Stock;
(8) The provision for redemption, if applicable, of such Preferred
Stock;
(9) Any listing of such Preferred Stock on any securities exchange;
(10) If convertible, the terms and conditions upon which such
Preferred Stock will be convertible into Common Stock, including the
initial conversion price (or manner of calculation thereof) and the
conversion period;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(12) Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(13) A discussion of federal income tax considerations applicable to
such Preferred Stock;
(14) The relative ranking and preference of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
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(15) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(16) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Company as a qualified REIT.
Rank. Unless otherwise specified in the Prospectus Supplement, the
Preferred Stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Stock of the Company, and to all equity securities
ranking junior to such Preferred Stock; (ii) on a parity with all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank on a parity with the Preferred Stock; and (iii)
junior to all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank senior to the Preferred
Stock.
Dividends. Holders of the Preferred Stock of each series will be entitled
to receive, when, as and if declared by the Board of Directors of the Company,
out of assets of the Company legally available for payment, cash dividends at
such rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend shall be payable to holders of record as they
appear on the share transfer books of the Company on such record dates as shall
be fixed by the Board of Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are non-cumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for such payment on the Preferred Stock of such series. When
dividends are not paid in full (or a sum sufficient for such full payment is not
so set apart) upon Preferred Stock of any series and the shares of any other
series of Preferred Stock ranking on a parity as to dividends with the Preferred
Stock of such series, all dividends declared upon Preferred Stock of such series
and any other series of Preferred Stock ranking on a parity as to dividends with
such Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is
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set apart for payment for the then current dividend period, no dividends (other
than in shares of Common Stock or other shares of capital stock ranking junior
to the Preferred Stock of such series as to dividends and upon liquidation)
shall be declared or paid or set aside for payment nor shall any other
distribution be declared or made upon the Common Stock, or any other capital
stock of the Company ranking junior to or on a parity with the Preferred Stock
of such series as to dividends or upon liquidation, nor shall any shares of
Common Stock, or any other shares of capital stock of the Company ranking junior
to or on a parity with the Preferred Stock of such series as to dividends or
upon liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any such shares) by the Company (except by conversion into or
exchange for other capital stock of the Company ranking junior to the Preferred
Stock of such series as to dividends and upon liquidation).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
Redemption. If so provided in the applicable Prospectus Supplement, the
Preferred Stock shall be subject to mandatory redemption or redemption at the
option of the Company, as a whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of shares of capital stock of the Company, the terms of
such Preferred Stock may provide that, if no such shares of capital stock shall
have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Stock shall automatically and mandatorily be converted into the
applicable shares of capital stock of the Company pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of such
series of Preferred Stock shall have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, and
(ii) if a series of Preferred Stock does not have a cumulative dividend, full
dividends on all shares of the Preferred Stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period, no
shares of such series of Preferred Stock shall be redeemed unless all
outstanding shares of Preferred Stock of such series are simultaneously
redeemed; provided, however, that the foregoing shall not prevent the purchase
or acquisition of Preferred Stock of such series to preserve the REIT status of
the Company or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding shares of Preferred Stock of such series. In
addition, unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on all outstanding shares of such series of
Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, and (ii) if such series
of Preferred Stock does not have a cumulative dividend, full dividends on the
Preferred stock of such series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for the then current dividend period, the Company shall not purchase or
otherwise acquire directly or indirectly any shares of Preferred Stock of such
series (except by conversion into or exchange for capital stock of the Company
ranking junior to the Preferred Stock of such series as to dividends and upon
liquidation); provided, however, that the foregoing shall not prevent the
purchase or acquisition of shares of Preferred Stock of such series to preserve
the REIT status of the Company or pursuant to a purchase or exchange offer made
on the same terms to holders of all outstanding shares of Preferred Stock of
such series.
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If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by lot in a manner determined by the
Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment shall be made to the holders of any Common Stock or any
other class or series of capital stock of the Company ranking junior to the
Preferred Stock in the distribution of assets upon any liquidation, dissolution
or winding up of the Company, the holders of each series of Preferred Stock
shall be entitled to receive out of assets of the Company legally available for
distribution to stockholders liquidating distributions in the amount of the
liquidation preference per share (set forth in the applicable Prospectus
Supplement), plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid noncumulative
dividends for prior dividend periods). After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Preferred
Stock will have no right or claim to any of the remaining assets of the Company.
