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Filed pursuant to
Rule 424(b)(5) of the
Securities Act of 1933,
as amended.
Registration No. 333-48161
Prospectus Supplement
(To Prospectus dated April 9, 1998)
2,142,857 SHARES
PARKWAY PROPERTIES, INC.
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
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This prospectus supplement relates to our offering and sale of
2,142,857 shares of Series B cumulative convertible preferred stock at up to
four closings over the next nine months. Each share of Series B preferred stock
is convertible into 2,142,857 shares of our common stock, subject to
adjustment, and is entitled to one vote for each share of common stock into
which it is convertible. The Series B preferred stock is being sold directly by
us.
There is no public market for our Series B preferred stock. Our common
stock is listed on the New York Stock Exchange under the symbol "PKY." The last
reported sales price of a share of our common stock was $29.94 on October 6,
2000.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ATTACHED PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE
INVESTING IN THE SERIES B PREFERRED STOCK SEE "RISK FACTORS" BEGINNING ON PAGE
S-4 OF THIS PROSPECTUS SUPPLEMENT.
The date of this Prospectus Supplement is October 10, 2000.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
About Parkway Properties, Inc...................................................................................S-3
Recent Developments.............................................................................................S-3
Use of Proceeds.................................................................................................S-4
Risk Factors....................................................................................................S-4
Description of Series B Preferred Stock........................................................................S-11
Ratio of Earnings to Fixed Charges.............................................................................S-25
Restrictions on Transfer.......................................................................................S-25
Related Agreements.............................................................................................S-26
Plan of Distribution...........................................................................................S-27
Legal Matters..................................................................................................S-29
</TABLE>
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ABOUT PARKWAY PROPERTIES, INC.
We are a self-administered real estate investment trust specializing in
the operations, leasing, management, acquisition and financing of office
properties in the Southeastern United States and Texas. Parkway and its
predecessors have been public companies engaged in the real estate business
since 1971, and have successfully operated and grown through several major real
estate cycles. As of October 1, 2000, we owned or had an interest in 49 office
properties located in 11 states encompassing approximately 7.2 million net
rentable square feet. We seek to acquire Class A, A- or B office properties
ranging in size from 50,000 to 500,000 net rentable square feet in markets
characterized by above-average employment and population growth.
Our principal executive offices are located at One Jackson Place, Suite
1000, 188 East Capitol Street, Jackson, Mississippi 39201-2195, and our
telephone number is (601) 948-4091 or (800) 748-1667. We also have a website at
www.pky.com.
RECENT DEVELOPMENTS
We are dividing the responsibilities currently performed by our Chief
Financial Officer and creating a new senior management position of Senior Vice
President of Administration and Strategic Planning. Sarah P. Clark, our current
CFO, will relinquish her responsibilities as CFO on November 1, 2000 to fill the
new executive position which will incorporate the areas of technology, risk
management, administration, corporate governance and strategic planning.
Marshall A. Loeb, a former employee of ours, will assume the CFO position with
responsibilities for all other traditional CFO duties including financial
management, capital markets, investor relations, accounting and SEC and REIT
compliance and reporting.
We increased our quarterly dividend on our common stock by 12%. Our
board declared a quarterly dividend of $.56 per share of common stock payable on
September 28, 2000 to stockholders of record of common stock on September 14,
2000. This is our 56th consecutive quarterly distribution and represents a 12%
increase over the previous quarterly dividend of $.50 per share and an
annualized dividend rate of $2.24 per share of common stock.
On August 14, 2000, we closed a $21 million non-recourse first mortgage
on the Capitol Center building in Columbia, South Carolina. The loan was funded
by Principal Commercial Funding LLC at a fixed rate of 8.18%. Proceeds were used
to reduce amounts outstanding on our line of credit.
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USE OF PROCEEDS
We expect to receive net proceeds from this sale of Series B preferred
stock of approximately $73,025,000, after deducting estimated expenses of the
offering of $475,000, and to use the net proceeds to purchase Series B preferred
units of Parkway Properties LP, our operating partnership. The operating
partnership intends to use the net proceeds of the offering for general
corporate purposes, including funding future acquisitions and purchases of
equity interests in other real estate investment trusts.
RISK FACTORS
From time to time, we may make forward-looking statements (within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21F of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), in documents filed under the Securities Act, the
Exchange Act, press releases or other public statements. If we make
forward-looking statements, we assume no obligation to update forward-looking
statements. Stockholders should not place undo reliance on forward-looking
statements as they involve numerous risks and uncertainties that could cause
actual results to differ materially from the results stated or implied in the
forward-looking statements. In addition to specific factors that may be
disclosed simultaneously with any forward-looking statement, some of the factors
related to us and our businesses that could cause actual results to differ
materially from a forward-looking statement are set forth below.
We have existing debt and refinancing risks. We currently have both
fixed and variable rate indebtedness and may incur indebtedness in the future,
including borrowings under our credit facilities, to finance possible
acquisitions and for general working purposes. As a result, we are and expect to
be subject to the risks normally associated with debt financing including:
- interest rates may rise; and
- we may be unable to refinance or repay the debt as it becomes due.
We have substantial debt obligations and some of our properties secure
our mortgage debt. As of September 30, 2000, 29 of our properties secured our
$228 million of nonrecourse mortgage indebtedness. Future acquisitions may also
be used to secure our debt. If we are unable to repay indebtedness as payments
are required during the term of the loan or at maturity, we may have to sell
properties to repay our debt, or properties may be foreclosed upon or otherwise
transferred to the mortgagee which would cause us to lose income and asset
value.
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Fluctuations in interest rates may adversely affect our operations. As
of September 30, 2000, we had approximately $72 million of variable interest
rate debt. We may also incur indebtedness in the future that bears interest at a
variable rate or we may be required to refinance our debt at higher rates.
Accordingly, increases in interest rates could adversely affect our financial
condition and our ability to pay expected distributions to stockholders.
No limitation on debt could result in our becoming more highly
leveraged. As of September 30, 2000, our ratio of debt to total market
capitalization was approximately 45%. Our governing documents do not limit the
amount of indebtedness we may incur. Accordingly, our Board of Directors could
alter our current debt structure and would do so, for example, if it were
necessary to maintain our status as a REIT. We might become more highly
leveraged as a result, and our financial condition and cash available for
distribution to stockholders might be negatively affected and the risk of
default on our indebtedness could increase.
Our real estate investments are subject to risks particular to real
estate investments. Our investments are generally made in office properties. We
are, therefore, generally subject to risks incidental to the ownership of real
estate. These risks include:
- changes in general or local economic conditions;
- changes in supply of or demand for office properties or
tenants for such properties in an area in which we have
buildings;
- changes in interest rates and in the availability, cost and
terms of mortgage financings which may render the sale or
financing of a property difficult or unattractive;
- the impact of present and future environmental protection
laws;
- the ongoing need for capital improvements;
- changes in real estate tax rates and other operating expenses;
- changes in tax, real estate and zoning laws;
- changes in governmental rules and fiscal policies; and
- civil unrest, acts of war, acts of God, including earthquakes
and other natural disasters (which may result in uninsured
losses) and other factors beyond our control.
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Should any of these events occur, our financial condition and our
ability to make expected distributions to stockholders could be adversely
affected.
The economic conditions of our primary markets affect our operations.
Substantially all of our properties are located in the Southeastern United
States and Texas and, therefore, our financial condition and ability to make
expected distributions to our stockholders is linked to economic conditions in
these markets as well as the market for office space generally.
Tenant defaults could adversely affect our operations. Substantially
all of our revenues and income come from rental income from real property. As
such, our revenues and income could be adversely affected if a significant
number of our tenants defaulted under their lease obligations. Our ability to
manage our assets is also subject to federal bankruptcy laws and state laws that
limit creditors' rights and remedies available to real property owners to
collect delinquent rents. If a tenant becomes insolvent or bankrupt, we cannot
be sure that we could recover the premises from the tenant promptly or from a
trustee or debtor-in-possession in any bankruptcy proceeding relating to that
tenant. We also cannot be sure that we would receive rent in the proceeding
sufficient to cover our expenses with respect to the premises. If a tenant
becomes bankrupt, the federal bankruptcy code will apply and, in some instances,
may restrict the amount and recoverability of our claims against the tenant. A
tenant's default on its obligations to us could adversely affect our financial
condition and the cash we have available for distributions to our stockholders.
