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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EXCEL REALTY TRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MARYLAND 33-0160389
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
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16955 VIA DEL CAMPO, SUITE 110
SAN DIEGO, CALIFORNIA 92127
(619) 485-9400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GARY B. SABIN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
16955 VIA DEL CAMPO, SUITE 110
SAN DIEGO, CALIFORNIA 92127
(619) 485-9400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH A COPY TO:
SCOTT N. WOLFE, ESQ.
LATHAM & WATKINS
701 B STREET, SUITE 2100
SAN DIEGO, CALIFORNIA 92101
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement as
determined by market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), other than securities offered only in connection
with dividend or interest reinvestment plans, please check the following
box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO AGGREGATE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER UNIT(2) OFFERING PRICE REGISTRATION FEE
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Common Stock $0.01 par value per share(1) 349,751 $25.04 $8,757,766.00 $2,584.00
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(1) Includes stock purchase rights. See "Description of Capital
Stock -- Preferred Share Purchase Rights."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the average of the high and low prices
of the Registrant's Common Stock as reported on the New York Stock Exchange
on September 18, 1998.
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION DATED SEPTEMBER 24, 1998
PROSPECTUS
EXCEL REALTY TRUST, INC.
349,751 SHARES
COMMON STOCK
($0.01 PAR VALUE PER SHARE)
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All of the shares of Common Stock, par value $0.01 per share (the "Common
Stock"), of Excel Realty Trust, Inc., a Maryland corporation (the "Company"),
offered hereby are being offered by the Company upon the exchange of certain
partnership units as described more fully herein. The Company will not receive
any cash proceeds from the sale of the shares offered hereby. See "Plan of
Distribution."
The Company is a self-administered, self-managed, real estate investment
trust ("REIT") which acquires, owns and manages neighborhood and community
shopping centers and other retail and commercial properties which are primarily
leased on a long-term basis to major retail companies throughout the United
States. As of June 30, 1998, the Company owned or managed 84 shopping centers,
52 single tenant properties, four commercial properties and office buildings,
and one additional property which is currently being constructed. See "The
Company -- General."
The Company is the sole general partner of Excel Realty Partners, L.P., a
Delaware limited partnership (the "Partnership"). On October 7, 1997, the
Partnership acquired a shopping mall in San Dimas, California (the "Shopping
Mall") from St. Francis Associates, L.P. ("SFA"). Part of the consideration for
the Shopping Mall was the issuance by the Partnership to SFA of 323,304 units of
limited partnership interest in the Partnership ("Units"). In January 1998, SFA
distributed 78,677 Units to Jonathan C. Whitman, Trustee for Jonathan C. Whitman
U/T/A 2/22/92 ("Whitman," and together with permitted assignees of SFA and
Whitman, the "Registered Unit Holders").
This Prospectus relates to (i) the issuance by the Company of up to 349,751
shares (the "Exchange Shares") of Common Stock of the Company if, and to the
extent that, the Registered Unit Holders tender the above-referenced Units for
exchange and the Company elects to deliver the Exchange Shares rather than cash
and (ii) the offer and sale from time to time of the Exchange Shares that may be
issued to the Registered Unit Holders. The Company is registering the Exchange
Shares to provide the Registered Unit Holders with freely tradable securities,
but the registration of such shares does not necessarily mean that any of such
shares will be issued to the Registered Unit Holders or offered or sold by the
Registered Unit Holders. The above-referenced Units may be tendered for exchange
by the Registered Unit Holders beginning on September 15, 1998.
The Company's Common Stock is listed on the New York Stock Exchange
("NYSE") under the symbol "XEL." On September 23, 1998, the closing sale price
of the Common Stock as reported on the NYSE was $27.4375 per share.
To assist the Company in maintaining its qualification as a REIT, transfer
of the Common Stock is restricted, and actual or constructive ownership by any
person is limited to 9.8% of the outstanding shares of Common Stock subject to
certain exceptions. See "Description of Capital Stock -- Restrictions on
Ownership of Capital Stock."
The registration statement of which this Prospectus is a part is being
filed pursuant to contractual obligations of the Company.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE
EXCHANGE SHARES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Midwest Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511; Northeast Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material may be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The Commission also maintains a website at
http://www.sec.gov containing reports, prospectuses and information statements
and other information regarding registrants, including the Company, that file
electronically. Copies of such materials and other information concerning the
Company also are available for inspection at the New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3, of which this Prospectus forms a part (together with all amendments,
exhibits and schedules, the "Registration Statement"), under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the Exchange Shares.
This Prospectus does not contain all of the information included in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Exchange Shares, reference is hereby made to the
Registration Statement, including the exhibits and schedules thereto. Statements
contained in this Prospectus concerning the provisions or contents of any
contract, agreement or any other document referred to herein are not necessarily
complete. With respect to each such contract, agreement or document filed as an
exhibit to the Registration Statement, reference is made to such exhibit for a
more complete description of the matters involved, and each such statement shall
be deemed qualified in its entirety by such reference to the copy of the
applicable document filed with the Commission. The Registration Statement may be
inspected without charge at the Commission's principal office at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of it or any
part thereof may be obtained from such office, upon payment of the fees
prescribed by the Commission. The Registration Statement also may be retrieved
from the Commission's website.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have previously been filed by the Company
with the Commission are incorporated herein by reference:
(1) the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 filed with the Commission on August 14, 1998;
(2) the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 filed with the Commission on May 13, 1998;
(3) the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 filed with the Commission on March 25, 1998;
(4) the Company's Current Report on Form 8-K filed with the Commission
on July 14, 1998;
(5) the Company's Current Report on Form 8-K filed with the Commission
on May 28, 1998;
(6) the Company's Current Report on Form 8-K filed with the Commission
on May 22, 1998;
(7) the Company's Current Report on Form 8-K filed with the Commission
on April 2, 1998; and
(8) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed with the Commission on
July 30, 1993.
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All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Exchange Shares made hereby shall be deemed
to be incorporated in this Prospectus by reference and to be a part hereof from
the date of filing of such documents. Any statement contained herein, or in a
document incorporated or deemed to be incorporated by reference herein, shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, on the written
request of any such person, a copy of any or all of the documents incorporated
herein by reference, except the exhibits to such documents (unless such exhibits
are specifically incorporated by reference in such documents). Requests for such
copies should be directed to the Company at 16955 Via Del Campo, Suite 110, San
Diego, CA 92127, Attention: Investor Relations; telephone number (619) 485-9400.
FORWARD-LOOKING STATEMENTS
This Prospectus, including the documents incorporated herein by reference,
includes certain statements that may be deemed to be "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. All statements, other than statements of historical
facts, included in this Prospectus, including the documents incorporated herein
by reference, that address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future, including such
matters as future capital expenditures, dividends and acquisitions (including
the amount and nature thereof), expansion and other development trends of the
real estate industry, business strategies, expansion and growth of the Company's
operations and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate. Such statements are subject to a number of assumptions, risks and
uncertainties, including the "Risk Factors" discussed herein, general economic
and business conditions, the business opportunities that may be presented to and
pursued by the Company, changes in laws or regulations and other factors, many
of which are beyond the control of the Company. Prospective investors are
cautioned that any such statements are not guarantees of future performance and
that actual results or developments may differ materially from those anticipated
in the forward-looking statements.
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RISK FACTORS
An investment in the Exchange Shares offered hereby involves a high degree
of risk. Prospective investors should consider carefully the following factors,
in addition to other information contained in this Prospectus, in connection
with an investment in the Exchange Shares offered hereby.
GENERAL REAL ESTATE INVESTMENT RISKS
Economic Performance and Value of Centers Dependent on Many Factors. Real
property investments are subject to varying degrees of risk. The economic
performance and values of real estate can be affected by many factors, including
changes in the national, regional and local economic climates, local conditions
such as an oversupply of space or a reduction in demand for real estate in the
area, the attractiveness of the properties to tenants, competition from other
available space, the ability of the owner to provide adequate maintenance and
insurance and increased operating costs. In recent years, there has been a
proliferation of new retailers and a growing consumer preference for
value-oriented shopping alternatives that have, among other factors, heightened
competitive pressures. In certain areas of the country, there may also be an
oversupply of retail space. As a consequence, many companies in all sectors of
the retailing industry have encountered significant financial difficulties. A
substantial portion of the Company's income is derived from rental revenues from
retailers in neighborhood and community shopping centers. Accordingly, no
assurance can be given that the Company's financial results will not be
adversely affected by these developments in the retail industry.
Dependence on Rental Income from Real Property. Since substantially all of
the Company's income is derived from rental income from real property, the
Company's income and funds for distribution would be adversely affected if a
significant number of the Company's tenants were unable to meet their
obligations to the Company or if the Company were unable to lease a significant
amount of space in its properties on economically favorable lease terms. There
can be no assurance that any tenant whose lease expires in the future will renew
such lease or that the Company will be able to release space on economically
advantageous terms.
Illiquidity of Real Estate Investments. Equity real estate investments are
relatively illiquid and therefore tend to limit the ability of the Company to
vary its portfolio promptly in response to changes in economic or other
conditions. In addition, mortgage payments and, to the extent the properties are
not subject to triple net leases, certain significant expenditures such as real
estate taxes and maintenance costs, are generally not reduced when circumstances
cause a reduction in income from the investment, and should such events occur,
the Company's income and funds for distribution would be adversely affected. A
portion of the Company's properties are mortgaged to secure payment of
indebtedness, and if the Company were unable to meet its mortgage payments, a
loss could be sustained as a result of foreclosure on such properties by the
mortgagee.
Risk of Bankruptcy of Major Tenants. The bankruptcy or insolvency of a
major tenant or a number of smaller tenants may have an adverse impact on the
properties affected and on the income produced by such properties. Under
bankruptcy law, a tenant has the option of affirming (continuing) or rejecting
(terminating) any unexpired lease. If the tenant affirms its lease with the
Company, the tenant must cure all defaults under the lease and provide the
Company with adequate assurance of its future performance under the lease. If
the tenant rejects the lease, the Company's claim for breach of the lease would
(absent collateral securing the claim) be treated as a general unsecured claim.
The amount of the claim would be capped at the amount owed for unpaid
pre-petition lease payments unrelated to the rejection, plus the greater of one
years' lease payments or 15% of the remaining lease payments payable under the
lease (but not to exceed the amount of three years' lease payments).
Environmental Risks. Under various federal, state and local laws,
ordinances and regulations, the Company may be considered an owner or operator
of real property or may have arranged for the disposal or treatment of hazardous
or toxic substances and, therefore, may become liable for the costs of removal
or remediation of certain hazardous substances released on or in its property or
disposed of by it, as well as certain other potential costs which could relate
to hazardous or toxic substances (including governmental fines and injuries to
persons and property). Such liability may be imposed whether or not the Company
knew of, or was responsible for, the presence of such hazardous or toxic
substances.
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RELIANCE ON MAJOR TENANTS
As of June 30, 1998, the Company's two largest tenants were Kmart
Corporation ("Kmart") and Wal-Mart Stores, Inc., which accounted for
approximately 11.0% and 6.7%, respectively, of the Company's annualized base
rental income ("ABR") as of such date. The financial position of the Company and
its ability to make distributions may be adversely affected by financial
difficulties experienced by either of such tenants, or any other major tenant of
the Company, including a bankruptcy, insolvency or general downturn in the
business of any such tenant, or in the event any such tenant does not renew its
leases as they expire. In that regard, it has been reported in the media that
Kmart is experiencing operating and financial difficulties.
ADVERSE EFFECTS OF CHANGE IN MARKET RATES
The trading prices of equity securities issued by REITs have historically
been affected by changes in broader market interest rates with increases in
interest rates resulting in decreases in trading prices, and decreases in
interest rates resulting in increases in such trading prices. An increase in
market interest rates could therefore adversely affect the trading prices of any
equity securities issued by the Company, including the Common Stock of the
Company.
CONTROL BY THE BOARD OF DIRECTORS AND MANAGEMENT
As of June 30, 1998, the Board of Directors and management of the Company
beneficially owned approximately 10.9% of the Company's Common Stock (including
shares representing approximately 4.0% of the Common Stock which may be acquired
upon the exercise of options exercisable within 60 days). Accordingly, such
persons should continue to have substantial influence over the Company and on
the outcome of matters submitted to the Company's stockholders for approval.
LIMITATIONS ON ACQUISITION AND CHANGE IN CONTROL
Ownership Limit. In order for the Company to maintain its qualification as
a REIT, not more than 50% in value of the outstanding shares of its capital
stock may be owned, actually or constructively, by five or fewer individuals (as
defined in the Internal Revenue Code of 1986, as amended (the "Code"), to
include certain entities) during the last half of a taxable year (other than the
first year for which an election to be a REIT has been made). Furthermore, the
Company's shares must be held by a minimum of 100 persons for at least 335 days
of a 12-month taxable year (other than the first year for which an election to
be a REIT has been made) or during a proportionate part of a short tax year. In
addition, if the Company, or an actual or constructive owner of 10% or more of
the Company's capital stock, actually or constructively owns 10% or more of a
tenant of the Company (or a tenant of any partnership in which the Company is a
partner), the rent received by the Company (either directly or through any such
partnership) from such tenant will not be qualifying income for purposes of the
REIT gross income tests of the Code. See "Certain Federal Income Tax
Considerations -- Taxation of the Company -- Requirements for Qualification." In
order to protect the Company against the risk of losing REIT status due to a
concentration of ownership among its stockholders, the Company's charter as
currently in effect (the "Charter") provides for limitation of actual or
constructive ownership of the outstanding shares of the Company's capital stock
by a single person to 9.8% by value of the outstanding capital stock of the
Company and, with respect to the Company's 8 5/8% Series B Cumulative Redeemable
Preferred Stock, par value $.01 per share ("Series B Preferred Stock"), 9.8% in
value of the issued and outstanding shares of such class of capital stock (the
"Ownership Limit"). Although the Company's Board of Directors presently has no
intention of doing so, the Board of Directors could waive this restriction with
respect to a particular stockholder if it were satisfied, based upon the advice
of tax counsel or otherwise, that ownership by such stockholder in excess of the
Ownership Limit would not jeopardize the Company's status as a REIT.
The Charter of the Company further provides that actual or constructive
ownership of shares of capital stock in excess of the Ownership Limit will cause
the violative transfer of ownership to be void with respect to the transferee as
to that number of shares in excess of the Ownership Limit and such shares will
be automatically transferred to a trust for the benefit of a qualified
charitable organization. Such purported
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transferee would have no right to vote such shares or be entitled to dividends
or other distributions with respect to such shares.
