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As filed with the Securities and Exchange Commission on March 16, 1994
Registration No. 33-74292
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
(Exact name of registrant as specified in its charter)
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MARYLAND 6798 75-6335572
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
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6220 NORTH BELTLINE, SUITE 205, DALLAS, TEXAS 75063
(214) 550-6053
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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CHARLES W. WOLCOTT
6220 NORTH BELTLINE, SUITE 205
DALLAS, TEXAS 75063
(214) 550-6053
(Name, address, including zip code, and telephone number of agent for service of
process)
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Copies to:
BRYAN L. GOOLSBY
GINA E. BETTS
LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P.
2200 ROSS AVENUE, SUITE 900
DALLAS, TEXAS 75201
(214) 220-4800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
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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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
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ITEM NUMBER AND CAPTION OF FORM S-4 LOCATION IN PROXY STATEMENT/PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and
Outside Front Cover Page of Proxy
Statement/Prospectus......................... Outside Front Cover of Registration
Statement; Cross Reference Sheet;
Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Proxy Statement/Prospectus................... Inside Front and Outside Back Cover
Pages; Available Information; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................ Outside Front Cover of Registration
Statement; Proxy Statement/Prospectus
Summary; Risk Factors; The Special
Meeting
4. Terms of the Transaction....................... Outside Front Cover Page of Proxy
Statement/Prospectus; Proxy
Statement/Prospectus Summary; The
Proposal; The Company's Securities;
Certain Statutory and Charter
Provisions; Summary Comparison of
Shares of Beneficial Interest and
Common Stock; Federal Income Tax
Considerations
5. Pro Forma Financial Information................ Financial Statements
6. Material Contacts With the Company Being
Acquired..................................... *
7. Additional Information Required For Reoffering
by Persons and Parties Deemed to be
Underwriters................................. *
8. Interests of Named Experts and Counsel......... *
9. Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities.................................. *
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Registrants.... *
11. Incorporation of Certain Information by
Reference.................................... *
12. Information With Respect to S-2 or S-3
Registrants.................................. *
13. Incorporation of Certain Information by
Reference.................................... *
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ITEM NUMBER AND CAPTION OF FORM S-4 LOCATION IN PROXY STATEMENT/PROSPECTUS
----------------------------------------------- ----------------------------------------
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14. Information With Respect to Registrants Other
Than S-3 or S-2 Registrants.................. Proxy Statement/Prospectus Summary; The
Company; The Properties; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Financial Statements
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Companies...... *
16. Information With Respect to S-2 or S-3
Companies.................................... *
17. Information With Respect to Companies Other
Than S-3 or S-2 Companies.................... Proxy Statement/Prospectus Summary; The
Company; The Properties; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations Are to be Solicited........... Front Cover Page of Proxy
Statement/Prospectus; Proxy
Statement/Prospectus Summary; The
Proposal; The Special Meeting; The
Company's Securities; Recent
Developments; Management; Conflicts of
Interest
19. Information if Proxies, Consents or
Authorizations Are not to be Solicited, or in
an Exchange Offer............................ *
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* Not Applicable
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PROXY STATEMENT
AMERICAN INDUSTRIAL PROPERTIES REIT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 26, 1994
PROSPECTUS
AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
1,915,080 SHARES OF COMMON STOCK
This Proxy Statement/Prospectus is being furnished to the holders
("Shareholders") of shares of Beneficial Interest ("Shares") of American
Industrial Properties REIT, a Texas real estate investment trust (the "Trust")
in connection with the solicitation of proxies by the Trust Managers on behalf
of the Trust for use at a special meeting of Shareholders of the Trust (the
"Special Meeting") which has been called to consider and vote on a proposal (the
"Proposal") to approve and adopt an Agreement and Plan of Merger (the "Merger
Agreement") between the Trust and American Industrial Properties REIT, Inc., a
Maryland corporation and wholly-owned subsidiary of the Trust (the "Company")
and, as contemplated thereby, the merger of the Trust with and into the Company
(the "Merger"). Pursuant to the Merger Agreement (a) every five Shares will be
converted into one share of Common Stock of the Company, par value $0.01 per
share ("Common Stock"); (b) persons that will hold a fractional share in the
Company after the Merger must either (i) pay to the Company an amount equal to
the fraction necessary to round upward to a whole share of Common Stock times
the opening price of the Company's Common Stock on the first trading date after
the consummation of the Merger (the "Opening Price") and the fractional share
shall be rounded upward to the nearest whole share of Common Stock or (ii)
permit the Company to purchase the fractional share at a price equal to the
fraction owned times the Opening Price; (c) all rights and obligations of the
Trust will be assumed by the Company; and (d) the executive officers of the
Trust immediately prior to the Merger shall become the executive officers of the
Company and Messrs. Bricker and Wolcott will serve as directors of the Company.
See "THE PROPOSAL" and the Merger Agreement, a copy of which is attached hereto
as Appendix A. This Proxy Statement/Prospectus is first being mailed or
delivered to Shareholders on or about March 23, 1994. This Proxy
Statement/Prospectus also constitutes the Prospectus of the Company with respect
to its Common Stock to be issued in connection with the Merger.
Only Shareholders of record on March 4, 1994 are entitled to notice of and
to vote at the Special Meeting. The consummation of the Merger is subject to
receipt of the approval of holders of 66 2/3% of the outstanding Shares. Neither
the Declaration of Trust nor Texas law provide for dissenters' rights. The sole
stockholder of the Company, which is the Trust, acting through the Trust
Managers, and the Board of Directors of the Company have unanimously approved
the Merger. THE TRUST MANAGERS HAVE UNANIMOUSLY APPROVED THE PROPOSAL AND
RECOMMEND THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE
MERGER AGREEMENT AND THE MERGER THEREUNDER OF THE TRUST WITH AND INTO THE
COMPANY.
SEE "RISK FACTORS" FOR CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE
COMMON STOCK, INCLUDING:
- Suspension of distributions by the Trust on December 15, 1993 and the
uncertainty of the timing of the reinstatement and, if reinstated, the
level of distributions in the future
- Net losses of the Trust since 1987
- Absence of a provision in the Company's organizational documents limiting
the amount of debt that the Company may incur
- Dependence on the Texas market
- Ability of the Board of Directors to change the investment, financing,
borrowing and other policies of the Company at any time without
Stockholder approval
- Limitations on changes in control of the Company
- Severance compensation payable to executive officers upon changes in
control of the Company
- Real estate acquisition and development risks, such as the properties may
not perform as expected
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THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
THE SHARES OF COMMON STOCK OF THE COMPANY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMIS-
SION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCU-
RACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1994.
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AVAILABLE INFORMATION
The Trust is presently subject to the information requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the Commission. Such reports, proxy statements and other
information are available for inspection and copying at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the following regional offices of
the Commission: Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois, 60601, and New York Regional
Office, 7 World Trade Center, New York, New York 10048. Copies of such material
may be obtained upon payment of the Commission's customary charges by writing to
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, reports and other information
concerning the Trust may be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
2
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TABLE OF CONTENTS
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PAGE
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PROXY STATEMENT/PROSPECTUS SUMMARY.................................................... 5
The Company......................................................................... 5
Risk Factors........................................................................ 5
The Proposal and the Merger......................................................... 6
The Special Meeting; Voting......................................................... 8
Comparative Rights of Shareholders Before and After the Merger...................... 9
Market Price and Distribution Data.................................................. 9
Selected Historical Financial Data.................................................. 10
Distribution Policy................................................................. 10
Federal Income Tax Consequences of the Merger....................................... 11
Tax Status of the Company........................................................... 11
RISK FACTORS.......................................................................... 12
Suspension of Distributions......................................................... 12
History of Net Losses............................................................... 12
No Limitation on Debt............................................................... 12
Dependence on Texas Market.......................................................... 12
Changes in Policies................................................................. 13
Certain Anti-takeover Provisions; Ownership Limits.................................. 13
Severance Compensation In the Event of a Change of Control.......................... 13
Adverse Consequences of a Failure to Qualify as a REIT.............................. 15
Adverse Effect of Market Interest Rates on Price of Common Stock.................... 15
Real Estate Investment Considerations............................................... 15
Possible Future Dilution............................................................ 16
Texas Franchise Taxes............................................................... 17
Uninsured Loss...................................................................... 17
Market Illiquidity.................................................................. 17
THE PROPOSAL.......................................................................... 17
General............................................................................. 17
Detriments.......................................................................... 18
Benefits............................................................................ 18
Results............................................................................. 19
Recommendation of the Trust Managers................................................ 20
THE SPECIAL MEETING................................................................... 20
General............................................................................. 20
Record Date; Outstanding Shares; Voting............................................. 20
Quorum.............................................................................. 20
Dissenters' Rights.................................................................. 20
Proxy............................................................................... 20
Solicitation of Proxies............................................................. 21
THE COMPANY........................................................................... 21
Company History..................................................................... 21
Investment Policies................................................................. 22
Operating Policies.................................................................. 22
Distribution Policy................................................................. 23
THE PROPERTIES........................................................................ 24
Additional Information Regarding Certain Properties................................. 25
Other Encumbrances on Real Estate................................................... 26
Terms of Mortgage Indebtedness...................................................... 27
Competition......................................................................... 27
Insurance........................................................................... 27
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES........................................... 28
Disposition......................................................................... 28
Conflict of Interest Policy......................................................... 28
Affiliate Transaction Policy........................................................ 29
Policies With Respect to Other Activities........................................... 29
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 30
Results of Operations............................................................... 30
Liquidity and Capital Resources..................................................... 31
Other Matters....................................................................... 34
Recent Developments................................................................. 34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS.......................... 35
MANAGEMENT............................................................................ 35
Directors and Executive Officers.................................................... 35
Compensation of Directors........................................................... 36
Compensation of Executive Officers.................................................. 37
Employment Agreements............................................................... 37
Stock Option Plan................................................................... 38
401(k) Plan......................................................................... 39
Limitation of Liability and Indemnification......................................... 40
SUMMARY COMPARISON OF SHARES OF BENEFICIAL INTEREST AND
COMMON STOCK........................................................................ 41
THE COMPANY'S SECURITIES.............................................................. 43
Capital Stock....................................................................... 43
The Notes........................................................................... 45
CERTAIN STATUTORY AND CHARTER PROVISIONS.............................................. 47
Classification of the Board of Directors............................................ 47
Limitation of Liability and Indemnification......................................... 48
Business Combinations............................................................... 49
Control Share Acquisition........................................................... 49
Amendment to the Articles of Incorporation and Bylaws............................... 50
Dissolution of the Company.......................................................... 50
Director Nominations and New Business............................................... 50
Meetings of Stockholders............................................................ 50
FEDERAL INCOME TAX CONSIDERATIONS..................................................... 50
Effect of the Merger................................................................ 50
Taxation............................................................................ 51
Taxation of the Company............................................................. 51
Taxation of the Stockholders of a REIT.............................................. 53
Withholding on Dividends and Sale Proceeds.......................................... 53
Foreign Stockholders................................................................ 54
Tax Exempt Stockholders............................................................. 54
RECENT DEVELOPMENTS................................................................... 55
EXPERTS............................................................................... 55
LEGAL MATTERS......................................................................... 55
STOCKHOLDER PROPOSALS................................................................. 56
ADDITIONAL INFORMATION................................................................ 56
GLOSSARY.............................................................................. 57
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
AGREEMENT AND PLAN OF MERGER.......................................................... A-1
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PROXY STATEMENT/PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information contained elsewhere in this Proxy Statement/Prospectus, the
Exhibits hereto and the Merger Agreement attached hereto as Appendix A. Each
Shareholder is urged to read this Proxy Statement/Prospectus in its entirety.
Capitalized terms used in this Proxy Statement/Prospectus shall have the
meanings set forth in the Glossary.
THE COMPANY
The Company is a newly-formed Maryland corporation which is a wholly-owned
subsidiary of the Trust. The Company was incorporated for the purpose of
reorganizing the Trust into a Maryland corporation. See "THE PROPOSAL." The
Company, like the Trust, will operate as a self-administered REIT and expects to
continue to qualify as a REIT for federal income tax purposes. The Company does
not intend to engage a separate REIT advisor.
If the Proposal is approved and adopted, the Company will own and operate
real estate properties consisting of 14 industrial developments and one enclosed
specialty retail mall (collectively, the "Properties"). The Properties contain
1,592,880 net rentable square feet and are located in eight states. For the
twelve-month period ended December 31, 1993, the Properties had an average
occupancy rate of 88%. At December 31, 1993, the Properties were 89% occupied.
As of December 31, 1993, the Properties had average monthly rental from a low of
$2.80 to a high of $14.43 per square foot. See "THE PROPERTIES."
As with the Trust, industrial properties will be the primary focus of the
Company's acquisition policy. The Company will seek to invest in industrial
properties in major mid-American markets such as Dallas, Chicago and Atlanta,
which are located at the key rail and highway intersects controlling the
distribution of goods in the United States. See "THE COMPANY -- Investment
Objectives."
The principal executive offices of the Trust and the Company are located at
6220 N. Beltline, Suite 205, Irving, Texas 75063, and their telephone number is
(214) 550-6053.
RISK FACTORS
There are numerous risk factors relating to the receipt of Common Stock in
connection with the Merger and the operation of the Company which the
Shareholders should carefully consider before voting on the Proposal. See "RISK
FACTORS."
Such risks include, among other things:
- risks associated with the suspension of distributions by the Trust on
December 15, 1993 and the timing of the reinstatement and the amount of
which is dependent upon the Company's future operating cash flow and net
income, both of which may be adversely impacted by the Company's intent to
defease the Notes, all of which may make the shares of Common Stock less
marketable;
- risks associated with continued losses by the Company;
- the risk of potential increases in leverage due to the absence of a
provision in the organizational documents of the Company that limits the
amount of debt that the Company may incur, which may result in increases
in debt service requirements that could adversely affect the Company's
Funds from Operations and the ability to pay dividends to Stockholders and
an increase of default in the obligations of the Company;
- risks associated with the location of seven of the Company's Properties
in Texas, which account for 834,521 leasable square feet of the 1,592,880
total leasable square feet of the Properties (52%); therefore, the
Company's performance is largely dependent upon economic conditions in the
Texas areas in which the Properties are located;
- risks associated with the ability of the Board of Directors of the
Company to change the investment, financing, borrowing, distribution and
other policies of the Company at any time without Stockholder approval;
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- risks associated with the potential anti-takeover effect of limiting
ownership of Common Stock and Preferred Stock by a single person to 9.8%
of the outstanding Common Stock and Preferred Stock and of certain other
provisions contained in the organizational documents of the Company, such
as a staggered Board of Directors and the ability to issue Preferred
Stock, any of which may discourage a change in control and limit the
opportunity for Stockholders to receive a premium over then-current market
prices for their Common Stock;
- risks associated with the severance compensation to the executive
officers of the Company in the event of a change in control of the
Company, which may discourage a potential acquiror from seeking control of
the Company, thereby affecting the ability of Stockholders to receive a
premium for their stock over then-existing market prices;
- risks associated with the acquisition or development of industrial
properties, including lease-up and financing risks and the risk that such
properties may not perform as expected;
- risks of potential dilution to then-existing Stockholders as a result of
the Company's ability to issue additional shares of Common Stock,
including those issued to officers and employees upon the exercise of
stock options granted under the Omnibus Plan;
- risks of potential liability of the Company for unknown or future
environmental liabilities;
- the risk of the failure of the Company to qualify as a REIT and therefore
be taxed as a corporation and the liability of the Company for certain
federal, state and local income taxes in such event;
- risk of increases in market interest rates, which may lead prospective
purchasers of the Common Stock to demand a higher anticipated annual yield
from future dividends, which in turn may adversely affect the market price
of the Common Stock;
- risks associated with the Company being subject to Texas franchise taxes;
- risk of potential losses in the event of a casualty or other liability
that is not insured, is uninsurable or not economically insurable;
- risks associated with the effect of REIT distribution requirements
(mandating that 95% of a REIT's net ordinary taxable income be distributed
currently) on the Company's ability to finance future developments,
acquisitions and capital improvements; and
- real estate investment risks, such as the effect of economic and other
conditions on property values (including the dependency of the Properties
on the economies of the metropolitan areas where they are located), the
ability of tenants to make rent payments, the ability of the Properties to
generate revenues sufficient to meet operating expenses, including future
debt service, and the illiquidity of real estate investments;
THE PROPOSAL AND THE MERGER
General. The Shareholders are being asked to consider and approve the
Merger Agreement and the Merger thereunder pursuant to which the Trust will
merge with and into the Company, a wholly-owned subsidiary of the Trust. The
purpose of the Merger is to reorganize the Trust into a Maryland corporation
that intends to continue to qualify as a REIT for federal income tax purposes.
See "THE PROPOSAL." The costs associated with the Merger, estimated at $400,000,
will be borne by the Trust. See "THE SPECIAL MEETING -- Solicitation of
Proxies."
The affirmative vote of the holders of 66 2/3% of the outstanding Shares
(at least 6,050,267 Shares) and the Trust Managers are required to approve the
Proposal. The Trust Managers and the executive officers of the Trust own a total
of 18,000 Shares (.20%). The percentage ownership of the Trust Managers and
6
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executive officers of the Trust will not be materially affected by the Merger.
See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS." The Trust
Managers have unanimously approved the Proposal, subject to the approval of the
Shareholders. The Board of Directors and the sole Stockholder of the Company
(the Trust, acting through the Trust Managers) have unanimously approved the
Merger.
There are no statutory rights of dissent or appraisal available under Texas
law to the Shareholders who object to the Proposal. No federal or state
regulatory approvals must be obtained in connection with the Merger. Certain
filings will be required in Texas and Maryland in order to consummate the
Merger.
If the Merger is approved, each Shareholder will receive one share of
Common Stock for every five Shares surrendered. Persons that will hold a
fractional share in the Company after the Merger must either (i) pay to the
Company an amount equal to the fraction necessary to round upward to a whole
share of Common Stock times the Opening Price and the fractional share shall be
rounded upward to the nearest whole share of Common Stock or (ii) permit the
Company to repurchase the fractional share at a price equal to the fraction
owned times the Opening Price. Each Shareholder will be entitled to receive,
upon surrender of certificates previously representing Shares, certificates
representing the number of full shares of Common Stock to which such Shareholder
is entitled pursuant to the Merger Agreement. Stockholders holding fractional
shares of Common Stock will be contacted by the Company or its Transfer Agent
after the Effective Date to determine whether the Stockholder desires to pay the
necessary funds to be rounded upward to the nearest whole share, or if the
Stockholder desires to receive cash for his or her fractional share of Common
Stock as described above. This one-for-five share exchange effected by the
Merger will not affect the voting or distribution rights of the Shareholders;
however, due to certain differences between the Texas REIT Act and the Maryland
General Corporation Law ("MGCL"), not all of the rights of Shareholders will
remain the same. See "SUMMARY COMPARISON OF SHARES OF BENEFICIAL INTEREST AND
COMMON STOCK." Except for the deminimus number of persons who currently own four
or fewer Shares, the number of Stockholders after the Merger will be equal to
the number of Shareholders existing prior to the Merger.
Two of the Trust Managers (Messrs. Bricker and Wolcott) shall serve on the
Board of Directors of the Company along with Mr. Raymond A. Hay, and the
executive officers of the Trust shall serve as the executive officers of the
Company. See "MANAGEMENT -- Directors and Executive Officers."
Benefits and Detriments. The Trust Managers believe the Proposal has the
following possible detriments for the Trust and its Shareholders:
- Dilution. The Proposal will result in additional authorized shares which
may be offered in future capital raising transactions on behalf of the
Company without Stockholder approval. Such transactions may result in
dilution to then-current Stockholders. Additionally, the executive
officers of the Company have been granted stock options under the Omnibus
Plan to purchase an aggregate of up to 115,000 shares of Common Stock. The
exercise of such options will result in dilution to then-existing
Stockholders. See "RISK FACTORS -- Possible Future Dilution."
- Ownership Limitations and Staggered Board. Provisions in the Articles
limiting ownership of Common Stock and Preferred Stock by a single person
to 9.8%, requiring a staggered Board of Directors and authorizing the
issuance of Preferred Stock may discourage a change in control of the
Company and thus limit the opportunity for Stockholders to receive a
premium over the then-current market price for their Common Stock. See
"RISK FACTORS -- Certain Anti-Takeover Provisions; Ownership Limits."
- Texas Franchise Taxes. As a corporation doing business in Texas, the
Company will be subject to Texas franchise taxes. The Trust is not
currently subject to Texas franchise taxes as a REIT formed under the
Texas REIT Act. Such amount is not expected to be material for fiscal 1994
(less than $50,000). There can be no assurance, however, that the
Company's franchise tax liability will not increase in future years due to
the amount of income and/or capital of the Company subject to the tax or
other changes in Texas law which could increase the scope and amount of
the tax.
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- Odd Lot Holdings. As a result of the Merger, Shareholders holding round
lots of Shares of 400 or fewer will have their holdings reduced to fewer
than 100 Shares and will, therefore, become odd lot holders. It is
generally more difficult and expensive to sell odd lot holdings than round
lot holdings.
See "THE PROPOSAL -- Detriments."
The Trust Managers believe the Proposal has the following potential
benefits for the Trust and its Shareholders:
- Properties No Longer Subject to Mandatory Sale or Improvement. The Texas
REIT Act mandates the sale of real property owned by the Trust unless
major capital improvements are made to the Property within 15 years of its
acquisition. There is no statutory guidance or judicial interpretation as
to what constitutes a major capital improvement. The Proposal alleviates
the risk of a statutorily mandated sale at a time which is not beneficial
to the Shareholders. None of the Properties would be subject to these
provisions of the Texas REIT Act prior to the year 2000.
- Established Body of Law. A substantial body of law has developed around
the interpretations of the MGCL while the Texas REIT Act has been subject
to relatively little judicial interpretation.
- Limited Liability of Stockholders. Although the Texas REIT Act
specifically provides that the shareholders of a trust formed under the
Texas REIT Act are not liable for the debts of the trust, it is unclear as
to whether such protection would be afforded to the shareholders by courts
outside Texas. To date, there have been no published cases addressing
whether shareholders of a trust formed under the Texas REIT Act are
afforded limited liability protection. It is well accepted as a general
matter in all jurisdictions that stockholders in a corporation are not
personally liable for the debts of the corporation.
See "THE PROPOSAL -- Benefits."
Results. In addition to the detriments and benefits described above,
approval of the Proposal will have the following results:
- Improved Capital and Organizational Structure. The Merger would result in
an improved capital structure through increasing the authorized number of
shares of Common Stock and providing for the issuance of additional
securities, thereby providing the Company the flexibility to acquire
additional properties through the issuance of Common Stock or to raise
additional equity capital through subsequent public or private offerings.
While the capital structure of the Trust could be similarly improved
through amending the Declaration of Trust, management believes that the
additional benefits of being organized as a Maryland corporation, as
hereinafter described, make reorganizing as a Maryland corporation
preferable to merely amending the Declaration of Trust and remaining
subject to the Texas REIT Act.
- Purchase of Property With Stock. The Articles provide for a sufficient
number of authorized shares to permit the Company to acquire property for
Common Stock, thereby giving the Company more flexibility in negotiating
purchases of additional properties. The issuance of additional shares of
Common Stock to acquire properties may, however, have a dilutive effect on
then-current Stockholders. See "RISK FACTORS -- Possible Future Dilution."
Just as Common Stock may be used to acquire additional properties,
newly-authorized capital stock of the Trust could likewise be used to
acquire additional properties. As discussed above, management believes
that the additional benefits of being organized as a Maryland corporation
make reorganizing as a Maryland corporation preferable to merely amending
the Declaration of Trust to increase the number and type of authorized
Trust Shares and remaining subject to the Texas REIT Act.
See "THE PROPOSAL -- Results."
THE SPECIAL MEETING; VOTING
The Special Meeting will be held at 9:00 a.m., Dallas time on April 26,
1994 at the Four Seasons Hotel, 4150 North MacArthur Boulevard, Irving, Texas
75038. See "THE SPECIAL MEETING -- General".
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<PAGE> 12
Only Shareholders of record at the close of business on March 4, 1994 (the
"Record Date") will be entitled to notice of and to vote at the Special Meeting
or any adjournments thereof. As of March 4, 1994, 9,075,400 Shares were issued
and outstanding. See "THE SPECIAL MEETING -- Record Date; Outstanding Shares;
Voting." The presence either in person or by properly executed proxy of a
majority of the outstanding Shares (4,537,701 Shares) is necessary to constitute
a quorum at the Special Meeting. See "THE SPECIAL MEETING -- Quorum."
Accompanying this Proxy Statement/Prospectus is a proxy card ("Proxy") that
may be used to indicate a Shareholder's vote on the Proposal. All Proxies that
are properly completed, signed and returned to the Trust prior to the Special
Meeting, and which have not been revoked, will be voted at the Special Meeting
as indicated on the Proxy. If the Proxy is signed and returned, but no vote is
indicated thereon, the Proxy will be voted FOR the Proposal. If a Shareholder
returns a Proxy duly executed, but does not indicate the manner in which the
Proxy is to be voted, the Proxy will be voted for the Proposal. Failure to
return a Proxy or vote at the Special Meeting or abstaining from voting will
have the same effect as a vote against the Proposal. Broker non-votes have the
same effect as a vote against the Proposal.
A Shareholder may revoke his or her Proxy at any time before it is voted by
(i) executing a subsequently dated Proxy; (ii) filing a written request to
revoke or amend his or her Proxy with the President of the Trust at the
principal executive office of the Trust prior to the date of the Special
Meeting; or (iii) attending the Special Meeting and revoking the Proxy prior to
the start of the Special Meeting. Failure to return the Proxy is the same as
voting against the Proposal. See "THE SPECIAL MEETING -- Proxy." If the Special
Meeting (or any adjourned session thereof) is adjourned, a Shareholder may
revoke his or her Proxy before it is voted at any adjourned session of the
Special Meeting by (i) executing a subsequently dated Proxy; (ii) filing a
written request to revoke or amend his or her Proxy with the President of the
Trust at the principal executive office of the Trust prior to the date of the
adjourned session; or (iii) attending the adjourned session and revoking the
Proxy prior to the start of such adjourned session. The foregoing shall
constitute the methods for revoking a Proxy with respect to each adjournment of
the Special Meeting.
If immediately prior to the commencement of the Special Meeting (or any
adjourned session thereof) if appears that sufficient votes will not be cast to
either approve or defeat the Proposal, the holders of the Proxies may vote the
Proxies, in their discretion, to adjourn the Special Meeting (or any adjourned
session thereof) until such time as the holders of the Proxies receive or are
able to cast sufficient votes to approve or defeat the Proposal. The Trust's
By-Laws permit the Special Meeting (or any adjourned session thereof) at which a
quorum is present to be adjourned by the vote of a majority of the Shares
represented either in person or by Proxy at the Special Meeting (or any
adjourned session thereof). If a Shareholder does not want the holders of the
Proxies to vote the Proxies to adjourn the Special Meeting (or any adjourned
session thereof), the Shareholder should vote against or abstain from voting on
the second item set forth on the Proxy. The Trust Managers may postpone the
Special Meeting to a later date without a vote of the Shareholders by providing
Shareholders with notice of a new Special Meeting date at least ten days prior
to such date. See "THE SPECIAL MEETING -- Proxy."
COMPARATIVE RIGHTS OF SHAREHOLDERS BEFORE AND AFTER THE MERGER
The rights of the Shareholders are currently governed by the Texas REIT Act
and by the Declaration of Trust and the By-Laws of the Trust. On the Effective
Date, the Shareholders will become Stockholders of the Company, a Maryland
corporation, and their rights as Stockholders will be governed by Maryland law
and by the Articles and Bylaws of the Company. There are various differences
between the rights of Company Stockholders and Trust Shareholders. See "SUMMARY
COMPARISON OF SHARES OF BENEFICIAL INTEREST AND COMMON STOCK."
9
<PAGE> 13
MARKET PRICE AND DISTRIBUTION DATA
The Trust's Shares are listed and traded on the New York Stock Exchange
(the "NYSE"). The following table sets forth for the periods indicated the high
and low per Share closing sale price of the Trust's Shares, and the cash
distributions declared per Share:
<TABLE>
<CAPTION>
QUARTER ENDED: HIGH LOW DISTRIBUTIONS
-------------------------------------------------------------- --- --- -------------
<S> <C> <C> <C>
December 31, 1993............................................. 3 1/4 2 .04
September 30, 1993............................................ 2 3/8 1 7/8 .04
June 30, 1993................................................. 2 1/2 2 .04
March 31, 1993................................................ 3 1 3/4 .04
December 31, 1992............................................. 2 1 1/2 .04
September 30, 1992............................................ 2 1/8 1 3/4 .04
June 30, 1992................................................. 2 1/4 1 7/8 .04
March 31, 1992................................................ 2 5/8 1 3/4 .08
</TABLE>
At February 28, 1994, the last trading day prior to the public announcement
of the proposed Merger, the closing sale price per Share as reported on the NYSE
Composite Tape was $2.25. On such date, there were 9,075,400 outstanding Shares
held by approximately 2,341 holders.
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<PAGE> 14
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
The following table sets forth historical financial information for the
Trust and should be read in conjunction with the Financial Statements of the
Trust and the Notes thereto which are contained elsewhere in the Proxy
Statement/Prospectus. There is not expected to be any material impact to the
historical operations of the Trust as a result of the proposed Merger with the
Company.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1993(A) 1992(B) 1991(C) 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues............................................. $ 10,641 $ 15,139 $ 16,488 $ 17,744 $ 17,824
Loss from real estate operations(d).................. (5,121) (18,719) (13,786) (4,484) (2,708)
Net loss(d).......................................... (7,867) (17,593) (9,162) (2,626) (2,708)
BALANCE SHEET DATA:
Total assets......................................... $ 88,297 $110,446 $147,877 $169,465 $173,143
Total long-term debt, net of unamortized discount.... 57,078 68,578 87,141 94,666 90,343
Shareholders' equity................................. 28,851 38,171 57,579 70,507 79,486
OTHER DATA:
Funds from (used by) Operations(e)................... $ (590) $ 2,852 $ 8,308 $ 9,032 $ 9,522
PER SHARE DATA:
Loss from real estate operations..................... $ (0.57) $ (2.06) $ (1.52) $ (0.49) $ (0.30)
Net loss............................................. (0.87) (1.94) (1.01) (0.29) (0.30)
Book value........................................... 3.18 4.21 6.34 7.77 8.76
Distributions paid................................... 0.16 0.20 0.42 0.70 0.98
Number of shares outstanding........................... 9,075,400 9,075,400 9,075,400 9,075,400 9,075,400
</TABLE>
- ---------------
(a) The Trust sold one of its properties in the first quarter of 1993, thus
operating with only 14 properties until the acquisition of the Northview
Distribution Center in December 1993.
(b) The Trust sold two of its properties in the fourth quarter of 1992, thus
operating with only 15 properties for the remainder of the year.
(c) On December 30, 1990, the Trust sold two of its 19 original properties, thus
operating with only 17 properties during 1991.
(d) Loss from real estate operations and net loss for 1992 and 1991 include
provisions for writedowns of real estate due to permanent impairments in
value of $14,094,000 and 9,371,000, respectively.
(e) Funds from (used by) Operations is computed based on the definition adopted
by the National Association of Real Estate Investment Trusts, which is net
income (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales
of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Funds from (used by)
Operations should not be considered by the reader as an alternative to net
income as an indicator of the Trust's operating performance or to cash flows
from operations as a measure of liquidity. The 1991-1992 changes in the
Trust's debt structure from primarily zero coupon debt to current pay debt
negatively impacts Funds from (used by) Operations as the amortization of
the zero coupon debt has been previously added back to net income in
computing Funds from (used by) Operations, whereas the current pay interest
incurred on the notes replacing the zero coupon debt is not added back.
11
<PAGE> 15
DISTRIBUTION POLICY
On December 15, 1993, the Trust announced its intent to redirect its cash
resources to the ultimate elimination of the operating restrictions imposed on
the Trust by the terms of the Zero Coupon Notes Due 1997 (the "Notes") through a
complete defeasance of the outstanding Notes. This would require the Trust to
deposit approximately $16,289,000 with the Trustee. For this reason, the Trust
determined that it was in the best interest of the Trust and its Shareholders to
suspend quarterly distributions (which had been at $.04 per quarter, equivalent
to $.20 per quarter for the Company) until such time as the remaining Notes are
fully defeased and distributions can be supported from the positive cash flow of
the Trust, as measured by its Funds from Operations. See "--Market Price and
Distribution Data" and "RISK FACTORS -- Suspension of Distributions." No
dividends on Common Stock are anticipated while the Company pursues a
recapitalization and refinancing strategy. There can be no assurance as to when
distributions will be reinstated and when reinstated, that distributions will be
at the same level as they were prior to December 15, 1993. See "RISK
FACTORS -- Suspension of Distributions."
The Company's dividend policy is to review operating results, capital
requirements and working capital reserves on a quarterly basis and to declare
dividends based on the Board of Directors' and management's determination of
distributable cash flow. Generally, the Company intends to maintain a dividend
equal to approximately 85% of Funds from Operations within these parameters. In
order to satisfy the federal tax requirement to distribute 95% of the Company's
taxable income, it is management's intent to make sufficient distributions
necessary in order to maintain the Company's REIT status. So long as there is no
REIT taxable income, suspension of cash distributions will not result in a
disqualification of the Company's status as a REIT. For at least the remainder
of fiscal 1994, the Company anticipates having net operating losses and,
therefore, will have no taxable income required to be distributed under the REIT
provisions of the Code in order for the Company to maintain its status as a
REIT.
For a further discussion of the amount of distributions that must be made
in order for the Company to retain REIT status, see "FEDERAL INCOME TAX
CONSIDERATIONS -- Taxation of the Company."