Illiquidity of real estate may limit our ability to vary our portfolio.
Real estate investments are relatively illiquid. Our ability to vary our
portfolio in response to changes in economic and other conditions will therefore
be limited. In addition, the Internal Revenue Code of 1986, as amended (the
"Code"), limits our ability to sell our properties. If we must sell an
investment, we cannot assure that we will be able to dispose of the investment
in the time period we desire or that the sales price of the investment will
recoup or exceed our cost for the investment.
We are exposed to potential environmental liability. Our operating
costs may be affected by the obligation to pay for the cost of complying with
existing environmental laws, ordinances and regulations, as well as the cost of
complying with future legislation. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances on, under, or in such property. These laws
often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of the hazardous or toxic substances. In addition,
the presence of hazardous or toxic substances, or the failure to remediate the
property properly, may adversely affect the owner's ability to borrow by using
such real property as collateral. Any person who arranges for the
transportation, disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of those substances at the
disposal or treatment facility, whether or not the facility is or ever was owned
or operated by that person. Certain
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environmental laws and common law principles could be used to impose liability
for releases of hazardous materials, including asbestos-containing materials
("ACMs"), into the environment, and third parties may seek recovery from owners
or operators of real properties for personal injury associated with exposure to
released ACMs or other hazardous materials. We do not know of any material ACM
issues at our properties. However, there can be no assurance that ACMs do not
exist at our properties. If there are ACMs at the properties that require
removal or other remediation, the cost could be substantial and could have an
adverse effect on the value of the property.
Environmental laws may also impose restrictions on the manner in which
a property may be used or transferred or in which businesses may be operated,
and these restrictions may require expenditures. In connection with the
ownership and operation of our properties, we may be potentially liable for any
costs. The cost of defending against claims of liability or remediating
contaminated property and the cost of complying with environmental laws could
materially adversely affect our results of operations and financial condition
and our ability to make expected distributions to stockholders.
Phase I environmental site assessments ("ESAs") have been conducted at
all but one of our properties by qualified independent environmental engineers.
The purpose of Phase I ESAs is to identify potential sources of contamination at
the properties and to assess the status of environmental regulatory compliance.
Except as described in the next paragraph, ESAs have not revealed any
environmental liability or compliance concerns. It is possible, however, that
these ESAs did not reveal all environmental liabilities or compliance concerns
or that material environmental liabilities or compliance concerns exist of which
we are currently unaware. We have not been notified by any governmental
authority, and we have no other knowledge of any material noncompliance,
liability or claim relating to hazardous or toxic substances or other
environmental substances in connection with any of our properties. We intend to
perform additional Phase I ESAs with respect to all properties acquired in the
future.
Environmental due diligence performed in connection with the purchase
of the Schlumberger property in Houston, Texas (formerly the Veritas Technology
Center), disclosed that the Texaco-branded service station located on the
neighboring property has released certain petroleum products which may have
migrated from the station to the Schlumberger property. The owner of the
neighboring property, Star Enterprise, pursuant to an indemnity agreement dated
January 1998 between Star Enterprise and Veritas Real Estate (U.S.A.), Inc. (the
prior owner of the Schlumberger property), has agreed to indemnify and hold
harmless all future owners of the Schlumberger property from all losses incurred
in connection with the presence of petroleum hydrocarbons on the Schlumberger
property from the station. We believe that Star Enterprise has sufficient
financial resources to indemnify us for any potential costs related to the clean
up of the petroleum hydrocarbons. However, if Star Enterprise is unable to fully
comply with its indemnity obligation, we may be subject to liability and costs
associated with any clean up of the petroleum hydrocarbons.
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Competition affects our operations. All of our properties are located
in developed areas where there are many other office properties and real estate
companies that compete with us for tenants and for acquisition and development
opportunities. Some of our competitors are larger than we are and have greater
financial resources than we do. This competition could:
- make it difficult for us to rent space at our properties;
- make rents currently charged lower than we expect and the
terms of renewal or re-lease (including the cost of required
renovations or concessions to tenants) less favorable to us
than the prior lease; and
- cause the cost of properties we wish to purchase to rise.
Uninsured and underinsured losses may adversely affect operations. We,
or in certain instances, tenants of our properties, carry commercial general
liability, fire and extended coverage insurance with respect to our properties.
This coverage has policy specifications and insured limits that we believe are
customarily carried for similar properties. We plan to obtain similar coverage
for properties we acquire in the future. However, certain types of losses,
generally of a catastrophic nature, such as earthquakes and floods, may be
either uninsurable or not economically insurable. Should a property sustain
damage, we may incur losses due to insurance deductibles, to co-payments on
insured losses or to uninsured losses. In the event of a substantial property
loss, the insurance coverage may not be sufficient to pay the full current
market value or current replacement cost of the property. In the event of an
uninsured loss, we could lose some or all of our capital investment, cash flow
and anticipated profits related to one or more properties. Inflation, changes in
building codes and ordinances, environmental considerations, and other factors
also might make it not feasible to use insurance proceeds to replace a property
after it has been damaged or destroyed. Under such circumstances, the insurance
proceeds we receive might not be adequate to restore our economic position with
respect to such property.
Increases in property taxes could adversely affect our distributions to
stockholders. Our properties are subject to real property taxes. The real
property taxes on the properties may increase or decrease as property tax rates
change and as the value of the properties are assessed or reassessed by taxing
authorities. If property taxes increase, our ability to make distributions to
our stockholders could be adversely affected.
Cost of compliance with and potential liability under the Americans
with Disabilities Act could be substantial. Under the Americans with
Disabilities Act of 1990, as amended, all public accommodations are required to
meet certain federal requirements related to access and use by disabled persons.
Compliance with the public accommodations provision of the ADA could require the
removal of access barriers, and noncompliance could result in the imposition of
fines, awards of damages to private litigants and/or a court order to remove
access barriers. Additional legislation may impose further burdens or
restrictions on owners with respect to
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access by disabled persons. In many instances, the applicability and
requirements of the ADA are not clear. Accordingly, the cost of compliance with
the ADA or such legislation is not currently ascertainable, and, while such
costs are not expected to have a material adverse effect on our financial
condition, such costs could be substantial. We have not undertaken ADA studies
of all of our properties and, as to those properties with respect to which we
have not undertaken ADA studies, possible costs of compliance could arise.
Our Chairman serves as the Chairman of another REIT. Leland R. Speed
serves as our Chairman and as the Chairman of EastGroup Properties, Inc., a REIT
with a focus on industrial properties principally in the Sunbelt area of the
United States. EastGroup's offices are separate from ours and we have no other
common directors or officers. As we both carry out our strategic plans, our
management and the management of EastGroup have each stated their intentions not
to transfer properties between our two companies, and we each intend to pursue
our distinct corporate plan. There can be no assurance that conflicts of
interest will not arise between EastGroup and us in the future.
Limitations on the ownership of our common stock and our Stockholder
Rights Agreement may preclude the acquisition of our control. Certain provisions
contained in our Charter and Bylaws, our Stockholder Rights Agreement, and
certain provisions of Maryland law may have the effect of discouraging a third
party from making an acquisition proposal for us and may thereby inhibit a
change of control. Provisions of our Charter are designed to assist us in
maintaining our qualification as a REIT under the Code by preventing
concentrated ownership of our capital stock that might jeopardize REIT
qualification. Among other things, these provisions provide that, if a transfer
of our stock or a change in our capital structure would result in any person (as
defined in the Charter) directly or indirectly acquiring beneficial ownership of
more than 9.8% (in value or in number, whichever is more restrictive) of our
outstanding capital stock excluding Excess Stock, our outstanding shares being
constructively or beneficially owned by fewer than 100 persons, or our being
"closely held" within the meaning of Section 856 of the Code, then:
- any proposed transfer will be void ab initio and we will not
recognize such transfer;
- we will have the right to redeem the shares proposed to be
transferred; and
- the shares proposed to be transferred will be automatically
converted into and exchanged for shares of a separate class of
stock, the Excess Stock.