Staggered Board. The Board of Directors of the Company has three classes of
directors, the terms of which will expire in 1999, 2000 and 2001. Directors for
each class are chosen for a three-year term.
Stockholder Rights Plan. The Company has a stockholder rights plan (the
"Stockholder Rights Plan") which is designed to deter certain abusive takeover
tactics and encourages potential acquirers to negotiate with the Board of
Directors of the Company. See "Description of Capital Stock -- Preferred Share
Purchase Rights."
The Ownership Limit, the staggered terms for directors and the Stockholder
Rights Plan could have the effect of (i) delaying or preventing a change in
control of the Company even if a change in control were in the stockholders'
interest, (ii) deterring tender offers for the Common Stock that may be
beneficial to the stockholders, or (iii) limiting the opportunity for
stockholders to receive a premium for their Common Stock that might otherwise
exist if an investor attempted to assemble a block of shares of Common Stock in
excess of the percentage ownership limit or otherwise to effect a change in
control of the Company.
NO LIMITATION IN ORGANIZATIONAL DOCUMENTS ON INCURRENCE OF DEBT
The organizational documents of the Company do not contain any limitation
on the amount or percentage of indebtedness the Company may incur. Accordingly,
the Company, subject to covenants in its debt instruments, could become more
highly leveraged, resulting in an increase in debt service that could adversely
affect the Company's funds from operations ("FFO") and ability to make expected
distributions to stockholders and in an increased risk of default on its
obligations.
ADVERSE IMPACT ON DISTRIBUTIONS OF FAILURE TO QUALIFY AS A REIT
The Company has elected to be taxed as a REIT for federal income tax
purposes commencing with its taxable year ended December 31, 1987, and believes
that, commencing with such taxable year, it has been organized and has operated
in conformity with the requirements for qualification as a REIT under the Code.
Although the Company believes that it will continue to operate in such a manner,
no assurance can be given that the Company will remain qualified as a REIT.
Qualification as a REIT involves the satisfaction of numerous requirements (some
on an annual and others on a quarterly basis) established under highly technical
and complex Code provisions for which there are only limited judicial and
administrative interpretations, and involves the determination of various
factual matters and circumstances not entirely within the Company's control. For
example, in order to qualify as a REIT, at least 95% of the Company's gross
income in any year must be derived from qualifying sources and the Company must
pay distributions to stockholders aggregating annually at least 95% of its REIT
taxable income (determined without regard to the dividends-paid deduction and by
excluding net capital gains). The complexity of these provisions and of the
applicable treasury regulations that have been promulgated under the Code (the
"Treasury Regulations") is greater in the case of a REIT that holds assets in
partnership form. No assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not significantly change
the tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification.
The Company intends to make distributions to its stockholders to comply
with the 95% of REIT taxable income distribution requirement, although it may,
from time to time, retain capital gains and thereby incur a nondeductible excise
tax. There may also be differences in timing between the recognition of taxable
income and the actual receipt of cash that may require the Company to borrow
funds, issue capital stock or sell assets on a short-term basis to meet the 95%
of REIT taxable income distribution requirement. This distribution requirement
could cause the Company (i) to sell assets in adverse market conditions, (ii) to
distribute amounts that represent a return of capital, or (iii) to distribute
amounts that would otherwise be spent on future acquisitions, unanticipated
capital expenditures or repayment of debt. Gain from the disposition of any
asset treated as being held primarily for sale to customers in the ordinary
course of business generally will be subject to a 100% tax.
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Among the requirements for REIT qualification is that the value of any one
issuer's securities held by a REIT may not exceed 5% of the REIT's total assets
on certain testing dates. The Company believes that the aggregate value of the
securities of ERT Development Corporation, a Delaware corporation ("EDV"), held
by the Company is less than 5% of the value of the Company's total assets.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal, state and other income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates and would not be allowed a deduction in computing its taxable income for
amounts distributed to its stockholders. Moreover, unless entitled to relief
under certain statutory provisions, the Company also would be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net earnings of the
Company available for investment or distribution to stockholders because of the
additional tax liability of the Company for the years involved. In addition,
distributions to stockholders would no longer be required to be made.
POSSIBLE CONFLICTS WITH LEGACY
Pursuant to the spin-off of Excel Legacy Corporation, a Delaware
corporation ("Legacy"), certain directors and executive officers of the Company
serve as directors and executive officers of Legacy. The Company and Legacy also
have entered into certain agreements providing for (i) the orderly separation of
the Company and Legacy, (ii) the sharing of certain facilities and services, and
(iii) the allocation of certain tax and other liabilities. Because the
management of both the Company and Legacy is largely the same, conflicts may
arise with respect to the operation and effect of these agreements and
relationships which could have an adverse effect on the Company if not properly
resolved. In this regard, the Company and Legacy have adopted appropriate
policies and procedures to be followed by the board of directors of each company
to address potential conflicts. In addition, the certificate of incorporation of
Legacy contains a specific purpose clause which identifies at the outset which
types of opportunities will be pursued by Legacy. This clause provides that
Legacy's purpose includes performing an intercompany agreement between the
Company and Legacy, which prohibits Legacy from engaging in certain activities
or making certain investments (including investments in neighborhood and
community shopping centers, power centers, malls or other conventional retail
properties) unless the Company was first offered the opportunity and declined to
pursue such activities or investments.
YEAR 2000 COMPLIANCE
Many currently installed computer systems, software products, time clocks
and other similar devices of the Company are coded to accept only two digit
entries in the data code field. These date code fields will need to accept four
digit entries to distinguish 21st century dates from 20th century dates. As a
result, in less than two years, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Uncertainty exists concerning the potential effects associated with such
compliance. Additionally, event if the Company's equipment is Year 2000
compliant, equipment used by other parties interconnected with the Company's
network may not be Year 2000 compliant. However, the Company does not expect
future expenditures to be material in connection with Year 2000 compliance.
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THE COMPANY
GENERAL
The Company is a self-administered, self-managed REIT which acquires, owns
and manages neighborhood and community shopping centers and other retail and
commercial properties which are primarily leased on a long-term basis to major
retail companies throughout the United States. As of June 30, 1998, the Company
owned or managed 84 shopping centers (the "Shopping Centers"), 52 single tenant
properties (the "Single Tenant Properties"), four commercial properties and
office buildings (the "Commercial Properties") and one additional property which
is currently being constructed. The Shopping Centers consist of neighborhood and
community shopping centers which typically range from 100,000 to 200,000 square
feet in size. The Single Tenant Properties typically are either anchor stores
within shopping centers not owned by the Company or free standing properties
located in commercial areas, with triple net leases which require the lessee to
be responsible for substantially all of the costs and expenses associated with
the ongoing maintenance of the property, including but not limited to property
taxes, insurance and common area maintenance. The Commercial Properties consist
of office buildings and commercial properties which the Company typically
purchases at an attractive price to take advantage of a distressed situation or
underutilized space. The Shopping Centers, Single Tenant Properties and
Commercial Properties accounted for approximately 90%, 9% and 1%, respectively,
of the ABR of the Company at June 30, 1998. As of June 30, 1998, the Company's
140 operating properties were located in 27 states, contained approximately 14.3
million square feet of gross leaseable area ("GLA") and were approximately 95%
leased.
The Company emphasizes investments in retail properties where a substantial
portion of such properties' GLA is subject to long-term net leases to national
or regional retail tenants. The Company seeks to lease to national or regional
retail tenants that market basic goods and services to consumers and enjoy a
leading position in their respective industries.
The Company's primary objective is to acquire, own and manage a portfolio
of commercial retail properties that will provide cash for quarterly
distributions to stockholders while protecting investor capital and providing
potential for capital appreciation. The Company seeks to achieve this objective
by (i) aggressively managing its existing properties, (ii) continuing to acquire
well-located neighborhood and community shopping centers with tenants that have
a national or regional presence and an established credit quality, (iii)
disposing of mature properties to continually update its core property
portfolio, and (iv) continuing to maintain a strong and flexible financial
position to facilitate growth.
The Company's principal executive officers have worked together in
acquiring and managing retail and commercial real estate for over 15 years and
have administered the investments and affairs of the Company since 1989. As of
June 30, 1998, the Board of Directors and management of the Company owned
approximately 10.9% of the Common Stock of the Company (including shares
representing approximately 4.0% of the Common Stock of the Company which may be
acquired upon the exercise of stock options exercisable within 60 days).
The Company was incorporated under the laws of California in 1985 and
reincorporated as a Maryland corporation in July 1993. The Company's executive
offices are located at 16955 Via Del Campo, Suite 110, San Diego, California
92127, and the telephone number of the Company is (619) 485-9400.
RECENT DEVELOPMENTS
Since June 30, 1998, the Company has purchased 10 Shopping Centers located
in Alabama, Florida, Illinois, Kentucky, Louisiana, Michigan, New York and Ohio.
These centers were purchased for an aggregate purchase price of approximately
$116.0 million and have added approximately 1.8 million square feet of GLA and
$12.0 million in ABR. The properties were subject to secured debt of
approximately $42.0 million. In addition, since June 30, 1998, the Company has
sold one Single Tenant Property comprising approximately 29,600 square feet of
GLA for a total sales price of approximately $1.2 million.
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The Company, New Plan Realty Trust, a Massachusetts business trust ("New
Plan"), and ERT Merger Sub, Inc., a Maryland corporation and a wholly-owned
subsidiary of the Company ("Sub"), entered into an Agreement and Plan of Merger
dated May 14, 1998, as amended (the "Merger Agreement"), providing for the
merger of Sub with and into New Plan (the "Merger"), with New Plan surviving as
a wholly-owned subsidiary of the Company. The Merger Agreement calls for, among
other things, the Company to pay a 20% stock dividend immediately prior to the
Merger to holders of record of the Company's Common Stock on August 12, 1998 and
then to issue one share of Common Stock for each common share of New Plan
outstanding. Upon consummation of the Merger, holders of New Plan's shares will
hold approximately 65% of the common stock of the combined company, which will
be renamed "New Plan Excel Realty Trust, Inc." In addition, as a condition to
the Merger, immediately prior to the Merger the Charter will be amended as
contemplated by the Merger Agreement. The Merger is subject to customary closing
conditions, including the approval of the Merger by the stockholders of the
Company and New Plan. The Company and New Plan will hold special meetings of
their respective stockholders on September 25, 1998 to vote upon proposals to
approve the Merger. If approved at such meetings, the Merger is expected to be
consummated on or about September 28, 1998.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Shares to the Registered Unit Holders but may acquire Units in the
Partnership in exchange for any Exchange Shares that the Company may issue to a
Registered Unit Holder.
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DESCRIPTION OF CAPITAL STOCK
The following description sets forth certain general terms and provisions
of the capital stock of the Company. The statements below describing the capital
stock are in all respects subject to and qualified in their entirety by
reference to the applicable provisions of the Charter, the Company's Amended and
Restated Bylaws (the "Bylaws"), the Stockholder Rights Agreement and the
Maryland General Corporation Law (the "MGCL").
GENERAL
The Charter authorizes the Company to issue up to 110,000,000 shares of
capital stock, consisting of 100,000,000 shares of Common Stock and 10,000,000
shares of preferred stock, par value $0.01 per share (the "Preferred Stock"). As
of September 21, 1998, 23,440,998 shares of Common Stock, 2,124,980 shares of
8 1/2% Series A Cumulative Convertible Preferred Stock, par value $.01 per share
("Series A Preferred Stock") and 630,000 shares of Series B Preferred Stock were
issued and outstanding. Under Maryland law, stockholders generally are not
liable for the corporation's debts or obligations solely as a result of their
status as stockholders.
COMMON STOCK
Subject to the preferential rights of any other shares of capital stock,
holders of the Common Stock are entitled to receive dividends when, as and if
authorized and declared by the Board of Directors, out of funds legally
available therefor. Payment and declaration of dividends on the Common Stock and
purchases of shares thereof by the Company may be subject to certain
restrictions if the Company fails to pay dividends on outstanding shares of
Preferred Stock. Upon the distribution of assets upon any liquidation,
dissolution or winding up of the Company, holders of Common Stock will be
entitled to share equally and ratably in any assets available for distribution
to them, after payment or provision for payment of all known debts and
liabilities of the Company and any preferential amounts owing with respect to
any outstanding Preferred Stock. Subject to certain provisions of Maryland law,
the Charter and the Bylaws, 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 such
shares will possess the exclusive voting power. Holders of Common Stock will not
have cumulative voting rights in the election of directors, which means that
holders of a majority of all of the shares of or voting with the Common Stock
for the election of directors will be able to elect all of the directors to be
elected by such holders if they choose to do so and, accordingly, the holders of
the remaining Common Stock will be unable to elect any directors. Holders of
shares of Common Stock will not have preemptive rights, which means they have no
right to acquire any additional shares of Common Stock that may be issued by the
Company at a subsequent date. Holders of Common Stock also will have no
conversion, sinking fund, redemption, preference or exchange rights.
PREFERRED STOCK
General. The issued and outstanding shares of Series A Preferred Stock and
Series B Preferred Stock (the "Outstanding Preferred Stock") are all duly
authorized, fully paid and non-assessable.
Rank. The Outstanding Preferred Stock rank, with respect to payment of
distributions and amounts upon liquidation, dissolution or winding-up of the
Company (i) senior to all classes or series of Common Stock and to all stock
ranking junior if and when issued, including Series C Junior Participating
Preferred Stock ("Series C Preferred Stock"), (ii) on a parity with each other,
and (iii) junior to any equity securities to be issued by the Company, the terms
of which may specifically provide that such equity securities rank senior to the
Outstanding Preferred Stock. While any shares of Outstanding Preferred Stock are
outstanding, unless provision is first made for redemption of such shares, the
Company may not authorize, create or increase the authorized amount of any class
or series of stock that ranks prior or senior to the Outstanding Preferred Stock
without the consent of at least two-thirds of the holders of the Outstanding
Preferred Stock and all other shares entitled to vote thereon, voting as a
single class.
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Dividends. Holders of Series A Preferred Stock are entitled to receive,
when, as and if declared by the Board of Directors, out of funds of the Company
legally available for payment thereof, cumulative cash dividends payable in an
amount per share equal to the greater of (i) $2.1250 per annum or (ii) the cash
dividends determined on the applicable dividend date on the shares of Common
Stock (or portion thereof) into which a share of Series A Preferred Stock is
then convertible. Holders of Series B Preferred Stock are entitled to receive,
when, as and if authorized and declared by the Board of Directors, out of funds
legally available for the payment thereof, cumulative cash dividends payable at
the rate of 8 5/8% per annum of the liquidation preference per share of Series B
Preferred Stock, or $21.5625 per annum per share of Series B Preferred Stock.