In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the available assets of the Company are insufficient
to pay the amount of the liquidating distributions on all outstanding shares of
Preferred Stock and the corresponding amounts payable on all shares of other
classes or series of capital stock of the Company ranking on a parity with the
Preferred Stock in the distribution of assets, then the holders of the Preferred
Stock and all other such classes or series of capital stock shall share ratably
in any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of capital stock ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
Voting Rights. Holders of the Preferred Stock will not have any voting
rights, except as set forth below or as indicated in the applicable Prospectus
Supplement.
Whenever dividends on any shares of Preferred Stock shall be in arrears for
six or more consecutive quarterly periods, the holders of such shares of
Preferred Stock (voting separately as a class with all other series of Preferred
Stock upon which like voting rights have been conferred and are exercisable)
will be entitled to vote for the election of two additional directors of the
Company at a special meeting called by the holders of record of at least ten
percent (10%) of any series of Preferred Stock so in arrears (unless such
request is received less than 90 days before the date fixed for the next annual
or special meeting of the
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stockholders) or at the next annual meeting of stockholders, and at each
subsequent annual meeting until (i) if such series of Preferred Stock has a
cumulative dividend, all dividends accumulated on such shares of Preferred Stock
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and a sum sufficient for the payment thereof set
aside for payment or (ii) if such series of Preferred Stock does not have a
cumulative dividend, four consecutive quarterly dividends shall have been fully
paid or declared and a sum sufficient for the payment thereof set aside for
payment. In such case, the entire Board of Directors of the Company will be
increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock of a series remain outstanding, the Company will not,
without the affirmative vote or consent of the holders of at least a majority of
the shares of such series of Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking prior to such
series of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized capital stock of the Company into such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (ii) amend, alter or repeal the provisions
of the Company's Charter or the Designating Amendment for such series of
Preferred Stock, whether by merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Stock or the holders thereof; provided,
however, with respect to the occurrence of any of the Events set forth in (ii)
above, so long as the Preferred Stock remains outstanding with the terms thereof
materially unchanged, taking into account that upon the occurrence of an Event
the Company may not be the surviving entity, the occurrence of any such Event
shall not be deemed to materially and adversely affect such rights, preferences,
privileges or voting power of holders of Preferred Stock and provided further
that (a) any increase in the amount of the authorized Preferred Stock or the
creation or issuance of any other series of Preferred Stock, or (b) any increase
in the amount of authorized shares of such series or any other series of
Preferred Stock, in each case ranking on a parity with or junior to the
Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been set
aside by the Company in trust for the benefit of the holders of such shares to
effect such redemption.
Conversion Rights. The terms and conditions, if any, upon which any series
of Preferred Stock is convertible into shares of Common Stock will be set forth
in the applicable Prospectus Supplement relating thereto. Such terms will
include the number of shares of Common Stock into which the shares of Preferred
Stock are convertible, the conversion price (or manner of calculation thereof),
the conversion period, provisions as to whether conversion will be at the option
of the holders of the Preferred Stock or the Company, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such series of Preferred Stock.
Restrictions on Ownership. As discussed below under "-- Restrictions on
Transfer," for the Company to qualify as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"), not more than 50% in value of its outstanding
capital stock may be owned, directly or indirectly, by five or fewer individuals
(as defined in the Code to include certain entities) during the last half of a
taxable year. To assist the Company in meeting this requirement, the Company may
take certain actions to limit the beneficial ownership, directly or indirectly,
by a single person of the Company's outstanding equity securities, including any
Preferred Stock of the Company. Therefore, the Designating Amendment for each
series of Preferred Stock may contain provisions restricting the ownership and
transfer of the Preferred Stock and/or providing for the automatic exchange of
shares of Preferred Stock into shares of Excess Stock in certain circumstances.
The applicable Prospectus Supplement will specify any additional ownership
limitation relating to a series of Preferred Stock.
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Transfer Agent and Registrar. The transfer agent and registrar for the
Preferred Stock will be set forth in the applicable Prospectus Supplement.