Excess Stock has no dividend or voting rights but holders of Excess
Stock do have certain rights in the event of our liquidation, dissolution or
winding up. Our Charter provides that we will hold the Excess Stock as trustee
for the person or persons to whom the shares are ultimately transferred, until
the time that the shares are retransferred to a person or persons in whose hands
the shares would not be Excess Stock and certain price-related restrictions are
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satisfied. These provisions may have an anti-takeover effect by discouraging
tender offers or purchases of large blocks of stock, thereby limiting the
opportunity for stockholders to receive a premium for their shares over
then-prevailing market prices.
In addition, we have a stockholder rights plan. Under the terms of the
plan, we declared a dividend of rights on our common stock. The rights issued
under the plan will be triggered, with certain exceptions, if and when any
person or group acquires, or commences a tender offer to acquire, 15% or more of
our shares. The rights plan is intended to prevent abusive hostile takeover
attempts by requiring a potential acquirer to negotiate the terms with our Board
of Directors. However, it could have the effect of deterring or preventing our
acquisition, even if a majority of our stockholders were in favor of such
acquisition, and could have the effect of making it more difficult for a person
or group to gain control of us or to change existing management.
There are certain risks associated with our REIT status and additional
risks if we fail to qualify as a REIT. We believe that we have operated in a
manner so as to qualify as a REIT under the Code for each of our taxable years
since 1997. To qualify as a REIT we must satisfy numerous requirements (some on
an annual and quarterly basis) established under the highly technical and
complex Code provisions, which include:
- maintaining ownership of specified minimum levels of real
estate related assets;
- generating specified minimum levels of real estate related
income;
- maintaining certain diversity of ownership requirements with
respect to our shares; and
- distributing at least 95% (90% for tax years after December
31, 2000) of all real estate investment taxable income on an
annual basis.
Only limited judicial and administrative interpretations exist of these
rules. In addition, qualification as a REIT involves the determination of
various factual matters and circumstances not entirely within our control.
If we fail to qualify as a REIT, we will be subject to federal income
tax (including any applicable alternative minimum tax) on our taxable income at
corporate rates. In addition, unless entitled to relief under certain statutory
provisions, we will be disqualified from treatment as a REIT for the four
taxable years following the year during which we failed to qualify. This
treatment would reduce net earnings available for investment or distribution to
stockholders because of the additional tax liability for the year or years
involved. In addition, we would no longer be required to make distributions to
our stockholders. To the extent that distributions to stockholders had been made
based on our qualifying as a REIT, we might be required to borrow funds or to
liquidate certain of our investments to pay the applicable tax.
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As a REIT, we have been and will continue to be subject to certain
federal, state and local taxes on our income and property.
DESCRIPTION OF SERIES B PREFERRED STOCK
The summary of certain terms and provisions of the Series B preferred
stock contained in this Prospectus Supplement is not complete and is subject to,
and qualified by, the provisions of our Charter, Bylaws and Articles
Supplementary to the Charter setting forth the particular terms of the Series B
preferred stock (the "Series B Amendment").
The Charter authorizes the Board of Directors to classify and
reclassify any of our unissued shares of capital stock into one or more classes
or series of capital stock, and to provide for the terms of any new classes or
series resulting from the reclassification. Currently, the Charter authorizes
the issuance of 65,097,143 shares of common stock, par value $.001 per share,
2,760,000 shares of 8.75% Series A Cumulative Redeemable Preferred Stock, par
value $.001 per share, 2,142,857 shares of Series B Convertible Cumulative
Preferred Stock, par value $.001 per share, and 30,000,000 shares of Excess
Stock, par value $.001 per share. Only shares of common stock and Series A
preferred stock are now outstanding. On October 6, 2000, we entered into an
agreement with Five Arrows Realty Securities III L.L.C. (the "Purchaser")
pursuant to which we agreed to sell, and the Purchaser agreed to buy, up to
2,142,857 shares of Series B preferred stock at up to four closings over the
next nine months. See "Plan of Distribution -- Closings."
GENERAL
On October 5, 2000, the Board of Directors authorized the
reclassification of 2,142,857 shares of common stock into 2,142,857 shares of
Series B preferred stock, and further authorized the issuance of the Series B
preferred stock. When issued, the Series B preferred stock will be validly
issued, fully paid and non-assessable. The Series B preferred stock will not be
subject to any sinking fund or other obligation of ours to redeem or retire the
Series B preferred stock. Unless converted by the holder or redeemed by us, the
Series B preferred stock will have a perpetual term, with no maturity.
RANKING
The Series B preferred stock, both as to payment of dividends and to
distribution of assets upon redemption of such shares or our liquidation,
dissolution or winding up, whether voluntary or involuntary, ranks senior to the
common stock and pari passu with (i) the Series A preferred stock, (ii) any
class or series of preferred stock with an aggregate liquidation preference of
$35 million, and (iii) any other class or series of preferred stock approved by
the holders of the Series B preferred stock as provided for in the Series B
Amendment (collectively the "Parity Stock").
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We may increase the authorized number of shares of common stock, create
additional classes of stock ranking junior to the Series B preferred stock or
create other classes or series of preferred stock with an aggregate liquidation
preference of $35 million which rank pari passu to the Series B preferred stock
without the consent of any holder of Series B preferred stock. See "-- Voting
Rights" below. No dividends will be set apart for or paid upon the common stock
or any other shares of stock ranking junior to the Series B preferred stock
unless all such cumulative dividends on the Series B preferred stock have been
paid. Dividend payments with respect to the Series B preferred stock will be
made pari passu with the dividend payments on the Parity Stock.
DIVIDENDS
Dividend Rate. Holders of shares of Series B preferred stock will be
entitled to receive, when, as and if declared by our Board of Directors, out of
funds legally available for payment, cash dividends payable in an amount per
share equal to the greater of (i) the quarterly dividend payable for the
applicable quarter per share of common stock into which the Series B preferred
stock is convertible or (ii) $.73 (the "Applicable Dividend Rate").
Cumulative Dividends. Dividends on the Series B preferred stock will be
fully cumulative, to the extent not previously paid. Dividends on the Series B
preferred stock will be cumulative and payable (if declared) quarterly on each
January 15, April 15, July 15 and October 15 of each year in respect of the
prior quarter. Each such dividend will be payable to holders of record as they
appear on our stock records at the close of business on such record dates, not
exceeding 30 days preceding the payment dates thereof, as will be fixed by our
Board of Directors. Dividends will accrue and be cumulative from the date of
original issuance of the Series B preferred stock.
Dividends on the Series B preferred stock not paid in full on the dates
set forth above will accrue dividends at the Applicable Dividend Rate divided by
$34.30, compounded quarterly until such dividends are paid. Any dividend payment
with respect to the Series B preferred stock will first be credited against any
prior accrued or unpaid dividend. No dividends will be set apart for or paid
upon the common stock or any other shares of stock ranking junior to the Series
B preferred stock unless all such cumulative dividends on the Series B preferred
stock have been paid in full or declared and set apart for payment. Dividend
payments with respect to the Series B preferred stock will be made pari passu
with the dividend payments on the Parity Stock.
Prohibitions on Dividends, Distributions and Repurchases. Unless the
dividends on the Series B preferred stock (including accrued and unpaid
dividends in arrears whether or not declared) which pursuant to their terms
should have been paid, have been paid in full or declared and set apart for
payment in full on the Series B preferred stock, we will not pay dividends on,
make any other distributions on, or redeem or repurchase or otherwise acquire
for consideration any of our capital stock (without regard to rank, either as to
dividends or
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upon liquidation, dissolution or winding up), other than (i) any series of
preferred stock which ranks pari passu with the Series B preferred stock, all of
which payments will be made pari passu with the Series B preferred stock; or
(ii) shares of our preferred stock that rank senior to the Series B preferred
stock, in each case if the issuance of such preferred stock (other than the
Series A preferred stock or any preferred stock ranking pari passu with the
Series B preferred stock up to an aggregate liquidation preference of $35
million) has been approved by the holders of a majority of the Series B
preferred stock.
