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PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 18, 1997)
965,518 SHARES
BURNHAM PACIFIC PROPERTIES, INC.
COMMON STOCK
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Burnham Pacific Properties, Inc. (the "Company") is a fully-integrated real
estate operating company which acquires, rehabilitates, develops and manages
retail properties on the West Coast. As of February 28, 1998, the Company owned
interests in 60 retail properties containing 8.0 million square feet of Company-
owned gross leasable area and in two retail projects in various stages of
development. The Company acquired 23 of its retail properties on or after
December 31, 1997. The Company also owns four office and industrial properties
which it considers non-strategic and which it may sell as suitable opportunities
arise. The Company has elected to qualify as a real estate investment trust
("REIT") for federal income tax purposes.
All of the shares of common stock, par value $.01 per share, of the Company
(the "Common Stock") being offered hereby are being sold by the Company. The
Common Stock is listed on the New York Stock Exchange under the symbol "BPP." On
March 25, 1998, the reported last sale price of the Common Stock on the New York
Stock Exchange was $14.50 per share.
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SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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EVEREN Securities, Inc. (the "Underwriter") has agreed to purchase 965,518
shares of Common Stock from the Company at a price of $13.775 per share,
resulting in aggregate proceeds to the Company of $13,300,010 before payment of
expenses by the Company estimated at $90,000, subject to the terms and
conditions of an Underwriting Agreement. The Underwriter intends to sell the
shares of Common Stock to the sponsor of a newly-formed unit investment trust
(the "Trust") at an aggregate purchase price of $13,538,010, resulting in an
aggregate underwriting discount of $238,000. See "Underwriting." Such sponsor
intends to deposit the shares of Common Stock into the Trust in exchange for
units in the Trust. The units of the Trust will be sold to investors at a price
based upon the net asset value of the securities in the Trust. For purposes of
this calculation, the value of the Common Stock as of the evaluation time for
units of the Trust on March 25, 1998 was $14.50 per share of Common Stock.
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The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriter, and subject to approval of certain legal matters
by Gibson, Dunn & Crutcher LLP, counsel for the Underwriter. It is expected that
delivery of the shares of Common Stock will be made on or about March 30, 1998,
at the offices of EVEREN Securities, Inc., Chicago, Illinois, against payment
therefor in immediately available funds.
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EVEREN SECURITIES, INC.
The date of this Prospectus Supplement is March 25, 1998
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No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated herein by reference in this Prospectus Supplement or in the
accompanying Prospectus in connection with the offer made by this Prospectus
Supplement and the accompanying Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Underwriter. This Prospectus Supplement and the
accompanying Prospectus do not constitute an offer to sell or a solicitation of
any offer to buy any security other than the Common Stock offered hereby, nor do
they constitute an offer to sell or a solicitation of any offer to buy the
Common Stock by anyone in any jurisdiction in which such offer or solicitation
is not authorized, or in which the person making such offer or solicitation is
not qualified to do so, or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus Supplement or the
accompanying Prospectus nor any sale or offer made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof.
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUPPLEMENT
The Company............................................................... S-1
Use of Proceeds........................................................... S-2
Federal Income Tax Considerations......................................... S-2
Underwriting.............................................................. S-8
Experts................................................................... S-8
Legal Matters............................................................. S-9
Incorporation of Certain Documents by Reference........................... S-9
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
The Company............................................................... 3
Ratio of Earnings to Fixed Charges........................................ 3
Use of Proceeds........................................................... 3
Risk Factors.............................................................. 4
Description of Debt Securities............................................ 10
Description of Capital Stock.............................................. 25
Description of Depositary Shares Representing Preferred Stock............. 35
Description of Warrants or Rights......................................... 38
Description of Units of Securities........................................ 39
Federal Income Tax Considerations......................................... 39
Plan of Distribution...................................................... 41
Legal Matters............................................................. 42
Experts................................................................... 42
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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THE FOLLOWING INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS OR INCORPORATED HEREIN OR THEREIN BY REFERENCE. AS USED
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, THE TERM
"COMPANY" INCLUDES BURNHAM PACIFIC PROPERTIES, INC., A MARYLAND CORPORATION, AND
ITS SUBSIDIARIES AND AFFILIATED PARTNERSHIPS ON A CONSOLIDATED BASIS, OR, AS THE
CONTEXT MAY REQUIRE, BURNHAM PACIFIC PROPERTIES, INC. ONLY, AND, AS THE CONTEXT
MAY REQUIRE, ITS PREDECESSORS.
