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As filed with the Securities and Exchange Commission on March 19, 1999
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Its Charter)
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Pennsylvania 23-6216339
(State or other jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
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Jeffrey A. Linn
Senior Vice President-Acquisitions & Secretary
The Bellevue, 200 S. Broad Street The Bellevue, 200 S. Broad Street
Philadelphia, Pennsylvania 19102 Philadelphia, Pennsylvania 19102
(215) 875-0700 (215) 875-0700
(Address, Including Zip Code, and Telephone Number, (Name, Address, Including Zip Code, and Telephone
Including Area Code, of Registrant's Principal Executive Offices) Number, Including Area Code, of Agent for Service)
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Copy to:
Howard A. Blum, Esquire
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(215) 988-2700
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement upon
vesting and exercise of options granted pursuant to the plan.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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Amount Proposed Maximum Proposed Maximum Amount of
Title of Shares to be Offering Price Aggregate Registration
to be Registered Registered Per Share (1) Offering Price(1) Fee
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Shares of Beneficial Interest, 150,000 $19.03125 $2,854,687.50 $793.60
$1.00 par value
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(1) Estimated pursuant to Rule 457(h) solely for the purpose of calculating the
registration fee. As to shares subject to outstanding but unexercised options,
the price and fee are computed based upon the price at which such options may be
exercised. As to the remaining shares, the price and fee are based on the
average of the highest and lowest selling prices of the Company's shares of
beneficial interest on March 17, 1999 on the New York Stock Exchange.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 19, 1999
150,000 SHARES
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
SHARES OF BENEFICIAL INTEREST
(PAR VALUE $1.00 PER SHARE)
The shares of beneficial interest, par value $1.00 per share(the
"Shares"), in Pennsylvania Real Estate Investment Trust (the "Trust") offered
hereby may be purchased pursuant to the exercise of options granted by
PREIT-RUBIN, Inc., a real estate management company in which the Trust owns 95%
of the economic interests in the form of non-voting common shares, to its key
employees (other than officers and trustees of the Trust) and key employees of
its subsidiaries under its 1998 Stock Option Plan (the "Plan"). PREIT-RUBIN,
Inc. will acquire the shares to be furnished upon exercise of such options from
the Trust by exercising parallel options granted by the Trust to PREIT-RUBIN,
Inc. at the same time as options are granted under the Plan. See "Description of
the Plan," below.
On March 18, 1999, the closing price of the Shares on the New York
Stock Exchange was 19 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS FOR CERTAIN
FACTORS RELEVANT TO AN INVESTMENT IN THE SHARES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is March __, 1999.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Trust under the
Securities Act of 1933, as amended (the "Securities Act") with the Securities
and Exchange Commission (the "Commission") and are incorporated herein by
reference:
1. The Trust's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997, filed on November 28, 1997, (amended by Form 10-K/A-1 filed on
December 15, 1997). The description of the Trust's Shares of Beneficial Interest
contained in the Registration Statement on Form 8-A/12(b)/A-1 dated November 13,
1997 filed on November 13, 1997 (amended December 17, 1997).
2. The Trust's definitive proxy statement for the Annual Meeting of
Shareholders on December 16, 1997, filed on November 18, 1997.
3. The Trust's definitive proxy statement for its Special Meeting of
Shareholders on September 29, 1997, filed on August 28, 1997.
4. The Trust's Current Reports on Form 10-Q for the four month period
ending December 31, 1997, dated February 17, 1998, filed February 17, 1998; for
the three month period ending December 31, 1997, dated February 17, 1998, filed
February 17, 1998 (amended February 19, 1998); for the three month period ending
March 31, 1998, dated March 31, 1998, filed May 15, 1998; for the three month
period ending June 30, 1998, dated June 30, 1998, filed August 14, 1998; and for
the three month period ending September 30, 1998, dated September 30, 1998,
filed November 13, 1998.
5. The Trust's Current Reports on Form 8-K dated September 29, 1997 filed
October 14, 1997; dated December 2, 1997 filed December 2, 1997; dated December
16, 1997 filed December 17, 1997; dated December 17, 1997 filed December 22,
1997; dated August 7, 1998 filed August 13, 1998 (amended September 29, 1998);
dated September 17, 1998 filed October 2, 1998 (amended November 9, 1998); dated
August 27, 1998 filed October 9, 1998 (amended November 9, 1998); dated December
18, 1998 filed December 31, 1998; and dated December 23, 1998 filed January 7,
1999 (amended March 8, 1999).
All documents filed subsequent to the date of this Prospectus pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and prior to termination of the offering of all
Shares to which this Prospectus relates shall be deemed to be incorporated by
reference in this Prospectus and shall be part hereof from the date of filing of
such document.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus (in the case of a statement in a previously filed
document incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Shares or
in any other subsequently filed document that is also incorporated or deemed to
be incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all
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information appearing in this Prospectus and each accompanying Prospectus
Supplement is qualified in its entirety by the information appearing in the
documents incorporated by reference.
The Trust will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon their written or oral request, a copy of any
or all of the documents incorporated herein by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
in such documents). Written requests for such copies should be addressed to
Pennsylvania Real Estate Investment Trust, The Bellevue, 200 S. Broad Street,
Philadelphia, Pennsylvania 19102, Attention: Jeffrey A. Linn, Senior Vice
President-Acquisitions and Secretary, telephone: (215) 875-0700.
The Trust is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Trust may be copied and inspected at the Public
Reference Facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and the following regional offices of the
Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511
and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates,
by calling 1-800-SEC-0300. The Commission also maintains an Internet web site at
http://www.sec.gov that contains reports, proxy statements and other
information. In addition, the Trust's Shares are listed on the New York Stock
Exchange and such reports, proxy statements and other information concerning the
Trust can be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
The Trust has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement"), of which this Prospectus is a part,
under the Securities Act, with respect to the Shares offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in this Prospectus as to
the contents of any contract or other documents are not necessarily complete,
and in each instance, reference is made to the copy of such contract or
documents filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Trust and the Shares, reference
is hereby made to the Registration Statement and such exhibits and schedules
that may be obtained from the Commission at its principal office in Washington,
D.C. upon payment of the fees prescribed by the Commission.
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CAUTIONARY STATEMENT
In this Prospectus and in reports incorporated herein, we use
forward-looking terminology such as "may," "will," "should," "expect,"
"anticipate," "estimate," "plan," or "continue," or the negative thereof or
other variations thereon, or comparable terminology, which are referred to under
the securities laws as "forward-looking statements."
Our forward-looking statements are affected by known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to differ materially from the results, performance and
achievements expressed or implied by our forward-looking statements. Some (but
not all) of these risks, uncertainties and factors are discussed in this
Prospectus. However, we disclaim any obligation to update this discussion or to
announce publicly the result of any revisions to any of the forward-looking
statements contained herein to reflect future events or developments.
THE COMPANY
As used herein, unless the context indicates otherwise, the term
"Company" includes the Trust, PREIT Associates, L.P. (the "Operating
Partnership") and their subsidiaries and affiliates, including PREIT-RUBIN, Inc.
(formerly The Rubin Organization, Inc.), a real estate management company in
which the Company owns 95% of the economic interests in the form of non-voting
common shares (together with its predecessors, "PREIT-RUBIN"), and the term
"properties" means all of the Company's real estate assets.
The Company is a fully integrated, self-administered and self-managed
real estate investment trust that acquires, rehabilitates, develops and operates
shopping centers and multifamily properties. Founded in 1960, the Company
believes that it is one of the 15 largest publicly held operators of retail
properties in the United States (in terms of square feet owned and/or managed).
On September 30, 1997, the Company acquired its current interest in PREIT-RUBIN,
Inc. (formerly known as The Rubin Organization, Inc.), a commercial property
development and management firm, and certain related real estate interests.
The Company conducts substantially all of its operations through the
Operating Partnership and has elected, and conducts its operations in a manner
intended, to comply with the requirements for qualification as a real estate
investment trust (a "REIT") under the Real Estate Investment Trust Act of 1960,
Sections 856-60 of the Internal Revenue Code of 1986, as amended (the "Code").
Under the Code, a real estate investment trust which meets certain requirements
is not subject to Federal income tax on the portion of its taxable income which
is distributed to its shareholders, if, among other things, at least 95% of its
real estate investment trust taxable income, excluding any net capital gain, is
so distributed.
The Trust is a Pennsylvania business trust created in Pennsylvania as
an unincorporated association in business trust form pursuant to a Trust
Agreement dated December 17, 1960, as amended (the "Trust Agreement"). Since its
inception it has been self-administered by its trustees. The Trust's principal
executive offices are located at The Bellevue, 200 S. Broad St., Philadelphia,
Pennsylvania, 19102, telephone: (215) 875-0700. The Company has regional offices
in Maitland, Florida; Chicago, Illinois; and Atlanta, Georgia.
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RISK FACTORS
Before you decide to invest, you should consider carefully the risks
described below, together with the information provided in the other parts of
this Prospectus. Our ability to make expected distributions to shareholders and
debt service payments to lenders, as well as our prospects as a whole, could be
affected by any or all of these factors or others not mentioned below.
Real Estate Industry
General. We may be affected adversely by general economic conditions
and local real estate conditions. For example, an oversupply of retail space or
apartments in a local area or a decline in the attractiveness of our properties
to shoppers, residents or tenants would have a negative effect on us.
Other factors that may affect general economic conditions or local real
estate conditions include:
o population trends
o income tax laws
o availability and costs of financing
o construction costs
Competition. The real estate business is highly competitive. We compete
for interests in properties with other real estate investors and purchasers,
many of whom have greater financial resources, revenues and geographical
diversity than we do. Furthermore, we compete for tenants with other property
owners. Our apartment properties portfolio competes with providers of other
forms of housing, such as single family housing. Competition from single family
housing increases when lower interest rates make mortgages more affordable. All
of our shopping center and apartment properties are subject to significant local
competition.
Regulation. Local zoning and use laws, environmental statutes and other
governmental requirements restrict our expansion, rehabilitation and
reconstruction activities. These regulations may prevent us from taking
advantage of economic opportunities.
Legislation such as the Americans with Disabilities Act may require us
to modify our properties. Future legislation may impose additional requirements.
We cannot predict what requirements may be enacted.
Inflation. The effect of inflation on our operations and investment
portfolio is mixed. On one hand, inflation increases rents by increasing the
tenant revenues upon which percentage rentals are based. Fixed rentals also
increase, reflecting higher costs for construction renovations and
rehabilitation. On the other hand, inflation increases our expenses.
Renewal of Leases and Reletting of Space. When a lease expires, a
tenant may refuse to renew it. We may not be able to relet the property on
similar terms, if we are able to relet the
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property at all. We have established an annual budget for renovation and
reletting expenses that we believe is reasonable in light of each property's
operating history and local market characteristics. This budget, however, may
not be sufficient to cover these expenses.
Bankruptcy and Failure To Make Rent Payments. At any time, a tenant may
experience a downturn in its business that may weaken its financial condition.
As a result, the tenant may fail to make rental payments when due, or may
declare bankruptcy. Either event could result in the termination of that
tenant's lease and material losses to us.
The Company's Properties
Development. There are risks associated with our development activities
in addition to those generally associated with the ownership and operation of
established shopping centers and multifamily properties. These risks include:
o expenditure of money and time on projects that may never be completed
o higher than estimated construction costs
o late completion because of unexpected delays in zoning approvals,
other land use approvals, construction or other
o factors outside of our control failure to obtain zoning, occupancy
o or other governmentalapprovals
The risks described above are compounded by the fact that we must
distribute 95% of our taxable income in order to maintain our qualification as a
REIT. As a result of these distribution requirements, new developments are
financed primarily through lines of credit or other forms of construction
financing. Because we incur debt to finance the developments, our loss could
exceed our equity investment in the developments.
Furthermore, we must acquire and develop suitable high traffic retail
sites at costs consistent with the overall economics of the project. Because
retail development is extremely competitive, there is no assurance that we can
contract for appropriate sites within our geographic markets.
Maintenance and Renovation. Many of the properties in which we have an
interest were constructed more than 15 years ago. We generally spend more on
maintenance of these older properties than we do on newer properties. Because
older properties may be obsolete in some respects, they may generate lower
rentals or may require significant capital expense for renovations. Some
apartments lack amenities that are customarily included in modern construction,
such as dishwashers, central air conditioning and microwave ovens. Some
facilities are difficult to lease because they are too large, too small or
inappropriately proportioned for today's market. We generally consider
renovation of properties when renovation will enhance or maintain the long-term
value of those properties.
Recently Acquired Properties. Subject to the availability of financing
and other considerations, we intend to continue to acquire interests in
properties that we believe will be profitable or will enhance the value of our
portfolios. Some of these properties may have unknown characteristics or
deficiencies. Therefore, it is possible that some properties will be
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worth less or will generate less revenue than we believe at the time of
acquisition. It is also possible that the operating performance of some of our
properties will decline.
To manage our growth effectively, we must integrate successfully new
acquisitions. We cannot assure you that we will be able to integrate
successfully or manage effectively additional properties.
When we acquire properties, we also take on other risks, including:
o financing risks (some of which are described below)
o the risk that anticipated occupancy or rent levels won't be met
o the risk that required zoning, occupancy and other governmental
approvals won't be obtained
o the risk that there will be changes in applicable zoning and land use
laws that affect adversely the operation or development of our
properties
Shopping Centers. We receive a substantial portion of our shopping
center income as rents under long-term leases. If retail tenants are unable to
comply with the terms of their leases because of rising costs or falling sales,
we may modify lease terms to allow tenants to pay a lower rental or a smaller
share of operating costs and taxes.
Casualty Insurance. We generally maintain casualty insurance on our
assets. We believe that our insurance is adequate. However, we would be required
to bear all losses to the properties that are not adequately covered by
insurance. We cannot assure you that we can obtain insurance in the future at
acceptable levels and reasonable cost.
Financing
General. We finance parts of our operations and acquisitions through
debt. This debt creates risks, including:
o rising interest rates on our floating rate debt
o failure to prepay or refinance existing debt, which may result
in forced disposition of properties on disadvantageous terms i
o refinancing terms less favorable than the terms of existing debt
o failure to meet required payments of principal and interest
Credit Facility. We currently use an unsecured credit facility for
working capital, acquisitions, renovations and capital improvements to our
properties. The credit facility currently requires PREIT Associates, the
operating partnership through which our properties are held, to maintain certain
asset and income to debt ratios and minimum income and net worth levels. If
PREIT Associates fails to meet any one or more of these requirements, we would
be in default. The lenders, in their sole discretion, may waive a default. We
might secure alternative or substitute financing. We cannot assure you, however,
that we can obtain waivers or alternative
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financing. Any default may have a materially adverse effect on our operations
and financial condition.
We expect to use our credit facility from time to time for
acquisitions, renovations and capital improvements to our properties. When the
credit markets are tight, we may encounter resistance from lenders when we seek
financing or refinancing for some of our properties. If the credit facility is
reduced significantly or withdrawn, our operations would be affected adversely.
If we are unable to increase our borrowing capacity under the credit facility,
our ability to make acquisitions and grow would be affected adversely. We cannot
give assurance as to the availability or terms of financing for any particular
property.
We have entered into agreements limiting the interest rate on portions
of our credit facility. If other parties to these agreements fail to perform as
required by the agreements, we may suffer credit loss.
Partnerships and Joint Ventures. The profitability of each partnership
or joint venture in which we are a partner or co-venturer that has short-term
financing or debt requiring a balloon payment is dependent on the availability
of long-term financing on satisfactory terms. If satisfactory financing is not
available, we may have to rely upon other sources of short-term financing,
equity contributions or the proceeds of refinancing of existing properties in
order to satisfy debt obligations. Although the Company does not own the entire
interest in connection with many of the properties held by a partnership or
joint venture, the Company may be required to pay the full amount of any
obligation of such partnership or joint venture that has been guaranteed in
whole or in part by the Company in order to protect its equity interest in such
property owned by such partnership or joint venture. Additionally, the Company
may determine to pay a partnership's or joint venture's obligation in order to
protect the Company's equity interest in its assets.