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Trust and the Company will receive an opinion from counsel, Liddell,
Sapp, Zivley, Hill & LaBoon, L.L.P., to the effect that the Merger as
contemplated by the Merger Agreement will constitute a reorganization within the
meaning of Section 368(a) of the Code, thus neither the Company nor the Trust
will recognize any gain or loss upon the Merger and no gain or loss will be
recognized by the Shareholders on the receipt of shares of Common Stock in
exchange for their Shares pursuant to the Merger Agreement, except for
Stockholders who elect to receive cash in lieu of fractional shares. See
"FEDERAL INCOME TAX CONSIDERATIONS."
TAX STATUS OF THE COMPANY
The Company intends to continue to be taxed as a REIT, like the Trust,
under Sections 856 through 860 of the Code. As a REIT, the Company generally
will not be subject to federal income tax if it distributes at least 95% of its
REIT taxable income (which does not include capital gains) to its Stockholders.
REITs are subject to a number of organizational and operational requirements. If
the Company fails to qualify as a REIT in any taxable year, the Company will be
subject to federal income tax (including any applicable alternative minimum tax)
on its taxable income at regular corporate rates. See "RISK FACTORS -- Failure
to Qualify as a REIT" for a more detailed discussion of the consequences of the
failure of the Company to qualify as a REIT. Even if the Company qualifies for
taxation as a REIT, the Company may be subject to certain state and local taxes
on its income and property and to federal income and excise taxes on its
undistributed income. See "FEDERAL INCOME TAX CONSIDERATIONS."
The legality of Common Stock to be issued in connection with the Merger and
the qualification of the Company as a REIT for federal income tax purposes will
be passed upon by Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. in an opinion to
be issued to the Company.
12
<PAGE> 16
RISK FACTORS
An investment in the Common Stock involves various risks. Prospective
investors should consider carefully the risk factors, in addition to the other
information set forth in this Proxy Statement/Prospectus, in connection with an
investment in the Common Stock offered hereby.
SUSPENSION OF DISTRIBUTIONS
On December 15, 1993, the Trust suspended quarterly distributions (which
had been at $0.04 per quarter, equivalent to $0.20 per quarter for the Company)
until such time as the outstanding Notes are fully defeased and distributions
can be supported from cash flow. There can be no assurance as to when
distributions will be reinstated and when reinstated, that distributions will be
at the same level as they were prior to December 15, 1993. The timing of such
reinstatement will be dependent upon the Company's future cash flow and
resulting net income (see "-- History of Net Losses"), both of which may be
adversely impacted by the Company's intent to defease the Notes which would
require that approximately $16,289,000 be deposited with the Indenture Trustee.
Accordingly, the shares of Common Stock may have limited marketability.
HISTORY OF NET LOSSES
The Trust has reported a net loss in each year since 1987. There can be no
assurance that the Company will not experience net losses in the future. For the
fiscal years ended December 31, 1993, 1992 and 1991, the net losses of the Trust
were $7,867,000, $17,593,000 and $9,162,000, respectively, and the aggregate
amount of such losses since 1985 is $38,933,000. The amount of cash used in the
Trust's operations in fiscal 1993 was $1,442,000.
NO LIMITATION ON DEBT
The Company's current financial capitalization policy is to seek to limit
its debt to less than 50% of its market capitalization. As a general practice,
management expects to maintain the Company's debt-to-market capitalization ratio
at or below the REIT industry average. The Company's debt-to-market
capitalization ratio as of March 3, 1994 was 2.8 to 1. Market capitalization for
this purpose is the total trading value of the Trust's outstanding Shares.
Management believes that the average debt-to-market capitalization ratio for the
REIT industry is less than one-to-one. The Company's organizational documents,
however, do not contain any limitation on the amount or percentage of
indebtedness the Company can incur. Accordingly, the Company could alter its
current debt policy. If this policy were changed, the Company could become more
highly leveraged, resulting in an increase in debt service that could adversely
affect the Company's ability to make dividend payments to its Stockholders and
would result in an increased risk of default on its obligations.
The Company has established its debt policy relative to the market
capitalization of the Company rather than to the net book value of its assets
because it believes that the net book value of its assets (which are primarily
depreciable real property) does not accurately reflect its ability to borrow and
to meet debt-service requirements. The market capitalization of the Company,
however, will vary depending on the trading value of the Company's Common Stock
and does not necessarily reflect the fair market value of the underlying assets
of the Company at all times.
Subject to the Indenture and other existing loan documents, the Company may
borrow funds in the future and secure such loans with mortgages on the
Properties. In the event such mortgage loans require balloon payments, the
ability of the Company to make such payments will depend upon its ability to
sell or refinance the Properties for amounts sufficient to repay such loans. In
addition, the payment of debt service in connection with any borrowings may
adversely affect cash flow and the value of the Common Stock.
DEPENDENCE ON TEXAS MARKET
Seven of the Properties, containing 834,521 leasable square feet
(approximately 52% of the total leasable square feet of the Properties owned by
the Company), are located in Texas. The Company's performance is,
13
<PAGE> 17
therefore, largely dependent upon economic conditions in the Texas metropolitan
areas in which the Properties are located. A decline in the Texas markets may
adversely affect the ability of the Company to pay dividends to its
Stockholders.
CHANGES IN POLICIES
The investment and financing policies of the Company and its policies with
respect to all other activities, including its growth, debt, capitalization,
dividends and operating policies, will be determined by the Board of Directors
of the Company. Although the Board of Directors has no present intention to do
so, these policies may be amended or revised at any time and from time to time
at the discretion of the Board of Directors without a vote of the Stockholders
of the Company. See "THE COMPANY -- Investment Objectives" and "-- Operating
Strategies." A change in these policies could adversely affect the Company's
financial condition or results of operations or the market price of the Common
Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS; OWNERSHIP LIMITS
Charter Provisions. Certain provisions of the Company's Articles may have
the effect of discouraging a third party from making an acquisition proposal for
the Company and may thereby inhibit a change in control of the Company under
circumstances that could give the holders of shares of Common Stock the
opportunity to realize a premium over the then-prevailing market prices.
Furthermore, the ability of the Company's Stockholders to effect a change in
management control of the Company would be substantially impeded by such
anti-takeover provisions. Moreover, in order for the Company to maintain its
qualification as a REIT, not more than 50% in value of its outstanding shares of
Common Stock may be owned, directly or indirectly, by five or fewer individuals
(as defined in the Code to include certain entities). For the purpose of
preserving the Company's REIT qualification, the Articles prohibit ownership
either directly or under the applicable attribution rules of the Code of more
than 9.8% of the shares of Common Stock and Preferred Stock by any Stockholder,
subject to certain exceptions. Such ownership limit may have the effect of
preventing an acquisition of control of the Company without the approval of the
Board of Directors. See "THE COMPANY'S SECURITIES -- Capital Stock," "CERTAIN
STATUTORY AND CHARTER PROVISIONS" and "FEDERAL INCOME TAX CONSIDERATIONS."
Staggered Board. The Board of Directors will be divided into three classes.
The terms of the first, second and third classes will expire in 1995, 1996 and
1997, respectively. Directors of each class will be elected for a three-year
term upon the expiration of the term of the current class. See "MANAGEMENT." The
staggered terms for directors may affect the ability of the Stockholders to
effect a change in control of the Company even if a change of control were in
the Stockholders' best interest. See "CERTAIN STATUTORY AND CHARTER
PROVISIONS -- Classification of the Board of Directors."
Preferred Stock. The Articles authorize the Board of Directors to issue up
to 10,000,000 shares of Preferred Stock and to establish the preference and
rights of any such shares issued. See "THE COMPANY'S SECURITIES -- Preferred
Stock." The issuance of Preferred Stock could have the effect of delaying or
preventing a change in control of the Company even if a change in control were
in the best interests of the Stockholders. No shares of Preferred Stock will be
issued or outstanding upon consummation of the Merger.
Business Combination Provision. Certain provisions of the MGCL regarding
business combinations require approval of the holders of 80% of the outstanding
voting shares of the Company. See "CERTAIN STATUTORY AND CHARTER
PROVISIONS -- Business Combinations." These statutory provisions may discourage
a change in control and limit the opportunity for Stockholders to receive a
premium over the then-current market prices for their Common Stock.
SEVERANCE COMPENSATION IN THE EVENT OF A CHANGE OF CONTROL
Effective January 12, 1994, the Company entered into Employment Agreements
with Messrs. Wolcott and Warner and on March 7, 1994 with Mr. Simpson, which
provide for severance payments in the event of a change of control of the
Company in the amount of one times the average of the total cash compensation,
14
<PAGE> 18
inclusive of base salary and cash bonuses, received by such employee during each
of the Company's preceding five calendar years or such shorter period of time as
employee has been employed by the Company. As the Company has not made any
compensation payments to Messrs. Wolcott, Simpson and Warner as of the date
hereof, if a change of control were to occur as of the date hereof, such
employees would not be entitled to any severance payments under such agreements.
See "MANAGEMENT -- Employment Agreements." These Employment Agreements may
discourage a potential acquiror from seeking control of the Company thereby
affecting the ability of Stockholders to receive a premium for their Common
Stock over then-existing market prices.
RISKS OF DEVELOPMENT AND ACQUISITION ACTIVITIES
The Company will incur risks associated with any development activities it
undertakes, including the risks that (i) occupancy rates and rents at a newly
completed project may not be sufficient to make the project profitable; (ii)
financing may not be available on favorable terms for the project; (iii)
construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction costs; (iv) construction costs
of a project may exceed original estimates, possibly making the project
uneconomical; (v) zoning, occupancy and other required governmental approvals or
authorizations may not be granted and development costs associated therewith may
not be recovered; and (vi) development opportunities explored by the Company may
be abandoned. Acquisitions of properties entail risks that investments will fail
to perform in accordance with expectations and that judgments with respect to
the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property will prove
inaccurate, as well as general investment risks associated with any new real
estate investment.
The Company anticipates that its new developments and acquisitions will be
financed under lines of credit or other interim forms of secured or unsecured
financing. There is no assurance that such interim financing will be available
or that permanent financing for such newly developed or acquired projects will
be available or might be available only on disadvantageous terms. In addition,
the fact that the Company must distribute 95% of its taxable income in order to
maintain its qualification as a REIT will limit the ability of the Company to
rely upon income from operations or cash flow from operations to finance new
development or acquisitions. As a result, if permanent debt or equity financing
is not available on acceptable terms to refinance new developments or
acquisitions undertaken without permanent financing, further development
activities or acquisitions might be curtailed or cash available for distribution
might be adversely affected. In the case of an unsuccessful development or
acquisition, the Company's loss could exceed its investment in the project. See
"THE COMPANY."
POSSIBLE FUTURE DILUTION
The Company has a substantially greater number of authorized shares than
the Trust. The Company's authorized Common Stock may be offered in capital
raising transactions on behalf of the Company. Such transactions may result in
dilution to then-current Stockholders. In addition, the Company has adopted the
Omnibus Plan pursuant to which officers and other employees of the Company may
be granted options, stock appreciation rights and restricted stock of up to
182,000 shares of Common Stock, and of that amount, options to acquire 115,000
shares have been issued as of the date hereof. The exercise of any such options
will have a dilutive effect on the then-current Stockholders. See
"MANAGEMENT -- Compensation of Executive Officers" and "-- Stock Option Plan."
The authorized but unissued capital stock of the Company may be issued for any
corporate purpose, including the purchase of additional properties and the
investment in, or acquisition of, interests in other entities, including other
REITs or limited partnerships whose assets consist of investments suitable for
the Company. Authorized and unissued capital stock could also be issued in one
or more transactions which would make it more difficult, and therefore less
likely, to effect a takeover of the Company. See "THE COMPANY'S SECURITIES" and
"CERTAIN STATUTORY AND CHARTER PROVISIONS." Any such issuance of additional
Common Stock or other capital stock could have the effect of diluting the
earnings per share, book value per share, voting power of existing shares of
Common Stock and the ownership of persons seeking to obtain control of the
Company. See "-- Certain Anti-Takeover Provisions; Ownership Limits."
15
<PAGE> 19
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local environmental laws, ordinances and
regulations, an owner or operator of real estate may become liable for the costs
of removal or remediation of certain hazardous substances released on or in its
property. Such laws typically impose cleanup responsibility and liability
without regard to whether the owner knew of or was responsible for the presence
of the contaminants. The costs of investigation, remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to properly remediate such property, may adversely affect the owner's
ability to sell or rent such property or to borrow using such property as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances also may be liable for the costs of removal or remediation of
such substances at the disposal or treatment facility, whether or not such
facility is owned or operated by such person. Finally, the owner of a site may
be subject to common law claims by third parties based on damages and costs
resulting from environmental contamination emanating from a site.
Management has been notified of the possible existence of underground
contamination at Tamarac Square, the Trust's Denver retail Property. The source
of the possible contamination is apparently related to underground storage tanks
located on an adjacent property. This adjacent property was placed on Colorado's
list of leaking underground storage tanks. A second potential source of
contamination is a nearby tract on which a service station was formerly
operated. The owner of the adjacent property is currently conducting studies
under the direction of the Colorado Department of Health in an attempt to define
the contamination and institute an appropriate plan to address the situation. At
this time, management does not anticipate any exposure to the Trust relative to
this issue.
Certain federal, state and local laws, regulations and ordinances govern
the removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition or in the event of building
remodeling, renovation or demolition. Such laws may impose liability for release
of ACMs and may provide for third parties to seek recovery from owners or
operators of real estate for personal injuries associated with ACMs. In
connection with its ownership, management and operation of the Properties, the
Company may be potentially liable for such costs. Except as described above with
respect to Tamarac Square, the Company has not been notified by any governmental
authority or any other third party of any noncompliance, liability or other
claim in connection with any of the Properties.
Management believes that the Properties are in compliance in all material
respects with all federal, state and local laws, ordinances and regulations
regarding hazardous or toxic substances or petroleum products. The Company has
not been notified (except with respect to Tamarac Square), and is not otherwise
aware, of any material non-compliance, liability or claim relating to hazardous
or toxic substances in connection with any of the Properties.
ADVERSE CONSEQUENCES OF A FAILURE TO QUALIFY AS A REIT
The Trust has historically operated as a REIT and maintained its
qualification as a REIT under the Code. The Company intends to operate so as to
qualify as a REIT under the Code. Although management of the Company believes
that the Company will be organized and will operate in such a manner, no
assurance can be given that the Company will qualify or remain qualified as a
REIT. Qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial or
administrative interpretations. The determination of various factual matters and
circumstances not entirely within the Company's control may affect the Company's
ability to qualify as a REIT. If in any taxable year the Company were to fail to
qualify as a REIT, it would be taxed as a corporation and distributions to
Stockholders would not be deductible by the Company in computing its taxable
income. Failure to qualify for even one taxable year could result in the Company
incurring indebtedness (to the extent that borrowings are feasible and permitted
by limitations relating to the Notes and other indebtedness of the Trust assumed
by the Company) or liquidating investments should the Company not have
sufficient funds to pay the resulting federal income tax liabilities, and the
Company would also be disqualified from taxation as a REIT for the next four
taxable years. As a result, the funds available for distribution to the
Company's Stockholders would be reduced for each of the years involved. In
addition, dividends would no longer be required to be paid. To the extent the
dividends to Stockholders would have been paid in anticipation of the Company's
qualification as a
16
<PAGE> 20
REIT, the Company might be required to borrow funds or to liquidate certain of
its investments to pay the applicable tax. Although the Company currently
intends to operate in a manner designed to qualify as a REIT, it is possible
that future economic, market, legal, tax or other considerations may cause the
Company's Board of Directors to revoke the REIT election. See "FEDERAL INCOME
TAX CONSIDERATIONS."
ADVERSE EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK
One of the factors that may influence the price of the Common Stock in the
public markets will be the annual yield from dividend payments by the Company on
the price paid for the Common Stock. Thus, an increase in market interest rates
may lead prospective purchasers of Common Stock to demand a higher anticipated
annual yield from future dividends. Such an increase in the required anticipated
dividend yield may adversely affect the market price of the Common Stock.
REAL ESTATE INVESTMENT CONSIDERATIONS
Effect of Economic and Real Estate Conditions. Investments in real estate
typically involve a high level of risk. One of the risks of investing in real
estate is the possibility that the Properties will not generate income
sufficient to meet operating expenses or will generate income and capital
appreciation, if any, at rates lower than those anticipated or available through
investment in comparable real estate or other investments. Income from
properties and yields from investments in properties may be affected by many
factors, including the type of property involved, the form of investment,
conditions in financial markets, over-building, a reduction in rental income as
the result of the inability to maintain occupancy levels, adverse changes in
applicable tax laws, changes in general economic conditions, adverse local
conditions (such as changes in real estate zoning laws that may reduce the
desirability of real estate in the area) and acts of God, such as earthquakes or
floods. Some or all of the foregoing conditions may affect the Properties.
Renewal of Leases and Reletting of Space. The Company will be subject to
the risks that, upon expiration of leases of the Properties, the leases may not
be renewed, the space may not be relet or the terms of renewal or reletting
(including the costs of required renovation or concessions to tenants) may be
less favorable than current lease terms. If the Company were unable to promptly
relet or renew the leases for all or a substantial portion of the space, if the
rental rate upon such renewal or reletting were significantly lower than
expected or if its reserves proved inadequate, then the Company's Funds from
Operations and ability to make expected dividend payments to Stockholders may be
adversely affected. Leases on approximately 20% of the total Property owned by
the Company will expire in 1994. The expiring leases represent approximately 19%
of the total Property annualized base rent received by the Company. Management
will attempt to negotiate renewals with certain of the tenants with expiring
leases; however, no assurance can be given that such negotiations will be
successful.
Market Illiquidity. Equity real estate investments are relatively illiquid.
Such illiquidity will tend to limit the ability of the Company to vary its
portfolio promptly in response to changes in economic or other conditions. In
addition, federal income tax provisions applicable to REITs limit the Company's
ability to sell Properties held for fewer than four years, which may affect the
Company's ability to sell Properties at a time which would be in the best
interest of the Stockholders.
Operating Risks. The Properties will be subject to all operating risks
common to real estate developments in general, any or all of which might
adversely affect occupancy or rental rates. In addition, increases in operating
costs due to inflation and other factors may not necessarily be offset by
increased rents. If operating expenses increase, the local rental market for
industrial properties may limit the extent to which rents may be increased to
meet increased expenses without decreasing occupancy rates. If any of the above
occur, the Company's ability to make expected payments of dividends to
Stockholders could be adversely affected.
Competition. All of the Properties are located in areas that include
competing properties. The number of competitive properties in a particular area
could have a material effect on both the Company's ability to lease space at the
Property or at any newly developed or acquired properties and the rents charged.
The Company may be competing with other owners that have greater resources than
the Company.
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TEXAS FRANCHISE TAXES
By doing business as a corporation rather than as a trust, the Company may
become subject to certain state taxes that it would not have been subject to as
a trust. As a corporation doing business in Texas, the Company will be subject
to Texas franchise taxes. Based upon the Company's current portfolio and the
current franchise tax rates, the Company estimates its franchise tax liability
for 1994 at less than $50,000. There can be no assurance that the Company's
franchise tax liability will not increase due to additional purchases of Texas
properties, increases in its capital base or income subject to the Texas
franchise tax or changes in Texas law which could increase the scope and amount
of tax. As a trust organized under the Texas REIT Act, the Trust is not
currently subject to Texas franchise taxes; however, there can be no assurance
that the State of Texas will not expand the scope of persons subject to
franchise taxes to include such trusts.
UNINSURED LOSS
The Company will seek to maintain comprehensive liability, fire and
extended coverage insurance of the type and in the amount customarily obtained
for similar properties. There are, however, certain types of losses (generally
of a catastrophic nature, such as earthquakes, floods and wars) that either may
be uninsurable or not economically insurable. Should an uninsurable loss occur,
the Company could lose both its invested capital and anticipated future revenues
related to the affected Property (and may also be required to defease a certain
percentage of the Notes), and would continue to be obligated on any mortgage
indebtedness or other obligations related to the affected Property. Any such
loss could adversely affect the Company. Management believes the Properties are
currently adequately insured in accordance with industry standards.
MARKET ILLIQUIDITY
Real estate investments are relatively illiquid. Such illiquidity will tend
to limit the ability of the Company to vary its portfolio promptly in response
to changes in economic or other conditions. In addition, provisions of the Code
relating to REIT qualification limit the Company's ability to sell Properties
held for fewer than four years, which may affect the Company's ability to sell
Properties. See "FEDERAL INCOME TAX CONSEQUENCES -- Taxation of the Company."
THE PROPOSAL
The following discussion summarizes certain aspects of the Proposal. This
summary is not intended to be complete and is subject to, and qualified in its
entirety by, reference to the Merger Agreement, a copy of which is attached
hereto as Appendix A.
GENERAL
Shareholders are being asked to consider and approve the Merger Agreement
and the Merger thereunder pursuant to which the Trust will merge with and into
the Company, a wholly-owned subsidiary of the Trust which intends to qualify as
a REIT for federal income tax purposes. The Company will be the surviving
entity. If the Merger is approved, the Trust's Shareholders will receive one
share of the Company's Common Stock for every five Trust Shares owned by the
Shareholder. Persons that will hold a fractional share in the Company after the
Merger must either (i) pay to the Company an amount equal to the fraction
necessary to round upward to a whole share of Common Stock times the Opening
Price and the fractional share shall be rounded upward to the nearest whole
share of Common Stock or (ii) permit the Company to cash out the fractional
share at a price equal to the fraction owned times the Opening Price.
Stockholders holding fractional shares of Common Stock will be contacted by the
Company or its Transfer Agent after the Effective Date to determine whether the
Stockholder desires to pay the necessary funds to be rounded upward to the
nearest whole share or if the Stockholder desires to receive cash for his or her
shares of Common Stock, as described above. This one-for-five share exchange
effected by the Merger will not affect the voting or distribution rights of the
Shareholders; however, due to certain differences between the Texas REIT Act and
the MGCL, not all of the rights of Shareholders will remain the same. See
"SUMMARY COMPARISON OF SHARES OF BENEFICIAL INTEREST AND COMMON STOCK." Except
for the deminimus number of persons who
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currently own four or fewer Shares, the number of Stockholders after the Merger
will be equal to the number of Shareholders existing prior to the Merger.
Pursuant to the Merger Agreement, the Company will assume all rights and
obligations of the Trust, including, without limitation, the Trust's obligations
under the Notes.
The Trust Managers have unanimously approved the Proposal subject to
Shareholder approval. Shareholder approval is the only condition precedent to
the consummation of the Merger. The Board of Directors and the sole Stockholder
(the Trust acting through the Trust Managers) of the Company have unanimously
approved the Merger.
DETRIMENTS
The Trust Managers believe the Proposal presents the following potential
detriments for the Trust and its Shareholders:
Dilution. The Proposal will result in additional authorized shares
which may be offered in capital raising transactions on behalf of the
Company. Such transactions may result in dilution to then-current
Stockholders. Additionally, the executive officers of the Company have been
granted stock options under the Omnibus Plan to purchase an aggregate of up
to 115,000 shares of Common Stock. The exercise of such options will result
in dilution to then-existing Stockholders. See "RISK FACTORS -- Possible
Future Dilution." The Omnibus Plan authorizes the issuance of stock
options, stock appreciation rights and restricted stock with respect to up
to 182,000 shares of Common Stock. See "MANAGEMENT --Stock Option Plan."
Ownership Limitations and Staggered Board. Provisions in the Articles
limiting ownership of Common Stock and Preferred Stock by a single person
to 9.8%, requiring a staggered Board of Directors and authorizing the
issuance of Preferred Stock may discourage a change in control and thus
limit the opportunity for Stockholders to receive a premium over the
then-current market price for their Common Stock. See "RISK
FACTORS -- Certain Anti-Takeover Provisions; Ownership Limits."
Texas Franchise Taxes. By doing business as a corporation rather than
as a trust, the Company may become subject to certain state taxes that it
would not have been subject to as a trust. As a foreign corporation engaged
in business in Texas, the Company will be subject to the payment of Texas
franchise taxes. Had the Trust been subject to Texas franchise taxes in
fiscal 1993, the Trust would have paid approximately $50,000 in franchise
taxes to the State of Texas. Based on the existing franchise tax rate and
the existing property portfolio, it is estimated that the Company's Texas
franchise tax liability will not be material for fiscal 1994 (less than
$50,000). There can be no assurance that the Company's franchise tax
liability would not increase due to additional purchases of Texas
properties, increases in its capital base or income subject to the Texas
franchise tax or changes in Texas law which could increase the scope and
amount of tax. See "RISK FACTORS -- Texas Franchise Taxes."
Odd Lot Holdings. As a result of the Merger, Shareholders holding
round lots of Shares of 400 or fewer will have their holdings reduced to
fewer than 100 Shares and will, therefore, become odd lot holders. It is
generally more difficult and expensive to sell odd lot holdings than round
lot holdings.
BENEFITS
The Trust Managers believe it is in the best interests of the Trust and its
Shareholders for the Shareholders to vote in favor of the Proposal. The Trust
Managers believe that the Proposal should be adopted at this time in order to
continue the Trust's strategy of pursuing the opportunities available in today's
real estate and capital markets. These opportunities include the ability to
acquire and develop industrial properties at investment yields in excess of the
Company's cost of capital, in order to achieve positive spread investing and
increased cash flow to the Company. In addition, current interest rates could
provide the Company the opportunity to refinance its existing debt at reduced
rates. There can be no assurance that such investments will be available,
however, or if available, that such investments will result in positive-spread
investing. Further, there can be no assurance that the Company will be able to
obtain financing to refinance its debt, or
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<PAGE> 23
that the rate or terms of such financing will be acceptable. The Trust Managers
also believe that the Proposal offers several potential benefits for the Trust
and its Shareholders and few detriments. These benefits include the following:
Properties No Longer Subject to Mandatory Sale or Improvement. The
Declaration of Trust, as required by the Texas REIT Act, provides that with
respect to any real property owned by the Trust, major capital improvements
must be made within 15 years of purchase of the property or the property
must be sold. If the property was purchased as unimproved property or the
property is outside the city, town or village limits, the major capital
improvements must be equal to or exceed the purchase price of the property.
While these provisions of the Declaration of Trust were unobjectionable
when the Trust was a finite-life entity with a maximum term of 15 years of
existence, the subsequent conversion of the Trust to infinite-life status
has rendered such provisions potentially contrary to the best interests of
the Trust and of its Shareholders. These requirements, which are unique to
the Texas REIT Act, could potentially force the Trust Managers and officers
to either (i) sell the property without regard to economic conditions
existing at such time, or (ii) make "major capital improvements" regardless
of whether such improvements are needed. Such action may not be in the best
interests of the Trust or its Shareholders. If the property at issue was
not unimproved property on the date of purchase or the property is located
within city limits, there are no statutory guidelines or judicial
interpretations as to what constitute "major capital improvements." None of
the Properties would be subject to these provisions of the Texas REIT act
prior to the year 2000. Neither the MGCL nor the Articles impose such a
requirement on the Company.
Maryland Corporate Law. In recent years, the State of Maryland has
adopted a policy of encouraging incorporation in that state and, in
furtherance of that policy, has adopted comprehensive, modern and flexible
corporate laws which are periodically updated and revised to meet changing
business needs. As a result, many corporations, including numerous recently
formed REITs, have chosen Maryland for their domicile. Maryland courts have
developed a body of case law construing Maryland law and establishing
public policies with respect to corporations incorporated in Maryland. In
contrast, a body of case law construing the Texas REIT Act has not
developed. Consequently, reorganization of the Trust into a Maryland
corporation should provide greater predictability with respect to the
Company's corporate affairs.
Limited Liability. Although the Texas REIT Act specifically provides
that the shareholders of a trust formed under the Texas REIT Act are not
liable for the debts of the trust, it is unclear as to whether such
protection would be afforded to the shareholders by courts outside Texas.
To date, there have been no published cases addressing whether shareholders
of a trust formed under the Texas REIT Act are afforded limited liability
protection. It is well accepted as a general matter of law that
stockholders in a corporation are not personally liable for the debts of
the corporation.
RESULTS
In addition to the detriments and benefits described above, approval of the
Proposal will have the following results:
Improved Capital and Organizational Structure. The Declaration of
Trust currently authorizes the issuance of 10,000,000 Shares, of which
9,075,400 are outstanding at March 1, 1994. The Declaration of Trust does
not authorize the issuance of additional types of securities such as
warrants, rights to purchase Shares and preferred shares of beneficial
interest. The Merger would result in an improved capital structure through
the increase in the authorized number of shares of Common Stock and
providing for the issuance of these additional types of securities, thereby
providing the Company the flexibility to acquire additional properties
through the issuance of stock or to raise additional equity capital through
subsequent public or private offerings. See "RISK FACTORS -- Possible
Future Dilution." While the capital structure of the Trust could be
similarly improved through amending the Declaration of Trust, management
believes that the additional benefits of being organized as a Maryland
corporation, as described above, make reorganizing as a Maryland
corporation preferable to merely amending the
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<PAGE> 24
Declaration of Trust to increase authorized capital stock and remaining
subject to the Texas REIT Act, with its associated detriments described
above. Amending the Declaration of Trust would require the approval of the
holders of at least 66 2/3% of the Shares, which is the same percentage
required to approve the Proposal.
Purchase of Property With Stock. The Company has a greater number of
authorized shares than the Trust which could be used by the Company to
acquire additional properties which meet the investment objectives and
policies of the Company. The availability of these shares allows for
additional flexibility in negotiating and structuring an acquisition from a
potential seller. As discussed above under "Detriments -- Dilution," the
issuance of additional shares of Common Stock by the Company may result in
dilution of ownership to then current Stockholders. See "RISK
FACTORS -- Possible Future Dilution." Just as Common Stock may be used to
acquire additional properties, newly-authorized capital stock of the Trust
could likewise be used to acquire additional properties. As discussed
above, management believes that the additional benefits of being organized
as a Maryland corporation make reorganizing as a Maryland corporation
preferable to merely amending the Declaration of Trust to increase the
number and type of authorized Trust Shares and remaining subject to the
Texas REIT Act.
RECOMMENDATION OF THE TRUST MANAGERS
THE TRUST MANAGERS RECOMMEND THAT THE SHAREHOLDERS VOTE FOR THE PROPOSAL.
THE SPECIAL MEETING
GENERAL
The Special Meeting will be held on April 26, 1994, at 9:00 a.m. Dallas
time, at the Four Seasons Hotel, 4150 North MacArthur Boulevard, Irving, Texas
75038 (or such other time and place to which such meeting is adjourned), to
consider and vote on the Proposal. See "THE PROPOSAL." In order for the Proposal
to be adopted, it must be approved by the holders of 66 2/3% of the outstanding
Shares (6,050,267 Shares). Shareholder approval is the only condition to the
consummation of the Merger.
RECORD DATE; OUTSTANDING SHARES; VOTING
The Trust Managers have fixed the close of business on March 4, 1994 as the
Record Date. As of the Record Date, there were 9,075,400 Shares outstanding held
of record by approximately 2,341 Shareholders. Shareholders are entitled to cast
one vote per Share. The affirmative vote of Shareholders holding at least
66 2/3% of the outstanding Shares (6,050,267 Shares) is necessary to approve the
Proposal. The Trust Managers and the executive officers of the Trust own .20% of
the issued and outstanding Shares (18,000 Shares).
QUORUM
In accordance with the By-Laws of the Trust, Shareholders holding at least
a majority of the issued and outstanding Shares (4,537,701 Shares) must be
present or represented by properly executed proxies at the Special Meeting to
constitute a quorum. If a quorum is not present or represented at the Special
Meeting, the meeting may be adjourned from time to time, without further
notification, until a quorum is obtained.
DISSENTERS' RIGHTS
Under Texas law, Shareholders objecting to the Proposal and the Merger
thereunder do not have any statutory rights of dissent or appraisal.
PROXY
The Proxy, which is enclosed with this Proxy Statement/Prospectus, contains
a space where each Shareholder may indicate whether such Shareholder chooses to
vote his or her Shares in favor of or against
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<PAGE> 25
the Proposal or to abstain from voting. If the Proxy is duly completed and
returned to the Trust, the Proxy will be voted in accordance with this
instruction. If a Shareholder returns the Proxy duly executed, but does not
indicate the manner in which the Proxy is to be voted, the Proxy will be voted
in favor of the Proposal. FAILURE TO RETURN THE PROXY OR TO VOTE AT THE SPECIAL
MEETING OR ABSTAINING FROM VOTING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
THE PROPOSAL. BROKER NON-VOTES HAVE THE SAME EFFECT AS A VOTE AGAINST THE
PROPOSAL.
A Shareholder may revoke his or her Proxy at any time before it is voted by
(i) executing a subsequently dated Proxy; (ii) filing a written request to
revoke or amend his or her Proxy with the President of the Trust at the
principal executive office of the Trust; or (iii) attending the Special Meeting
and revoking the Proxy prior to the start of the Special Meeting. If the Special
Meeting (or any adjourned session thereof) is adjourned, a Shareholder may
revoke his or her Proxy before it is voted at any adjourned session of the
Special Meeting by (i) executing a subsequently dated Proxy; (ii) filing a
written request to revoke or amend his or her Proxy with the President of the
Trust at the principal executive office of the Trust prior to the date of the
adjourned session; or (iii) attending the adjourned session and revoking the
Proxy prior to the start of such adjourned session. The foregoing shall
constitute the methods for revoking a Proxy with respect to each adjournment of
the Special Meeting.
If immediately prior to the commencement of the Special Meeting (or any
adjourned session thereof) at which a quorum is present, it appears that
sufficient votes will not be cast to either approve or defeat the Proposal, the
holders of the Proxies may vote the Proxies, in their discretion, to adjourn the
Special Meeting (or any adjourned session thereof) until such time as the
holders of the Proxies receive or are able to cast sufficient votes to approve
or defeat the Proposal. The Trust's By-Laws permit the Special Meeting (or any
adjourned session thereof) at which a quorum is present to be adjourned by the
vote of a majority of the Shares represented either in person or by proxy at the
Special Meeting (or any adjourned session thereof). If a Shareholder does not
want the holders of the Proxies to vote the Proxies to adjourn the Special
Meeting (or any adjourned session thereof), the Shareholder should vote against
or abstain from voting on the second item set forth on the Proxy. The Trust
Managers may postpone the Special Meeting to a later date without a vote of the
Shareholders by providing Shareholders with notice of a new Special Meeting date
at least ten days prior to such date.