STATEMENTS MADE OR INCORPORATED IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS INCLUDE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"). FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS "ANTICIPATES," "BELIEVES," "ESTIMATES,"
"EXPECTS," "INTENDS," "PLANS," "FUTURE" AND WORDS OF SIMILAR IMPORT WHICH
EXPRESS MANAGEMENT'S BELIEF, EXPECTATIONS OR INTENTIONS REGARDING THE COMPANY'S
FUTURE PERFORMANCE OR FUTURE EVENTS OR TRENDS. FORWARD-LOOKING STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, INCLUDING
THOSE FACTORS IDENTIFIED UNDER "RISK FACTORS" IN THE ACCOMPANYING PROSPECTUS,
WHICH MAY CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO
DIFFER MATERIALLY FROM ANTICIPATED FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. IN ADDITION, THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS
OR OTHERWISE.
THE COMPANY
Burnham Pacific Properties, Inc. is a fully-integrated real estate operating
company which acquires, rehabilitates, develops and manages retail properties on
the West Coast. The Company began operations through a predecessor in 1963,
became a real estate investment trust ("REIT") in 1987 and today is one of the
largest public owners and operators of non-mall retail properties on the West
Coast. The Company's properties are predominantly anchored community shopping
centers located at in-fill locations in major metropolitan market areas. As of
February 28, 1998, the Company owned interests in 60 retail properties
comprising approximately 8.0 million square feet of Company-owned gross leasable
area ("GLA") and in two retail projects currently under development. The Company
also owns four office and industrial properties which it considers non-strategic
and which it may sell as suitable opportunities arise.
Since the appointment of a new management team in October 1995, the Company
has undergone a significant repositioning and substantial growth. As part of its
repositioning, which was largely accomplished in 1996, the Company increased its
financial flexibility, added personnel and in-house capabilities and enhanced
its property focus and the geographic diversity of its portfolio. The Company's
senior management team averages 25 years of experience in the retail real estate
business. The Company employs 72 individuals in four regional and three property
management offices in California, Oregon and Washington.
During 1997, the Company acquired 42 properties comprising 5.6 million
square feet of Company-owned GLA for approximately $598.1 million and completed
one development project comprising 183,413 square feet of Company-owned GLA and
one major rehabilitation project. In 1997, the Company also expanded its market
presence with its entry into the Pacific Northwest, and continued to expand its
management team and in-house capabilities with the addition of two senior
management team members and augmentation of its asset management, leasing and
finance operations.
The Company believes its West Coast markets share the following favorable
characteristics: strong growth in key economic variables (such as population,
employment and income); constrained supply due to regulation and limited
availability of development sites; and a consolidation opportunity occasioned by
the fragmented ownership of non-mall retail properties.
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In 1997, the Company formed and transferred substantially all of its assets
to Burnham Pacific Operating Partnership, L.P. (the "Operating Partnership") to
provide sellers the opportunity to contribute properties to the Company (through
the Operating Partnership) on a tax-deferred basis in exchange for limited
partnership units of the Operating Partnership. The Company believes that its
ability to offer tax-deferred transactions to sellers through this "UPREIT"
structure will enhance its attractiveness to local owners and developers. The
Company formed the Operating Partnership under the Delaware Revised Uniform
Limited Partnership Act in November 1997 and, by year-end, the Company had
transferred to the Operating Partnership legal or beneficial ownership of
substantially all of the real property and related personal property owned by
the Company and its subsidiaries, and of the beneficial interest owned by the
Company and its subsidiaries in any partnership or limited liability company
that owns a direct or indirect interest in real property and related personal
property. The Company intends that the Operating Partnership will be the vehicle
through which the Company will own its current assets, will make its future
acquisitions and generally conduct its business. The Company has already taken
advantage of the structure through its use of Operating Partnership units as
currency in its recent acquisitions of a portfolio of 20 shopping centers
located in California and a promotional center located in Simi Valley,
California.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, after deducting underwriting discounts and commissions and estimated
offering expenses, are expected to be approximately $13,210,010. In exchange for
additional units, the Company will contribute the net proceeds to the Operating
Partnership, which will use such net proceeds to reduce outstanding borrowings
under the Credit Facility. The Credit Facility currently bears a
weighted-average interest rate of 7.07% and matures in November 1998, with an
option for an extension of such maturity for one year. As of March 18, 1998,
approximately $190.9 million was outstanding under the Credit Facility. The
indebtedness under the Credit Facility incurred within the last year was used
for general working capital purposes and for the acquisitions of properties made
in the ordinary course of the Company's business.