Governance
Partnerships and Joint Ventures. Generally, we hold interests in our
portfolio properties through PREIT Associates. In many cases we hold properties
through joint ventures or partnerships with third-party partners and joint
venturers and, thus, we hold less than 100% of the ownership interests in such
properties. Of the properties with respect to which our ownership is partial,
most are owned by partnerships in which we are a general partner. The remaining
properties are owned by joint ventures in which we have substantially the same
powers as a general partner. Under the terms of the partnership and joint
venture agreements, major decisions, such as a sale, lease, refinancing,
expansion or rehabilitation of a property, or a change of property manager,
require the consent of all partners or co-venturers. Because decisions must be
unanimous, necessary actions may be delayed significantly. It may be difficult
or even impossible to change a property manager if a partner or co-venturer is
serving as property manager.
Business disagreements with partners may arise. The Company may incur
substantial expenses in achieving a resolution of such disputes. To preserve its
investment, the Company may be required to make commitments to or on behalf of a
partnership or venture during a
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dispute. Moreover, we cannot assure you that the Company's resolution of a
dispute with a partner will be on terms that are favorable to the Company.
We guarantee the debt of some partnerships and joint ventures so that
those partnerships and joint ventures can obtain financing. Therefore, even
though we do not own the entire interest in properties owned by partnerships or
joint ventures, we may be required to repay all the debt owed by a partnership
or venture. We may also do so to protect our interest in the properties owned by
the partnership or venture.
Other risks of investments in partnerships and joint ventures include:
o partners or co-venturers might become bankrupt or fail to fund their
share of required capital contributions
o partners or co-venturers might have business interests or goals that
are inconsistent with our business interests or goals
o partners or co-venturers may be in a position to take action
contrary to our policies or objectives
o potential liability for the actions of our partners or co-venturers
Restrictions on Change-in-Control. The Trust Agreement that governs the
Company restricts the possibility of sale or change in control of the Company,
even if a sale or change in control were in the shareholders' interest. These
restrictions include the ownership limit designed to ensure qualification as a
REIT, the staggered terms of our Trustees and our ability to issue preferred
shares.
Restrictions on Sales of Properties. Because certain limited partners
of PREIT Associates may suffer adverse tax consequences if certain properties
owned by PREIT Associates are sold, the Trust, as the general partner of PREIT
Associates, has agreed from time to time, subject to certain exceptions, that
the consent of the holders of a majority (or all) of certain limited partner
interests issued by PREIT Associates in exchange for a property is required
before that property may be sold. These agreements may result in our being
unable to sell one or more properties, even in circumstances in which it would
be advantageous to do so. See "Summary of the Operating Partnership Agreement --
Other Rights."
Issuance of Preferred Shares. The Trust's Board of Trustees may issue
up to 25,000,000 preferred shares without shareholder approval. The Board of
Trustees may determine the relative rights, preferences and privileges of each
class or series of preferred shares. Because the Board of Trustees has the power
to establish the preferences and rights of the preferred shares, preferred
shares may have preferences, distributions, powers and rights senior to the
rights of holders of Shares.
Changes in Policies Without Shareholder Approval. The Board of Trustees
determines the growth, investment, financing, capitalization, borrowing, REIT
status, operating and distribution policies of the Trust. Although the Board of
Trustees has no present intention to amend or revise any of these policies,
these policies may be amended or revised without notice to shareholders.
Accordingly, shareholders may not have control over changes in the Company's
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policies. We cannot assure you that changes in our policies will serve fully the
interests of all shareholders.
PREIT Associates; Required Vote of Limited Partners on Fundamental
Changes. Our assets are generally held through PREIT Associates, a Delaware
limited partnership whose sole general partner is the Trust. The Trust currently
holds a majority of the limited partner interests in PREIT Associates. However,
PREIT Associates may from time to time issue additional limited partner
interests in PREIT Associates to third parties in exchange for contributions of
property to PREIT Associates. These issuances will dilute the Trust's percentage
ownership of PREIT Associates. Limited partner interests in PREIT Associates
generally do not carry a right to vote on any matter voted on by our
shareholders (although limited partner interests may, under certain
circumstances, be redeemed for Shares). However, prior to the date on which at
least half of the partnership interests issued on September 30, 1997 have been
redeemed, the holders of partnership interests issued on September 30, 1997 are
entitled to vote, along with the Trust's shareholders, on any proposal to merge,
consolidate or sell substantially all of the Company's assets. The Trust's
partnership interests are not included for purposes of determining when half of
the partnership interests have been redeemed, nor are they counted as votes.
There can be no assurances that the Trust will not agree to extend comparable
rights to other limited partners in PREIT Associates.
Dependence on Ronald Rubin. We are dependent on the efforts of Ronald
Rubin, our Chief Executive Officer. The loss of his services could have an
adverse effect on our operations. If Mr. Rubin were to terminate his employment,
his current employment agreement with us would prevent him from becoming an
employee of one of our competitors for one year.
PREIT-RUBIN
Lack of Control of PREIT-RUBIN. Although PREIT Associates owns 95% of
the equity interests in our management affiliate, PREIT-RUBIN, all of the voting
stock of PREIT-RUBIN is owned by a stock bonus plan created for the benefit of
PREIT-RUBIN's employees. PREIT-RUBIN employees are entitled to vote the common
shares vested in their accounts in the stock bonus plan on fundamental
transactions such as a merger or sale of assets. A Stock Bonus Plan Committee
votes the shares in the stock bonus plan on all other matters. PREIT-RUBIN's
Board of Directors appoints the Stock Bonus Plan Committee's members. Thus, the
Trust does not control the day-to-day operations of PREIT-RUBIN and has no legal
power to influence the manner in which it performs its management obligations,
seeks and accepts new business or otherwise determines its business strategy.
Third-Party Management Business. PREIT-RUBIN manages a substantial
number of properties owned by third parties. Risks associated with the
management of properties owned by third parties include:
o the property owner's termination of the management contract
o loss of the management contract in connection with a property sale
o non-renewal of the management contract upon expiration
o renewal of the management contract on terms less favorable than
current terms
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o decline in management fees as a result of general real estate market
conditions or local market factors
Conflicts of Interest. There are numerous potential conflicts of
interest relating to our investment in PREIT-RUBIN. The interest of those
members of our management who are also PREIT-RUBIN affiliates may diverge from
the interests of the shareholders.
PREIT-RUBIN's employees work on behalf of the Company. However,
PREIT-RUBIN will continue to render management, development, leasing and related
services to a substantial number of properties in which affiliates of
PREIT-RUBIN retain equity interests. We believe that PREIT-RUBIN's management
arrangements with these entities are on terms at least as favorable to
PREIT-RUBIN as the average of management arrangements with parties unrelated to
PREIT-RUBIN. In addition, PREIT-RUBIN leases substantial office space from
entities in which our affiliates have an interest.
Dependence on Primary Markets
All but one of our properties are located in the eastern United States.
A majority of the properties are located either in Pennsylvania or Florida.
General economic conditions and local real estate conditions in these geographic
regions have a particularly strong effect on us. Other REITs may have a more
geographically diverse portfolio and thus may be less susceptible to downturns
in one or more regions.
Environmental Liabilities
Current and former real estate owners and operators may be required by
law to investigate and clean up hazardous substances released at the properties
they own or operate. They may also be liable to the government or to third
parties for substantial property damage, investigation costs and cleanup costs.
In addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs the government incurs in
connection with the contamination. Contamination may affect adversely the
owner's ability to sell or lease real estate or to borrow with the real estate
as collateral.
From time to time, the Company responds to inquiries from environmental
authorities with respect to properties both currently and formerly owned by the
Company. Discussion of pending and recently completed environmental
investigations of the Company can be found in the Company's quarterly, annual
and various other public filings. We cannot assure you of the results of pending
investigations, but we do not believe that resolution of these matters will have
a material adverse effect on the Company's financial condition or results of
operations.
Since 1987, the Company has attempted to protect itself against
environmental liabilities by conducting an environmental study on each property
it seeks to acquire. In 1997 and 1998, the Company performed environmental
studies on each of the properties in which it had an interest when such studies
were performed. Despite these measures, the Company may be liable for presently
unknown environmental conditions at these properties or at properties formerly
owned by the Company. The Company cannot know the magnitude of this potential
liability.
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A number of the Company's properties contain asbestos in limited
concentrations or in limited areas. Where radon has been identified as a
potential concern, the Company generally has remediated the situation or is
performing additional testing. Lead-based paint has been identified at certain
of the Company's multi-family properties, and the Company has notified tenants
pursuant to applicable disclosure requirements. Based on its current knowledge,
the Company does not believe that the future liabilities associated with
asbestos, radon and lead-based paint at these properties will be material, but
we cannot assure you that they will not.
The Company has no insurance coverage for the types of environmental
liabilities described above. The Company maintains a reserve on its books for
these matters. We cannot assure you that this reserve will be sufficient to
cover the cost of environmental liabilities.
Legal Proceedings
From time to time, the Company is a plaintiff or defendant in various
cases arising out of its usual and customary business of owning and investing in
real estate, both directly and through joint ventures and partnerships.
Discussion of the Company's pending and recently completed litigation can be
found in the Company's quarterly, annual and various other public filings. We
cannot assure you of the results of pending litigation, but we do not believe
that resolution of these matters will have a material adverse effect on the
Company's financial condition or results of operations.
Certain Tax Risks
Tax Liabilities as a Consequence of a Failure to Qualify as a REIT. If
we fail to qualify as a REIT, we will be subject to Federal income tax at
regular corporate rates. In addition, we might be barred from qualification as a
REIT for the four years following disqualification. The additional tax incurred
at regular corporate rates would reduce significantly the cash flow available
for distribution to shareholders and for debt service. See "Federal Income Tax
Considerations - Taxation of the Company."
To qualify as a REIT, we must comply with certain highly technical and
complex requirements. We cannot be certain we have complied because there are
few judicial and administrative interpretations of these provisions. In
addition, facts and circumstances that may be beyond our control may affect our
ability to qualify as a REIT. We can give you no assurance that new legislation,
regulations, administrative interpretations or court decisions will not change
the tax laws significantly with respect to our qualification as a REIT or with
respect to the federal income tax consequences of qualification. We believe that
we have qualified as a REIT since our inception and intend to continue to
qualify as a REIT. However, we can give you no assurance that we have been
qualified or will remain qualified.
REIT Distribution Requirements. To obtain the favorable tax treatment
associated with qualifying as a REIT, we are required each year to distribute to
our shareholders at least 95% of our net taxable income. See "Federal Income Tax
Considerations-Taxation of the Company-- Annual Distribution Requirements." We
could be required to borrow funds on a short-term basis
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to meet the distribution requirements that are necessary to achieve the tax
benefits associated with qualifying as a REIT, even if conditions were not
favorable for borrowing.
Factors Affecting Share Price
A number of factors may influence adversely the price of our Shares in
the public markets. These factors include:
o increases in market interest rates, which may lead purchasers of
shares to demand from us a higher annual yield from distributions
o the relatively low daily trading volume of the Shares, which means
that efforts to sell and sales of even relatively small amounts of
Shares can have a depressive effect on trading prices
o failure to invest the proceeds of a future offering of securities in
a manner that will increase earnings
o sales of a substantial number of Shares, or the perception that such
sales could occur
o issuance of additional Shares, including those reserved for issuance
according to stock option plans and other obligations.
Year 2000 Issues
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed at a time when
data storage was expensive, and the impact of the upcoming century change was
not considered. As a result of this dating limitation, many programs, if not
corrected, may fail or provide inaccurate results at and after the turn of the
century. We (and tenants that provide us with a significant percentage of our
income) use information systems and systems imbedded in certain equipment that
carry two digit dating and are thus susceptible to partial or total failure
after December 31, 1999.
To assess and address the Company's internal systems, we have
established a Year 2000 remediation plan consisting of the following phases:
o inventorying our systems and devices (including information
technology ("IT") and non-IT systems) that are vulnerable to the Year
2000 problem
o assessing the criticality of the inventoried items
o remediating the non-compliant items
o testing the corrections that have been applied
We have completed the first phase of our remediation plan for our IT
systems. We believe that our accounting and payroll systems, which we believe to
be our mission critical systems, are Year 2000 compliant. The amount of
remediation effort has not and is not anticipated to be extensive due to our use
of readily available, off-the-shelf software and hardware products that are
supported by the manufacturers. In addition, we are in the first phase of the
remediation plan for our non-IT systems (such as elevators, HVAC and lighting
systems) and are currently completing an inventory of non-IT systems and
assessing the potential risks of
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noncompliance. After evaluating our required compliance efforts, appropriate
contingency plans will be developed based on the outcome of the assessment phase
and a survey of some of our major suppliers and tenants. We expect to complete
the Year 2000 remediation plan, including final testing, by the beginning of the
fourth quarter of 1999. All of our costs related to Year 2000 remediation are
expensed as incurred. Some of our business partners, suppliers and tenants are
also being surveyed as to their Year 2000 compliance readiness.
Although we believe our Year 2000 remediation plan will be adequate to
address the Year 2000 issue, we cannot assure you that this is so. If the
required remediation efforts are not made, or are not completed timely or if our
tenants experience material Year 2000 problems in their own operations, the Year
2000 issue could have a material impact on our operations.
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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
Under the Trust Agreement, the Trust has the authority to issue up to
100,000,000 Shares and up to 25,000,000 Preferred Shares. As used herein, the
term "Shares" means shares of beneficial interest in the Trust other than
Preferred Shares.
General Provisions
Voting, Dividend and Other Rights. Subject to the provisions of the
Trust Agreement regarding "Excess Shares" (See " -- Restrictions on Transfer"),
(i) the holders of the Shares ("Shareholders") are entitled to one vote per
Share on all matters voted on by the Shareholders, including elections of the
Trustees, and (ii), subject to the rights of holders of any Preferred Shares, if
any ("Preferred Shareholders"), the Shareholders are entitled to a pro rata
portion of such distributions as may be declared from time to time by the
Trustees from funds available therefor, and upon liquidation are entitled to
receive pro rata all assets of the Company available for distribution to such
holders. The majority of Shares voting on a matter at a meeting at which at
least a majority of the Shares are present in person or by proxy constitutes the
act of the Shareholders, except with respect to the election of Trustees (see
below). While the Shareholders generally possess all of the voting power, the
Trust Agreement permits the Trustees to (a) issue, classify or reclassify up to
25,000,000 Preferred Shares, which may have voting rights equal to or superior
to the Shares, and (b) authorize the holders of securities of affiliates of the
Trust to vote with the Shareholders on certain matters, and the Trustees have
exercised that right as to holders of certain currently outstanding units of
limited partner interests in PREIT Associates ("Units") with respect to
fundamental changes in the Company (i.e., mergers, consolidations and sales of
substantially all of the Company's assets). See "Summary of the Operating
Partnership Agreement -- Authorization of Units and Voting Rights." All Shares
are fully paid and nonassessable. Shareholders do not have any preemptive rights
to purchase Trust securities.
The Trust Agreement provides that the Trustees may (a) issue, classify
or reclassify shares of beneficial interest as Preferred Shares having
preferences to the Shares in any matter, including rights in liquidation or to
dividends; (b) issue options, rights (including shareholder rights plans), and
other securities having conversion or option rights; and (c) authorize the
creation and issuance by subsidiaries and affiliates of the Trust of securities
having conversion and option rights in respect of Shares. Thus, the rights of
holders of existing Shares are subject to preferred rights as to dividends and
in liquidation (and other such matters) to the extent set forth in any
subsequently authorized Preferred Shares or class of Preferred Shares.
Board of Trustees. The Board of Trustees is divided into three classes
serving staggered three-year terms. The Trust Agreement does not provide for
cumulative voting in the election of Trustees, and the candidates receiving the
highest number of votes are elected to the office of Trustee.