REDEMPTION
General. The Series B preferred stock will not be redeemable by us
prior to the date which is the fifth anniversary of the original date of
issuance of the Series B preferred stock. On and after such date, the Series B
preferred stock will be redeemable by us, in whole, or, solely in the event of,
and using the net proceeds from, the issuance of securities ranking junior to
the Series B preferred stock in terms of dividends, distributions and
liquidation preferences, in part, at our option; provided, however, that the
initial redemption of the Series B preferred stock will not be for less than 50%
of the outstanding Series B preferred stock.
Notice of Redemption. We may exercise our option to redeem the Series B
preferred stock only by mailing a written notice of election (the "Redemption
Notice") to the holders of shares of Series B preferred stock, at each holder's
address appearing on our records at least 60 days prior to the date specified
therein for the redemption of the Series B preferred stock. Such notice will
state, at a minimum, the amount of shares of Series B preferred stock to be
redeemed, the date on which such redemption will occur and the last date on
which such holder can exercise the conversion rights (described under "--
Conversion Rights" below).
Conversion. During the period beginning on the date on which we mailed
to each holder of the Series B preferred Stock a written notice of election, as
set forth above, and ending on the sixtieth day following the date of such
mailing, each holder of Series B preferred stock may exercise its conversion
rights (described under "-- Conversion Rights" below).
Redemption Price. Upon the sixtieth day following the mailing of the
Redemption Notice described above to the holder of Series B preferred stock, and
unless such holder of the Series B preferred stock has exercised its conversion
rights described above, we will purchase from such holder of Series B preferred
stock (upon surrender by such holder at our principal office of the certificate
representing such shares) such shares of Series B preferred stock specified in
the Redemption Notice, at a price per share equal to the product of (i) $35.00
per share plus accrued and unpaid dividends (whether or not declared and accrued
through the date of payment for redemption or the date payment is made available
for payment to the holder thereof) plus a premium equal to the following
percentage of $35.00:
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<TABLE>
<CAPTION>
Redemption Occurs
On or After But Prior To % Premium
--------------------- ------------ ---------
<S> <C> <C>
October 6, 2005 October 5, 2006 5.0
October 6, 2006 October 5, 2007 4.0
October 6, 2007 October 5, 2008 3.0
October 6, 2008 October 5, 2009 2.0
October 6, 2009 October 5, 2010 1.0
October 6, 2010 0.0
</TABLE>
and (ii) the number of shares of Series B preferred stock to be redeemed as
provided in the Redemption Notice.
No share of Series B preferred stock as may be redeemed will be
entitled to any dividends accruing on such shares after the date on which the
redemption price payments described above are paid or made available for payment
to the holder of such shares. On such date all rights of the holder of such
share of Series B preferred stock will cease, and such share of Series B
preferred stock will not be deemed to be outstanding.
LIQUIDATION PREFERENCE
Liquidation Payment. The holders of shares of Series B preferred stock
will be entitled to receive, in the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, before any
distribution or payment to the holders of shares of capital stock ranking junior
to the Series B preferred stock, $35.00 per share of Series B preferred stock
plus accrued and unpaid dividends, whether or not declared, if any (or a pro
rata portion thereof with respect to fractional shares), to the date of final
distribution or the distribution is made available ("Liquidation Value");
provided, however, that if such liquidation, dissolution or winding up of the
Company occurs in connection with or subsequent to a Change of Control (as
defined below), then the holders of Series B preferred stock will be entitled to
be paid the Put Payment (as defined below under "-- Change of Control and Put
Option"). The Series B preferred stock, as to liquidation, dissolution and
winding up, ranks equal to and on a parity with the Series A preferred stock.
Pro Rata Payments. If, upon any liquidation, dissolution or winding up
of the Company, the assets of the Company available for distribution to the
holders of shares of Series B preferred stock and Parity Stock are insufficient
to pay in full the sums which such holders are entitled to receive in such case,
then all of the assets available for distribution to the holders of Series B
preferred stock and Parity Stock will be distributed among and paid to
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the holders of Series B preferred stock and Parity Stock ratably in proportion
to the respective amounts that would be payable to such holders if such assets
were sufficient to permit payment in full.
VOTING RIGHTS
General. Except as limited or provided by law, the holder of the Series
B preferred stock will be entitled (i) to vote or consent on all matters
submitted to the holders of common stock together with the holders of common
stock as a single class and (ii) to vote or consent on all matters affecting the
Series B preferred stock as a separate class. Each share of Series B preferred
stock will entitle the holder thereof to one vote for each share of common stock
into which such share of Series B preferred stock is convertible as of the
record date for such vote or consent or, if no record date is specified, as of
the date of such vote or consent.
Preferred Directors. In addition to the voting rights described herein,
and also except as set forth below, the number of directors constituting our
Board of Directors will automatically be increased by one member to be elected
by the holders of the Series B preferred stock so long as Purchaser and its
affiliates and/or members or partners beneficially own in the aggregate (i) at
least 50% of the outstanding Series B preferred stock or (ii) an amount of
voting securities which, if converted into common stock, would exceed 10% of the
outstanding common stock on a fully diluted basis (such amount as set forth in
(i) or (ii) above, the "Minimum Threshold"). This Board position (the "Minimum
Threshold Preferred Director") will remain available until the Minimum Threshold
fails to be satisfied, and any director elected pursuant hereto will be deemed
to have resigned when the position is no longer available. Our Board of
Directors has elected Matthew W. Kaplan, a representative of Purchaser, as the
Minimum Threshold Preferred Director.
In addition to the rights described above, the number of directors
constituting the Board will automatically increase by one upon the first of the
following to occur: (i) our failure to pay, or our determination that we are not
likely to pay, Regular Quarterly Dividends (as defined below) on the common
stock aggregating at least $2.20 per share, as adjusted, for any four
consecutive quarters (a "Dividend Reduction Event"); (ii) our failure to pay in
full (after payment of all previously accrued and unpaid dividends) the
quarterly dividend payable on the stock (whether or not declared) at any time in
respect of the Series B preferred stock (a "Dividend Payment Default"); (iii)
our failure to maintain an Income to Debt Ratio (as defined below) of at least
1.50 to 1.0 for three consecutive quarterly periods (a "Financial Ratio Event");
or (iv) our being in default (which in the case of a non-monetary default means
that such default remains unremedied after thirty days) under the terms of any
credit facility or loan documentation to which we or our operating partnership
or any of our respective subsidiaries is a party (a "Credit Default Event"). The
position on the Board (the "Default Event Preferred Director") created hereby
will terminate when (i) there are no shares of Series B preferred stock
outstanding or (ii) each of the following has occurred and continues to occur:
(A) the Dividend Reduction Cure (as defined below); (B) the Dividend Payment
Cure (as defined
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below); (C) the Financial Ratio Cure (as defined below); and (D) the Credit
Default Cure (as defined below). The term "Regular Quarterly Dividend" means any
cash dividend(s) paid in any calendar quarter that do not in the aggregate
exceed our reported Funds From Operations (as defined by NAREIT, including
amendments to such definition) for the quarter relating to such dividend.
"Income to Debt Ratio" as used herein, means the ratio of our
consolidated earnings before interest, taxes, depreciation and amortization, net
of reserves for capital improvements of $1.00 per square foot per annum, to the
interest and principal payable (without giving effect to any waivers) in respect
of our consolidated indebtedness during the same period.
In addition, if at any time after the Minimum Threshold ceases to be
satisfied a Dividend Payment Default occurs for three consecutive fiscal
quarters, the number of directors constituting the Board will be automatically
increased by a maximum of two members. These positions on the Board will
continue to be available until the earlier to occur of such time as (i) there
are no shares of Series B preferred stock outstanding and (ii) the Dividend
Payment Cure (as defined herein). Any director elected pursuant to this
provision will be deemed to have resigned when the position is no longer
available.