FEDERAL INCOME TAX CONSIDERATIONS
The following description of certain federal income tax considerations
supplements the description in the accompanying Prospectus to discuss the
federal income taxation of the Company generally, to reflect certain changes in
the Internal Revenue Code of 1986, as amended (the "Code"), effected by the
Taxpayer Relief Act of 1997 (the "1997 Tax Act") enacted subsequently to the
date of the Prospectus, and to discuss the federal income tax effect on the
Company of holding assets through the Operating Partnership.
The following discussion is based on current law (which is subject to
change, possibly on a retroactive basis), is for general information only, and
is not tax advice. The tax treatment of a holder of Common Stock will vary
depending upon such holder's particular situation, and this discussion does not
purport to deal with all aspects of taxation that may be relevant to particular
stockholders in light of their personal investment or tax circumstances, or to
certain types of stockholders subject to special treatment under the federal
income tax laws, including, without limitation, life insurance companies,
certain financial institutions, dealers in securities or currencies,
stockholders holding Common Stock as part of a conversion transaction, as part
of a hedge or hedging transaction, or as a position in a straddle for tax
purposes, tax-exempt organizations, foreign corporations, foreign partnerships
and persons who are not citizens or residents of the United States (as
determined for federal income tax purposes). In addition, the summary below does
not consider the effects of any foreign, state, local or other tax laws that may
be applicable to prospective stockholders.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT ITS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE PURCHASE, OWNERSHIP AND
SALE OF COMMON STOCK AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL
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ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. The Company has elected to qualify as a REIT under the Code. In
the opinion of Goodwin, Procter & Hoar LLP, the Company has been organized in
conformity with the requirements for qualification as a REIT under the Code, and
its manner of operations has met and will continue to meet the requirements for
qualification and taxation as a REIT under the Code. This opinion is based on
various assumptions and is conditioned upon representations made by the Company
as to factual matters and the continuation of such factual matters. Investors
should be aware, however, that opinions of counsel are not binding upon the
Internal Revenue Service ("IRS") or any court. Moreover, such qualification and
taxation as a REIT in any tax year depends upon the Company's ability to meet in
its actual results for the tax year the various source of income, ownership of
assets, distribution and diversity of ownership requirements of the Code for
qualification as a REIT, which results will not be reviewed by Goodwin, Procter
& Hoar LLP. Accordingly, no assurance can be given that the actual results of
the Company for any particular tax year will in fact satisfy the requirements
for qualification as a REIT. Likewise, although the Company believes that it has
operated in a manner which satisfies the REIT qualification requirements under
the Code since it commenced operations in 1987, no assurance can be given that
the Company's qualification as a REIT will not be challenged by the IRS for
taxable years still subject to audit.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions that
currently govern the federal income tax treatment of the Company and its
stockholders. For the particular provisions that govern the federal income tax
treatment of the Company and its stockholders, reference is made to Sections 856
through 860 of the Code and the regulations thereunder. The following summary is
qualified in its entirely by such reference.
