<PAGE>
As filed with the Securities and Exchange Commission on December 30, 1998
Registration Statement No. 333-_________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
BURNHAM PACIFIC PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 33-0204162
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
610 WEST ASH STREET, 16TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(619) 652-4700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------------
J. DAVID MARTIN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
DANIEL B. PLATT, CHIEF ADMINISTRATIVE OFFICER AND CHIEF FINANCIAL OFFICER
610 WEST ASH STREET, 16TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(619) 652-4700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
WILLIAM B. KING, P.C.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
(617) 570-1000
-----------------------------
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Securities Being Proposed Maximum Offering Proposed Maximum Aggregate Amount of
Registered Amount to be Registered Price Per Share Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Series 1997-A Convertible 4,800,000
Preferred Stock, $.01 par value $25(1) $120,000,000(1)
Common Stock, $.01 par value, 7,804,878(2)
issuable upon conversion of the
Series 1997-A Convertible
Preferred Stock
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Common Stock, $.01 par value 574,483(3) $11.0625(4) $6,355,218(4)
- ---------------------------- ------------------------ -------------------------- ---------------------------
Total $126,355,218(1)(4) $35,127
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(i) based upon the stated value of the Series
1997-A Convertible Preferred Stock.
(2) Number of shares of Common Stock based upon an initial conversion ratio of
1.626-to-1 plus, pursuant to Rule 416, an indeterminate number of
additional shares as may from time to time be issuable pursuant to
anti-dilution provisions of the Series 1997-A Convertible Preferred Stock.
(3) These are shares potentially issuable in exchange for a like number of
common limited partnership units of Burnham Pacific Operating Partnership,
L.P.
(4) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c), based upon the average of the high and low
sales prices of the Common Stock on the New York Stock Exchange on
December 24, 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 which 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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<PAGE>
The information in this Prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion. Dated December 30, 1998
Prospectus
BURNHAM PACIFIC PROPERTIES, INC.
4,800,000 Shares of Series 1997-A Convertible Preferred Stock,
7,804,878 Shares of Common Stock Issuable Upon Conversion Thereof
and 574,483 Other Shares of Common Stock
------------
This Prospectus relates to the
offer and sale from time to time of
(i) up to 2,800,000 shares (the
"Preferred Shares") of our Series
1997-A Convertible Preferred Stock,
$.01 par value per share (the
"Preferred Stock"), by the holders of
such Preferred Shares (the "Selling
Stockholders"), (ii) up to an
additional 2,000,000 shares of our
Preferred Stock which we may issue
upon redemption of preferred units of
limited partnership interest (the
"Preferred Units") of Burnham Pacific
Operating Partnership, L.P. (the
"Operating Partnership"), (iii) up to
7,804,878 shares of our Common Stock,
$.01 par value per share (the "Common
Stock"), which we may issue upon
conversion of the above referenced
Preferred Stock at the initial
conversion ratio of approximately
1.626 shares of Common Stock for each
Preferred Share, (iv) up to an
additional 574,483 shares of our
Common Stock which we may issue upon
redemption of certain common units of
limited partnership interest (the
"Common Units") of the Operating
Partnership, and (v) an indeterminate
number of additional shares of our
Common Stock which we may issue as a
result of the anti-dilution
provisions of the Preferred Stock. We
are filing the registration statement
of which this Prospectus is a part to
fulfill our contractual obligations
to the Selling Stockholders and to
the holders of the Preferred and
Common Units and to provide them with
freely tradable securities.
Our Common Stock trades on the
New York Stock Exchange under the
symbol "BPP." The Common and
Preferred Stock are subject to
certain restrictions on ownership and
transfer designed to assist us in
maintaining our status as a real
estate investment trust for federal
income tax purposes. See "Description
of Securities--Common
Stock--Restrictions on Transfers."
Selling Stockholders from time
to time may offer and sell the
Preferred Shares or shares of Common
Stock into which the Preferred Shares
are convertible (collectively, the
"Shares") held by them directly or
through agents or broker-dealers on
terms to be determined at the time of
sale. To the extent required, the
names of any agent or broker-dealer
and applicable commissions or
discounts and any other required
information with respect to any
particular offer will be set forth in
an accompanying Prospectus
Supplement. See "Plan of
Distribution." Each of the Selling
Stockholders reserves the sole right
to accept or reject, in whole or in
part, any proposed purchase of the
Shares to be made directly or through
agents.
We will not receive any proceeds
from the sale of the Shares by the
Selling Stockholders or the issuance
of the other securities offered by
this Prospectus. We have agreed to
bear certain expenses of registration
of the Shares and other securities
offered by this Prospectus under
federal and state securities laws.
The Selling Stockholders and any
agents or broker-dealers that
participate with the Selling
Stockholders in the distribution of
Shares may be deemed to be
"underwriters" within the meaning of
the Securities Act, and any
commissions received by them and any
profit on the resale of the Shares
may be deemed to be underwriting
commissions or discounts under the
Securities Act of 1933, as amended.
--------------------
INVESTING IN SHARES OF OUR COMMON STOCK OR PREFERRED STOCK INVOLVES
VARIOUS RISKS. IN CONSIDERING WHETHER TO REDEEM EITHER PREFERRED UNITS OR
COMMON UNITS OF THE OPERATING PARTNERSHIP FOR SHARES OF PREFERRED STOCK OR
COMMON STOCK OR WHETHER TO PURCHASE SHARES OF EITHER CLASS OF STOCK, YOU
SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS"
BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is January __, 1999.
<PAGE>
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC")
a Registration Statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), to register the
securities offered in this Prospectus. This Prospectus is part of the
Registration Statement. This Prospectus does not contain all the information
contained in the Registration Statement because we have omitted certain parts
of the Registration Statement in accordance with the rules and regulations of
the SEC. For further information, we refer you to the Registration Statement,
which you may read and copy at the public reference facilities maintained by
the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the SEC's Regional Offices at 7 World Trade Center, 13th
Floor, New York, New York 10048, and Citicorp Center, 500 W. Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. You may also obtain copies at the
prescribed rates from the Public Reference Section of the SEC at its
principal office in Washington, D.C. You may call the SEC at 1-800-SEC-0330
for further information about the public reference rooms. The SEC maintains a
web site that contains reports, proxy and information statements and other
information regarding registrants, including Burnham Pacific Properties,
Inc., that file electronically with the SEC. You may access the SEC's web
site at http://www.sec.gov.
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and we are required to
file reports and proxy statements and other information with the SEC. Such
reports, proxy statements and other information can be inspected and copied
at the locations described above. Copies of such materials can be obtained by
mail from the Public Reference Section of the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
Our Common Stock is listed on the New York Stock Exchange under the symbol
"BPP." You may also read our reports, proxy and other information statements
and other information which we file at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus is part of the Registration Statement that we filed
with the SEC to register the shares of Common Stock and Preferred Stock
referenced on the cover page of this Prospectus. It does not repeat important
information that you can find in our Registration Statement or in the annual,
quarterly and special reports, proxy statements and other documents that we
file with the SEC. The SEC allows us to "incorporate by reference" the
information we file with it, which means that we can disclose in this
Prospectus important information to you by referring you to those documents.
The information below is incorporated in this Prospectus by reference and is
an important part of this Prospectus, and certain information that we file
after the date of this Prospectus with the SEC will automatically be
incorporated in this Prospectus and update and supersede this information. We
incorporate by reference the documents listed below and any future filings
made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act until all of the securities offered by this Prospectus are sold:
- our Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
- our Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998;
- our Proxy Statement dated April 7, 1998 with respect to our Annual Meeting
of Stockholders on May 11, 1998;
- our Current Reports on Form 8-K filed with the SEC on January 14,
1998, April 6, 1998, June 1, 1998 and December 23, 1998; and
2
<PAGE>
- the description of our Common Stock contained or incorporated by
reference in the Company's Registration Statement on Form 8-B
filed on June 2, 1997, including any amendments thereto.
WE WILL PROVIDE, WITHOUT CHARGE, AT THE WRITTEN OR ORAL REQUEST OF
ANYONE TO WHOM THIS PROSPECTUS IS DELIVERED, COPIES OF THE DOCUMENTS
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, OTHER THAN AN EXHIBIT TO A
FILING UNLESS THAT EXHIBIT IS SPECIFICALLY INCORPORATED BY REFERENCE INTO
THAT FILING. WRITTEN REQUESTS SHOULD BE DIRECTED TO BURNHAM PACIFIC
PROPERTIES, INC., 610 WEST ASH STREET, SAN DIEGO, CALIFORNIA 92101,
ATTENTION: CHIEF FINANCIAL OFFICER. TELEPHONE REQUESTS MAY BE DIRECTED TO
(619) 652-4700.
You should rely only on the information incorporated by reference or
provided in this Prospectus. We have not authorized anyone to provide you
with different information. Any statement contained in this Prospectus or in
a document incorporated by reference in this Prospectus shall be deemed to be
modified or superseded to the extent that a statement contained in this
Prospectus (in the case of a statement in a previously filed document
incorporated by reference herein), in any applicable Prospectus Supplement or
in any other subsequently filed document which also is incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus or any accompanying
Prospectus Supplement. Subject to the foregoing, all information appearing in
this Prospectus and each accompanying Prospectus Supplement is qualified in
its entirety by the information appearing in the documents incorporated by
reference.