SOLICITATION OF PROXIES
This Proxy Statement/Prospectus is submitted, and Proxies are being
solicited by, the Trust Managers on behalf of the Trust in support of the
Proposal. The expense of solicitation of Proxies, as well as all other expenses
associated with the Merger, which are estimated at $400,000 (inclusive of
solicitation fees), will be borne by the Trust. See "FEES AND EXPENSES."
The Trust will enlist the help of banks and brokerage houses in soliciting
Proxies from their customers. The Trust will reimburse these institutions for
out-of-pocket expenses. In addition to being solicited through the mails,
Proxies may also be solicited personally or by telephone by officers and
employees of the Trust. These officers and employees will not receive
compensation for such services other than their regular salaried compensation.
The Trust has engaged the firms of D.F. King & Co., Inc. and Proveaux, Stephen &
Spencer, Inc. to assist in soliciting Proxies for the Special Meeting for fees
of approximately $10,000 and $40,000, respectively, plus reasonable
out-of-pocket expenses.
THE COMPANY
The Company is a newly-organized Maryland corporation which was
incorporated on January 12, 1994 as a wholly-owned subsidiary of the Trust. The
Trust was originally organized on September 26, 1985, and currently owns and
operates 15 commercial real estate Properties consisting of 14 industrial
Properties and one retail Property. The Company intends to operate as a
self-administered REIT. The Company has been formed to succeed to and continue
the property ownership and acquisition activities of the Trust. If the Merger is
approved, the Company will own and operate the Properties. It is anticipated
that industrial properties will continue to be the primary focus for investment
by the Company.
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The Company intends to qualify as a REIT for federal income tax purposes
and will be operated by the management of its predecessor in interest, the
Trust. Approximately six officers and employees will be involved in the
administration of the Company. The executive officers will be responsible for
the day to day administration of the Company and the Board of Directors will be
responsible for the overall direction and supervision of the Company. The
investment and financing policies of the Company and its policies with respect
to certain activities, including its growth, capitalization, dividends, REIT
status and investment and operating policies will be determined by the Board of
Directors. See "MANAGEMENT."
The Trust and the Company maintain their principal executive offices at
6220 North Beltline, Suite 205, Irving, Texas 75063, and their telephone number
is (214) 550-6053.
COMPANY HISTORY
The Trust was formed in September 1985, as Trammell Crow Real Estate
Investors, a finite-life real estate investment trust due to liquidate by
December 31, 1997. The Trust's initial portfolio consisted of 19 properties,
including 18 industrial properties and one retail mall, located throughout the
United States. The Trust was advised initially by Trammell Crow Ventures, Ltd.,
an affiliate of Trammell Crow Company, under an advisory agreement that provided
for the payment of an annual advisory fee and reimbursements for certain
expenses as well as transaction fees for asset acquisitions and dispositions. As
part of its initial capitalization, the Trust issued approximately $180 million
of Notes.
Beginning in 1991, the Trust commenced a program designed to reposition the
Trust in order to attempt to participate in the growth taking place in the real
estate investment trust industry. Management believes that the first part of
this process was to reduce the amount of Notes outstanding. By December 1992,
approximately $160 million of the Trust's outstanding Notes were repurchased by
the Trust in part through the proceeds of the sales of five of the Trust's 19
properties, and through the issuance of a $53.2 million unsecured note.
With the completion of the acquisitions of the Notes described above, the
Trust commenced the second part of its repositioning program with a transition
to self-administration, which was concluded in June 1993, with the establishment
of a new management team for the Trust and the termination of the advisory
agreement with Trammell Crow Ventures. As part of this change, the Trust adopted
the new name, American Industrial Properties REIT, and changed its ticker symbol
on the New York Stock Exchange to "IND."
In July 1993, the Trust presented its Shareholders with a set of proposals
related to the Trust's change to self-administration, and a proposal to make the
life of the Trust perpetual through the removal of a limited term restriction in
the Trust's Declaration of Trust and By-Laws. This second proposal, which
required an affirmative vote of 80% of the Trust's outstanding Shares for
approval, was passed on October 22, 1993, by 81.2% of the Trust's outstanding
Shares.
INVESTMENT POLICIES
The Company's primary business objective is to maximize the total return to
Stockholders through the acquisition, leasing, management and eventual
disposition of its Properties. In doing so, the Company will seek to provide
quarterly dividends and achieve long-term appreciation through increases in cash
flow and in the values of its Properties.
The Company's investment program will focus on industrial properties, both
through the acquisition of existing properties and the development of
build-to-suit properties for credit worthy tenants, primarily in the major
mid-American markets. These markets, such as Dallas, Chicago and Atlanta, are
located at the key rail and highway intersects that control the distribution of
goods throughout the United States. The secondary markets within the
Mid-American region will also be considered if the investment otherwise meets
the business objectives of the Company. The Company will focus on sub-markets
characterized by steady economic growth rates and positive demographic trends.
It will be the Company's goal, over time, to establish dominant market positions
in these selective sub-markets.
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Industrial properties consist of distribution warehouses, service centers,
office/showroom properties, research and development properties and light
manufacturing facilities. Industrial properties are generally characterized by
relatively simple configurations, thus allowing for a high degree of flexibility
to meet the changing needs of tenants. As a result, management believes that
industrial properties are generally more resistant to obsolescence than other
types of real estate property. Industrial properties typically have limited
amounts of office finish-out and other customized improvements. For this reason,
the capital requirements of bringing in new tenants are relatively small.
Finally, industrial properties normally require direct access to major
transportation arteries. For this reason and others, management believes that
industrial properties have tended not to attract the speculative overbuilding
similar to other types of real estate.
Short term leases of three to five years, which are typical for industrial
properties, will provide the Company with the flexibility to adjust rents to
meet changing market conditions, and often to increase rents as leases roll-over
at maturity. While the Company intends to focus its efforts on multi-tenanted
properties, it will also seek to invest selectively in the development of
single-tenant, build-to-suit properties for credit worthy companies. The Company
believes that the scarcity of capital from traditional sources in this important
sector of the industrial property market provides significant opportunities to
achieve above market returns on investments at relatively moderate levels of
risk.
The Company's investment policies, as described above, do not differ from
the policies of the Trust.
OPERATING POLICIES
A key element of the Company's investment strategy is to acquire properties
which provide significant opportunities to add value through effective operating
programs. Such properties generally under perform their true economic potential
as a result of deferred maintenance and cosmetic deficiencies. In many cases,
the strategic application of capital, property improvements and intense
management can substantially increase the appeal of the property to prospective
tenants, thus increasing the revenue potential of the property. Management
believes a significant advantage of industrial properties is that recurring
internal capital requirements tend to be moderate. Industrial tenant spaces are
typically used for the storage and handling of intermediary and finished
products, and as such, spaces are configured in simple, efficient layouts with
relatively little space, generally no more than 5-10% of the total, finished out
for offices or other customized applications.
The Company will establish annual business plans for each property that
will include operating objectives, budgets, resource allocations and financial
performance objectives. Management believes that such a formal planning process
increases portfolio performance in that operating strategies are reviewed
regularly and adjusted as needed to meet changing market conditions. In
addition, the use of such a planning process in conjunction with a performance
based compensation program ensures greater accountability among the asset
managers, property managers and leasing personnel responsible for each property.
The Company intends to continue the Trust's policy of employing third-party
property managers and leasing personnel to manage the Company's Properties. The
level of competition in the marketplace today for providers of such services is
very intense. As a result, the quality of service is typically very high while
operating costs are low in that they can be spread over many millions of square
feet of property under management. The Company will continue to evaluate the
merits of providing its own leasing and management services to the Company's
Properties; however, it is management's belief that these services can be
acquired currently at much lower costs through the marketplace than if the
Company were to attempt to provide these services internally.
The Company's operating policies, as described above, do not differ from
the operating policies of the Trust.
DISTRIBUTION POLICY
On December 15, 1993, the Trust announced its intent to redirect its cash
resources to the ultimate elimination of the operating restrictions imposed on
the Trust by the terms of the Notes through a complete
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defeasance of the outstanding Notes which would require the Trust to deposit
approximately $16,289,000 with the Trustee. For this reason, the Trust
determined that it was in the best interest of the Trust and its Shareholders to
suspend quarterly distributions (which had been at $.04 per quarter, equivalent
to $.20 per quarter for the Company) until such time as the remaining Notes are
fully defeased and distributions can be supported from the positive cash flow of
the Trust, as measured by its Funds from Operations. See "RISK
FACTORS -- Suspension of Distributions." No dividend payments on Common Stock
are anticipated while the Company pursues a recapitalization and refinancing
strategy. There can be no assurance as to when distributions will be reinstated
and when reinstated, that distributions will be at the same level as they were
prior to December 15, 1993.
The Company's dividend policy is to review operating results, capital
requirements and working capital reserves on a quarterly basis and to declare
dividends based on the Board of Directors' and management's determination of
distributable cash flow. Generally, the Company intends to maintain a dividend
equal to approximately 85% of Funds from Operations within these parameters. In
order to satisfy the requirement to distribute 95% of the Company's taxable
income, it is management's intent to make sufficient distributions necessary in
order to maintain the Company's REIT status. So long as there is no REIT taxable
income, suspension of cash distributions will not result in a disqualification
of the Company's status as a REIT. For at least the remainder of fiscal 1994,
the Company anticipates having net operating losses and, therefore, will have no
taxable income required to be distributed under the REIT provisions of the Code
in order for the Company to maintain its status as a REIT.
For a further discussion of the amount of distributions that must be made
in order for the Company to retain REIT status, see "FEDERAL INCOME TAX
CONSIDERATIONS -- Taxation of the Company."
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THE PROPERTIES
The Trust currently owns and manages 15 industrial and retail Properties in
eight states. Set forth below is a brief description of each of the Properties.
The information set forth in the following table assumes that all leases perform
according to their stated terms and assumes that there are no tenant defaults.
<TABLE>
<CAPTION>
NUMBER OCCUPANCY
LEASABLE CONSTRUCTION OF AT
REGION PROPERTY NAME LOCATION SQ. FT. PHYSICAL DESCRIPTION DATE TENANTS 12/31/93
- --------------- ------------- -------------- --------- ------------------------------ ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Baltimore Patapsco Linthicum 95,151 Five building, two-phase 1980-1984 23 86%
Industrial Center(2) Heights, industrial park on 8.3 acres
Maryland
Dallas Beltline Irving, Texas 60,526 Three industrial office 1984 22 75%
Industrial Center buildings on 5.0 acres in Las
Colinas
Gateway 5 & 6 Irving, Texas 78,786 Two industrial buildings 1984-1985 8 79%
within a six-building
industrial park on 5.0 acres
in Las Colinas
Northgate II Dallas, Texas 235,827 Four industrial buildings on 1982-1983 13 94%
12.5 acres within a 21
building office and
industrial park
Northview Dallas, Texas 174,793 Two industrial buildings on 1980 6 100%
Distribution 9.42 acres
Center(3)
Denver Retail Tamarac Denver, 197,152 An enclosed specialty retail 1976-1979 (4) 55 88%
Square Colorado mall, convenience center and
four restaurant pad sites on
18.9 acres
Ft. Lauderdale Quadrant Deerfield 73,597 Two industrial buildings on 1986 8 100%
Industrial Beach, 5.4 acres within a
Florida seven-building industrial
park
Houston Plaza Houston, Texas 149,680 Five industrial buildings on 1970-1974 36 91%
Industrial Southwest 10.3 acres
Commerce Park Houston, Texas 87,279 Two-building industrial 1984 7 61%
complex on 5.5 acres
Westchase Houston, Texas 47,630 Two-building industrial park 1983 9 100%
Park on 4.2 acres
Los Angeles Huntington Monrovia, 62,218 A two-story office building 1985 6 83%
Industrial Drive Center California and an industrial building on
4.0 acres
Milwaukee Northwest Milwaukee, 143,120 Three industrial buildings on 1983 17 98%
Industrial Business Wisconsin 10.7 acres
Park
Minneapolis Burnsville Burnsville, 46,066 One industrial building on 3.8 1985 4 68%
Industrial Minnesota acres
Cahill Edina, 60,082 One industrial building on 3.9 1981 4 100%
Minnesota acres
Seattle Springbrook Kent, 80,973 One industrial building on 5.5 1984 10 85%
Industrial Washington acres comprising Phase II of
the two-phased Springbrook
Industrial Park
--------- -- --
Totals 1,592,880 228 89%
--------- -- --
--------- -- --
</TABLE>
<TABLE>
<CAPTION>
AVERAGE
ANNUALIZED BASE FIRST
BASE RENT MORTGAGE
RENTAL PER SQ. DEBT
REGION REVENUE FT. 12/31/93(1)
- --------------- ---------- ------- -----------
<S> <C> <C> <C>
Baltimore $ 541,000 $6.61 $1,429,000
Industrial
Dallas 263,000 5.79 None
Industrial
276,000 4.43 None
641,000 2.89 None
490,000 2.80 None
Denver Retail 2,264,000 13.05 1,213,000(5)
Ft. Lauderdale 321,000 4.36 1,200,000
Industrial
Houston 566,000 4.16 None
Industrial
314,000 5.90 None
238,000 5.00 None
Los Angeles 754,000 14.43 None
Industrial
Milwaukee 737,000 5.25 1,342,000(6)
Industrial
Minneapolis 199,000 6.35 1,973,000(7)
Industrial
283,000 4.71 None
Seattle 441,000 6.10 None
Industrial
---------- ------- -----------
Totals $8,328,000 $5.87 $7,157,000
---------- ------- -----------
---------- ------- -----------
</TABLE>
- ---------------
(1) All properties are subject to either a first or second mortgage lien arising
from the Notes. Mortgages reflected above are only those which encumber
individual properties as a first mortgage other than the lien and mortgage
associated with the Notes.
(2) The Trust owns 99.99% of the limited partnership interests in a limited
partnership that owns Patapsco Center. This interest entitles the Trust to
100% of the income generated by Patapsco Center, 100% of any appreciation in
the value of Patapsco Center, and 99.99% of the return of capital in any
sale of Patapsco Center. The remaining interest in the limited partnership
is a limited partner's interest held by Trammell Crow Ventures, Ltd., the
former Advisor to the Trust. The limited partner has no rights to
participate in the management of Patapsco Center.
(3) Northview Distribution Center was acquired by the Trust in December 1993.
(4) Tamarac Square underwent a $2.1 million renovation during 1992-1993.
(5) The first mortgage debt encumbers the convenience center only.
(6) Only one building of Northwest Business Park is subject to the first
mortgage.
(7) The Burnsville mortgage is also recourse to the Trust.
Management of the Trust has implemented an aggressive leasing program
specifically targeting Properties with significant vacancies for lease-up. This
program includes incentives to brokers, rental concessions and enhanced
marketing for certain Properties.
26
<PAGE> 30
The following table shows scheduled lease expirations for the next nine
years, assuming that no tenants exercise renewal options.
<TABLE>
<CAPTION>
AVERAGE EXPIRATION AS A
RENT -----------------
PER % OF
ANNUALIZED SQ. % OF TOTAL
NO. SQ. FT. BASE RENT FT. TOTAL PROPERTY
OF OF OF OF PROPERTY ANNUALIZED
YEAR ENDING LEASES EXPIRING EXPIRING EXPIRING SQ. BASE
DECEMBER 31, EXPIRING LEASES LEASES LEASES FT. RENT
- --------------------------------- --- ------- --------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1994.......................... 56 307,107 1,525,000 5.02 19.28% 18.31%
1995.......................... 49 303,498 1,434,339 4.73 19.05% 17.22%
1996.......................... 49 251,631 1,492,000 5.93 15.80% 17.92%
1997.......................... 23 154,426 813,000 5.26 9.69% 9.77%
1998.......................... 30 202,732 1,300,000 6.41 12.73% 15.62%
1999.......................... 5 56,668 279,000 4.92 3.56% 3.35%
2000.......................... 4 31,622 305,000 9.65 1.99% 3.66%
2001.......................... 2 20,850 157,000 7.53 1.31% 1.89%
2002.......................... 2 5,630 73,000 12.97 0.35% 0.88%
</TABLE>
ADDITIONAL INFORMATION REGARDING CERTAIN PROPERTIES
One of the Trust's Properties has rental revenues and a book value in
excess of 10% of the Trust's total rental revenues and total assets,
respectively. Information concerning this Property is set forth below.
Tamarac Square. Tamarac Square is an approximately 134,000 square-foot
two-level enclosed specialty retail mall with an adjacent approximately 33,000
square-foot convenience center and four free-standing restaurant sites totaling
29,800 square feet. Tamarac Square is located at 7777 and 7293 East Hampden
Avenue and 3333 South Tamarac Drive, approximately 11 miles southeast of
downtown Denver, in a commercial retail district. The mall and convenience
center feature a contemporary design of all brick exteriors, skylights and
landscaping. The initial occupancy of Tamarac Square commenced in December 1976
and the property was one of the Trust's initial acquisitions in connection with
its formation in 1985. Tamarac's federal income tax basis was approximately
$30,800,000 (net of approximately $6,700,000 in accumulated depreciation) at
December 31, 1993. Annualized minimum rentals are approximately $2,264,000 based
on leases currently in effect. An approximate $2.1 million renovation of the
specialty retail mall was completed during 1992 and 1993 which created new
entryways, replaced stairs with escalators and enhanced the mall's interiors
with paint and other new amenities and new signage. No significant additional
renovations are currently planned for this property.
The following tables sets forth information with respect to the occupancy
of this Property for each of the five years ending December 31, 1993 and the
average effective annual base rental per square foot for each of such periods:
<TABLE>
<CAPTION>
AVERAGE
RENT
PER
PHYSICAL SQ.
PERIOD ENDING OCCUPANCY FT.
----------------------------------------------------------- ---- ------
<S> <C> <C>
December 31, 1993.......................................... 88% $13.05
December 31, 1992.......................................... 92% $12.69
December 31, 1991.......................................... 80% $14.26
December 31, 1990.......................................... 83% $13.72
December 31, 1989.......................................... 94% $13.27
</TABLE>
27
<PAGE> 31
Tamarac Square is currently leased to 55 tenants. The following table sets
forth certain information with respect to the expiration of leases at this
Property:
<TABLE>
<CAPTION>
AVERAGE EXPIRATIONS AS A
RENT -----------------
PER % OF
ANNUALIZED SQ. % OF TOTAL
NO. SQ. BASE FT. TOTAL PROPERTY
OF FT. OF RENT OF OF PROPERTY ANNUALIZED
YEAR ENDING LEASES EXPIRING EXPIRING EXPIRING SQ. BASE
DECEMBER 31, EXPIRING LEASES LEASES LEASES FT. RENT
- ---------------------------------- --- ------ -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
1994........................... 7 15,646 $270,000 $17.26 7.94% 11.93%
1995........................... 11 29,474 359,000 12.18 14.95% 15.86%
1996........................... 12 35,775 400,000 11.18 18.15% 17.67%
1997........................... 6 19,247 192,000 9.98 9.76% 8.48%
1998........................... 9 20,158 262,000 13.00 10.22% 11.57%
1999........................... 1 4,090 73,000 17.85 2.07% 3.22%
2000........................... 3 8,927 144,000 16.13 4.53% 6.36%
2001........................... 1 8,000 98,000 12.25 4.06% 4.33%
2002........................... 2 5,630 73,000 12.97 2.86% 3.22%
</TABLE>
One Tenant's lease is in excess of 10% of the gross leasable area of
Tamarac Square. Mann Theatres, a national movie theatre concern, leases 19,934
square feet for a six screen theatre running first-run films. The lease provides
for minimum base rents at $5.70 per square foot ($113,624 annually) and expires
in December 1996. The tenant has three five-year options to renew upon
expiration.
Property taxes are assessed on Tamarac based on 29% of assessed value at
the applicable tax rate (estimated at 8.379% in 1993). Property taxes paid in
1993 with respect to Tamarac were approximately $415,000.
See "RISK FACTORS -- Possible Environmental Liabilities" for a discussion
of the possible existence of underground contamination at Tamarac Square.
OTHER ENCUMBRANCES ON REAL ESTATE
Each of the Properties is subject to a mortgage securing the Notes (a
"Mortgage"), as required by the Indenture. In the case of Tamarac Square,
Burnsville, Northwest Business Park and Quadrant, the Mortgage is a second
mortgage; in the case of Patapsco, the Mortgage is a first lien on the Trust's
partnership interest; and for all other Properties, the Mortgage is a first
lien.
28
<PAGE> 32
TERMS OF MORTGAGE INDEBTEDNESS
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT AMOUNT
OUTSTANDING DUE
AT DEC. MATURITY INTEREST AT PAYMENT PREPAYMENT
PROPERTY 31, 1993 DATE RATE MATURITY TERMS TERMS
- -------------- --------- ---------- -------- --------- -------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Tamarac $1,213,000 July 9.63% $ 0 Monthly Prepayable after Aug. 1989
Convenience 2006 payments with a 5% penalty which
Center of principal declines 1/2 of 1% each
and interest year until penalty reaches
to maturity 1%, which continues in
of $13,905 effect to maturity
Northwest $1,342,000 March 11.00% $1,227,676 Monthly Prepayable in March 1994 at
Business 1999 payments 100% of principal.
Park of principal Subsequent to March 1994,
and interest prepayment is at 105% of
to maturity principal, declining by 1%
of $13,811 annually until maturity.
Patapsco $1,429,000 September 10.00% $ 0 Monthly Prepayable after Sept. 1992
2010 payments with a 5% penalty which
of principal declines 1/2 of 1% each
and interest year until penalty reaches
to maturity 1%, which continues in
of $14,279. effect to maturity
Quadrant $1,200,000 October 9.63% $1,200,000 Monthly Prepayable at any time prior
1996 payments to maturity subject to yield
of interest maintenance based on current
only to Treasury yield
maturity
Burnsville $1,973,000 May Prime + $1,948,800 Monthly Prepayable at any time with
1995 2% payments no penalty
of principal
and interest
based on
variable rate
and a 30 year
amortization
of
principal.
Payments as of
9/30/93 were
$14,994
</TABLE>
COMPETITION
All of the Properties are located in areas that include numerous other
industrial and retail properties, many of which may be deemed to be more
suitable to a potential tenant than the Properties. The resulting competition
could have a material adverse effect on the Company's ability to lease the
Properties and to increase rentals charged under existing leases. The Company
may be competing with others that have greater resources than the Company.
INSURANCE
The Company will seek to maintain comprehensive liability, fire and
extended coverage insurance of the type and in the amount customarily obtained
for similar properties. There are, however, certain types of losses (generally
of a catastrophic nature, such as earthquakes, floods and wars) that either may
be uninsurable or not economically insurable. Should an uninsurable loss occur,
the Company could lose both its invested capital and anticipated future revenues
related to the affected Property (and may also be required to defease a certain
percentage of the Notes), and would continue to be obligated on any mortgage
indebtedness or other obligations related to the affected Property. Any such
loss could adversely affect the Company. Management believes the Properties are
currently adequately insured in accordance with industry standards. See "RISK
FACTORS -- Uninsured Loss."
29
<PAGE> 33
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The Company's policies with respect to the following activities have been
determined by the Board of Directors of the Company and may be amended or
revised from time to time at the discretion of the Board of Directors without a
vote of the Stockholders if they determine in the future that such a change is
in the best interest of the Company and its Stockholders. See "RISK
FACTORS -- Changes in Policies."
While the Company has emphasized equity real estate investments, it may, in
its discretion, invest in mortgage and other real estate interests, including
securities of other real estate investment trusts, consistent with its
qualification as a REIT. The Company has not previously invested in mortgages or
securities of other entities, including other REITs, and does not presently
intend to invest to a significant extent in mortgages or securities of other
entities, including other REITs. The Company may invest in participating or
convertible mortgages if it concludes that it may benefit from the cash flow or
any appreciation in the value of the subject property. Such mortgages are
similar to equity participation. The mortgages in which the Company may invest
may be either first mortgages or junior mortgages and may or may not be insured
by a governmental agency.
Subject to the percentage of ownership limitations and gross income tests
necessary for qualification as a REIT (see "FEDERAL INCOME TAX CONSIDERATIONS"),
the Company also may invest in securities of concerns engaged in real estate
activities or securities of other issuers. The Company may also invest in the
securities of other issuers in connection with acquisitions of indirect
interests in properties (normally general or limited partnership interests in
special purpose partnerships owning properties). The Company may in the future
acquire all or substantially all of the securities or assets of other REITs or
similar entities where such investments would be consistent with the Company's
investment policies. The Company will not be limited as to the percentage of
securities of any one issuer it may acquire. However, the Company does not
anticipate investing in issuers of securities (other than REITs and to acquire
interests in real property) for the purpose of exercising control or acquiring
any investments primarily for sale in the ordinary course of business or holding
any investments with a view to making short-term profits from their sale. In any
event, the Company does not intend that its investments in securities will
require the Company to register as an "investment company" under the Investment
Company Act of 1940, and the Company intends to divest securities before any
such registration would be required. The Company does not intend to underwrite
the securities of other issuers.
The Company may, but has no present intention to, make investments other
than as previously described. At all times, the Company intends to make
investments in a manner consistent with the requirements of the Code to qualify
as a REIT unless, because of circumstances or changes in the applicable law, the
Board of Directors determines that it is no longer in the best interests of the
Company to qualify as a REIT. See "FEDERAL INCOME TAX CONSIDERATIONS."
DISPOSITION
Management will periodically review the assets comprising the Company's
portfolio. The Company has no current intention to dispose of any of the
Properties. Such Properties may be subject to sale, however, if management
believes such sale is necessary for the liquidity of the Trust or otherwise in
the best interests of the Shareholders. The Company reserves the right to
dispose of any of the Properties or any property that may be acquired in the
future if management determines that the disposition of such property is in the
best interests of the Company.
CONFLICT OF INTEREST POLICY
Each of Messrs. Wolcott, Simpson and Warner are prohibited from engaging in
any real estate acquisitions, development or management activities, except on
behalf of the Company, during their employment with the Company.
30
<PAGE> 34
AFFILIATE TRANSACTION POLICY
The Company will not enter into any transactions, including without
limitation, loans, acquisitions or sales of property, joint ventures and
partnerships, in which the Company or a subsidiary is a party and in which any
Director, officer, principal security holder or affiliate has any direct or
indirect pecuniary interest, unless such transaction is approved by a majority
of the disinterested Directors after full disclosure of such interests to the
disinterested members of the Board of Directors. In determining whether to
approve the transaction, the Board of Directors will condition such approval on
the transaction being fair and reasonable to the Company and, to the extent
deemed relevant by such Directors, on terms no less favorable to the Company
than prevailing market terms and conditions for comparable transactions.
Directors who are also officers of the Company will be considered to be
disinterested for this purpose provided they have no direct or indirect
pecuniary interest in the transaction.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company has authority to issue additional Common Stock or other
securities in exchange for property and other valid consideration, and to
repurchase or otherwise reacquire its shares or any other securities and may
engage in such activities in the future. Pursuant to the terms of the Merger,
the Company will succeed to the obligations of the Trust under the Trust's
dividend reinvestment plan, and may from time to time repurchase Common Stock in
the open market for the purposes of fulfilling its obligations under the program
or may elect to issue additional Common Stock.
31
<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Below is a summary of net income and funds from operations for the Trust
for the years ended December 31, 1993, 1992 and 1991. Management believes that
the presentation of Funds from Operations will enhance the reader's
understanding of the Trust's financial condition because it provides the reader
with an additional measure of the Trust's operating performance which excludes
nonrecurring activities (i.e., gains or losses from debt restructuring and sales
of property) as well as certain non-cash items (i.e., depreciation and
amortization). Funds from Operations is disclosed for the purpose of providing
readers with additional information with which to compare performance. Funds
from Operations, however, should not be considered an alternative to net income
as an indicator of the Trust's operating performance or to cash flows from
operations as a measure of liquidity. The determination of Funds from Operations
is based on the definition adopted by the National Association of Real Estate
Investment Trusts which is net income (computed in accordance with generally
accepted accounting principles), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization (the
Trust adds back the amortization of the original issue discount on its Zero
Coupon Notes due 1997), and after adjustments for unconsolidated partnerships
and joint ventures ("Funds from Operations").
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
1993 1992 1991
------- ------------ -------
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net Loss........................................... $(7,867) $(17,593) $(9,162)
Net Loss Per Share................................. $ (.87) $ (1.94) $ (1.01)
Funds From Operations.............................. $ (590) $ 2,852 $ 8,308
</TABLE>
Comparison of 1993 to 1992
The net loss in 1993 declined to $7,867,000 from $17,593,000 in 1992 due in
part to the writedowns for impairments in value recognized in 1992 in the amount
of $14,094,000. The benefit from the absence of this writedown in 1993 was
partially offset by the extraordinary loss recognized by the Trust in 1993 in
the amount of $2,530,000 as a result of a partial in-substance defeasance of the
Trust's Zero Coupon Notes (see discussion under Liquidity and Capital
Resources). In addition, the Trust recognized extraordinary gains in 1992 in the
amount of $1,910,000 related to the repurchase of Zero Coupon Notes which caused
a favorable impact to 1992 net loss when compared to 1993. The remaining
variance in net loss between 1993 and 1992 of approximately $2.5 million
(greater loss in 1993 than 1992 after considering the previous items) can be
attributed to the sales of the Woodland Industrial Park in Charlotte, North
Carolina and the Southland industrial property in Houston, Texas, at the end of
1992, and the sale of the Royal Lane Business Park in Dallas, Texas in January,
1993, as well as the incremental administrative costs attributable to the
termination fee paid to the Advisor in the amount of $435,000 as further
discussed below and the proxy solicitation effort to remove the finite life
restriction of the Trust in the amount of approximately $250,000. On a same
property basis, rental revenues remained flat during the year, although in the
third and fourth quarter, the Trust began to see some strengthening in the
leasing markets in most of the areas in which the Trust operates in terms of
both traffic and rental rates (other than in Southern California). Same property
occupancy improved to 89% at December 31, 1993 from 88% at December 31, 1992.
The Trust terminated its Advisory Agreement with the Advisor effective June
12, 1993. In accordance with the terms of the Advisory Agreement, a one-time
termination fee of $435,000 was paid to the Advisor on June 12, 1993. The Trust
is now self-administered and employs six full-time employees to conduct and
administer the business affairs of the Trust.
The overall costs to the Trust over time under self-administration related
to managerial, administrative and other services are expected to be lower than
fees previously paid to the Advisor under the Advisory Agreement. For example,
under self-administration, the Trust will be able to provide, through its
management
32
<PAGE> 36
group, certain services, including restructuring activities and certain
transaction services, without the need to pay the fees previously provided for
in the Advisory Agreement.
Comparison of 1992 to 1991
The Trust had a net loss of $17,593,000 in 1992 compared to a net loss of
$9,162,000 in 1991. The 1992 net loss included writedowns due to impairments in
value of real estate of $14,094,000, an extraordinary gain from partial
repurchases of Zero Coupon Notes of $1,910,000 and a net loss on sales of real
estate of $784,000. Excluding the 1992 and 1991 provisions for possible losses,
the extraordinary gains, and the gain or loss on sales of real estate, the net
loss would have been $4,625,000 and $4,415,000 in 1992 and 1991, respectively.
Net loss before extraordinary gain and gain or loss on sales of real estate was
$18,719,000 in 1992 and $13,786,000 in 1991.
The writedowns for impairments in value of real estate of $4,211,000 which
were recognized in 1992 resulted from the Trust's decision to place certain
properties on the market for sale in order to provide liquidity. The decision to
classify these properties as being held for sale on the Trust's balance sheet
required that management state the properties at their estimated net realizable
values. The remaining $9,883,000 in writedowns are attributable to the fact that
management had determined that on certain properties, the future income to be
generated by those properties would be insufficient for the Trust to recover its
recorded value of the property over the property's expected holding period. This
was the result of continuing declines in rents from these properties with no
reasonable expectation for a full recovery during the holding period of the
asset. Management does not anticipate that additional writedowns for impairment
will be required at this time, however should management decide to sell
additional properties, it may become necessary to reflect further writedowns due
to the continuing disparity between the recorded book value of the properties
and their estimated net realizable values which would have resulted in
writedowns of approximately $10,400,000 had all of the Trust's properties been
reflected as held for sale at December 31, 1993.
Total revenue decreased to $15,139,000 in 1992 from $16,488,000 in 1991.
Average occupancy levels were the same in both years, at 89%; however, the sales
of the Southland and Woodland properties negatively impacted revenue and
earnings. Total real estate expenses, excluding $14,094,000 and $9,371,000 of
write-downs for impairments in value of real estate, in 1992 and 1991,
respectively, decreased to $19,764,000 in 1992 from $20,903,000 in 1991
primarily as a result of the sales of the Southland and Woodland properties.
LIQUIDITY AND CAPITAL RESOURCES
The principal source of funds for the Trust's liquidity requirements is
funds generated from operations of the Trust's real estate assets and
unrestricted cash reserves. As of December 31, 1993, the Trust had $1,119,000 in
unrestricted cash on hand. The Trust presently anticipates that cash on hand and
Funds from Operations will provide sufficient funds for all known liabilities
and commitments relating to the Trust's operations during 1994. However, certain
discretionary uses of the Trust's cash, including: (i) the costs of the Trust's
reorganization into a Maryland corporation via merger (estimated at
approximately $400,000, see below); (ii) the loss of the income producing
ability of the $10.2 million expected to be used to defease Zero Coupon Notes
(see discussion below); and (iii) certain capitalized leasing costs (such as
leasing commissions and tenant improvements), will likely require that the Trust
seek alternative sources of financing in 1994. These alternative sources of
financing may include additional debt, securities and/or equity rights
offerings. See "RECENT DEVELOPMENTS."
Management is currently negotiating with lenders in an effort to obtain
debt to refinance the first and second mortgage liens presently encumbering the
Trust's Properties and incremental financing to pursue additional property
acquisitions. Presently, no firm commitments to provide additional capital have
been obtained from these lenders. If successful, management intends to use the
cash to fund current operations and pursue potential debt or equity capital.