RESTRICTIONS ON TRANSFERS
For the Company to qualify as a REIT under the Code, among other things,
not more than 50% in value of its outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (defined in the Code to
include certain entities) during the last half of a taxable year (other than the
first year), and such capital stock must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months (other than the
first year) or during a proportionate part of a shorter taxable year. The
Charter of the Company contains provisions, designed to preserve the status of
the Company as a qualified REIT, that limit any holder from owning, or being
deemed to own by virtue of the attribution provisions of the Code, shares of
capital stock having a value that is more than 9.8% (the "Ownership Limit") of
the value of all outstanding capital stock of the Company. The Charter provides
that each person (which includes natural persons, corporations, trusts,
partnerships and other entities) shall be deemed to own stock that such person
(i) actually owns, (ii) constructively owns after applying attribution rules
specified in the Code, and (iii) has the right to acquire upon exercise of any
rights, options or warrants or conversion of any convertible securities
held by such person. The fact that certain affiliated entities, such as separate
mutual funds advised by the same investment adviser, may own more than 9.8% of
the value of all outstanding capital stock in the aggregate will not of itself
result in the Ownership Limit being exceeded, merely because a single person may
be considered to be the "beneficial owner" of such stock for purposes of Section
13(g) of the Exchange Act. The Board of Directors may waive the Ownership Limit
if evidence satisfactory to the Board of Directors and the Company's tax counsel
is presented that the changes in ownership will not then or in the future
jeopardize the Company's status as a REIT and if the Board of Directors decides
that such waiver is in the best interests of the Company.
Any transfer of capital stock or any Security convertible into capital
stock that would create direct or indirect ownership of capital stock in excess
of the Ownership Limit or that would result in the disqualification of the
Company as a REIT, including any transfer that results in the Company being
"closely held" within the meaning of Section 856(h) of the Code, shall be null
and void, and the intended transferee will acquire no rights to the capital
stock. Shares of capital stock owned, or deemed to be owned, or transferred to a
stockholder in excess of the Ownership Limit will automatically be exchanged for
shares of Excess Stock that will be transferred, by operation of law, to a
trustee (to be named by the Board of Directors of the Company, but unaffiliated
with the Company) as trustee for the exclusive benefit (except to the extent
described below) of one or more charitable beneficiaries designated from time to
time by the Company. The Excess Stock held in trust will be considered as issued
and outstanding shares of stock of the Company, will be entitled to receive
distributions declared by the Company and may be voted by the trustee for the
exclusive benefit of the charitable beneficiary. Any dividend or distribution
paid to a purported transferee of Excess Stock prior to the discovery by the
Company that capital stock has been transferred in violation of the provisions
of the Company's Charter (a "prohibited transfer") shall be repaid to the
Company upon demand and thereupon paid over by the Company to the trustee. Any
votes of holders of shares of capital stock purported to have been cast by a
purported transferee prior to such discovery of a prohibited transfer will be
retroactively deemed not to have been cast, but said retroactive nullification
of the vote of the relevant shares of capital stock shall not adversely affect
the rights of any person (other than the purported transferee) who has relied in
good faith upon the effectiveness of the matter that was the subject of the
stockholder action as to which such votes were cast.
Excess Stock is not transferable. Subject to the redemption rights of the
Company discussed below, the trustee of the trust may, however, sell and
transfer the interest in the trust to a transferee in whose hands the interest
in the trust representing Excess Stock would not be an interest in Excess Stock,
and upon such sale the shares of Excess Stock represented by the sold interest
shall be automatically exchanged for shares of capital stock of the class that
was originally exchanged into such Excess Stock. Upon such sale, the trustee
shall distribute to the purported transferee only so much of the sales proceeds
as is not more than the price paid by the purported transferee in the prohibited
transfer that resulted in the exchange of Excess Stock for
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the capital stock purported to have been transferred (or, if the purported
transferee received such capital stock by gift, devise or otherwise without
giving value for such stock, only an amount that does not exceed the market
price for such stock, as determined in the manner set forth in the Charter, at
the time of the prohibited transfer), and the trustee shall distribute all
remaining proceeds from such sale to the charitable beneficiary.
In addition to the foregoing transfer restrictions, the Company will have
the right, for a period of 90 days during the time any Excess Stock is held by
the trustee, to purchase all or any portion of the Excess Stock from the trustee
for the lesser of the price paid for the capital stock by the original purported
transferee (or, if the purported transferee received such capital stock by gift,
devise or otherwise without giving value for such stock, the market price of the
capital stock at the time of such prohibited transfer) or the market price of
the capital stock on the date the Company exercises its option to purchase. Upon
any such purchase by the Company, the trustee shall distribute the purchase
price to the original purported transferee. The 90-day period begins on the date
on which the Company receives written notice of the prohibited transfer or other
event resulting in the exchange of capital stock for Excess Stock.