Dividends on the Outstanding Preferred Stock are payable quarterly in arrears on
the fifteenth day (or the next succeeding business day) of January, April, July
and October, and in the case of any accumulated or accrued but unpaid dividends,
at such additional times and for such interim periods, if any, as may be
determined by the Company's Board of Directors. The amount of such dividends
payable per share of such Outstanding Preferred Stock for each such quarterly
dividend payment date shall be computed by dividing the annual dividend by four.
Dividends accrue from the date of original issuance of the applicable share of
Outstanding Preferred Stock and are cumulative from such date, whether or not
the Company has earnings, and whether or not during any dividend period or
periods such dividends are authorized or declared or there are funds of the
Company legally available for the payment of such dividends. Accumulated
dividends do not bear interest and any dividends payable for a period of less
than a full dividend period will be computed pro-rata on the basis of twelve
30-day months and a 360-day year. Except for pro-rata dividends with respect to
Outstanding Preferred Stock, no dividends on any Outstanding Preferred Stock
will be authorized, paid or set aside for payment for any period unless full
cumulative dividends have been declared and paid or contemporaneously declared
and a fund sufficient for payment set aside for such Outstanding Preferred Stock
for all prior and contemporaneous dividend periods.
Redemption. Except as otherwise provided under the Charter to protect the
Company's status as a REIT, the Outstanding Preferred Stock is not redeemable by
the Company prior to February 5, 2002 in the case of Series A Preferred Stock,
and January 13, 2003 in the case of Series B Preferred Stock. On and after
February 5, 2002, Series A Preferred Stock will be redeemable at the option of
the Company, in whole or in part, either (i) for such number of authorized or
previously unissued shares of the Common Stock equal to the product of $25.00
and the number of shares of Series A Preferred Stock to be redeemed (without
regard to accumulated, accrued and unpaid dividends, if any, to the date for
redemption, which are to be paid in cash, whether or not earned or declared)
divided by the Conversion Price (as defined below under "--Conversion Rights")
as of the opening of business on the date set for such redemption, subject to
adjustment in certain circumstances, or (ii) for cash at a redemption price of
$25.00 per share, plus any accumulated accrued and unpaid dividend, whether or
not earned or declared. On and after January 13, 2003, the shares of Series B
Preferred Stock will be redeemable at the option of the Company, in whole or in
part, at any time and from time to time, for cash at a redemption price of
$250.00 per share, plus all accrued and unpaid dividends thereon to the date
fixed for redemption, without interest, to the extent the Company has funds
legally available therefor. Any shares of Outstanding Preferred Stock that have
been redeemed will, after such redemption, have the status of authorized but
unissued Preferred Stock, without further designation as to series or class,
until such shares are once more designated as part of a particular series or
class by the Company's Board of Directors.
Voting Rights. Generally, holders of Outstanding Preferred Stock have no
voting rights except whenever dividends on Preferred Stock are in arrears for
six or more quarterly periods (whether or not consecutive), in which case
holders of such Outstanding Preferred Stock will be entitled to vote with the
holders of all any stock ranking on parity therewith having equivalent voting
rights, such Outstanding Preferred Stock and any stock ranking on parity
therewith voting together as a single class, for the election of two additional
directors of the Company. In addition to the foregoing voting rights, for so
long as any shares of Outstanding Preferred Stock remain outstanding, any
authorization or creation of, or increase in the authorized amount of, any
shares of any class or any security convertible into shares of any class of the
Company, ranking prior or senior to the Outstanding Preferred Stock, or any
amendment, alteration or repeal of any of the provisions of the Charter,
including any applicable Articles Supplementary that materially adversely
affects the holders of the Outstanding Preferred Stock (or any stock ranking on
parity therewith), must be approved by holders of at
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least two-thirds of such affected Outstanding Preferred Stock, voting together
as a single class. As to any matter on which the Outstanding Preferred Stock may
vote, including any action by written consent, each share of Series A Preferred
Stock shall have one vote per share, and each share of Series B Preferred Stock
shall have ten votes per share.
Conversion Rights. Except as otherwise described below in respect of Series
A Preferred Stock, the Outstanding Preferred Stock is not convertible into or
exchangeable for any property or security of the Company. Shares of Series A
Preferred Stock are convertible in whole or in part, at any time, at the option
of the holder thereof, into authorized and previously unissued shares of Common
Stock at a conversion price of $20.09 per share of Common Stock (equivalent to a
conversion rate of 1.24378 of a share of Common Stock for each share of Series A
Preferred Stock), subject to certain adjustments (the "Conversion Price"). The
right to convert shares of Series A Preferred Stock called for redemption will
terminate at the close of business on the date fixed by the Board of Directors
of the Company for redemption of such shares.
Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the holders of Outstanding Preferred
Stock will be entitled to receive out of the assets of the Company available for
distribution to stockholders remaining after payment or provision for payment of
all debts and other liabilities of the Company other than the Company's
obligations with respect to any outstanding stock ranking junior to the
Outstanding Preferred Stock, a liquidation preference of $25.00 per share in the
case of Series A Preferred Stock, and a liquidation preference of $250.00 per
share in the case of Series B Preferred Stock, plus, in each case, an amount
equal to any accrued and unpaid distributions on the date of payment. If upon
any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the assets of the Company shall be insufficient to make such full
payments to holders of shares of Outstanding Preferred Stock and any stock
ranking on parity with the Outstanding Preferred Stock, then such assets will be
distributed pro rata among such holders. After payment of the full amount of the
liquidating distribution to which they are entitled, the holders of Outstanding
Preferred Stock will not be entitled to any further participation in any
distribution of assets by the Company. Neither a consolidation or merger of the
Company with or into another corporation nor or a sale or transfer of
substantially all of the Company's assets or a statutory share exchange will be
considered a liquidation, dissolution or winding-up of the Company.
Under the MGCL, a distribution (whether by dividend, redemption or other
acquisition of shares) to holders of shares of stock of a Maryland corporation
may not be made unless, after giving effect to the distribution, the
corporation's total assets are greater than its total liabilities and, unless
the charter of the Maryland corporation permits otherwise, the amount that would
be needed to satisfy the preferential rights upon dissolution of stockholders
whose preferential rights upon dissolution are superior to the stockholders
receiving the distribution. The provisions of the Charter establishing the terms
of the Outstanding Preferred Stock provide that, in determining whether a
dividend or other distribution may be paid on shares of capital stock ranking
junior thereto, no effect need be given to the amounts that would be needed to
satisfy the preferential rights on dissolution of holders of such Outstanding
Preferred Stock.
PREFERRED SHARE PURCHASE RIGHTS
Pursuant to the Stockholder Rights Plan, the Company's Board of Directors
declared a dividend of one preferred share purchase right (a "Right") for each
share of Common Stock outstanding at the close of business on May 26, 1998 (the
"Record Date").
As long as the Rights are attached to the Common Stock, the Company will
issue one Right (subject to adjustment) with each new share of Common Stock
issued (including the Exchange Shares) so that all such shares will have
attached Rights. When exercisable, each Right will entitle the registered holder
to purchase from the Company one one-thousandth of a share of Series C Preferred
Stock at a price of $100.00 per one one-thousandth of a share, subject to
adjustment (the "Series C Purchase Price"). The description and terms of the
Rights are set forth in the Stockholder Rights Agreement.
Until the earlier to occur of (i) ten days following a public announcement
that a person or group of affiliated or associated persons has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of Common
Stock (an "Acquiring Person") or (ii) ten business days (or such later date as
may be
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determined by action of the Company's Board of Directors prior to such time as
any person or group of affiliated persons becomes an Acquiring Person) following
the commencement or announcement of an intention to make a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the Common Stock (the earlier
of (i) and (ii) being called the "Rights Plan Distribution Date"), the Rights
will be represented, with respect to any certificate for Common Stock
outstanding as of the Record Date, by such certificate together with a copy of a
summary description of the Rights available from the Company.
The Stockholder Rights Agreement provides that until the Rights Plan
Distribution Date (or earlier redemption, exchange, termination, or expiration
of the Rights), the Rights will be transferred with and only with the Common
Stock. The Rights are not exercisable until the Rights Plan Distribution Date.
The Rights will expire on May 26, 2008 subject to Company's right to extend such
date (the "Final Expiration Date"), unless earlier redeemed or exchanged by the
Company or terminated.
Shares of Series C Preferred Stock purchasable upon exercise of the Rights
will be entitled, when, as and if declared, to a minimum preferential quarterly
dividend payment of $1.00 per share but will be entitled to an aggregate
dividend of 1,000 times the dividend, if any, declared per share of Common
Stock. In the event of liquidation, dissolution or winding up of the Company,
the holders of Series C Preferred Stock will be entitled to a minimum
liquidation payment of $1,000 per share (plus any accrued but unpaid dividends),
preferential to the Common Stock, but junior to the Outstanding Preferred Stock
or any stock ranking on parity therewith, but will be entitled to an aggregate
payment of 1,000 times the payment made per share of Series C Preferred Stock.
Each share of Series C Preferred Stock will have 1,000 votes and will vote
together with the Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Common Stock are
exchanged, each share of Series C Preferred Stock will be entitled to receive
1,000 times the amount received per share of Common Stock. Shares of Series C
Preferred Stock are generally not redeemable. These rights are protected by
customary antidilution provisions. Because of the nature of the dividend,
liquidation and voting rights, the value of one one-thousandth of a share of
Series C Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of Common Stock.
The Series C Purchase Price payable, and the number of shares of Series C
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of Series C Preferred Stock, (ii) upon the grant to holders of
Series C Preferred Stock of certain rights, options or warrants to subscribe for
or purchase Series C Preferred Stock or convertible securities at less than the
current market price of Series C Preferred Stock or (iii) upon the distribution
to holders of Series C Preferred Stock of evidences of indebtedness, cash,
securities or assets (excluding regular periodic cash dividends at a rate not in
excess of 125% of the rate of the last regular periodic cash dividend
theretofore paid or, in case regular periodic cash dividends have not
theretofore been paid, at a rate not in excess of 50% of the average net income
per share of the Company for the four quarters ended immediately prior to the
payment of such dividend, or dividends payable in Series C Preferred Stock
(which dividends will be subject to the adjustment described in clause (i)
above)) or of convertible securities, subscription rights or warrants (other
than those referred to above).
In the event that a person becomes an Acquiring Person or if the Company
were the surviving corporation in a merger with an Acquiring Person or any
affiliate or associate of an Acquiring Person and the Common Stock was not
changed or exchanged, each holder of a Right, other than Rights that are or were
acquired or beneficially owned by the Acquiring Person (which Rights will
thereafter be void), will thereafter have the right to receive upon exercise
that number of shares of Common Stock having a market value of two times the
then current Series C Purchase Price under the Right. In the event that, after a
person has become an Acquiring Person, the Company were acquired in a merger or
other business combination transaction or more than 50% of its assets or earning
power were sold, proper provision shall be made so that each holder of a Right
shall thereafter have the right to receive, upon the exercise thereof at the
then current Series C Purchase Price under the Right, that number of shares of
common stock of the acquiring company which at the time of such transaction
would have a market value of two times the then current Series C Purchase Price
under the Right.
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At any time after a person becomes an Acquiring Person and prior to the
earlier of one of the events described in the last sentence of the previous
paragraph or the acquisition by such Acquiring Person of 50% or more of the
outstanding Common Stock, the Board of Directors may cause the Company to
exchange the Rights (other than Rights owned by an Acquiring Person which will
have become void), in whole or in part, for that number of shares of Common
Stock having an aggregate value equal to the spread (the excess of the value of
the adjustment shares issuable upon the exercise of a Right over the Series C
Purchase Price) per Right (subject to adjustment).
The Rights may be redeemed in whole, but not in part, at a price of $.01
per Right (the "Redemption Price") by the Board of Directors of the Company at
any time prior to the time that an Acquiring Person has become such. The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Company's Board of Directors in its sole discretion
may establish. Immediately upon any redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company beyond those as an existing stockholder,
including, without limitation, the right to vote or to receive dividends.
Any of the provisions of the Stockholder Rights Agreement may be amended by
the Company's Board of Directors for so long as the Rights are then redeemable,
and after the Rights are no longer redeemable, the Company may amend or
supplement the Stockholder Rights Agreement in any manner that does not
adversely affect the interests of the holders of the Rights.
A copy of the Stockholder Rights Agreement is available free of charge from
the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Stockholder Rights
Agreement.
RESTRICTIONS ON OWNERSHIP OF CAPITAL STOCK
For the Company to qualify as a REIT under the Code, not more than 50% in
value of the issued and outstanding capital stock may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year and the capital stock
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of twelve months (or during a proportionate part of a shorter
taxable year). See "Certain Federal Income Tax Considerations -- Taxation of the
Company -- Requirements for Qualification."
The Charter, subject to certain exceptions, contains certain restrictions
on the number of shares of stock of the Company that a person may own. The
Charter prohibits any person from acquiring or holding, directly or indirectly,
shares of the Company stock in excess of the Ownership Limit.
The Board of Directors of the Company, upon receipt of a ruling from the
Internal Revenue Service or an opinion of counsel or other evidence satisfactory
to the Company's Board of Directors and upon at least 15 days' written notice
from a transferee prior to the proposed transfer, that if consummated, would
result in the intended transferee beneficially owning shares in excess of the
Ownership Limit, and upon such other conditions as the Company's Board of
Directors may direct, may exempt a person from the Ownership Limit (an "Excepted
Holder"). In order to be considered by the Board of Directors of the Company as
an Excepted Holder, a person also must not own, directly or indirectly, an
interest in a tenant of the Company (or a tenant of any entity owned or
controlled by the Company) that would cause the Company to own, directly or
indirectly, more than a 9.9% interest in such a tenant. The person seeking an
exemption must represent to the satisfaction of the Company's Board of Directors
that it will not violate the aforementioned restriction. The person also must
agree that any violation or attempted violation of the foregoing restriction
will result in the automatic transfer of the shares of stock causing such
violation to the Trust (as defined below).