Under the Code, if certain requirements discussed generally below are met in
a taxable year, a REIT generally will not be subject to federal income tax with
respect to income that it distributes to its stockholders. However, the Company
may be subject to federal income tax under certain circumstances, including
taxes at regular corporate rates on any undistributed REIT taxable income or net
capital gains, the alternative minimum tax on its items of tax preference, and
taxes imposed at a 100% rate on gain generated by certain sales of property
deemed to have been held for sale to customers in the ordinary course of
business. As discussed below, however, for taxable years beginning after
December 31, 1997, stockholders may be credited for all or a portion of the
taxes paid by the Company on its retained net capital gains.
FAILURE TO QUALIFY. If the Company fails to qualify during any taxable year
as a REIT, unless the failure is a result of not satisfying the 75% or 95% gross
income requirements discussed below and certain relief provisions are available,
it will be subject to tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates, which would have a material
adverse effect upon its stockholders. In addition, unless certain other relief
provisions apply, the Company would be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost,
and if it reelected REIT status it could be subject to tax at regular corporate
rates on gains from the subsequent sale of its properties. It is not possible to
state whether in all circumstances the Company would be entitled to any such
relief. Even if relief from a failure to satisfy one of the gross income tests
is available, the Company would be required to pay a 100% tax based upon the
greater of the amount by which the Company failed the 75% or 95% gross income
test, less certain adjustments. See "Risk Factors -- Consequences of Failure to
Quality as a REIT" in the accompanying Prospectus.
REQUIREMENTS FOR QUALIFICATION. The Code generally defines a REIT to
include a corporation, the beneficial ownership of which is evidenced by
transferable shares held by 100 or more persons, provided that
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no more than 50% in value of the outstanding stock of the corporation is owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during a specified portion of each taxable year (the
"5/50 Rule") and that it meets certain other tests, described below, regarding
the nature of its income and assets and its distributions. For taxable years of
the Company beginning on or after January 1, 1998, the Company will be treated
as satisfying the 5/50 Rule if it complies with certain demand letter and
recordkeeping requirements and if it does not know, and exercising reasonable
diligence would not have known, whether it failed to satisfy the 5/50 Rule.
OWNERSHIP OF A PARTNERSHIP INTEREST. In applying the income and asset tests
described below, the Company generally will be deemed to own its proportionate
share of the assets of the Operating Partnership (and of any other partnership
or limited liability company in which the Operating Partnership owns a direct or
indirect interest) based on the Company's relative capital interest in the
Operating Partnership (or indirect capital interest in such other entity). In
addition, the character of the assets and gross income of partnership retain the
same character in the hands of the Company for purposes satisfying the gross
income tests and asset tests described below. Thus, the Company's proportionate
share of the assets, liabilities and items of income of the Operating
Partnership and in the partnerships and limited liability companies in which the
Operating Partnership holds an interest will be treated as assets, liabilities
and items of the Company for purposes of applying the income and asset tests
described below.
INCOME TESTS. In order to maintain qualification as a REIT, there are two
gross income requirements that must be satisfied annually. First, at least 75%
of the REIT's gross income (excluding gross income from sales of property, other
than certain foreclosure property, held primarily for sale in the ordinary
course of business ("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" as defined in
the Code and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the REIT's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, and from dividends, interest and
gain from the sale or disposition of stock or securities, or from any
combination of the foregoing. In addition, prior to 1998, short-term gain from
the sale or other disposition of stock or securities, gains from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year. The
term "rents from real property" excludes (i) rents received from certain persons
related to the Company, (ii) rents attributable to personal property leased in
connection with a lease of real property if more than 15% of the total rent
under the lease for the year is attributable to personal property, and (iii)
rents received with respect to property if the Company operates or manages the
property or furnishes or renders certain services to tenants of the property
(other than through an independent contractor from whom the Company derives no
revenue) that are not "usually or customarily rendered" in connection with the
rental of space for occupancy only or are considered "rendered to the occupant"
("disqualified services"), other than certain minimal services. While the
Company provides services with respect to its properties, it believes that it
does not provide disqualified services.