Trustee Nomination Process. The Trust Agreement provides that
nominations for election to the office of Trustee at any Annual or Special
Meeting of Shareholders shall be made
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by the Trustees, or, subject to the rights of Preferred Shareholders, by
petition in writing delivered to the Secretary of the Trust not fewer than
thirty-five (35) days prior to such meeting signed by the holders of at least
two percent (2%) of the Shares outstanding on the date of such petition. Unless
nominations shall have been made as aforesaid, they shall not be considered at
such meeting unless the number of persons nominated as aforesaid shall be fewer
than the number of persons to be elected to the office of Trustee at such
meeting, in which such event nominations for the Trustee positions which would
not otherwise be filled may be made at the meeting by any person entitled to
vote in the election of Trustees.
Transfer Agent. The transfer agent for the Shares is American Stock
Transfer and Trust Company.
Limited Liability of Shareholders
The Trust Agreement provides that Shareholders, to the fullest extent
permitted by applicable law, are not liable for any act, omission or liability
of a Trustee or the Company and that the Trustees have no general power to bind
them personally. Notwithstanding the foregoing, there may be liability in some
jurisdictions that may decline to recognize a business trust as a valid
organization. With respect to all types of claims in such jurisdictions, and
with respect to tort claims, contract claims where the required provision is
omitted, and possible tax claims in jurisdictions where the business trust is
treated as a partnership for certain purposes, Shareholders may be liable
personally for such obligations to the extent that the Company does not satisfy
such claims. The Company conducts substantially all of its business in
jurisdictions other than the Commonwealth of Pennsylvania in entities recognized
in the relevant jurisdiction to limit the liability of equity owners. The
Company carries insurance in amounts that the Trustees deem adequate to cover
foreseeable tort claims.
Restrictions on Transfer
Among the requirements for qualification of the Company as a REIT under
the Code are, (i) not more than 50% in value of its outstanding shares of
beneficial interest (after taking into account options to acquire shares) 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, (ii)
the shares must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of 12 months or during a proportionate part of a shorter
taxable year, and (iii) certain percentages of the Company's gross income must
be from particular activities. In order to continue to qualify as a REIT under
the Code, provisions of the Trust Agreement restrict the ownership and transfer
of shares (the "Ownership Limit Provisions").
The Ownership Limit Provisions provide that no person may beneficially
own, or be deemed to own by virtue of the attribution provisions of the Code,
more than 9.9% in value of the Shares. A comparable restriction applies to the
ownership of any Preferred Shares. The Trustees may waive the Ownership Limit
Provisions if evidence satisfactory to the Trustees and tax counsel to the
Company is presented that such ownership will not jeopardize the Company's
status as a REIT.
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Issuance or transfers of Shares in violation of the Ownership Limit
Provisions or which would cause the Shares to be beneficially owned by fewer
than 100 persons are void and the intended transferee acquires no rights to the
Shares.
In the event of a purported transfer or other event that would, if
effective, result in the ownership of Shares in violation of the Ownership Limit
Provisions, such transfer or other event with respect to that number of Shares
that would be owned by the transferee in excess of the Ownership Limit
Provisions automatically are exchanged for Excess Shares (the "Excess Shares"),
authorized by the Trust Agreement, according to the rules set forth therein, to
the extent necessary to insure that the purported transfer or other event does
not result in the ownership of Shares in violation of the Ownership Limit
Provisions. Any purported transferee or other purported holder of Excess Shares
is required to give written notice to the Trust of a purported transfer or other
event that would result in the issuance of Excess Shares.
Excess Shares are not treasury shares, but rather continue as issued
and outstanding shares of beneficial interest. While outstanding, Excess Shares
will be held in trust. The trustee of such trust shall be the Company. The
beneficiary of such trust shall be designated by the purported holder of Shares.
Excess Shares are not entitled to any dividends or distributions. If, after the
purported transfer or other event resulting in an exchange of Shares for Excess
Shares and prior to the discovery by the Trust of such exchange, dividends or
distributions are paid with respect to the Shares that were exchanged for Excess
Shares, then such dividends or distributions are to be repaid to the Trust upon
demand. Subject to the rights of the Preferred Shareholders, if any, Excess
Shares participate ratably (based on the total number of Shares and Excess
Shares) in any liquidation, dissolution or winding up of the Company. Except as
required by law, holders of Excess Shares are not entitled to vote with respect
to such shares on any matter. While Excess Shares are held in trust, any
interest in that trust may be transferred by the trustee only to a person whose
ownership of Shares will not violate the Ownership Limit Provisions, at which
time the Excess Shares will be exchanged automatically for the same number of
Shares for which the Excess Shares were exchanged originally. The Trust
Agreement contains provisions that are designed to insure that the purported
transferee or other purported holder of Excess Shares may not receive in return
for such a transfer an amount that reflects any appreciation in the Shares for
which Excess Shares were exchanged during the period that such Excess Shares
were outstanding. Any amount received by a purported transferee or other
purported holder in excess of the amount permitted to be received must be paid
to the Trust. If the foregoing restrictions are determined to be invalid by any
court of competent jurisdiction, then the intended transferee or holder of any
Excess Shares may be deemed, at the option of the Trust, to have acted as an
agent on behalf of the Trust in acquiring such Excess Shares and to hold such
Excess Shares on behalf of the Trust.
The Trust Agreement further provides that Excess Shares shall be deemed
to have been offered for sale to the Trust at the lesser of the price paid for
the Shares by the purported transferee or in the case of a gift, devise or other
transaction, the market price for such Shares at the time of such gift, devise
or other transaction or the market price for the Shares on the date the Trust or
its designee exercises its option to purchase. The Trust may purchase such
Excess Shares during a 90-day period, beginning on the date of the violation
transfer if the original
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transferee-Shareholder gives notice to the Trust of the transfer or, if no
notice is given, the date the Board of Trustees determines that a violation
transfer has been made.
Each Shareholder upon demand is required to disclose to the Trust, in
writing, such information with respect to the direct, indirect and constructive
ownership of Shares as the Board of Trustees deems necessary to comply with the
provisions of the Trust Agreement or the Code applicable to a REIT or to comply
with the requirements of any taxing authority or governmental agency.
Certificates representing shares of any class or series issued after September
29, 1997 will bear a legend referring to the restrictions described above.
Change-in-Control Provisions
Ownership Limit. In order to protect its status as a REIT, the Trust
must satisfy certain conditions, including the conditions that: (i) no more than
50% in value of the outstanding Shares may be owned, directly or indirectly, by
five or fewer individuals; and (ii) the Shares must be owned beneficially by 100
or more persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a shorter taxable year. To this end, the Trust
Agreement, among other things, prohibits: (a) any holder from owning more than
9.9% of its outstanding Shares without the consent of the Board of Trustees
after evidence satisfactory to the Trustees and tax counsel to the Company is
presented evidencing that such ownership will not jeopardize the Company's tax
status as a REIT, and (b) transfers of Shares that would cause the Trust to be
owned beneficially by fewer than 100 persons. These limitations may have the
effect of precluding acquisition of control of the Company by a third party.
Staggered Board. The Trust's Board of Trustees has three classes of
trustees. The term of office of one class expires each year. Trustees for each
class are elected for three-year terms upon the expiration of the respective
class' term. Trustees may only be removed by the Shareholders during their term
in office for "cause," as that term is defined in the Trust Agreement. The
staggered terms for trustees may affect the Shareholders' ability to take
control of the Company, even if a change in control were in the Shareholders'
interest.
Multiple Classes and Series of Shares of Beneficial Interest. The Trust
Agreement provides that the Trustees may issue, classify or reclassify up to
25,000,000 Preferred Shares (including classes and series of Preferred Shares
having preferences to the Shares in any matter, including rights in liquidation
or to dividends) and options, rights (including shareholder rights plans), and
other securities having conversion or option rights and may authorize the
creation and issuance by subsidiaries and affiliates of the Trust of securities
having conversion and option rights in respect of Shares. The Trust Agreement
further provides that the terms of such rights or other securities may provide
for disparate treatment of certain holders or groups of holders of such rights
or other securities. The issuance of such rights or Preferred Shares could have
the effect of delaying or preventing a change of control of the Company, even if
a change in control were in the Shareholders' interest. No such rights or
Preferred Shares are issued or outstanding currently.
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SUMMARY OF THE TRUST AGREEMENT
The following summary of the Trust Agreement is qualified in its
entirety by reference to the Trust Agreement, which is incorporated by reference
as an exhibit to the Registration Statement of which this Prospectus is a part.
The Trustees
The Trustees are divided into three classes, with each member of a
class elected for a term of three years or until his successor is duly elected
and qualified. Of the nine Trustees currently in office, six have been elected
by the shareholders and three were appointed to fill the unexpired terms of the
trustees who resigned as contemplated by the provisions of the agreement in
which the Trust acquired its interest in PREIT-RUBIN. The Trust Agreement
provides that there will be not fewer than five nor more than 15 Trustees. The
Trustees are not required to furnish a bond. Trustees may resign at any time,
but no resignation is effective until a successor is elected if its effect would
be to reduce the number of Trustees below five. The Trustees may fill vacancies
that shall have occurred as a result of an increase in the number of Trustees or
by reason of the death, resignation or incapacity of any of the Trustees. A
Trustee chosen by the other Trustees to fill a vacancy that has occurred as a
result of an increase in the number of Trustees will serve until the next annual
or special meeting of shareholders and until his successor is elected and
qualified. A Trustee chosen by other trustees to fill a vacancy created by
reason of the death, resignation or incapacity of a Trustee will hold office for
the full remaining term of the former Trustee and until his successor is elected
and qualified. At such meetings to elect Trustees, the holders of a majority of
shares represented will elect Trustees for the term of the class of Trustees
being elected. The shareholders may also elect Trustees to fill a vacancy which
the other Trustees have not filled. Two-thirds of the serving Trustees have the
right at any time to remove any of their number, including a Trustee elected by
the shareholders, for any cause deemed by them to be sufficient. Any Trustee may
be removed for cause by the holders of a majority of the outstanding Shares then
outstanding and entitled to vote. A vacancy created by the removal of a Trustee
by the other Trustees may be filled only by the shareholders at their next
annual meeting or a special meeting called for that purpose unless there are
fewer than five Trustees, in which event the remaining Trustees are required to
elect a sufficient number of persons so that at least five will be serving.
Regular meetings of the shareholders are held annually, and special meetings of
the shareholders may be called upon proper notice.
The concurrence of a majority of the Trustees present at any meeting
where there is a quorum, or the written consent of a majority of the Trustees
then serving, is necessary for the validity of any action taken. In no event may
action be taken without the concurrence, at a meeting or by consent in writing,
of at least four Trustees. A majority of the Trustees, provided that the
majority consists of at least four Trustees, constitutes a quorum. However, if
there are fewer than five Trustees, the remainder must act to fill vacancies to
bring the total number of Trustees to at least five.
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The Trustees may hold legal title to the Trust's properties on its
behalf or designate persons to so hold on behalf of the Trust. The Trustees have
complete control of the conduct of the Trust's business, including investments,
sales, leasing, issuance of additional shares, borrowing and distributions to
shareholders without the necessity of securing shareholder approval.
Indemnification
The Trust Agreement provides that (a) no Trustee shall be personally
liable for monetary damages for any action, or any failure to take action,
except that a Trustee shall remain personally liable for monetary damages to the
same extent that a director of a Pennsylvania business corporation remains
liable under the provisions of 15 Pa. C.S. Section 1713, and (b) no officer who
performs his duties in good faith, in a manner reasonably believed to be in the
best interests of the Company and with such care, skill and diligence as a
person of ordinary diligence would use will be liable by reason of having been
an officer of the Company.
The Trust Agreement provides that every Trustee and officer shall be
entitled as of right to be indemnified by the Trust against reasonable expense
(including attorney's fees) and any liability, loss, judgment, excise tax, fine,
penalties, and settlements paid or incurred by such person in connection with an
actual (whether pending or completed) or threatened claim, action, suit or
proceeding, civil, criminal, administrative, investigative or other, whether
brought by or in the right of the Trust or otherwise, in which he or she may be
involved, as a party or otherwise, by reason of such person's being or having
been a Trustee or officer of the Trust or by reason of the fact that such person
is or was serving in any capacity at the request of the Company as a trustee,
director, officer, employee, agent, partner, fiduciary or other representative
or another real estate investment trust, corporation, partnership, joint
venture, trust, employee benefit plan or other entity; provided, however, that
no such right of indemnification shall exist with respect to an action brought
by a Trustee or officer against the Company and further provided that no
indemnification shall be made in any case where the act or failure to act giving
rise to the claim for indemnification is determined by the final judgment of a
court of competent jurisdiction to have constituted willful misconduct or
recklessness. The Trust Agreement further provides that such right to
indemnification shall be contractual in nature and shall include the right to be
paid in advance the expenses incurred in connection with such proceedings;
provided, however, that such advance payments must be made in accordance with
applicable law and must be accompanied by an undertaking by or on behalf of such
Trustee or officer to repay all amounts so advanced if it is ultimately
determined that such Trustee or officer is not entitled to be indemnified under
the Trust Agreement. The Trust's By-laws provide for similar but not identical
indemnification rights.
Transactions with Trustees
The Trustees may deal with the Trust by rendering services for
reasonable compensation, buying property from or selling property to the Trust
or otherwise. No Trustee shall have any liability for such transactions approved
by a majority of the other Trustees, except for his bad faith or gross
negligence, and any such Trustee may be counted in determining the existence of
a quorum at any meeting of the Board of Trustees that authorizes any such
transaction and may vote thereat to authorize any such transaction.
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Term
The Trust's term is perpetual. The Trust's existence does not terminate
automatically in the event the Trust fails to maintain its qualification as a
real estate investment trust for tax purposes.
Fundamental Transactions; Amendments
Any merger to which the Trust is a party (other than a merger with an
entity in which the Trust owned, directly or indirectly, at least 80% of the
voting power of all ownership interests prior to the merger or a merger where
the persons that were the Shareholders of the Trust immediately prior to the
merger will own, directly or indirectly, immediately following the merger all of
the ownership interests in the surviving entity) and any sale or transfer of all
or substantially all of the assets of the Trust (other than to an entity
directly or indirectly controlled by the Trust) must be approved by the
affirmative vote of the holders of a majority of the votes cast by all
Shareholders entitled to vote thereon (excluding holders of any Preferred Shares
that are entitled to vote thereon exclusively as a class) and by the affirmative
vote of a majority of the votes cast by holders of any class or series of
Preferred Shares entitled to vote thereon as a class.
Amendments to the Trust Agreement can be made by the consent of
two-thirds of the Trustees, but not fewer than four. However: (i) no amendment
to increase the liability of Shareholders shall be effected; (ii) no amendment
may require additional contributions from or assessments against Shareholders;
(iii) no amendment (A) increasing the authorized shares of beneficial interest
in the Trust, or (B), except for an amendment designating a class or series of
Preferred Shares, having the purpose or reasonably foreseeable effect of
impeding or preventing a "control transaction" shall be effective without the
affirmative vote of the holders of a majority of votes cast by (1) all
Shareholders entitled to vote thereon (excluding holders of any Preferred Shares
that are entitled to vote thereon exclusively as a class) and (2) the holders of
any class or series of Preferred Shares entitled to vote thereon as a class; and
(iv) no amendment to the provisions regarding the amendment of the Trust
Agreement, the dissolution of the Company or fundamental changes to the Company
(i.e., mergers or sales of all or substantially all of the Company's assets)
shall be effected without the affirmative vote of the Shareholders whose votes
are at the time of such amendment necessary to effect the pertinent action. As
used in the Trust Agreement, the term "control transaction" means the
acquisition by a person or a group of persons acting in concert of voting
control over voting Shares of the Trust that would entitle the holders thereof
to cast at least 20% of the votes that all Shareholders would be entitled to
cast in the election of Trustees.
Applicable Law
The Trust Agreement provides that it shall be construed in accordance
with Pennsylvania law.