The Charter further prohibits (a) any person from beneficially or
constructively owning shares of stock of the Company that would result in the
Company being "closely held" under Section 856(h) of the Code or otherwise cause
the Company to fail to qualify as a REIT and (b) any person from transferring
shares of stock
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of the Company if such transfer would result in shares of stock of the Company
being owned by fewer than 100 persons. Any person who acquires or attempts or
intends to acquire beneficial or constructive ownership of shares of stock of
the Company that will or may violate any of the foregoing restrictions on
transferability and ownership, or any person who would have owned shares of the
stock of the Company that resulted in a transfer of shares to the Trust, is
required to give notice immediately to the Company and provide the Company with
such other information as the Company may request in order to determine the
effect of such transfer on the Company's status as a REIT. The foregoing
restrictions on transferability and ownership will not apply if the Board of
Directors of the Company 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.
If any transfer of shares of stock of the Company occurs which, if
effective, would result in any person beneficially or constructively owning
shares of stock of the Company in excess or in violation of the above transfer
or ownership limitations (a "Purported Transferee"), then that number of shares
of stock of the Company the beneficial or constructive ownership of which
otherwise would cause such person to violate such limitations (rounded to the
nearest whole share) shall be automatically transferred to a trust (the "Trust")
for the exclusive benefit of one or more charitable beneficiaries (the
"Charitable Beneficiary"), and the Purported Transferee shall not acquire any
rights in such shares. Such automatic transfer shall be deemed to be effective
as of the close of business on the Business Day (as defined in the Charter)
prior to the date of such violative transfer. Shares of stock held in the Trust
shall be issued and outstanding shares of stock of the Company. The Purported
Transferee shall not benefit economically from ownership of any shares of stock
held in the Trust, shall have no rights to dividends and shall not possess any
rights to vote or other rights attributable to the shares of stock held in the
Trust. The trustee of the Trust (the "Trustee") shall have all voting rights and
rights to dividends or other distributions with respect to shares of stock held
in the Trust, which rights shall be exercised for the exclusive benefit of the
Charitable Beneficiary. Any dividend or other distribution prior to the
discovery by the Company that shares of stock have been transferred to the
Trustee shall be paid by the recipient of such dividend or distribution to the
Trustee upon demand, and any dividend or other distribution authorized but
unpaid shall be paid when due to the Trustee. Any dividend or distribution so
paid to the Trustee shall be held in trust for the Charitable Beneficiary. The
Purported Transferee shall have no voting rights with respect to shares of stock
held in the Trust and, subject to Maryland law, effective as of the date that
such shares of stock have been transferred to the Trust, the Trustee shall have
the authority (at the Trustee's sole discretion) (i) to rescind as void any vote
cast by a Purported Transferee prior to the discovery by the Company that such
shares have been transferred to the Trust and (ii) to recast such vote in
accordance with the desires of the Trustee acting for the benefit of the
Charitable Beneficiary. However, if the Company has already taken irreversible
corporate action, then the Trustee shall not have the authority to rescind and
recast such vote.
The Trustee may transfer the shares of stock held in the Trust to a person,
designated by the Trustee, whose ownership of the shares will not violate the
Ownership Limitation or other limitations set forth in the Charter. Upon such
sale, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to the
Purported Transferee and to the Charitable Beneficiary as follows. The Purported
Transferee shall receive the lesser of (i) the price paid by the Purported
Transferee for the shares or, if the Purported Transferee did not give value for
the shares in connection with the event causing the shares to be held in the
Trust (e.g., a gift, devise or other such transaction), the Market Price (as
defined in the Charter) of such shares on the day of the event causing the
shares to be held in the Trust and (ii) the price per share received by the
Trustee from the sale or other disposition of the shares held in the Trust. Any
net sale proceeds in excess of the amount payable to the Purported Transferee
shall be paid immediately to the Charitable Beneficiary. If, prior to the
discovery by the Company that shares of stock have been transferred to the
Trust, such shares are sold by a Purported Transferee, then (i) such shares
shall be deemed to have been sold on behalf of the Trust and (ii) to the extent
that the Purported Transferee received an amount for such shares that exceeds
the amount that such Purported Transferee was entitled to receive pursuant to
the aforementioned requirement, such excess shall be paid to the Trustee upon
demand.
In addition, shares of stock held in the Trust shall be deemed to have been
offered for sale to the Company, or its designee, at a price per share equal to
the lesser of (i) the price per share in the transaction
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that resulted in such transfer to the Trust (or, in the case of a devise or
gift, the Market Price at the time of such devise or gift) and (ii) the Market
Price on the date the Company, or its designee, accepts such offer. The Company
shall have the right to accept such offer for a period of 90 days after the
later of (i) the date of the purported transfer resulting in a transfer to the
Trust and (ii) the date that the Company's Board of Directors determines in good
faith that such transfer occurred. Upon such a sale to the Company, the interest
of the Charitable Beneficiary in the shares sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the Purported Transferee.
All certificates representing shares of the Common Stock and the Preferred
Stock will bear a legend referring to the restrictions described above.
Every owner of more than 5% (or such lower percentage as required by the
Code or the regulations promulgated thereunder) of the number or value of
outstanding shares of Common Stock and Preferred Stock, shall, within 30 days
after January 1 of each year, give written notice to the Company stating the
name and address of such owner, the number of shares of each class and series of
stock of the Company which the owner constructively or beneficially owns and a
description of the manner in which such shares are held. Each such owner shall
provide to the Company such additional information as the Company may request in
order to determine the effect, if any, of such beneficial ownership on the
Company's status as a REIT and to ensure compliance with the Ownership Limit. In
addition, each stockholder shall upon demand be required to provide to the
Company such information as the Company may reasonably request in order to
determine the Company's status as a REIT and to comply with the requirements of
any taxing authority or governmental authority or to determine such compliance.
These ownership limits could delay, defer or prevent a transaction or a
change in control of the Company that might involve a premium price for the
Common Stock or the Preferred Stock or otherwise be in the best interest of the
stockholders.
TRANSFER AGENT
The transfer agent and registrar for the shares of Common Stock and
Preferred Stock is BankBoston, N.A.
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DESCRIPTION OF UNITS AND PARTNERSHIP AGREEMENT
The material terms of the Units, including a summary of certain provisions
of the Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement") dated as of June 25, 1997, are set forth below. The following
description of the terms and provisions of the Partnership Agreement and certain
other matters does not purport to be complete and is subject to and qualified in
its entirety by reference to applicable provisions of Delaware law and the
Partnership Agreement. For a description of the exchange of Units for cash or
Common Stock of the Company, see "Exchange of Units." For a comparison of rights
of holders of Units and the Company's Common Stock, see "Exchange of
Units -- Comparison of the Company and the Partnership."
MANAGEMENT
The Partnership was organized as a Delaware limited partnership pursuant to
the Delaware Revised Uniform Limited Partnership Act (the "Act") and the terms
of the Partnership Agreement. Generally, pursuant to the Partnership Agreement,
the Company, as the sole general partner of the Partnership, has full, exclusive
and complete responsibility and discretion in the management and control of the
Partnership, subject to certain limited exceptions. The limited partners of the
Partnership (the "Limited Partners") generally have no authority to participate
in or exercise control or management power over the business and affairs of the
Partnership.
OPERATIONS
The Partnership Agreement requires that the Partnership be operated in a
manner that will enable the Company to satisfy the requirements for being
classified as a REIT. The Partnership Agreement provides that distributions of
cash will be distributed from time to time as determined by the Company in
accordance with the Partnership Agreement. Pursuant to the Partnership
Agreement, subject to certain exceptions, the Partnership will also assume and
pay when due, or reimburse the Company for payment of, all costs and expenses
relating to the operation of the Partnership.
TRANSFERABILITY OF INTERESTS
The Partnership Agreement provides that the Company may not voluntarily
withdraw from the Partnership, or transfer or assign its interest in the
Partnership, without the consent of a majority in interest of the Limited
Partners, and only upon the admission of a successor general partner. Subject to
certain limitations and after certain specified dates, the Limited Partners may
transfer their interests in the Partnership to any Qualified Transferee (as
defined in the Partnership Agreement), subject to minimum transfer restrictions
and a right of first refusal by the Company. No transferee may become a
substituted limited partner without the consent of the Company.
CAPITAL CONTRIBUTIONS
If the Company determines that the Partnership requires additional funds at
any time or from time to time in excess of funds available to the Partnership
from borrowings or capital contributions, and the Company borrows such funds
from a financial institution or other lender, then the Company, to the extent
permitted by law, will lend such funds to the Partnership on comparable terms
and conditions as are applicable to the Company's borrowing of such funds.
Additionally, the Company may contribute, or accept contributions of, any
required additional funds as additional capital contributions to the
Partnership.
EXCHANGE RIGHTS
Subject to certain limitations and after certain specified dates, the
holders of Units have the right to require the Partnership to redeem part or all
of their Units for cash or, at the election of the Company, the Company may
acquire such Units for shares of Common Stock (on a one-for-one basis unless
otherwise agreed to by the Company acting as general partner of the
Partnership), provided, however, that a holder of Units may not effect an
exchange to the extent that it would cause any person to violate any provision
of the
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Charter, including those provisions relating to restrictions on ownership and
transfer of the Company's capital stock. See "Description of Capital
Stock -- Restrictions on Ownership of Capital Stock." The number of shares of
Common Stock of the Company for which the Unit holders may exchange their Units
is subject to adjustment in the event of stock splits, stock dividends, issuance
of certain rights, certain extraordinary distributions and similar events.
TAX MATTERS
Pursuant to the Partnership Agreement, the Company is the tax matters
partner of the Partnership and, as such, generally has authority to make tax
elections under the Code on behalf of the Partnership. The net income or net
loss of the Partnership will generally be allocated to the Company and the
Limited Partners in accordance with their priorities of distribution and as
otherwise set forth in the Partnership Agreement, subject to the compliance with
the provisions of Sections 704(b) and 704(c) of the Code and the regulations
promulgated thereunder.
ABILITY TO ENGAGE IN OTHER BUSINESS
The Partnership Agreement provides that the Company may conduct business of
every nature and description, including all activities pertaining to the
acquisition and operation of shopping center properties, independently of the
Partnership.
TERM
The Partnership will continue in full force and effect until December 31,
2093, or until sooner dissolved upon the bankruptcy, dissolution, withdrawal or
termination of the Company (unless the Limited Partners elect to continue the
Partnership), upon the election of the Company and the approval of the Limited
Partners, upon an entry of decree of judicial dissolution, or upon the sale or
other disposition of all or substantially all the assets of the Partnership.
INDEMNIFICATION
The Partnership Agreement provides for indemnification of the Company and
the officers and directors of the Company, and limits the liability of the
Company to the Partnership and its partners for losses sustained, liabilities
incurred or benefits not derived as a result of errors in judgment or mistakes
of fact or law or any act or omission if the Company acted in good faith.
EXCHANGE OF UNITS
TERMS OF THE EXCHANGE OF UNITS BY UNIT HOLDERS
Unit holders, subject to certain limitations and only after certain
specified dates, may exchange Units for cash, or at the discretion of the
Company, for shares of Common Stock of the Company (on a one-for-one unless
otherwise agreed to by the Company acting as general partner of the
Partnership). The number of shares of Common Stock of the Company for which the
Unit holders may exchange their Units is subject to adjustment in the event of
stock splits, stock dividends, issuance of certain rights, certain extraordinary
distributions and similar events.
A Unit holder effecting an exchange (a "Tendering Holder") must deliver to
the Company a notice of exchange. A Tendering Holder shall have the right to
receive an amount of cash from the Partnership equal to the Cash Amount (as
defined in the Partnership Agreement) on the Specified Redemption Date (as
defined in the Partnership Agreement). However, if the Company elects to acquire
such tendered Units in exchange for shares of Common Stock of the Company, the
Tendering Holder shall have no right to cause the Partnership to redeem the
Units in exchange for the Cash Amount.
The shares of Common Stock of the Company shall be delivered as duly
authorized, validly issued, fully paid and nonassessable shares, free of any
pledge, lien, encumbrance or restriction, other than those provided
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in the Charter, the Bylaws of the Company, the Securities Act, relevant state
securities or blue sky laws and any applicable registration rights agreement
with respect to such shares of Common Stock of the Company entered into by the
Tendering Holder. Notwithstanding any delay in such delivery, the Tendering
Holder shall be deemed the owner of such shares of Common Stock of the Company
and rights for all purposes, including, without limitation, rights to vote or
consent, receive dividends, and exercise rights, as of the Specified Redemption
Date.
Each Tendering Holder shall continue to own all Units subject to any
exchange, and be treated as a Limited Partner with respect to such Units for all
purposes, until such Units are transferred to the Company and paid for on the
Specified Redemption Date. Until the Specified Redemption Date, the Tendering
Holder shall have no rights as a stockholder of the Company.
CERTAIN CONDITIONS TO THE EXCHANGE
The Company will issue shares of Common Stock of the Company to a Tendering
Holder in accordance with the Partnership Agreement subject to certain
conditions, including the following:
- In order to protect the Company's status as a REIT, no Tendering Holder
shall be entitled to effect an exchange, if such exchange would cause
such Tendering Holder or any other Person to violate the provisions of
the Charter.
- No Tendering Holder may effect an exchange more than once during any
twelve month period.
- No Tendering Holder may effect an exchange for less than 500 Units, or if
the Tendering Holder holds less than 500 Units, all of the Units held by
such Tendering Holder.
- No Tendering Holder may effect an exchange during the period after the
record date established by the Company for a distribution from the
Partnership to the partners in the Partnership and prior to the record
date established by the Company for a distribution to its stockholders of
some or all of its portion of such distribution.
COMPARISON OF THE COMPANY AND THE PARTNERSHIP
The information below highlights a number of the significant differences
between the Partnership and the Company relating to, among other things, form of
organization, management control, voting rights, liquidity and federal income
tax considerations. These comparisons are intended to assist holders of Units in
understanding how their investment will be changed if they exchange their Units
for shares of Common Stock of the Company. THIS DISCUSSION IS SUMMARY IN NATURE
AND DOES NOT CONSTITUTE A COMPLETE DISCUSSION OF THESE MATTERS, AND HOLDERS OF
UNITS SHOULD CAREFULLY REVIEW THE BALANCE OF THIS PROSPECTUS AND THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART FOR ADDITIONAL
IMPORTANT INFORMATION ABOUT THE COMPANY.