If the foregoing transfer restrictions are determined to be void or invalid
by virtue of any legal decision, statute, rule or regulation, then the intended
transferee of any Excess Stock may be deemed, at the option of the Company, to
have acted as an agent on behalf of the Company in acquiring the Excess Stock
and to hold the Excess Stock on behalf of the Company.
These restrictions will not preclude settlement of transactions on the New
York Stock Exchange or any other stock exchange on which capital stock of the
Company is listed. The foregoing restrictions on transferability and ownership
also will not apply if the Board of Directors determines that it is no longer in
the best interests of the Company to continue to qualify as a REIT.
The Company's Charter requires that, upon demand by the Company, each
stockholder and each proposed transferee of capital stock will disclose to the
Company in writing any information with respect to the direct, indirect and
constructive ownership of shares of stock as the Board of Directors deems
necessary to comply with the provisions of the Code applicable to REITs, to
comply with the requirements of any taxing authority or governmental agency or
to determine any such compliance.
The Ownership Limitation provided by the Company's Charter may have the
effect of delaying, deferring or preventing the acquisition of control of the
Company. However, the Charter provides that the Ownership Limit shall not apply
to shares of capital stock acquired pursuant to an all cash tender offer for all
outstanding shares of capital stock in conformity with applicable laws where not
less than two-thirds of the outstanding shares of capital stock (not including
securities held by the tender offeror and/or its affiliates and associates) are
tendered and accepted pursuant to such tender offer and where the tender offeror
commits in such tender offer, if the offer is accepted by the holders of
two-thirds of the outstanding stock, promptly after the tender offeror's
purchase of the tendered stock to give any non-tendering stockholders a
reasonable opportunity to put their capital stock to the tender offeror at a
price not less than that paid pursuant to the tender offer.
CERTAIN PROVISIONS OF MARYLAND LAW
The following summary of certain provisions of the MGCL does not purport to
be complete and is qualified in its entirety by reference to the MGCL.
Business Combinations. Under the MGCL, certain "business combinations"
(including a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between a Maryland corporation and any person who beneficially owns
10% or more of the voting power of the corporation's shares of capital stock or
an affiliate of the corporation who, at any time within the two-year period
prior to the date in question, was the beneficial owner of 10% or more of the
voting power of the then-outstanding voting stock of the corporation (an
"Interested Stockholder") or an affiliate thereof are prohibited for five years
after the most recent date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, any such business combination must be
recommended by the board of directors of the corporation and approved by the
affirmative vote of at least (i) 80% of the votes entitled to be cast by holders
of outstanding voting shares of the corporation and (ii) two-thirds of the votes
entitled to be
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cast by holders of outstanding voting shares of the corporation other than
shares held by the Interested Stockholder with whom (or with whose affiliate)
the business combination is to be effected, unless, among other conditions, the
corporation's common stockholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the same
form as previously paid by the Interested Stockholder for its shares. These
provisions of Maryland law do not apply, however, to business combinations that
are approved or exempted by the board of directors of the corporation prior to
the time that the Interested Stockholder becomes an Interested Stockholder.
Control Share Acquisitions. The MGCL provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock owned by the
acquiror or by officers or directors who are employees of the corporation.
"Control shares" are voting shares of stock that, if aggregated with all other
shares of stock previously acquired by that person, or in respect of which the
acquiror is able to exercise or direct the exercise of voting power (except
solely by virtue of a revocable proxy), would entitle the acquiror to exercise
voting power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, or (ii) one-third or more
but less than a majority, or (iii) a majority of all voting power. Control
shares do not include shares the acquiring person is then entitled to vote as a
result of having previously obtained stockholder approval. A "control share
acquisition" means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares. If
no request for a meeting is made, the corporation may itself present the
question at any meeting of stockholders.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have been
previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of stockholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of the appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by a corporation's articles
of incorporation or bylaws.
The Company's Bylaws contain a provision exempting any and all acquisitions
of the Company's shares of capital stock from the control shares provision of
the MGCL. The Board of Directors of the Company, without the approval of the
stockholders, and the holders of a majority of the outstanding shares of Common
Stock each have authority to amend the Bylaws, and there can be no assurance
that this provision will not be amended or repealed in the future.
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DESCRIPTION OF DEPOSITARY SHARES REPRESENTING PREFERRED STOCK
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate Deposit Agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (the "Preferred
Shares Depositary") and the holders from time to time of the Depositary
Receipts. Subject to the terms of the Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular series of Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipt, to all rights and preferences of
the Preferred Stock represented by such Depositary Shares (including dividend,
voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to the Preferred Shares
Depositary, the Company will cause the Preferred Shares Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the following summary of the form thereof filed as an exhibit to
the Registration Statement of which this Prospectus is a part is qualified in
its entirety by reference thereto.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Shares Depositary will distribute all cash dividends or other
cash distributions received in respect of the Preferred Stock to the record
holders of Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the Preferred Shares
Depositary.