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SUMMARY OF THE OPERATING PARTNERSHIP AGREEMENT
The following summary of the First Amended and Restated Agreement of
Limited Partnership of PREIT Associates, L.P., as amended (the "Operating
Partnership Agreement") is qualified in its entirety by reference to the
Operating Partnership Agreement, which is incorporated by reference as an
exhibit to the Registration Statement of which this Prospectus is a part.
General
The Trust is the sole general partner of the Operating Partnership. The
Trust contributed to the Operating Partnership, or to entities wholly owned by
the Operating Partnership, the real estate interests owned, directly or
indirectly, by the Trust, or the economic benefits thereof, in exchange for a
general partnership interest in the Operating Partnership and a number of Class
A Units which equaled, in the aggregate, the number of shares of beneficial
interest in the Trust issued and outstanding on September 30, 1997.
Management
Under the Operating Partnership Agreement, the Trust, as the sole
general partner of the Operating Partnership, has the authority, to the
exclusion of the limited partners, to make all management decisions on behalf of
the Operating Partnership. In addition, the Trust, as general partner, will have
the ability to cause the Operating Partnership to create and issue subsequent
classes of limited or preferred partner interests with terms different from the
limited partner and general partner interests issued previously. The Trust has
agreed in the Operating Partnership Agreement to conduct substantially all of
its business activities through the Operating Partnership unless a majority in
interest of the Units (exclusive of Units owned by the Trust) consent to the
conduct of business activities outside the Operating Partnership.
Authorization of Units and Voting Rights
The Operating Partnership Agreement authorizes the issuance of an
unlimited number of Units in one or more classes. Holders of Units are entitled
to distributions from the Operating Partnership as and when made by the general
partner. Since the general partner will, of necessity, have to make
distributions on the Class A Units held directly or indirectly by it at the
times and in the amounts as will permit it to make distributions to Shareholders
necessary to preserve its status as a REIT for federal income tax purposes, it
is anticipated that the holders of Units will receive such distributions at the
approximate time, and in the same amounts, as distributions are declared and
paid by the Trust to the Shareholders.
Holders of Units generally will have no right to vote on any matter
voted on by holders of Shares except that prior to the date on which at least
half of the Units issued on September 30, 1997 (other than to the Trust or an
affiliate of the Trust) have been redeemed, the holders of Units issued on
September 30, 1997 (other than the Trust or an affiliate of the Trust) shall be
entitled to vote, as a single class, on any proposal to merge, consolidate, or
sell substantially all of the assets of the Company if the holders of Shares
vote thereon and, in such event, holders of Units will be entitled to one vote
for each Share issuable by the Trust upon the redemption of one Unit and the
necessary vote to effect such action shall be the sum of an absolute majority of
the outstanding Units and the applicable vote of the holders of the Shares,
which such vote may be met by any combination of holders of the Units and the
Shares.
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The Operating Partnership Agreement also provides that the Trust may
not engage in a fundamental transaction (e.g., a merger) unless, by the terms of
such transaction, the Units are treated in the same manner as that number of
Shares for which they are exchangeable by the Trust upon notice of redemption
are treated and that holders of Units will have the right to vote on certain
amendments to the Operating Partnership Agreement.
Redemption Rights
As of March 1999, the Operating Partnership has issued Units of Class A
limited partner interest and Units of Class B limited partner interest. Class A
and Class B Units are redeemable by the Operating Partnership at the election of
a limited partner holding such Units, at such time, and for such consideration,
as set forth in the Operating Partnership Agreement. In general, and subject to
certain exceptions and limitations, holders of limited partnership units (other
than the Trust and its subsidiaries) may, beginning one year following the
respective issue dates, give one or more notices of redemption with respect to
all or any part of the Class A Units so received and then held by such party.
Class B Units are redeemable at the option of the holder at any time after
issuance. This Registration Statement has been filed to register for resale by
the holders thereof Shares issuable by the Trust upon the redemption of certain
outstanding Units pursuant to this provision of the Operating Partnership
Agreement.
If a notice of redemption is given, the Trust has the right to elect to
acquire the Units tendered for redemption for its own account, either in
exchange for the issuance of a like number of Shares (subject to adjustments for
stock splits, recapitalizations, and like events) or a cash payment equal to the
average closing price of the Shares over the ten consecutive trading days
immediately prior to receipt by the Trust, in its capacity as general partner of
the Operating Partnership, of the notice of redemption. If the Trust declines to
exercise such right, then on the tenth day following tender for redemption the
Operating Partnership will pay a cash amount equal to the number of Units so
tendered multiplied by such average closing price.
Other Rights
When the Operating Partnership acquires properties, the Operating
Partnership often enters into contracts that restrict the Operating
Partnership's ability to resell such properties. Those who are issued Units in
the transactions may have the right to prohibit such a sale if a certain number
of such Unit holders object to the sale, subject to certain conditions regarding
the form of the sale. Separate agreements may prohibit the Operating Partnership
from selling or otherwise disposing of properties in transactions unless the
sale takes a certain form or is undertaken in connection with a program to sell
a certain percentage of the Operating Partnership's assets.
USE OF PROCEEDS
The Company will use the proceeds from PREIT-RUBIN's 1998 Stock Option
Plan for general purposes and as working capital.
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DESCRIPTION OF THE PLAN
The following is a summary of certain material provisions of the Plan.
The summary is qualified in its entirety by reference to the Plan and any
applicable stock option agreements entered into under the Plan.
Purpose of the Plan
- -------------------
The PREIT-RUBIN, Inc. 1998 Stock Option Plan (the "Plan") provides a
means whereby PREIT-RUBIN, INC. may grant stock options to officers and other
key employees of PREIT-RUBIN, INC. and its subsidiaries (other than officers and
trustees of the Trust) ("Key Employees") to enable them to acquire shares of
beneficial interest in the Trust ("Shares"). PREIT-RUBIN, INC. has adopted the
Plan in order to attract and retain such Key Employees and to motivate them to
exercise their best efforts on behalf of PREIT-RUBIN, INC. and its subsidiaries,
and on behalf of the Trust and entities controlled by the Trust. Only
nonqualified stock options are granted under the Plan (i.e., options that do not
qualify as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code")).
Securities to be Offered
- ------------------------
The Plan provides for the granting of options to purchase Shares. A
total of 150,000 Shares have been reserved for issuance upon the exercise of
options. If any option granted under the Plan expires or otherwise terminates
for any reason whatsoever (including, without limitation, the Key Employee's
surrender thereof) without having been exercised, the Shares subject to the
unexercised portion of such option will again be available for the granting of
options under the Plan.
Listing and Registration of Shares
- ----------------------------------
If at any time the Trust or PREIT-RUBIN, INC. determines, in its
discretion, that the listing, registration, or qualification of the option or
Shares covered thereby upon any securities exchange or under the laws of any
jurisdiction, or the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such option or the purchase of Shares thereunder, or that action by the Trust,
its shareholders, PREIT-RUBIN, INC., or the Key Employee should be taken in
order to obtain an exemption from any such requirement or to continue any such
listing, registration, or qualification, then no such option may be exercised,
in whole or in part, unless and until such listing, registration, qualification,
consent, approval, or action has been effected, obtained, or taken under
conditions acceptable to the Trust. Each Key Employee who is granted an option
(an "optionee"), or his legal representative or beneficiary, also may be
required to give satisfactory assurance that Shares purchased upon exercise of
an option are being purchased for investment and not with a view to
distribution, and certificates representing such Shares may be legended
accordingly.
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<PAGE>
Restrictions on Resale and Related Matters
- ------------------------------------------
The following is a brief summary of certain restrictions on the resale
of Shares acquired under the Plan. The application of Federal securities and tax
laws in particular situations may be complex, and employees should seek
professional advice before making any such resales.
Securities Act of 1933 and Rule 144
- -----------------------------------
Shares acquired under the Plan will be registered under the Securities
Act of 1933, as amended (the "Securities Act"). Accordingly, such Shares are not
"restricted securities" within the meaning of Rule 144 under the Securities Act
and, except for resales by "affiliates" of the Trust, may be resold without
reference to the holding period, manner of sale, volume, and other requirements
imposed by Rule 144. An "affiliate" of the Trust, under applicable Securities
and Exchange Commission regulations and interpretations, is a person who, alone
or with others, directly or indirectly, controls the Trust. Despite registration
of Shares under the Plan, an "affiliate" of the Trust may only sell Shares in
compliance with Rule 144 (or in an exempt nonpublic sale), except that the
minimum holding period requirement of the Rule is not applicable.
Short-Swing Profit Restrictions
- -------------------------------
Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the rules thereunder generally require trustees, "officers"
(as defined in the rules), and direct or indirect beneficial owners of more than
10% of the Trust's Shares to repay to the Trust any "profits" (as determined
under the rules) which they may realize, directly or indirectly, from any
purchase and sale, or sale and purchase, of equity securities of the Trust in
any period of less than six months. Thus, after an option is granted to any Key
Employee who has been granted an option under the Plan, if such individual
becomes a trustee or an officer of the Trust or the beneficial owner of more
than 10% of the Shares of the Trust, such individual is advised to consult with
counsel prior to effecting any purchase or sale of Shares of the Trust or
exercising any option.
Other
- -----
The resale of Shares issued upon exercise of options received under the
Plan is subject to other applicable provisions of the securities laws (including
prohibitions against trading on inside information), as well as to the
applicable terms of the Plan and of any stock option or other agreements entered
into between the optionee and PREIT-RUBIN, INC. or the Trust. Further, reference
is made to the "Federal Income Tax Treatment of Options" section below for
information concerning the Federal tax effect of resales of Shares issued upon
exercise of options received under the Plan.
Shares Subject to the Plan
- --------------------------
Under the Plan, stock options may be awarded covering up to an
aggregate of 150,000 Shares. The number of Shares that may be issued under the
Plan and the number of Shares
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issuable upon exercise or vesting of outstanding options under the Plan will be
adjusted to reflect any stock splits, stock dividends, share combinations, or
similar changes in the capitalization of the Trust. PREIT-RUBIN, INC. will
acquire Shares required for this purpose, from time to time, from the Trust in
an amount to fulfill its obligations under the Plan. Shares subject to options
that remain unexercised upon the expiration or the earlier termination of such
options will once again become available for the granting of options under the
Plan.
Administration
- --------------
The Plan is administered by PREIT-RUBIN, INC.'s Stock Option Plan
Committee (the "Committee") that consists solely of at least two directors of
PREIT-RUBIN, INC. who are appointed by, and serve at the pleasure of,
PREIT-RUBIN, INC.'s Board of Directors (the "Board"). The Committee has full
authority, subject to the terms of the Plan, to select the Key Employees to be
granted options under the Plan, to grant options on behalf of PREIT-RUBIN, INC.,
to set the date of grant and the other terms of such options, and generally to
administer the Plan.
Eligibility
- -----------
Key Employees of PREIT-RUBIN, INC. and its subsidiaries are eligible to
receive options under the Plan. However, a Key Employee who is also a trustee
and/or an officer of the Trust is specifically excluded from eligibility to
receive options under the Plan. More than one option may be granted to a Key
Employee under the Plan.
Amendment and Duration of Plan
- ------------------------------
The Board, pursuant to a written resolution, from time to time may
suspend or terminate the Plan or amend it, and the Committee may amend any
outstanding options in any respect whatsoever. Notwithstanding the foregoing, no
such suspension, discontinuance, or amendment shall materially impair the rights
of any holder of an outstanding option without the consent of such holder. The
Plan will terminate at midnight on July 14, 2008, unless earlier discontinued by
the Board. No options may be granted after such termination, but options
outstanding at the time of termination will remain exercisable in accordance
with their terms and will vest in accordance with their terms.
Terms and Conditions
- --------------------
Exercise Terms and Price. Options may be granted for terms of not more
than 10 years at an exercise price per share determined and fixed by the
Committee, which will not be less than the higher of 100% of the fair market
value of the optioned Shares on the date of grant, or the par value ($1.00 per
share) thereof. Options are exercisable in such installments as the Committee
may determine. For example, an option which becomes exercisable in equal
installments over four years becomes exercisable with respect to 25% of the
total Shares subject to the option on each of the first four anniversary dates
of the option. The basis upon which an option becomes exercisable is set forth
in the option agreement for such option. The Committee may, in its discretion,
accelerate the exercise date of any outstanding Option.
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<PAGE>
The procedures for the exercise of an option are set forth in the
option agreement. The Committee, in its sole discretion, may permit the optionee
to pay the exercise price in any of the following methods --
o In cash or its equivalent;
o By delivering Shares to PREIT-RUBIN, INC. (the Shares may
have to have been held by the optionee for a certain
period of time prior to delivery to PREIT-RUBIN, INC.);
o By delivering a properly executed notice of exercise to
PREIT-RUBIN, INC. and a broker, with irrevocable
instructions to the broker promptly to pay the exercise
price to PREIT-RUBIN, INC. (a so-called "broker-financed
transaction");
o By loaning the optionee the money required to pay the
exercise price; or
o In any combination of the above methods.
Withholding; Use of Shares to Satisfy Tax Obligation. The obligation of
PREIT-RUBIN, INC. to deliver Shares upon the exercise of any option is subject
to any applicable Federal, state, and local tax withholding requirements. The
Plan provides that, if the exercise of any option is subject to the withholding
requirements of applicable Federal tax law, the Committee, in its discretion and
subject to such rules as it may adopt, may permit or require the optionee to
satisfy the withholding requirements, in whole or in part, by electing to have
PREIT-RUBIN, INC. withhold Shares (or by returning Shares to PREIT-RUBIN, INC.).
Shares will be valued, for this purpose, at their fair market value as of the
date the optionee recognizes ordinary income with respect to such exercise.
Expiration of Options. Any option held by an optionee who dies will be
exercisable by the optionee's personal representative for a period of not less
than one and not more than three years after the optionee's death, as determined
by the Committee, but in no event beyond the normal expiration date of the
option.
If an optionee's employment with PREIT-RUBIN, INC. or one of its
subsidiaries is terminated (and immediately thereafter the optionee is not
employed by PREIT-RUBIN, INC. or one of its subsidiaries, or by the Trust or an
entity controlled by the Trust) for any reason other than retirement, death,
disability, cause, or employment with a competitor, any option held by such
optionee will remain exercisable by the optionee until the normal expiration
date of such option; provided, however, that the Committee may, in its
discretion, choose an accelerated expiration date not earlier than the date of
the termination of the optionee's employment.
If an optionee attains the age that his employer may from time to time
establish as the retirement age for any class of its employees or becomes
disabled (as defined in the Plan) during his employment and, prior to the
expiration date fixed for such option, the optionee's
27
<PAGE>
employment is terminated as a consequence of such retirement or disability, any
option held by such optionee will remain exercisable by the optionee until the
normal expiration date of such option; provided, however, that the Committee
may, in its discretion, choose an accelerated expiration date not earlier than
the date of the termination of the optionee's employment.
Forfeiture. If an optionee's employment is terminated for "Cause" (as
defined in the Plan) or an optionee terminates his employment and commences
working for a "Competitor" (as defined in the Plan), his right under any then
outstanding option shall expire at the time of such termination of employment.
Transferability; Registration of Shares
- ---------------------------------------
Except as provided in an option agreement, options are not assignable
or transferable by an optionee other than by will or the laws of descent and
distribution. If an option is assignable or transferable, the option agreement
may place limitations on assignments and transfers (such as the parties to whom
options may be assigned or transferred).
If an optionee is married when an option is exercised, the optionee may
request that the share certificate or certificates be registered in the
optionee's name and the optionee's spouse's name, jointly, with right of
survivorship.
Stock Option Agreements
- -----------------------
The Plan requires that optionees enter into option agreements with
PREIT-RUBIN, INC. which incorporate the terms of the options and such other
terms, conditions, and restrictions, not inconsistent with the Plan and
applicable law, as the Committee may determine.
Merger and Other Corporate Events Involving the Trust
- -----------------------------------------------------
In the event of a merger, consolidation, or other corporate transaction
involving the Trust, each outstanding option shall be treated in the same way
PREIT-RUBIN, INC.'s options for Shares are to be treated under the Stock Option
Agreement entered into by the Trust and PREIT-RUBIN, INC. dated as of July 15,
1998.