<TABLE>
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FORM OF ORGANIZATION
The Partnership is organized as a Delaware The Company is a Maryland corporation. The
limited partnership. The Partnership's Company has elected to be taxed as a REIT
purpose is to conduct any business that may under the Code, commencing with its taxable
be lawfully conducted by a limited year ended December 31, 1987, and intends to
partnership organized pursuant to the Act, maintain its qualification as a REIT. Under
provided that such business is to be its Charter, the Company may engage in any
conducted in a manner that permits the lawful activity permitted by the MGCL.
Company to be qualified as a REIT unless the
Company ceases to qualify as a REIT.
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ADDITIONAL EQUITY
The Partnership is authorized to issue Units The Board of Directors may issue, in its
in exchange for additional capital discretion, Common Stock or shares of
contributions as determined by the Company Preferred Stock; provided, that the total
as its general partner, in the Company's number of shares issued does not exceed the
sole discretion. In exchange for such authorized number of shares of stock set
capital contributions, the Partnership may forth in the Charter.
issue partnership interests to the Company,
may issue additional Units to existing
Limited Partners, and may admit third
parties as additional Limited Partners.
MANAGEMENT CONTROL
All management powers over the business and The business and affairs of the Company are
affairs of the Partnership are vested in the managed under the direction of the Board of
general partner, and generally no Limited Directors subject to restrictions in the
Partner of the Partnership has any right to Charter and the Bylaws. The Board is
participate in or exercise control or classified into three classes of directors.
management power over the business and At each annual meeting of the stockhold-
affairs of the Partnership, except as ers, the successors of the class of
otherwise set forth in the Partnership directors whose terms expire at that meeting
Agreement. The general partner may not be will be elected. The policies adopted by the
removed by the holders of Units with or Board of Directors may be altered or
without cause. eliminated without a vote of the stock-
holders. Accordingly, except for their vote
in the elections of directors, stockholders
have no control over the ordinary business
policies of the Company.
DUTIES OF GENERAL PARTNERS AND DIRECTORS
Under Delaware law, the general partner of Under the MGCL, the directors must perform
the Partnership is accountable to the their duties in good faith, in a manner that
Partnership as a fiduciary and, they reasonably believe to be in the best
consequently, is required to exercise good interests of the Company and with the care
faith and integrity in all of its dealings of an ordinarily prudent person in a like
with respect to partnership affairs. position. Directors of the Company who act
However, under the Partnership Agreement, in such a manner generally will not be
the general partner is not liable for liable by reason of being a director of the
monetary damages for losses sustained or Company.
liabilities incurred by partners as a result
of errors of judgment or of any act or
omission, provided that the general partner
has acted in good faith.
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MANAGEMENT LIABILITY AND INDEMNIFICATION
As a matter of Delaware law, the general The Charter contains a provision which
partner has liability for the payment of the eliminates the liability of the Company's
obligations and debts of the Partnership directors and officers to the Company and
unless limitations upon such liability are its stockholders to the fullest extent
stated in the document or instrument permitted by Maryland law.
evidencing the obligations. Under the
Partnership Agreement, the Partnership has
agreed to indemnify the general partner and
any director or officer of the general
partner from and against all losses, claims,
damages, liabilities, joint or several,
expenses (including legal fee and expenses),
judgments, fines, settlements and other
amounts incurred in connection with any
actions relating to the operations of the
Partnership in which the general partner or
such director or officer is involved,
unless: (1) the act was in knowing violation
of the law; (2) such party received an
improper personal benefit; or (3) the act
involved fraud, willful misconduct,
recklessness or gross negligence. The
reasonable expenses incurred by an
indemnitee may be reimbursed by the
Partnership in advance of the final
disposition of the proceeding upon receipt
by the Partnership of an affirmation by such
indemnitee of his, her or its good faith
belief that the standard of conduct
necessary for indemnification has been met
and an undertaking by such indemnitee to
repay the amount if it is determined that
such standard was not met.
ANTITAKEOVER PROVISIONS
Except in limited circumstances, the general In addition to the Stockholder Rights Plan,
partner of the Partnership has exclusive the Charter and the Bylaws of the Company
management power over the business and contain a number of provisions that may have
affairs of the Partnership. The general the effect of delaying or discouraging an
partner may not be removed by the Limited unsolicited proposal for the acquisition of
Partners with or without cause. Subject to the Company or the removal of incumbent
certain limitations and after certain management. These provisions include, among
specified dates, a Limited Partner may others: (1) a staggered board of directors;
generally transfer its limited partnership (2) authorized stock that may be issued as
interest without obtaining the approval of Preferred Stock in the discretion of the
the general partner, provided that the Board of Directors, with superior voting or
general partner has a right of first refusal other rights to the Common Stock; and (3)
for any proposed transfer and that the provisions designed to avoid concentration
general partner may, in its sole discretion, of share ownership in a manner that would
prevent the admission to the Partnership of jeopardize the Company's status as a REIT
substituted limited partners. under the Code. The MGCL also contains
certain provisions which could have the
effect of delaying, deferring or preventing
a change of control of the Company or other
transaction. See "Certain Provisions of
Maryland Law and the Company's Charter and
Bylaws."
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VOTING RIGHTS
Under the Partnership Agreement, the Limited The business and affairs of the Company are
Partners have voting rights in limited managed under the direction of the Board of
circumstances, including as to the Directors, consisting of three classes
dissolution of the Partnership and certain having staggered terms of office. Each class
amendments to the Partnership Agreement, as is to be elected by the stockholders at
described more fully below. Otherwise, all annual meetings of the Company. The MGCL
decisions relating to the operation and requires that certain major corporate trans-
management of the Partnership are made by actions, including most amendments to the
the general partner. Charter, may not be consummated without the
approval of stockholders as set forth below.
All shares of Common Stock have one vote per
share, and the Charter permits the Board of
Directors to classify and issue Preferred
Stock in one or more series having voting
power which may differ from that of the
Common Stock. "See Description of Capital
Stock."
</TABLE>
The following is a comparison of the voting rights of the holders of Units
of the Partnership and the stockholders of the Company as they relate to certain
major transactions:
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AMENDMENT OF THE PARTNERSHIP AGREEMENT OR THE CHARTER
The Partnership Agreement may be amended Under the MGCL and the Charter, amendments
through a proposal by the general partner or to the Charter generally must be approved by
a majority in interest of the Limited the Board of Directors and holders of at
Partners. Such proposal, in order to be least a majority of the votes entitled to be
effective, must be approved by the general cast on the matter.
partner and by the written vote of a
majority in interest of the Limited
Partners. Certain amendments that affect the
fundamental rights of Limited Partners must
be approved by each affected Limited
Partner. In addition, the general partner
may, without consent of the Limited
Partners, amend the Partnership Agreement as
to certain ministerial matters.
VOTE REQUIRED TO DISSOLVE THE PARTNERSHIP OR THE COMPANY
The general partner may not elect to Under the MGCL and the Charter, dissolution
dissolve the Partnership without the prior of the Company must be approved by the Board
written consent of at least a majority in of Directors and holders of at least a
interest of the Limited Partners. majority of the votes entitled to be cast on
the matter.
COMPENSATION AND FEES
The general partner does not receive any The officers and outside directors of the
compensation for its services as general Company receive compensation for their
partner of the Partnership. The Partnership services.
will reimburse the general partner for all
expenses incurred relating to the ongoing
operation of the Partnership.
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LIABILITY OF INVESTORS
Under the Partnership Agreement and Under Maryland law, stockholders generally
applicable Delaware law, the liability of are not personally liable for the debts or
the holders of Units for the Partnership's obligations of the Company.
debts and obligations is generally limited
to the amount of their investment in the
Partnership.
POTENTIAL DILUTION OF RIGHTS
The general partner of the Partnership is The Board of Directors may issue, in its
authorized, in its sole discretion and discretion, Common Stock or Preferred Stock.
without Limited Partner approval, to cause The issuance of additional shares of either
the Partnership to issue additional limited Common Stock or Preferred Stock may result
partnership interests for any Partnership in the dilution of the interests of the
purpose at any time to the Limited Partners stockholders.
or to other persons (including the general
partner).
LIQUIDITY
The general partner of the Partnership is The Exchange Shares will be freely
authorized, in its sole discretion, and transferable as registered securities under
without Limited Partner approval, to cause the Securities Act, subject to prospectus
the Partnership to issue additional limited delivery and other requirements for
partnership interests for any Partnership registered securities.
purpose at any time to the Limited Partners
or to other persons (including the general
partner). Subject to certain limitations and
after certain specified dates, a Limited
Partner may generally transfer its limited
partnership interest without obtaining the
approval of the general partner, provided
that the Company has a right of first
refusal for any proposed transfer and that
the general partner may, in its sole
discretion, prevent the admission to the
Partnership of substituted limited partners.
TAXES
Income and loss from the Partnership Dividends paid by the Company will be
generally is subject to the "passive treated as "portfolio" income and cannot be
activity" limitations. Under the "passive offset with losses from "passive
activity" rules, income and loss from the activities." Distributions made by the
Partnership that is considered "passive Company to its taxable domestic stockholders
income" generally can be offset against out of current or accumulated earnings and
income and loss from other investments that profits will be taken into account by them
constitute "passive activities." The as ordinary income. Distributions that are
Partnership itself is not subject to federal designated as capital gain dividends
income taxes. Instead, each holder of Units generally will be taxed as capital gain at a
includes its allocable share of the rate of 20%, 25% or 28%. Distributions in
Partnership's taxable income or loss in excess of current or accumulated earnings
determining its individual federal income and profits will be treated as a non-taxable
tax liability. Cash distributions from the return of basis to the extent of a
Partnership are generally not taxable to a stockholder's adjusted basis in its stock,
holder of Units except to the extent they with the excess taxed as capital gain. See
exceed such holder's basis in its interest "Certain Federal Income Tax
in the Partnership (which will include such Considerations -- Taxation of Taxable U.S.
holder's allocable share of the Partner- Stockholders." The Company may be required
ship's nonrecourse debt). Holders of Units to pay state income taxes in certain states.
are required, in some cases, to file state
income tax returns and/or pay state income
taxes in the states in which the Partnership
owns property, even if they are not
residents of those states.
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CERTAIN PROVISIONS OF MARYLAND LAW AND
THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law, the
Charter and the Bylaws. The summary does not purport to be complete and is
subject to and qualified in its entirety by reference to Maryland law and to the
Charter and the Bylaws.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The 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 minimum
number required by the MGCL (which under most circumstances is three directors)
nor more than fifteen. Any vacancy may be filled by the stockholders or, at any
regular meeting or at any special meeting called for that purpose, by a majority
of the remaining directors, except that to fill a vacancy resulting from an
increase in the number of directors requires a majority vote of the entire Board
of Directors. Pursuant to the Charter, the directors are divided into three
classes. One class will hold office for a term expiring at the annual meeting of
stockholders to be held in 1999, another class will hold office for a term
expiring at the annual meeting of stockholders to be held in 2000 and another
class will hold office for a term expiring at the annual meeting of stockholders
held in 2001. As the term of each class expires, directors in that class will be
elected for a term of three years and until their successors are duly elected
and qualify. The Company believes that classification of its Board of Directors
will help to assure the continuity and stability of the Company's business
strategies and policies as determined by the Company's Board of Directors.
The classified director provision could have the effect of making the
replacement 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. At least two annual meetings
of stockholders, instead of one, will generally be required to effect a change
in a majority of the Company's Board of Directors. Thus, the classified board
provision could increase the likelihood that incumbent directors will retain
their positions. Holders 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.
REMOVAL OF DIRECTORS
The Charter provides that a director may be removed with or without cause
and only by the affirmative vote of at least two-thirds of the votes entitled to
be cast generally in the election of directors.
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 ten percent 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 ten percent or more of the voting power of the then
outstanding voting stock of the corporation (an "Interested Stockholder") or an
affiliate of such an Interested Stockholder are prohibited for five years after
the most recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative vote
of at least: (a) 80% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation and (b) two-thirds of the votes
entitled to be cast by holders of voting stock of the corporation other than
shares held by the Interested Stockholder with whom (or with whose affiliate)
the business combination is to be effected, unless, among other conditions, the
corporation's common stockholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the same
form as previously paid by the Interested Stockholder for its shares. These
provisions of the MGCL do not apply, however, to business
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<PAGE> 26
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 Board of Directors of the Company has adopted a resolution providing
that the Company, to the extent permitted by applicable law, elects not to be
governed by the provisions of the MGCL relative to "business combinations," but
no assurances can be given that such resolution will not be modified, amended or
revoked in the future or that the provisions of the MGCL relative to business
combinations will not be reinstated or again become applicable to the Company.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, 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 (except solely by virtue of a revocable proxy),
would entitle the acquiror to exercise voting power in electing directors within
one of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (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 Company's 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 or
all of the control shares (except those for which voting rights previously have
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 acquiror becomes entitled to vote a
majority of the shares entitled to vote, all other stockholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of
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 (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation.
The Bylaws contain a provision exempting from the control share acquisition
statute any and all acquisitions by any holder of the Company's stock. There can
be no assurance that such provision will not be amended or eliminated at any
time in the future.
The business combination statute and the control share acquisition statute
could have the effect of discouraging others to acquire the Company and of
increasing the difficulty of consummating any offer.
AMENDMENT TO THE CHARTER
The Charter, including its provisions on classification of the Board of
Directors of the Company, removal of directors, voting rights of Common Stock
and voting requirements for charter amendments, may be
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amended only by the affirmative vote of the holders of at least a majority of
all of the votes entitled to be cast on the matter, after due authorization,
approval and advice of the Board of Directors of the Company.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved 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, after due authorization, approval and advice of the Board of
Directors of the Company.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws provide that: (a) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors and
the proposal of business to be considered by stockholders may be made only: (i)
pursuant to the Company's notice of the meeting, (ii) by or at the direction of
the Board of Directors, or (iii) by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set forth in the
Bylaws, and (b) 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, and nominations of persons for election to the Board of
Directors may be made only (i) pursuant to the Company's notice of the meeting,
(ii) by or at the direction of the Board of Directors, or (iii) provided that
the Board of Directors has determined that directors shall be elected at such
meeting, by a stockholder who is entitled to vote at the meeting and has
complied with the advance notice provisions set forth in the Bylaws.
The provisions in the Charter on classification of the Board of Directors,
the business combination and the control share acquisition provisions of the
MGCL, and the advance notice provisions of the Bylaws could have the effect of
delaying, deferring or preventing a change of control or other transaction in
which holders of some, or a majority, of the Common Stock might receive a
premium for their Common Stock over the then prevailing market price or which
such holders might believe to be otherwise in their best interests.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The MGCL permits a Maryland corporation to include in its charter a
provision eliminating the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from: (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL. This provision does not limit the ability of the Company or its
stockholders to obtain equitable relief, such as an injunction or rescission.