In the event of a distribution other than in cash, the Preferred Shares
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Shares Depositary, unless the Preferred Shares
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Shares Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Shares Depositary (unless the related Depositary Shares have
previously been called for redemption), the holders thereof will be entitled to
delivery at such office, to or upon such holder's order, of the number of whole
or fractional shares of Preferred Stock and any money or other property
represented by the Depositary Shares evidenced by such Depositary Receipts.
Holders of Depositary Receipts will be entitled to receive whole or fractional
shares of the related Preferred Stock on the basis of the proportion of
Preferred Stock represented by each Depositary Share as specified in the
applicable Prospectus Supplement, but holders of such shares of Preferred Stock
will not thereafter be entitled to receive Depositary Shares therefor. If the
Depositary Receipts delivered by the holder evidence a number of Depositary
Shares in excess of the number of Depositary Shares representing the number of
shares of Preferred Stock to be withdrawn, the Preferred Shares Depositary will
deliver to such holder at the same time a new Depositary Receipt evidencing such
excess number of Depositary Shares. The Company does not expect that there will
be any public market for shares of Preferred Stock that are withdrawn as
described in this paragraph.
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REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by the
Preferred Shares Depositary, the Preferred Shares Depositary will redeem as of
the same redemption date the number of Depositary Shares representing the shares
of Preferred Stock so redeemed, provided the Company shall have paid in full to
the Preferred Shares Depositary the redemption price of the Preferred Stock to
be redeemed plus an amount equal to any accrued and unpaid dividends thereon to
the date fixed for redemption. The redemption price per Depositary Share will be
equal to the redemption price and any other amounts per share payable with
respect to the Preferred Stock. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company.
From and after the date fixed for redemption, all dividends in respect of
shares of Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the Preferred Shares Depositary.
VOTING
Upon receipt of notice of any meeting at which the holders of shares of
Preferred Stock are entitled to vote, the Preferred Shares Depositary will mail
the information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such shares
of Preferred Stock. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for the Preferred Stock) will be entitled to instruct the Preferred Shares
Depositary as to the exercise of the voting rights pertaining to the amount of
Preferred Stock represented by such holder's Depositary Shares. The Preferred
Shares Depositary will vote the amount of Preferred Stock represented by such
Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the
Preferred Shares Depositary in order to enable the Preferred Shares Depositary
to do so. The Preferred Shares Depositary will abstain from voting the amount of
Preferred Stock represented by such Depositary Shares to the extent it does not
receive specific instructions from the holders of Depositary Receipts evidencing
such Depositary Shares. The Preferred Shares Depositary shall not be responsible
for any failure to carry out any instruction to vote, or for the manner or
effect of any such vote made, as long as any such action or non-action is in
good faith and does not result from negligence or willful misconduct of the
Preferred Shares Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION
The Depositary Shares, as such, are not convertible into shares of Common
Stock or any other securities or property of the Company. Nevertheless, if so
specified in the applicable Prospectus Supplement relating to an offering of the
Depositary Shares, the Depositary Receipts may be surrendered by holders thereof
to the Preferred Shares Depositary with written instructions to the Preferred
Shares Depositary to instruct the Company to cause conversion of the Preferred
Stock represented by the Depositary Shares evidenced by such Depositary Receipts
into whole shares of Common Stock, other shares of Preferred Stock of the
Company or other shares of beneficial interest, and the Company has agreed that,
upon receipt of such instructions and any amounts payable in respect thereof, it
will cause the conversion thereof utilizing the same procedures as those
provided for delivery of shares of Preferred Stock to effect such conversion. If
the Depositary Shares
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evidenced by a Depositary Receipt are to be converted in part only, a new
Depositary Receipt will be issued for any Depositary Shares not to be converted.