We are not making an offer of the Shares or other securities offered
by this Prospectus in any state where the offer is not permitted. You should
not assume that the information in this Prospectus, in any Prospectus
Supplement or in any document incorporated by reference herein or in such
Prospectus Supplement is accurate as of any date other than the date on the
front of those documents.
Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, in each
instance, reference is made to the copy of such contract or document filed as
an exhibit to the Registration Statement or as an exhibit to another filing,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY ONLY HIGHLIGHTS THE MORE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE. AS THIS IS
A SUMMARY, IT MAY NOT CONTAIN ALL INFORMATION THAT IS IMPORTANT TO YOU. YOU
SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY BEFORE DECIDING WHETHER TO
PURCHASE SHARES OR TENDER YOUR COMMON OR PREFERRED UNITS FOR REDEMPTION.
SOME IMPORTANT TERMS
ALTHOUGH BURNHAM PACIFIC PROPERTIES, INC., BURNHAM PACIFIC OPERATING
PARTNERSHIP, L.P. AND THEIR SUBSIDIARIES AND AFFILIATES ARE SEPARATE LEGAL
ENTITIES, FOR EASE OF REFERENCE, THE TERMS "WE," "US," AND "OUR" REFER TO THE
BUSINESS AND PROPERTIES OF ALL OF THESE ENTITIES, UNLESS THE CONTEXT
INDICATES OTHERWISE. FOR EASE OF REFERENCE AND CLARITY, WE SOMETIMES REFER TO
BURNHAM PACIFIC PROPERTIES, INC. AND ITS PREDECESSOR, SUBSIDIARIES AND
AFFILIATES AS THE "COMPANY" AND BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P.
AND ITS SUBSIDIARIES AND AFFILIATES AS THE "OPERATING PARTNERSHIP."
--------------------
THE COMPANY
We are a fully-integrated real estate operating company which
acquires, rehabilitates, develops and manages retail properties in the
western region of the United States. Our properties are primarily
neighborhood and community shopping centers located in major metropolitan
areas. We focus on shopping centers in mature trade areas with a limited
supply of vacant land and with established consumer shopping patterns. These
characteristics help limit potential future competition in a trade area. We
own our properties and conduct substantially all of our business through the
Operating Partnership, of which the Company is the sole general partner and,
as the holder of preferred and common limited partnership units, the owner of
a substantial majority of the economic interests.
The Company is incorporated under the laws of the State of Maryland.
Our offices are located at 610 West Ash Street, San Diego, California 92101.
Our telephone number is (619) 652-4700.
SECURITIES THAT MAY BE OFFERED
This Prospectus relates to the offer and sale from time to time of
the following securities:
- up to 2,800,000 Preferred Shares by the Selling Stockholders;
- up to an additional 2,000,000 shares of Preferred Stock which
the Company may issue upon redemption of Preferred Units of the
Operating Partnership;
- up to 7,804,878 shares of Common Stock which the Company may
issue upon conversion of the above referenced Preferred Stock based
upon the current conversion rate of approximately 1.626 shares of
Common Stock for each share of Preferred Stock;
- up to an additional 574,483 shares of Common Stock which the
Company may issue upon redemption of Common Units of the Operating
Partnership; and
- an indeterminate number of additional shares of Common Stock
which the Company may issue as a result of the anti-dilution
provisions of the Preferred Stock.
The Preferred Stock which we are registering for original issuance
may be issued upon redemption of Preferred Units previously issued by the
Operating Partnership when it acquired certain properties on December 31,
1997. The 2,800,000 Preferred Shares which we are registering for resale by
the Selling Stockholders were originally issued by the Company as part of a
related financing on December 31, 1997.
4
<PAGE>
The shares of Common Stock being registered for original issuance by
the Company may be issued in connection with:
- the conversion of shares of Preferred Stock, whether currently outstanding
or issuable upon redemption of Preferred Units, and
- the redemption of Common Units issued by the Operating Partnership as a
part of the purchase price for a shopping center also acquired on
December 31, 1997.
Pursuant to the Agreement of Limited Partnership of the Operating
Partnership, (the "Operating Partnership Agreement"), holders of Common Units
may tender their Common Units to the Operating Partnership for cash equal to
the value of an equivalent number of shares of Common Stock (subject to
certain adjustments to prevent dilution), and holders of Preferred Units may
tender their Preferred Units to the Operating Partnership for cash equal to
the greater of the $25 per share Stated Value of an equivalent number of
shares of Preferred Stock or the value of the number of shares of Common
Stock for which the shares of Preferred Stock are exchangeable. In lieu of
delivering cash, however, the Company may, at its option, choose to acquire
any Common Units or Preferred Units (collectively the "Units") so tendered by
issuing shares of Common Stock or Preferred Stock, respectively, in exchange
for the Units. The shares of Common Stock and Preferred Stock will be
exchanged for Common Units or Preferred Units, as appropriate, on a
one-for-one basis.
In connection with the property contributions and the sale of
Preferred Shares to the Selling Stockholders described above, the Company
entered into registration rights agreements with the contributors and with
the Selling Stockholders. We are now registering the securities covered by
this Prospectus in order to fulfill our contractual obligations under these
agreements and to provide the Selling Stockholders and the holders of
Preferred and Common Units with freely tradable securities. Registration of
the securities being registered for original issuance does not necessarily
mean that all or any portion of them will be issued by the Company.
Neither the Company nor the Operating Partnership will receive any
cash proceeds from the issuance of any Common Stock or Preferred Stock
offered under this Prospectus. With each such issuance of Common Stock or
Preferred Stock as a result of a redemption of Units, however, the Company's
economic interest in the Operating Partnership will increase. The Company
also will not receive any cash proceeds from the sale of the Shares by the
Selling Stockholders.
RISK FACTORS
Investing in shares of our Common Stock or Preferred Stock involves
various risks. Persons who currently hold Preferred Units may already be
subject to certain of the business risks to which we are subject but should
consider additional risks involved in redeeming Units or in owning stock of
the Company rather than Units of the Operating Partnership. In considering
whether to redeem either Preferred Units or Common Units for shares of
Preferred Stock or Common Stock or whether to purchase shares of either class
of stock, you should carefully consider the matters discussed under "Risk
Factors" beginning on page 6 of this Prospectus.
TAX STATUS OF THE COMPANY
The Company has elected to qualify as a real estate investment trust
(a "REIT") under Sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code"), in each year since 1987. As long as we qualify
for taxation as a REIT, we generally will not be subject to federal income
tax on that portion of our ordinary income and capital gains that is
currently distributed to our stockholders. Even if we qualify for taxation as
a REIT, we may be subject to certain state and local taxes on our income and
property and to federal income and excise taxes on our undistributed income.
See "Risk Factors--We Could Incur Unanticipated Expenses if We Fail to
Qualify as a REIT" and "Federal Income Tax Considerations" for a more
detailed explanation.
5
<PAGE>
RISK FACTORS
BEFORE YOU PRESENT YOUR UNITS FOR REDEMPTION, WHICH MAY RESULT IN
YOUR RECEIPT OF SHARES OF COMMON STOCK OR PREFERRED STOCK, OR BEFORE YOU
PURCHASE PREFERRED SHARES FROM A SELLING STOCKHOLDER, YOU SHOULD BE AWARE
THAT THERE ARE VARIOUS RISKS IN MAKING SUCH AN INVESTMENT, INCLUDING THOSE
DESCRIBED BELOW. YOU SHOULD CONSIDER CAREFULLY THESE RISK FACTORS TOGETHER
WITH ALL OF THE INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS BEFORE YOU DECIDE TO PRESENT YOUR UNITS FOR REDEMPTION OR BEFORE
YOU PURCHASE PREFERRED SHARES. THIS SECTION INCLUDES OR REFERS TO CERTAIN
FORWARD-LOOKING STATEMENTS. WE URGE YOU TO READ THE EXPLANATION OF THE
QUALIFICATIONS AND LIMITATIONS ON SUCH FORWARD-LOOKING STATEMENTS IMMEDIATELY
BELOW.
FORWARD-LOOKING STATEMENTS
Certain statements made in this "Risk Factors" section or under the
caption "The Company" and elsewhere in this Prospectus, or incorporated by
reference into this Prospectus, are "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Such forward-looking statements include, without limitation, statements
relating to acquisitions (including related pro forma financial information)
and other business development activities, future capital expenditures,
financing sources and availability and the effects of regulations (including
environmental regulation) and competition.
When we use the words "anticipate," "assume," "believe," "estimate,"
"expect," "intend" and other similar expressions, they are generally
forward-looking statements. You should exercise caution in interpreting and
relying on forward-looking statements since they involve known and unknown
risks, uncertainties and other factors which are, in some cases, beyond our
control and could materially affect our actual results, performance or
achievements.