Election of Preferred Directors. The holders of the Series B preferred
stock will have the special right, voting separately as a single class, to elect
as soon as practical, a director to fill each vacancy created pursuant to "--
Preferred Directors" above and to elect their respective successors at each
succeeding annual meeting of the Company thereafter at which such successor is
to be elected (the "Preferred Directors"). At no time will there be more than
two Preferred Directors on the Board.
Classification of Board. Each vacancy created upon the Board from time
to time pursuant to the creation of Preferred Directors will be apportioned
among the classes of directors, if any, so that the number of directors in each
of the classes of directors is as nearly equal in number as possible. The
Preferred Directors will be classified accordingly.
Cures. Upon occurrence of a Dividend Reduction Event, the same will be
deemed to continue to exist until such time as the earlier to occur of (i) none
of the shares of Series B preferred stock remains outstanding or (ii) the
regular quarterly dividends to be paid on the common stock for the four quarters
in respect of which the Dividend Reduction Event was estimated to occur have
been restored in the good faith estimate of the Company to at least $2.20 per
share of common stock (as adjusted) (a "Dividend Reduction Cure").
Upon the occurrence of the Dividend Payment Event, the same will be
deemed to continue and exist until such time as the earlier to occur of (i) none
of the shares of Series B preferred stock remains outstanding or (ii) all
distributions, including accrued and unpaid distributions on the Series B
preferred stock, whether or not declared, have been paid or made available for
payment (a "Dividend Payment Cure").
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Upon the occurrence of a Financial Ratio Event, the same will be deemed
to continue and exist until such time as the earlier to occur of (i) none of the
shares of Series B preferred stock remains outstanding or (ii) an Income to Debt
Ratio of at least 1.50 to 1.0 has been maintained by us for three consecutive
quarterly periods or the Financial Ratio Event has been waived at a meeting by a
vote of the holders of a majority of the shares of Series B preferred stock (a
"Financial Ratio Cure").
Upon the occurrence of a Credit Default Event, the same will be deemed
to continue and exist until such time as the earlier to occur of (i) none of the
shares of Series B preferred stock remains outstanding or (ii) such credit
default has been remedied or the Credit Default Event has been waived at a
meeting by a vote of the holders of a majority of the shares of Series B
preferred stock (a "Credit Default Cure").
Board Committees. Such Preferred Director as is first elected will have
the right to be designated as a member of every committee of the Board. Any
Default Event Preferred Director will be designated as a member of each
committee of the Board on which the Minimum Threshold Preferred Director is not
a member or, if the other Preferred Director is a Default Event Preferred
Director, each committee of the Board on which the first Preferred Director is
not a member. A Minimum Threshold Preferred Director will have the right to be a
full voting member of any and all committees of the Board.
Voting Procedures. At each meeting of our stockholders at which the
holders of the Series B preferred stock will have the right to vote as a single
class, as provided, the presence in person or by proxy of the holders of record
of a majority of the total number of shares of Series B preferred stock then
outstanding will be necessary and sufficient to constitute a quorum of such
class for such election by such stockholders as a class. At any such meeting or
adjournment thereof, the absence of a quorum of holders of shares of Series B
preferred stock will not prevent the election of directors other than the
Preferred Directors, and the absence of a quorum of the holders of any other
class or series of stock for the election of such other directors will not
prevent the election of any Preferred Directors by the holders of the Series B
preferred stock.
Vacancy. In case any vacancy occurs among the directors elected by the
holders of the Series B preferred stock, such vacancy will be filled by the vote
of holders of the Series B preferred stock, voting as a single class, at a
special meeting of such stockholders called for that purpose.
Written Consent. Notwithstanding the foregoing, any action required or
permitted to be taken by holders of Series B preferred stock at any meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a unanimous consent, in writing, setting forth the action so taken,
shall be signed by each of the holders of Series B preferred stock and shall be
executed and delivered to the Secretary of the Company for placement among the
minutes of proceedings of the stockholders of the Company.
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Approval by the Company. The Company acting through a majority of its
Directors will have the right to approve the nomination of any Preferred
Director, such approval not to be unreasonably withheld; provided that such
approval will not be required for the following individuals: John McGurk, D.
Pike Aloian, Matthew Kaplan and James E. Quigley III, or other senior officers
of Rothschild Realty Inc. who are also appointed as managers of Purchaser.
Restrictions on the Company. So long as shares of Series B preferred
stock are outstanding, without the consent of the holders of at least a majority
of the outstanding Series B preferred stock voting separately as a class or by
unanimous written consent of all of the holders of Series B preferred stock (in
addition to any other vote or consent of stockholders required by law or by the
Charter), the Company may not (i) amend, alter or repeal the Series B Amendment;
(ii) amend, alter or repeal any provision of the Charter which would adversely
effect the rights of the holders of Series B preferred stock as such; (iii)
amend, alter or repeal any provision of the Charter which would increase in any
respect the restrictions or limitations on ownership applicable to the Series B
preferred stock; (iv) amend, alter or repeal the Charter or Bylaws of the
Company to limit the right of indemnification provided to any Preferred
Director; (v) issue additional shares of Series B preferred stock (or a series
of preferred stock that would vote as a class with the shares of Series B
preferred stock with respect to the election of any Preferred Director) or
shares of stock ranking senior or pari passu to the Series B preferred stock (as
to dividends or upon liquidation, dissolution or winding up), provided that we
may sell preferred stock ranking pari passu with the Series B preferred stock up
to an aggregate liquidation preference of $35 million; or (vi) amend, alter or
repeal any provision of the Charter or Bylaws to increase the number of
directors on the Board beyond nine (not including any Preferred Directors).
Reports. We will mail to each holder of record of Series B preferred
stock, at such holder's address in our records, within 45 days after the end of
the first three fiscal quarters of each fiscal year and within 90 days after the
end of each fiscal year, our financial reports for such fiscal period in such
form and containing such independent accountants report as set forth under the
rules of the Securities and Exchange Commission (together with the report of our
independent accountants with respect to such fiscal period) irrespective of
whether we are then required to file reports under such rules.
CONVERSION RIGHTS
At the holder's option at any time after December 31, 2002 or as
otherwise provided, shares of Series B preferred stock will be convertible, in
whole or in part, into the number of fully paid and non-assessable shares of
common stock obtained by multiplying the number of shares of Series B preferred
stock being converted by the Conversion Ratio (as defined below and as in effect
at such time) by surrendering such shares of Series B preferred stock to be
converted. The "Conversion Ratio" with respect to any shares of Series B
preferred stock will initially be equal to 1.0, subject to adjustment as
described below ("-- Conversion Ratio
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Adjustments"). The right to convert shares of Series B preferred stock called
for redemption will terminate at the close of business on the last day on which
the holder of Series B preferred stock can exercise its conversion rights,
unless we default in making payment of any cash payable upon such redemption
under "-- Redemption" above. For information as to notices of redemption see "--
Redemption" above.
Conversion of shares of Series B preferred stock, or a specified
portion thereof, may be effected by delivering a certificate or certificates
evidencing such shares, together with written notice of conversion and a proper
assignment of such certificate or certificates to us or in blank, together with
an amount sufficient to pay any transfer or similar tax (or satisfactory
evidence that such taxes have been paid) to us for that purpose.
Each conversion generally will be deemed to have been effected
immediately prior to the close of business on the date on which the certificates
for shares of Series B preferred stock shall have been surrendered and notice
shall have been received by us as aforesaid, and the conversion shall be at the
Conversion Ratio in effect at such time and on such date.
Fractional shares of common stock are not to be issued upon conversion
but, in lieu thereof, we will pay a cash adjustment based on the current market
price of the common stock on the trading day prior to the conversion date.