No fractional shares of Common Stock will be issued upon conversion, and if such
conversion will result in a fractional share being issued, an amount will be
paid in cash by the Company equal to the value of the fractional interest based
upon the closing price of the Common Stock on the last business day prior to the
conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Stock and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and the Preferred Shares
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts or that would be materially and
adversely inconsistent with the rights granted to the holders of the related
Preferred Stock will not be effective unless such amendment has been approved by
the existing holders of at least a majority of the Depositary Shares evidenced
by the Depositary Receipts then outstanding. No amendment shall impair the
right, subject to certain exceptions in the Deposit Agreement, of any holder of
Depositary Receipts to surrender any Depositary Receipt with instructions to
deliver to the holder the related Preferred Stock and all money and other
property, if any, represented thereby, except in order to comply with law. Every
holder of an outstanding Depositary Receipt at the time any such amendment
becomes effective shall be deemed, by continuing to hold such Depositary
Receipt, to consent and agree to such amendment and to be bound by the Deposit
Agreement as amended thereby.
The Deposit Agreement may be terminated by the Company upon not less than
30 days' prior written notice to the Preferred Shares Depositary if (i) such
termination is necessary to preserve the Company's status as a REIT or (ii) at
least two-thirds of each series of Preferred Stock affected by such termination
consents to such termination, whereupon the Preferred Shares Depositary shall
deliver or make available to each holder of Depositary Receipts, upon surrender
of the Depositary Receipts held by such holder, such number of whole or
fractional shares of Preferred Stock as are represented by the Depositary Shares
evidenced by such Depositary Receipts together with any other property held by
the Preferred Shares Depositary with respect to such Depositary Receipt. The
Company has agreed that, if the Deposit Agreement is terminated to preserve the
Company's status as a REIT, the Company will use its best efforts to list the
shares of Preferred Stock issued upon surrender of the related Depositary Shares
on a national securities exchange. In addition, the Deposit Agreement will
automatically terminate if (a) all outstanding Depositary Shares shall have been
redeemed or converted, or (b) there shall have been a final distribution in
respect of the related Preferred Stock in connection with any liquidation,
dissolution or winding up of the Company and such distribution shall have been
distributed to the holders of Depositary Receipts evidencing the Depositary
Shares representing such Preferred Stock.
CHARGES OF PREFERRED SHARES DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Shares Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay certain other transfer and
other taxes and governmental charges as well as the fees and expenses of the
Preferred Shares Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Shares Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Shares Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Shares Depositary. A successor
Preferred Shares Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
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MISCELLANEOUS
The Preferred Shares Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Shares Depositary with respect to the related Preferred Stock.
Neither the Preferred Shares Depositary nor the Company will be liable if
it is prevented from or delayed in, by law or any circumstances beyond its
control, performing its obligations under the Deposit Agreement. The obligations
of the Company and the Preferred Shares Depositary under the Deposit Agreement
will be limited to performing their duties thereunder in good faith and without
negligence or willful misconduct, and the Company and the Preferred Shares
Depositary will not be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. The
Company and the Preferred Shares Depositary may rely on written advice of
counsel or accountants, or information provided by persons presenting shares of
Preferred Stock represented thereby for deposit, holders of Depositary Receipts
or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event the Preferred Shares Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, the Preferred Shares Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
DESCRIPTION OF WARRANTS OR RIGHTS
The Company may issue warrants or rights (collectively, the "Warrants") for
the purchase of any series of Depositary Shares or shares of any class of
capital stock of the Company. Warrants may be issued independently or together
with any other Securities and may be attached to or separate from such
Securities. Each series of Warrants will be issued under a separate warrant
agreement or rights agreement (each, a "Warrant Agreement") to be entered into
between the Company and a warrant agent or rights agent ("Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection with the
Warrants of such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of Warrants.
The applicable Prospectus Supplement will describe the following terms,
where applicable, of the Warrants in respect of which this Prospectus is being
delivered: (i) the title of such Warrants; (ii) the aggregate number of such
Warrants; (iii) the price or prices at which such Warrants will be issued; (iv)
the designation, aggregate principal amount and terms of the Securities
purchasable upon exercise of such Warrants; (v) the designation and terms of the
Securities, if any, with which such Warrants are issued and the number of such
Warrants issued with each such Security; (vi) if applicable, the date on and
after which such Warrants and the related Securities will be separately
transferable; (vii) the price at which the Securities purchasable upon exercise
of such Warrants may be purchased; (viii) the date on which the right to
exercise such Warrants shall commence and the date on which such right shall
expire; (ix) the minimum or maximum amount of such Warrants which may be
exercised at any one time; (x) information with respect to book-entry
procedures, if any; (xi) a discussion of certain applicable federal income tax
considerations; and (xii) any other terms of such Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Warrants.