Factors that could cause our actual results, performance or
achievements to differ materially from those expressed or implied by such
forward-looking statements include, but are not limited to, the following:
- we are subject to general risks affecting the real estate
industry such as the need to enter into new leases or
renew leases on favorable terms to generate rental
revenues and dependence on our tenants' financial
condition;
- we may fail to identify, acquire, construct or develop
additional properties; we may develop properties that do
not produce a desired yield on invested capital; or we may
fail to effectively integrate acquisitions of properties
or portfolios of properties;
- financing may not be available, or may not be available on favorable terms;
- we need to make distributions to our stockholders for us to qualify as a
REIT, and if we need to borrow the funds to make distributions the
borrowings may not be available on favorable terms;
- we depend on the primary markets where our properties are
located, and these markets may be adversely affected by
local economic and market conditions which are beyond our
control;
- we are subject to potential environmental liabilities;
- we are subject to complex regulations relating to our status as a REIT
and would be adversely affected if we failed to qualify as a REIT; and
6
<PAGE>
- market interest rates could adversely affect the market
prices for our Common Stock and our performance and cash
flow.
GENERAL RISK FACTORS
WE ARE SUBJECT TO A VARIETY OF GENERAL REAL ESTATE INDUSTRY RISKS.
GENERAL REAL ESTATE OWNERSHIP RISKS. If our properties do not
generate revenues sufficient to meet our operating expenses, including debt
service and capital expenditures, our cash flow and ability to pay
distributions to our shareholders will be adversely affected. The following
factors, among others, may adversely affect real estate values and our
ability to generate revenues:
- changes in the general economic climate;
- local conditions (such as an oversupply of space or a reduction in demand
for real estate in an area);
- the quality and philosophy of management;
- competition from other available space;
- the ability of the owner to provide adequate maintenance;
- insurance and variable operating costs;
- government regulations;
- changes in interest rate levels;
- the availability of financing; and
- potential liability due to changes in environmental and other laws.
ILLIQUIDITY OF REAL ESTATE. Real estate investments are relatively
illiquid and therefore will tend to limit our ability to react promptly in
response to changes in economic or other conditions. In addition, the Code
limits a REIT's ability to make sales of properties held for fewer than four
years, which may affect our ability to sell properties without adversely
affecting returns to stockholders.
WE DEPEND SUBSTANTIALLY ON LOCAL ECONOMIC CONDITIONS.
Our properties are all located in the western region of the United
States, with a majority in the State of California, primarily in the San Diego
County, greater Los Angeles and San Francisco Bay areas. This concentration
of properties subjects us to the strengths or weaknesses of the western
region economies and the aforementioned local economies in a number of ways.
The performance of the economy in each locality affects occupancy, market
rental rates and expenses and could cause our revenues and the underlying
values of our properties to decline. Moreover, the financial results of major
local employers may have an impact on our revenues and the value of some of
our properties. If there is a downturn in the economy of the western region
in general or of any of these local economies, our results of operations
could suffer and we may be unable to make distributions to our stockholders.
In that regard, certain areas of the western region (particularly the greater
Los Angeles area) have in the past been harmed by reductions in defense
spending, and certain other areas of California (particularly the San
Francisco Bay area) may be substantially influenced by conditions in the high
technology industries. Additionally, certain areas in California are subject
to various natural disasters, including earthquakes and floods. See "-- Our
Insurance Coverage is Limited."
7
<PAGE>
OUR INVESTMENTS ARE CONCENTRATED IN THE RETAIL SEGMENT OF THE REAL ESTATE
INDUSTRY.
Our current strategy is to acquire interests only in retail shopping
centers and related properties. As a result, we will be subject to risks
inherent in investments in a single industry. If there is a downturn in the
retail industry, we will be in a worse position to make distributions to our
stockholders than if we diversified our portfolio by investing in other types
of properties.
We are subject to risks associated with retail tenants, including the
volatile nature of the retail business and changes in consumer preferences.
These risks may result in tenant failures or changes in physical requirements
which we may have to accommodate to retain or attract tenants. Retail chains
may overexpand in the same general market area, thereby creating competition
with their own stores that may be in one or more of our properties. Because
many anchor tenants have negotiating power to demand the exclusive or sole
right to sell certain types of products in a shopping center, the existence
of such rights may impair our ability to lease space to retailers of
potentially competing products. These and similar factors may affect the
revenues, and resulting value, of our properties.
WE HAVE COMPETITORS.
Numerous retail properties compete with our properties in attracting
tenants to lease space. Some of these properties are newer and better located
or designed and may offer lower expenses or be better capitalized than our
properties. Our ability to lease space at our properties or at newly
developed or acquired properties and at rents currently charged could be
impaired by the number of competitive commercial properties in a particular
area. Additionally, we compete for investment opportunities with entities
which have substantially greater financial resources than ours. These
entities may generally be able to accept more risk than we can prudently
manage. Competition may generally reduce the number of suitable investment
opportunities offered to us and increase the bargaining power of property
owners seeking to sell.
OUR FINANCIAL CONDITION DEPENDS IN PART ON THE FINANCIAL CONDITION OF OUR
TENANTS.
At any time, any of our tenants may seek the protection of the
bankruptcy laws. This could result in the rejection and termination of that
tenant's lease and thereby harm our results of operations and ability to make
distributions to our stockholders. Although we have not experienced material
losses from tenant bankruptcies, tenants could file for bankruptcy protection
in the future and, if they do, they could terminate their leases or
discontinue to pay their rent on time. In addition, a tenant from time to
time may experience a downturn in its business which may weaken its financial
condition and result in its failure to make rental payments when due. A
tenant's failure to affirm their lease following bankruptcy or a weakening of
their financial condition could impair our results of operations and ability
to make distributions to our stockholders.
THERE ARE GENERAL RISKS ASSOCIATED WITH THE ACQUISITION AND DEVELOPMENT OF
REAL ESTATE.
We intend to acquire existing retail commercial properties to the
extent that they can be acquired on acceptable terms and meet our investment
criteria. Acquisitions of retail commercial properties entail general
investment risks associated with any real estate investment, including the
risk that investments will not perform as expected or that estimated costs of
improving an acquired property to bring it up to standards established for
the intended market position may prove inaccurate.
We are pursuing certain commercial property development projects and
expect to develop other projects. Generally, developing properties carries
more risk than acquiring existing properties. For example, development
projects generally require various governmental and other approvals which may
not be obtained. Furthermore, approvals frequently require the improvement of
public infrastructure, or other activities to
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mitigate the effects of the proposed development, which may cost more than
anticipated. Our development activities will entail a variety of other risks,
including:
- that we will devote financial and management resources to projects which
may not come to fruition;
- that we will not complete a development project as scheduled;
- that we will incur higher construction costs than anticipated;
- that occupancy rates and rents at a completed project will be less than
anticipated; and
- that expenses at a completed development will be higher than anticipated.
These risks may harm our results of operations and ability to make
distributions to our stockholders.
We cannot be sure that we will be able to secure financing to acquire
or develop properties or that, if we do, we will be able to secure it on
favorable terms. Integrating the aforementioned acquisition and development
properties into our current systems and procedures presents a challenge to
our management. Failure to do so could have a material adverse effect on our
results of operations and ability to make distributions to our stockholders.
WE DEPEND ON KEY PERSONNEL.
We depend on the efforts of our executive officers, J. David Martin,
our President and Chief Executive Officer, W. Joseph Byrne, our Executive
Vice President and Chief Operating Officer, and Daniel B. Platt, our
Executive Vice President, Chief Financial Officer and Chief Administrative
Officer. Loss of their services could harm our operations. We have an
employment agreement with Mr. Martin. That agreement could be terminated by
either party at will.
OUR DEVELOPMENT OF PROPERTIES ACQUIRED FROM AN EXECUTIVE OFFICER COULD CREATE
CONFLICTS OF INTEREST.
We have various development projects which we acquired from Mr.
Martin, concurrently with his appointment as President and Chief Executive
Officer in 1995. While we have adopted procedures for decision-making with
respect to those projects (including Mr. Martin's absence from Board of
Directors meetings during certain discussions involving those projects),
nevertheless the arrangement could result in conflicts of interest in one or
more of the projects.
WE COULD INCUR UNANTICIPATED EXPENSES IF WE FAIL TO QUALIFY AS A REIT.
The Company has elected to qualify as a real estate investment trust
under the Code. We believe that since 1987 we have satisfied the REIT
qualification requirements. However, the IRS could challenge our REIT
qualification for taxable years still subject to audit. Moreover, we may fail
to qualify as a REIT in future years. A REIT generally is not taxed on
distributed income if it distributes to its stockholders at least 95% of its
real estate investment trust taxable income. Qualification as a REIT involves
the satisfaction of numerous requirements (some on an annual or quarterly
basis) established under highly technical and complex provisions of the Code
for which there are only limited judicial or administrative interpretations.
In addition, REIT qualification involves the determination of various factual
matters and circumstances not entirely within our control.
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If in any taxable year we failed to qualify as a REIT, we would not
be allowed to deduct distributions to stockholders in computing taxable
income. Furthermore, we would be subject to federal income tax on our taxable
income at regular corporate rates. Unless entitled to relief under certain
statutory provisions, we would also be disqualified from treatment as a REIT
for the four taxable years following the year during which qualification was
lost. As a result, the funds available for distribution to our stockholders
would be reduced for each of the years involved. Although we currently intend
to operate as a qualified REIT, future economic, market, legal, tax or other
considerations may impair our REIT qualification or may cause our Board of
Directors to revoke the REIT election. See "Federal Income Tax
Considerations."