CONVERSION RATIO ADJUSTMENTS
The Conversion Ratio is subject to adjustment upon certain events,
including the following:
Dividends, Subdivisions, Combinations, Reclassifications. If the
Company shall, while any shares of Series B preferred stock are outstanding, (i)
pay a dividend or make a distribution with respect to its capital stock in
shares of its common stock; (ii) subdivide its outstanding common stock into a
greater number of shares; (iii) combine its outstanding common stock into a
smaller number of shares; or (iv) issue any shares of capital stock by
reclassification of its common stock, the Conversion Ratio in effect at the
opening of business on the day next following the date fixed for the
determination of stockholders entitled to receive such dividend or distribution
or at the opening of business on the day following the day on which such
subdivision, combination or reclassification becomes effective, as the case may
be, shall be adjusted so that the holder of any shares of Series B preferred
stock thereafter surrendered for conversion shall be entitled to receive the
number of shares of common stock that such holder would have owned or have been
entitled to receive after the happening of any of the events described above had
such shares of Series B preferred stock been converted immediately prior to the
record date in the case of a dividend or distribution or the effective date in
the case of a subdivision, combination or reclassification.
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Issuance of Rights, Options or Warrants to Purchase Common Stock. If
the Company, while any shares of Series B preferred stock are outstanding,
issues rights, options or warrants to all holders of common stock entitling them
(for a period expiring within 45 days after the record date mentioned below) to
subscribe for or purchase common stock at a price per share less than the
current market price per share of common stock on the record date for the
determination of stockholders entitled to receive such rights or warrants, then
the Conversion Ratio in effect at the opening of business on the day next
following such record date shall be adjusted to equal the ratio determined by
dividing (i) the Conversion Ratio in effect immediately prior to the opening of
business on the day next following the date fixed for such determination by (ii)
a fraction, the numerator of which shall be the sum of (A) the number of shares
of common stock outstanding on the close of business on the date fixed for such
determination and (B) the number of shares that the aggregate proceeds to the
Company from the exercise of such rights or warrants for common stock would
purchase at such current market price, and the denominator of which shall be the
sum of the number of shares of common stock outstanding on the close of business
on the date fixed for such determination and the number of additional shares of
common stock offered for subscription or purchase pursuant to such rights or
warrants.
Issuance of Rights, Options or Warrants to Purchase Securities Other
Than Common Stock. If we distribute to all holders of our common stock any
shares of our capital stock (other than common stock) or evidence of our
indebtedness or assets (excluding Regular Quarterly Dividends) or rights or
warrants to subscribe for or purchase any of our securities (any of the
foregoing being hereinafter called the "Securities"), then in each such case
each holder of shares of Series B preferred stock will receive concurrently with
the receipt by holders of common stock the kind and amount of such Securities
that it would have owned or been entitled to receive had such shares of Series B
preferred stock been converted immediately prior to such distribution or related
record date, as the case may be.
Distribution of Cash. In case we pay or make a dividend or other
distribution on our common stock exclusively in cash (excluding Regular
Quarterly Dividends), each holder of shares of Series B preferred stock will
receive concurrently with the receipt by holders of common stock the kind and
amount of any such distribution that it would have owned or been entitled to
receive had such shares of Series B preferred stock been converted immediately
prior to such distribution or related record date, as the case may be.
Certain Significant Transactions. If the Company shall be a party to
any transaction (including, without limitation, a merger, consolidation,
statutory share exchange, self tender offer for all or substantially all shares
of common stock, sale of all or substantially all of the Company's assets or
recapitalization of the common stock and excluding any transaction as to which
the other provisions of the Series B Amendment apply) (each of the foregoing
being referred to herein as a "Transaction"), in each case as a result of which
shares of common stock shall be converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
share of Series B preferred stock that is not converted
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into the right to receive stock, securities or other property in connection with
such Transaction shall thereafter be convertible into the kind and amount of
shares of stock, securities and other property (including cash or any
combination thereof) receivable upon the consummation of such Transaction by a
holder of that number of shares of common stock into which one share of Series B
preferred stock was convertible immediately prior to such Transaction, assuming
such holder of common stock (i) is not a person with which the Company
consolidated or into which the Company merged or which merged into the Company
or to which such sale or transfer was made, as the case may be (a "Constituent
Person"), or an affiliate of a Constituent Person or (ii) failed to exercise his
or her rights of election, if any, as to the kind or amount of stock, securities
and other property (including cash) receivable upon such Transaction (provided
that if the kind or amount of stock, securities and other property (including
cash) receivable upon such Transaction is not the same for each share of common
stock of the Company held immediately prior to such Transaction by other than a
Constituent Person or an affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-electing Share"), then for the
purpose of this provision the kind and amount of stock, securities and other
property (including cash) receivable upon such Transaction by each Non-electing
Share shall be deemed to be the kind and amount so receivable per share by a
plurality of the Non-electing Shares). The Company shall not be a party to any
Transaction unless the terms of such Transaction are consistent with this
provision, and it shall not consent or agree to the occurrence of any
Transaction until the Company has entered into an agreement with the successor
or purchasing entity, as the case may be, for the benefit of the holders of the
shares of Series B preferred stock that will contain provisions enabling the
holders of the shares of Series B preferred stock that remain outstanding after
such Transaction to convert into the consideration received by holders of common
stock at the Conversion Ratio in effect immediately prior to such Transaction.
Other Actions. If we take any action affecting the common stock, other
than the actions described above, that would materially adversely affect the
conversion rights of the holders of the shares of Series B preferred stock or
the value of such conversion rights, the Conversion Ratio for the shares of
Series B preferred stock may be adjusted, to the extent permitted by law, in
such manner, if any, and at such time, as the Board of Directors, in its sole
discretion, may determine to be equitable in the circumstances.
OTHER CONVERSION PROVISIONS
Cumulative Adjustments. No adjustment in the Conversion Ratio will be
required unless such adjustment would require a cumulative increase or decrease
of at least 1%; provided, however, that any adjustments that by reason of this
provision are not required to be made shall be carried forward and taken into
account in any subsequent adjustment until made. If any action or transaction
would require adjustment of the Conversion Ratio pursuant to more than one
provision of the Series B Amendment, only one adjustment will be made and such
adjustment will be the amount of adjustment that has the highest absolute value.
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Exempted Transactions. We will not be required to make any adjustment
of the Conversion Ratio for (i) the issuance of any shares of common stock
pursuant to any plan providing for the reinvestment of dividends or interest
payable on our securities and the investment of additional optional amounts in
shares of common stock pursuant to any plan providing for the reinvestment of
dividends or interest payable on our securities; (ii) the issuance of contingent
rights issued pursuant to a stockholders' rights plan adopted by us pursuant to
which the acquisition by any third party of a specified percentage of common
stock triggers the exercisability of such rights to purchase common stock, for
so long as no event has occurred triggering such rights to exercise; and (iii)
the issuance of common stock or options to purchase common stock pursuant to an
employee benefit plan.
Reduction In Conversion Ratio. We will be entitled, to the extent
permitted by law, to make such reductions in the Conversion Ratio, in addition
to any required deductions, as we in our discretion will determine to be
advisable in order that any stock dividends, subdivision of shares,
reclassification or combination of shares, distribution of rights or warrants to
purchase stock or securities, or a distribution of other assets (other than cash
dividends) hereafter made by us to our stockholders will not be taxable, or if
that is not possible, to diminish any income taxes that are otherwise payable
because of such event.
Notice of Adjustment in Conversion Ratio. Whenever the Conversion Ratio
is adjusted as herein provided, we will prepare a notice of such adjustment of
the Conversion Ratio setting forth the adjusted Conversion Ratio and the
effective date of such adjustment and will mail such notice of such adjustment
of the Conversion Ratio to the holders of the shares of Series B preferred stock
at such holders' last address as shown on our stock records.