DESCRIPTION OF UNITS OF SECURITIES
The Company may issue Units consisting of two or more other constituent
Securities, which Units may be issuable as, and for the period of time specified
therein may be transferable as, a single Security only, as distinguished from
the separate constituent Securities comprising such Units. Any such Units will
be offered pursuant to a Prospectus Supplement which will (i) identify and
designate the title of any series of Units; (ii) identify and describe the
separate constituent Securities comprising such Units; (iii) set forth the price
or prices at which such Units will be issued; (iv) describe, if applicable, the
date on and after which the
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constituent Securities comprising the Units will become separately transferable;
(v) provide information with respect to book-entry procedures, if any; (vi)
discuss certain applicable federal income tax considerations relating to the
Units; and (vii) describe any other terms of the Units and their constituent
Securities.
FEDERAL INCOME TAX CONSIDERATIONS
The Company has elected to qualify as a REIT under the Code. In the opinion
of Goodwin, Procter & Hoar LLP, the Company has been organized in conformity
with the requirements for qualification as a REIT under the Code, and its manner
of operation has met and will continue to meet the requirements for
qualification and taxation as a REIT under the Code. This opinion is based on
various assumptions and is conditioned upon representations made by the Company
as to factual matters and the continuation of such factual matters. Investors
should be aware, however, that opinions of counsel are not binding upon the
Internal Revenue Service or any court. Moreover, such qualification and taxation
as a REIT in any tax year depends upon the Company's ability to meet in its
actual results for the tax year the various source of income, ownership of
assets, distribution and diversity of ownership requirements of the Code for
qualification as a REIT, which results will not be reviewed by Goodwin, Procter
& Hoar LLP. Accordingly, no assurance can be given that the actual results of
the Company for any particular tax year will in fact satisfy the requirements
for qualification. Likewise, although the Company believes that it has operated
in a manner which satisfies the REIT qualification requirements under the Code
since its organization in 1961, no assurance can be given that the Company's
qualification as a REIT will not be challenged by the Internal Revenue Service
for taxable years still subject to audit.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions that
currently govern the federal income tax treatment of the Company and its
stockholders. For the particular provisions that govern the federal income tax
treatment of the Company and its stockholders, reference is made to Sections 856
through 860 of the Code and the regulations thereunder. The following summary is
qualified in its entirety by such reference. This discussion does not address
any state tax considerations or issues that arise as a result of an investor's
special circumstances or special status under the Code.
Under the Code, if certain requirements are met in a taxable year,
including the requirement that the REIT distribute to its stockholders at least
95% of its real estate investment trust taxable income for the taxable year, a
REIT generally will not be subject to federal income tax with respect to income
that it distributes to its stockholders. However, the Company may be subject to
federal income tax under certain circumstances, including taxes at regular
corporate rates on any undistributed REIT taxable income, the alternative
minimum tax on its items of tax preference, and taxes imposed on income and gain
generated by certain extraordinary transactions. If the Company fails to qualify
during any taxable year as a REIT, unless certain relief provisions are
available, it will be subject to tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates, which could have
a material adverse effect upon its stockholders. For additional discussion of
certain issues relating to the Company's qualification as a REIT that arise as a
result of the Tucker Acquisition, see "Risk Factors -- Adverse Consequences of
Failure to Qualify as a REIT and Other Tax Risks."
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. stockholders out of current or accumulated earnings and
profits (and not designated as a capital gain dividends) will be taken into
account by such U.S. stockholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. As
used herein, the term "U.S. stockholder" means a holder of Common Stock that for
U.S. federal income tax purposes is (i) a citizen or resident of the United
States, (ii) a corporation, partnership, or other entity created or organized in
or under the laws of the Untied States or any political subdivision thereof, or
(iii) an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source and (iv) not given special status under the
Code, such as a tax-exempt organization; provided, however, for taxable years
beginning after December 31, 1996 (or certain earlier periods if the trust so
elects) trusts are to be included as "U.S. Stockholders" only if a court within
the Untied States is able to exercise primary supervision over the
administration of the trust and
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one or more United States fiduciaries have authority to control all substantial
decisions of the trust. Distributions that are designated as capital gain
dividends will be taxed as long-term capital gains (to the extent they do not
exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the stockholder has held his Common Stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Distributions in excess of current
and accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's Common
Stock, but rather will reduce the adjusted basis of such stock. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a stockholder's Common Stock, the distribution will
be included in income as long-term capital gain (or short-term capital gain if
the Common Stock has been held for one year or less) assuming the Common Stock
is a capital asset in the hands of the stockholder. In addition, any dividend
declared by the Company in October, November or December of any year and payable
to a stockholder of record on a special date in any such month shall be treated
as both paid by the Company and received by the stockholder on December 31 of
such year, provided that the distribution is actually paid by the Company during
January of the following calendar year.