WE COULD INCUR COSTS FROM ENVIRONMENTAL PROBLEMS, EVEN IF WE DID NOT CAUSE OR
CONTRIBUTE TO THEM.
Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real estate is liable for the costs of
removal or remediation of certain hazardous or toxic substances on or in such
property. These laws often impose liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of the
hazardous or toxic substances. The presence of those substances, or the
failure to properly remediate them, may impair the owner's or operator's
ability to sell or rent the property or to borrow using the property as
collateral. A person who arranges for the disposal or treatment of hazardous
or toxic substances may also be liable for the costs of removing or
remediating the substances at a disposal or treatment facility, whether or
not that person owns or operates the facility. Since we own (directly and
indirectly), operate, manage and develop real properties, for liability
purposes we may be considered an owner or operator of those properties or as
having arranged for the disposal or treatment of hazardous or toxic
substances. As a result, we could have to pay removal or remediation costs.
Furthermore, certain environmental laws impose liability for release of
asbestos-containing materials into the air, and third parties may seek
recovery from owners or operators of real properties for personal injuries
associated with asbestos-containing materials. Thus, we might have to pay
other costs, including governmental fines and costs related to injuries to
persons and property, resulting from the environmental condition of our
properties, regardless of whether we actually contributed to such conditions.
WE ARE SUBJECT TO RISKS FROM DEBT FINANCED ACQUISITIONS.
Like many owners of real estate, we borrow money to finance the
acquisition, development and operation of properties. We currently have a
line of credit facility (the "Credit Facility") that has both secured and
unsecured portions. We have pledged some of our properties as collateral to
secure loans made by various lenders, including loans made under our Credit
Facility. Neither our charter nor our bylaws limit the amount of indebtedness
that we may incur. Although provisions contained in the Credit Facility limit
the amount of additional indebtedness we may incur, those covenants permit us
to incur substantial indebtedness beyond our current level. Currently, we may
borrow up to $205 million under our Credit Facility. We have utilized the
Credit Facility to finance certain recent acquisitions and may use it to fund
the acquisition of additional properties and for other general corporate
purposes. The Credit Facility requires that we comply with a number of
financial covenants. We are also obligated by other indebtedness secured by
individual properties. We may not be able to meet our debt service
obligations or to comply with the financial covenants in our debt
instruments. If this occurred, certain lenders might be entitled to demand
immediate repayment of the related indebtedness and to commence foreclosure
proceedings against the property securing the indebtedness, which could cause
us to lose some or all of our assets. Furthermore, a downturn in the economy
could make it difficult for us to borrow money on favorable terms. If this
occurred, we might need to sell certain assets at unfavorable prices to
enable us to repay some of our loans. We would be subject to the risks
normally associated with debt financing, including:
- the risk that our cash flow will be insufficient to meet required
payments of principal and interest;
- the risk that interest rates on indebtedness (such as borrowings
under the Credit Facility) bearing interest at floating rates
will increase; and
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- the risk that existing indebtedness cannot be refinanced or that
the terms of refinancing will be less favorable than the terms of
existing indebtedness.
Our mortgage indebtedness (other than indebtedness under the Credit Facility)
is generally nonrecourse to us. However, even with respect to nonrecourse
mortgage indebtedness, we could be obligated to pay our lenders for certain
deficiencies resulting, among other things, from fraud, misapplication of
funds and environmental liabilities.
WE OWN PROPERTIES JOINTLY WITH OTHER ENTITIES AND ARE COMMITTED TO EXPAND OUR
JOINT VENTURE ACTIVITIES.
We may from time to time acquire interests in joint ventures (which
may be organized as limited liability companies, limited or general
partnerships, joint ventures or other enterprises) formed to own or develop
real property or interests in real property, including the CalPERS and the
CUIP joint ventures described below. We may acquire minority interests in
joint ventures and also may acquire interests as a passive investor without
rights to actively participate in management of the joint ventures.
Investments in joint ventures involve additional risks, including the
possibility that the other participants may become bankrupt or have economic
or other business interests or goals which are inconsistent with our
interests, that we will be unable to direct the management and policies of
the joint ventures and that other participants may take action contrary to
our instructions or requests or our policies and objectives or which could
jeopardize our ability to maintain qualification as a REIT. These investments
may also have the potential risk of impasse on decisions, such as a sale,
because no single entity has full control over the joint ventures. We will,
however, seek to maintain sufficient control of these joint ventures to
achieve our business objectives and to preserve our status as a REIT,
although we may not be successful in doing so. If we are not successful, our
business and operations will be impaired and we may not be able to make
distributions to our stockholders. There is no limitation under our
organizational documents as to the amount of available funds that we may
invest in joint ventures.
CALPERS. On August 31, 1998 we entered into an agreement with the
State of California Public Employees' Retirement System ("CalPERS") pursuant
to which CalPERS has an 80% interest and the Operating Partnership a 20%
interest in a joint venture. The purpose of the joint venture is to serve as
the vehicle through which we and CalPERS expect to invest in neighborhood,
community, promotional and specialty retail centers in the western region of
the United States. Although the Operating Partnership is the manager of the
joint venture, CalPERS is entitled to certain rights which may be
inconsistent with our interests. CalPERS is entitled to a priority return on
its investment in the joint venture before any return is paid to the
Operating Partnership. The priority return is equal to a 5.00% annual rate of
return (adjusted for inflation) plus a premium which could raise the priority
return substantially. Also, subject to certain limitations, CalPERS may elect
to convert its joint venture interest in one or more properties held by the
joint venture into shares of our Common Stock (up to an aggregate of 9.8% of
the number of outstanding shares of our Common Stock). In addition, under the
joint venture agreement, the Operating Partnership is obligated to:
- observe a number of policies established by CalPERS with respect to its
investments generally;
- consult regularly with CalPERS relative to its policies for real estate
investments;
- establish an annual business plan for the joint venture that is subject
to CalPERS' approval;
- advise CalPERS concerning major developments; and
- obtain CalPERS' approval before taking specified major activities
with respect to the properties owned by the joint venture.
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As of October 1, 1998, CalPERS made an initial contribution to this
new joint venture of five retail properties in Colorado, Texas and Oregon, of
which it had previously been the sole owner under arrangements with previous
advisors, valued at approximately $80,000,000. On October 2, 1998, the joint
venture purchased a retail shopping center for approximately $13,310,000. We
intend to contribute properties owned directly by the Operating Partnership
as our initial contribution. The joint venture agreement contemplates an
aggregate $400 million investment by CalPERS and $100 million investment by
us through the period ending December 31, 1999, and provides for up to $165
million of leverage through mortgage or line of credit borrowings by the
joint venture. Subject to certain qualifications, in making future
acquisitions, we are committed to offer qualifying retail property investment
opportunities to the joint venture until the parties' respective investment
obligations are satisfied, before making such acquisitions solely for our own
direct account. We can give no assurance that the investment goals of the
joint venture will be satisfied or that CalPERS and we may not agree to
expand such goals or to vary our respective 80/20% participation in the joint
venture.
CUIP. In addition, we have agreements with an institutional investor,
California Urban Investment Partners ("CUIP"), relating to our joint
ownership of two shopping center properties, Margarita Plaza and Ladera
Center, each acquired in 1996. Each property is owned by a separate limited
liability company, of which both CUIP and the Operating Partnership are
managing members. We own a 25% interest and CUIP owns a 75% interest in each
joint venture. The principal investor in CUIP is CalPERS.
OUR INSURANCE COVERAGE IS LIMITED.
We carry comprehensive general liability coverage and umbrella
liability coverage on all of our properties. We believe that our properties
are adequately insured against liability claims and the cost of defending
those claims (subject to deductibles and subject to the limitations described
below on insurance for losses caused by earthquake or flood). Similarly, we
believe that our properties are adequately insured on a replacement cost
basis (subject to deductibles) against the risk of direct physical damage for
costs incurred to repair or rebuild each property, including loss of rental
income during the reconstruction period. Certain types of extraordinary
losses, however, either are not insurable or are not economically insurable.
Should any uninsured loss occur, we could lose our investment in, and
anticipated revenues from, a property. An uninsured loss could have a
material adverse effect on our business and operations and our ability to
make distributions to our stockholders. Currently we also insure certain
properties for loss caused by earthquake in the aggregate amount of $50
million (subject to deductibles) and six of our properties for loss caused by
flood. Because of the high cost of this type of insurance coverage and the
wide fluctuations in price and availability, we have determined that the risk
of loss due to earthquake and flood does not justify the cost to increase
this coverage any further under current market conditions. However, we could
suffer material harm if an earthquake, flood or other natural disaster occurs.
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RISK FACTORS RELATING TO THE REDEMPTION OF UNITS AND THE PURCHASE OF SHARES
PROVISIONS OF OUR ORGANIZATIONAL DOCUMENTS MAY DISCOURAGE ACQUISITION
PROPOSALS.