Notice of Certain Events. If: (i) we declare a dividend (or any other
distribution) on the common stock (other than the Regular Quarterly Dividend);
or (ii) we authorize the granting to all holders of the common stock of rights
or warrants to subscribe for or purchase any shares of any class or any other
rights or warrants; or (iii) there shall be any reclassification of the common
stock (other than any event to which other provision of the Series B Amendment
applies) or any consolidation or merger to which we are a party and for which
approval of any stockholders of ours is required, or a statutory share exchange,
or self tender offer by us for all or substantially all of our outstanding
shares of common stock or the sale or transfer of all or substantially all of
our assets as an entity; or (iv) a Change of Control; or (v) there shall occur
the involuntary or voluntary liquidation, dissolution or winding up of the
Company, then we will cause to be mailed to the holders of shares of Series B
preferred stock, at the address as shown on our stock records, as promptly as
possible, but at least 15 business days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution or rights or warrants, or, if a
record is not to be taken, the date as of which the holders of common stock of
record to be entitled to such dividend, distribution or rights or warrants are
to be determined or (B) the date on which such reclassification, consolidation,
merger, statutory share exchange, sale, transfer, liquidation, dissolution or
winding up or Change of Control is expected to
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become effective, and the date as of which it is expected that holders of common
stock will be entitled to exchange their shares of common stock for securities
or other property, if any, deliverable upon such reclassification,
consolidation, merger, statutory share exchange, sale, transfer, liquidation,
dissolution or winding up.
Reservation, Validity, Listing and Securities Law Compliance With
Respect to Shares of Common Stock; Transfer Taxes. We will reserve and keep
available from our authorized but unissued shares of common stock for the
purpose of effecting conversion of the Series B preferred stock, the full number
of shares of common stock as may be required to effect conversion of the Series
B preferred stock. Any shares of common stock issued upon the conversion of the
shares of Series B preferred stock will be validly issued, fully paid and
non-assessable. We will endeavor (i) to list the shares of common stock required
to be delivered upon conversion of the Series B preferred stock, prior to such
delivery, upon each national securities exchange, if any, upon which the
outstanding common stock is listed at the time of such delivery and (ii) to
comply with all federal and state laws and regulations thereunder requiring the
registration of such securities with, or any approval of or consent to the
delivery thereof, by any governmental authority. We will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of common stock or other securities or property on
conversion of the Series B preferred stock pursuant hereto; provided, however,
that we will not be required to pay any tax that may be payable in respect of
any transfer involved in the issue or delivery of shares of common stock or
other securities or property in a name other than that of the holder of the
shares of Series B preferred stock to be converted, and no such issue or
delivery will be made unless and until the person requesting such issue or
delivery has paid to us the amount of any such tax or established, to our
reasonable satisfaction, that such tax has been paid.
Ownership Restrictions. In addition to the conversion rights described
above, the Series B preferred stock may be converted into shares of our Excess
Stock in the event a transfer of shares of Series B preferred stock is attempted
in violation of certain restrictions on the ownership of our capital stock
contained in our Charter (the "Ownership Restrictions") intended to preserve our
status as a REIT. See "Restrictions on Transfer" below.
CHANGE OF CONTROL AND PUT OPTION
If a Change of Control or Put Event (each, as defined below) occurs as
a result of the voluntary (and not legally compelled) act, omission or
participation of the Company, which act, omission, or participation we had the
discretion under existing laws and regulations to refrain from, then each holder
of shares of Series B preferred stock will have the right to require us, to the
extent we have legally available funds therefor, to redeem such holder's shares
of Series B preferred stock at a redemption price payable in cash in an amount
equal to 102% of the Liquidation Value thereof, plus accrued and unpaid
distributions whether or not declared, if any (the "Put Payment"), to the date
of purchase or the date payment is made available (the "Put Date") pursuant to
the offer described below. If a Change of Control or Put
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Event occurs that is not the result of such voluntary act, omission or
participation of the Company, we may elect to make the foregoing Put Payment but
may, in our discretion, elect not to make the foregoing Put Payment by not
commencing the put offer on the Put Date, in which event the Conversion Ratio
will be revised to the greater of (i) 125% of the then current Conversion Ratio
so that each share of Series B preferred stock will be convertible into 125% of
the number of shares of common stock into which it would otherwise have been
convertible and (ii) a fraction the denominator of which is 80.00% of the
current market price and the numerator of which is $35.00. Notwithstanding the
foregoing, if the Securities and Exchange Commission or its staff, by written
communication to us, indicates that the provisions of the first sentence of this
provision would preclude us from treating the shares of Series B preferred stock
as equity on our financial statements, then we will have the right, in lieu of
application of the first sentence of this provision, to apply the Conversion
Ratio revision alternative set forth in the second sentence of this provision.
The following terms, as used herein, have the following meanings:
"Change of Control" means each occurrence of any of the following: (i)
a change in control of the Company of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated
under the Exchange Act, whether or not we are then subject to such reporting
requirements; (ii) the acquisition, directly or indirectly, by any individual or
entity or group (as such term is used in Section 13(d)(3) and Section 14(d) of
the Exchange Act) of beneficial ownership (as defined in Rule 13d-3 promulgated
under the Exchange Act, except that such individual or entity will be deemed to
have beneficial ownership of all shares that any such individual or entity has
the right to acquire, whether such right is exercisable immediately or only
after passage of time) of 30% or more of the aggregate outstanding voting
capital stock of the Company; (iii) other than with respect to the election,
resignation or replacement of the Preferred Directors, during any period of two
consecutive years, individuals who at the beginning of such period constituted
our Board of Directors (together with any new directors whose election by such
Board of Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of 66 2/3% of the directors of the Company
(excluding Preferred Directors) then still in office who were either directors
at the beginning of such period, or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; (iv) the holders of capital
stock of the Company vote to approve (A) the consolidation or merger of the
Company into another entity (the "Merger Entity") or the conveyance,
disposition, transfer or lease of all or substantially all of its respective
assets (including, but not limited to, real property investments) to any
individual or entity (the "Acquiring Entity", and, together with the Merger
Entity, the "Successor Entity"), or (B) any consolidation or merger of another
entity into the Company, which in either event (A) or (B) is pursuant to a
transaction in which the outstanding voting capital stock of the Company is
reclassified or changed into or exchanged for cash, securities or other property
(unless the holders of the voting capital stock of the Company immediately prior
to such transaction hold immediately after such transaction more than a
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majority of the outstanding voting capital stock of the Successor Entity); or
(v) the holders of capital stock of the Company vote to approve a plan of
complete liquidation of the Company.
"Put Event" means each occurrence of any of (i) the Company fails to
qualify as a real estate investment trust as described in Section 856 of the
Internal Revenue Code of 1986, as amended, other than as a result of any action,
or unreasonable failure to act, by any holder of shares of Series B preferred
stock; (ii) the Company becomes a "Pension-held REIT" as defined in Section
856(h)(3)(D) of the Internal Revenue Code of 1986, as amended, other than as a
result of any action, or unreasonable failure to act, by the holders of shares
of Series B preferred stock; or (iii) the Company ceases to be engaged primarily
in the business of owning and managing office properties directly or through
subsidiaries as carried on as of the date hereof and described in the Company's
Annual Report on Form 10-K, as amended, as filed with the Securities and
Exchange Commission for the year ended December 31, 1999.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges and preferred stock dividends
for the six months ended June 30, 2000 was 1.66, for the year ended December 31,
1999 was 1.76, for the year ended December 31, 1998 was 2.00, for the year ended
December 31, 1997 was 2.76, for the year ended December 31, 1996 was 1.92 and
for the year ended December 31, 1995 was 1.41. Except for the six months ended
June 30, 2000 and the two years ended December 31, 1999 and 1998, there was no
preferred stock outstanding for any of the periods shown above. Accordingly, the
ratio of earnings to fixed charges and preferred stock dividends for those
periods are identical to the ratio of earnings to fixed charges.
We computed our earnings by adding fixed charges, excluding capitalized
interest, to pre-tax income from continuing operations (net income or loss).
Fixed charges consist of interest costs, whether expensed or capitalized, the
interest component of rental expense and amortization of debt issuance costs.
RESTRICTIONS ON TRANSFER
Except as described below under "Related Agreements -- Limited Waiver
of Ownership Limit," the Series B preferred stock is subject to the restrictions
on ownership and transfer set forth in our Charter and described in the section
captioned "Description of Common Stock -- Restrictions on Transfer" in the
accompanying Prospectus.