Presently, the Trust must seek a waiver from the lender under its 8.8% Notes
Payable in order to borrow funds in excess of those necessary to retire the
principal amount of outstanding secured debt. There can be no assurance that
management will be able to obtain such debt
33
<PAGE> 37
financing and if successful, that the lender on the 8.8% Notes Payable would
consent to the borrowing of funds in excess of the amount necessary to retire
the principal amount of outstanding secured debt.
The retirement of all secured debt (inclusive of the Zero Coupon Notes due
1997) would make available to the Trust a portion of the cash presently held in
the Defeasance Account by the Indenture Trustee, estimated to be at least $6
million, without requiring the consent of the lender on the 8.8% Notes Payable.
Management may seek the 8.8% Notes Payable lender's consent in order to borrow
additional funds with which to acquire property. There can be no assurance that
the lender would grant such consent.
Based on its current liquidity position, the Trust currently intends to
make the semi-annual interest payment due in May 1994 to the lender on the 8.8%
Notes Payable. In the event the Trust is forced to default on the unsecured debt
obligation occurs, the Trust expects to continue to operate and will continue to
seek to: (a) restructure the terms of the unsecured debt obligation; (b)
generate sufficient funds from operations in order to bring the Trust current on
the unsecured debt obligation; or (c) obtain financing to fund the deficiency in
the debt service on the unsecured obligation. In the event of a default, the
lender on the 8.8% Notes Payable may declare the entire balance of the 8.8%
Notes due and payable and could seek a judgment against the Trust to enforce
such a claim.
Distributions made and declared to date during 1993 in the amount of
$1,453,000 ($.16 per share), have been paid out of cash reserves of the Trust.
In December, 1993, the Trust Managers announced the suspension of the Trust's
quarterly dividend in order to redirect the Trust's resources to the ultimate
defeasance of the Trust's Zero Coupon Notes due in 1997 (see discussion below).
The initial capitalization of the Trust included $179,698,000 face amount
of Zero Coupon Notes due November 27, 1997 secured by first liens on all of the
Trust's initial investments. Amortization of the original issue discount on the
Zero Coupon Notes is a non-cash charge against net income of the Trust,
compounding semiannually at 12% (see the Notes to Financial Statements for
additional detail concerning the Zero Coupon Notes). During 1991 and 1992, the
Trust repurchased a substantial amount of the Zero Coupon Notes, decreasing the
remaining face amount outstanding to a total of $19,956,000. Subsequent to
September 30, 1993, the Trust Managers authorized management to utilize the
Trust's available cash reserves to provide liquidity for the repurchase of
outstanding Zero Coupon Notes at their accreted value from Noteholders desiring
to sell their Notes and unable to find a market for them. In 1993, the Trust
acquired approximately $500,000 face amount of the Zero Coupon Notes at their
accreted value. No other purchases of significance are planned at this time,
however, should the Trust identify an opportunity to purchase significant
amounts of the Zero Coupon Notes at a discount to their defeasance amount (the
amount that would be required to Defease the Notes under the Indenture),
additional purchases may be made out of cash reserves of the Trust.
Pursuant to the terms of the Indenture covering the Trust's Zero Coupon
Notes due 1997, prior to November 27, 1993 (the "Defeasance Commencement Date"),
the Trust was required to deposit the net proceeds of any property sale or
refinancing into a Property Acquisition Account administered by the Trustee to
the extent deemed necessary or appropriate by the Trust Managers to secure the
interests of the Noteholders. Prior to the Defeasance Commencement Date, funds
in the Property Acquisition Account could be used to make additional investments
as allowed under the Trust's By-Laws. After the Defeasance Commencement Date,
any remaining funds in the Property Acquisition Account must be used to defease
the holders of the remaining Zero Coupon Notes. Subsequent to September 30,
1993, the Trust reinvested all of the funds held in the Property Acquisition
Account (approximately $13.6 million) into short-term commercial paper and
Treasury Notes which are pledged as additional collateral to the Noteholders. Of
these invested funds, which matured in February 1994, approximately $10.2
million will be used to partially defease the Zero Coupon Notes. The result of a
partial defeasance of the Zero Coupon Notes would be a reduction in the accreted
value of the Zero Coupon debt on the Trust's balance sheet from approximately
$13.0 million to approximately $4.7 million, with a loss of approximately $2.5
million being recognized by the Trust. As previously discussed above, it is the
Trust's intent to seek additional debt or equity capital to defease the
remaining Zero Coupon Notes (approximately $6,100,000) in 1994. There can be no
assurance, however, that the Trust will be able to raise such debt or equity
capital and, if so, on what terms.
34
<PAGE> 38
On December 10, 1993, pursuant to a court order directing the Indenture
Trustee to release certain of these funds, the Trust acquired a 175,000 square
foot multi-tenant distribution center in Dallas for a purchase price of
approximately $3,400,000. Consistent with all of the properties owned by the
Trust, the acquired property is pledged under a first mortgage lien and Deed of
Trust to the Noteholders. Management believes the acquisition will further
enhance Funds from Operations of the Trust in fiscal 1994. The property is 100%
occupied and expected 1994 rental revenues are approximately $450,000.
In acquiring its existing Properties, the Trust assumed a total of
$8,075,000 in mortgage debt, of which $7,157,000 remained outstanding as of
December 31, 1993. The debt service on the Trust's mortgages amounts to
approximately $800,000 annually (see the Notes to Financial Statements for
additional detail concerning the terms of the mortgage notes payable).
In accordance with the terms of the Trust's 8.8% Notes payable due 1997,
the Trust paid its first installment of accrued interest on the 8.8% Notes on
May 27, 1993 in the amount of $1,974,000 (see the Notes to Financial Statements
for additional discussion regarding the terms of the 8.8% Notes). Accrued
interest in the amount of approximately $1,990,000 will be payable each May and
November until these 8.8% Notes become due in November 1997.
Tenant and capital improvements were $1,414,000 for the year ended December
31, 1993 as compared to $3,379,000 for the same period of 1992. The improvements
during 1992 primarily related to renovations under way at the Trust's Tamarac
Square retail property in Denver, Colorado. Current year capital expenditures
relate primarily to leasing activity, including tenant improvements and lease
commissions arising from the new lease with The GAP at Tamarac Square. The
nature of the Trust's operating Properties, which generally provide for leases
with a term of between three and seven years, results in an approximate turnover
rate of 20% of the Trust's tenants annually (generally representing a similar
proportion of the Trust's rental revenues). This requires capital outlays for
re-leasing related to tenant improvements and leasing commissions in an amount
of approximately $1.3 million annually in order to maintain the Trust's
occupancy at or above historical levels. These costs have historically been
funded out of the Trust's operating cash flow, however, should cash generated
from operations be insufficient to provide the funds necessary to lease and
re-lease the Trust's Properties in 1994, the Trust may seek to obtain financing
for a portion of these costs. The Trust has made no commitments for additional
capital expenditures beyond those related to normal leasing and re-leasing
activity. No capital improvements or renovations of significance are anticipated
in the near future for any of the Trust's Properties.
Management believes that the Trust's successful conversion from a
finite-life entity required to liquidate in 1997 to a perpetual-life entity
(which was announced after the Trust received in excess of the required 80%
positive vote of all Shareholders on October 22, 1993) should enhance the
Trust's ability to take advantage of the capital and investment markets
available to real estate investment trusts. Management intends to pursue a
strategy which should lower the Trust's cost of capital and enable the Trust to
make additional investments in industrial real estate. This can be accomplished
through raising additional equity and or obtaining financing from various
sources, including the public or private markets. At this time, however,
management has obtained no commitments for funding or underwriting additional
equity or debt financing and there can be no assurances that these sources of
capital will become available in the future. Management believes that the
reorganization of the Trust into a Maryland corporation is a necessary step
towards a future financial restructuring because it removes existing barriers of
the Trust's organization to obtaining additional capital by increasing the
authorized shares and allowing for different classes of equity capital, among
other things. Concurrent with this reorganization, management will continue to
pursue capital raising opportunities. However, there can be no assurances that
such equity capital or debt financing will be available to the Company upon its
reorganization into a Maryland corporation or if available, whether the terms of
such equity capital or debt financing will be acceptable.
On January 12, 1994, the Trust incorporated American Industrial Properties
REIT, Inc. (the "Company"), a Maryland corporation as its wholly owned
subsidiary. The Trust intends to seek the approval of the required 66 2/3% of
its Shareholders to merge with and into the Company (the "Merger"). Management
has estimated the cost of completing the Merger at approximately $400,000.
35
<PAGE> 39
The Trust Managers have determined that it is in the best interest of the
Trust and its Shareholders to suspend quarterly distributions to Shareholders
until such time as the remaining Zero Coupon Notes are fully defeased and
distributions can be supported from the available Funds from Operations of the
Trust.
OTHER MATTERS
On January 8, 1993, the Trust sold its Royal Lane Business Park in Dallas,
Texas. The sales price was $7,500,000, and the net proceeds of approximately
$1,800,000, after reduction for the existing first mortgage loan and the related
sales costs, were deposited into the Property Acquisition Account under the
terms of the Zero Coupon Note Indenture. In 1992, Royal Lane contributed
approximately $200,000 to the net cash flow of the Trust.
As discussed above, the Trust has suspended quarterly distributions to
Shareholders until such time as the remaining Notes are fully defeased and
distributions can be supported from the available Funds from Operations of the
Trust. In the event that the Trust does not refinance its existing debt or raise
additional equity capital, it is unlikely that the Trust will make any
distributions to Shareholders during 1994. Distributions to Shareholders are
charges against Shareholders' equity, and therefore, Shareholders' equity will
continue to decrease due to distributions made and net losses incurred by the
Trust. Distributions in excess of taxable net income, or to the extent of net
loss, constitute a return of capital to Shareholders. For federal income tax
purposes, the taxable portion of distributions is determined on a calendar year
basis, and is computed based on actual distributions for the year. It is
presently estimated that the entire amount of the distributions paid by the
Trust in 1993 will constitute a return of capital.
Management has been notified of the possible existence of underground
contamination at Tamarac Square, the Trust's Denver retail Property. The source
of the possible contamination is apparently related to petroleum underground
storage tanks located on an adjacent property. This adjacent property was placed
on Colorado's list of leaking underground storage tanks. A second potential
source of contamination is a nearby tract on which a service station was
formerly operated. The owner of the adjacent property is currently conducting
studies under the direction of the Colorado Department of Health in an attempt
to define the contamination and institute an appropriate plan to address the
situation. At this time, management does not anticipate any exposure to the
Trust relative to this issue. See "RISK FACTORS -- Possible Environmental
Liabilities."
RECENT DEVELOPMENTS
Effective February 7, 1994, the Board of Directors of the Company
authorized, contingent upon approval of the Merger, the issuance of rights
("Rights") to each Stockholder following the Merger. As currently contemplated,
each Stockholder will be entitled to receive one Right for each share of Common
Stock owned on a record date to be determined by the Board of Directors. The
Rights, if issued, will entitle the Stockholders to purchase additional shares
of Common Stock at a price below the then-current market price, such price to be
set by the Board of Directors at the time of issuance. Such Rights would be
exercisable for a fixed period of time that has yet to be determined. Although
the Board of Directors has authorized the issuance of the Rights, the Board of
Directors may, in its sole discretion, determine in the future not to issue the
Rights based upon current or anticipated market and economic conditions or other
factors.
36
<PAGE> 40
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
The following table sets forth certain information as to the number of
Trust Shares and the number of shares of Company Common Stock beneficially owned
before and after the Merger by (a) each person (including any "group" as that
term is used in Section 13(d) of the Exchange Act) who is known by the Trust to
own beneficially 5% or more of the Shares, (b) each Trust Manager, (c) each
executive officer of the Trust, and (d) all executive officers of the Trust and
Trust Managers as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
OWNERSHIP OF CLASS
BEFORE/AFTER BEFORE/AFTER
NAMES OF BENEFICIAL OWNERS THE MERGER THE MERGER
---------------------------------------------- --------------- ---------
<S> <C> <C>
W. H. Bricker............................... 2,000/400 *
George P. Jenkins........................... 500/100 *
Charles W. Wolcott.......................... 15,500/3,100 *
David B. Warner............................. -- *
Marc A. Simpson............................. -- *
American Holdings, Inc.
376 Main Street
Bedminster, New Jersey 07921............. 609,000/121,800 6.71/6.71%(1)
All Trust Managers and executive officers as
a group.................................. 18,000/3,600 .20/.20%
</TABLE>
- ---------------
* Ownership is less than 1% of the outstanding Shares/Common Stock.
(1) This information was obtained from the Schedule 13D filed by American
Holdings, Inc. with the Commission on March 8, 1994.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The persons who serve as executive officers and directors of the Company,
their ages and their respective positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) AND OFFICE(S) HELD
------------------------- --- -------------------------------------------------
<S> <C> <C>
W. H. Bricker 61 Director
Raymond A. Hay 65 Director
Charles W. Wolcott 41 Director, President and Chief Executive Officer
David B. Warner 35 Vice President and Chief Operating Officer
Marc A. Simpson 39 Vice President and Chief Financial Officer,
Secretary
</TABLE>
The term of Mr. Hay will expire at the Annual Meeting of Stockholders to be
held in 1995. The term of Mr. Wolcott will expire at the Annual Meeting of
Stockholders to be held in 1996. The term of Mr. Bricker will expire at the
Annual Meeting of Stockholders to be held in 1997. In each case, the directors
will serve until the election and qualification of their respective successors.
Executive officers of the Company are elected annually by the Board of Directors
and serve at the Board's discretion.
Messrs. Bricker and Hay serve on both the Audit Committee and the
Compensation Committee of the Board of Directors.
37
<PAGE> 41
The following is a biographical summary of the experience of the persons
that will serve as executive officers and directors of the Company:
WILLIAM H. BRICKER, Director. Mr. Bricker has served as President of
D.S. Energy Services Incorporated consults in the energy field and
international trade since 1987. In May 1987, Mr. Bricker retired as the
Chairman and Chief Executive Officer of Diamond Shamrock Corporation where
he held various management positions from 1969 through May, 1987. Mr.
Bricker is a director of the LTV Corporation, the Eltech Systems
Corporation and the National Paralysis Foundation. He received his Bachelor
of Science and Masters of Science degrees from Michigan State University.
RAYMOND A. HAY, Director. Mr. Hay became Chairman of Aberdeen
Associates, an investment firm, after his retirement in 1991 as Chairman
and Chief Executive Officer of the LTV Corporation where he worked for 16
years. Mr. Hay previously served as Executive Vice President of the Xerox
Corporation where he worked from 1961 through 1975. Mr. Hay is director of
National Medical Enterprises, Inc. and Maxus Energy Corporation. He has a
Bachelor of Science degree in Economics from Long Island University.
CHARLES W. WOLCOTT, Director, President and Chief Executive Officer.
Mr. Wolcott was hired as the President and Chief Executive Officer of the
Trust on May 4, 1993. For the six months immediately prior to his election
as President of the Trust, Mr. Wolcott was engaged in developing various
personal business enterprises. Mr. Wolcott was President and Chief
Executive Officer of Trammell Crow Asset Services, a real estate asset and
portfolio management affiliate of Trammel Crow Company, from 1990 to 1992.
He served as Vice President and Chief Financial and Operating Officer of
the Trust from 1988 to 1991. From 1988 to 1990, Mr. Wolcott was a partner
in Trammell Crow Ventures Operating Partnership. Prior to joining the
Trammell Crow Company in 1984, Mr. Wolcott was President of Wolcott
Corporation, a firm engaged in the development and management of commercial
real estate properties. Mr. Wolcott graduated from the University of Texas
at Austin in 1975 with a Bachelor of Science degree and received a Masters
of Business Administration degree from Harvard University in 1977.
DAVID B. WARNER, Vice President and Chief Operating Officer. Mr.
Warner was hired as Vice President and Chief Operating Officer of the Trust
on May 24, 1993. From 1989 through the date of his accepting a position
with the Trust, Mr. Warner was Director of the Equity Investment Group for
The Prudential Realty Group. From 1985 to 1989, he served in the Real
Estate Banking Group of NCNB Texas National Bank. Mr. Warner graduated from
the University of Texas at Austin in 1981 with a degree in Finance and
received a Masters of Business Administration from the same institution in
1984.
MARC A. SIMPSON, Vice President and Chief Financial Officer,
Secretary. Mr. Simpson was hired as the Vice President and Chief Financial
Officer of the Company on March 7, 1994. From November 1989 through March
4, 1994, Mr. Simpson was a Manager in the Financial Advisory Services Group
of Coopers & Lybrand. Prior to that time, he served as Controller of
Pacific Realty Corp., a real estate development company. Mr. Simpson
graduated with a Bachelor of Business Administration from Midwestern State
University in 1978, and received a Masters of Business Administration from
Southern Methodist University in 1990.
COMPENSATION OF DIRECTORS
In fiscal 1993, the Trust paid each of the Trust Managers a fee of $15,000
per year for services as a Trust Manager plus $1,000 for each meeting of the
Trust Managers or a committee of the Trust Managers attended in person. In
addition, the Trust Managers were reimbursed for their expenses incurred in
connection with their duties as Trust Managers. Mr. Wolcott did not receive any
compensation for his services as a Trust Manager.
The Company will pay each independent director a fee of $20,000 per year
for services as a director plus $1,000 for each meeting of the directors or a
committee of the Board of Directors attended in person. In addition, the Company
will reimburse the directors for their expenses incurred in connection with
their duties
38
<PAGE> 42
as directors. Payment by the Company for services will not commence until the
first meeting following consummation of the Merger. Mr. Wolcott will not receive
any compensation for his services as a director.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
compensation paid to the Trust's Chief Executive Officer since the commencement
of his employment with the Trust on March 23, 1993 through December 31, 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND FISCAL ----------------------
PRINCIPAL POSITION YEAR SALARY BONUS
- --------------------------------------------------------------- ------ -------- -------
<S> <C> <C> <C>
Charles W. Wolcott
President and Chief Executive Officer........................ 1993 $115,000(1) $50,000
</TABLE>
- ---------------
(1) Mr. Wolcott's annualized salary for 1993 was $150,000.
No other executive officer's salary and bonus exceeded $100,000 for fiscal
1993. No executive officers or Trust Managers were granted Share options by the
Trust.
The Company was organized on January 12, 1994. Accordingly, the Company did
not pay any cash compensation to its executive officers for the year ended
December 31, 1993. The Company will not pay compensation to its executive
officers prior to the Effective Date. Effective January 12, 1994, the Company
awarded stock options under the Omnibus Plan to purchase Common Stock as
follows:
<TABLE>
<CAPTION>
NUMBER
OF
SHARES
OF
COMMON
STOCK
COVERED
BY EXERCISE
NAME AND OFFICE OPTIONS PRICE
------------------------------------------------------- ------ ------
<S> <C> <C>
Charles W. Wolcott..................................... 62,000 $10.63
President and Chief Executive Officer
David B. Warner........................................ 26,500 $10.63
Vice President and Chief Operating Officer
Marc A. Simpson........................................ 26,500 $11.25
Vice President and Chief Financial Officer, Secretary
</TABLE>
EMPLOYMENT AGREEMENTS
Messrs. Wolcott and Warner have entered into Employment Agreements with the
Company, effective as of January 12, 1994, and with Mr. Simpson, effective as of
March 7, 1994 (each an "Employment Agreement"). In general, the Employment
Agreements provide for certain incentive bonus compensation and severance
compensation in order to encourage these key-employees of the Company to remain
as employees of the Company. In the event that such employee is terminated,
voluntarily or involuntarily, as a direct result of a change in control of the
Company, the employee will be entitled to receive severance compensation in an
amount equal to one times the average of the total cash compensation, inclusive
of base salary and cash bonuses, received by such employee during each of the
preceding five calendar years or such shorter period of time as employee has
been employed by the Company. Each Employment Agreement is for an initial term
of three years, renewable for unlimited terms of one year with the agreement of
both the Company and the employee. For purposes of the Employment Agreements,
the term "change in control" means the consolidation or merger of the Company
with or into another entity (other than a merger with a subsidiary or a merger
in which the Company is the surviving entity) or the sale of all or
substantially all of the assets of the Company to a third-party unaffiliated (a
person or entity that is not a parent or subsidiary of the Company) with the
Company. In the event of the expiration of the term of the Employment Agreement,
or the
39
<PAGE> 43
termination of the employee for any reason at any time at least 90 days prior to
the time that a change in control of the Company occurs, the employee shall not
be entitled to receive severance compensation.
Each Employment Agreement also provides that key-employees shall be
eligible for an annual incentive bonus, subject to certain conditions being
satisfied. Annual incentive bonuses will be awarded as follows: for every
incremental specified increase (the "Increase Multiple") in Funds from
Operations per share earned by the Company in each calendar year during the term
of the Employment Agreement, key-employees shall receive an additional fixed
percentage of such employee's base salary (the "Bonus Percentage") as incentive
bonus compensation. The Increase Multiple and the Bonus Percentage shall be
determined by the Compensation Committee of the Company for each calendar year
for which an incentive bonus is calculated. In no event may any employee's
incentive bonus exceed 25% of such employee's base salary for each calendar
year. In the event of the expiration of the term of an Employment Agreement,
employees shall not be entitled to receive any further incentive bonus;
provided, however, that in the event an employee's employment is terminated for
any reason prior to the expiration of the Employment Agreement or any renewal,
such employee shall be entitled to receive any previously unpaid annual
incentive bonus, prorated for the portion of such year which elapsed prior to
the date of such termination.
In addition to the annual incentive bonus, the Employment Agreement
provides that the employee is also entitled to receive an annual achievement
bonus of up to 15% of employee's base salary during the year in which the annual
achievement bonus is awarded. The employee is entitled to receive an annual
achievement bonus in each year that the Company achieves specific targets
established annually by the Compensation Committee of the Company. The
Employment Agreement also provides that the employee is eligible to receive
annually a merit bonus at the discretion of the Compensation Committee. The
merit bonus may not exceed 10% of the employee's base salary for the year in
which the merit bonus is awarded. The Compensation Committee determines if an
employee should be awarded a merit bonus based upon an evaluation of employee's
work by his direct supervisor and the recommendation of the President and Chief
Executive Officer of the Company. The Compensation Committee determines whether
the President and Chief Executive Officer should receive a merit bonus without
being required to review an evaluation or receiving any recommendations as
described above.
The Employment Agreements provide further that each key-employee is
employed by the Company on an at-will basis, which means that their employment
with the Company is terminable at the will of either the Company or such
employee without prior notice to the other.
STOCK OPTION PLAN
The Company has adopted an Omnibus Stock Option Plan (the "Omnibus Plan")
to assist the Company in recruiting, retaining and rewarding employees with
ability and initiative by enabling employees to participate in its future
success and to associate their interests with those of the Company and its
Stockholders. The summary of the Omnibus Plan set forth below is qualified in
its entirety by reference to the text of the Omnibus Plan, a copy of which has
been filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus constitutes a part.
The Board of Directors and the sole Stockholder of the Company approved and
adopted the Omnibus Plan as of January 12, 1994. The Omnibus Plan will be
administered by a committee of the Board of Directors (the "Committee"). A total
of 182,000 shares of Common Stock have been reserved for issuance under the
Omnibus Plan pursuant to the exercise of incentive and non-incentive stock
options (collectively, "Options"), stock appreciation rights ("SARs") and the
award of Common Stock of the Company subject to forfeiture and limitations on
transferability ("Restricted Shares"). As of the date hereof, options to
purchase 115,000 shares have been issued to executive officers of the Company.
See "-- Compensation of Executive Officers" and "RISK FACTORS -- Possible Future
Dilution." The maximum number of shares of Common Stock authorized for issuance
under the Omnibus Plan will be increased each year beginning January 1, 1995, by
6% of the amount, if any, by which the total number of shares of Common Stock
outstanding as of the last day of the Company's fiscal year exceeds the total
number of shares of Common Stock outstanding as of the first day of such fiscal
year.
40
<PAGE> 44
The Committee has complete authority to interpret all provisions of the
Omnibus Plan, to prescribe the form of agreements, to adopt, amend and rescind
rules and regulations pertaining to the administration of the Omnibus Plan, and
to make all other determinations necessary or advisable for the administration
of the Omnibus Plan. A member of the Committee may not participate in the
Omnibus Plan during the time that his or her participation would prevent the
Committee from being "disinterested" within the meaning of Rule 16b-3, as from
time to time amended, under the Exchange Act.
Under the terms of the Omnibus Plan, any employee of the Company or of any
Affiliate of the Company is eligible to participate in the Omnibus Plan if the
Committee, in its sole discretion, determines that such person has contributed
or can be expected to contribute to the profits or growth of the Company or an
Affiliate.
Options and SARs. The number of shares of Common Stock which may be granted
under the Omnibus Plan or for which any outstanding Options and SARs are
exercisable are subject to customary anti-dilution adjustment provisions. The
maximum term of any Option or SAR granted pursuant to the Omnibus Plan is ten
years. If an Option or SAR is terminated or forfeited, in whole or in part, for
any reason other than its exercise, Common Stock allocated to such Options or
SARs (or portion thereof) may be reallocated to other awards to be granted under
the Omnibus Plan. The Omnibus Plan provides that the exercise price of an Option
shall be determined by the Committee on the date of grant; provided, however,
that the exercise price of any Option that is an incentive stock option shall
not be less than the fair market value of the underlying Common Stock on the
date of grant of the Option. No participant in the Omnibus Plan may be granted
incentive options or related SARs (under any incentive option plan of the
Company or its Affiliates) which are first exercisable in any calendar year for
stock having an aggregate fair market value (determined as of the date of grant)
exceeding $100,000.
Any Option or SAR granted under the Omnibus Plan shall be nontransferable
except by will or by laws of descent and distribution. Any Option or SAR may
only be exercised by the participant to whom they were granted during the
lifetime of such participant.
Restricted Share Awards. The Committee may, in its discretion, designate
eligible employees to receive awards of Restricted Shares. The Committee may
prescribe that a participant's rights in the Restricted Shares are forfeitable
or otherwise restricted for a period of time set forth in the agreement
applicable to each such award. Prior to their forfeiture, in accordance with the
terms of each award agreement, a participant will have all of the rights of a
Stockholder with respect to such Restricted Shares, including the right to
receive dividends and vote; provided, however, that (i) a participant may not
sell, transfer, pledge, exchange, hypothecate or otherwise dispose of Restricted
Shares, (ii) the Company shall retain custody of the certificates evidencing the
Restricted Shares, and (iii) a participant will deliver to the Company a stock
power endorsed in blank, with respect to each award of Restricted Shares.
The Omnibus Plan may be amended or terminated by the Board of Directors of
the Company; provided, however, that no amendment may become effective until
approved by the Stockholders of the Company if (i) the amendment increases the
aggregate number of shares of Common Stock that may be issued under the Omnibus
Plan, or (ii) the amendment changes the class of individuals eligible to become
participants. No amendment to the Omnibus Plan may, without a participant's
consent, adversely affect any rights of such participant under any outstanding
Restricted Share award or under any Option or SAR outstanding at the time such
amendment is made.
401(K) PLAN
The Trust has adopted a Retirement and Profit Sharing Plan (the "Profit
Sharing Plan") (to be assumed by the Company upon consummation of the Merger)
for the benefit of employees of the Trust. Employees who were employed by the
Trust on November 1, 1993, and who have attained the age of 21 are immediately
eligible to participate in the Profit Sharing Plan. All other employees of the
Trust are eligible to participate in the Plan after they have completed one year
of service with the Trust and attained the age of 21. The summary of the Profit
Sharing Plan set forth below is qualified in its entirety by reference to the
text of the Profit
41
<PAGE> 45
Sharing Plan, a copy of which has been filed as an exhibit to the Registration
Statement of which this Proxy Statement/Prospectus is a part.
Each participant may make contributions to the Profit Sharing Plan by means
of a pre-tax salary deferral which may not be more than 15% of the employee's
compensation. The Trust will contribute, on behalf of each non-highly
compensated employee and non-key employee who is actively employed on the last
day of each plan year, a special discretionary contribution equal to a
percentage of such employee's compensation, which will be determined each year
by the Trust. The Code limits the annual amount of salary deferrals that may be
made by any employee.
An employee's salary deferral contribution will always be 100% vested and
nonforfeitable, although such contributions will be affected by any investment
gains or losses to the Profit Sharing Plan. In general, in the event of
retirement, death or disability, 100% of a participating employee's account
would be available for distribution to either the employee or such employee's
beneficiary, as applicable. The Trust Managers may amend the Profit Sharing Plan
at any time. In no event, however, may any amendment (i) authorize or permit any
part of the Profit Sharing Plan assets to be used for purposes other than the
exclusive benefit of participating employees or their beneficiaries, or (ii)
cause any reduction in the amount credited to each participating employee's
account. Likewise, the Trust Managers have the right to terminate the Profit
Sharing Plan at any time. In the event of such termination, all amounts credited
to each employee's account will continue to be 100% vested. A complete
discontinuance of contributions to the Profit Sharing Plan by the Trust will
also constitute an event of termination of the Profit Sharing Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Articles limit the liability of the Company's directors and
officers to the Company and its Stockholders to the fullest extent permitted
from time to time by Maryland law. Maryland law presently permits the liability
of directors and officers to a corporation or its stockholders for money damages
to be limited, except (i) to the extent that it is proved that the director or
officer actually received an improper benefit or profit or (ii) if a judgment or
other final adjudication is entered against the director or officer in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of the Company or its Stockholders to obtain other
relief, such as an injunction or rescission.
The Company's Articles require the Company to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by the MGCL. The MGCL permits a corporation, subject to certain exceptions,
to indemnify its directors, officers and certain other parties against
judgments, penalties, fines, settlements and reasonable expenses, including
attorneys' fees, actually incurred by or at the request of the corporation,
unless it is established that (i) the act or omission of the indemnified party
was material to the matter giving rise to the proceeding and was committed in
bad faith or was the result of active and deliberate dishonesty, (ii) the
indemnified party actually received an improper personal benefit, or (iii) in
the case of any criminal proceeding, the indemnified party had reasonable cause
to believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the proceeding;
provided, however, that if the proceeding is one by or in the right of the
corporation, indemnification may not be made with respect to any proceeding in
which the director or officer has been adjudged to be liable to the corporation.
In addition, a director or officer may not be indemnified with respect to any
proceeding charging improper personal benefit to the director or officer in
which the director or officer was adjudged to be liable on the basis that
personal benefit was improperly received. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
any order of probation prior to judgment, creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for indemnification to be permitted. It is the position of the Commission that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and is unenforceable pursuant to Section
14 of the Securities Act.
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<PAGE> 46
The Company has entered into Indemnification Agreements with its directors
and executive officers, Messrs. Bricker, Hay, Wolcott, Simpson and Warner,
requiring the Company to indemnify them, and advance expenses, to the maximum
extent permitted by Maryland law. See "CERTAIN STATUTORY AND CHARTER
PROVISIONS -- Limitation of Liability and Indemnification."
SUMMARY COMPARISON OF SHARES OF BENEFICIAL INTEREST
AND COMMON STOCK
There are a number of differences in the investment attributes and legal
rights associated with the ownership of Trust Shares and shares of Company
Common Stock. The principal differences are summarized below.
<TABLE>
<CAPTION>
SHARES OF BENEFICIAL INTEREST COMMON STOCK
- -------------------------------------------- --------------------------------------------
<S> <C>
PREFERENCES
All holders of Shares participate equally in All holders of Common Stock participate
distributions and have no preference rights. equally in dividends and have no preference
rights; however, the Company may issue
Preferred Stock with priorities or
preferences with respect to dividends and
liquidation proceeds.
CUMULATIVE VOTING
Cumulative voting in the election of Trust There is no cumulative voting in the
Managers is prohibited except when the Trust election of directors.
is aware that a person beneficially owns
more than 30% of the outstanding Shares.
EXCHANGE LISTING
The Shares are listed for trading on the The Company has applied to list the Common
NYSE. Stock on the NYSE.
STAGGERED BOARD OF DIRECTORS
The Texas REIT Act does not specifically The MGCL specifically authorizes the Company
authorize the Trust to stagger the terms of to stagger the terms of office of the Board
office of the Trust Managers, and the of Directors, and the Articles of the
Declaration of Trust does not provide for Company provide for staggered terms.
staggered terms.
</TABLE>
43
<PAGE> 47
<TABLE>
<CAPTION>
SHARES OF BENEFICIAL INTEREST COMMON STOCK
- -------------------------------------------- --------------------------------------------
<S> <C>
BUSINESS COMBINATIONS
Certain business combinations between the Certain business combinations between the
Trust and a beneficial holder of 10% or Company and the beneficial owner of 10% or
more of the Trust's outstanding Shares (an more of the voting power of then-outstanding
"Interested Shareholder") must be approved voting stock of the Company (an "Interested
by the affirmative vote of the holders of at Stockholder") or an affiliate thereof, are
least 80% of the voting power of the prohibited for five years after the most
outstanding Shares. "Business Combinations" recent date on which the Interested
include liquidations, mergers or Stockholder became an Interested
consolidations with or into an Interested Stockholder. Thereafter, any such business
Shareholder, the sale of substantially all combination must be recommended by the Board
the Trust's assets to an Interested of Directors of the Company and approved by
Shareholder, and certain issuances of the affirmative vote of at least (i) 80% of
securities to an Interested Shareholder. the votes entitled to be cast by holders of
outstanding voting shares of the Company and
(ii) two-thirds of the votes entitled to be
cast by the holders of outstanding voting
shares of the Company other than shares held
by the Interested Stockholder with whom the
business combination is to be affected
unless, among other things, the Company's
stockholders receive a minimum price for
their shares and the consideration is
received in cash or the same form as
previously paid by the Interested
Stockholder for its shares. See "CERTAIN
STATUTORY AND CHARTER PROVISIONS -- BUSINESS
COMBINATIONS."