Charter and Bylaws. Certain provisions contained in our charter and
bylaws may discourage third parties from making proposals to acquire us,
regardless of whether some of the stockholders may consider the proposal to be
in their best interest. These provisions include the following:
- Our bylaws provide that a special meeting of stockholders may be
called by stockholders only when called by stockholders who hold
shares representing a majority of votes entitled to be cast at
the meeting. This provision could make it difficult for a
stockholder to call a meeting for the purposes of approving a
change of control without the support of the Board of Directors.
- Our charter authorizes the Board of Directors to reclassify the
Company's authorized capital stock without approval of the
stockholders generally, which could result in a substantial
increase above the 5,000,000 shares of Preferred Stock presently
authorized. The ability of our Board of Directors to issue
Preferred Stock without stockholder approval, and to establish
the preferences and rights of any class or series issued, could
allow the Board of Directors to issue a class or series of
Preferred Stock that would discourage or delay a tender offer or
change in control.
- Our charter generally limits any holder from acquiring more than
9.8% of the value of our capital stock or number of shares of our
outstanding Common Stock. The ownership limits in the charter may
also limit the opportunity for stockholders to receive a premium
for their shares of Common Stock that might otherwise exist if an
investor were attempting to assemble a block of shares in excess
of 9.8% of the outstanding shares of Common Stock or otherwise
effect a change in control.
- Pursuant to the terms of the Preferred Stock set forth in the
Articles Supplementary, except in limited circumstances, the
Company may not take certain actions, including the merger or
consolidation of the Company or the Operating Partnership with
any person in or as a result of which the valuation of the Common
Stock is not in excess of $15.375.
OPERATING PARTNERSHIP AGREEMENT. We conduct substantially all of our
business through the Operating Partnership. We are the sole general partner
of the Operating Partnership and, except in limited circumstances, have
exclusive management power over the business and affairs of the Operating
Partnership. Furthermore, we may not be removed as general partner of the
Operating Partnership, with or without cause, by the holders of limited
partnership units. As a result of this structure, a third party may be
deterred from making an acquisition proposal that it might otherwise make.
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REDEEMING UNITS WILL CHANGE YOUR INVESTMENT.
If you hold Units and exercise your right to require that we redeem
all or a portion of your Units, you may receive cash or, at our option,
Common Stock, in the case of Common Units, and Preferred Stock, in the case
of Preferred Units. If you receive cash, you will no longer have any interest
in the Operating Partnership (except to the extent that you retain Units) and
you will not benefit from any subsequent increases in our share price and you
will not receive any future distributions from us (unless you retain or
acquire Units or additional shares of capital stock in the future). If you
receive capital stock, you will become a stockholder of Burnham Pacific
Properties, Inc. rather than a holder of Units in Burnham Pacific Operating
Partnership, L.P. and as such will have different economic and corporate
governance rights from those you had as a holder of Units.
REDEEMING UNITS WILL CREATE TAX LIABILITIES.
If we acquire your Units in exchange for cash or capital stock, the
redemption of your Units will be treated for tax purposes as a sale of your
Units. The redemption will be fully taxable to you, and you will be treated
as realizing for tax purposes an amount equal to the sum of (a) the cash you
receive or the value of the capital stock you receive plus (b) the amount of
any liabilities of the Operating Partnership allocable to the exchanged Units
at the time of the redemption or exchange. 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 capital stock you would receive in
the redemption. In addition, your ability to sell a substantial number of
shares of capital stock in order to raise cash to pay your tax liabilities
associated with the redemption of Units may be limited as a result of
fluctuations in the market price of our Common Stock or the value of our
Preferred Stock or as a result of there being no organized public market for
Preferred Stock, and the price you receive for those shares may not equal the
value of your Units at the time of the redemption or exchange.
If we do not acquire the Units you tender for redemption in exchange
for our capital stock, and the Operating Partnership redeems the Units for
cash, the tax consequences may differ. See "Description of Units and
Redemption of Units of Operating Partnership -- Tax Consequences of
Redemption."
IF A UNITHOLDER REDEEMS UNITS, THE ORIGINAL RECEIPT OF THE UNITS MAY BE
SUBJECT TO TAX.
Your original receipt of the Units may be treated as a taxable sale
under the "disguised sale" rules of the Code if you redeem your Units.
Subject to several exceptions, the tax law generally provides that a
partner's contribution of property to a partnership and a simultaneous or
subsequent transfer of money or other consideration from the partnership to
the partner will be presumed to be a taxable sale if the two transactions
happen within a two-year time period. The presumption may be overcome if the
facts and circumstances clearly establish that the transfers are not a sale.
On the other hand, if two years have passed between the original contribution
of property and the transfer of money or other consideration, the
transactions will not be presumed to be a taxable sale unless the facts and
circumstances clearly establish that they should be. You should consult your
own tax advisor regarding your personal situation prior to tendering Units
for redemption.
THERE IS NO PUBLIC MARKET FOR PREFERRED STOCK.
At the present time, there is no trading market for the Preferred
Stock, and the limited number of shares of Preferred Stock, even if all of
such shares were issued, would likely inhibit the development of an organized
public market. A stockholder's ability to sell Preferred Stock will depend
upon a variety of factors including the amount available for sale, the terms
under which they are available to purchasers and the objectives of potential
investors in the Company.
THE PRICE OF OUR CAPITAL STOCK IS SUBJECT TO GENERAL MARKET FORCES.
A variety of factors may influence the price of our capital stock.
The price of our capital stock, including shares of our Common Stock which
are listed on the New York Stock Exchange, could drop based on such factors
as:
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- an increase in market interest rates;
- public perception that companies dependent on retail tenants are
doing poorly in comparison to other companies owning other types of
properties and catering to different types of tenants;
- the announcement of new acquisitions or development projects by us or
our competitors;
- quarterly variations in our operating results or the operating results
of our competitors; and
- changes in earnings (losses) or other estimates by analysts or
reported results that vary from those estimates.
In addition, the stock market may experience significant price
fluctuations which, although unrelated to our performance, could cause the
market value of our capital stock to drop. If the market value of our capital
stock experiences periods of volatility, securities litigation could be
initiated against us. This litigation could cost us substantial financial and
management resources and could have a material adverse effect on our business
and operations and our ability to make distributions to our stockholders.
A stockholder's ability to sell Preferred Stock will depend upon a
variety of factors including the amount available for sale, the terms under
which they are available to purchasers and the objectives of potential
investors in the Company.
THE COMPANY'S ABILITY TO PAY DIVIDENDS DEPENDS UPON DISTRIBUTIONS RECEIVED
FROM THE OPERATING PARTNERSHIP.
The Operating Partnership owns our properties and conducts our
business. Accordingly, the sole source of the Company's funds to pay
dividends is distributions that the Operating Partnership pays to its
partners, including the Company in its capacity as both general partner and a
limited partner owning Preferred Units and Common Units of the Operating
Partnership. Although the Company, as sole general partner of the Operating
Partnership, intends to cause the Operating Partnership to make distributions
to it (and to the other partners of the Operating Partnership) sufficient to
enable the Company to pay dividends to the holders of its capital stock, the
inability or failure of the Operating Partnership to make such distributions
at any time would directly affect the Company's ability to pay dividends.
THE REGISTRATION AND OTHER RIGHTS OF THE CAPITAL STOCK MAY HAVE AN ADVERSE
EFFECT ON THE MARKET PRICE OF THE SHARES.
We have given holders of (i) the Preferred Shares, (ii) Preferred
Units and (iii) Common Units registration rights which include "demand" and
"piggyback" registration rights with respect to the following shares of
capital stock that are the subject of this Prospectus:
- 2,800,000 Preferred Shares which the Selling Stockholders may issue for
sale,
- up to 2,000,000 shares of Preferred Stock which we may issue upon
redemption of Preferred Units,
- up to 7,804,878 shares of Common Stock which we may issue upon
conversion of the Preferred Stock, and
- up to 574,472 shares of Common Stock which we may issue upon
redemption of currently outstanding Common Units that were issued
in connection with an acquisition, plus an additional undetermined
number of additional Common Units that may be issuable pursuant to
an "earn-out" provision of another acquisition but which are not being
registered for sale under this Prospectus.
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The Operating Partnership has also invested in certain other real
estate partnerships and limited liability companies and has issued Common
Units to contributors of other properties, which Common Units are not being
registered for sale under this Prospectus. Certain partners in those other
limited partnerships and limited liability companies and the holders of such
Common Units have the right to have their interests in the partnerships and
limited liability companies redeemed for cash or, at our option, for shares
of our Common Stock. These partners also have certain "demand" and
"piggyback" registration rights with respect to the shares of our Common
Stock that may be issued in exchange for their limited partnership, limited
liability company or Operating Partnership interests. All of the registration
rights discussed above could materially adversely affect the market price for
our capital stock.
In addition, holders of Preferred Stock have rights of first offer to
purchase a pro rata share of shares of our capital stock which we may offer
in the future. These rights of first offer could have a material adverse
effect on the market price for our capital stock.
SEPARATE RISKS RELATING TO TWO CLASSES OF STOCK
ANTI-DILUTION PROVISIONS OF THE PREFERRED STOCK MAY LEAD TO SUBSTANTIAL
DILUTION OF THE HOLDERS OF COMMON STOCK.