Federal Income Tax Treatment of Options
- ---------------------------------------
Based on the advice of counsel, PREIT-RUBIN, INC. believes that the
normal operation of the Plan should generally have, under the Code and the
regulations and rulings thereunder, all as in effect on January 1, 1999, the
principal Federal income tax consequences described below. The tax treatment
described below does not take into account any changes to the Code or the
regulations thereunder which may occur after January 1, 1999. The following
discussion is only a summary, is not intended to be all inclusive or to
constitute tax advice, and, among other things, does not cover possible state,
local, or foreign tax consequences.
The principal Federal income tax consequences to each optionee and to
PREIT-RUBIN, INC. should generally be as follows:
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<PAGE>
(1) The optionee will not recognize taxable income and PREIT-RUBIN,
INC. will not be entitled to a deduction upon the grant of an Option.
(2) The optionee will recognize ordinary income at the time of the
exercise of the Option, in an amount equal to the excess of the fair market
value of the Shares at the time of such exercise over the exercise price.
(3) PREIT-RUBIN, INC. will be entitled to a deduction to the extent of
the ordinary income recognized by the optionee in accordance with the rules of
Section 83 of the Code and the regulations thereunder.
(4) An optionee exercising an Option is subject to Federal income tax
withholding on the income recognized as a result of the exercise of the Option.
The Committee, in its discretion, may permit the optionee to elect to surrender
or deliver Shares otherwise issuable upon exercise, or previously acquired from
PREIT-RUBIN, INC., in order to satisfy this withholding requirement, subject to
certain restrictions set forth in the Plan. Such an election will result in a
disposition of the Shares which are surrendered or delivered, and an amount will
be includible in the optionee's income equal to the excess of the fair market
value of such Shares over the optionee's basis in such Shares.
Various additional tax consequences result from the use of Shares to
satisfy the withholding requirements. These consequences are too complex to be
described in detail in this summary. Any optionee who contemplates using Shares
in this manner is strongly urged to consult his tax advisor with respect to the
tax treatment of this procedure.
(5) The basis of the Shares received by an optionee upon the exercise
of an Option is the exercise price paid plus the amount recognized by the
optionee as income attributable to such Shares upon such exercise. The
optionee's holding period for such Shares begins on the day after the date on
which the optionee realizes income with respect to the transfer of such Shares,
i.e., generally the day after the exercise date. Gain or loss recognized by the
recipient upon a subsequent disposition of such Shares will be short-term or
long-term capital gain or loss if such Shares are otherwise capital assets in
the hands of the recipient.
Any net capital gain (i.e., the excess of net long-term capital gains
for the taxable year over net short-term capital losses for such taxable year)
will generally be taxed at a maximum capital gain rate of 20 percent. Any net
capital loss can only be used to offset up to $3,000 per year ($1,500 per year
in the case of a married individual filing separately) of ordinary income or
carried forward to a subsequent year.
(6) The use of Shares to pay the exercise price of an Option will be
treated as a like-kind exchange under Section 1036 of the Code for the portion
of the number of Shares received on the exercise that equals the number of
Shares surrendered. The optionee will therefore recognize no gain or loss with
respect to the surrendered Shares, and will have the same basis and holding
period with respect to the newly acquired Shares (up to the number of Shares
surrendered) as with respect to the surrendered Shares. To the extent that the
number of Shares received exceeds
29
<PAGE>
the number surrendered, the fair market value of such excess Shares on the date
of exercise, reduced by any cash paid by the optionee upon such exercise, will
be includible in the gross income of the optionee. The optionee's basis in such
excess Shares will equal the sum of the cash paid by the optionee upon the
exercise of the option (if any) plus any amount included in the optionee's gross
income as a result of the exercise of the option, and the optionee's holding
period with respect to such excess Shares will begin on the day following the
date of exercise.
Various additional tax consequences result from the use of Shares to
pay the exercise price of an option. These consequences are too complex to be
described in detail herein. Any optionee who contemplates using Shares in this
manner is strongly urged to consult his tax advisor with respect to the tax
treatment of this procedure.
Other Considerations
- --------------------
The Plan is not qualified under Section 401(a) of the Code and, based
upon current law and published interpretations, PREIT-RUBIN, INC. believes the
Plan is not subject to the provisions of the Employee Retirement Income Security
Act of 1974, as amended.
The comments set forth in the above paragraphs are only a summary of
certain of the Federal income tax consequences relating to the Plan as adopted
by PREIT-RUBIN, INC. on July 15, 1998. No consideration has been given to the
effects of state, local, and other laws (tax or other) on the Plan or on the
optionee, which laws will vary depending upon the particular jurisdiction or
jurisdictions involved.
BECAUSE OF THE COMPLEXITIES INVOLVED IN THE APPLICATION OF FEDERAL, STATE, AND
LOCAL TAX LAWS TO SPECIFIC CIRCUMSTANCES, AND THE UNCERTAINTIES AS TO POSSIBLE
FUTURE CHANGES IN THE TAX LAWS, IT IS STRONGLY URGED THAT EACH OPTIONEE CONSULT
A TAX ADVISOR WITH RESPECT TO SUCH OPTIONEE'S OWN SITUATION.
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<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
General
The following discussion summarizes the Federal income tax
considerations that may be material to a prospective holder of Shares. Drinker
Biddle & Reath LLP, counsel for the Company, has provided an opinion letter to
the Company respecting the discussion set forth below under this heading
"Federal Income Tax Considerations," and this opinion is included as an Exhibit
to the Registration Statement. The following discussion, which is not exhaustive
of all possible tax considerations, does not give a detailed discussion of any
state, local or foreign tax considerations; nor does it discuss all of the
aspects of Federal income taxation that may be relevant to a prospective
shareholder in light of his or her particular circumstances or to certain types
of shareholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject to special treatment
under the Federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF SHARES IN AN ENTITY ELECTING TO BE TAXED AS A
REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF
SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
Taxation of the Company
General. The Company is designed to qualify and has elected to qualify
as a "real estate investment trust" under Sections 856-60 of the Code. The
Company believes that it has been organized and has operated in such a manner as
to qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner. No assurance, however, can be given that
the Company has operated in a manner so as to qualify as a REIT or that it will
continue to operate in such a manner in the future. Qualification and taxation
as a REIT depends upon the Company's ability to meet on a continuing basis,
through actual annual operating results, distribution levels and diversity of
share ownership, the various qualification tests imposed under the Code on
REITs, some of which are summarized below. While the Company intends to operate
so that it qualifies as a REIT, given the highly complex nature of the rules
governing REITs, the ongoing importance of factual determinations, and the
possibility of future changes in circumstances of the Company, no assurance can
be given that the Company satisfies such tests or will continue to do so. See
"Failure to Qualify" below.
The following is a general summary of the Code provisions that govern
the Federal income tax treatment of a REIT and its shareholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, Treasury
Regulations and administrative and judicial interpretations thereof. If the
Company qualifies for taxation as a REIT, it generally will not be subject to
Federal corporate income taxes on net income that it currently distributes to
shareholders. However, the Company will be subject to Federal income tax on any
income that it does not distribute and will be subject to Federal income tax in
certain circumstances on certain types of income even though that income is
distributed.
Requirements for Qualification. The Code defines a REIT as a
corporation, trust or association (i) that is managed by one or more trustees or
directors; (ii) the beneficial ownership
31
<PAGE>
of which is evidenced by transferable shares of stock, or by transferable
certificates of beneficial interest; (iii) that would be taxable as a domestic
corporation, but for Sections 856 through 859 of the Code; (iv) that is neither
a financial institution nor an insurance company subject to certain provisions
of the Code; (v) the beneficial ownership of which is held by 100 or more
persons; (vi) that during the last half of each taxable year not more than 50%
in value of the outstanding stock of which is owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities);
and (vii) that meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (i) through (iv),
inclusive, must be met during the entire taxable year and that condition (v)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. The Company's Trust
Agreement provides certain disclosure requirements for 1% or greater
shareholders and certain restrictions regarding the transfers of Company shares
that are intended to assist the Company in continuing to satisfy the share
ownership requirements described in (v) and (vi) above.
A REIT is permitted to have a wholly owned subsidiary (also referred to
as a "qualified REIT subsidiary"). A qualified REIT subsidiary is not treated as
a separate entity for Federal income tax purposes. Rather, all of the assets,
liabilities and items of income, deductions and credit of a qualified REIT
subsidiary are treated as if they were those of the REIT.
A REIT is deemed to own its proportionate share of the assets of a
partnership in which it is a partner and is deemed to receive its proportionate
share of the income of the partnership. Thus, the Company's proportionate share
of the assets, liabilities and items of income of PREIT Associates (the
"Operating Partnership") and each of the real estate partnerships or other
pass-through entities in which the Operating Partnership holds an interest (the
"Title Holding Partnerships") will be treated as assets, liabilities and items
of income of the Company for purposes of applying the requirements described
herein, provided that the Operating Partnership and the Title Holding
Partnerships are treated as partnerships for Federal income tax purposes.
Income Tests. To maintain its qualification as a REIT, a REIT must
satisfy two gross income requirements each year. First, at least 75% of the
REIT's gross income (excluding gross income from prohibited transactions) for
each year must be derived directly or indirectly from investments in real
property or mortgages on real property (including "rents from real property"
and, in certain circumstances, interest) or from certain types of temporary
investments. Second, at least 95% of the REIT's gross income (excluding gross
income from prohibited transactions) for each year must be derived from the same
items that qualify under the 75% income test, and from dividends, interest and
gain from the sale or disposition of stock or securities, or from any
combination of the foregoing.
Rents received by the Company will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if several conditions (related to the identity of the tenant, the
computation of the rent payable, and the nature of the property leased) are met.
The Company does not anticipate receiving rents in excess of five (5%) percent
of gross income that fail to meet these conditions. In addition, for rents
received to qualify as "rents from real property, the Company generally must not
operate or manage the property or furnish or render more than a de minimus
amount of services to tenants, other than through an "independent contractor"
from whom the Company derives no revenue. The "independent contractor"
requirement, however, does not apply to the extent the services provided by the
Company are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not otherwise considered "rendered to the
occupant." Although PREIT-RUBIN renders services with respect to rental
properties of the Operating Partnership and the Title Holding
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<PAGE>
Partnerships, and PREIT-RUBIN does not constitute an "independent contractor"
for this purpose, the Company believes that the services being provided by
PREIT-RUBIN with respect to such properties are usual or customary or should not
otherwise be considered "rendered to the occupant." The Company believes,
moreover, that the aggregate amount of any nonqualifying income in any taxable
year earned by the Operating Partnership and the Title Holding Partnerships has
not caused, and will not cause, the Company to exceed the limits on
nonqualifying income under the 75% and 95% gross income tests.
The Operating Partnership owns all of the nonvoting common shares of
PREIT-RUBIN, a corporation that is taxable as a regular corporation. PREIT-RUBIN
performs management, development and leasing services for the Operating
Partnership and other real estate owned in whole or in part by third parties.
The third-party income earned by and taxed to PREIT-RUBIN would be nonqualifying
income if earned directly by the Company. As a result of the corporate
structure, all third-party and other services income will be earned by and taxed
to PREIT-RUBIN at applicable Federal and state corporate income tax rates and
will be received by the Company only indirectly as dividends (after reduction by
such taxes). Although dividends generally qualify under the 95% test, the IRS
refuses to rule on this issue when the dividends are earned in this manner.
If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. Even if these
relief provisions were to apply, however, a tax would be imposed with respect to
the "excess net income" attributable to the failure to satisfy the 75% and 95%
gross income tests.
Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets: (i) at
least 75% of the value of the Company's total assets must be represented by
"real estate assets," cash, cash items and government securities; (ii) not more
than 25% of the Company's total assets may be represented by securities other
than those in the 75% asset class; and (iii) of the investments included in the
25% asset class, the value of any one issuer's securities (other than an
interest in a partnership, shares of a "qualified REIT subsidiary" or another
REIT) owned by the Company may not exceed 5% of the value of the Company's total
assets, and the Company may not own more than 10% of any one issuer's
outstanding voting securities (other than an interest in a partnership, shares
of a qualified REIT subsidiary or another REIT).
The Company believes that it has complied, and anticipates that it will
continue to comply, with these asset tests. The Company is deemed to hold
directly its proportionate share of all real estate and other assets of the
Operating Partnership and all assets deemed owned by the Operating Partnership
through its ownership of partnership interests in other partnerships. As a
result, the Company believes that more than 75% of its assets are real estate
assets. In addition, the Company does not plan to hold any securities
representing more than 10% of any one issuer's voting securities, other than any
qualified REIT subsidiary of the Company, nor securities of any one issuer
exceeding 5% of the value of the Company's gross assets. As previously
discussed, the Company is deemed to own its proportionate share of the assets of
a partnership in which it is a partner so that the partnership interest, itself,
is not a security for purposes of this asset test.
The Operating Partnership owns all of the nonvoting common shares of
PREIT-RUBIN. The Operating Partnership does not own any of the voting securities
of PREIT-RUBIN. The Company believes that its indirect interest in the
securities of PREIT-RUBIN did not as of
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September 30, 1997 and does not currently exceed 5% of the total value of the
Company's assets. However, no independent appraisals have been obtained.
No assurance can be given that the Company's indirect ownership of
PREIT-RUBIN will meet the 10% voting securities test. Prior to June 1994, the
Internal Revenue Service (the "IRS") routinely issued rulings that the 10%
voting securities test was met in any case where the REIT did not own more than
10% of a management company's voting stock. However, in September 1994, the IRS
reevaluated its position on this issue and now refuses to issue a ruling on
whether the 10% voting securities test is met.
After initially meeting the asset tests at the close of any quarter,
the Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company intends to maintain adequate records of the value of
its assets to ensure compliance with the asset tests, and to take such other
action within 30 days after the close of any quarter as may be required to cure
any noncompliance. We cannot assure you, however, that such other action will
always be successful.
It should also be noted that certain proposed changes to the tax laws
regarding REITs have been considered in the past and may be enacted in the
future. Of potential relevance to the Company are proposed changes in the
President's current budget proposals that would modify the 10% voting securities
test described above to include both vote or value, but would also permit
taxable REIT subsidiaries within certain limitations and subject to certain
restrictions. The proposal, if enacted as proposed, would not prohibit the
Company's current ownership of shares of PREIT-RUBIN, but it could limit the
Company's flexibility in future transactions between the Company and
PREIT-RUBIN.
Annual Distribution Requirements. To qualify as a REIT, the Company
generally must distribute to its shareholders at least 95% of its income each
year. In addition, the Company will be subject to tax on the undistributed
amount at regular corporate rates and also may be subject to a 4% excise tax on
undistributed income.
The Company believes that it has made, and expects to continue to make,
timely distributions sufficient to satisfy the annual distribution requirements.
It is possible, however, that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the distribution requirements. In
that event, the Company may arrange for short-term, or possibly long-term,
borrowing (by itself or by the Operating Partnership) to permit the payments of
required dividends.
Failure to Qualify. If the Company fails to qualify for taxation as a
REIT in any taxable year, the Company will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Unless entitled to relief under specific statutory provisions, the
Company also will be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not possible
to state whether in all circumstances the Company would be entitled to such
statutory relief.
Income Taxation of the Operating Partnership, the Title Holding
Partnerships and Their Partners. The following discussion summarizes certain
Federal income tax considerations
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applicable to the Company's investment in the Operating Partnership and the
Title Holding Partnerships:
Classification of the Operating Partnership and Title Holding
Partnerships as Partnerships. The Company will be entitled to include in its
income its distributive share of the income and to deduct its distributive share
of the losses of the Operating Partnership (including the Operating
Partnership's share of the income or losses of the Title Holding Partnerships)
only if the Operating Partnership and the Title Holding Partnerships
(collectively, the "Partnerships") are classified for Federal income tax
purposes as partnerships rather than as associations taxable as corporations.