SPECIAL MEETINGS
Special meetings of Shareholders may be Special meetings may be called by the
called by the holders of not less than 10% holders of not less than 25% of the stock
of all Shares entitled to vote at the entitled to vote at the special meeting.
meeting.
DIVIDENDS
The Trust Managers may declare distributions The Board of Directors may declare dividends
on the outstanding Shares in cash, on outstanding stock in cash, property or
property or Shares except when the Trust is its own stock except when the Company would
insolvent or the payment thereof would not be able to pay its indebtedness as it
render the Trust insolvent. becomes due or if liabilities exceed assets.
VOTING REQUIREMENTS
Under the Declaration of Trust, a two-thirds Under the Articles, a majority vote of
vote of outstanding Shares is required to outstanding stock is required to approve
approve mergers (other than Business mergers and consolidations (other than
Combinations), dissolution of the Trust and business combinations), transfers of assets,
amendment of the Declaration of Trust. dissolution of the Company and amendment of
the Articles.
MAJOR CAPITAL IMPROVEMENTS
Major capital improvements must be made to There is no requirement that capital
real property within 15 years of purchase improvements be made to real property.
or the property must be sold.
</TABLE>
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<PAGE> 48
<TABLE>
<CAPTION>
SHARES OF BENEFICIAL INTEREST COMMON STOCK
- -------------------------------------------- --------------------------------------------
<S> <C>
LIMITATIONS ON OWNERSHIP
The Trust's By-Laws contain restrictions on The Articles contain provisions identical to
transfer designed to preserve the Trust's those contained in the Trust's By-Laws which
status as a REIT. restrict transferability of the Company's
Common Stock and Preferred Stock in order to
preserve the Company's status as a REIT. See
"THE COMPANY'S SECURITIES -- Capital Stock."
</TABLE>
THE COMPANY'S SECURITIES
The description of the Company's securities set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Articles and Bylaws, copies of which are filed as Exhibits to this
Registration Statement of which this Proxy Statement/Prospectus is a part. See
"ADDITIONAL INFORMATION."
CAPITAL STOCK
General. Under the Articles, the Company has the authority to issue up to
60,000,000 shares of capital stock, consisting of 50,000,000 shares of Common
Stock, par value $.01 per share and 10,000,000 shares of Preferred Stock, par
value $.01 per share. Shares of Common Stock and Preferred Stock may be
automatically deemed "Excess Stock" as described below. Under the MGCL,
stockholders generally are not responsible for the corporation's debts or
obligations. Upon completion of the Merger, there will be approximately
1,815,080 shares of Common Stock issued and outstanding, and no shares of
Preferred Stock will be issued or outstanding.
Common Stock. All shares of Common Stock received by Shareholders in
connection with the Merger will be duly authorized, fully paid and
non-assessable. Subject to the preferential rights of any other shares or series
of shares and to the provisions of the Articles regarding Excess Shares, holders
of shares of Common Stock will be entitled to receive dividends on the stock if,
as and when authorized and declared by the Board of Directors out of assets
legally available therefor and to share ratably in the assets of the Company
legally available for distribution to its Stockholders in the event of its
liquidation, dissolution or winding-up after payment of, or adequate provision
for payment of, all known debts and liabilities of the Company.
Subject to the provisions of the Articles regarding Excess Shares, each
outstanding share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of Stockholders, including the election of directors, and,
except as otherwise required by law or except as provided with respect to any
other class or series of stock, the holders of shares of Common Stock will
possess the exclusive voting power. There is no cumulative voting in the
election of directors, which means that the holders of a majority of the
outstanding shares of Common Stock can elect all of the directors then standing
for election and the holders of the remaining shares will not be able to elect
any directors.
Holders of shares of Common Stock have no conversion, sinking fund,
redemption rights or preemptive rights to subscribe for any securities of the
Company.
The Company intends to furnish its Stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
information.
Subject to the provisions of the Articles regarding Excess Shares, shares
of Common Stock will have equal dividend, distribution, liquidation and other
rights and will have no preference, appraisal or exchange rights.
The transfer agent and registrar for the Common Stock is Society
Shareholder Services, Inc., Dallas, Texas.
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<PAGE> 49
Preferred Stock. Shares of Preferred Stock may be issued from time to time,
in one or more series, as authorized by the Board of Directors without the
consent of Stockholders. Prior to the issuance of shares of each series, the
Board of Directors is required by the MGCL and the Articles to fix for each
series, subject to the provisions of the Articles regarding Excess Shares, the
terms, preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption, as are permitted by the MGCL. The Board of Directors
could authorize the issuance of Preferred Shares with terms and conditions that
could have the effect of discouraging a takeover or other transaction that
holders of shares of Common Stock might believe to be in their best interests or
in which holders of some, or a majority, of shares of Common Stock might receive
a premium for their shares over the then-current market price of such shares. As
of the date hereof, no Preferred Shares are outstanding, and the Company has no
present plans to issue any Preferred Shares. See "RISK FACTORS -- Certain Anti-
Takeover Provisions; Ownership Limits" and "-- Possible Future Dilution."
Restrictions on Transfers. For the Company to qualify as REIT under the
Code, among other things, not more than 50% of the value of its issued and
outstanding shares of capital stock may be owned, directly or indirectly, by
five or fewer individuals (defined in the Code to include certain entities)
during the last half of a taxable year or during a proportionate part of a
shorter taxable year, and such shares of Common Stock 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. See "FEDERAL INCOME
TAX CONSIDERATIONS." Since the Board of Directors believes it is essential for
the Company to maintain its status as a REIT under the Code, the Articles
provide that no holder (other than persons approved by the directors at their
option and in their discretion) may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% (the "Ownership Limit") of
the number or value of the issued and outstanding capital stock of the Company.
The Board of Directors may waive the Ownership Limit if evidence satisfactory to
the Board of Directors is presented that the changes in ownership will not then
or in the future jeopardize the Company's status as a REIT. As a condition to
this waiver, the intended transferee must give written notice to the Company of
the proposed transfer no later than the 50th day prior to any transfer which, if
effected, would result in the intended transferee owning shares in excess of the
Ownership Limit. The Board of Directors may require opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary or advisable in
order to determine or ensure the Company's status as a REIT. Any transfer of
shares of stock that would create a direct or indirect ownership of shares of
stock in excess of the Ownership Limit or that would result in the
disqualification of the Company as a REIT, including any transfer that results
in the shares of Common Stock being owned by fewer than 100 persons or that
results in the Company being "closely-held" within the meaning of Section 856(h)
of the Code, shall be null and void, and the intended transferee will acquire no
rights to the shares of stock. The foregoing restrictions on transferability and
ownership will not apply if the Board of Directors determines that it is no
longer in the best interests of the Company to attempt to qualify, or to
continue to qualify, as a REIT.
Shares of stock owned, or deemed to be owned, or transferred to a
Stockholder in excess of the Ownership Limit or which cause the Company to
become "closely-held" under Section 856(h) of the Code except as permitted
above, will automatically be deemed Excess Shares that will be transferred, by
operation of law, to the trustee of a trust for the exclusive benefit of the
transferees for whom such shares of stock may be ultimately transferred without
violating the Ownership Limit. Subject to the Ownership Limit, the Excess Shares
may be transferred by the intended transferee to any person (if the Excess
Shares would not be Excess Shares in the hands of that person) at a price not to
exceed the price paid by the intended transferee (or, if no consideration was
paid, fair market value at the time of the original attempted transfer) at which
point the Excess Shares will automatically be deemed shares of stock. In
addition, Excess Shares held in trust are subject to purchase by the Company at
a purchase price equal to the lesser of: (i) the price paid for the shares of
stock by the intended transferee (or, if no consideration was paid, fair market
value of the shares of stock by the attempted transfer of which resulted in
Excess Shares, measured on the date of the transfer); or (ii) the average daily
per share closing price on a national securities exchange or NASDAQ NMS of the
shares of stock the attempted transfer of which resulted in Excess Shares
measured during the 30 day calendar period ending on the business day
immediately preceding the redemption date, or if not then traded on the NYSE, a
national securities exchange or NASDAQ NMS, the mean between the average per
share closing bid prices
46
<PAGE> 50
and the average per share closing asked prices measured during the 30 day
calendar period ending on the business day immediately preceding the redemption
date, then the market price of the shares of stock on the relevant date as
determined in good faith by the Board of Directors.
From and after the intended transfer to the intended transferee of the
Excess Shares, the intended transferee shall cease to be entitled to
distributions (except upon liquidation), voting rights and other benefits with
respect to the Excess Shares except the right to payment of the purchase price
for the shares of stock. Any dividend or distribution paid to a proposed
transferee on Excess Shares prior to the discovery by the Company that the
shares have been transferred in violation of the Articles shall be repaid to the
Company upon demand. If the foregoing transfer restrictions are determined to be
void or invalid by virtue of any legal decision, statute, rule or regulation,
then the intended transferee of any Excess Shares may be deemed, at the option
of the Company, to have acted as an agent on behalf of the Company in acquiring
the Excess Shares and to hold the Excess Shares on behalf of the Company. All
certificates representing shares of Common Stock and Preferred Stock will bear a
legend referring to the restrictions described above.
The Board of Directors may require an affidavit from each Stockholder or
proposed transferee of Common or Preferred Stock setting forth the number of
shares already beneficially owned by such person. If, in the opinion of the
Board of Directors, a proposed transfer jeopardizes the qualification of the
Company as a REIT, the Board has the right, but not the duty, to refuse to
permit the transfer of Stock to such person. All persons who own, directly or by
virtue of the attribution provisions of the Code, more than 9.8% of the number
or value of the outstanding shares of Common Stock must give the Company written
notice by January 31st of each year. In addition, each Stockholder shall, upon
demand, be required to disclose to the Company in writing all information
regarding the direct, indirect and constructive ownership of shares of Common
Stock as the Board of Directors deems reasonably necessary to comply with the
provisions of the Code applicable to a REIT, to comply with the requirements of
any taxing authority or governmental agency or to determine any such compliance.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of shares
of Common Stock might receive a premium for their shares over the then
prevailing market price or which these holders might believe to be otherwise in
their best interest. See "RISK FACTORS -- Certain Anti-Takeover Provisions;
Ownership Limits."
THE NOTES
General. The Trust issued the Notes pursuant to an Indenture (the
"Indenture") dated as of November 15, 1985, between the Trust and IBJ Schroder
Bank & Trust (formerly known as J. Henry Schroder Bank & Trust Company), as
Trustee (the "Indenture Trustee"). The Notes are sold in registered form,
without coupons, in minimum denominations of $1,000 and integral multiples
thereof. In connection with the acquisition of the Properties, the Trust granted
Mortgages (defined below) to or for the benefit of the Indenture Trustee for the
ratable benefit of the Noteholders pursuant to the provisions of the Indenture.
See "-- Collateral." Under the Merger Agreement, the Company will assume the
obligations of the Trust under the Indenture and will assume the Mortgages,
through the execution of a supplemental indenture and amendments to the
Mortgages.
If all currently outstanding Notes remain outstanding, the Notes will
accrue at stated maturity to $19,491,000 on the twelfth anniversary of date of
issuance, and there are no periodic payments of interest.
Collateral. The Notes are secured by first or second mortgages on the
Properties to be acquired by the Company in the Merger (the "Mortgages").
Pursuant to the Indenture and Mortgages on the Properties, the Noteholders will
have a claim prior to that of the Stockholders with respect to the Company's
Properties. See "-- Events of Default." In addition, the Indenture Trustee will
hold a security interest on funds in the defeasance account (as described
below), excluding income earned on such funds, which income will be distributed
at least annually to the Company.
Subject to its investment policies and the limitations set forth in
"-- Proceeds from Sale of Assets and Refinancing" below, the Company will have
the right from time to time to sell or dispose of for cash any or all
47
<PAGE> 51
of the Properties subject to the Mortgages. In the event of a sale or other
disposition of any of the Properties, the Company will be entitled to the
release thereof from the lien of the Indenture and the applicable Mortgage upon
delivery to the Indenture Trustee of funds generally equal to not less than the
original purchase price of the Property (less debt assumed on the purchase) to
be released, and compliance with certain other conditions precedent. In any such
event, funds delivered shall be deposited in the defeasance account (as
described below).
Insurance; Uninsured Losses. Until all Notes are defeased or redeemed, the
Mortgages require the Company to maintain adequate insurance coverage for the
Properties from an insurance company having a claims paying rating of "AA" or
better by Standard & Poor's Corporation. The insurance policies covering the
Properties will not cover certain types of losses (generally of a catastrophic
nature, such as earthquakes, floods and wars). Should such an uninsured loss
occur, the Company could lose both its invested capital and anticipated profits
relating to the affected Property, and the Company would be required to defease
an amount of the Notes having an aggregate principal amount at stated maturity
equal generally to the purchase price (less debt assumed on the purchase) to the
Company of the affected Property. In that event, the Company might be required
to use reserves, seek additional funds, sell a Property at unfavorable terms or
suffer a foreclosure of a Property. Because of the restrictions contained in the
Indenture, there can be no assurance, however, that additional funds would be
available or, if available, that such funds would be on acceptable terms. See
"RISK FACTORS -- Uninsured Loss."
Proceeds from Sale of Assets and Refinancing. Pursuant to the Indenture,
until all Notes are defeased or redeemed, the Board of Directors shall deposit
with the Indenture Trustee such portion of the proceeds of any sale, refinancing
or other disposition of any of the Company's Properties as they deem necessary
or appropriate to protect the interests of the Noteholders but in no event less
than the original purchase price of the Property being sold, refinanced or
otherwise disposed of (less debt assumed on purchase). In the event of a sale or
other disposition of Property, such Property may only be released from the lien
of the Indenture and the applicable Mortgage upon compliance with the conditions
set forth in Article 13 of the Indenture. See "-- Collateral."
Until the eleventh anniversary of the issuance of the Notes, the Company
shall not make distributions to Stockholders out of the proceeds of the sale,
refinancing or other disposition of any Property, or insurance payment or
condemnation proceeding, if the principal amount of the Notes at stated maturity
(reduced by the amount, if any, of the funds in the defeasance account and the
redemption account (excluding income earned on such funds)) would be greater
than 100% of the sum of the most recent appraisal report on the Company's
Properties (reduced by the amount of debt assumed on purchase of the Properties
and the amount attributable to the gain, if any, or the proposed sale,
refinancing or other disposition, based on the most recent appraisal report on
such Property or to the gain, if any, from the insurance payment or condemnation
proceeding) and the gross value of all other Properties. Notwithstanding the
foregoing, this limitation shall not prevent the Company from making any
distributions to Stockholders deemed necessary by the Board of Directors to
maintain the Company's qualification as a REIT under the Code.
If, by November 27, 1996, the Notes have not been redeemed or defeased in
full and refinancing commitments from bona fide creditors are not sufficient to
repay the outstanding Notes at stated maturity, the Company will be required to
sell Properties to raise cash sufficient to retire the Notes at stated maturity.
Redemption, Defeasance and Discharge. From and after November 27, 1995, the
Notes may be redeemed at the option of the Trust, in whole or in part, upon not
less than 30 nor more than 60 days notice at their stated principal amounts at
maturity. Funds deposited in the redemption account are held for the persons
entitled thereto, do not constitute part of the collateral pursuant to the
Indenture, and may be used solely to redeem the Notes subject to redemption.
Pursuant to the Indenture, a defeasance account has been established. In
order to defease all or any portion of the Notes, at or before maturity, the
Trust must deposit cash and government obligations in the defeasance account, in
principal amounts sufficient to pay the aggregate principal amount of the
defeased Notes at stated maturity. The amounts in the defeasance account may be
transferred to the redemption account to be used to redeem the Notes subject to
redemption.
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<PAGE> 52
Events of Default. The following events constitute Events of Default
pursuant to the terms of the Notes and the Indenture:
(i) Any failure to pay principal on the Notes when due;
(ii) Any nonpayment of taxes or insurance or failure to perform any other
obligation under any of the Mortgages involving solely the payment of
money occurring for a period of 30 calendar days after proper notice;
(iii) Any default in the performance or breach of any warranty or of any
other obligation contained in the Indenture or any Mortgage for a
period of 30 calendar days after proper notice (provided that the
30-day cure period will be extended for another single 30-day period
if the default is not cured within the initial period but the
Company has commenced efforts to cure the default and thereafter
proceeds to cure the same with due diligence);
(iv) Events of bankruptcy, insolvency, reorganization or other similar
events, of the Company; and
(v) Any default under any indebtedness for borrowed money by the Company
under any mortgage, indenture or other instrument which secures such
indebtedness, whether now-existing or hereafter incurred, which
default shall constitute a monetary default or result in such
indebtedness being declared due and payable prior to its maturity
after expiration of applicable grace periods, without such
indebtedness being discharged, rescinded or waived within a period
of 20 calendar days after proper notice.
Upon the occurrence and continuance of an Event of Default as described above,
the Indenture Trustee or the holders of not less than 25% in principal amount of
the Notes may declare to be due and payable immediately an amount of principal
equal to the then accreted aggregate principal amount of the Notes using the
interest method of computation. After declaration of acceleration but before
judgment or decree thereon, holders of a majority in principal amount of the
Notes by notice may rescind such acceleration if certain monies are deposited
for payment of Notes which are due otherwise than by acceleration, payments of
certain Indenture Trustee fees are made and all Events of Default other than
non-payment of principal of Notes which have become due as a result of
acceleration are cured or waived. Upon such declaration, such amount of
principal will become immediately due and payable and the Indenture Trustee may
foreclose on the Properties subject to Mortgages. Overdue principal will bear
interest at an annual rate equal to 14.70% (to the extent that the payment of
such interest is legally enforceable).
Limitations on Consolidation, Merger. The Trust, without the consent of
Noteholders, may consolidate with or merge into any entity or convey or transfer
its properties and assets substantially as an entirety, if its successor is a
domestic trust or corporation and assumes the Trust's obligations on the Notes
and under the Indenture, and after giving effect to such transaction the Trust
or its successor would not be in default under the Indenture.
CERTAIN STATUTORY AND CHARTER PROVISIONS
The following is a summary of certain provisions of the MGCL and the
Company's Articles and Bylaws and does not purport to be complete and is
qualified in its entirety by reference to the MGCL and the Company's Articles
and Bylaws. Copies of the Company's Articles and Bylaws have been filed as
exhibits to the Registration Statement of which this Proxy Statement/Prospectus
is a part. See "ADDITIONAL INFORMATION."
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Bylaws provide that the number of directors of the Company
may be established by the Board of Directors but may not be fewer than the
number required under the MGCL. Any vacancy will be filled, at any regular
meeting or at any special meeting called for that purpose, by a majority of the
remaining directors, except that a vacancy resulting from an increase in the
number of directors will be filled by a
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<PAGE> 53
majority of the entire Board of Directors. The Stockholders may fill vacancies
resulting from the removal of a director. Pursuant to the terms of the Articles,
the directors are divided into three classes. One class will hold office
initially for a term expiring at the annual meeting of Stockholders to be held
in 1995, another class will hold office initially for a term expiring at the
annual meeting of Stockholders to be held in 1996 and another class will hold
office initially for a term expiring at the annual meeting of Stockholders to be
held in 1997. As the term of each class expires, directors in that class will be
elected for a term of three years until their successors are duly elected and
qualified. The Company believes that classification of the Board of Directors
will help to assure the continuity and stability of the Company's business
strategies and policies as determined by the Board of Directors.
The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its Stockholders. See "RISK FACTORS -- Certain Anti-Takeover
Provisions; Ownership Limits." At least two annual meetings of Stockholders,
instead of one, will generally be required to effect a change in a majority of
the Board of Directors. Thus, the classified board provision could increase the
likelihood that incumbent directors will retain their positions. Further,
holders of shares of Common Stock will have no right to cumulative voting for
the election of directors. Consequently, at each annual meeting of Stockholders,
the holders of a majority of shares of Common Stock will be able to elect all of
the successors of the class of directors whose term expires at that meeting.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Articles limit the liability of the Company's directors and
officers to the Company and its Stockholders to the fullest extent permitted
from time to time by Maryland law. Maryland law presently permits the liability
of directors and officers to a corporation or its Stockholders for money damages
to be limited, except (i) to the extent that it is proved that the director or
officer actually received an improper benefit or profit or (ii) if a judgment or
other final adjudication is entered against the director or officer in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of the Company or its Stockholders to obtain other
relief, such as an injunction or rescission.
The Company's Articles require the Company to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by the MGCL. The MGCL permits a corporation, subject to certain exceptions,
to indemnify its directors, officers and certain other parties against
judgments, penalties, fines, settlements and reasonable expenses, including
attorneys' fees, actually incurred by or at the request of the corporation,
unless it is established that (i) the act or omission of the indemnified party
was material to the matter giving rise to the proceeding and was committed in
bad faith or was the result of active and deliberate dishonesty, (ii) the
indemnified party actually received an improper personal benefit, or (iii) in
the case of any criminal proceeding, the indemnified party had reasonable cause
to believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the proceeding;
provided, however, that if the proceeding is one by or in the right of the
corporation, indemnification may not be made with respect to any proceeding in
which the director or officer has been adjudged to be liable to the corporation.
In addition, a director or officer may not be indemnified with respect to any
proceeding charging improper personal benefit to the director or officer in
which the director or officer was adjudged to be liable on the basis that
personal benefit was improperly received. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
any order of probation prior to judgment, creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for indemnification to be permitted. It is the position of the Commission that
indemnification of directors and officers for liabilities arising under the
Securities Act is against public policy and is unenforceable pursuant to Section
14 of the Securities Act.
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BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting stock of
the corporation (an "Interested Stockholder") or an affiliate thereof, are
prohibited for five years after the most recent date on which the Interested
Stockholder became an Interested Stockholder. Thereafter, any such business
combination must be recommended by the board of directors of such corporation
and approved by the affirmative vote of at least (i) 80% of the votes entitled
to be cast by holders of outstanding voting shares of the corporation voting
together as a single group; and (ii) two-thirds of the votes entitled to be cast
by holders of outstanding voting shares of the corporation other than shares
held by the Interested Stockholder with whom the business combination is to be
effected, unless, among other things, the corporation's stockholders receive a
minimum price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Stockholder for its shares. These provisions of Maryland law do not apply,
however, to business combinations that are approved or exempted by the board of
directors of the corporation prior to the time that the Interested Stockholder
becomes an Interested Stockholder. The Articles contain a provision exempting
from these provisions of the MGCL any business combination involving the Trust
(or its affiliates). See "RISK FACTORS -- Certain Anti-Takeover Provisions;
Ownership Limits."
CONTROL SHARE ACQUISITION
The MGCL provides that "control shares" of the Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquirer, by officers or by
directors who are employees of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by such person, or in respect of which such person is able
to exercise or direct the exercise of voting power, would entitle the acquirer
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third; (ii)
one-third or more but less than a majority; or (iii) a majority or more of all
voting power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares. If
no request for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any
and all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for control shares, as of the date of the last control
share acquisition or of any meeting of stockholders at which the voting rights
of such shares are considered and not approved. If voting rights for control
shares are approved at a stockholders meeting and the acquirer becomes entitled
to vote a majority of the shares entitled to vote, all other stockholders may
exercise appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights may not be less than the highest price per
share paid in the control share acquisition, and certain limitations and
restrictions otherwise applicable to the exercise of dissenters' rights do not
apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation.
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The Articles contain a provision exempting from the control share
acquisition statute any and all acquisitions by the Trust (or its affiliates).
AMENDMENT TO THE ARTICLES OF INCORPORATION AND BYLAWS
The Company's Articles, including their provisions on classification of the
Board of Directors and removal of directors, may not be amended without the
affirmative vote of the holders of at least a majority of all of the votes
entitled to be cast on the matter. The Company's Bylaws may be amended by either
the affirmative vote of a majority of all shares outstanding and entitled to
vote or by the affirmative vote of a majority of the Company's directors then
holding office. Neither the Board of Directors nor the Stockholders may amend
the indemnification provisions of the Bylaws without the consent of the persons
whose right to indemnification under the Bylaws would be adversely affected by
the amendment.
DISSOLUTION OF THE COMPANY
The MGCL permits the dissolution of the Company by (i) the affirmation or
vote of a majority of the entire Board of Directors declaring such dissolution
to be advisable and directing that the proposed dissolution be submitted for
consideration at an annual or special meeting of Stockholders; and (ii) upon
proper notice, Stockholder approval by the affirmative vote of the holders of
not less than a majority of all of the votes entitled to be cast on the matter
or the written consent of all shares entitled to vote on the matter.
DIRECTOR NOMINATIONS AND NEW BUSINESS
The Company's Bylaws provide that (i) with respect to an annual meeting of
Stockholders, nominations of persons for election to the Board of Directors may
be made only by the Board of Directors; and (ii) with respect to special
meetings of Stockholders, only the business specified in the Company's notice of
meeting may be brought before the meeting of Stockholders.
The provisions in the Company's Articles on classification of the Board of
Directors and removal of directors, the business combination and, if the
applicable provision in the Bylaws is rescinded, control share acquisition
provisions of the MGCL could have the effect of discouraging a takeover or other
transaction in which holders of some, or a majority, of the shares of Common
Stock might receive a premium for their shares of Common Stock over the then
prevailing market price or which such holders might believe to be otherwise in
their best interests. See "RISK FACTORS -- Certain Anti-Takeover Provisions;
Ownership Limits."
MEETINGS OF STOCKHOLDERS
Beginning in 1995, an annual meeting of the Stockholders for the election
of directors and the transaction of any business within the powers of the
Company shall be held during May of each calendar year at the time set by the
directors.
Subject to the rights which may be granted to the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
special meetings of the Stockholders may be called by the Chairman of the Board
of Directors, by the President or by a resolution adopted by a majority of the
directors, assuming no vacancies, and by the holders of 25% or more of the
outstanding Common Stock.
FEDERAL INCOME TAX CONSIDERATIONS
EFFECT OF THE MERGER
In the opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., special
counsel to the Company, the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Code, and accordingly (i) no gain or loss
will be recognized by the Trust as a result of the Merger; (ii) except for
Stockholders who elect to receive cash in lieu of fractional shares, no gain or
loss will be recognized by the Trust's Shareholders upon receipt of the
Company's Common Stock in exchange for the Trust's Shares in connection with the
Merger; (iii) the tax basis of the Company's Common Stock to be received by the
Trust's Shareholders in
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connection with the Merger will be the same as the basis in the Trust's Shares
surrendered in exchange therefor; and (iv) the holding period of the Company's
Common Stock to be received by the Trust's Shareholders in connection with the
Merger will include the holding period of the Trust's Shares surrendered in
exchange therefor, provided that the Trust's Shares are held as a capital asset
at the Effective Date.
TAXATION
This section is a general summary of the material federal income tax
considerations that may be relevant to prospective purchasers of Common Stock of
the Company and is based upon applicable Code provisions, rules and regulations
promulgated thereunder, and reported judicial and administrative interpretations
pertaining thereto, all of which are subject to change (possibly on a
retroactive basis).
The following discussion does not include all matters that may be relevant
to any particular holder of Common Stock in light of such holder's particular
facts and circumstances. Certain Stockholders, such as foreign persons,
tax-exempt entities, insurance companies and financial institutions, may be
subject to special rules not discussed below. In particular, the following
discussion does not address issues under the Employee Retirement Income Security
Act of 1974, as amended, the Foreign Investment in Real Property Tax Act of
1980, and foreign, state and local tax laws.
Each prospective purchaser should consult his own tax advisor regarding the
specific tax consequences to him of the purchase, ownership, and sale of the
Common Stock, including the federal, state, local, foreign and other tax
consequences of such purchase, ownership, sale and of potential changes in
applicable tax laws.
TAXATION OF THE COMPANY
To qualify as a REIT under the Code for a taxable year, the Company must
meet certain requirements relating to its assets, income, stock ownership and
distributions to Stockholders. Generally, at the end of each calendar quarter,
(i) at least 75% of the value of the total assets of the Company must consist of
real estate assets, cash or government securities, (ii) not more than 25% of the
value of its total assets may consist of non-governmental securities, and (iii)
the Company may not own more than 10% of the outstanding voting securities of
any one issuer and may not own securities of any one issuer whose value
represents more than 5% of the total value of the Company's assets (shares of
qualified REITs and of certain wholly-owned subsidiaries are exempt from the
requirements described in clauses (ii) and (iii) above).
The Company must also satisfy three separate income tests. First, at least
75% of a REIT's gross income must be derived from specified real estate sources
for each taxable year. Income that qualifies under the 75% test includes certain
qualified rents from real property, gains from the sale of real property not
held primarily for sale to customers in the ordinary course of business,
dividends on REIT shares, interest on loans secured by mortgages on real
property, and certain qualified temporary investment mortgages on real property,
certain income from foreclosure property, and certain qualified temporary
investment income attributable to the investment of new capital received by the
REIT in exchange for either stock or certain debt instruments during the
one-year period following the receipt of such new capital. In order for rents to
qualify under the 75% test, they may not be derived from tenants having certain
relationships with the Company and may not be based on the income or profits of
any person, except that they may be based on a fixed percentage or percentages
of gross income or receipts. Further, a REIT may not manage the property or
furnish services to the tenants from whom the rents are received unless either
(i) the property is managed by an independent contractor which is paid an
arm's-length fee for its services and from which the REIT derives no income, or
(ii) any services performed are of a type customarily rendered in connection
with the rental of space for occupancy only. In this regard, it should be noted
that the Company currently retains an independent contractor which is paid an
arm's-length fee to manage its rental properties.
Second, at least 95% of the Company's gross income for each taxable year
must be derived from income that qualifies under the 75% test (other than
qualified temporary investment income), plus dividends, interest or gains from
disposition of certain stock or securities.
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Third, gross income from the sale or other disposition of (i) stock and
securities held for less than one year, (ii) property in certain prohibited
transactions, and (iii) certain real property held for less than four years must
comprise less than 30% of the gross income for each taxable year of the Company.
In order to qualify as a REIT, the Company must also satisfy certain
ownership requirements with respect to its Common Stock. The Common Stock of the
Company must be held by at least 100 Stockholders, and no more than 50% in value
of the outstanding Common Stock may be owned, actually or constructively, by
five or fewer individuals (including certain types of pension funds and other
tax-exempt entities that are treated as individuals for this purpose, subject to
a "look-through" exception described below) at any time during the last half of
the Company's taxable year. In this regard, there are restrictions in the
Company's Articles that would limit the ability of a Stockholder to transfer
Common Stock if such transfer would cause or contribute to a violation of the
stock ownership requirements.
Finally, the Company must distribute to its Stockholders annually an amount
(determined without regard to capital gains dividends) at least equal to (i) 95%
of its REIT taxable income (computed without regard to net capital gains and the
dividends-received deduction), plus (ii) 95% of the after-tax income from any
foreclosure property, and less (iii) certain noncash income. If the Company were
to fail the 95% distribution requirement as a result of an IRS adjustment (to
taxable income or to the dividend paid amount) to a particular taxable year,
then, provided certain conditions are met, the Company generally would be
entitled to cure the deficiency retroactively by paying deficiency dividends to
its Stockholders. However, the Company would be liable for interest charges and
any additions to tax on such deficiency dividends.
So long as the Company satisfies the above-described requirements and
qualifies for taxation as a REIT, it generally will not be subject to federal
income tax on that portion of its taxable income and capital gain that is
currently distributed to its Stockholders. Any undistributed taxable income or
capital gain, however, will be taxed to the Company at regular corporate rates.
In addition, the Company may be subject to other special income and excise taxes
(including the alternative minimum tax) in certain circumstances.
Regardless of distributions to Stockholders: (i) if the Company fails
either or both of the 75% or 95% income tests, but still maintains its
qualification as a REIT, it will be subject to a 100% tax on the taxable income
attributable to the greater of the amount by which it failed the 75% or the 95%
income test, and (ii) the Company will be subject to a 100% tax on any net
income from prohibited transactions.
A "prohibited transaction" is the sale or other disposition of property,
other than foreclosure property, held primarily for sale to customers in the
ordinary course of business. Certain sales, which might otherwise be classified
as "prohibited transactions", will not be subject to the 100% tax if the sales
meet the "safe harbor" rules provided in the Code.
A REIT is required to pay a 4% excise tax on the difference between the
"required distribution" and the "distributed amount" for each calendar year.
These terms are specifically defined in Code Section 4981. The excise tax rule
is designed to encourage REITs to distribute income in the same calendar year
that the income is accrued.
If the Company fails to qualify as a REIT for any taxable year and certain
relief provisions do not apply, the Company will be subject to federal income
tax (including the alternative minimum tax) on all of its taxable income at
regular corporate rates, and will not receive a deduction for dividends paid to
its Stockholders. Additionally, any distributions to Stockholders will still be
taxable to the Stockholders as ordinary income to the extent of current and
accumulated earnings and profits (although such dividends will be eligible,
subject to certain limitations, for the corporate dividends-received deduction
as to a corporate Stockholder). Thus, the Company's income would be subject to
"double taxation" -- at the corporate level and the stockholder level -- to the
extent such income is distributed to Stockholders. Failure to qualify as a REIT
could force the Company to reduce significantly its distributions and to incur
substantial indebtedness or liquidate substantial investments in order to pay
the resulting corporate taxes. In addition, the Company would not be eligible to
elect REIT status for the four subsequent taxable years, unless its failure to
qualify was due to reasonable cause and not willful neglect, and certain other
requirements were satisfied.
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As a foreign corporation doing business in Texas, the Company will be
subject to the payment of Texas franchise taxes. The Texas franchise tax is
measured by a corporation's earnings and capital base apportioned on the basis
of business done in Texas versus business done everywhere. Thus, the relative
percentage of the Company's business in Texas and the Company's capital base
will affect the Texas franchise tax liability of the Company regardless of
whether the Company has earnings.
It is the opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., based
upon certain representations of the Company, that the Company is organized in
conformity with the requirements for qualification as a REIT and that its
proposed method of operations, as described in this Proxy Statement/Prospectus,
will enable it to meet the requirements for taxation as a REIT. Counsel's
opinion does not have binding effect on the IRS or the courts, and no assurance
can be given that the Company would be characterized as a REIT if its status
were challenged by the IRS.