The Charter and the Bylaws authorize the Company, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
any present or former director or officer from and against any claim or
liability to which such person may become subject or which such person may incur
by reason of his status as a present or former director or officer of the
Company. The Charter and the Bylaws also permit the Company to indemnify and
advance expenses to any person who served a predecessor of the Company in any of
the capacities described above and to any employee or agent of the Company or a
predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that: (a) the act or omission of the
director or officer was material to the matter giving rise to the proceeding and
(i) was committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
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or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to a director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by or on his
behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met. 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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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations
regarding the Company and the Exchange Shares being registered by the Company is
based on current law, is for general information only and is not tax advice. The
tax treatment of a holder of any of the Exchange Shares will vary depending on
his or her particular situation, and this discussion does not purport to deal
with all aspects of federal income taxation that may be relevant to particular
stockholders in light of their personal investment or tax circumstances, or to
certain types of stockholders (including, without limitation, insurance
companies, financial institutions or broker-dealers, tax-exempt organizations,
stockholders holding securities as part of a conversion transaction or a hedge
or hedging transaction or as a position in a straddle for tax purposes, foreign
corporations and persons who are not citizens or residents of the United States,
except to the extent discussed under the headings "Taxation of Tax-Exempt
Stockholders" and "Taxation of Non-U.S. Stockholders") subject to special
treatment under the federal income tax laws. In addition, the summary below does
not consider the effect of any foreign, state, local or other tax laws that may
be applicable to holders of the Exchange Shares.
The information in this section is based on the Code, current, temporary
and proposed Treasury Regulations promulgated under the Code, the legislative
history of the Code, current administrative interpretations and practices of the
Internal Revenue Service (the "IRS") (including its practices and policies as
expressed in certain private letter rulings which are not binding on the IRS
except with respect to the particular taxpayers who requested and received such
rulings), and court decisions, all as of the date hereof. No assurance can be
given that future legislation, Treasury Regulations, administrative
interpretations and practices and/or court decisions will not adversely affect
existing interpretations. Any such change could apply retroactively to
transactions preceding the date of the change. The Company has not requested,
and does not plan to request, any rulings from the IRS concerning the tax
treatment of the Company. Thus, no assurance can be provided that the statements
set forth herein (which are, in any event, not binding on the IRS or courts)
will not be challenged by the IRS or will be sustained by a court if so
challenged.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP
AND SALE OF THE EXCHANGE SHARES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN
AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAX CONSEQUENCES OF REDEMPTION OR EXCHANGE OF UNITS
The redemption or exchange of Units for cash or Exchange Shares will be a
fully taxable transaction for federal income tax purposes. Depending upon a
holder's particular situation, it is possible that the amount of gain recognized
or even the tax liability resulting from such gain could exceed the amount of
cash and the value of Exchange Shares received upon such redemption or exchange.
HOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE SPECIFIC TAX
CONSEQUENCES OF THE REDEMPTION OR EXCHANGE OF UNITS, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES OF SUCH TRANSACTION.
TAXATION OF THE COMPANY
General. The Company has elected to be taxed as a REIT commencing with its
taxable year ended December 31, 1987. The Company believes that it has been
organized and has operated in such a manner as to qualify for taxation as a REIT
under the Code commencing with such taxable year, and the Company intends to
continue to operate in such a manner, but no assurance can be given that it has
operated or will continue to operate in a manner so as to qualify or remain
qualified. The Company's qualification and taxation as a REIT depends upon the
Company's ability to meet, through actual annual operating results, distribution
levels and diversity of stock ownership, the various qualification tests imposed
under the Code. Accordingly, no assurance can be given that the actual results
of the Company's operation for any particular taxable year have satisfied or
will satisfy such requirements. Further, the anticipated income tax treatment
described in this Prospectus may
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be changed, perhaps retroactively, by legislative, administrative or judicial
action at any time, which changes could adversely affect the Company, its
operations, or it stockholders. See "-- Failure to Qualify."
The REIT provisions of the Code and the corresponding Treasury Regulations
are highly technical and complex. The following sets forth the material aspects
of the sections that govern the federal income tax treatment of a REIT. This
summary is qualified in its entirety by the applicable Code provisions, rules
and regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all of which are subject to change (which change may
apply, retroactively).
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
federal income tax as follows: first, the Company will be taxed at regular
corporate rates on any undistributed REIT taxable income (as defined in the
Code), including undistributed net capital gains. However, if the Company elects
to retain and pay tax on its net capital gains, its stockholders will include
such gains in income and will receive a refund or credit, as the case may be,
for their proportionate share of such tax. Second, under certain circumstances,
the Company may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other non-qualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of
business, other than foreclosure property), such income will be subject to a
100% tax. Fifth, if the Company should fail to satisfy the 75% gross income test
or the 95% gross income test (as discussed below), but has nonetheless
maintained its qualification as a REIT because certain other requirements have
been met, it will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which the Company fails the
75% or 95% test, multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income (as
defined in the Code) for such year, (ii) 95% of its REIT capital gain net income
(as defined in the Code) for such year, and (iii) any undistributed taxable
income from prior periods, the Company would be subject to a 4% excise tax on
the excess of such required distribution over the amounts actually distributed.
Seventh, if during the 10-year period beginning on the first day of the first
taxable year for which the Company qualified as a REIT (the "Recognition
Period"), the Company recognizes gain on the disposition of any asset held by
the Company as of the beginning of such Recognition Period, then, to the extent
of the excess of (a) the fair market value of such asset as of the beginning of
such Recognition Period over (b) the Company's adjusted basis in such asset as
of the beginning of such Recognition Period (the "Built-in Gain"), such gain
will be subject to tax at the highest regular corporate rate pursuant to
Treasury Regulations that have not yet been promulgated. Eighth, if the Company
acquires any asset from a corporation (i.e., generally a corporation subject to
full corporate-level tax) in certain transactions in which the basis of the
asset in the hands of the Company is determined by reference to the basis of the
asset (or any other property) in the hands of the corporation, and the Company
recognizes gain on the disposition of such asset during the 10-year period
beginning on the date on which such asset was acquired by the Company, then, to
the extent of the Built-in Gain, such gain will be subject to tax at the highest
regular corporate rate pursuant to Treasury Regulations that have not yet been
promulgated. The results described above with respect to the recognition of
Built-in Gain assume that the Company will make an election pursuant to IRS
Notice 88-19.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 859 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) during the last half of each taxable year, not more than 50%
in value of the outstanding stock of which is owned, actually or constructively,
by five or fewer individuals (as defined in the
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Code to include certain entities); and (7) which meets certain other tests,
described below, regarding the nature of its income and assets and the amount of
its distributions. The Code provides that conditions (1) to (4), inclusive, must
be met during the entire taxable year and that condition (5) must be met during
at least 335 days of a taxable year of twelve months, or during a proportionate
part of a taxable year of less than twelve months. Conditions (5) and (6) do not
apply until after the first taxable year for which an election is made to be
taxed as a REIT. For purposes of conditions (5) and (6), pension funds and
certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (6).
The Company believes that it has issued sufficient shares to allow it to
satisfy conditions (5) and (6). In addition, the Company's Charter provides for
restrictions regarding ownership and transfer of the Common Stock and the
Preferred Stock, which restrictions are intended to assist the Company in
continuing to satisfy the share ownership requirements described in (5) and (6)
above. Such ownership and transfer restrictions are described in "Description of
Capital Stock--Restrictions on Ownership of Capital Stock." These restrictions
may not ensure that the Company will, in all cases, be able to satisfy the share
ownership requirements described in (5) and (6) above, primarily (though not
exclusively) as a result of fluctuations in value among the different classes of
the Company's capital stock. If the Company fails to satisfy such share
ownership requirements, the Company's status as a REIT will terminate; provided,
however, if the Company complies with the rules contained in the applicable
Treasury Regulations requiring the Company to ascertain the actual ownership of
its shares but the Company does not know, or would not have known through the
exercise of reasonable diligence, whether it failed to meet the requirement in
condition (6) above, the Company will be treated as having met such requirement.
See "--Failure to Qualify."
In addition, a corporation may not elect to be taxed as a REIT unless its
taxable year is the calendar year. The Company has and will continue to have a
calendar taxable year.
Ownership of Subsidiaries. The Company owns and operates a number of
properties through wholly-owned subsidiaries (the "QRSs"). The Company has owned
100% of the stock of each of the QRSs at all times that each of the QRSs has
been in existence. As a result, the QRSs will be treated as "qualified REIT
subsidiaries" under the Code. Code Section 856(i) provides that a corporation
which is a "qualified REIT subsidiary" (defined for taxable years beginning on
or before August 5, 1997, as any corporation if 100 percent of the stock of such
corporation is held by the REIT at all times during the period such corporation
was in existence and, for taxable years beginning after August 5, 1997, as any
corporation 100 percent of the stock of which is owned by the REIT (without
regard to prior ownership)) shall not be treated as a separate corporation, and
all assets, liabilities, and items of income, deduction, and credit of a
"qualified REIT subsidiary" shall be treated as assets, liabilities and such
items (as the case may be) of the REIT. Thus, in applying the requirements
described herein, the QRSs are ignored, and all assets, liabilities and items of
income, deduction and credit of such QRSs are treated as assets, liabilities and
items of the Company. The Company has not, however, sought or received a ruling
from the IRS that the QRSs are "qualified REIT subsidiaries."
Ownership of a Partnership Interest. The Company also owns and operates a
number of properties through partnerships. In the case of a REIT that is a
partner in a partnership, Treasury Regulations provide that the REIT, based on
its capital interest in a partnership, will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to the
income of the partnership attributable to such share. In addition, the character
of the assets and gross income of the partnership will retain the same character
in the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and the asset tests. Thus, the Company's
proportionate share of the assets, liabilities and items of income of the
partnerships in which the Company is a partner will be treated as assets,
liabilities and items of income of the Company for purposes of applying the
requirements described herein. Certain special tax risks which may arise as a
result of the Company investing in certain properties through partnerships are
described below under the heading "-- Other Tax Matters." The Company has direct
control of the partnerships in which it is a partner and believes that it has
operated and that the Company intends to continue to operate such partnerships
consistent with the requirements for qualification as a REIT.
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Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy two gross income requirements. First, at least 75% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest), or income from certain
types of temporary investments. Second, at least 95% of the Company's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from such real property investments, dividends, interest
and gain from the sale or disposition of stock or securities (or from any
combination of the foregoing).
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above, only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that if the REIT, or an actual
or constructive owner of 10% or more of the REIT, actually or constructively
owns 10% or more of a tenant of the REIT (or a tenant of any partnership in
which the REIT is a partner) (a "Related Party Tenant"), the rent received by
the REIT (either directly or through any such partnership) from such tenant will
not qualify as "rents from real property" in satisfying the gross income tests
of the Code. Third, if rent attributable to personal property leased in
connection with a lease of real property is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property." Finally, for rents
received to qualify as "rents from real property," the REIT generally must not
operate or manage the property or furnish or render services to the tenants of
such property (subject to a 1% de minimis exception), other than through an
independent contractor from whom the REIT derives no revenue. The REIT may,
however, directly perform certain services that are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are not
otherwise considered "rendered to the occupant" of the property. The Company
does not and will not (i) charge rent for any property that is based in whole or
in part on the income or profits of any person (except by reason of being based
on a percentage of receipts or sales, as described above), (ii) rent any
property to a Related Party Tenant (unless the Board of Directors of the Company
determines, in its discretion, that the rent received from such Related Party
Tenant is not material and will not jeopardize the Company's status as a REIT),
(iii) derive rental income attributable to personal property (other than
personal property leased in connection with the lease of real property, the
amount of which is less than 15% of the total rent received under the lease), or
(iv) except for certain development, property management, administrative and
miscellaneous services, perform services which are not usually or customarily
rendered in connection with the rental of space for occupancy only or which are
considered to be rendered to the occupant of the property, other than through an
independent contractor from whom the Company derives no revenue. Notwithstanding
the foregoing, the Company may have taken and may continue to take certain of
the actions set forth in (i) through (iv) above to the extent such actions will
not, based on the advice of tax counsel to the Company, jeopardize the Company's
status as a REIT.
Income derived from the development, property management, administrative
and miscellaneous services described in the preceding paragraph qualifies under
neither the 95% or 75% gross income tests. In addition, EDV receives fees in
exchange for the performance of certain development activities. To the extent
that the Company's Board believes that there would be adverse tax consequences
through direct accrual of such fees to the Company, such activities will be
performed by EDV and such fees will not accrue to the Company, but the Company
will derive dividends from EDV, which qualify under the 95% gross income test,
but not the 75% gross income test. The Company believes that the aggregate
amount of any nonqualifying income in any taxable year has not exceeded and will
not exceed the limit on nonqualifying income under the gross income tests.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
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If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
test was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its federal income tax
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. For example, if the Company fails to satisfy the gross income tests
because nonqualifying income that the Company intentionally incurs exceeds the
limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. If these relief provisions
are inapplicable to a particular set of circumstances involving the Company, the
Company would not qualify as a REIT. As discussed above in "--Taxation of the
Company--General," even if these relief provisions apply, and the Company
retains its status as a REIT, a 100% tax would be imposed with respect to the
excess net income. There can be no assurance that the Company will always be
able to maintain compliance with the gross income tests for REIT qualification
despite its periodic monitoring.
Sales or Dispositions of Assets. As a REIT, the Company is subject to a tax
of 100% on its gain (i.e., the excess, if any, of the amount realized over the
Company's adjusted basis in the property) from each sale of property (excluding
certain property obtained through foreclosure) in which it is a dealer. In
calculating its gain subject to the 100% tax, the Company is not allowed to
offset gains on sales of property with losses on other sales of property in
which it is a dealer.