The Partnerships have not elected, and do not intend to elect, to be taxable for
Federal income tax purposes as corporations. Accordingly, under applicable
"check-the-box" regulations, they should be classified as partnerships for
Federal income tax purposes.
Partnership Allocations. Although a partnership agreement will
generally determine the allocation of income and losses among partners, such
allocations will be disregarded for tax purposes under Section 704(b) of the
Code if they do not comply with the provisions of Section 704(b) of the Code and
the Treasury Regulations promulgated thereunder as to substantial economic
effect and other requirements.
If an allocation is not recognized for Federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The Operating Partnership's
allocations of taxable income and loss are intended to comply with the
requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.
Tax Allocations With Respect to Contributed Properties. The properties
contributed directly or indirectly to the Operating Partnership have generally
been appreciated as of the time of contribution, and it is likely that
properties contributed in the future will also be appreciated. Pursuant to
Section 704(c) of the Code, items of income, gain, loss, and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership must be allocated for
Federal income tax purposes in a manner such that the contributor is charged
with or benefits from the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution. The partnership
agreements of the Partnerships require allocations of income, gain, loss and
deduction attributable to such contributed property to be made in a manner that
is consistent with Section 704(c) of the Code. If the Partnerships sell
contributed property at a gain or loss, such gain or loss will be allocated to
the contributing partner(s) generally to the extent of the precontribution
unrealized gain or loss.
Depreciation. The Partnerships' assets other than cash consist largely
of appreciated property contributed by its partners. Assets contributed to a
partnership in a tax-free transaction carry over their depreciation schedules.
Accordingly, the Operating Partnership's depreciation deductions for its real
property are based largely on the historic depreciation schedules for the
properties. The properties are being depreciated over a range of 15 to 40 years
using various methods of depreciation which were determined at the time that
each item of depreciable property was placed in service. Any real property
purchased by the Partnerships will be depreciated over at least 39 years. In
certain instances where a partnership interest rather than
35
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real estate is contributed to the Partnership, the real estate may not carry
over its depreciation schedule but rather may, similarly, be subject to the
lengthier depreciation period.
Section 704(c) of the Code requires that depreciation as well as gain
and loss be allocated in a manner so as to take into account the variation
between the fair market value and tax basis of the property contributed.
Depreciation with respect to any property purchased by the Operating Partnership
subsequent to the admission of its partners, however, will be allocated among
the partners in accordance with their respective percentage interests in the
Partnerships.
Sale of Partnership Property. Generally, any gain realized by a
partnership on the sale of property held by the partnership for more than one
year will be long-term capital gain, except for any portion of such gain that is
treated as depreciation or cost recovery recapture. However, under the REIT
requirements, the Company's share as a partner of any gain realized by the
Partnerships on the sale of any property held as inventory or other property
held primarily for sale to customers in the ordinary course of a trade or
business will be treated as income from a prohibited transaction that is subject
to a 100% penalty tax. Such prohibited transaction income could also have an
adverse effect upon the Company's ability to satisfy the income tests for REIT
status. Under existing law, whether property is held as inventory or primarily
for sale to customers in the ordinary course of a trade or business is a
question of fact that depends on all the facts and circumstances with respect to
the particular transaction. A safe harbor to avoid classification as a
prohibited transaction exists as to real estate assets held for the production
of rental income by a REIT for at least four years where in any taxable year the
REIT has made no more than seven sales of property or, in the alternative, the
aggregate of the adjusted bases of all properties sold does not exceed 10% of
the adjusted bases of all of the REIT's properties during the year and the
expenditures includible in a property's net sales price. The Partnerships intend
to hold properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing, owning, and operating and
leasing properties and to make such occasional sales of the properties as are
consistent with the Company's and the Operating Partnership's investment
objectives. No assurance can be given, however, that no property sale by the
Partnerships will constitute a sale of inventory or other property held
primarily for sale to customers.
Taxation of Shareholders
Taxation of Taxable Domestic Shareholders. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
shareholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income, and corporate shareholders will not be eligible for the
dividends received deduction as to such amounts. Distributions that are
designated as 20%-rate capital gain dividends will be taxed as long-term capital
gains, and distributions that are designated as 25%-rate gain dividends will be
taxed as 25%-rate gain, in each case without regard to the period for which the
shareholder has held its Shares. However, corporate shareholders may be required
to treat up to 20% of certain capital gain dividends as ordinary income.
Distributions in excess of current or accumulated earnings and profits will not
be taxable to a shareholder to the extent that they do not exceed the adjusted
basis of the shareholder's Shares, but rather will reduce the adjusted basis of
such Shares. To the extent that such distributions exceed the adjusted basis of
a shareholder's Shares, they will be included in income as long-term capital
gain (or short-term capital gain if the Shares have been held for one year or
less), assuming the Shares are a capital asset in the hands of the shareholder.
36
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In addition, to the extent, if any, that the Company does not
distribute all its net capital gain (including 25%-rate gain) in a year, the
Company may elect to designate (in a written notice to shareholders) that such
undistributed capital gain shall nonetheless be treated for Federal income tax
purposes as if it had been distributed proportionately to the Company's
shareholders as of the end of the year and recontributed to the Company's
capital. In that case, the shareholders will be taxed on such gain, but will
receive a tax credit for the tax paid by the Company on the gain, and each
shareholder's basis in Shares of the Company will be increased by the excess of
the amount of such gain over the amount of such tax credit.
In general, a domestic shareholder will realize capital gain or loss on
the disposition of Shares equal to the difference between (i) the amount of cash
and the fair market value of any property received on such disposition and (ii)
the shareholder's adjusted basis of such Shares. Such gain or loss generally
will constitute long-term capital gain or loss if the shareholder has held such
shares for more than one year. Loss upon a sale or exchange of Shares by a
shareholder who has held such Shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss to the
extent of distributions from the Company required to be treated by such
shareholder as long-term capital gain (including both 20%- and 25%-rate gain).
Under certain circumstances, domestic shareholders may be subject to
backup withholding at the rate of 31% with respect to dividends paid.
Taxation of Tax-Exempt Shareholders. The Company does not expect that
distributions by the Company to a shareholder that is a tax-exempt entity will
constitute "unrelated business taxable income" ("UBTI"), provided that the
tax-exempt entity has not financed the acquisition of its Shares with
"acquisition indebtedness" within the meaning of the Code and the Shares are not
otherwise used in an unrelated trade or business of the tax-exempt entity.
Taxation of Non-U.S. Shareholders. The rules governing U.S. Federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign shareholders (collectively, "Non-U.S.
Shareholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-U.S. Shareholders should
consult with their own tax advisors to determine the impact of U.S. Federal,
state and local income tax laws with regard to an investment in Shares,
including any reporting requirements. In particular, Non-U.S. Shareholders who
are engaged in a trade or business in the United States, and Non-U.S.
Shareholders who are individuals and who were present in the United States for
183 days or more during the tax year and have a "tax home" in the United States,
may be subject to tax rules different from those described below.
Distributions that are not attributable to gain from sales or exchanges
by the Company of U.S. real property interests and not designated by the Company
as capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions, ordinarily, will be subject to a withholding
tax equal to 30% of the gross amount of the distribution unless an applicable
tax treaty reduces that tax. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a Non-U.S.
Shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Shares, but rather will reduce the adjusted basis of such Shares.
To the extent that such distributions exceed the adjusted basis of a Non-U.S.
Shareholder's Shares, they will give rise to tax liability if the Non-U.S.
Shareholder would otherwise be subject to tax on any gain from the sale or
disposition of Shares as described below (in which case they also may be subject
to a 30% branch profits tax if the shareholder is a foreign
37
<PAGE>
corporation). If it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of current or accumulated
earnings and profits, the entire distribution will be subject to withholding at
the rate applicable to dividends. However, the Non-U.S. Shareholder may seek a
refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of current or accumulated earnings and
profits of the Company.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by the Company of U.S.
real property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA")
at the normal capital gain rates applicable to U.S. shareholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Also, distributions subject to FIRPTA
may be subject to a 30% branch profits tax in the hands of a corporate Non-U.S.
Shareholder not entitled to treaty relief or exemption. The Company is required
by applicable Treasury Regulations to withhold 35% of any distribution that is
or could be designated by the Company as a capital gain dividend. The amount
withheld is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Although the law is not entirely clear on the matter, it appears that
amounts of undistributed capital gain that are designated by the Company as
deemed distributions (as discussed under "Taxation of Taxable Domestic
Shareholders" above) would be treated with respect to Non-U.S. Shareholders in
the manner outlined in the preceding paragraph for actual distributions by the
Company of capital gain dividends. Under that approach, the Non-U.S.
Shareholders would be able to offset as a credit against their United States
Federal income tax liability resulting therefrom their proportionate share of
the tax paid by the Company on such undistributed capital gains (and to receive
from the IRS a refund to the extent their proportionate share of such tax paid
by the Company were to exceed their actual United States Federal income tax
liability).
Gain recognized by a Non-U.S. Shareholder upon a sale of Shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. The Company believes that it is a
"domestically controlled REIT," and, therefore, that the sale of Shares will not
be subject to taxation under FIRPTA. If the gain on the sale of Shares were to
be subject to tax under FIRPTA, the Non-U.S. Shareholder would be subject to the
same treatment as U.S. shareholders with respect to such gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals), and the purchaser of the Shares would be
required to withhold and remit to the IRS 10% of the purchase price.
Other Tax Considerations
State and Local Taxes. The Company and its shareholders may be subject
to state or local taxation in various state or local jurisdictions, including
those in which it or they transact business or reside. The state and local tax
treatment of the Company and its shareholders may not conform to the Federal
income tax consequences discussed above. Consequently, prospective shareholders
should consult their own tax advisors regarding the effect of state and local
tax laws on an investment in the Shares of the Company.
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LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the
Company by Drinker Biddle & Reath LLP. Drinker Biddle & Reath LLP will also pass
on certain federal income tax matters respecting the Company. Sylvan M. Cohen,
Chairman of the Board of the Trust, is of counsel to Drinker Biddle & Reath LLP.
Mr. Cohen is the beneficial owner of a substantial number of shares of
beneficial interest in the Trust.
EXPERTS
The financial statements and financial statement schedules incorporated
by reference in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
Some of the Company's historical financial statements were audited by
either Ernst & Young LLP, independent auditors, or Zelenkofske Axelrod and Co.,
Ltd., as set forth in their respective reports thereon included therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such reports given the authority of such
firms as experts in accounting and auditing.
39
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TABLE OF CONTENTS
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...........................2
CAUTIONARY STATEMENT......................................................4
THE COMPANY...............................................................4
RISK FACTORS..............................................................5
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST.............................15
SUMMARY OF THE TRUST AGREEMENT...........................................19
SUMMARY OF THE OPERATING PARTNERSHIP AGREEMENT...........................22
USE OF PROCEEDS..........................................................23
FEDERAL INCOME TAX CONSIDERATIONS........................................31
LEGAL MATTERS............................................................39
EXPERTS..................................................................39
40
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses payable by the
Registrant in connection with this Registration Statement.
Securities and Exchange Commission Registration Fee........ $ 793.60
Legal Fees and Expenses.................................... 10,000
Miscellaneous Expenses..................................... 5,000
Total...................................................... $15,793.60
==========
Item 15. Indemnification of Directors and Officers.
The Company's Trust Agreement, as amended, provides that (a) no Trustee
shall be personally liable for monetary damages for any action, or any failure
to take action, except that a Trustee shall remain personally liable for
monetary damages to the same extent that a director of a Pennsylvania business
corporation remains liable under the provisions of 15 Pa. C.S. Section 1713, and
(b) no officer who performs his duties in good faith, in a manner reasonably
believed to be in the best interests of the Company and with such care, skill
and diligence as a person of ordinary diligence would use will not be liable by
reason of having been an officer of the Company.
The Company's Trust Agreement provides that every Trustee and officer
shall be entitled as of right to be indemnified by the Company against
reasonable expense (including attorney's fees) and any liability, loss,
judgment, excise tax, fine, penalties, and settlements paid or incurred by such
person in connection with an actual (whether pending or completed) or threatened
claim, action, suit or proceeding, civil, criminal, administrative,
investigative or other, whether brought by or in the right of the Company or
otherwise, in which he or she may be involved, as a party or otherwise, by
reason of such person's being or having been a Trustee or officer of the Company
or by reason of the fact that such person is or was serving in any capacity at
the request of the Company as a trustee, director, officer, employee, agent,
partner, fiduciary or other representative or another real estate investment
trust, corporation, partnership, joint venture, trust, employee benefit plan or
other entity; provided, however, that no such right of indemnification shall
exist with respect to an action brought by a Trustee or officer against the
Company and further provided that no indemnification shall be made in any case
where the act or failure to act giving rise to the claim for indemnification is
determined by the final judgment of a court of competent jurisdiction to have
constituted willful misconduct or recklessness. The Trust Agreement further
provides that such right to indemnification shall be contractual in nature and
shall include the right to be paid in advance the expenses incurred in
connection with such proceedings; provided, however, that such advance payments
must be made in accordance with applicable law and must be accompanied by an
undertaking by or on behalf of such Trustee or officer to repay all amounts so
advanced if it is ultimately determined that such Trustee or officer is not
entitled to be indemnified under the Trust Agreement.
The Company's By-laws require the Company to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or proceeding, including actions by or in the right of the
Company, whether civil, criminal, administrative or investigative, by reason of
the fact that such person is or was a trustee or officer
<PAGE>
of the Company, or is or was serving while a trustee or officer of the Company
at the request of the Company as a director, officer, employee, agent, fiduciary
or other representative of another for profit or not-for-profit corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines, excise taxes and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action or proceeding unless the act or failure to act
giving rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness. The Company's By-laws also
provide that such right to indemnification shall be contractual in nature and
shall include the right to be paid the expenses (including attorneys fees)
incurred in defending any action or proceeding in advance of the final
disposition of such action or proceeding upon receipt by the Company of an
undertaking by or on behalf of such person to repay such amount if it is
ultimately determined that the person is not entitled to indemnification.
In addition, the Trust Agreement and Pennsylvania law permit the
Company to provide similar indemnification to employees, agents and other
persons who are not Trustees or officers. Pennsylvania law also permits
indemnification in connection with a proceeding brought by or in the right of
the Company to procure a judgment in its favor and requires indemnification in
certain cases where the Trustee or officer is the prevailing party. Certain of
the employment agreements the Company has entered into with its officers provide
for indemnification for such officer. Generally, these contracts require the
Company to indemnify the officer to the fullest extent permitted under the Trust
Agreement. The Limited Partnership Agreement for PREIT Associates, L.P., the
Company's operating partnership (the "Operating Partnership") also provides for
indemnification of the Company, the Trustees and the Company's officers for any
and all actions with respect to the Operating Partnership; provided, however,
that the Operating Partnership will not indemnify such parties for (i) willful
misconduct or knowing violation of the law; (ii) any action where the covered
person received an improper personal benefit in violation or breach of the
Limited Partnership Agreement for the Operating Partnership; (iii) any violation
of the Limited Partnership Agreement for the Operating Partnership or (iv) any
liability such person may have to the Limited Partnership under certain
documents delivered in the transaction in which properties were or will be
contributed to the Operating Partnership. The Company currently maintains
insurance for its Trustees and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to Trustees, officers, or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in that Act and is
therefore unenforceable.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
Exhibit
Number Description
- ------ -----------
4.1 PREIT-RUBIN, INC. 1998 Stock Option Plan
4.2 Pennsylvania Real Estate Investment Trust Trust Agreement
as Amended and Restated December 16, 1997 (incorporated by
reference to Exhibit 3.2 to the Trust's Current Report on
Form 8-K dated December 16, 1997)
4.3 First Amended and Restated Agreement of Limited
<PAGE>
Partnership of PREIT Associates, L.P., as amended
(incorporated by reference to Exhibit 4.15 to the Trust's
Current Report on Form 8-K dated October 14, 1997)
5 Opinion of Drinker Biddle & Reath LLP
8 Opinion of Drinker Biddle & Reath LLP regarding tax matters
23.1 Consent of Arthur Andersen LLP (Independent Public
Accountants of the Company)
23.2 Consent of Ernst & Young LLP (Independent Auditors of Lehigh
Valley Associates)
23.3 Consent of Zelenkofske Axelrod and Co., Ltd (Independent
Auditors of Oxford Valley Road Associates)
23.4 Consent of Drinker Biddle & Reath LLP (included in Exhibits
5 and 8)
24 Powers of Attorney - Included on signature page.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, That paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on Form S-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the registration statement.