TAXATION OF THE STOCKHOLDERS OF A REIT
Distributions made by the Company to its Stockholders out of its current or
accumulated earnings and profits will generally be taxed to them as ordinary
income. Distributions paid to Stockholders will constitute portfolio income for
purposes of Code Section 469. A distribution by the Company of net capital gains
will generally be taxed to the Stockholders as long-term capital gain to the
extent properly designated by the Company as a capital gain dividend. Ordinary
and capital gain dividends are not eligible for the dividends-received deduction
that is generally allowed to corporate stockholders.
Capital gain distributions to corporate stockholders are generally taxed in
the same manner as ordinary income except that capital losses are deductible
only to the extent of capital gains. However, corporate stockholders may be
required to treat up to 20% of any such capital gain as ordinary income. For
non-corporate stockholders, net capital gains are currently taxed at a maximum
rate of 28%, while short-term capital gains and ordinary income are taxed at a
maximum rate of 39.6%. However, because of certain limitations on itemized
deductions and personal exemptions, the effective rate may be higher in certain
circumstances. Except to a very limited extent, capital losses of non-corporate
stockholders are deductible only to the extent of capital gains.
Any loss recognized by a stockholder on a sale of shares of a REIT which
were held for not more than six months and with respect to which a capital gain
dividend was received will be treated as a long-term capital loss to the extent
of the amount of distributions from the Company required to be treated by such
stockholder as long-term capital gain.
A distribution in excess of current or accumulated earnings and profits
will constitute a nontaxable return of capital to the extent of the
stockholder's basis in his share of a REIT, and is applied to reduce the
stockholder's basis in such shares. To the extent that such distribution exceeds
such basis, the excess will be treated as capital gain to those stockholders
holding their shares as capital assets. The Company will notify each Stockholder
as to the portions of each distribution which, in its judgment, constitute
ordinary income, capital gain or return of capital. Should the Company incur
ordinary or capital losses, Stockholders will not be entitled to deduct such
losses on their own income tax returns. Under regulations to be promulgated by
the Treasury Department, Stockholders may be required to report as tax
preference items or adjustments, certain items and adjustments of the Company
for purposes of determining the Stockholders' alternative minimum tax liability,
if any.
WITHHOLDING ON DIVIDENDS AND SALE PROCEEDS
Dividends from the Company will ordinarily not be subject to withholding of
federal income taxes. However, the Company will be required to withhold at a
rate of 31% from distributions paid to those Stockholders who (i) fail to
furnish their taxpayer identification number to the Company, (ii) have,
according to the IRS, furnished an incorrect taxpayer identification number to
the Company, (iii) have, according to the IRS, under-reported interest, dividend
or patronage dividend income in the past, or (iv) have failed to satisfy the
payee-certification requirements of Code Section 3406. Each Stockholder will be
required to provide and certify his correct taxpayer identification number and
to certify that he is an exempt recipient. In addition,
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proceeds from the sale of Common Stock could be subject to backup withholding if
the broker through whom the sale is made does not have certain certifications
from the selling Stockholder.
FOREIGN STOCKHOLDERS
Whether gain from the sale of Common Stock of the Company by a nonresident
alien individual or foreign corporation ("foreign persons") is subject to United
States taxation will depend on, among other things, whether the Company is a
"domestically controlled REIT." The Company will be a "domestically controlled
REIT" if United States persons own 50% or more in value of the Common Stock of
the Company at all times during a specified testing period. If the Company is a
"domestically controlled REIT," gain from the sale of Common Stock by foreign
persons generally will not be subject to United States income taxation. However,
such gain will be subject to United States taxation if it is effectively
connected with the foreign person's United States trade or business or, in the
case of an individual foreign person, such person is present within the United
States for more than 182 days in the taxable year in question, regardless of
whether the Company is a "domestically controlled REIT." In addition, if the
Company at any time ceases to be a "domestically controlled REIT," gain from the
sale of Common Stock by a foreign person may be subject to United States
taxation if the foreign person holds more than 5% of the Common Stock of the
Company.
Distributions of cash generated by the Company's operations that are paid
to foreign persons generally will be subject to United States withholding tax at
a rate of 30% or at a lower rate if a foreign person can claim the benefits of a
tax treaty. Capital gain or other taxable distributions of cash to foreign
persons generated by the Company's sale or exchange of "United States real
property interests" generally will be subject to United States taxation at the
rates applicable to U.S. persons, collected by means of a withholding tax at a
rate of 34%. In addition, to the extent such dividends are attributable to the
sale or exchange by the Company of "United States real property interests" they
may be subject to a 30% branch profits tax (net of the amount of regular income
tax) in the hands of any foreign corporate recipients. Such tax may be reduced
or eliminated in the case of corporations which are residents of certain
countries with which the United States has a tax treaty if certain statutory
requirements are met. Stockholders may be able to obtain a partial refund of
taxes withheld in respect of capital gains distributions by filing a nonresident
U.S. tax return.
Upon the death of a foreign individual Stockholder, the Stockholder's
Common Stock will be treated as part of the Stockholder's U.S. estate for
purposes of the U.S. estate tax, except as may be otherwise provided in an
applicable estate tax treaty.
The federal taxation of foreign persons is a highly complex matter that may
be affected by many considerations. Foreign investors should consult their own
tax advisors regarding the U.S. and foreign tax considerations of investing.
TAX EXEMPT STOCKHOLDERS
In general, a qualified plan, IRA or other tax-exempt entity which is a
Stockholder of the Company is not subject to federal income tax on distributions
from the Company because the IRS has ruled that amounts distributed as dividends
by a qualified REIT do not constitute unrelated business taxable income ("UBTI")
when received by a tax-exempt entity. Based on that ruling, indebtedness
incurred by the Company in connection with the acquisition of an investment will
not cause distributions of the Company paid to a tax-exempt Stockholder to be
UBTI. Revenue rulings are interpretive in nature and subject to revocation or
modification; however, based on this ruling, it would appear that distributions
by the Company to tax-exempt entities would not constitute UBTI. Furthermore,
provided that the tax-exempt Stockholder has not borrowed money to acquire
Common Stock, the dividend income from the Company will not be UBTI to a
tax-exempt Stockholder. Similarly, income from the sale of Common Stock should
not constitute UBTI unless the Stockholder has borrowed to acquire his Common
Stock or is a dealer in Common Stock. For taxable years beginning after December
31, 1993, however, qualified trusts that hold more than 10% (by value) of the
shares of certain REITs may be required to treat a certain percentage of such a
REIT's distributions as UBTI. This requirement will apply only if (i) the REIT
would not qualify as such for federal income tax purposes but for the
application of a "look-through" exception to the five or fewer requirement
applicable to Common
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Stock held by qualified trusts, and (ii) the REIT is "predominantly held" by
qualified trusts. A REIT is predominantly held if either (i) a single qualified
trust holds more than 25% by value of the REIT interests or (ii) one or more
qualified trusts, each owning more than 10% by value of the REIT interests, hold
in the aggregate more than 50% of the REIT interest. The percentage of any REIT
dividend treated as UBTI is equal to the ratio of (a) the UBTI earned by the
REIT (treating the REIT as if it were a qualified trust and therefore subject to
tax on UBTI) to (b) the total gross income (less certain associated expenses) of
the REIT. A de minimis exception applies where the ratio set forth in the
preceding sentence is less than 5% for any year. For these purposes, a qualified
trust is any trust described in Section 401(a) of the Code and exempt from tax
under Section 501(a) of the Code. The provisions requiring qualified trusts to
treat a portion of REIT distributions as UBTI will not apply if the REIT is able
to satisfy the five or fewer requirement without relying upon the "look-through"
exception. The restrictions on ownership of Common Stock in the Company's
Articles will prevent application of the provisions treating a portion of REIT
distributions as UBTI to tax-exempt entities purchasing Common Stock, absent a
waiver of such restrictions by the Board of Directors of the Company.
RECENT DEVELOPMENTS
Effective February 7, 1994, the Board of Directors of the Company
authorized, contingent upon approval of the Merger, the issuance of rights
("Rights") to each Stockholder following the Merger. As currently contemplated,
each Stockholder will be entitled to receive one Right for each share of Common
Stock owned on a record date to be determined by the Board of Directors. The
Rights, if issued, will entitle the Stockholders to purchase shares of Common
Stock at a price below the then-current market price, such price to be set by
the Board of Directors at the time of issuance. Such Rights would be exercisable
for a fixed period of time that has yet to be determined. Although the Board of
Directors has authorized the issuance of the Rights, the Board of Directors may,
in its sole discretion, determine in the future not to issue the Rights based
upon current or anticipated market and economic conditions or other factors.
EXPERTS
The balance sheets of the Trust as of December 31, 1993 and 1992 and the
related statements of operations, changes in shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1993 included in
this Proxy Statement/Prospectus have been audited by Kenneth Leventhal &
Company, independent auditors, as stated in its report appearing herein, and
having been so included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The balance sheet of the Company at January 17, 1994, appearing in this
Proxy Statement/Prospectus and Registration Statement, has been audited by Ernst
& Young, independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement, and is included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
LEGAL MATTERS
The legality of the shares of Common Stock to be issued in connection with
the proposed Merger has been passed upon for the Company by Liddell, Sapp,
Zivley, Hill & LaBoon, L.L.P., Dallas, Texas. The statement in this Proxy
Statement/Prospectus under the caption "FEDERAL INCOME TAX CONSIDERATIONS" and
the other statements herein relating to the Company's qualification as a REIT,
as well as the tax consequences of the Merger will be passed upon by Liddell,
Sapp, Zivley, Hill & LaBoon, L.L.P., Dallas, Texas.
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STOCKHOLDER PROPOSALS
A proper proposal submitted by a Stockholder for presentation at the
Company's 1995 Annual Meeting and received at the Company's principal executive
offices no later than November 15, 1994, will be included in the Company's proxy
statement and form of proxy relating to the 1995 Annual Meeting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (of
which this Proxy Statement/Prospectus is a part) on the Form S-4 under the
Securities Act with respect to the securities offered hereby. This Proxy
Statement/Prospectus does not contain all 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
Proxy Statement/Prospectus as to the content of any contract or other document
are not necessarily complete, and in each instance reference is made to copies
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference
and the exhibits and schedules hereto. For further information regarding the
Company and the Common Stock offered hereby, reference is hereby made to the
Registration Statement and such exhibits and schedules which may be obtained
from the SEC at its Public Reference Section, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
The Registration Statement, the exhibits and schedules forming a part
thereof filed by the Company with the Commission can be inspected and copies can
be obtained at the Commission at Room 1024 Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601.
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GLOSSARY
ACMs -- Asbestos-containing materials.
ADA -- Title III of the Americans with Disabilities Act of 1990, as
amended.
Affiliate -- Any "subsidiary corporation" or "parent corporation" as such
terms are defined in Sections 424(d) and 424(e) of the Code, respectively.
Articles -- The Company's Articles of Incorporation as filed with the
Maryland Secretary of State.
Employment Agreement -- the Employment Agreement between the Company and
either of Messrs. Wolcott, Warner or O'Brien.
Code -- Internal Revenue Code of 1986, as amended.
Commission -- Securities and Exchange Commission.
Common Stock -- The Common Stock of the Company, $0.01 par value per share.
Company -- American Industrial Properties REIT, Inc., a Maryland
corporation.
Declaration of Trust -- The Declaration of Trust of the Trust as filed with
the Dallas County Clerk's Office.
Effective Date -- The effective date of the Merger.
Excess Shares -- Those shares of Common Stock of the Company in excess of
9.8% of the issued and outstanding Common Stock of the Company acquired by one
person or persons acting as a group, which acquisition would give rise to
certain redemption and other rights in favor of the Board of Directors of the
Company.
Exchange Act -- The Securities Exchange Act of 1934, as amended.
Funds from Operations -- Net income (computed in accordance with generally
accepted accounting principles), excluding financing costs and gains (or losses)
from debt restructuring and sales of property, plus depreciation and
amortization and other non-cash items.
Indenture -- The Indenture dated as of November 15, 1985 relating to the
issuance of the Notes.
Indenture Trustee -- IBJ Schroder Bank & Trust Company.
Interested Shareholder -- Any beneficial holder of 10% or more of the
Trust's outstanding shares.
Interested Stockholder -- Any beneficial owner of 10% or more of the voting
power of the then-outstanding voting stock of the Company.
IRS -- Internal Revenue Service.
Merger -- The proposed merger of the Trust with and into the Company.
Merger Agreement -- The Agreement and Plan of Merger between the Trust and
the Company.
MGCL -- The Maryland General Corporation Law, as amended.
MLI Agreement -- The Note Purchase Agreement dated as of February 27, 1992,
by and between the Trust and Manufacturers Life Insurance Company.
Mortgage -- Each of the mortgages on the Properties securing payment of the
Notes.
NYSE -- The New York Stock Exchange.
Notes -- Zero Coupon Notes of the Company due 1997 issued pursuant to an
Indenture dated as of November 15, 1985, between the Trust and IBJ Schroder Bank
& Trust Company, as Trustee.
59
<PAGE> 63
Omnibus Plan -- The Omnibus Stock Option Plan of the Company approved by
the Board of Directors of the Company as of January 12, 1994 and by the sole
Stockholder of the Company as of January 12, 1994.
Opening Price -- The opening price of the Company's Common Stock on the
first trading date after consummation of the Merger.
Options -- All incentive and non-incentive stock options granted pursuant
to the Omnibus Plan.
Ownership Limit -- The maximum percentage of the issued and outstanding
capital stock of the Company that may be beneficially owned by any single
Stockholder of the Company.
Preferred Stock -- The Preferred Stock of the Company, $0.01 par value per
share.
Profit Sharing Plan -- The Retirement and Profit Sharing Plan of the
Company adopted by the Board of Directors of the Company on October 28, 1993.
Properties -- Fourteen industrial properties and one enclosed specialty
retail mall owned and operated by the Trust including Patapsco Center,
Baltimore, Maryland; Beltline Center, Gateway 5 and 6, Northgate II and
Northview Distribution Center, Dallas, Texas; Tamarac Square, Denver Colorado;
Quadrant, Deerfield Beach, Florida; Plaza Southwest, Commerce Park, and
Westchase Park, Houston, Texas; Huntington Drive Center, Los Angeles,
California; Northwest Business Park, Milwaukee, Wisconsin; Burnsville and
Cahill, Minneapolis, Minnesota; and Springbrook, Seattle, Washington. One of the
Properties shall be referred to herein as a "Property."
Proposal -- Proposals to be presented at the Special Meeting to approve and
adopt the Merger Agreement.
Record Date -- March 4, 1994, the date established by the Trust for
determining Shareholders entitled to notice of and to vote at the Special
Meeting.
REIT -- A real estate investment trust as that term is defined in sections
856 through 860 of the Code.
Restricted Shares -- Common Stock of the Company awarded pursuant to the
Omnibus Plan.
SARs -- Stock appreciation rights issued pursuant to the Omnibus Plan.
Securities Act -- The Securities Act of 1933, as amended.
Shareholders -- Persons holding Shares in the Trust.
Shares -- Shares of beneficial interest in the Trust.
Special Meeting -- A meeting of the Shareholders of the Trust which has
been called to consider and to vote on the Proposal.
Stockholders -- Persons holding shares of Common Stock of the Company.
Texas REIT Act -- The Texas Real Estate Investment Trust Act.
Trust -- American Industrial Properties REIT, a Texas real estate
investment trust.
UBTI -- Unrelated business taxable income.
60
<PAGE> 64
AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS OF AMERICAN INDUSTRIAL PROPERTIES REIT, INC.:
Independent Auditors' Report......................................................... F-2
Balance Sheet as of January 17, 1994................................................. F-3
Notes to Balance Sheet............................................................... F-4
FINANCIAL STATEMENTS OF AMERICAN INDUSTRIAL PROPERTIES REIT
(FORMERLY TRAMMELL CROW REAL ESTATE INVESTORS):
Independent Auditors' Report........................................................... F-6
Financial Statements:
Statements of Operations for the years ended December 31, 1993, 1992, and 1991....... F-7
Balance Sheets as of December 31, 1993 and 1992...................................... F-8
Statements of Changes in Shareholders' Equity for the years ended December 31, 1993,
1992,
and 1991.......................................................................... F-9
Statements of Cash Flows for the years ended December 31, 1993, 1992, and 1991....... F-10
Notes to Financial Statements........................................................ F-11
Financial Statement Schedule:
XI - Real Estate and Accumulated Depreciation........................................ F-19
Notes to Schedule XI................................................................. F-20
</TABLE>
All other financial statements and schedules not listed have been omitted
since the required information is either included in the Financial Statements
and the Notes thereto as included herein or is not applicable or required.
Because the entities to be merged are under common control, this transaction
will be accounted for as a pooling of interests. PRO FORMA FINANCIAL STATEMENT
PRESENTATIONS OF THE MERGED ENTITIES HAVE NOT BEEN INCLUDED AS THERE IS NOT
EXPECTED TO BE ANY MATERIAL ADJUSTMENTS TO THE HISTORICAL OPERATIONS OF AMERICAN
INDUSTRIAL PROPERTIES REIT AS A RESULT OF THE MERGER OTHER THAN THE INCURRENCE
OF TEXAS FRANCHISE TAX LIABILITY IN AN IMMATERIAL AMOUNT.
F-1
<PAGE> 65
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
American Industrial Properties REIT, Inc.
We have audited the accompanying balance sheet of American Industrial
Properties REIT, Inc. (a Maryland corporation and a wholly-owned subsidiary of
American Industrial Properties REIT, a Texas real estate investment trust) (the
"Company") as of January 17, 1994. This balance sheet is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of American Industrial Properties
REIT, Inc. at January 17, 1994, in conformity with generally accepted accounting
principles.
ERNST & YOUNG
Dallas, Texas
March 1, 1994
F-2
<PAGE> 66
AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN INDUSTRIAL PROPERTIES REIT)
BALANCE SHEET
JANUARY 17, 1994
ASSETS
<TABLE>
<S> <C>
Cash................................................................................ $1,000
------
------
LIABILITIES AND STOCKHOLDER'S EQUITY
Stockholder's Equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized; none outstanding... $ --
Common stock, $.01 par value; 50,000,000 shares authorized; 100 shares issued
and outstanding................................................................ 1
Additional paid-in capital........................................................ 999
------
$1,000
------
------
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-3
<PAGE> 67
AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
(A WHOLLY-OWNED SUBSIDIARY OF AMERICAN INDUSTRIAL PROPERTIES REIT)
NOTES TO BALANCE SHEET
JANUARY 17, 1994
NOTE 1 ORGANIZATION
American Industrial Properties REIT, Inc., a Maryland corporation (the
"Company", a wholly-owned subsidiary of American Industrial Properties REIT, a
Texas real estate investment trust, the "Trust") was incorporated on January 12,
1994. The Company has no operations to date, but has issued 100 shares of Common
Stock to the Trust for consideration of $1,000.
NOTE 2 FEDERAL INCOME TAXES
The Company intends to qualify as a real estate investment trust under the
Internal Revenue Code at the earliest possible date. As such, the Company will
not be subject to federal income taxes on amounts distributed to stockholders
provided that it distributes at least 95% of its real estate investment trust
taxable income to its stockholders and meets certain other conditions.
NOTE 3 PREFERRED STOCK
No shares of preferred stock are outstanding. Preferred stock may be issued
from time to time without stockholder approval with terms and conditions
established by the Board of Directors of the Company.
NOTE 4 PROPOSED MERGER
The Trust has announced its intent to merge with the Company which will
involve the exchange of shares of the Trust's Shares of Beneficial Interest for
the Company's Common Stock, in an exchange ratio of one share of Common Stock
for every five Shares of Beneficial Interest tendered. The proposed merger must
be voted on by the Trust's shareholders and receive approval from the holders of
at least 66 2/3% of the outstanding Shares of Beneficial Interest in order for
the merger to be consummated.
NOTE 5 EMPLOYEE BENEFIT PLANS
Stock Option Plan
Effective January 12, 1994, the Company adopted an Omnibus Stock Option
Plan (the "Omnibus Plan"). A total of 182,000 shares of Common Stock of the
Company have been reserved for issuance under the Omnibus Plan for the exercise
of incentive and non-incentive stock options (collectively "Options"), stock
appreciation rights ("SARs") and the award of shares of the Company's Common
Stock subject to forfeiture, and limitations on transferability. Options granted
under the Omnibus Plan are exercisable at the "fair market value" of the shares
of Common Stock at the date of grant as established by the Board of Directors of
the Company.
Effective January 12, 1994, the Board has granted certain officers of the
Company options to purchase an aggregate of 88,500 shares of Common Stock at an
exercise price equivalent to the "fair market value" of the Trust's Shares of
Beneficial Interest at their close on the New York Stock Exchange on the date of
grant multiplied by the exchange ratio for the shares of Common Stock in
connection with the proposed merger. Each of these Options vests at 20% per year
over five years and are exercisable for a period of ten years from the date of
grant.
Employment Agreements
The Company has entered into separate employment agreements with certain
executive officers. In the event that any of these employees are terminated,
voluntarily or involuntarily, as a result of a change in control of the Company,
the employee will be entitled to receive severance compensation in an amount
equal to one
F-4
<PAGE> 68
times the average total cash compensation, or such shorter period of time as
employee has been employed by the Company, inclusive of base salary and cash
bonuses, received by such employee during each of the preceding five calendar
years.
The employment agreements also provide for annual incentive bonuses
calculated as a percentage of base salary for the year, based upon the
achievement of certain objectives to be established annually by the Company's
Compensation Committee.
Retirement Plan
The Company will assume the American Industrial Properties REIT Retirement
and Profit Sharing Plan which qualifies under section 401(k) of the Internal
Revenue Code. All initial employees of the Company will be eligible to
participate. Eligible employees can make voluntary contributions to the Plan of
up to 15% of their pay into the Plan, subject to other limitations, in which
they are fully vested. The Company has the option to make annual voluntary
contributions to the Plan which are allocated based on employees base
compensation.
F-5
<PAGE> 69
INDEPENDENT AUDITORS' REPORT
To the Trust Managers and Shareholders of
American Industrial Properties REIT:
We have audited the Financial Statements and the Financial Statement
Schedule of American Industrial Properties REIT (formerly Trammell Crow Real
Estate Investors) (the "Trust"), listed in the Index on page F-1 of this Proxy
Statement/Prospectus. These financial statements and schedule are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement and schedule presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Industrial
Properties REIT as of December 31, 1993 and 1992, and the results of its
operations and its cash flows for the years ended December 31, 1993, 1992 and
1991 in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the financial statements taken as a whole, presents
fairly in all material respects, the information required to be set forth
therein.
KENNETH LEVENTHAL & COMPANY
Dallas, Texas
February 15, 1994
F-6
<PAGE> 70
AMERICAN INDUSTRIAL PROPERTIES REIT
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Rents..................................................... $ 7,811 $ 11,908 $ 12,995
Tenant Reimbursements..................................... 2,315 3,001 3,210
Interest Income........................................... 515 230 283
--------- --------- ---------
10,641 15,139 16,488
--------- --------- ---------
REAL ESTATE EXPENSES
Amortization of original issue discount on Zero Coupon
Notes
due 1997............................................... 1,391 3,356 8,456
Depreciation and amortization............................. 3,140 4,190 4,267
Interest on 8.8% Notes payable due 1997................... 3,981 4,024 --
Interest on mortgages payable............................. 683 1,370 1,528
Property Operating Expenses:
Property taxes......................................... 1,408 2,139 2,140
Property management fees, including payments to
affiliates
of the Advisor of $598, and $686 in 1992 and 1991,
respectively......................................... 422 621 686
Utilities.............................................. 458 549 489
Repairs and maintenance................................ 1,248 1,183 1,147
Other property operating expenses...................... 598 1,011 842
Administrative expenses:
Fees paid to Advisor................................... 716 565 594
Trust administration and overhead...................... 1,717 756 754
Writedowns for impairments in value of real estate........ -- 14,094 9,371
--------- --------- ---------
15,762 33,858 30,274
--------- --------- ---------
Loss from real estate operations.......................... (5,121) (18,719) (13,786)
Gain (loss) on sales of real estate.................... (216) (784) 304
Extraordinary gain from partial repurchase of Zero
Coupon
Notes payable........................................ -- 1,910 4,320
Extraordinary loss on in-substance partial defeasance
of Zero Coupon Notes payable......................... (2,530) -- --
--------- --------- ---------
NET LOSS.................................................... $ (7,867) $ (17,593) $ (9,162)
--------- --------- ---------
--------- --------- ---------
PER SHARE DATA
Loss from real estate operations.......................... $ (0.57) $ (2.06) $ (1.52)
Gain (loss) on sales of real estate....................... (0.02) (0.09) 0.03
Extraordinary gain from partial repurchase of Zero Coupon
Notes payable.......................................... -- 0.21 0.48
Extraordinary loss on in-substance partial defeasance of
Zero Coupon Notes payable.............................. (0.28) -- --
--------- --------- ---------
Net Loss.................................................. $ (0.87) $ (1.94) $ (1.01)
--------- --------- ---------
Distributions Paid........................................ $ 0.16 $ 0.20 $ 0.42
--------- --------- ---------
--------- --------- ---------
Number of shares outstanding.............................. 9,075,400 9,075,400 9,075,400
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 71
AMERICAN INDUSTRIAL PROPERTIES REIT
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
-------- --------
<S> <C> <C>
Real Estate, at cost net of writedowns for impairments in value:
Held for investment.................................................. $103,710 $ 88,530
Held for sale........................................................ -- 19,506
-------- --------
$103,710 108,036
Accumulated depreciation............................................. (19,315) (18,036)
-------- --------
Net real estate........................................................ 84,395 90,000
-------- --------
Cash and Cash Equivalents:
Unrestricted......................................................... 1,119 5,893
Restricted........................................................... -- 11,886
-------- --------
1,119 17,779
-------- --------
Other assets, net...................................................... 2,783 2,667
-------- --------
$ 88,297 $110,446
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
8.8% Notes payable due 1997.......................................... $ 45,239 $ 45,239
Zero Coupon Notes payable due 1997 ($19,491 and $20,011 due at
maturity for 1993 and 1992, respectively), net of unamortized
discount and
in-substance partial defeasance in 1993........................... 4,682 11,267
Mortgage notes payable............................................... 7,157 12,072
Accrued interest on 8.8% Notes payable............................... 371 371
Accounts payable, accrued expenses and other liabilities............. 1,503 2,835
Tenant security deposits............................................. 494 491
-------- --------
Total Liabilities................................................. 59,446 72,275
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Shares of Beneficial Interest; authorized 10,000,000 Shares; issued
and outstanding 9,075,400 Shares.................................. 125,513 125,513
Accumulated distributions............................................ (57,729) (56,276)
Accumulated loss from operations and extraordinary gains (losses).... (40,095) (32,444)
Accumulated net gain on sales of real estate......................... 1,162 1,378
-------- --------
Total Shareholders' Equity........................................ 28,851 38,171
-------- --------
$ 88,297 $110,446
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 72
AMERICAN INDUSTRIAL PROPERTIES REIT
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
SHARES OF BENEFICIAL LOSS FROM ACCUMULATED
INTEREST OPERATIONS AND NET GAIN ON
--------------------- ACCUMULATED EXTRAORDINARY SALES OF
NUMBER AMOUNT DISTRIBUTIONS GAIN REAL ESTATE TOTAL
--------- -------- ------------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990........... 9,075,400 $125,513 $ (50,695) $ (6,169) $ 1,858 $ 70,507
Loss before gain on sales of real
estate and extraordinary gain...... -- (13,786) -- (13,786)
Gain on sales of real estate......... -- -- 304 304
Extraordinary gain on partial
repurchases of Zero Coupon Notes... -- 4,320 -- 4,320
Distributions to Shareholders........ (3,766) -- -- (3,766)
--------- -------- ------------- -------------- ----------- --------
Balance at December 31, 1991........... 9,075,400 125,513 (54,461) (15,635) 2,162 57,579
Loss before loss on sales of real
estate and extraordinary gain...... -- (18,719) -- (18,719)
Loss on sales of real estate......... -- -- (784) (784)
Extraordinary gain on partial
repurchases of Zero Coupon Notes... -- 1,910 -- 1,910
Distributions to Shareholders........ (1,815) -- -- (1,815)
--------- -------- ------------- -------------- ----------- --------
Balance at December 31, 1992........... 9,075,400 125,513 (56,276) (32,444) 1,378 38,171
Loss before loss on sales of real
estate............................. -- (5,121) -- (5,121)
Loss on sales of real estate......... -- -- (216) (216)
Extraordinary loss on partial
defeasance of Zero Coupon Notes.... -- (2,530) -- (2,530)
Distributions to Shareholders........ (1,453) -- -- (1,453)
--------- -------- ------------- -------------- ----------- --------
Balance at December 31, 1993........... 9,075,400 $125,513 $ (57,729) $(40,095) $ 1,162 $ 28,851
--------- -------- ------------- -------------- ----------- --------
--------- -------- ------------- -------------- ----------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 73
AMERICAN INDUSTRIAL PROPERTIES REIT
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss............................................. $ (7,867) $(17,593) $ (9,162)
Adjustments to reconcile net loss to net cash
provided by
(used in) operating activities:
Amortization of original issue discount on Zero
Coupon Notes due 1997........................... 1,391 3,356 8,456
Depreciation and amortization..................... 3,140 4,190 4,267
Writedowns for impairments in value of real
estate.......................................... -- 14,094 9,371
Decrease (increase) in other assets............... (68) 435 (150)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities and tenant
security deposits............................... (784) 539 (403)
Extraordinary gain from partial repurchase of Zero
Coupon Notes payable............................ -- (1,910) (4,320)
Extraordinary loss on in-substance partial
defeasance of Zero Coupon Notes payable......... 2,530 -- --
Loss (gain) on sales of real estate............... 216 784 (304)
-------- -------- --------
Net Cash Provided By (Used In) Operating Activities.... (1,442) 3,895 7,755
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sales of real estate............... 6,758 34,125 304
Acquisition of Northview Distribution Center......... (3,289) -- --
Capitalized improvements and leasing commissions,
including payments to affiliates of the Advisor of
approximately $1,041 and $764 in 1992 and 1991,
respectively...................................... (1,814) (3,995) (1,383)
-------- -------- --------
Net Cash Provided By (Used In) Investing Activities.... 1,655 30,130 (1,079)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partial repayment of 8.8% Note payable............... -- (7,995) --
Debt issuance costs.................................. -- (11) (5)
Partial repurchase and retirement of Zero Coupon
Notes............................................. (316) (8,745) (11,107)
Short-term investment proceeds applied to
in-substance partial defeasance of Zero Coupon
Notes............................................. (10,189) -- --
Principal repayments on mortgage notes payable....... (4,915) (2,054) (160)
Distributions to Shareholders........................ (1,453) (1,815) (3,766)
-------- -------- --------
Net Cash Used In Financing Activities.................. (16,873) (20,620) (15,038)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents... (16,660) 13,405 (8,362)
Cash and Cash Equivalents at Beginning of Period....... 17,779 4,374 12,736
-------- -------- --------
Cash and Cash Equivalents at End of Period............. $ 1,119 $ 17,779 $ 4,374
-------- -------- --------
-------- -------- --------
Cash Paid for Interest................................. $ 4,664 $ 5,023 $ 1,528
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 74
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES:
General.
American Industrial Properties REIT (formerly Trammell Crow Real Estate
Investors) (the "Trust") is an equity real estate investment trust which, as of
December 31, 1993, owned and operated 15 commercial real estate properties
consisting of 14 industrial properties and one retail property. The Trust was
formed September 26, 1985, by issuing 13,400 shares to Trammell Crow Company,
Inc. for $201,000. On November 27, 1985, the Trust issued 9,062,000 Shares of
Beneficial Interest (the "Shares") and commenced operations.
On April 13, 1993, the Independent Trust Managers gave formal notice of the
Trust's intent to terminate the Advisory Agreement with Trammell Crow Ventures,
Ltd. (the "Advisor", see Note 2). The Trust converted to self-administration
effective June 13, 1993 and began operating under the name American Industrial
Properties REIT. Pursuant to the Trust's 1993 Annual Meeting of Shareholders,
the Trust's Shareholders approved amendments to the Trust's Declaration of Trust
and By-Laws which, amongst other things, officially changed the name of the
Trust from Trammell Crow Real Estate Investors to American Industrial Properties
REIT and removed the Trust's limited term restriction, converting the Trust from
a finite life entity scheduled to liquidate in 1997, to a perpetual life entity.
Real Estate and Writedowns For Impairments In Value of Real Estate.
The Trust carries its real estate at historical cost net of depreciation
and writedowns for impairments in value. Writedowns for permanent impairments in
value are recorded when management determines the recorded value of real estate
held for long-term investment will not be fully recovered over the holding
period of the assets or to reduce the carrying amount of real estate held for
sale to the lower of depreciated cost or net realizable value. Real estate held
for investment is reclassified to real estate held for sale when management
determines that there is a reasonable probability that the asset will no longer
be held for long-term investment and activities begin to offer the property for
sale. During 1993, certain properties classified as being held for sale at
December 31, 1992, were reclassified to held for investment, consistent with
Management's intent to continue to hold the properties for investment rather
than for sale.
Property improvements are capitalized while maintenance and repairs are
expensed as incurred. Depreciation of buildings and capital improvements is
computed using the straight-line method over forty years. Depreciation of tenant
improvements is computed using the straight-line method over ten years.
Cash and Cash Equivalents and Restricted Cash.
Cash equivalents include demand deposits and all highly liquid debt
instruments purchased with an original maturity of three months or less.