Under the Code, the Company would be deemed to be a dealer in any property
that the Company holds primarily for sale to customers in the ordinary course of
its business. Such determination is a factual inquiry, and absolute certainty of
the Company's status generally cannot be provided. However, the Company will not
be treated as a dealer in real property for the 100% tax if (i) it has held the
property for at least four years for the production of rental income, (ii)
capitalized expenditures on the property in the four years preceding sale are
less than 30% of the net selling price of the property, and (iii) the Company
either (a) has seven or fewer sales of property (excluding certain property
obtained through foreclosure) for the year of sale or (b) the aggregate tax
basis of property sold during the year of sale is 10% or less of the aggregate
tax basis of all assets of the Company as of the beginning of the taxable year
and substantially all of the marketing and development expenditures with respect
to the property sold are made through an independent contractor from whom the
Company derives no income. The sale of more than one property to one buyer as
part of one transaction constitutes one sale. However, the failure of the
Company to meet these "safe harbor" requirements does not necessarily mean that
it is a dealer in real property.
Based on these rules, if the Company sells a property that it has held for
more than four years and otherwise satisfies the "safe harbor" described in the
preceding paragraph, such sale will not result in the imposition of the 100% tax
on the gain. Because any dealer gain that is not covered by the safe harbor is
subject to the 100% tax, any sale not covered by the safe harbor creates a risk
that the REIT will be considered to be a dealer in real property. Although any
risk from a single isolated sale may be small, the more regular, continuous, and
frequent the Company's sales of assets are, the more likely the Company will be
treated as a dealer with respect to sales or dispositions of real property.
Moreover, except for certain sales of property obtained through foreclosure, all
sales, including sales of property held less than four years, count toward the
seven sales/10% tax basis safe harbor for purposes of determining whether the
Company qualifies for the safe harbor on any sales of property held for four
years or more. Furthermore, once the Company has exceeded the seven sales/10%
tax basis safe harbor, gain from all sales and not just the gain from sales in
excess of such safe harbor are potentially subject to the 100% tax.
The Company may be able to avoid triggering gain for purposes of the 100%
tax on real property it has held less than four years if it exchanges such
property for other property in a transaction that qualifies as a like-kind
exchange under the Code, because the like-kind exchange provisions result in the
deferral of gain. The like-kind exchange provisions of the Code, however, are
not available to the Company on any property that it holds primarily for sale
rather than for investment or the production of income. An exchange of property
for tax purposes that does not qualify for like-kind exchange treatment or some
other nonrecognition provision is treated the same as a sale for cash. The
Company may dispose of certain properties that it has held
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less than four years in transactions intended to qualify as like-kind exchanges.
However, the failure of the transaction to qualify as a like-kind exchange could
subject the Company to the 100% tax on its gains as described above.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) assets held by the QRSs and the Company's allocable
share of real estate assets held by partnerships in which the Company owns an
interest and (ii) stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Company), cash, cash items and government
securities. Second, not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the Company's
total assets and the Company may not own more than 10% of any one issuer's
outstanding voting securities.
The Company currently holds 100% of the stock of each of the QRSs. As set
forth above, the asset tests provide that a REIT may not own securities of any
one issuer which constitute more than 10% of such issuer's voting securities or
more than 5% of the value of the REIT's total assets. However, because the QRSs
are "qualified REIT subsidiaries" as defined in the Code, such subsidiaries will
not be treated as separate corporations for federal income tax purposes. Because
the QRSs will be treated as "qualified REIT subsidiaries," the Company's
ownership of the stock of the QRSs will not cause the Company to fail the asset
tests.
The Company presently owns 100% of the nonvoting preferred stock of EDV,
which interest entitles the Company to a percentage of all dividends and
liquidating distributions of EDV. Such shares of nonvoting preferred stock will
not constitute voting securities for purposes of the asset tests. Furthermore,
the Company has not owned any of the voting securities of EDV and will not own
more than 10% of the voting securities of such corporation. In addition, the
Company believes that the value of its securities of EDV have not exceeded 5% of
the total value of the Company's assets, and will not exceed such amount in the
future. No independent appraisals have been obtained to support this conclusion.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company intends to maintain adequate records of the value of
its assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to cure
any noncompliance. If the Company fails to cure noncompliance with the asset
tests within such time period, the Company would cease to qualify as a REIT.
Annual Distribution Requirements. To qualify as a REIT, the Company is
required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the excess of the sum
of certain items of noncash income over 5% of "REIT taxable income." In
addition, if the Company disposes of any Built-in Gain Asset during its
Recognition Period, the Company will be required, pursuant to Treasury
Regulations which have not yet been promulgated, to distribute at least 95% of
the Built-in Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before the Company timely files its
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax
thereon at regular ordinary and capital gain corporate tax rates. The Company
intends to make timely distributions sufficient to satisfy this annual
distribution requirement.
33
<PAGE> 35
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable stock
dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Furthermore, if the Company should fail to distribute during each calendar
year (or in the case of distributions with dividend declaration and record dates
falling in the last three months of the calendar year, by the end of January) at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year, and (iii) any undistributed
taxable income from prior periods, the Company would be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed.
Under new federal legislation, a REIT may elect to retain (and not
distribute) and pay federal income tax on its net long-term capital gain and
possibly certain excise taxes on its undistributed income. If such election is
made, the REIT's stockholders must include in income their proportionate share
of the undistributed long-term capital gain and are deemed to have paid their
proportionate share of federal income tax paid by the REIT.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Such failure could have an adverse effect on the market
value and marketability of the Exchange Shares. Distributions to stockholders in
any year in which the Company fails to qualify will not be deductible by the
Company nor will they be required to be made. As a result, the Company's failure
to qualify as a REIT would substantially increase the Company's federal and
state income tax liabilities and substantially reduce the cash available for
distribution by the Company to its stockholders. In addition, if the Company
fails to qualify as a REIT, all distributions to stockholders will still be
taxable as ordinary income, to the extent of the Company's current and
accumulated earnings and profits, and, subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends received
deduction. In addition, once so disqualified, unless entitled to relief under
specific statutory provisions, the Company will also be disqualified from
taxation as a REIT for the four taxable years following the year during which
qualification was lost. It is not possible to state whether in all circumstances
the Company would be entitled to such statutory relief. As a result, the
Company's failure to qualify for even one year could have significant adverse
effects, including the Company's incurrence of substantial indebtedness (if such
borrowings are feasible), its liquidation of substantial investments or its
reduction or elimination of distributions with respect to its stock in order to
pay the resulting taxes.
OTHER TAX MATTERS
Certain of the Company's investments are through partnerships which may
involve special tax risks. Such risks include possible challenge by the IRS of
(a) allocations of income and expense items, which could affect the computation
of income of the Company and (b) the status of the partnerships as partnerships
(as opposed to associations or publicly traded partnerships taxable as
corporations) for income tax purposes. If any of the partnerships is treated as
an association or a publicly traded partnership, it would be taxable as a
corporation. In such a situation, if the Company's ownership in any of the
partnerships exceeded 10% of the partnership's voting interests or the value of
such interest exceeded 5% of the value of the Company's total assets, the
34
<PAGE> 36
Company would cease to qualify as a REIT. Furthermore, in such a situation,
distributions from any of the partnerships to the Company would be treated as
dividends, which are not taken into account in satisfying the 75% gross income
test described above and which could therefore make it more difficult for the
Company to qualify as a REIT for the taxable year in which such distribution was
received. In addition, in such a situation, the interest in any of the
partnerships held by the Company would not qualify as a "real estate asset,"
which could make it more difficult for the Company to meet the 75% asset test
described above. Finally, in such a situation, the Company would not be able to
deduct its share of losses generated by the partnerships in computing its
taxable income. See "-- Failure to Qualify" above for a discussion of the effect
of the Company's failure to meet such tests for a taxable year. The IRS recently
finalized and published Treasury Regulations (the "Final Regulations") which
provide that a domestic business entity not otherwise classified as a
corporation and which has at least two members (an "Eligible Entity") may elect
to be taxed as a partnership for federal income tax purposes. The Final
Regulations apply for tax periods beginning on or after January 1, 1997 (the
"Effective Date"). Unless it elects otherwise, an Eligible Entity in existence
prior to the Effective Date will have the same classification for federal income
tax purposes that it claimed under the entity classification Treasury
Regulations in effect prior to the Effective Date. Such an entity's claimed
classification will be respected for all prior periods so long as the entity had
a reasonable basis for its claimed classification and certain other requirements
have been satisfied. The Company believes that each of the partnerships met the
requirements for classification as a partnership under prior law for all periods
prior to the Effective Date and, therefore, under the Final Regulations, will be
treated for tax purposes as a partnership (not as an association or publicly
traded partnership taxable as a corporation) for periods beginning on or after
the Effective Date. However, no assurance can be given that the IRS may not
successfully challenge the tax status of any of the partnerships.
A portion of the cash to be used by the Company to fund distributions to
its stockholders comes from EDV through dividends on nonvoting preferred stock
held by the Company. EDV does not qualify as a REIT and pays federal, state and
local income taxes on its taxable income at normal corporate rates. The federal,
state and local income taxes that EDV is required to pay reduces the cash
available for distribution by the Company to its stockholders.
As described above, the value of EDV's nonvoting preferred stock held by
the Company cannot exceed 5% of the value of the Company's total assets at the
end of any calendar quarter in which the Company acquires such securities or
increases its interest in such securities. See "-- Taxation of the
Company -- Asset Tests." This limitation may restrict the ability of EDV to
increase the size of its business unless the value of the assets of the Company
is increasing at a commensurate rate.
STATE AND LOCAL TAXES
The Company may be subject to state or local taxes in other jurisdictions
such as those in which the Company may be deemed to be engaged in activities or
own property or other interests. Such tax treatment of the Company in states
having taxing jurisdiction over it may differ from the federal income tax
treatment described in this summary. Consequently, prospective investors should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in the Company.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of shares of
Common Stock who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership, or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, (iii) is an estate the income of which is
subject to United States federal income taxation regardless of its source, or
(iv) is a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust. A holder that is
not a U.S. Stockholder as described above will be considered a "Non-U.S.
Stockholder."
35
<PAGE> 37
As long as the Company qualifies as a REIT, distributions made to U.S.
Stockholders with respect to their shares out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income. Such distributions will not be eligible for
the dividends-received deduction in the case of U.S. Stockholders that are
corporations. For purposes of determining whether distributions to holders of
Common Stock are out of current or accumulated earnings and profits, the
earnings and profits of the Company will be allocated first to the Preferred
Stock and second to the Common Stock.
Distributions made by the Company that are properly designated by the
Company as capital gain dividends will be taxable to taxable U.S. Stockholders
as gains without regard to the period for which the stockholder has held its
securities. In the case of certain non-corporate U.S. Stockholders, including
individuals, long-term capital gain with respect to stock held for more than
twelve months ordinarily is taxed at a 20% federal tax rate. U.S. Stockholders
that are corporations may, however, be required to treat up to 20% of certain
capital gain dividends as ordinary income.
To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Stockholder, reducing the adjusted basis which such U.S.
Stockholder has in his shares of stock for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Stockholder's adjusted basis in his shares taxable as capital gains (provided
that the shares have been held as a capital asset) (which, with respect to a
non-corporate U.S. Stockholder, will be taxable as long-term capital gain if the
shares have been held for more than twelve months, or short-term capital gain if
the shares have been held for twelve months or less). Dividends declared by the
Company in October, November, or December of any year and payable to a
stockholder of record on a specified date in any such month will be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the Company on or before
January 31 of the following calendar year. Stockholders may not include in their
own income tax returns any net operating losses or capital losses of the
Company.
Distributions made by the Company and gain arising from the sale or
exchange by a U.S. Stockholder of Company Common Stock will not be treated as
passive activity income, and, as a result, U.S. Stockholders generally will not
be able to apply any "passive losses" against such income or gain. Distributions
made by the Company (to the extent they do not constitute a return of capital)
generally will be treated as investment income for purposes of computing the
investment income limitation. Gain arising from the sale or other disposition of
shares, however, will not be treated as investment income unless a stockholder
so elects, in which case such capital gains will be taxed at ordinary income
rates.
The Company may elect to retain and pay income tax on its net long- term
capital gain. If the Company makes this election, its stockholders will be
required to include in their income as long-term capital gain their
proportionate share of such amount so designated by the Company. A stockholder
will be treated as having paid his or her share of the tax paid by the Company
in respect of such amount so designated by the Company, for which such
stockholder will be entitled to a credit or refund. In addition, each
stockholder's adjusted basis in the Company stock will be increased by the
excess of the amount so includible in income over the tax deemed paid on such
amount. The Company must pay tax on its designated long-term capital gain within
30 days of the close of any taxable year in which it designates long-term
capital gain pursuant to this rule, and it must mail a written notice of its
designation to its stockholders within 60 days of the close of the taxable year.
Upon any sale or other disposition of the Company stock, a stockholder will
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition and (ii) the holder's
adjusted basis in such shares of the Company stock for tax purposes. Net capital
gain of a non-corporate shareholder will generally be taxed at a 20% rate if
such shares have been held for more than one year. In general, any loss
recognized by a stockholder upon the sale or other disposition of shares of the
Company stock that have been held for six months or less (after applying certain
holding period rules) will be treated as a long-term capital
36
<PAGE> 38
loss, to the extent of capital gain dividends received by such stockholders from
the Company which were required to be treated as long-term capital gains.
BACKUP WITHHOLDING
Most tax-exempt employees' pension trusts are not subject to federal income
tax except to the extent of their receipt of "unrelated business taxable income"
as defined in Section 512(a) of the Code ("UBTI"). Distributions by the Company
to a holder that is a tax-exempt entity will not constitute UBTI, provided that
the tax-exempt entity has not financed the acquisition of its securities with
"acquisition indebtedness" within the meaning of the Code and the securities are
not otherwise used in an unrelated trade or business of the tax-exempt entity.
In addition, for taxable years beginning on or after January 1, 1994, certain
pension trusts that own more than 10% of a "pension-held REIT" may be required
to report a portion of the distribution that they receive from such a REIT as
UBTI. The Company has not been and does not expect to be treated as a
pension-held REIT for purposes of this rule.
TAXATION OF NON-U.S. STOCKHOLDERS
The following is a discussion of certain anticipated U.S. federal income
tax consequences of the ownership and disposition of the Company stock
applicable to Non-U.S. Stockholders of such securities:
1. Ordinary Dividends. The portion of dividends received by Non-U.S.
Stockholders payable out of the Company's earnings and profits which are not
attributable to capital gains of the Company and which are not effectively
connected with a U.S. trade or business of the Non-U.S. Stockholder will
generally be subject to U.S. withholding tax at the rate of 30% (unless reduced
by an applicable treaty). In general, Non-U.S. Stockholders will not be
considered engaged in a U.S. trade or business solely as a result of their
ownership of the Company stock. In cases where the dividend income from a
Non-U.S. Stockholder's investment in securities is (or is treated as)
effectively connected with the Non-U.S. Stockholder's conduct of a U.S. trade or
business, the Non-U.S. Stockholder generally will be subject to U.S. tax at
graduated rates, in the same manner as U.S. Stockholders are taxed with respect
to such dividends (and may also be subject to the 30% branch profits tax in the
case of a Non-U.S. Stockholder that is a foreign corporation).