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on March
19, 1999.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
By: /s/ Jonathan B. Weller
-------------------------------------
Jonathan B. Weller,
President and Chief Operating Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below, does hereby constitute and appoint RONALD RUBIN, SYLVAN M. COHEN
and JONATHAN B. WELLER, and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution, resubstitution
and revocation, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<PAGE>
<TABLE>
<CAPTION>
Name Capacity Date
---- -------- ----
<S> <C> <C>
/s/ Sylvan M. Cohen
- ---------------------------
Sylvan M. Cohen Chairman of the Board and Trustee March 19, 1999
/s/ Ronald Rubin
- ---------------------------
Ronald Rubin Chief Executive Officer and Trustee March 19, 1999
/s/ Jonathan B. Weller President, Chief Operating Officer
- --------------------------- and Trustee March 19, 1999
Jonathan B. Weller
/s/ William R. Dimeling
- ---------------------------
William R. Dimeling Trustee March 19, 1999
/s/ Rosemarie B. Greco
- ---------------------------
Rosemarie B. Greco Trustee March 19, 1999
/s/ Lee H. Javitch
- ---------------------------
Lee H. Javitch Trustee March 19, 1999
/s/ Leornard I. Korman
- ---------------------------
Leonard I. Korman Trustee March 19, 1999
/s/ Jeffrey P. Orleans
- ---------------------------
Jeffrey P. Orleans Trustee March 19, 1999
/s/ George F. Rubin
- ---------------------------
George F. Rubin Trustee March 19, 1999
/s/ Edward A. Glickman Executive Vice President and Chief March 19, 1999
- --------------------------- Financial Officer
Edward A. Glickman
/s/ Dante J. Massimini Senior Vice President - Finance and March 19, 1999
- --------------------------- Treasurer (Chief Accounting Officer)
Dante J. Massimini
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
4 PREIT-RUBIN, INC. 1998 Stock Option Plan
5 Opinion of Drinker Biddle & Reath LLP
8 Opinion of Drinker Biddle & Reath LLP regarding tax matters
23.1 Consent of Arthur Andersen LLP (Independent Public
Accountants of the Company)
23.2 Consent of Ernst & Young LLP (Independent Auditors of Lehigh
Valley Associates)
23.3 Consent of Zelenkofske Axelrod and Co., Ltd (Independent
Auditors of Oxford Valley Road Associates)
23.4 Consent of Drinker Biddle & Reath LLP (included in Exhibits
5 and 8)
24 Powers of Attorney - Included on signature page.
<PAGE>
EXHIBIT 4
PREIT-RUBIN, INC.
1998 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
1. PURPOSE................................................................1
2. ADMINISTRATION.........................................................1
3. ELIGIBILITY............................................................2
4. STOCK..................................................................2
5. GRANTING OF OPTIONS....................................................2
6. TERMS AND CONDITIONS OF OPTIONS........................................2
7. FORFEITURE.............................................................6
8. CAPITAL ADJUSTMENTS....................................................7
9. CERTAIN CORPORATE TRANSACTIONS.........................................7
10. AMENDMENT OR TERMINATION OF THE PLAN...................................7
11. RIGHTS.................................................................7
12. INDEMNIFICATION OF BOARD AND COMMITTEE.................................8
13. APPLICATION OF FUNDS...................................................8
14. EFFECTIVE DATE.........................................................8
15. NO OBLIGATION REGARDING OPTIONS........................................8
16. TERMINATION OF PLAN....................................................8
17. GOVERNING LAW..........................................................8
-i-
<PAGE>
PREIT-RUBIN, INC.
1998 STOCK OPTION PLAN
WHEREAS, PREIT-RUBIN, Inc. ("PRI") desires to award
nonqualified stock options to acquire shares of beneficial interest in
the Pennsylvania Real Estate Investment Trust ("PREIT") to certain key
employees of PRI and its subsidiaries.
NOW, THEREFORE, the PREIT-RUBIN, Inc. 1998 Stock Option Plan
(the "Plan") is hereby adopted under the following terms and
conditions:
1. Purpose. The Plan is intended to provide a means whereby PRI may grant stock
options (the "Options") to purchase shares of beneficial interest in PREIT
("Shares"), par value $1.00 per Share, to officers and other key employees (the
"Key Employees") of PRI and its subsidiaries. Thereby, PRI expects to attract
and retain such Key Employees and motivate them to exercise their best efforts
on behalf of PRI and its subsidiaries, and PREIT and entities controlled by
PREIT. Any Option granted under the Plan is intended to be a nonqualified stock
option (i.e., an option that does not qualify as an incentive stock option
("ISO") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code")).
2. Administration.
(a) The Plan shall be administered by PRI's Stock Option Plan Committee
(the "Committee"), which shall consist solely of at least two directors of PRI
who shall be appointed by, and shall serve at the pleasure of, PRI's Board of
Directors (the "Board"). Each member of the Committee, while serving as such,
shall be deemed to be acting in his capacity as a director of PRI.
(b) The Committee shall have full authority, subject to the terms of
the Plan, to select the Key Employees to be granted Options under the Plan, to
grant Options on behalf of PRI, and to set the date of grant and the other terms
of such Options. The Committee may correct any defect, supply any omission, and
reconcile any inconsistency in the Plan and in any Option granted hereunder in
the manner and to the extent it deems desirable. The Committee may also, in its
discretion but with the written consent of the Key Employee, revise previously
granted Options, adjust the price of an Option, or cancel an Option and grant a
new Option to replace the cancelled Option. The Committee also shall have the
authority to establish such rules and regulations, not inconsistent with the
provisions of the Plan, for the proper administration of the Plan, to amend,
modify, or rescind any such rules and regulations, and to make such
determinations and interpretations under, or in connection with, the Plan, as it
deems necessary or advisable. All such rules, regulations, determinations, and
interpretations shall be binding and conclusive upon PRI, its subsidiaries,
their owners, and all Key Employees; upon their respective
1
<PAGE>
legal representatives, beneficiaries, successors, and assigns; and upon all
other persons claiming under or through any of the foregoing.
(c) No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option granted under it.
3. Eligibility. The class of employees who shall be eligible to receive Options
under the Plan shall be the Key Employees. However, a Key Employee who is also a
trustee and/or an officer of PREIT is specifically excluded from eligibility to
receive Options under the Plan. More than one Option may be granted to a Key
Employee under the Plan. A Key Employee who has been granted an Option under the
Plan shall be referred to as an "Optionee."
4. Stock. Options may be granted under the Plan to purchase up to 150,000
Shares. PRI shall acquire Shares required for this purpose, from time to time,
in an amount to fulfill its obligations under the Plan. If any Option granted
under the Plan expires or otherwise terminates for any reason whatsoever
(including, without limitation, the Optionee's surrender thereof) without having
been exercised, the Shares subject to the unexercised portion of the Option
shall continue to be available for the granting of Options under the Plan as
fully as if the Shares had never been subject to an Option.
5. Granting of Options. From time to time until the expiration or earlier
suspension or discontinuance of the Plan, the Committee may, on behalf of PRI,
grant to Key Employees under the Plan such Options as it determines are
warranted. In making any determination as to whether a Key Employee shall be
granted an Option, the number of shares to be covered by the Option, and other
terms of the Option, the Committee may take into account the duties of the Key
Employee, his present and potential contributions to the success of PRI and its
subsidiaries, and to the success of PREIT and entities controlled by PREIT; the
tax implications to PRI and the Key Employee of any Option granted; and such
other factors as the Committee shall deem relevant in accomplishing the purposes
of the Plan.
6. Terms and Conditions of Options. Options granted pursuant to the Plan shall
include expressly or by reference the following terms and conditions, as well as
such other provisions not inconsistent with the provisions of the Plan as the
Committee shall deem desirable --
(a) Number of Shares. The Option shall state the number of Shares to
which the Option pertains.
(b) Price. The Option shall state the Option price which shall be
determined and fixed by the Committee in its discretion but shall not be less
than the higher of 100 percent of the fair market value of the optioned Shares
on the date the Option is granted, or the par value thereof.
The fair market value of a Share shall be arrived at by a good faith
determination of the Committee and shall be --
2
<PAGE>
(i) if there are sales of Shares on a national securities
exchange or in an over-the-counter market on the date of grant, then
the mean between the highest and lowest quoted selling price on the
date of grant; or
(ii) if there are no such sales of Shares on the date of grant
but there are such sales on dates within a reasonable period both
before and after the date of grant, then the weighted average of the
means between the highest and lowest selling price on the nearest date
before and the nearest date after the date of grant; or
(iii) if actual sales are not available during a reasonable
period beginning before and ending after the date of grant, then the
mean between the bid and asked price on the date of grant as reported
by the National Quotation Bureau; or
(iv) if (i) through (iii) are not applicable, such other
method of determining fair market value as shall be authorized by the
Code, or the rules or regulations thereunder, and adopted by the
Committee.
Where the fair market value of the optioned Shares is determined under
(ii) above, the average of the means between the highest and lowest sales on the
nearest date before and the nearest date after the date of grant shall be
weighted inversely by the respective numbers of trading days between the selling
dates and the date of grant (i.e, the valuation date), in accordance with Treas.
Reg. ss. 20.2031-2(b)(1), or any successor thereto.
(c) Term. Subject to earlier termination as provided in subsections
(e), (f), and (g) below and in Sections 7 and 9 hereof, the term of each Option
shall be not more than 10 years from the date of grant.
(d) Exercise. Options shall be exercisable in such installments and on
such dates as the Committee may specify; provided that (i) in the case of new
Options granted to an Optionee to replace options (whether granted under the
Plan or otherwise) held by the Optionee or in the case of Options repriced by
the Committee, the new or repriced Options may be made exercisable, if so
determined by the Committee, in its discretion, at the earliest date the
original Options were exercisable, but not earlier than three months from the
date of grant of the new Options or the repricing of the original Options; and
(ii) the Committee may accelerate the exercise date of any outstanding Options,
in its discretion, if it deems such acceleration to be desirable.
Any exercisable Options may be exercised at any time up to the
expiration or termination of the Option. Exercisable Options may be
exercised, in whole or in part and from time to time, by giving written
notice of exercise to PRI at its principal office, specifying the
number of Shares to be purchased and accompanied by payment in full of
the aggregate Option exercise price for such Shares. Only full Shares
shall be issued under the Plan, and any fractional Share which might
otherwise be issuable upon exercise of an Option granted hereunder
shall be forfeited.
3
<PAGE>
The Option price shall be payable, if the Committee in its
discretion so determines at or prior to the time of exercise --
(1) in cash or its equivalent;
(2) in Shares previously acquired by the Optionee; provided
that, if such Shares were acquired through the exercise of an ISO or an
NQSO, such Shares have been held by the Optionee for a period of more
than one year on the date of exercise;
(3) by delivering a properly executed notice of exercise of
the Option to PRI and a broker, with irrevocable instructions to the
broker promptly to deliver to PRI the amount of sale or loan proceeds
necessary to pay the exercise price of the Option;
(4) if the Optionee is designated as an "eligible participant"
by the Committee at or after the date of grant, and if the Optionee
thereafter so requests, (i) PRI will loan the Optionee the money
required to pay the exercise price of the Option; (ii) any such loan to
an Optionee shall be made only at the time the Option is exercised; and
(iii) the loan will be made on the Optionee's personal, negotiable,
demand promissory note, bearing interest at the lowest rate which will
avoid imputation of interest under Section 7872 of the Code, and
including such other terms as the Committee may prescribe; or
(5) in any combination of subsections (1), (2), (3), and (4)
above.
In the event the Option price is paid, in whole or in part,
with Shares, the portion of the Option price so paid shall be equal to the
aggregate fair market value (determined under subsection (b) above, but as of
the date of exercise of the Option, rather than the date of grant) of the Shares
so surrendered in payment of the Option price.
(e) Termination of Employment. If an Optionee's employment by PRI or
one of its subsidiaries is terminated (and immediately thereafter the Optionee
is not employed by PRI or one of its subsidiaries, or by PREIT or an entity
controlled by PREIT) prior to the expiration date fixed for his Option for any
reason other than retirement, death, disability, change in control, cause, or
employment with a competitor, such Option may be exercised, to the extent of the
number of Shares with respect to which the Optionee could have exercised it on
the date of such termination, or to any greater extent permitted by the
Committee, by the Optionee at any time prior to the earlier of (i) the
expiration date specified in such Option, or (ii) an accelerated expiration date
determined by the Committee, in its discretion, and set forth in the Option
Agreement; except that, subject to Section 9 hereof, such accelerated expiration
date shall not be earlier than the date of the Optionee's termination of
employment. See Section 7 regarding cause and employment with a competitor.
4
<PAGE>
(f) Retirement or Disability. If an Optionee attains the age which his
employer may from time to time establish as the retirement age for any class of
its employees or becomes disabled (within the meaning of Section 22(e)(3) of the
Code) during his employment and, prior to the expiration date fixed for his
Option, his employment is terminated as a consequence of such retirement or
disability, such Option may be exercised, to the extent of the number of Shares
with respect to which the Optionee could have exercised it on the date of such
termination, or to any greater extent permitted by the Committee, by the
Optionee at any time prior to the earlier of (i) the expiration date specified
in such Option, or (ii) an accelerated expiration date determined by the
Committee, in its discretion, and set forth in the Option Agreement; except
that, subject to Section 9 hereof, such accelerated expiration date shall not be
earlier than the date of the Optionee's termination of employment by reason of
retirement or disability. In the event of the Optionee's disability, such Option
may be exercised by the Optionee's legal representative.
(g) Death. If an Optionee dies during his employment, and prior to the
expiration date fixed for his Option, or if an Optionee whose employment is
terminated for any reason, dies following his termination of employment but
prior to the earlier of the expiration date fixed for his Option, or the
expiration of the period determined under subsections (e) and (f) above, such
Option may be exercised, to the extent of the number of Shares with respect to
which the Optionee could have exercised it on the date of his death, or to any
greater extent permitted by the Committee, by the Optionee's estate, personal
representative, or beneficiary who acquired the right to exercise such Option by
bequest or inheritance or by reason of the death of the Optionee. Such
post-death exercise may occur at any time prior to the earlier of (i) the
expiration date specified in such Option or (ii) an accelerated expiration date
determined by the Committee, in its discretion, and set forth in the Option
Agreement; except that, subject to Section 9 hereof, such accelerated expiration
date shall not be earlier than one year, nor later than three years, after the
date of death.
(h) Non-Transferability; Registration. Except as otherwise provided in
any Option Agreement, no Option shall be assignable or transferable by the
Optionee other than by will or by the laws of descent and distribution, and
(subject to the preceding clause) during the lifetime of the Optionee, shall be
exercisable only by him or by his guardian or legal representative. If the
Optionee is married at the time of exercise and if the Optionee so requests at
the time of exercise, the certificate or certificates shall be registered in the
name of the Optionee and the Optionee's spouse, jointly, with right of
survivorship.
(i) Rights as a Shareholder. An Optionee shall have no rights as a
shareholder with respect to any Shares covered by his Option until the issuance
of a stock certificate to him for such Shares.