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 and certain temporary investments of new capital raised by the
Company. 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. However, a corporation which is a qualified REIT
subsidiary is not treated as a separate corporation for federal income tax
purposes, and all assets, liabilities, and items of income, deduction, and
credit of the corporation are treated as assets, liabilities, and items of the
REIT. A "qualified REIT subsidiary" means any corporation if
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100 percent of the stock of the corporation is held by the REIT. For taxable
years that began prior to January 1, 1998, the stock of such corporation must
have been held by the REIT at all times during the period such corporation was
in existence.
ANNUAL DISTRIBUTION REQUIREMENT. The Company, in order to qualify as a
REIT, generally is required to distribute dividends (other than capital gain
dividends) to its stockholders in an amount at least equal to 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the REIT's net capital gain). 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, or
it does not distribute income attributable to certain non-cash income items, it
will be subject to tax on the undistributed amount at regular capital gains and
ordinary corporate tax rates. Furthermore, if the Company fails to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain income for such year,
and (iii) any undistributed taxable income from prior periods (less certain
adjustments), the Company will be subject to a 4% excise tax on the excess of
such required distribution over the amounts actually distributed.
The Company's REIT taxable income generally will be determined with
reference to its allocable share of the income of the Operating Partnership. In
the case of a property contributed to the Operating Partnership in exchange for
Partnership Units, the adjusted basis of the property in the hands of the
Operating Partnership immediately after the contribution generally is the same
as the adjusted basis of the property immediately before the contribution in the
hands of the person contributing the property, which basis is lower than the
fair market value of the property at that time (the difference between such
basis and value being referred to as a "book-tax difference"). The Operating
Partnership's depreciation deductions are determined with reference to such
lower basis, and any gain from the sale of the property is determined with
reference to such lower basis as subsequently adjusted by depreciation and
capital expenditures. While certain provisions of the Code are designed to
allocate the income attributable to a book-tax difference to the partner
contributing the property, the effect of the carryover of a property's tax basis
to the Operating Partnership could be to cause the Company to be allocated lower
depreciation or other deductions, or more gain, than if the property were
purchased for cash, which could cause the Company to recognize REIT taxable
income in excess of its economic or "book" income and in excess of cash
receipts, which could adversely affect the Company's ability to satisfy the
annual distribution requirement.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
GENERAL. As long as the Company qualifies as a REIT, distributions made to
the Company's taxable U.S. stockholders out of current or accumulated earnings
and profits (and not designated as a capital gain dividends) will be taken into
account by such U.S. Stockholders as ordinary income and will not be eligible
for the dividends-received deduction generally available to corporations.
Earnings and profits of the Company generally will be allocated first to
distributions with respect to preferred stock (including the Series A Preferred
Stock), and thereafter to distributions with respect to Common Stock. As used
herein, the term "U.S. Stockholder" means a holder of Common Stock that for
United States federal income tax purposes is (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, (iii) an estate, the income of which is subject to United States
federal income taxation regardless of its source or (iv) a trust, if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust and (v) is not an
entity that has a special status under the Code (such as a tax-exempt
organization or dealer in securities). Subject to the discussion below regarding
the changes to the capital gains tax rates, distributions that are designated as
capital gains dividends will be taxed as capital gains (to the extent they do
not exceed
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the Company's actual net capital gain for the taxable year) without regard to
the period for which the stockholder has held his or her Common Stock. However,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. Capital gain dividends are not eligible for
the dividends-received deduction for corporations. In addition, any dividend
declared by the Company in October, November or December of any year and payable
to a stockholder of record on a specified date in any such month shall be
treated as both paid by the Company and received by the stockholder on December
31 of such year, provided that the distribution is actually paid by the Company
during January of the following calendar year.
The Company may elect to retain and pay income tax on its net long-term
capital gains received during the taxable year. For taxable years beginning
after December 31, 1997, if the Company so elects for a taxable year, the
stockholders would include in income as long-term capital gains their
proportionate share of such portion of the Company's undistributed long-term
capital gains for the taxable year as the Company may designate. A stockholder
would be deemed to have paid his share of the tax paid by the Company on such
undistributed capital gains, which would be credited or refunded to the
stockholder. The stockholder's basis in his Common Stock would be increased by
the amount of undistributed long-term capital gains included in the
stockholder's long-term capital gains, less such stockholder's share of the
capital gains tax paid by the Company. As discussed below, stockholders should
note that the IRS has issued Notice 97-64 which provides interim guidance on the
proper treatment of capital gains dividends and undistributed capital gains for
individuals, estates and certain trusts.