2. Non-Dividend Distributions. Distributions by the Company which are not
dividends out of the earnings and profits of the Company will not be subject to
U.S. income or withholding tax to the extent such distributions do not exceed
the adjusted basis of a Non-U.S. Stockholder's Company stock. The excess over
the adjusted basis will give rise to gain from the sale of such Non-U.S.
Stockholder's stock, which will be subject to the tax treatment described below.
If it cannot be determined at the time a distribution is made whether or not
such distribution will be in excess of the Company's current and accumulated
earnings and profits, the entire distribution will be subject to withholding at
the rate applicable to dividends. However, the Non-U.S. Stockholder may seek a
refund of such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of current and accumulated earnings and
profits of the Company.
3. Dividends Attributable to Gain from Dispositions of U.S. Real Property
Interests. Under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"), a distribution made by the Company to a Non-U.S. Stockholder, to the
extent attributable to gains from dispositions of United States real property
interests ("USRPIs"), such as the properties beneficially owned by the Company,
will be considered effectively connected with a U.S. trade or business of the
Non-U.S. Stockholder and subject to U.S. income tax at the rate applicable to
U.S. individuals or corporations, without regard to whether such distribution is
designated as a capital gain dividend. In addition, the Company will be required
to withhold tax equal to 35% of any distribution to a Non-U.S. Stockholder that
could be designated as capital gain dividends. Distributions subject to FIRPTA
may also be subject to a 30% branch profits tax in the hands of a foreign
corporate stockholder that is not entitled to treaty exemption.
4. Dispositions of Company Stock. Unless Company stock constitutes a USRPI,
a sale of such stock by a Non-U.S. Stockholder generally will not be subject to
U.S. taxation under FIRPTA. The Company stock will not constitute a USRPI if the
Company is a "domestically controlled REIT." A domestically controlled REIT is a
REIT in which, at all times during a specified testing period, less than 50% in
value of its stock is
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<PAGE> 39
held directly or indirectly by Non-U.S. Stockholders. The Company believes that
it has been and anticipates that it will continue to be a domestically
controlled REIT, and therefore that the sale of Company stock will not be
subject to taxation under FIRPTA. Because the Company stock will be publicly
traded, however, no assurance can be given that the Company will continue to be
a domestically controlled REIT. If the Company were not to qualify as a
domestically controlled REIT, a Non-U.S. Stockholder's sale of Company stock
generally would still not be subject to tax under FIRPTA provided that the
selling Non-U.S. Stockholder held 5% or less of that class of the Company's
outstanding stock at all times during a specified testing period. If gain on the
sale of stock were subject to taxation under FIRPTA, the Non-U.S. Stockholder
would be subject to the same treatment as a U.S. Stockholder with respect to
such gain (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals) and the
purchaser of stock could be required to withhold 10% of the purchase price and
remit such amount to the IRS. The 10% withholding tax will not apply if the
shares of Company stock are "regularly traded" on an established securities
market. Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Stockholder in two cases: (i) if the Non-U.S.
Stockholder's investment in stock is effectively connected with a U.S. trade or
business conducted by such Non-U.S. Stockholder, the Non-U.S. Stockholder will
be subject to the same treatment as a U.S. Stockholder with respect to such
gain, or (ii) if the Non-U.S. Stockholder is a nonresident alien individual who
was present in the United States for 183 days or more during the taxable year
and has a "tax home" in the United States, the nonresident alien individual will
be subject to a 30% tax on the individual's capital gain.
Backup Withholding Tax and Information Reporting. Backup withholding tax
and information reporting will generally not apply to distributions paid to
Non-U.S. Stockholders outside the United States or, subject to certain
exemptions, to a payment of the proceeds of a sale of Company stock by or
through a foreign office of a foreign broker. Payment to or through a United
States office of a broker of the proceeds of a sale is subject to both backup
withholding and information reporting unless the Non-U.S. Stockholder certifies
its foreign status. On October 6, 1997, the Treasury Department issued new
regulations (the "New Regulations") that make certain modifications to the
backup withholding rules applicable to Non-U.S. Stockholders. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 1999, subject to certain transition rules.
THE DISCUSSION SET FORTH ABOVE IN "TAXATION OF NON-U.S. STOCKHOLDERS" DOES
NOT TAKE THE NEW WITHHOLDING REGULATIONS INTO ACCOUNT. PROSPECTIVE NON-U.S.
STOCKHOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE NEW WITHHOLDING REGULATIONS.
EXPERTS
The consolidated financial statements of the Company incorporated into this
Prospectus by reference to the Annual Report on Form 10-K for the year ended
December 31, 1997, have been incorporated herein in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Latham & Watkins, San Diego, California. Latham &
Watkins will rely as to certain matters of Maryland law, including the legality
of the shares offered hereby, on the opinion of Ballard Spahr Andrews &
Ingersoll, LLP, Baltimore, Maryland. In addition, the description of federal
income tax consequences contained in this Prospectus is based upon the opinion
of Latham & Watkins.
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PLAN OF DISTRIBUTION
This Prospectus relates to (i) the issuance by the Company of up to 349,751
Exchange Shares if, and to the extent that, the Registered Unit Holders tender
Units for exchange and the Company elects to deliver the Exchange Shares rather
than cash and (ii) the offer and sale from time to time of the Exchange Shares
that may be issued to the Registered Unit Holders. The Company is registering
the Exchange Shares to provide the Registered Unit Holders with freely tradable
securities, but the registration of such shares does not necessarily mean that
any of such shares will be issued to the Registered Unit Holders or offered or
sold by the Registered Unit Holders.
The Company will not receive any cash proceeds from the issuance of the
Exchange Shares to Registered Unit Holders upon receiving a notice of exchange
(but it may acquire from such holders the Units). Consequently, with each
exchange, the Company's interest in the Partnership may increase.
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<PAGE> 41
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Forward-Looking Statements............ 3
Risk Factors.......................... 4
The Company........................... 8
Use of Proceeds....................... 9
Description of Capital Stock.......... 10
Description of Units and Partnership
Agreement........................... 17
Exchange of Units..................... 18
Certain Provisions of Maryland Law and
the Company's Charter and Bylaws.... 24
Certain Federal Income Tax
Considerations...................... 28
Experts............................... 38
Legal Matters......................... 38
Plan of Distribution.................. 39
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
349,751 SHARES
EXCEL REALTY TRUST, INC.
COMMON STOCK
($0.01 PAR VALUE PER SHARE)
-----------------
PROSPECTUS
-----------------
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 42
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the amount of fees and expenses to be
incurred in connection with the issuance and distribution of the Exchange Shares
registered hereby:
<TABLE>
<S> <C>
SEC Registration Fee............................. $ 2,584.00
Printing and Mailing Costs....................... 5,000.00
Legal Fees and Expenses.......................... 25,000.00
Accounting Fees and Expenses..................... 5,000.00
Miscellaneous.................................... 2,416.00
----------
Total.................................. $40,000.00
==========
</TABLE>
ITEM 15. LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The MGCL permits a Maryland corporation to include in its charter a
provision eliminating the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgment as being material to the cause of action. The Charter contains
such a provision which eliminates such liability to the maximum extent permitted
by the MGCL. This provision does not limit the ability of the Company or its
stockholders to obtain equitable relief, such as an injunction or rescission.
The Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to any present or
former director or officer from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his status
as a present or former director or officer of the Company. The Charter also
provides that the Company may indemnify any other persons permitted but not
required to be indemnified by Maryland law. The Bylaws obligate the Company, to
the maximum extent permitted by Maryland law, to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former director or officer who is made a party to the
proceeding by reason of his service in that capacity or (b) any individual who,
while a director of the Company and at the request of the Company, serves or has
served another corporation, partnership, joint venture, trust, employee benefit
plan or any other enterprise as a director, officer, partner or trustee of such
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise and who is made a party to the proceeding by reason of his service in
that capacity. The Bylaws also permit the Company to indemnify and advance
expenses to any person who served a predecessor of the Company in any of the
capacities described above and to any employee or agent of the Company or a
predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However under the MGCL, a Maryland corporation may not
indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for
II-1
<PAGE> 43
expenses. In addition, the MGCL permits a corporation to advance reasonable
expenses to a director or officer upon the corporation's receipt of (a) a
written affirmation by the director or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the corporation
and (b) a written undertaking by or on his behalf to repay the amount paid or
reimbursed by the corporation if it shall ultimately be determined that the
standard of conduct was not met. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
any order of probation prior to judgment, creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for indemnification to be permitted. The Partnership Agreement also provides for
indemnification of the Company, as general partner, and its officers and
directors generally to the same extent as permitted by the MGCL for a
corporation's officers and directors and limits the liability of the Company to
the Partnership and its partners in the case of losses sustained, liabilities
incurred or benefits not derived as a result of errors in judgment or mistakes
of fact or law or any act or omission if the Company acted in good faith. 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.
ITEM 16. EXHIBITS
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Excel Realty Trust, Inc. Articles of Amendment and
Restatement(1)
3.2 Amended and Restated Bylaws of Excel Realty Trust, Inc.(1)
4.1 Articles Supplementary (Series A Preferred Stock)(2)
4.2 Articles Supplementary (Series B Preferred Stock)(3)
4.3 Stockholder Rights Agreement dated as of May 15, 1998
between Excel Realty Trust, Inc. and BankBoston, N.A., which
includes the form of Articles Supplementary of the Series C
Preferred Stock as Exhibit A(4)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP(5)
8.1 Opinion of Latham & Watkins regarding tax matters(5)
10.1 Amended and Restated Agreement of Limited Partnership of
Excel Realty Partners, L.P. dated as of June 25, 1997(6)
23.1 Consent of Latham & Watkins (included in Exhibit 8.1)
23.2 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included
in Exhibit 5.1)
23.3 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (included in Part II of the Registration
Statement)
</TABLE>
- ---------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-3 filed with the Commission on May 9, 1995, as amended (File No.
33-59195).
(2) Incorporated by reference to the Company's Current Report on Form 8-K filed
with the Commission on February 7, 1997 (File No. 1-12244).
(3) Incorporated by reference to the Company's Current Report on Form 8-K filed
with the Commission on January 14, 1998 (File No. 1-12244).
(4) Incorporated by reference to the Company's Registration Statement on Form
8-A filed with the Commission on May 22, 1998 (File No. 1-12244).
(5) To be filed by amendment.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 filed with the Commission on March 25,
1998.
II-2
<PAGE> 44
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
provided, however, that subparagraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby further undertakes that, for the
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 45
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on September 24,
1998.
EXCEL REALTY TRUST, INC.
By: /s/ GARY B. SABIN
------------------------------------
Gary B. Sabin
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Each person whose signature appears below hereby constitutes and appoints
Gary B. Sabin and Richard B. Muir and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
for him in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, or any Registration
Statement for the same offering that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act, and to file the same, with exhibits
thereto and other documents in connection therewith or in connection with the
registration of the Exchange Shares under the Exchange Act, with the Commission,
granting unto such attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary in connection
with such matters and hereby ratifying and confirming all that such
attorneys-in-fact and agents or their substitutes may do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GARY B. SABIN Chairman of the Board, September 24, 1998
- ----------------------------------------------------- Chief Executive Officer
Gary B. Sabin and Director (Principal
Executive Officer)
/s/ RICHARD B. MUIR Executive Vice President, September 24, 1998
- ----------------------------------------------------- Secretary and Director
Richard B. Muir
/s/ DAVID A. LUND Chief Financial Officer September 24, 1998
- ----------------------------------------------------- (Principal Accounting
David A. Lund Officer)
/s/ BOYD A. LINDQUIST Director September 24, 1998
- -----------------------------------------------------
Boyd A. Lindquist
/s/ ROBERT E. PARSONS, JR. Director September 24, 1998
- -----------------------------------------------------
Robert E. Parsons, Jr.
/s/ BRUCE A. STALLER Director September 24, 1998
- -----------------------------------------------------
Bruce A. Staller
/s/ JOHN H. WILMOT Director September 24, 1998
- -----------------------------------------------------
John H. Wilmot
</TABLE>
II-4
<PAGE> 46
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Excel Realty Trust, Inc. Articles of Amendment and
Restatement(1)
3.2 Amended and Restated Bylaws of Excel Realty Trust, Inc.(1)
4.1 Articles Supplementary (Series A Preferred Stock)(2)
4.2 Articles Supplementary (Series B Preferred Stock)(3)
4.3 Stockholder Rights Agreement dated as of May 15, 1998
between Excel Realty Trust, Inc. and BankBoston, N.A., which
includes the form of Articles Supplementary of the Series C
Preferred Stock as Exhibit A(4)
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP(5)
8.1 Opinion of Latham & Watkins regarding tax matters(5)
10.1 Amended and Restated Agreement of Limited Partnership of
Excel Realty Partners, L.P. dated as of June 25, 1997(6)
23.1 Consent of Latham & Watkins (included in Exhibit 8.1)
23.2 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included
in Exhibit 5.1)
23.3 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (included in Part II of the Registration
Statement)
</TABLE>
- ---------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-3 filed with the Commission on May 9, 1995, as amended (File No.
33-59195).
(2) Incorporated by reference to the Company's Current Report on Form 8-K filed
with the Commission on February 7, 1997 (File No. 1-12244).
(3) Incorporated by reference to the Company's Current Report on Form 8-K filed
with the Commission on January 14, 1998 (File No. 1-12244).
(4) Incorporated by reference to the Company's Registration Statement on Form
8-A filed with the Commission on May 22, 1998 (File No. 1-12244).
(5) To be filed by amendment.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997 filed with the Commission on March 25,
1998.
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement on
Form S-3 of our report dated February 13, 1998 on our audits of the
consolidated financial statements and financial statement schedules of Excel
Realty Trust, Inc. ("Excel") and subsidiaries as of December 31, 1997 and 1996
and for each of the three years in the period ended December 31, 1997, which
are included in the Annual Report on Form 10-K of Excel for the year ended
December 31, 1997. We also consent to the reference to our Firm under the
caption "Experts".
/s/ PRICEWATERHOUSECOOPERS LLP
San Diego, California
September 24, 1998