According to the terms of the Indenture (the "Indenture") securing the
Trust's Zero Coupon Notes due 1997 (the "Zero Coupon Notes"), upon the sale or
refinancing of any property prior to the defeasance commencement date (November
27, 1993), the Trust was required to deposit into a Property Acquisition Account
such portion of the net proceeds received by the Trust that the Trust Managers
deemed necessary or appropriate to protect the interests of the Holders of the
Zero Coupon Notes (see Notes 5 and 6). Such deposits are shown as restricted
cash on the accompanying balance sheet. After November 27, 1993, any proceeds
held in the Property Acquisition Account must be placed in another restricted
account and be used solely to defease the holders of the remaining Zero Coupon
Notes. Subsequent to September 30, 1993, the funds held in the Property
Acquisition Account were reinvested by the Trust into short-term commercial
paper and Treasury Bills which are pledged as collateral to the Zero Coupon
Noteholders. In December 1993, management announced its intent to use the
remaining pledged short-term commercial paper and Treasury Bills upon their
maturity in 1994 for the partial defeasance of the Zero Coupon Noteholders (see
Note 6).
F-11
<PAGE> 75
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Issuance Costs of Zero Coupon Notes Payable.
The issuance costs of the outstanding Zero Coupon Notes are being amortized
over 12 years (the life of the Zero Coupon Notes) and include the difference
between the proceeds received by the Company from the underwriters and the
subsequent offering price to the public for the Zero Coupon Notes.
Rents and Tenant Reimbursements.
The Trust leases its retail and industrial properties to tenants under
operating leases with expiration dates ranging from 1994 to 2005. Several
tenants in the retail property are also required to pay as rent a percentage of
their gross sales volume, to the extent such percentage exceeds their base
rents. In addition to paying base and percentage rents, most tenants are
required to reimburse the Trust for operating expenses in excess of a negotiated
base. Contractual rent increases or delayed rent starts are recognized ratably
over the lease term.
Tamarac Square, the Trust's only retail property, has rental revenues in
excess of 10% of the total revenues of the Trust. Rental revenues and tenant
reimbursements from Tamarac totaled $3,093,000, $2,976,000 and $3,381,000 in
1993, 1992 and 1991, respectively.
Income Tax Matters.
The Trust operates as a real estate investment trust ("REIT") for federal
income tax purposes. Under the REIT provisions the Trust is required to
distribute 95% of REIT taxable income and is allowed a deduction for dividends
paid during the year. The Trust made distributions in 1993, 1992 and 1991, which
were all years in which the Trust incurred a taxable loss. Accordingly, no
provision for income taxes has been reflected in the financial statements.
For the year ended December 31, 1993 the Trust has adopted Statement of
Financial Accounting Standards ("FAS") No. 109, Accounting For Income Taxes.
Since, as discussed above, no tax provision is necessary, the adoption of FAS
No. 109 does not affect the Trust's results from operations or financial
position in the current or prior years.
The Trust has a net operating loss carryforward from 1993 and prior years
of approximately $22,700,000. The losses may be carried forward for up to 15
years. The present losses will expire beginning in the year 2004. Management
intends to operate the Trust in such a manner as to continue to qualify as a
REIT and to continue to distribute cash flow in excess of taxable income.
Therefore, no tax benefit related to the potential utilization of the net
operating loss has been reflected in the financial statements.
Earnings and profits, which will determine the taxability of dividends to
shareholders, will differ from that reported for financial reporting purposes
due primarily to differences in the basis of the assets and the estimated useful
lives used to compute depreciation.
Reclassification.
The Trust has reclassified certain items in the accompanying financial
statements in order to (i) present amounts paid directly to the Advisor
separately from Trust administration and overhead costs and general and
administrative costs related to property operations, (ii) separately present
accrued interest on the 8.8% Notes payable, and (iii) reflect the portion of the
principal paydown related to deferred interest on the 8.8% Notes payable as an
interest payment rather than a principal reduction in the 1992 statement of cash
flows.
F-12
<PAGE> 76
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- TRANSACTIONS WITH PARTIES IN INTEREST:
Parties in Interest.
Trammell Crow Ventures, Ltd. acted as advisor (the "Advisor") to the Trust
through June 13, 1993 (see Termination of Advisory Agreement below). Owners of
the Advisor are associated with a group of entities engaged in various real
estate businesses under the name "Trammell Crow Company" (collectively, the "TCC
Entities").
Termination of Advisory Agreement.
Effective June 13, 1993, the Trust terminated the Advisory Agreement with
the Advisor. Pursuant to the terms of the Advisory Agreement, the Trust paid to
the Advisor a one-time termination fee of $435,000 in the second quarter. No
additional amounts are due the Advisor. Certain TCC Entities continue to manage
twelve of the Trust's fifteen properties, however, these are no longer
considered to be related party or party in interest relationships by the Trust.
Advisory Fees.
For its services under an advisory agreement, in 1992 and 1991, the Advisor
received an annual advisory fee equal to .4375% of the sum of (1) the estimated
value of the Trust's real estate investments, as reviewed by an independent
appraiser, less the original mortgage balances upon acquisition, and (2) the
proceeds from the sale of real estate pending reinvestment. Through December 31,
1992, the Advisor was also entitled to an incentive advisory fee in varying
degrees if distributable cash exceeded $11,600,000. For the year commencing
January 1, 1993, the Trust Managers established an advisory fee of $500,000 per
year. As in previous years, the Advisor was also entitled to reimbursement for
costs of providing legal, accounting and financial reporting services.
Disposition Fees.
The Trust paid the Advisor a real estate disposition fee equal to 2% of net
cash proceeds realized by the Trust from the sale or disposition of any Trust
real estate asset, after deduction for any real estate commission paid by the
Trust. Disposition fees paid to the Advisor and charged against the gain or loss
on sales of real estate were $144,500 in 1993, $711,000 in 1992, and $8,000 in
1991.
Management Fees.
Most of the Trust's real estate assets are managed by various TCC Entities
(the "TCC Property Managers"). For their services, the TCC Property Managers
receive base management fees of approximately 4% of gross income, as defined in
the Property Management Agreements, from industrial properties and approximately
5% of gross income, as defined, from the retail property. The TCC Property
Managers also receive leasing commissions based on prevailing market rates of 2%
to 5% of future rentals to be collected from new tenants and 1% to 4.5% of
future rentals from renewal tenants.
Other Fees.
The Advisor also received fees for services provided to the Trust that were
not required pursuant to the terms of the Advisory Agreement. For its services
rendered in connection with the acquisition and refinancing of the Zero Coupon
Notes on February 27, 1992 (see Note 4), the Trust Managers approved and the
Trust paid to the Advisor a fee equal to 1% of the amount paid for the Zero
Coupon Notes. This amount, $532,340, was charged against the extraordinary gain
from partial repurchase of the Zero Coupon Notes.
F-13
<PAGE> 77
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- REAL ESTATE AND WRITEDOWNS FOR IMPAIRMENTS IN VALUE OF REAL ESTATE:
At December 31, 1993, all of the Trust's properties were held for
investment. The Trust has previously recorded writedowns for impairments of
value related to real estate held for investment and held for sale of
$14,094,000 and $9,371,000 in 1992 and 1991, respectively. These writedowns are
a reduction of the recorded value of assets held for investment and held for
sale to fair value and net realizable value, respectively. The writedowns for
impairments in value are based on estimates and, accordingly, actual losses upon
a disposition of the property may vary from current estimates. Writedowns for
permanent impairments of real estate held for investment are recorded as a
direct reduction of the property's basis when management determines it is
probable that the recorded value of the asset will not be fully recovered over
the asset's remaining life. These writedowns are reviewed periodically and any
additional writedown determined to be necessary is recorded in the period in
which it becomes reasonably estimable. Writedowns for impairments of value of
real estate held for sale are provided for estimated losses when the depreciated
cost of the property exceeds the Trust's estimate of net realizable value.
Therefore, the carrying amount of real estate assets held for sale has been
reduced to reflect the lower of depreciated cost or net realizable value.
Numerous factors are considered when estimating net realizable value,
including market evaluations, the cost of capital, operating cash flow from the
property during the projected holding period, and expected capitalization rates
applied to the estimated stabilized net operating income of the specific
property. Among the various significant factors in determining writedowns for
impairments is the ability of the Trust to hold the property until such time as
the depreciated cost can be recovered. If other factors should cause a
reclassification of the Trust's real estate held for investment to held for
sale, significant adjustments to reduce the depreciated cost of real estate held
for investment to net realizable value could be required. As of December 31,
1993, management estimates that the depreciated cost (net of writedowns for
impairment, the "book value") exceeds the estimated fair value for these assets
by approximately $10,400,000, however, no writedowns for permanent impairment
have been recognized related to these assets.
NOTE 4 --8.8% NOTES PAYABLE:
To finance the February 27, 1992 repurchase of $106,322,000 principal
amount at stated maturity ("Face Amount") of Zero Coupon Notes (see Note 5), the
Trust issued $53,234,000 of unsecured notes payable due November 1997 (the "8.8%
Notes Payable"). These notes bear interest at 8.8% per annum, payable
semiannually commencing May 27, 1993. The terms of the 8.8% Notes Payable allow
for prepayment, in full or in part, at any time prior to maturity without
penalty.
On December 31, 1992, the Trust used $11,648,000 of the net sales proceeds
from the 1992 sales of real estate (see Note 8) to repay $11,553,000 principal
amount of the 8.8% Notes Payable. This repayment included the $8,000,000
mandatory repayment which was due in November 1993, and $3,648,000 of accrued
interest.
NOTE 5 --ZERO COUPON NOTES PAYABLE:
The balance of the Zero Coupon Notes due November 27, 1997 increases
annually in an amount equal to the amortization of the original issue discount,
which is computed at 12% compounding semiannually; the balance is reduced for
any Zero Coupon Note repurchases. The Zero Coupon Notes are collateralized by
first and second mortgages on the Trust's properties and a security interest in
the Trust's partnership interest in one property as well as by certain
short-term investments pledged to the Noteholders (see discussion below) as of
December 31, 1993. The issuance costs of the outstanding Zero Coupon Notes are
amortized over 12 years (the life of the Zero Coupon Notes).
F-14
<PAGE> 78
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
On March 18, 1991, in two separate transactions, the Trust repurchased an
aggregate of $31,297,000 Face Amount of Zero Coupon Notes having an accreted
value of $14,415,000 for an aggregate purchase price of $10,060,000. The Trust
also acquired an option to repurchase an additional $21,371,000 Face Amount of
Zero Coupon Notes at a discount rate of 17.75% compounded semiannually,
exercisable in whole or in part prior to December 31, 1992. On May 30, 1991, the
Trust repurchased $3,000,000 Face Amount of Zero Coupon Notes having an accreted
value of $1,407,000 for an aggregate purchase price of $993,000, pursuant to the
option.
The Trust recognized extraordinary gains in 1991 of $4,320,000 from the
repurchases of Zero Coupon Notes, determined as follows ($ in thousands):
<TABLE>
<S> <C>
Accreted balance of Zero Coupon Notes repurchased........................... $15,822
Cash paid to repurchase Zero Coupon Notes --
Restricted Proceeds From Previous Property Sales.......................... (7,863)
Unrestricted Cash From Operations......................................... (3,190)
Bond issuance costs, net of accumulated amortization........................ (395)
Expenses related to repurchases............................................. (54)
-------
Extraordinary gain from partial repurchase of Zero Coupon Notes............. $ 4,320
-------
-------
</TABLE>
On February 27, 1992, the Trust repurchased an aggregate of $106,322,000
Face Amount of Zero Coupon Notes for a purchase price of $53,234,000. The
accreted balance of the Zero Coupon Notes was approximately $54,401,000. The
entire purchase price was financed by issuing new 8.8% Notes Payable (see Note
4) to the seller of the Zero Coupon Notes. Pursuant to the terms of the
Indenture, approximately $21,629,000 Face Amount of these repurchased Zero
Coupon Notes are also pledged to the Indenture trustee for the security of the
remaining Noteholders. Additionally, in four other separate transactions during
February and April 1992, the Trust used cash on hand to repurchase $697,000 Face
Amount of Zero Coupon Notes having an accreted value of $356,000 for an
aggregate purchase price of $237,000.
On December 30, 1992, the Trust exercised its remaining option to
repurchase an additional $18,371,000 Face Amount of Zero Coupon Notes
($10,341,000 accreted balance) for an aggregate purchase price of $7,968,000.
Pursuant to the terms of the Indenture, these Zero Coupon Notes are also pledged
to the Indenture trustee for the security of the remaining Noteholders.
The Trust recognized extraordinary gains totalling $1,910,000 from the 1992
repurchases of the Zero Coupon Notes, determined as follows ($ in thousands):
<TABLE>
<S> <C>
Accreted balance of Zero Coupon Notes repurchased.................. $ 65,103
Principal amount of 8.8% Notes Payable............................. (53,234)
Cash paid to repurchase Zero Coupon Notes --
Restricted Proceeds From Previous Property Sales................. (7,968)
Unrestricted Cash From Operations................................ (237)
Bond issuance costs, net of amortization........................... (1,214)
Expenses related to repurchases.................................... (540)
--------
Extraordinary gain from partial repurchases of Zero Coupon Notes... $ 1,910
--------
--------
</TABLE>
During 1993 the Trust repurchased approximately $520,000 face amount of
Zero Coupon Notes for approximately their accreted amounts of $316,000. No gain
or loss was recognized on the transaction.
The By-laws of the Trust, the Indenture, and the Note Purchase Agreement
related to the 8.8% Notes Payable contain various borrowing restrictions and
operating performance covenants. As of December 31, 1993, the Trust is in
compliance with all of these restrictions and covenants.
F-15
<PAGE> 79
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PARTIAL DEFEASANCE OF ZERO COUPON NOTES:
Due to the restrictions contained in the Zero Coupon Indenture on the use
of the approximately $10,189,000 in short-term investments pledged to the Zero
Coupon Noteholders, the Trust has announced its intent to utilize these funds to
partially defease the Zero Coupon Notes upon maturity of the short-term
investments at the end of February, 1994. This has been recognized as an
in-substance partial defeasance of the Zero Coupon Notes in the accompanying
financial statements as of December 31, 1993, by offsetting the restricted cash
balance to be used for the defeasance against the related Zero Coupon Notes and
by recognizing a loss on the partial defeasance of $2,530,000. It is estimated
that an additional $6,100,000 in cash will be required to defease the remaining
recorded amount of Zero Coupon Notes as of December 31, 1993. Upon a full
defeasance of the Zero Coupon Notes, the Trust will be released from most of the
restrictive covenants of the Indenture, including the Zero Coupon Note mortgage
liens encumbering substantially all of the Trust's assets.
NOTE 7 -- MORTGAGES PAYABLE:
Certain of the Trust's properties are subject to first mortgage notes
bearing interest at annual rates of 8% to 11%, requiring monthly payments of
principal and interest aggregating $67,000 in 1993, and coming due in various
years through 2010. Principal payments due for the next five years are $124,000
in 1994, $137,000 in 1995, $1,351,000 in 1996, $166,000 in 1997 and $2,053,000
in 1998. Effective April 30, 1992, the Trust extended, for three years, the
maturity date of the loan on one of its Minneapolis properties. In accordance
with the applicable loan agreement, the Trust paid to the Lender $92,000 of
deferred accrued interest at the date of the Note extension. The principal
amount of this mortgage as of December 31, 1992 was $2,141,000. This Note may be
extended, subject to certain conditions, by the Trust for one additional three
year period. The payoff of this Note in the amount of $1,894,000 is included in
the total principal payments due in 1998. In addition to being collateralized by
a mortgage on the property, this Note is recourse to the Trust.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES:
Environmental Matters.
The Trust has been notified of the possible existence of underground
contamination at Tamarac Square, the Trust's Denver retail property. The source
of the possible contamination is apparently related to underground storage tanks
located on an adjacent property. This adjacent property was placed on Colorado's
list of leaking underground storage tanks. A second potential source of
contamination is a nearby tract on which a service station was formerly
operated. The owner of the adjacent property is currently conducting studies
under the direction of the Colorado Department of Health in an attempt to define
the contamination and institute an appropriate plan to address the situation. At
this time, the Trust does not anticipate any exposure relative to this issue.
The Trust has not been notified (except with respect to Tamarac Square), and is
not otherwise aware of any material non-compliance, liability or claim relating
to hazardous or toxic substances in connection with any of its properties.
Litigation.
The Trust is involved in a property lawsuit arising in the normal course of
business. In management's opinion, the Trust maintains adequate insurance to
cover any potential loss from this suit.
NOTE 9 -- RETIREMENT AND PROFIT SHARING PLAN:
During 1993, the Trust adopted a retirement and profit sharing plan which
qualifies under section 401(k) of the Internal Revenue Code. All existing Trust
employees at adoption and subsequent employees who have
F-16
<PAGE> 80
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
completed one year of service are eligible to participate in the plan. The Trust
may make annual discretionary contributions to the plan. Plan contributions by
the Trust in 1993 were $12,000.
NOTE 10 -- RENTAL INCOME:
Minimum future rentals on noncancellable leases at December 31, 1993 were
as follows ($ in thousands):
<TABLE>
<CAPTION>
YEAR
-------
<S> <C>
1994............................................................... $ 7,658
1995............................................................... 6,188
1996............................................................... 4,547
1997............................................................... 3,488
1998............................................................... 2,155
Thereafter......................................................... 3,899
-------
$27,935
-------
-------
</TABLE>
NOTE 11 -- GAIN (LOSS) ON SALES OF REAL ESTATE:
In 1991, $355,000 of a $732,000 escrow established in connection with the
sales of two of the Trust's California properties in 1990 was released to the
Trust since a portion of the required leasing objectives were achieved. An
additional $51,000 in selling expenses was recognized in 1991 associated with
these 1990 sales.
In the second quarter of 1992, the Trust sold one of the 13 buildings in
the Woodland Industrial Park in Charlotte, North Carolina. In the fourth quarter
of 1992, the Trust sold its Southland Industrial property located in Houston,
Texas and the remaining 12 buildings in the Woodland Industrial Park. The net
loss recognized in 1992 on these sales is summarized below ($ in thousands):
<TABLE>
<S> <C>
1992:
Gross selling price....................................................... $ 35,823
Cost, net of accumulated depreciation and writedowns for impairments...... (35,328)
Selling expenses.......................................................... (1,279)
--------
Loss on sales of real estate.............................................. $ (784)
--------
--------
</TABLE>
The total net sales proceeds after repayment of the $1,800,000 first
mortgage on the Southland property and the related transaction costs were
approximately $32,000,000. Pursuant to the terms of the Indenture, these
proceeds were deposited in the Trust's Property Acquisition Account. A portion
of the proceeds were subsequently used to repurchase a portion of the Trust's
Zero Coupon Notes through the exercise of the remaining repurchase option (see
Note 5) and to repay a portion of the 8.8% Notes Payable (see Note 4).
On January 8, 1993, the Trust sold the Royal Lane Business Park property
(one of its real estate assets Held for Sale) located in Dallas, Texas. The net
sales proceeds totalled approximately $1,800,000 after repayment of
approximately $4,650,000 of first mortgages on the property and the related
transaction costs. Pursuant to the Indenture, these net proceeds were deposited
in the Trust's Property Acquisition Account. The estimated net loss on the sale
of Royal Lane Business Park of $931,000 was reflected in the December 31, 1992
financial statements.
NOTE 12 -- DISTRIBUTIONS:
The Trust's distributions of $1,453,000 ($.16 per Share) in 1993 and
$1,815,000 ($.20 per Share) in 1992 represented a return of capital to
Shareholders, to the extent of the Shareholder's basis in the Shares. Of the
Trust's total distributions of $3,766,000 ($.42 per Share) in 1991, $122,000
($.02 per Share) represented
F-17
<PAGE> 81
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
taxable income to Shareholders and $3,644,000 ($.40 per Share) represented a
return of capital to Shareholders, to the extent of a Shareholder's basis on the
shares.
NOTE 13 -- PER SHARE DATA:
Net income per Share is based on 9,075,400 Shares outstanding during all
years presented.
NOTE 14 -- PROPERTY ACQUISITION:
On December 10, 1993, the Trust purchased a 175,000 square foot
multi-tenant industrial distribution property in Dallas, Texas for a purchase
price and related expenses of $3,400,000 in cash (the "Northview Distribution
Center"). The property is encumbered by a first mortgage lien for the benefit of
the Zero Coupon Noteholders.
NOTE 15 -- SUBSEQUENT EVENT:
On January 12, 1994, the Trust incorporated American Industrial Properties
REIT, Inc., a Maryland corporation (the "Company") as its wholly owned
subsidiary through the purchase of 100 shares of stock for $1,000. The Trust
intends to seek the approval of the requisite 66 2/3% of all Shareholders to
merge the Trust into the Company through an exchange of the Trust's Shares of
Beneficial Interest for the Common Stock of the Company.
F-18
<PAGE> 82
SCHEDULE XI
AMERICAN INDUSTRIAL PROPERTIES REIT
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1993
($ IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS
AMOUNT
GROSS AMOUNT CARRIED CARRIED
AT
DECEMBER
AT ACQUISITION SUBSEQUENT RETIREMENTS 31, 1993
---------------------- COSTS ---------------------- -------
ENCUM- BUILDINGS CAPITALIZED BUILDINGS WRITEDOWNS
BRANCES AND ------------ AND DUE TO
DESCRIPTION AT 12/31/93 LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS IMPAIRMENT LAND
- ----------------------- ----------- ------- ------------ ------------ ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES:
TEXAS --
Commerce Park North....... $ 1,108 $ 4,431 $ 315 $ (2,014) $ 705
Westchase................. 697 2,787 214 (74) (1,158) 465
Plaza Southwest........... 1,312 5,248 433 (1) 1,312
Beltline Center........... 1,303 5,213 286 (3,516) 600
Gateway 5 & 6............. 935 3,741 478 (1,861) 563
Northgate II.............. 2,153 8,612 622 (4,122) 1,329
Royal Lane Park........... 2,122 8,489 318 (1,574) (6,613) (2,742) 0
Northview................. 658 2,631 658
CALIFORNIA --
Huntington Drive.......... 1,559 6,237 404 1,559
MARYLAND --
Patapsco I & II........... 1,429 1,147 4,588 285 1,147
MINNESOTA --
Cahill.................... 625 2,498 351 625
Burnsville................ 1,973 761 3,045 308 (17) (1,563) 431
WASHINGTON --
Springbrook............... 1,008 4,032 219 (436) 921
WISCONSIN --
Northwest................. 1,342 1,296 5,184 604 (131) 1,296
FLORIDA --
Quadrant.................. 1,200 1,137 4,549 107 (63) (2,337) 670
RETAIL PROPERTY:
COLORADO --
Tamarac Square............ 1,213 6,799 27,194 3,875 6,799
Trust Home Office......... 14 0
----------- ------- ------------ ------ ------- ------------ ---------- -------
7,157 $24,620 $ 98,479 $8,833 $(1,591) $ (6,882) $(19,749) $19,080
------- ------------ ------ ------- ------------ ---------- -------
------- ------------ ------ ------- ------------ ---------- -------
ZERO COUPON NOTES......... 4,682
-----------
$11,839
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
BUILDING & CAPITAL TENANT
IMPROVEMENTS IMPROVEMENTS
BUILDINGS LIFE ON WHICH LIFE ON WHICH
AND ACCUMULATED DATE OF DATE DEPRECIATION IS DEPRECIATION IS
DESCRIPTION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED COMPUTED
- -------------------------- ------------ -------- ----------- ------------ -------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES:
TEXAS --
Commerce Park North....... $ 3,135 $ 3,840 $ 934 1984 1985 40 10
Westchase................. 2,001 2,466 595 1983 1985 40 10
Plaza Southwest........... 5,680 6,992 1,194 1970-74 1985 40 10
Beltline Center........... 2,686 3,286 1,080 1984 1985 40 10
Gateway 5 & 6............. 2,730 3,293 887 1984-85 1985 40 10
Northgate II.............. 5,936 7,265 1,898 1982-83 1985 40 10
Royal Lane Park........... 0 0 0 1980-81 1985 40 10
Northview................. 2,631 3,289 6 1980 1993 40 10
CALIFORNIA --
Huntington Drive.......... 6,641 8,200 1,346 1984-85 1985 40 10
MARYLAND --
Patapsco I & II........... 4,873 6,020 984 1980-84 1985 40 10
MINNESOTA --
Cahill.................... 2,849 3,474 612 1981 1986 40 10
Burnsville................ 2,103 2,534 717 1984 1986 40 10
WASHINGTON --
Springbrook............... 3,902 4,823 867 1984 1986 40 10
WISCONSIN --
Northwest................. 5,657 6,953 1,118 1983-86 1986 40 10
FLORIDA --
Quadrant.................. 2,723 3,393 835 1984-86 1986 40 10
RETAIL PROPERTY:
COLORADO --
Tamarac Square............ 31,069 37,868 6,239 1976-79 1985 40 10
Trust Home Office......... 14 14 3 N/A 1993 N/A 10
------------ -------- -----------
$ 84,630 $103,710 $19,315
------------ -------- -----------
------------ -------- -----------
ZERO COUPON NOTES.........
</TABLE>
The accompanying notes are an integral part of this schedule.
F-19
<PAGE> 83
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO SCHEDULE XI
DECEMBER 31, 1993
(1) ACQUISITIONS:
All of the real estate on Schedule XI was acquired for cash, subject to
certain encumbrances shown therein, from TCC Entities, except for the Northview
property acquired in 1993.
(2) RECONCILIATION OF REAL ESTATE:
The following table reconciles the Trust's real estate for the years ended
December 31, 1993 and 1992.
<TABLE>
<CAPTION>
($ IN THOUSANDS)
---------------------
1993 1992
-------- --------
<S> <C> <C>
Balance at beginning of period......................................... $108,036 $159,841
Additions during period:
Improvements......................................................... 887 3,945
Acquisition of Northview Distribution Center......................... 3,289 --
-------- --------
112,212 163,786
Deductions during period:
Cost of real estate sold............................................. 8,187 41,415
Writedowns for impairments in value.................................. -- 14,094
Other -- asset retirements........................................... 315 241
-------- --------
Balance at close of period............................................. $103,710 $108,036
-------- --------
-------- --------
</TABLE>
(4) RECONCILIATION OF ACCUMULATED DEPRECIATION:
The following table reconciles the accumulated depreciation for the years
ended December 31, 1993 and 1992.
<TABLE>
<CAPTION>
($ IN THOUSANDS)
-------------------
1993 1992
------- -------
<S> <C> <C>
Balance at beginning of period........................................... $18,036 $20,804
Additions during period:
Depreciation provision for period...................................... 2,830 3,721
------- -------
20,866 24,525
Deductions during period:
Accumulated depreciation of real estate sold........................... 1,551 6,426
Other -- asset retirements............................................. -- 63
------- -------
Balance at close of period............................................... $19,315 $18,036
------- -------
------- -------
</TABLE>
(5) TAX BASIS:
The cost basis of the Trust's real estate for tax purposes at December 31,
1993 is $128,585,000. The basis reported under generally accepted accounting
principles has been reduced by the aggregate amounts collected under developers'
leases, less management fees paid on such developers' leases, and by reductions
for the impairments in value of real estate.
F-20
<PAGE> 84
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Merger Agreement") dated as
of , 1994, is entered into by and between American Industrial
Properties REIT, Inc., a Maryland corporation (the "Company") and American
Industrial Properties REIT, a real estate investment trust formed under the
Texas Real Estate Investment Trust Act (the "Trust").
RECITALS
1. The Company is a corporation duly organized on January 12, 1994, and
existing under the laws of the State of Maryland. The principal office of the
Company in Maryland is c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Baltimore City County, Maryland 21202.
2. The Trust is a real estate investment trust duly organized on September
26, 1985, and existing under the laws of the State of Texas. The predecessor of
the Trust, Trammell Crow Real Estate Investors, was qualified to do business in
Maryland on November 25, 1985. The principal office of the Trust in Maryland is
c/o The Prentice-Hall Corporation, 11 East Chase Street, Baltimore, Maryland
21202-0000. The Trust owns property in Baltimore City County, Maryland.
3. On the date of this Merger Agreement, the Company has authority to issue
50,000,000 shares of Common Stock, $.01 par value per share, (the "Common
Stock"), of which 100 shares are issued and outstanding and 10,000,000 of
Preferred Stock, $.01 par value per share, none of which are issued or
outstanding. The aggregate par value of all the shares of all classes is
$600,000.
4. On the date of this Merger Agreement, the Trust has authority to issue
10,000,000 shares of beneficial interest, $.01 par value per share, (the
"Shares"), with 9,475,400 Shares issued and outstanding.
5. The Board of Directors of the Company and the Trust Managers have
determined that it is advisable and in the best interests of the stockholders
and the shareholders, respectively, that the Trust merge with and into the
Company upon the terms and subject to the conditions of this Merger Agreement
for the purpose of effecting the incorporation of the Trust in the State of
Maryland.
6. The Board of Directors of the Company and the Trust Managers have, by
resolutions duly adopted, approved this Merger Agreement. The Trust, acting
through the Trust Managers, has approved this Merger Agreement as the sole
stockholder of the Company. The Trust Managers have directed that this Merger
Agreement be submitted to a vote of its Shareholders, 66 2/3% of whom must
approve this Merger Agreement for it to become effective.
7. The parties intend by this Merger Agreement to effect a "reorganization"
under Section 368 of the Internal Revenue Code of 1986, as amended.
AGREEMENT
In consideration of the promises and agreements set forth herein, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Merger. The Trust shall be merged with and into the Company (the
"Merger"), and the Company shall be the surviving corporation (hereinafter
sometimes referred to as the "Surviving Corporation"). The name of the Surviving
Corporation shall be American Industrial Properties REIT, Inc., which is the
name currently set forth in the Charter of the Company. The Merger shall become
effective upon the time and date of issuance of a Certificate of Merger by the
Secretary of State of the State of Maryland and the filing of such other
documents as may be required under applicable law (the "Effective Time").
A-1
<PAGE> 85
2. Governing Documents.
(a) The Charter of the Company, as it may be amended or restated, and
as in effect immediately prior to the Effective Time, shall be the Charter
of the Surviving Corporation without further change or amendment until
thereafter amended in accordance with the provisions thereof and applicable
law.
(b) The Bylaws of the Company as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation without
change or amendment until thereafter amended in accordance with the
provisions thereof and applicable law.
3. Officers and Directors. The persons who are executive officers of the
Company immediately prior to the Effective Time shall, after the Effective Time,
be the executive officers of the Surviving Corporation, without change until
their successors have been duly elected and qualified. The three directors named
in the Company's Charter will serve as directors of the Surviving Corporation.
The directors shall be classified into three classes in accordance with the
Charter and Bylaws of the Surviving Corporation.
4. Succession. At the Effective Time, the separate corporate existence of
the Trust shall cease, and the Surviving Corporation shall possess all the
rights, privileges, powers and franchise of a public and private nature and be
subject to all the restrictions, disabilities and duties of the Trust; and all
rights, privileges, powers and franchises of the Trust, and all property, real,
personal and mixed, and all debts due to the Trust on whatever account, as well
as for Share subscriptions and all other things in action, shall be vested in
the Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter the property of
the Surviving Corporation as they were of the Trust, and the title to any real
estate vested by deed or otherwise shall not revert or be in any way impaired by
reason of the Merger; but all rights of creditors and all liens upon any
property of the Trust shall be preserved unimpaired, and all debts, liabilities
and duties of the Trust shall thenceforth attach to the Surviving Corporation
and may be enforced against it to the same extent as if such debts, liabilities
and duties had been incurred or contracted by it. The debts, liabilities and
duties of the Trust assumed by the Company include, but are not limited to, the
following: (i) the Indenture dated as of November 15, 1985, by and between the
Trust and IBJ Schroder Bank & Trust Company (formerly known as J. Henry Schroder
Bank & Trust Company); (ii) the Note Purchase Agreement dated February 27, 1992,
by and between the Trust and Manufacturers Life Insurance Company; (iii) the
Indemnity Agreement dated as of July 21, 1993, by and between the Trust and
Charles W. Wolcott; (iv) the Indemnity Agreement dated as of July 21, 1993, by
and between the Trust and Mark A. O'Brien; (v) the Indemnity Agreement dated as
of July 21, 1993, by and between the Trust and David B. Warner; (vi) the
Indemnity Agreement dated as of July 21, by and between the Trust and W.H.
Bricker; and (vii) the Indemnity Agreement dated as of July 21, 1993, by and
between the Trust and George P. Jenkins. All acts, plans, policies, agreements,
arrangements, approvals and authorizations of the Trust, its Shareholders, Trust
Managers and committees thereof, officers and agents which were valid and
effective immediately prior to the Effective Time, shall be taken for all
purposes as the acts, plans, policies, agreements, arrangements, approvals and
authorizations of the Surviving Corporation and shall be as effective and
binding thereon as the same were with respect to the Trust. The employees and
agents of the Trust shall become the employees and agents of the Surviving
Corporation and shall continue to be entitled to the same rights and benefits
which they enjoyed as employees and agents of the Trust.
5. Further Assurances. From time to time, as and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of the Trust such deeds, assignments and other
instruments, and there shall be taken or caused to be taken by it all such
further and other action, as shall be appropriate or necessary in order to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation the
title to and possession of all property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of the Trust and otherwise to carry
out the purposes of this Merger Agreement, and the officers and directors of the
Surviving Corporation are fully authorized in the name and on behalf of the
Trust or otherwise, to take any and all such action and to execute and deliver
any and all such deeds, assignments and other instruments.
6. Conversion of Shares. At the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof:
A-2
<PAGE> 86
(a) Each five Shares outstanding immediately prior to the Effective
Time shall be changed and converted into and shall be one fully paid and
nonassessable share of Common Stock.
(b) Persons that will hold a fractional share in the Company after the
Merger must either (i) pay to the Company an amount equal to the fraction
necessary to round upward to a whole share of Common Stock times the
opening price of the Company's Common Stock on the first trading date after
the consummation of the Merger (the "Opening Price") and the fractional
share shall be rounded upward to the nearest whole share of Common Stock or
(ii) permit the Company to repurchase the fractional share at a price equal
to the fraction owned times the Opening Price.
(c) The 100 shares of Common Stock issued and outstanding in the name
of the Trust shall be cancelled and retired and resume the status of
authorized and unissued shares of Common Stock.