Investors are urged to consult their own tax advisors with respect to the
appropriateness of an investment in the Securities offered hereby and with
respect to the tax consequences arising under federal law and the laws of any
state, municipality or other taxing jurisdiction, including tax consequences
resulting from such investor's own tax characteristics. In particular, foreign
investors should consult their own tax advisors concerning the tax consequences
of an investment in the Company, including the possibility of United States
income tax withholding on Company distributions.
PLAN OF DISTRIBUTION
The Company may sell Securities through underwriters or dealers, directly
to one or more purchasers, or through agents.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale or at prices related to such prevailing
market prices, or at negotiated prices.
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities, for whom
they may act as agents, in the form of discounts, concessions, or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions, or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers, and agents that participate in the distribution
of Securities may be deemed to be underwriters, and any discounts or commissions
they receive from the Company, and any profit on the resale of Securities they
realize may be deemed to be underwriting discounts and commissions, under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from the Company will be described, in the applicable
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Stock which is listed on the NYSE. Any shares of Common
Stock sold pursuant to a Prospectus Supplement will be listed on the NYSE,
subject to official notice of issuance. The Company may elect to list any series
of Preferred Stock on an exchange, but is not obligated to do so. It is possible
that one or more underwriters may make a market in a series of Securities, but
will not be obligated to do so and may discontinue any market making at any time
without notice. Therefore, no assurance can be given as to the liquidity of, or
the trading market for, the Securities.
Under agreements into which the Company may enter, underwriters will be,
and dealers and agents who participate in the distribution of Securities may be,
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act.
25
<PAGE> 35
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, the Company in the ordinary course of
business.
If so indicated in the applicable Prospectus Supplement, the Company may
itself, or may authorize underwriters or other persons acting as the Company's
agents to solicit offers by certain institutions to purchase Securities from the
Company pursuant to contracts providing for payment and delivery on a future
date. Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Company. The obligations of any purchaser
under any such contract will be subject to the condition that the purchase of
the Securities shall not at the time of delivery be prohibited under the laws of
the jurisdiction to which such purchaser is subject. The underwriters and such
other agents will not have any responsibility in respect of the validity or
performance of such contracts.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers.
LEGAL MATTERS
Certain legal matters, including the legality of the Securities, will be
passed upon for the Company by Goodwin, Procter & Hoar LLP, Boston,
Massachusetts. William B. King, whose professional corporation is a partner in
Goodwin, Procter & Hoar LLP, is Secretary of the Company and is the beneficial
owner of approximately 8,700 shares of Common Stock. In case of an underwritten
public offering, certain legal matters will be passed upon for the Underwriters
by legal counsel named in the applicable Prospectus Supplement.
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996 contained in the Company's Annual Report on Form 10-K
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. To the extent that KPMG Peat Marwick
LLP audits and reports on financial statements of the Company issued at future
dates, and consents to the use of their report thereon, such financial
statements also will be incorporated by reference in the Registration Statement
in reliance upon their report and said authority.
26
<PAGE> 36
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NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS (COLLECTIVELY, THE "PROSPECTUS") AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
The Company................................ S-3
Recent Developments........................ S-4
Use of Proceeds............................ S-5
Federal Income Tax Considerations.......... S-6
Underwriting............................... S-8
Legal Matters.............................. S-9
PROSPECTUS
Available Information...................... 2
Incorporation of Certain Documents by
Reference................................ 2
The Company................................ 3
Use of Proceeds............................ 4
Ratios of Earnings to Combined Fixed
Charges and Preferred Stock Dividends.... 4
Risk Factors............................... 5
Description of Capital Stock............... 11
Description of Depositary Shares
representing Preferred Stock............. 20
Description of Warrants or Rights.......... 23
Description of Units of Securities......... 23
Federal Income Tax Considerations.......... 24
Plan of Distribution....................... 25
Legal Matters.............................. 26
Experts.................................... 26
</TABLE>
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$60,000,000
BRADLEY REAL ESTATE, INC.
COMMON STOCK
---------------------------------
PROSPECTUS SUPPLEMENT
---------------------------------
PAINEWEBBER INCORPORATED
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OCTOBER 21, 1997
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