Each share of Preferred Stock is convertible, at the option of the
holder, into the number of shares of Common Stock determined by dividing the
$25 stated value of the Preferred Stock by the Conversion Price. The
"Conversion Price" is initially $15.375 per share but is subject to
adjustment pursuant to certain antidilution provisions. Such conversion right
is exercisable by a holder of Preferred Stock with respect to 25% of the
shares held of record by such holder on and after each of December 31, 1998,
March 31, 1999, June 30, 1999 and September 30, 1999 (or earlier in the event
of a Change of Control or certain other defined events). As of December 1,
1998, subject to anti-dilution adjustments contained in the Articles
Supplementary, each share of Preferred Stock was convertible into
approximately 1.626 shares of Common Stock. In order to protect the holders
of Preferred Stock, the Conversion Price may be reduced in certain
circumstances to prevent dilution of their ownership. For instance, in the
event (i) the Company issues or sells Common Stock, or securities exercisable
for or convertible into Common Stock, at a purchase or exercise price (as
applicable) of less than $14.375 per share and (ii) such issuance would
trigger a reduction in the Conversion Price of at least 1.0% under the
formula set forth in the Articles Supplementary, then the Conversion Price
will be reduced pursuant to a formula based upon the proportion of the value
of Common Stock issuable at less than the Conversion Price to the value of
all Common Stock to be outstanding following such issuance. If, however, any
shares of Common Stock are issued or issuable at or less than $11.00 per
share, then the Conversion Price will be fully reduced to such lower price.
Any such reduction in the Conversion Price would likely have a significant
dilutive effect on the holders of Common Stock both as a result of the
initial dilutive transaction as well as the impact of the antidilution
provisions of the Preferred Stock triggered by such transaction. See
"Description of Securities--Preferred Stock--Conversion Right." The
proportionate ownership, voting power and earnings per share of the holders
of Common Stock could be substantially diluted in the event that we engage in
a dilutive transaction and consequently issue a substantial number of
additional shares of Common Stock and/or Preferred Stock. This, in turn,
could adversely affect the market price of the shares offered by this
Prospectus.
CONCENTRATION OF VOTING AND CONSENT POWER OF THE HOLDERS OF THE PREFERRED
STOCK MAY BE DETRIMENTAL TO THE HOLDERS OF COMMON STOCK.
The holders of shares of Preferred Stock have the right to vote on
all matters on which the holders of Common Stock are entitled to vote on an
"as converted" basis with holders of shares of the Common Stock, as though
part of the same class as holders of Common Stock.
While any shares of Preferred Stock are outstanding, the Company may
not, without approval of holders of at least a majority of the outstanding
shares of Preferred Stock voting separately as a class, take any of several
actions described in the Articles Supplementary that would diminish the right
of the holders of
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Preferred Stock (including the authorization or issuance of any class or
series of stock that would rank prior to or on a parity with the Preferred
Stock) or that would result in the Company's transfer of its general
partnership interest in the Operating Partnership or a merger or
consolidation of assets which would result in the Common Stock having a value
of less than $15.375 per share, or the termination (as defined in the
Articles Supplementary) of the Company's qualification as a real estate
investment trust, or a Change of Control (as defined in the Articles
Supplementary) or certain other actions. See "Description of
Securities--Preferred Stock--Conversion Right."
The holders of the Preferred Stock have the contractual right to
submit a recommendation to the Nominating Committee of the Board of Directors
for the election of a director at each annual meeting of stockholders (until
the number of outstanding shares of Preferred Stock is reduced to a specified
number). In addition, under the Company's Articles Supplementary, upon the
failure of the Company to pay the full amount of the Preferred Stock
preferential dividend for four consecutive quarters or upon certain Voting
Rights Defaults (as defined in the Articles Supplementary) of the Company in
its obligations with respect to the holders of Preferred Stock, the holders
of the Preferred Stock will have the right, as a class, to elect two
additional directors of the Company, until such defaults are cured. The
interests of the holders of the Preferred Stock, and indirectly the director
or directors elected by the holders of the Preferred Stock, may differ from
or conflict with the interests of the holders of Common Stock. See
"Description of Securities--Preferred Stock--Other Provisions" for a
description of certain other rights of the holders of Preferred Stock and of
holders of Preferred Units, and of certain obligations of the Company in
connection therewith.
The holders of the Preferred Stock have certain consent rights to
actions we may take. We may not, among other things, make certain revisions
to our corporate structure and operations, without the approval of holders of
at least a majority of the outstanding shares of Preferred Stock, voting as a
separate class. This includes (i) revisions that would affect the rights,
priority and preferences of the Preferred Stock, (ii) the merger or
consolidation of us or the Operating Partnership with another entity, (iii)
the sale of all or substantially all of our assets, and (iv) undergoing a
change in control of either us or the Operating Partnership. See "Description
of Securities--Preferred Stock--Voting Rights." As of the date of this
Prospectus, Westbrook holds the substantial majority of all outstanding
shares of the Preferred Stock.
In addition, upon conversion of the Preferred Stock (including the
shares of Preferred Stock that may be issued upon redemption of the Preferred
Units) into shares of Common Stock, the holders of Preferred Stock would hold
approximately 18.8% of all outstanding shares of Common Stock (assuming
exchange of all partnership interests in the Operating Partnership into
shares of Common Stock, and assuming that all 4,800,000 shares of Preferred
Stock were fully convertible and were converted on the date of this
Prospectus). Consequently, upon such conversion, the holders of Preferred
Stock would, as a class, be the largest stockholder in the Company and could
have considerable influence with respect to the election of directors and the
approval or disapproval of significant corporate actions. See "Description of
Securities--Preferred Stock--Conversion Right."
In view of the substantial influence of the holders of the Preferred
Stock over our affairs, you should note that interests of the holders of the
Preferred Stock do not necessarily coincide with those of the holders of the
Common Stock. Therefore, actions by the holders of the Preferred Stock will
not necessarily be in the best interests of the holders of Common Stock.
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THE COMPANY
We are a fully-integrated real estate operating company which
acquires, rehabilitates, develops and manages retail properties in the
western region of the United States. 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. Our properties are primarily
neighborhood and community shopping centers located in major metropolitan
areas. We focus on shopping centers in mature trade areas with a limited
supply of vacant land and with established consumer shopping patterns. These
characteristics help limit potential future competition in a trade area. We
also own four office and industrial properties which we consider
non-strategic and which we may sell as suitable opportunities arise. Title to
our properties is held by or for the benefit of the Operating Partnership or
various subsidiaries of the Operating Partnership.
We own our properties and conduct substantially all of our business
through the Operating Partnership, of which the Company is the sole general
partner and, as the holder of preferred and common limited partnership units,
the owner of a substantial majority of the economic interests. Other limited
partners of the Operating Partnership are persons who have contributed
interests in properties to the Operating Partnership in exchange for limited
partnership units of the Operating Partnership. Such transactions have
enabled us to reduce the amount of cash consideration paid for the acquired
properties while also providing the contributors the opportunity to defer
recognition of federal income taxes on their disposition of such properties.
Holders (other than the Company) of Units issued on such acquisitions
generally have the right, after a specified period of time, to cause the
Operating Partnership to redeem such Units for cash. In lieu of redemption
for cash, the Company has the right to exchange a like number of shares of
its capital stock for the Units being redeemed.
Among the properties that we have acquired where Units of the
Operating Partnership were issued as part of the acquisition price are the
following:
- On December 31, 1997, we acquired Simi Valley Plaza shopping
center in Simi Valley, California from Simi Valley Plaza LLC. The
Operating Partnership issued 574,483 Common Units as a part of
the consideration for such acquisition.
- Also on December 31, 1997, we acquired a portfolio of 20 California
shopping centers (the "Golden State Properties Portfolio") from
investment funds affiliated with Blackacre Capital Group, L.P. and
individuals affiliated with Highridge Partners (collectively "Blackacre")
pursuant to a Contribution Agreement. The Operating Partnership issued
2,000,000 Preferred Units to members of Blackacre, and undertook to issue
additional Common Units and/or cash as a part of an "earn-out" provision
in the Golden State Properties Portfolio Contribution Agreement. The
Company contributed additional funds to enable the Operating Partnership
to acquire these properties, which funds included the proceeds from
the Company's issuance to Westbrook Burnham Holdings, L.L.C. and
Westbrook Burnham Co-Holdings, L.L.C. (collectively "Westbrook") of
2,800,000 shares of Preferred Stock. Concurrently with the Company's
issuance of these Shares of Preferred Stock, the Operating Partnership
issued to the Company 2,800,000 Preferred Units whose distribution and
other economic terms mirror the distribution and other economic terms of
the Preferred Shares. (As a matter of convenience among themselves,
Westbrook and Blackacre requested us to issue 10 of the 2,800,000
Preferred Shares in the name of Blackacre and 10 of the 2,000,000
Preferred Units in the name of Westbrook.)
See "Description of Units and Redemption of Units of Operating Partnership"
for a description of the Common Units and Preferred Units that were issued in
such transactions.