7. Stock Certificates. At and after the Effective Time, all of the
outstanding certificates which immediately prior to the Effective Time
represented Shares shall be deemed for all purposes to evidence ownership of,
and to represent shares of, Common Stock into which the Shares formerly
represented by such certificates have been converted as herein provided. The
registered owner on the books and records of the Trust or its transfer agent of
any such outstanding stock certificate shall, until such certificate shall have
been surrendered for transfer or otherwise accounted for to the Surviving
Corporation or its transfer agent, have and be entitled to exercise any voting
and other rights with respect to and to receive any dividends and other
distributions upon the shares of Common Stock evidenced by such outstanding
certificate as above provided.
8. 401(k) Plan and Dividend Reinvestment Plan. As of the Effective Time,
the Surviving Corporation hereby assumes all obligations of the Trust under the
Trust's Retirement and Profit Sharing Plan and the Trust's Dividend Reinvestment
Plan in effect as of the Effective Time.
9. Conditions. Consummation of the Merger and related transactions is
subject to satisfaction of the following conditions prior to the Effective Time:
(a) The Merger shall have been approved by the requisite number of
holders of Trust Shares and the Company Stock and all necessary action
shall have been taken to authorize the execution, delivery and performance
of this Merger Agreement by the Trust and the Company.
(b) All regulatory approvals necessary in connection with the
consummation of the Merger and the transactions contemplated thereby shall
have been obtained.
(c) No suit, action, proceeding or other litigation shall have been
commenced or threatened to be commenced which, in the opinion of the Trust
or the Company would pose a material restriction on or impair consummation
of the Merger, performance of this Merger Agreement or the conduct of the
business of the Company after the Effective Time, or create a risk of
subjecting the Trust or the Company, or their respective Shareholders,
Stockholders, officers, or directors, to material damages, costs, liability
or other relief in connection with the Merger or this Merger Agreement.
(d) The shares of Common Stock to be issued or reserved for issuance
shall, if required, have been approved for listing on the New York Stock
Exchange or such other national securities exchange or national market
system as the Board of Directors of the Company may designate, upon
official notice of issuance by such exchange.
10. Governing Law. This Merger Agreement was negotiated in and is
performable in the State of Texas and shall be governed by and construed in
accordance with the laws of the State of Texas applicable to contracts entered
into and to be performed within the State of Texas, except to the extent that
the laws of the State of Maryland are mandatorily applicable to the Merger.
11. Amendment. Subject to applicable law and subject to the rights of the
Shareholders further to approve any amendment which would have a material
adverse effect on the Shareholders, this Merger Agreement may be amended,
modified or supplemented by written agreement of the parties hereto at any time
prior to the Effective Time with respect to any of the terms contained herein.
A-3
<PAGE> 87
12. Deferral or Abandonment. At any time prior to the Effective Time and in
accordance with the provisions of Maryland and Texas law, this Merger Agreement
may be terminated and the Merger may be abandoned or the time of consummation of
the Merger may be deferred for a reasonable time by the Board of Directors of
the Company or the Trust Managers or both, notwithstanding approval of this
Merger Agreement by the Shareholders or the Stockholders of the Company, or
both, if circumstances arise which, in the opinion of the Board of Directors of
the Company or the Trust Managers, make the Merger inadvisable or such deferral
of the time of consummation advisable.
13. Counterparts. This Merger Agreement may be executed in any number of
counterparts each of which when taken alone shall constitute an original
instrument and when taken together shall constitute but one and the same
Agreement.
14. Assurances. The Trust and the Company agree to execute any and all
documents, and to perform such other acts, which may be necessary or expedient
to further the purposes of this Merger Agreement.
IN WITNESS WHEREOF, the Trust and the Company have caused this Merger
Agreement to be signed by their respective duly authorized officers and
delivered this day of , 1994.
AMERICAN INDUSTRIAL PROPERTIES REIT
Charles W. Wolcott
President and Chief Executive Officer
AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
Charles W. Wolcott
President and Chief Executive Officer
A-4
<PAGE> 88
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROXY
STATEMENT/PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN
OFFER TO BUY, THE SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Proxy Statement/Prospectus Summary............ 5
Risk Factors.................................. 12
The Proposal.................................. 17
The Special Meeting........................... 20
The Company................................... 21
The Properties................................ 24
Policies With Respect to Certain Activities... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 30
Security Ownership of Certain Beneficial
Owners and Managers......................... 35
Management.................................... 35
Summary Comparison of Shares of Beneficial
Interest and Common Stock................... 41
The Company's Securities...................... 43
Certain Statutory and Charter Provisions...... 47
Federal Income Tax Considerations............. 50
Recent Developments........................... 55
Experts....................................... 55
Legal Matters................................. 55
Stockholder Proposals......................... 56
Additional Information........................ 56
Glossary...................................... 57
Index to Financial Statements................. F-1
Agreement and Plan of Merger.................. A-1
</TABLE>
------------------------
UNTIL , 1994 (25 DAYS AFTER THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES
OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROXY STATEMENT/PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROXY STATEMENT/PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
AMERICAN INDUSTRIAL
PROPERTIES REIT, INC.
1,915,080 SHARES
OF COMMON STOCK
------------------------
PROXY STATEMENT/PROSPECTUS
------------------------
, 1994
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation (the "Articles") and Bylaws of the Company
(the "Bylaws") provide certain limitations on the liability of the Company's
directors and officers for monetary damages. The Articles and the Bylaws
obligate the Company to indemnify its directors and officers, and permit the
Company to indemnify its employees and other agents, against certain liabilities
incurred in connection with their service in such capacities. These provisions
could reduce the legal remedies available to the Company and the Stockholders
against these individuals.
The Articles require it to indemnify (a) any person or former director or
officer who has been successful, on the merits or otherwise, in the defense of a
proceeding to which he was made a party by reason of his service in that
capacity, against reasonable expenses incurred by him in connection with the
proceeding; and (b) any present or former director or officer against any claim
or liability unless it is established that (i) his act or omission was committed
in bad faith or was the result of active or deliberate dishonesty; (ii) he
actually received an improper personal benefit in money, property or services;
or (iii) in the case of a criminal proceeding, he had reasonable cause to
believe that his act or omission was unlawful. In addition, the Articles require
it to pay or reimburse, in advance of final disposition of a proceeding,
reasonable expenses incurred by a director or officer made a party to a
proceeding by reason of his service as a director or officer under procedures
provided for under the Maryland General Corporation Law ("MGCL") and the Bylaws
also (i) permit the Company to provide indemnification and advance expenses to a
present or former director or officer who served a predecessor of the Company in
such capacity, and to any employee or agent of the Company or a predecessor of
the Company; (ii) provide that any indemnification or payment or reimbursement
of the expenses permitted by the Bylaws shall be furnished in accordance with
the procedures provided for indemnification and payment or reimbursement of
expenses under Section 2-418 of the MGCL for directors of Maryland corporations;
and (iii) permit the Company to provide such other and further indemnification
or payment or reimbursement of expenses as may be permitted by Section 2-418 of
the MGCL for directors of Maryland corporations.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------------------------------------------------------------------------------------------
<S> <C>
**3.1 -- Articles of Amendment and Restatement
**3.2 -- Bylaws of the Company
*4.1 -- Form of Certificate representing Common Stock of the Company
**5.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. as to
legality of the Common Stock
**8.1 -- Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. as to certain
tax matters
*10.1 -- Form of Employment Agreement between the Company and each of its
executive officers
**10.3 -- Omnibus Stock Option Plan
**10.4 -- Indenture dated as of November 15, 1985, between the Trust and IBJ
Schroder Bank & Trust Company
**10.5 -- 401(k) Retirement and Profit Sharing Plan
**10.6 -- Note Purchase Agreement dated February 27, 1992, between the Trust
and Manufacturers Life Insurance Company
**10.7 -- Form of Indemnification Agreement between the Company and each of its
executive officers and directors
</TABLE>
II-1
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------------------------------------------------------------------------------------------
<S> <C>
**10.8 -- Agreement and Assignment of Partnership Interest, Amended and
Restated Agreement and Certificate of Limited Partnership and
Security Agreement for Patapsco Center -- Linthicum Heights, Maryland
**10.9 -- Deed of Trust with Security Agreement and Assignment of Rents and
Leases for Beltline Center -- Irving, Texas
**10.10 -- Deed of Trust with Security Agreement and Assignment of Rents and
Leases of Gateway 5 & 6 -- Irving, Texas
**10.11 -- Deed of Trust with Security Agreement and Assignment of Rents and
Leases for Northgate II -- Dallas, Texas
**10.12 -- Deed of Trust with Security Agreement and Assignment of Rents and
Leases for Northview Distribution Center -- Dallas, Texas
**10.13 -- Deed of Trust with Security Agreement and Assignment of Rents and
Leases for Tamarac Square Specialty Mall -- Denver, Colorado
**10.14 -- Deed of Trust with Security Agreement and Assignment of Rents and
Leases for Tamarac Square Convenience Center -- Denver, Colorado
**10.15 -- Mortgage with Security Agreement and Assignment of Rents and Leases
for Quadrant -- Deerfield Beach, Florida
**10.16 -- Deed of Trust with Security Agreement and Assignment of Rents and
Leases for Plaza Southwest -- Houston, Texas
**10.17 -- Deed of Trust with Security Agreement and Assignment of Rents and
Leases for Commerce Park North -- Houston, Texas
**10.18 -- Deed of Trust with Security Agreement and Assignment of Rents and
Leases for Westchase Park -- Houston, Texas
**10.19 -- Deed of Trust with Security Agreement and Assignment of Rents and
Leases for Huntington Drive Center -- Monrovia, California
**10.20 -- Mortgage with Security Agreement and Assignment of Rents and Leases
for Northwest Business Park -- Milwaukee, Wisconsin
**10.21 -- Amended and Restated Mortgage with Security Agreement and Assignment
of Rents and Leases for Cahill and Burnsville -- Edina, Minnesota and
Burnsville, Minnesota
**10.22 -- Deed of Trust with Security Agreement and Assignment of Rents and
Leases for Springbrook -- Kent, Washington
**10.23 -- Dividend Reinvestment Plan
**23.1 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. (included in
Exhibit 5.1)
**23.2 -- Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. (included in
Exhibit 8.1)
*23.3 -- Consent of Kenneth Leventhal & Company, independent accountants
*23.4 -- Consent of Ernst & Young, independent accountants
**24.1 -- Power of Attorney (included on the signature pages of the
Registration Statement)
*99.1 -- Form of Proxy Card
*99.2 -- Notice of Special Meeting
**99.3 -- Consent to Merger by Manufacturer's Life Insurance Company
</TABLE>
- ---------------
* Filed herewith.
** Previously filed.
(b) Financial Statement Schedules.
Schedule XI -- Real Estate and Accumulated Depreciation
II-2
<PAGE> 91
(c) Reports, Opinions or Appraisals.
None Required.
ITEM 22. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and
(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.
(b) 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.
(c) 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.
(2) 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 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.
(3) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on March 14, 1994.
AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
/s/ CHARLES W. WOLCOTT
Charles W. Wolcott,
President and Chief Executive Officer,
Director
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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ----------------------------------------------- ----------------------------- ---------------
<S> <C> <C>
/s/ CHARLES W. WOLCOTT President and Chief Executive March 14, 1994
Charles W. Wolcott Officer, Director (principal
executive officer)
* /s/ W. H. BRICKER Director March 14, 1994
W. H. Bricker
* /s/ RAYMOND A. HAY Director March 14, 1994
Raymond A. Hay
/s/ MARC A. SIMPSON Vice President and Chief March 14, 1994
Marc A. Simpson Financial Officer, Secretary
(principal financial officer)
</TABLE>
*By: /s/ CHARLES W. WOLCOTT
Charles W. Wolcott
Attorney-in-Fact
II-4
<PAGE> 1
EXHIBIT 4.1
INCORPORATED PAR VALUE
UNDER THE LAWS OF THE $.01 PER SHARE
STATE OF MARYLAND
{LOGO}
THIS CERTIFICATE IS TRANSFERABLE CUSIP 026917 10 4
IN DALLAS, TEXAS; CLEVELAND, OHIO; SEE REVERSE FOR CERTAIN DEFINITIONS
AND NEW YORK, NEW YORK
CERTIFICATE FOR SHARES OF COMMON STOCK
AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
A MARYLAND CORPORATION
THIS CERTIFIES THAT
SPECIMEN
IS THE REGISTERED HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF
American Industrial Properties REIT, Inc. (the "Corporation"), a corporation
incorporated under the laws of the State of Maryland by Articles of
Incorporation filed January 12, 1994, as amended from time to time (the
"Articles of Incorporation"). This certificate is not valid unless
countersigned and registered by a Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of the Corporation's duly authorized represenataives.
DATED: COUNTERSIGNED AND REGISTERED:
SOCIETY NATIONAL BANK
BY TRANSFER AGENT
AND REGISTRAR
/s/ CHARLES W. WOLCOTT
CHIEF EXECUTIVE OFFICER {SEAL}
/s/ MARC A. SIMPSON AUTHORIZED SIGNATURE
SECRETARY
<PAGE> 2
AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER ON REQUEST AND WITHOUT CHARGE A
FULL STATEMENT OF THE DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND OTHER
RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS,
QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH
CLASS WHICH THE CORPORATION IS AUTHORIZED TO ISSUE, OR THE DIFFERENCES IN THE
RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES OF A CLASS IN
SERIES WHICH THE CORPORATION IS AUTHORIZED TO ISSUE, TO THE EXTENT THEY HAVE
BEEN SET, AND OF THE AUTHORITY OF THE BOARD OF DIRECTORS TO SET THE RELATIVE
RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES OR CLASSES. SUCH REQUEST MAY BE
MADE TO THE SECRETARY OF THE CORPORATION OR TO ITS TRANSFER AGENT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
OWNERSHIP AND TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS
STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE"). EXCEPT AS OTHERWISE PROVIDED PURSUANT TO THE
CHARTER OF THE CORPORATION, NO PERSON MAY (1) BENEFICIALLY OWN SHARES OF STOCK
IN EXCESS OF 9.8% (OR SUCH OTHER PERCENTAGE AS MAY BE PROVIDED IN THE CHARTER
OF THE CORPORATION) OF THE AGGREGATE VALUE OF ALL OUTSTANDING STOCK (UNLESS
SUCH PERSON IS THE EXISTING HOLDER), OR (2) BENEFICIALLY OWN STOCK THAT WOULD
RESULT IN THE CORPORATION BEING "CLOSELY HELD" UNDER SECTION 856(h) OF THE
CODE. ANY PERSON WHO ATTEMPTS TO BENEFICIALLY OWN SHARES OF STOCK IN EXCESS OF
THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE CORPORATION. IF THE
RESTRICTIONS ON OWNERSHIP OR TRANSFER ARE VIOLATED, THE SHARES OF STOCK
REPRESENTED HEREBY WILL BE AUTOMATICALLY CONVERTED INTO SHARES OF EXCESS STOCK
WHICH WILL BE HELD IN TRUST BY THE CORPORATION. THE CORPORATION HAS THE OPTION
TO REDEEM SHARES OF EXCESS STOCK UNDER CERTAIN CIRCUMSTANCES. ALL TERMS IN THIS
LEGEND NOT OTHERWISE DEFINED HEREIN HAVE THE MEANINGS ASCRIBED THERETO IN THE
CORPORATION'S CHARTER, AS THE SAME MAY BE FURTHER AMENDED FROM TIME TO TIME, A
COPY OF WHICH, INCLUDING THE RESTRICTIONS ON OWNERSHIP OR TRANSFER, WILL BE
SENT WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT _____________ Custodian __________
TEN ENT - as tenants by the entireties (Cust) (Minors)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act_________________________
in common (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
For value received_______________________________ hereby sell, assign
and trasnfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/ /__________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING POSTAL ZIP CODE OF ASSIGNEE.
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________ Shares
of Common Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Date: ____________________
X________________________________
(Signature)
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S)
AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
X________________________________
(Signature)
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
"ELIGIBLE GUARANTOR INSTITUTION" AS DEFINED
IN THE SECURITIES AND EXCHANGE ACT OF 1934
AS AMENDED.
SIGNATURE(S) GUARANTEED BY:
<PAGE> 1
EMPLOYMENT AGREEMENT
This Bonus and Severance Agreement (this "Agreement") is made and
entered into as of this ____ day of ____________, 1994, by and between American
Industrial Properties REIT, Inc., a Maryland corporation (the "Company") and
________________________________ ("Employee").
RECITALS
WHEREAS, Employee is currently employed by the Company as
________________;
WHEREAS, in consideration for services already rendered by Employee in
connection with the formation of the Company and to encourage Employee to
remain employed with the Company after the merger of American Industrial
Properties REIT (the "Trust") into the Company (the "Merger"), the Company
desires to provide Employee with incentive bonus compensation and certain
severance compensation in the event of a change in control of the Company (as
defined below) on the terms and conditions set forth herein;
WHEREAS, the Company and Employee each recognize and hereby
acknowledge that Employee's employment with the Company is and shall continue
to be terminable at-will, without prior notice, by either the Company or
Employee; and
WHEREAS, the Company and Employee each hereby acknowledge that this
Agreement is not intended to be, and shall not be construed as, an express or
implied contract of employment between the Company and Employee.
NOW, THEREFORE, for and in consideration of the mutual promises
hereinafter contained and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by the parties hereto, the
Company and Employee hereby agree as follows:
AGREEMENTS
1. SEVERANCE COMPENSATION. (a) In the event that, prior to the
expiration or termination of this Agreement, the employment of Employee is
terminated, voluntarily or involuntarily, as a direct result of a change in
control of the Company, Employee shall be entitled to receive severance
compensation in an amount equal to one times the annual average of the total
cash compensation, inclusive of base salary and cash bonuses, received by
Employee during each of the preceding five calendar years (the "severance
compensation"). If Employee has not been employed by the Company for five
calendar years, the severance compensation shall be based on the average base
salary and cash bonuses received by Employee during his employment with the
Company (in calculating such amount, the time of service and compensation
received from the Trust prior to the Merger shall be counted). For example, if
a change in control occurred three months after the effective date of the
Merger, and Employee had been compensated as follows: 1993 - $150,000 salary
on an annualized basis (Employee was hired by the Trust in 1993 and was not
employed by the Trust for all of 1993) plus $50,000 bonus, and 1994 - $180,000
on an annualized basis, Employee would be entitled to severance compensation in
the amount of $190,000 ($380,000 / 2). In calculating the average of the total
<PAGE> 2
cash compensation, all salaries shall be annualized in the same manner as in
the foregoing example and the compensation paid by the Trust to Employee in
prior years shall likewise be considered in the calculation. In addition to
the foregoing, in the event of a change of control, Employee shall be entitled
to receive the unpaid portion of any bonus described in Section 3 below which
is payable in or with respect to the year in which the change of control
occurs.
(b) Notwithstanding anything to the contrary set forth
herein, the total severance compensation calculated as provided in this Section
1 shall be limited by, and shall in no event exceed, the maximum amount which
will not operate to trigger the application of the negative compensation
provisions relating to executive compensation set forth in Sections 280G and
4999 (or any successor provisions) of the Internal Revenue Code, as amended.
(c) For purposes of this Agreement, the term "change in
control" shall mean the consolidation or merger of the Company with or into
another entity (other than a merger with a subsidiary or a merger in which the
Company is the surviving entity) or the sale of all or substantially all of the
assets of the Company to a third-party unaffiliated (for purposes of this
Agreement, the term "unaffiliated" shall mean a person or entity that is not a
parent or subsidiary of the Company) with the Company. The determination as to
which party to a merger or consolidation is the "surviving entity" shall be
made on the basis of the relative equity interests of the stockholders in the
entity existing after the merger or consolidation, as follows: if following any
merger or consolidation the holders of outstanding voting securities of the
Company immediately prior to the merger or consolidation own equity securities
possessing more than fifty percent (50%) of the voting power of the entity
existing following the merger or consolidation, then for purposes of this
Agreement, the Company shall be the surviving entity. In all other cases, the
Company shall not be the surviving entity. In making the determination of
ownership by the holders of equity securities of a corporation (or other
entity) immediately after the merger or consolidation, equity securities which
the holders owned immediately before the merger or consolidation as holders of
equity securities of another party to the transaction shall be disregarded.
Further, for purposes of this Section 1(c) only, outstanding voting securities
of a corporation (or other entity) shall be calculated by assuming the
conversion of all equity securities convertible (immediately or at some future
time) into shares entitled to vote. If Employee is terminated for any reason
other than for cause, death, permanent disability or Employee resigns at any
time 179 days or less prior to a change in control of the Company, Employee
shall be entitled to the severance compensation.
2. PAYMENT OF SEVERANCE COMPENSATION. The Company and Employee
each hereby acknowledge that the employment of Employee is terminable at the
will of either the Company or Employee without notice to the other for any
reason whatsoever or no reason, and that this Agreement and the severance
compensation provided for herein is not intended to and shall not create a
presumption of an employment contract or constitute an express or implied
contract of employment between the Company and Employee. Accordingly, Employee
acknowledges and agrees that in the event (i) of the expiration of this
Agreement or the expiration of any renewal hereof, or (ii) the employment of
Employee is terminated for any reason (including death or permanent disability)
or for no reason 180 days or more prior to the time that a change in control of
the Company occurs, Employee shall not be entitled to receive, and the Company
shall not be obligated to pay to Employee, the severance compensation set forth
in Section 1
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<PAGE> 3
hereof. In the event Employee becomes entitled to receive the severance
compensation set forth in Section 1 hereof, such amount shall be paid to
Employee in cash within 30 days following the date of the consummation of the
transaction giving rise to the change in control. Any and all such payments
shall be subject to deduction and withholding authorized or required by
applicable law.
3. BONUS COMPENSATION. (a) The Company shall pay Employee an
annual incentive bonus (the "annual incentive bonus") for each calendar year
during the term or any renewal of this Agreement, subject to certain
conditions. Such annual incentive bonus, if any, shall be payable to Employee
within 30 days after the end of each calendar year or as soon as practicable
thereafter during the term or any renewal of this Agreement. Each such annual
incentive bonus shall be calculated as follows: for every incremental
specified increase (the "Increase Multiple") in funds from operations per share
earned by the Company in each calendar year during the term or any renewal of
this Agreement, Employee shall receive an additional fixed percentage of
Employee's base salary (the "Bonus Percentage") as incentive bonus compensation
(the "incentive bonus compensation"). In no event, however, shall such
incentive bonus compensation exceed 25% of Employee's base salary for each such
calendar year. For purposes of calculating annual incentive bonuses, the term
"funds from operations" shall mean net income per share of the Company
(computed in accordance with generally accepted accounting principles),
excluding financing costs and gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization and other non-cash items.
The Increase Multiple and the Bonus Percentage shall be determined by the
Compensation Committee of the Company for each calendar year for which an
incentive bonus is calculated, and this Agreement shall be deemed to be
automatically amended and modified to include such Increase Multiple and Bonus
Percentage for the calculation of each annual incentive bonus payable
hereunder. The Increase Multiple and the Bonus Percentage shall be established
by the Compensation Committee as soon as practicable after the business plan
for the next year is presented to the Board of Directors, but by no later than
December 31 of each year.
(b) In addition to the annual incentive bonus, Employee shall be
entitled to receive an annual achievement bonus ("annual achievement bonus") of
up to 15% of Employee's base salary during the year in which the annual
achievement bonus is awarded. Employee shall be entitled to receive an annual
achievement bonus each year that the Company achieves specific targets
established annually by the Compensation Committee of the Company. The targets
will be established by the Compensation Committee as soon as practicable after
the business plan for the next year is presented to the Board of Directors, but
by no later than December 31. At such time as the Compensation Committee
establishes the specific targets, it shall set forth in a committee resolution
what percentage of the amount of Employee's base salary shall be received by
Employee as an annual achievement bonus if the specific targets are achieved.
Any annual achievement bonus payable to Employee shall be paid within 30 days
after the end of the calendar year as to which such annual achievement bonus
relates.
(c) In addition to receiving the annual incentive bonus and annual
achievement bonus, Employee shall be eligible to receive annually a merit bonus
("merit bonus") at the discretion of the Compensation Committee. The merit
bonus may not exceed 10% of Employee's base salary for the year in which the
merit bonus is awarded. The Compensation Committee shall
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<PAGE> 4
determine if Employee should be awarded a merit bonus based upon (i) an
evaluation of Employee's work by his direct supervisor, and (ii) the
recommendation of the President and Chief Executive Officer of the Company.
The Compensation Committee shall determine whether the President and Chief
Executive Officer should receive a merit bonus without being required to review
an evaluation or receiving any recommendations as described above. It is
currently contemplated that any merit bonus will be awarded in December of each
year.
4. PAYMENT OF BONUS COMPENSATION. The Company and Employee each
hereby acknowledge that the employment of Employee is terminable at the will of
either the Company or Employee without notice to the other for any reason
whatsoever or no reason, and that this Agreement and the bonus compensation
provided for herein is not intended to and shall not create a presumption of an
employment contract or constitute an express or implied contract of employment
between the Company and Employee. Accordingly, Employee acknowledges and
agrees that in the event of the expiration of this Agreement or the expiration
of any renewal hereof, Employee shall not be entitled to receive, and the
Company shall not be obligated to pay to Employee, any further bonus
compensation; provided, however, that in the event Employee's employment is
terminated for any reason prior to the expiration of this Agreement or any
renewal hereof, Employee shall be entitled to receive any previously unpaid
bonus payable to Employee pursuant to Section 3 hereof for each calendar year
during the term of this Agreement, and including the calendar year in which
such termination occurs, prorated for the portion of such year which elapsed
prior to the date such termination becomes effective. Any and all such
payments shall be subject to deduction and withholding authorized or required
by applicable law.
5. ADDITIONAL BENEFITS. Nothing in this Agreement shall be
deemed to render Employee ineligible to (i) participate in any employee benefit
plan of the Company, including, but not limited to, any stock option plan of
the Company, or (ii) receive additional cash or stock or other type of bonuses
from the Company.
6. TERM. The term of this Agreement shall be deemed to commence
and be effective as of the date of this Agreement and shall continue for a
three-year term to and including ________________, 1997, unless earlier
terminated in accordance with the provisions hereof. At any time within sixty
days of the end of such term or any renewal term, the parties hereto may renew
this Agreement in writing for additional terms of one year.
7. TERMINATION. Except with respect to the provisions of this
Agreement that provide for payments to be made to Employee after termination of
employment, this Agreement shall terminate automatically without further action
by either of the parties hereto upon the death or permanent disability of
Employee or the termination of Employee's employment with the Company for any
reason or no reason, in accordance with Employee's status as an employee
at-will. As used herein, the term "permanent disability" means physical or
mental disability or both that is determined by the Company, in its sole
discretion, to substantially impair the ability of Employee to perform the
day-to-day functions normally performed by Employee if the disability is
suffered (or is reasonably expected to be suffered) by Employee for a period of
not less than six consecutive calendar months. Notwithstanding the foregoing,
Employee (or his estate, heirs or personal representatives, as applicable)
shall be entitled to receive accrued bonus
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<PAGE> 5
compensation as set forth in Section 4 hereof, but shall not be entitled to
severance compensation except to the extent that a change in control of the
Company occurs 179 days or less prior to the termination of this Agreement, as
set forth in Section 2 hereof.
8. REPRESENTATION BY EMPLOYEE. Employee hereby represents and
warrants to the Company that there are no agreements or understandings that
would make unlawful his execution or delivery of this Agreement.
9. NOTICES. All notices, renewals and other communications
required or permitted under this Agreement must be in writing and shall be
deemed to have been given if delivered or mailed, by certified mail, first
class postage prepaid, to the parties at the addresses set forth in this
Agreement, as the same may be changed in writing by the parties from time to
time.
10. ENTIRE AGREEMENT. The parties expressly agree that this
Agreement is contractual in nature and not a mere recital, and that it contains
all the terms and conditions of the agreement between the parties with respect
to the matters set forth herein. All prior negotiations, agreements,
arrangements, understandings and statements between the parties relating to the
matters set forth herein that have occurred at any time or contemporaneously
with the execution of this Agreement are superseded and merged into this
completely integrated Agreement. The Recitals set forth above shall be deemed
to be part of this Agreement.
11. COSTS OF ENFORCEMENT. If either party seeks to enforce its
rights under this Agreement, whether by legal proceedings or otherwise, the
non-prevailing party or parties in such proceedings shall pay all reasonable
costs and expenses (including, without limitation, court costs and all
reasonable attorneys' fees) incurred by the prevailing party or parties in
connection with such enforcement.
12. GOVERNING LAW. This Agreement was negotiated and is
performable in Dallas County, Texas and shall be governed by the laws of the
State of Texas without giving effect to principles of conflicts of law.
13. SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law, such
provisions shall be fully severable, and this Agreement shall be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, the remaining provisions of this Agreement shall
remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom, and in lieu of
such provision, there shall be added automatically as a part of this Agreement,
a legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible, and the Company and
Employee hereby request the court or any arbitrator to whom disputes relating
to this Agreement are submitted to reform the otherwise unenforceable covenant
in accordance with the proceeding provision.
14. COUNTERPARTS. This Agreement may be executed in multiple
identical counterparts, each of which shall be deemed an original, and all of
which taken together shall constitute but one and the same instrument. In
making proof of this Agreement, it shall not be
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<PAGE> 6
necessary to produce or account for more than one counterpart executed by the
party sought to be charged with performance hereunder.
15. ASSIGNMENT AND DELEGATION. All rights, covenants and
agreements of the Company set forth in this Agreement shall, unless otherwise
provided herein, be binding upon and inure to the benefit of the Company's
respective successors and assigns. All rights, covenants and agreements of
Employee set forth in this Agreement shall, unless otherwise provided herein,
not be assignable by Employee, and shall be considered personal to Employee for
all purposes.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first set forth above.
AMERICAN INDUSTRIAL PROPERTIES REIT, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
Notice Address:___________________
___________________
___________________
EMPLOYEE:
__________________________________
Notice Address:___________________
___________________
___________________
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<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of American Industrial
Properties REIT, Inc. on Amendment No. 2 to Form S-4 of our report on the
financial statements and the financial statement schedule of American Industrial
Properties REIT (formerly Trammell Crow Real Estate Investors) dated February
15, 1994, appearing on pages F-7 through F-20 in the Proxy Statement/Prospectus
which is part of this Registration Statement. We also consent to the reference
to us under the heading "Experts" in giving said report in such Proxy
Statement/Prospectus.
KENNETH LEVENTHAL & COMPANY
Dallas, Texas
March 15, 1994
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 1, 1994, in Amendment No. 2 to the
Registration Statement (Form S-4 No. 33-74292) and related Proxy
Statement/Prospectus of American Industrial Properties REIT, Inc. for the
registration of 1,915,080 shares of its common stock.
ERNST & YOUNG
Dallas, Texas
March 16, 1994
<PAGE> 1
EXHIBIT 99.1
PRELIMINARY PROXY MATERIALS
AMERICAN INDUSTRIAL PROPERTIES REIT
THIS PROXY IS SOLICITED ON BEHALF OF THE TRUST MANAGERS OF
AMERICAN INDUSTRIAL PROPERTIES REIT
SPECIAL MEETING APRIL 26, 1994
The undersigned hereby appoints W. H. Bricker and Charles W. Wolcott, or
either of them, as Proxies, each with the power to appoint his substitute, and
hereby authorizes either of them to represent and to vote all of the
undersigned's Shares of Beneficial Interest in the Trust, held of record on
March 4, 1994, at the Special Meeting of Shareholders to be held on April 26,
1994 or at any postponements or adjournments thereof, on the proposals below,
as directed.
(1) THE ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE MERGER
THEREUNDER OF AMERICAN INDUSTRIAL PROPERTIES REIT (THE "TRUST")
WITH AND INTO A MARYLAND CORPORATION WHICH IS A WHOLLY-OWNED
SUBSIDIARY OF THE TRUST.
/ / FOR: / / AGAINST: / / ABSTAIN:
(2) IN THEIR DISCRETION, ON SUCH OTHER MATTERS AS MAY PROPERLY COME
BEFORE THE SPECIAL MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS
THEREOF.
/ / FOR: / / AGAINST: / / ABSTAIN:
This Proxy, when properly executed, will be voted in the manner described
above. If no direction is made, this Proxy will be voted FOR the first proposal
and at the discretion of the Proxies with respect to the second proposal.
Please sign exactly as your name appears on your Share certificate. When Shares
are held in more than one name, all parties should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by an authorized
officer. If a partnership, please sign in partnership name by an authorized
person.
_________________________ ______
Signature of Shareholder Date
_________________________ ______
Signature if Shares held Date
in more than one name
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE.
<PAGE> 1
EXHIBIT 99.2
PRELIMINARY PROXY MATERIALS
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held April 26, 1994
TO THE SHAREHOLDERS OF AMERICAN INDUSTRIAL PROPERTIES REIT:
You are cordially invited to attend a Special Meeting of Shareholders
which will be held at the Four Seasons Hotel, Irving, Texas, on April 26,
1994, at 9:00 a.m. Dallas time, to consider and act upon the following matters:
(1) The adoption and approval of the Merger Agreement and the merger
thereunder of the Trust with and into a Maryland corporation which
is a wholly-owned subsidiary of the Trust.
(2) Such other business as may properly come before the Special Meeting
or any postponements or adjournments thereof.
Only holders of record of Shares of Beneficial Interest of the Trust on
March 4, 1994 will be entitled to notice of and to vote at the Special
Meeting or any postponements or adjournments thereof.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING
REGARDLESS OF THE NUMBER OF SHARES OF BENEFICIAL INTEREST YOU HOLD. YOU ARE
INVITED TO ATTEND THE MEETING IN PERSON, BUT WHETHER OR NOT YOU PLAN TO ATTEND,
PLEASE COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED
ENVELOPE. IF YOU DO ATTEND THE MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR
PROXY AND VOTE YOUR SHARES OF BENEFICIAL INTEREST IN PERSON.
BY ORDER OF THE TRUST MANAGERS
_________________________
Charles W. Wolcott
President and Chief Executive Officer
6220 N. Beltline
Suite 205
Irving, TX 75063
(214) 550-6053
, 1994