The 1997 Tax Act alters the taxation of capital gain income. Under the 1997
Tax Act, individuals (as well as estates and certain trusts) who hold capital
assets for more than 18 months may be taxed at maximum long-term capital gain
rate of 20% on the sale or exchange of those investments. Gains from capital
assets held for more than 12 months but not more than 18 months may be taxed at
a maximum mid-term capital gain rate of 28%. The Act also provides a maximum
rate of 25% for "unrecaptured section 1250 gain" for individuals, trusts, and
estates and special rules for "qualified 5-year gain," and makes other changes
to prior law. IRS Notice 97-64 provides that, until further notice, to the
extent that the Company has net capital gain for a taxable year, dividends paid
during the year (or that are deemed to be paid for taxable years beginning after
December 31, 1997) may be designated by it as a 20% rate gain distribution, an
unrecaptured section 1250 gain distribution, or a 28% rate gain distribution,
based on the net amount of each class of capital gain recognized by the Company.
Unless specifically designated otherwise by the Company, a distribution
designated as a capital gain dividend will be taxable as 28% rate gain
distribution. If any capital gain dividend is received on or after May 7, 1997,
but is treated as being paid during a taxable year that ends on or before that
date, the dividend will be taxable as a 28% rate gain distribution. This interim
guidance may be changed in the future. As a result, prospective investors are
urged to consult their own tax advisors with respect to the proper treatment of
capital gain dividends and undistributed capital gains.
Distributions, other than capital gain dividends, in excess of current and
accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's Common
Stock, but rather will reduce the adjusted basis of such stock. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a stockholder's Common Stock, the distribution will
be treated as long-term capital gain or loss if the shares of Common Stock have
been held for more than 12 months (or, in the case of individuals, estates and
certain trusts, mid-term capital gain or loss if the shares have been held for
more than 12 months but not more than 18 months and long-term capital gain or
loss if the shares have been held for more than 18 months) and otherwise as
short-term capital gain or loss.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would be
carried over by the Company for potential offset against its future income
(subject to certain limitations). Taxable distributions from the Company and
gain from the disposition of Common Stock will not be treated as passive
activity income and, therefore, stockholders generally will not be able to apply
any "passive activity losses" (such as losses from certain types
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of limited partnerships in which the stockholder is a limited partner) against
such income. In addition, taxable distributions from the Company generally will
be treated as investment income for purposes of the investment interest
deduction limitations. Capital gain distributions and capital gains from the
distribution of Common Stock (and distributions treated as such) will be treated
as investment income for purposes of the investment interest deduction
limitations only if and to the extent the stockholder so elects, in which case
such capital gain distributions and capital gains will be taxed at ordinary
income rates to the extent of such election. The Company will notify
stockholders after the close of the Company's taxable year as to the portions of
the distributions attributable to that year that constitute ordinary income,
return of capital, and capital gain.
BACKUP WITHHOLDING AND REPORTING. The Company will report to its
stockholders and the IRS the amount of dividends paid during the year, the
amount of tax withheld therefrom, if any, and certain other information. Under
the backup withholding rules, a stockholder may be subject to backup withholding
at a rate of 31% with respect to dividends paid unless such holder (i) is a
corporation or comes within certain other exemptions and, when required,
demonstrates this fact, or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. The
Company may nonetheless institute backup withholding if it is advised to do so
by the IRS. A stockholder who does not provide the Company with its correct
taxpayer identification number may also be subject to penalties imposed by the
IRS. Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability.
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UNDERWRITING
Pursuant to the terms and subject to the conditions of the Underwriting
Agreement (the "Underwriting Agreement") between the Company and EVEREN
Securities, Inc. (the "Underwriter"), the Underwriter has agreed to purchase
from the Company, and the Company has agreed to sell to the Underwriter, 965,518
shares of Common Stock.