In August 1998, the Operating Partnership and the State of California
Public Employees' Retirement system ("CalPERS") entered into a joint venture
agreement for the acquisition of neighborhood, community, promotional and
specialty retail centers in the western region of the United States. The
joint venture agreement contemplates an aggregate $400 million investment by
CalPERS and $100 million investment by us through the
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period ending December 31, 1999, and provides for up to $165 million of
leverage through mortgage or line of credit borrowings by the joint venture.
Subject to certain qualifications, in making future acquisitions, we are
committed to offer qualifying retail property investment opportunities to the
joint venture until CalPERS' and our respective investment obligations are
satisfied, before making such acquisitions solely for our own direct account.
We can give no assurance that the investment goals of the joint venture will
be satisfied or that CalPERS and we may not agree to expand such goals or to
vary our respective 80/20% participation in the joint venture. See "Risk
Factors--We Own Certain Properties Jointly with Other Entities and are
Committed to Expand Our Joint Venture Activities."
Our Company is incorporated under the laws of the State of Maryland.
Our offices are located at 610 West Ash Street, 16th Floor, San Diego,
California 92101. Our telephone number is (619) 652-4700.
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DESCRIPTION OF SECURITIES
THE DESCRIPTION OF THE COMPANY'S CAPITAL STOCK SET FORTH BELOW DOES
NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE COMPANY'S CHARTER AND BYLAWS, EACH AS AMENDED AND RESTATED, COPIES OF
WHICH ARE EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS
A PART. SEE "AVAILABLE INFORMATION."
GENERAL
Under its charter, the Company has authority to issue up to 100
million shares of stock, consisting of 75 million shares of Common Stock,
five million shares of Preferred Stock and 20 million shares of "Excess
Stock" (as described below), each with a par value of $.01 per share. As of
December 1, 1998, the Company has 31,948,008 shares of Common Stock issued
and outstanding and 2,800,000 million shares of Preferred Stock issued and
outstanding and held by the Selling Stockholders. In addition, at such date
the Operating Partnership has 2,800,000 Preferred Units and 1,785,477 Common
Units outstanding (other than those held by the Company). If tendered to the
Operating Partnership for redemption, the Units held by persons other than
the Company may be exchanged for shares of Preferred Stock or Common Stock,
as the case may be, on a one-for-one basis at the option of the Company,
subject to the expiration of certain "lock-out" periods specified in
agreements relating to the issuance of such Units and subject to certain
adjustments to prevent dilution and certain limitations imposed to protect
the Company's status as a REIT.
PREFERRED STOCK
As part of the financing for the Company's acquisition of a portfolio
of the Golden State Properties Portfolio, which was completed on December 31,
1997, the Company issued 2,800,000 shares of its Preferred Stock to Westbrook
Burnham Holdings, L.L.C. and Westbrook Burnham Co-Holdings, L.L.C. in a
privately negotiated sale. The Preferred Stock is the only series of
preferred stock of the Company that is outstanding as of the date of this
Prospectus. The Preferred Stock ranks senior to the Common Stock with respect
to dividend rights and distributions upon liquidation, dissolution and
winding up of the Company. The principal terms of the Preferred Stock are
summarized below. This summary does not purport to be complete and is subject
to, and qualified in entirety by, the complete text of the Articles
Supplementary to the Company's charter filed as an exhibit to the Company's
Report on Form 8-K dated January 14, 1998 (the "Articles Supplementary"),
which is incorporated by reference herein.
STATED VALUE AND LIQUIDATION PREFERENCE
The Preferred Stock has a stated value of $25 per share (the "Stated
Value"), and upon the distribution of assets on the liquidation, dissolution
or winding up of the Company each share of Preferred Stock is entitled to a
preferential payment (the "Liquidation Preference") of the Stated Value plus
any accrued and unpaid dividends prior to the payment of any amount with
respect to shares of the Common Stock.
Until the holders of the Preferred Stock have been paid the
Liquidation Preference in full, no payment will be made to any holder of
Common Stock upon the liquidation, dissolution or winding up of the Company.
If, upon such liquidation, dissolution or winding up, the assets of the
Company, or the proceeds thereof, distributable among the holders of the
shares of the Preferred Stock are insufficient to pay in full the Liquidation
Preference, then such assets, or the proceeds thereof, will be distributed
pro rata to the holders of shares of the Preferred Stock (and any shares of
stock which are on parity with the Preferred Stock as to distributions on
liquidation) in accordance with their respective holdings thereof.
Neither a consolidation or merger of the Company with another
corporation, nor a sale or transfer of all or any part of the Company's
assets for cash or securities, will be considered a liquidation, dissolution
or winding up of the Company.
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DIVIDENDS AND DISTRIBUTIONS
Each share of Preferred Stock is entitled to receive cumulative
quarterly cash dividends equal to the greater of (i) 2.00% (per quarter) of
the per share Stated Value, and (ii) the amount of dividends payable on the
number of shares of Common Stock into which the shares of Preferred Stock are
then convertible. The cumulative quarterly cash dividends will accrue daily
and will, to the extent not paid in full on the applicable dividend payment
date, together with accruals thereon, accrue at the compounded quarterly rate
of 2.00% from that date until payment is made, whether or not the Company has
earnings or surplus.
Unless and until all accrued dividends on the Preferred Stock through
the last preceding dividend payment date have been paid, the Company may not
(i) declare or pay any dividend, make any distribution (other than a
distribution payable solely in shares of Common Stock), or set aside any
funds or assets for payment or distribution with regard to any Common Stock
(or any other stock junior to the Preferred Stock, together with Common Stock
("Junior Shares")), (ii) redeem or purchase (directly or through
subsidiaries), or set aside any funds or other assets for the redemption or
purchase of, any Junior Shares or (iii) authorize, take or cause to be taken
any action as general partner of the Operating Partnership that will result
in (A) the declaration or payment by the Operating Partnership of any
distribution to its partners (other than distributions made concurrently with
distributions payable to the Company in respect of its partnership interest
or Preferred Units in each case that will be used by the Company to fund the
payment of dividends (such distributions to the Company being referred to as
"Authorized Distributions")), or set aside any funds or assets for payment of
any distributions (other than Authorized Distributions) or (B) the redemption
or purchase (directly or through subsidiaries), or the setting aside of any
funds or other assets for the redemption or purchase of, any partnership
interests in the Operating Partnership.
While any shares of Preferred Stock are outstanding, the Company may
not pay any dividend on any shares of any class or series of stock of the
Company which ranks on a parity with the Preferred Stock as to payment of
dividends unless at least a proportionate payment is made with regard to all
accrued dividends on the Preferred Stock (except, as to any shares of the
Preferred Stock as to which a notice of conversion has been furnished by the
holder thereof, at the effective time of conversion) through the most recent
preceding dividend payment date.
CONVERSION RIGHT
Each share of Preferred Stock is convertible into the number of
shares of Common Stock obtained by dividing the Stated Value per share by the
Conversion Price. As of December 1, 1998, each share of Preferred Stock was
convertible into approximately 1.626 shares of Common Stock. The Conversion
Price will be adjusted if the Company (i) pays a dividend or makes a
distribution on its Common Stock in shares of its Common Stock, (ii)
subdivides its outstanding Common Stock into a greater number of shares,
(iii) combines its outstanding Common Stock into a smaller number of shares,
(iv) issues rights or warrants to the holders of its Common Stock as a class
entitling them to purchase Common Stock at a price per share less than the
then Conversion Price, or (v) distributes to the holders of its Common Stock
as a class any shares of stock of the Company (other than Common Stock) or
evidences of indebtedness or assets (other than those referred to in the
previous clause) to purchase any of its securities. Furthermore, in the event
(i) the Company issues or sells Common Stock, or securities exercisable for
or convertible into Common Stock, at a purchase or exercise price (as
applicable) of less than $14.375 per share and (ii) such issuance would
trigger a reduction in the Conversion Price of at least 1.0% under the
formula set forth in the Articles Supplementary, then the Conversion Price
will be reduced pursuant to a formula based upon the proportion of the value
of Common Stock issuable at less than the Conversion Price to the value of
all Common Stock to be outstanding following such issuance. If, however, any
shares of Common Stock are issued or issuable at or less than $11.00 per
share, then the Conversion Price will be fully reduced to such lower price.
Any such reduction in the Conversion Price would likely have a significant
dilutive effect on the holders of Common Stock both as a result of the
initial dilutive transaction as well as the impact of the antidilutive
provisions of the Preferred Stock triggered by such transaction. Such
conversion right is exercisable by a holder of Preferred Stock with respect
to 25% of the
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shares held of record by such holder on and after each of December 31, 1998,
March 31, 1999, June 30, 1999 and September 30, 1999 (or earlier in the event
of a Change of Control or certain other defined events).
On and after January 1, 2003, the Company may give notice of
mandatory conversion of all of the outstanding Preferred Stock if the average
of the volume weighted average price (the "VWAP") of the Common Stock on each
of the twenty trading days immediately prior to the notice of mandatory
conversion (the "Current Market Price") and the VWAP on the trading day
immediately prior to the notice of mandatory conversion and the trading day
immediately prior to the date of the intended conversion is greater than the
Conversion Price, and after such notice all such outstanding shares shall be
mandatorily converted into Common Stock; except that each holder of Preferred
Stock shall have the right, prior to the date established for such mandatory
conversion, instead to cause the Company to redeem such holder's Preferred
Stock at its Stated Value plus accrued dividends to the redemption date
multiplied by a percentage equal to 105% if the redemption date is prior to
December 31, 2003, decreasing by 1% each year thereafter (but not less than
100% after December 31, 2007).