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RELATED AGREEMENTS
Operating Agreement/Registration Rights. Pursuant to an Operating
Agreement to be entered into by and between us and the Purchaser in connection
with the initial closing of the purchase of securities hereunder (the "Operating
Agreement"), we will grant the Purchaser certain registration rights, including
two demand registrations exercisable at the earlier of the expiration of the 90
day period after the date of the last closing and July 3, 2001, and certain
piggyback registration rights. The two demand registration rights may be
exercised so long as the holder requests the registration of more than $10
million in market value of Registrable Securities (as defined below). We will
also file a shelf registration statement and use our best efforts to have such
shelf registration declared effective prior to the earlier of the expiration of
the 90 day period after the date after the last closing and July 3, 2001.
Generally, the right of the holder of Series B preferred stock to demand
registration, either pursuant to the demand registration or the shelf
registration, will expire, unless earlier expired, when such holder may sell the
Registrable Securities without registration under the Securities Act or under
Rule 144 promulgated under the Securities Act without regard to the volume
limitations therein.
"Registrable Securities", as used herein, means (i) all shares of
Series B preferred stock and all shares of common stock that have been issued,
or are issuable on conversion, in respect of the Series B preferred stock
pursuant to the provisions of Section 7 of the Series B Amendment, or upon
exercise of the Common Stock Purchase Warrant issued to the Purchaser and dated
October 6, 2000 (the "Warrant"); (ii) any other securities that are received by
the Holders (as defined in the Operating Agreement) pursuant to the provisions
of Section 7 of the Series B Amendment or the Warrant; (iii) any other capital
stock of the Company, the holders of which will have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference; and (iv) any other
securities into which or for which any of the securities described in clauses
(i) through (iii) above may be or have been converted or exchanged pursuant to a
plan of recapitalization, reorganization, merger, sale of assets or otherwise,
until such time as (A) they have been effectively registered under the
Securities Act for resale and sold thereunder; (B) they are distributed to the
public pursuant to Rule 144 (or any similar provisions then in force) under the
Securities Act; (C) they have been otherwise transferred, new certificates
therefor not bearing a legend restricting further transfer will have been issued
by the Company and subsequent disposition thereof will not require registration
under the Securities Act; or (D) they have ceased to be outstanding.
Most Favored Nation. Pursuant to an Investment Agreement dated as of
October 6, 2000 (the "Investment Agreement"), we will not enter into any
agreement with any existing stockholder (subject to exceptions for equity award
plans (including stock option plans) and dividend reinvestment plans) with
respect to the issuance of any shares of common stock or securities convertible
into or exchangeable for common stock without the prior written consent of the
Purchaser, and then only if the Purchaser has been offered the opportunity to
receive
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rights and benefits equivalent to those proposed for such stockholder in such
agreement. In addition, we will not enter into any agreement with any person in
respect of the granting by us of preemptive rights to such person with respect
to any of our securities without the prior written consent of the Purchaser, and
then only if the Purchaser has been granted preemptive rights equivalent to
those proposed for such person in such agreement.
Limited Waiver of Ownership Limit. In order to enable the Purchaser to
own the Series B preferred stock (and common stock into which the Series B
preferred stock is converted) and the Warrant and the common stock to be issued
upon the exercise of the Warrant, we granted a limited waiver of the Ownership
Restrictions to the Purchaser and its majority member. The waiver generally
covers the Series B preferred stock, any common stock into which the Series B
preferred stock is converted, and the Warrant and the common stock to be issued
upon the exercise of the Warrant. The waiver contains additional terms designed
to preserve our status as a REIT, including provisions that cause the waiver to
become void ab initio or to expire upon the occurrence of certain events. The
waiver enables the Purchaser to transfer shares covered thereby to another
person in a transaction that otherwise would violate the Ownership Restrictions,
subject to certain conditions. We also agreed with the Purchaser to certain
indemnification provisions relating to the effect of the Purchaser's ownership
of our capital stock on our REIT status.
Common Stock Purchase Warrant. Pursuant to the Investment Agreement we
will issue to Purchaser the Warrant. The Warrant entitles Purchaser the right to
purchase from us 75,000 duly authorized, validly issued, fully paid and
non-assessable shares of common stock at a purchase price, subject to
adjustment, of $35.00 per share. The Warrant expires on October 6, 2007.
Amendment to Rights Agreement. On October 5, 2000, we executed a First
Amendment to the Rights Agreement (originally dated as of September 7, 1995) to
render the Rights (as defined in the Rights Agreement) inapplicable to the
acquisition and ownership of shares of (i) Series B preferred stock and the
common stock into which it is convertible issued pursuant to the Investment
Agreement and (ii) the Warrant and the shares of common stock to be issued
pursuant to the Warrant.
PLAN OF DISTRIBUTION
General. The Series B preferred stock will be issued and sold to the
Purchaser pursuant to the Investment Agreement at a purchase price of $35.00 per
share less a discount of $0.70 per share; provided, however, that the number of
shares of Series B preferred stock issued to the Purchaser will be reduced to
1,873,463 in the event that our stockholders do not approve the ownership by the
Purchaser and its successors and assigns of in excess of 19.9%
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of the outstanding common stock at the next annual meeting, as required by the
rules of the New York Stock Exchange, Inc.
Closings. We are entitled to designate up to four closings over the
next nine months of the issuance and sale of Series B preferred stock to the
Purchaser, each of which will provide for the issuance and sale of at least
142,858 shares.
Lock-Up. Pursuant to the Investment Agreement, the Purchaser agreed
that until October 6, 2001 it will not sell, transfer, convey, assign, pledge or
hypothecate any of the shares of Series B preferred stock or any shares of
common stock obtained upon conversion of any shares of Series B preferred stock
or exercise of the Warrant, provided that such restrictions will not be
applicable to transfers of such shares by Purchaser to any of its affiliates.
Standstill. Pursuant to the Investment Agreement, the Purchaser agreed
that until October 6, 2001 it and its affiliates will not (i) acquire, offer to
acquire, or agree to acquire, directly or indirectly, by purchase or otherwise,
or sell short, any securities, direct or indirect rights or options to acquire
any securities, direct or indirect rights or options to acquire any securities,
or securities or instruments convertible into voting securities, of the Company;
provided, however, that they will not prohibit the acquisition of securities of
the Company in an amount that does not exceed the Ownership Restrictions; (ii)
make, or in any way participate, directly or indirectly, in any "solicitation"
of "proxies" to vote (as such terms are used in the proxy rules of the
Securities and Exchange Commission) securities of the Company, or seek to advise
or influence any person or entity with respect to any voting of any securities
of the Company; (iii) form, join or in any way participate in a "group" within
the meaning of Section 13(d)(3) of the Exchange Act, with respect to any voting
securities of the Company; (iv) make any public announcement with respect to or
make or submit a proposal or offer (with or without conditions) for the
securities or assets of the Company or any extraordinary transaction involving
the Company or any of its subsidiaries; (v) submit or effect any filing or
application, or seek to obtain any permit, consent or agreement, approval or
other action, required by or from any regulatory agency with respect to an
acquisition of the Company or any of its securities or assets; (vi) otherwise
act alone or in concert with others to seek to control the management, board of
directors or policies of the Company; or (vii) propose any of the foregoing
unless and until such proposal is specifically invited by the Company.
Financial Adviser. The Company has retained UBS Warburg LLC and Mercury
Partners LLC as its financial advisers in connection with the issuance and sale
of the Series B preferred stock, and will pay each of them a fee of $100,000 for
their services.
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LEGAL MATTERS
Certain legal matters related to the shares of Series B preferred stock
offered by us will be passed upon for us by Jaeckle Fleischmann & Mugel, LLP,
Buffalo, New York. Jaeckle Fleischmann & Mugel, LLP will rely upon the opinion
of Piper Marbury Rudnick & Wolfe LLP, Baltimore, Maryland, as to certain matters
of Maryland law.
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