The Underwriter intends to sell the shares of Common Stock to Nike
Securities L.P., which intends to deposit such shares, together with shares of
common stock of other entities also acquired from the Underwriter, into a
newly-formed unit investment trust (the "Trust") registered under the Investment
Company Act of 1940, as amended, in exchange for units in the Trust. The
Underwriter is not an affiliate of Nike Securities L.P. or the Trust. The
Underwriter intends to sell the shares of Common Stock to Nike Securities L.P.
at an aggregate purchase price of $13,538,010. It is anticipated that the
Underwriter will also participate as sole underwriter in the distribution of
units of the Trust and will receive compensation therefor.
Pursuant to the Underwriting Agreement, the Company has agreed to indemnify
the Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the Underwriter
may be required to make in respect thereof.
Until the distribution of the shares of Common Stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the Underwriter
to bid for and purchase shares of Common Stock. As an exception to these rules,
the Underwriter is permitted to engage in certain transactions that stabilize
the price of the Common Stock. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the Common Stock.
It is not currently anticipated that the Underwriter will engage in any such
transactions in connection with this offering.
If the Underwriter creates a short position in the Common Stock in
connection with this offering, i.e., if it sells more shares of Common Stock
than are set forth on the cover page of this Prospectus Supplement, the
Underwriter may reduce that short position by purchasing shares in the open
market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above might have on the price of the shares. In addition, neither the
Company nor the Underwriter makes any representation that the Underwriter will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
In the ordinary course of business, the Underwriter and its affiliates have
engaged, and may in the future engage, in investment banking transactions with
the Company. The Underwriter is also acting as an underwriter of the Common
Stock in a registered offering of 7,475,000 shares of Common Stock (the "Public
Offering") at a price of $14.125 per share. The Public Offering is expected to
close on March 30, 1998. The offering made hereby and the Public Offering are
not conditioned upon each other.
EXPERTS
The Company's consolidated financial statements and the related financial
statement schedule incorporated in this Prospectus Supplement and the
accompanying Prospectus by reference from the Company's annual report on Form
10-K have been audited by Deloitte & Touche LLP, independent auditors, as stated
in its reports thereon. Such reports are incorporated herein and in the
accompanying Prospectus by reference and have been so incorporated by reference
herein and therein in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
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LEGAL MATTERS
The validity of the Common Stock offered hereby, as well as certain legal
matters relating to the Company, will be passed upon for the Company by Goodwin,
Procter & Hoar LLP, Boston, Massachusetts. Certain legal matters related to the
offering will be passed upon for the Underwriter by Gibson, Dunn & Crutcher LLP,
Los Angeles, California. Gibson, Dunn & Crutcher LLP, Los Angeles will rely on
the opinion of Goodwin, Procter & Hoar LLP as to certain matters of Maryland
law.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents and information incorporated by reference or
deemed to be incorporated by reference in the accompanying Prospectus, which
Prospectus is supplemented by this Prospectus Supplement, the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 filed with the
Commission on March 20, 1998 and the Company's Current Report on Form 8-K filed
with the Commission on January 14, 1998 pursuant to the Exchange Act are hereby
incorporated in this Prospectus Supplement by reference. All documents
subsequently 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 Supplement and prior to
the termination of the offering of the securities contemplated hereby shall be
deemed to be incorporated by reference in this Prospectus Supplement and to be a
part hereof from the date of the filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus Supplement to the extent that a statement contained herein or in any
subsequently filed document that is incorporated or deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed to constitute a part of this
Prospectus Supplement or the accompanying Prospectus, except as so modified or
superseded.
The Company will provide, without charge, to each person, including any
beneficial owner, to whom a copy of this Prospectus Supplement is delivered, at
the request of such person, a copy of any or all of the documents incorporated
herein by reference (other than exhibits thereto, unless such exhibits are
specifically incorporated by reference into such documents). Written requests
for such copies should be directed to Daniel B. Platt, Chief Financial Officer,
Burnham Pacific Properties, Inc., 610 West Ash Street, Suite 1600, San Diego,
California 92101, telephone (619) 652-4700.
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BURNHAM PACIFIC