(j) Listing and Registration of Shares. Each Option shall be subject to
the requirement that, if at any time PREIT or PRI, shall determine, in its
discretion, that the listing, registration, or qualification of Shares covered
thereby upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of such Option
or the
5
<PAGE>
purchase of Shares thereunder, or that action by PREIT, its shareholders,
PRI, or the Optionee should be taken in order to obtain an exemption from any
such requirement or to continue any such listing, registration, or
qualification, no such Option may be exercised, in whole or in part, unless and
until such listing, registration, qualification, consent, approval, or action
shall have been effected, obtained, or taken under conditions acceptable to
PREIT. Without limiting the generality of the foregoing, each Optionee or his
legal representative or beneficiary may also be required to give satisfactory
assurance that Shares purchased upon exercise of an Option are being purchased
for investment and not with a view to distribution, and certificates
representing such Shares may be legended accordingly.
(k) Withholding and Use of Shares to Satisfy Tax Obligations. The
obligation of PRI to deliver Shares upon the exercise of any Option (or cash in
lieu thereof) shall be subject to applicable federal, state, and local tax
withholding requirements. If the exercise of any Option is subject to the
withholding requirements of applicable federal tax law, the Committee, in its
discretion, may permit or require the Optionee to satisfy the federal
withholding tax, in whole or in part, by electing to have PRI withhold Shares
subject to the exercise (or by returning previously acquired Shares to PRI). PRI
may not withhold shares in excess of the number necessary to satisfy the minimum
federal income tax withholding requirements. Shares shall be valued, for
purposes of this subsection, at their fair market value under subsection (b)
above, but as of the date the amount attributable to the exercise of the Option
is includable in income by the Optionee under Section 83 of the Code. The
Committee shall adopt such withholding rules as it deems necessary to carry out
the provisions of this subsection.
(l) Loans. If an Optionee is designated as an "eligible participant" by
the Committee at or after the date of grant, and if the Optionee thereafter so
requests, PRI will loan the Optionee the money required to satisfy any regular
income tax obligations (as opposed to alternative minimum tax obligations)
resulting from the exercise of any Options. Any loan or loans to an Optionee
shall be made only at the time any such tax resulting from such exercise is due.
The Committee, in its discretion, may require an affidavit from the Optionee
specifying the amount of the tax required to be paid and the date when such tax
must be paid. The loan will be made on the Optionee's personal, negotiable,
demand promissory note, bearing interest at the lowest rate which will avoid
imputation of interest under Section 7872 of the Code, and including such other
terms as the Committee may prescribe.
(m) Option Agreements -- Other Provisions. Options granted under the
Plan shall be evidenced by written documents ("Option Agreements") in such form
as the Committee shall from time to time approve, and containing such provisions
not inconsistent with the provisions of the Plan as the Committee shall deem
advisable. Each Optionee shall enter into, and be bound by, an Option Agreement
as soon as practicable after the grant of an Option.
7. Forfeiture. If the employment of an Optionee is terminated for "Cause" (as
defined below) or the Optionee terminates his employment and commences working
for a "Competitor" (as defined below), his right under any then outstanding
Option shall terminate at the time of such termination of employment. As used in
this Section, in the case of any Optionee not subject to a written employment
agreement, "Cause" shall mean any willful or intentional act having the
6
<PAGE>
effect of injuring the reputation, business, or business relationships of PRI or
any of its subsidiaries, or PREIT or any entity controlled by PREIT, or any
repeated or continuous failure, neglect, or refusal to perform in a satisfactory
manner duties assigned to such Optionee. In the case of an Optionee subject to a
written employment agreement, "Cause" shall mean any action giving PRI or its
subsidiary the right to terminate such person's employment agreement for cause.
"Competitor" shall mean any person or entity other than PRI or any of its
subsidiaries, or PREIT or any entity controlled by PREIT, engaged -- either
before the Optionee's employment is terminated or within the one-year period
after such termination -- in a business competitive (in the good faith judgment
of the Committee) with that of PRI or any of its subsidiaries, or PREIT or any
entity controlled by PREIT.
8. Capital Adjustments. The number of Shares which may be issued under the Plan,
as stated in Section 4 hereof, and the number of Shares issuable upon exercise
or vesting of outstanding Options under the Plan (as well as the Option price
per share under outstanding Options) shall be adjusted, as may be deemed
appropriate by the Committee, to reflect any stock dividend, stock split, share
combination, or similar change in the capitalization of PREIT. In the event any
such change in capitalization cannot be reflected in a straight mathematical
adjustment of the number of Shares issuable upon the exercise of outstanding
Options (and a straight mathematical adjustment of the exercise price thereof),
the Committee shall make such adjustments as are appropriate to reflect most
nearly such straight mathematical adjustment. Such adjustments shall be made
only as necessary to maintain the proportionate interest of Optionees, and
preserve, without exceeding, the value of Options.
9. Certain Corporate Transactions. In the event of a corporate transaction (such
as, for example, a merger, consolidation, acquisition of property or stock,
reorganization, or liquidation) involving PREIT, each outstanding Option shall
be treated in the same way PRI's options for Shares are to be treated under the
Stock Option Agreement entered into by PREIT and PRI dated as of July 15, 1998.
10. Amendment or Termination of the Plan. The Board, pursuant to a written
resolution, from time to time may suspend or terminate the Plan or amend it, and
the Committee may amend any outstanding Options in any respect whatsoever.
Notwithstanding the foregoing, no such suspension, discontinuance, or amendment
shall materially impair the rights of any holder of an outstanding Option
without the consent of such holder.
11. Rights. Neither the adoption of the Plan nor any action of the Board or the
Committee shall be deemed to give any individual any right to be granted an
Option, or any other right hereunder, unless and until the Committee shall have
granted such individual an Option, and then his rights shall be only such as are
provided in the Option Agreement. Notwithstanding any provisions of the Plan or
the Option Agreement with a Key Employee, PRI, PREIT, or a Subsidiary Entity (as
applicable) shall have the right, in its discretion but subject to any
employment contract entered into with the Key Employee, to retire the Key
Employee at any time pursuant to its retirement rules, or otherwise to terminate
his employment at any time for any reason whatsoever.
7
<PAGE>
12. Indemnification of Board and Committee. Without limiting any other rights of
indemnification which they may have from PRI, the members of the Board and the
members of the Committee shall be indemnified by PRI against all costs and
expenses reasonably incurred by them in connection with any claim, action, suit,
or proceeding to which they or any of them may be a party by reason of any
action taken or failure to act under, or in connection with, the Plan, or any
Option granted thereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by legal counsel selected by PRI)
or paid by them in satisfaction of a judgment in any such action, suit, or
proceeding, except a judgment based upon a finding of willful misconduct or
recklessness on their part. Upon the making or institution of any such claim,
action, suit, or proceeding, the Board or Committee member shall notify PRI in
writing, giving PRI an opportunity, at its own expense, to handle and defend the
same before such Board or Committee member undertakes to handle it on his own
behalf. The provisions of this Section shall not give members of the Board or
the Committee greater rights than they would have under PRI's by-laws or
Pennsylvania law.
13. Application of Funds. The proceeds received in payment for shares upon
exercise of an Option shall be added to the general funds of PRI.
14. Effective Date. This Plan shall become effective on July 15, 1998 (the date
the Plan was adopted by the Board).
15. No Obligation Regarding Options. The granting of an Option shall impose no
obligation upon a Key Employee to exercise or meet the conditions of such
Option.
16. Termination of Plan. Unless earlier terminated as provided in the Plan, the
Plan and all authority granted hereunder shall terminate absolutely at 12:00
midnight on July 14, 2008, and no Options hereunder shall be granted thereafter.
Nothing contained in this Section, however, shall terminate or affect the
continued existence of rights created under Options issued hereunder, and
outstanding on the date set forth in the preceding sentence, which by their
terms extend beyond such date.
17. Governing Law. The laws of the Commonwealth of Pennsylvania shall govern the
operation of, and the rights of Key Employees under, the Plan, and Options
granted hereunder.
8
<PAGE>
EXHIBIT 5
March 19, 1999
Pennsylvania Real Estate Investment Trust
The Bellevue, 200 S. Broad St.
Philadelphia, Pennsylvania 19102
Ladies and Gentlemen:
We have acted as counsel to Pennsylvania Real Estate
Investment Trust, a Pennsylvania business trust (the "Trust"), in connection
with the preparation and filing with the Securities and Exchange Commission of
the Trust's Registration Statement on Form S-3 (the "Registration Statement")
under the Securities Act of 1933, as amended, relating to up to 150,000 shares
of beneficial interest in the Trust, par value $1.00 per share (the "Additional
Shares"), that may be issued by the Trust in connection with the adoption by
PREIT-RUBIN, Inc., a Pennsylvania corporation ("PREIT-RUBIN"), of its 1998 Stock
Option Plan (the "Plan") and the grant by PREIT-RUBIN, pursuant to the Plan, to
certain of its employees, of options to acquire the Additional Shares (the
"Options").
For purposes of this opinion, we have examined the originals
or copies, certified or otherwise identified to our satisfaction, of the Trust
Agreement and Bylaws of the Trust, each as amended to date, resolutions adopted
by the Trust's Board of Trustees and by PREIT-RUBIN's Board of Directors, the
Plan, the Stock Option Agreement dated as of July 15, 1998 (the "Stock Option
Agreement") between the Trust and PREIT-RUBIN under which the Trust has agreed
to issue to PREIT-RUBIN upon exercise of and on the same terms as the Options,
the Additional Shares deliverable upon exercise of the Options, and such other
agreements, instruments, documents and records relating to the Trust,
PREIT-RUBIN and the issuance of the Additional Shares as we have deemed
appropriate. In all such examinations, we have assumed the genuineness of
signatures, the authenticity of documents submitted to us as originals, the
conformity to authentic original documents of documents submitted to us as
copies and the accuracy and completeness of all records and other information
made available to us by the Trust. As to various questions of fact material to
our opinion, we have relied on representations of officers of the Trust.
<PAGE>
We express no opinion concerning the laws of any jurisdiction
other than the federal law of the United States and the law of the Commonwealth
of Pennsylvania.
Based upon the foregoing and consideration of such questions
of law as we have deemed relevant, we are of the opinion that the issuance of
the Additional Shares by the Trust upon the exercise of options properly granted
under the Stock Option Agreement has been duly authorized by the necessary
action of the Board of Trustees, and such Additional Shares, when and if issued
upon exercise of such options and payment therefor in accordance with the terms
of the Stock Option Agreement, will be validly issued, fully paid and
nonassessable by the Trust.
We hereby consent to the use of this opinion as an exhibit to
the Registration Statement. In giving this consent we do not admit that we come
within the categories of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended.
Sylvan M. Cohen, founder, Chairman of the Board, and a
principal shareholder of the Trust, is "of counsel" to this firm.
Very truly yours,
/s/ Drinker Biddle & Reath LLP
------------------------------
DRINKER BIDDLE & REATH LLP
<PAGE>
EXHIBIT 8
March 19, 1999
Pennsylvania Real Estate Investment Trust
The Bellevue, 200 S. Broad St.
Philadelphia, Pennsylvania 19102
Ladies and Gentlemen:
You have requested our opinion concerning certain federal
income tax matters in connection with the preparation of a Prospectus for
Pennsylvania Real Estate Investment Trust, a Pennsylvania business trust (the
"Company"), with respect to the issuance of up to 150,000 shares of beneficial
interest in the Company pursuant to the PREIT-RUBIN, INC. 1998 Stock Option
Plan.
This opinion is based, in part, on various assumptions and the
representations made by you as to factual matters set forth in the Prospectus
and in a letter delivered to us by you today. This opinion is also based upon
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
promulgated thereunder and existing administrative and judicial interpretations
thereof, all as they exist as of the date of this letter. All of the foregoing
statutes, regulations and interpretations are subject to change, in some
circumstances with retroactive effect. Any changes to the foregoing authorities
might result in modifications of our opinions contained herein.
Based on the foregoing, we are of the opinion that:
1. For all years as to which the Company's tax returns remain
open for adjustment by the Internal Revenue Service, the Company has been
organized in conformity with the requirements for qualification as a "real
estate investment trust" under the Code, and the Company's method of operation,
as described in the representations referred to above, has been such as to
enable it to meet, and to continue to meet, the requirements for qualification
and taxation as a "real estate investment trust" under the Code.
2. The statements in the Prospectus set forth under the
caption "Federal Income Tax Considerations," to the extent such statements
constitute matters of law, summaries of legal matters or legal conclusions, have
been reviewed by us and are accurate in all material respects.
We express no opinion with respect to the transactions
described in the Prospectus other than those expressly set forth herein. This
opinion represents our best legal judgment, but it has no
<PAGE>
binding effect or official status of any kind, and no assurance can be given
that contrary positions may not be taken by the Internal Revenue Service or a
court.
We hereby consent to the filing of this opinion with the
Securities and Exchange Commission and to the references to our firm in the
Prospectus under the captions "Federal Income Tax Considerations and "Legal
Matters." This does not constitute a consent under Section 7 of the Securities
Act of 1933, and in so consenting we have not certified any part of the
Prospectus or any Prospectus Supplements and do not otherwise come within the
categories of persons whose consent is required under Section 7 or under the
rules and regulations of the Securities and Exchange Commission issued
thereunder.
Sylvan M. Cohen, founder, Chairman of the Board, and a
principal shareholder of the Trust, is "of counsel" to this firm.
Very truly yours,
/s/ Drinker Biddle & Reath LLP
------------------------------
DRINKER BIDDLE & REATH LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement on Form S-3 of: our
report dated October 17, 1997 on the consolidated financial statements of
Pennsylvania Real Estate Investment Trust (the "Company"), included in the
Company's Annual Report on Form 10-K for the year ended August 31, 1997; our
report dated June 16, 1997 on the statement of revenue and certain expenses of
Magnolia Mall, included in the Company's Current Report on Form 8-K dated
October 14, 1997; our report dated June 20, 1997 on the statement of revenue and
certain expenses of North Dartmouth Mall, included in the Company's Current
Report on Form 8-K dated October 14, 1997; our report dated June 23, 1997 on the
consolidated financial statements of The Rubin Organization, Inc., included in
the Company's Current Report on Form 8-K dated October 14, 1997; our report
dated June 22, 1998 on the statement of revenue and certain expenses of the
Woods Apartments, included in the Company's Current Report on Form 8-K dated
August 13, 1998; our report dated July 15, 1998 on the statement of revenue and
certain expenses of Prince Georges Plaza, included in the Company's Current
Report on Form 8-K as amended November 9, 1998; our report dated August 28, 1998
on the combined statement of revenue and certain expenses of Festival at
Oaklands Shopping Center, included in the Company's Current Report on Form 8-K
as amended November 9, 1998; our report dated December 21, 1998 on the
consolidated financial statements of the Company for the four-month period ended
December 31, 1997, included in the Company's Current Report on Form 8-K dated
December 18, 1998; our report dated January 30, 1999 on the combined statements
of revenue and certain expenses of Northeast Tower included in the Company's
Current Report on Form 8-K as amended March 8, 1999 and to all references to our
Firm included in this registration statement.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
March 19, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the reference to our firm under the caption "Experts" and
to the incorporation by reference of our report dated October 18, 1996 with
respect to the financial statements of Lehigh Valley Associates included in
Pennsylvania Real Estate Investment Trust's Annual Report on Form 10-K for the
fiscal year ended August 31, 1997 (as amended by Form 10-K/A-1 filed on December
15, 1997) in this Registration Statement Form S-3 and related Prospectus of
Pennsylvania Real Estate Investment Trust for the registration of 150,000 shares
of its beneficial interest.
/s/ Ernst & Young LLP
Philadelphia, PA
March 19, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference of our report dated June
30, 1997 with respect to the financial statements of Oxford Valley Road
Associates, incorporated by reference into Pennsylvania Real Estate Investment
Trust's Current Report on Form 8-K dated October 14, 1997, in this Registration
Statement and related Prospectus of Pennsylvania Real Estate Investment Trust
for the registration of 150,000 shares of its beneficial interests.
/s/ Zelenkofske Axelrod and Co., Ltd.
Jenkintown, PA
March 18, 1999