VOTING RIGHTS
The holders of shares of Preferred Stock have the right to vote on
all matters on which the holders of Common Stock are entitled to vote on an
"as converted" basis with holders of shares of the Common Stock, as though
part of the same class as holders of Common Stock.
While any shares of Preferred Stock are outstanding, the Company may
not, without approval of holders of at least a majority of the outstanding
shares of Preferred Stock voting separately as a class, take any of several
actions described in the Articles Supplementary that would diminish the right
of the holders of Preferred Stock (including the authorization or issuance of
any class or series of stock that would rank prior to or on a parity with the
Preferred Stock) or that would result in the Company's transfer of its
general partnership interest in the Operating Partnership or a merger or
consolidation of assets which would result in the Common Stock having a value
of less than $15.375 per share, or the termination of the Company's
qualification as a real estate investment trust, or a Change of Control (as
defined in the Company's Articles Supplementary) or certain other actions.
The holders of the Preferred Stock have the right to submit a
recommendation to the Nominating Committee of the Board of Directors for the
election of a director at each annual meeting of stockholders (until the
number of outstanding shares of Preferred Stock is significantly reduced). In
addition, upon the failure of the Company to pay the full amount of the
Preferred Stock preferential dividend for four consecutive quarters or upon
certain other defaults of the Company in its obligations with respect to the
Preferred Stock, the holders of the Preferred Stock will have the right, as a
class, to elect two additional directors of the Company, until such defaults
are cured. See "--Other Provisions" for a description of certain other rights
of the holders of Preferred Stock and of holders of Preferred Units, and of
certain obligations of the Company in connection therewith. See "Risk Factors
- --Separate Risk Relating to Two Classes of Stock."
The Company shall act on or with respect to any matter as to which it
is entitled or requested to act in its capacity as a holder of Preferred
Units of the Operating Partnership by voting or otherwise acting with respect
to all such Preferred Units solely in accordance with instructions received
from a majority of the holders of Preferred Stock.
REGISTRATION RIGHTS
The Company has entered into registration rights agreements with the
holders of Preferred Stock and Preferred Units which require it, under
certain circumstances, to register under the Securities Act shares of
Preferred Stock which are (i) currently issued and outstanding and (ii)
issuable upon redemption of Preferred Units and shares of Common Stock
issuable upon conversion of Preferred Stock. These registration rights
agreements give the holders of the applicable securities both "demand" and
"piggyback" registration rights.
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COMMON STOCK
DISTRIBUTION RIGHTS
Holders of Common Stock are entitled to receive distributions on
their shares if, as and when the Board of Directors authorizes and declares
such distributions, subject to the provisions of the Company's charter
regarding Excess Stock. A more detailed description of Excess Stock may be
found below under the heading "--Excess Stock."
LIQUIDATION/DISSOLUTION RIGHTS
In a liquidation or dissolution of the Company, each share of Common
Stock entitles its holder to share (based on the percentage of shares held)
in any assets that remain after the Company pays its liabilities and any
preferential distributions owed to the holders of Preferred Stock and any
other series of preferred stock issued in the future.
VOTING RIGHTS
Subject to the provisions of the Company's charter regarding Excess
Stock, 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. Except as otherwise required by law or except as provided with
respect to any other class or series of preferred stock issued in the future,
the holders of Common Stock and the holders of Preferred Stock possess
exclusive voting power. The holders of Preferred Stock have the right to vote
on all matters submitted to a vote of the holders of Common Stock on an
"as-converted" basis. There is no cumulative voting in the election of
directors, which means that the holders of a majority of the votes cast for
directors can, subject to certain rights of holders of preferred stock, elect
all of the directors then standing for election.
RESTRICTIONS ON TRANSFER
See "--Excess Stock" below for a description of certain provisions of
the Company's charter designed to preserve the Company's status as a
qualified REIT that limit the transfer of, and provide the Company with a
right to redeem, shares of capital stock (including shares of Common Stock)
and that also provide for the conversion of such stock into Excess Stock, in
certain circumstances.
OTHER TERMS
Subject to the provisions of the Company's charter regarding Excess
Stock, all shares of Common Stock have equal dividend, distribution,
liquidation and other rights, which rights are, however, subject to
preferential rights of shares of Preferred Stock and any other series of
preferred stock that may be outstanding. Holders of shares of Common Stock
have no preference, conversion, sinking fund, redemption or exchange rights
or preemptive rights. A conversion feature is one where a stockholder has the
option to convert his shares to a different security, such as debt or
preferred stock. A sinking fund or redemption right is one where a
stockholder will have the right to redeem his shares (for cash or other
securities) at some point in the future. Sometimes a redemption right is
paired with an obligation of the company to create an account into which the
company must deposit money to fund redemption (i.e., a sinking fund).
Preemptive rights are rights granted to stockholders to subscribe for a
percentage of any other securities we offer in the future based on the
percentage of shares owned.
REGISTRATION RIGHTS
The Company has entered into registration rights agreements with
certain holders of Common Units which require it, under certain
circumstances, to register under the Securities Act certain shares of Common
Stock issuable upon redemption of the Common Units and upon conversion of
Preferred Stock. These
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registration rights agreements give the holders of the applicable securities
both "demand" and "piggyback" registration rights.
INFORMATION
The Company furnishes its stockholders with annual reports containing
audited consolidated financial statements and an opinion thereon expressed by
an independent public accounting firm and quarterly reports for the first
three quarters of each fiscal year containing unaudited financial information.
EXTRAORDINARY TRANSACTIONS
Pursuant to Maryland law and the Company's charter, the Company
generally cannot dissolve, amend its charter, merge, sell all or
substantially all of its assets, engage in a share exchange or engage in
similar transactions outside the ordinary course of business unless approved
by the affirmative vote of holders of shares entitled to cast a majority of
all the votes entitled to be cast. In addition, a number of other provisions
of Maryland law could significantly affect the shares of Common Stock and the
rights and obligations of its holders. See "--Certain Provisions of Maryland
Law."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is EquiServe
Limited Partnership, 525 Washington Boulevard, Jersey City, New Jersey 07303.
POWER TO ISSUE ADDITIONAL SHARES OF STOCK
The charter grants the Board of Directors the power to authorize the
issuance of additional authorized but unissued shares of Common Stock and
preferred stock (including any unissued shares of any series of preferred
stock, to the extent permitted by the terms of these series). The Board of
Directors may also classify or reclassify unissued shares of Common Stock or
preferred stock or Excess Stock and authorize the issuance of these
classified or reclassified shares of stock. Under Maryland law and the
charter, the Board of Directors is required to fix the terms and conditions
for each class or series, subject to the provisions of the charter regarding
Excess Stock, prior to the issuance of the shares of each class or series of
stock. These terms and conditions include preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption.
This power provides the Board of Directors with increased flexibility
in structuring possible future financings and acquisitions and in meeting
other needs which might arise. Unless stockholder action is required by
applicable law or the rules of any stock exchange or automated quotation
system on which the Company's securities may be listed or traded, the
additional classes or series, as well as the Common Stock, will generally be
available for issuance without further action by stockholders. However, the
issuance of additional series of preferred stock with rights senior to the
Preferred Stock must be approved by the holders of Preferred Stock. Although
the Board of Directors does not intend to do so at the present time, it could
authorize the issuance of a class or series that could delay, defer or
prevent a change of control or other transaction that holders of Common Stock
might believe to be in their best interests or in which holders of some, or a
majority of, the Common Stock might receive a premium for their shares over
the then-current market price.
EXCESS STOCK
GENERAL. As a protective measure, the Company's charter provides for
the issuance of a separate class of capital stock, referred to as "Excess
Stock," to attempted transferees of capital stock in transactions that may
endanger the Company's REIT qualification. The specific terms of Excess Stock
and the conditions giving rise to its issuance are described in more detail
below.
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OWNERSHIP LIMIT. As a REIT, the Company is required to comply with a
number of complicated rules under the Code. Among other things, the Code
requires that, with certain limited exceptions, REITs satisfy the following
ownership limitations:
- not more than 50% in value of the REIT's outstanding capital
stock may be owned, directly or indirectly after applying complex
attribution rules, by five or fewer "individuals" (which is
defined to include a variety of types of tax-exempt entities or
relationships) during the last half of its taxable year, and
- such capital stock must be beneficially owned by 100 or more
persons during at least 335 days of each taxable year.
In order to protect its status as a qualified REIT, the Company's
charter contains limitations on the amount of its capital stock that any one
party may hold. The Company's "Ownership Limit" and "Common Stock Ownership
Limit" (collectively, "Ownership Limit") prohibits any holder from owning, or
being deemed to own by virtue of the attribution provisions of the Code:
- more than 9.8% in value of the Company's outstanding capital
stock; or
- more than 9.8% (in value or in number of shares, whichever is
more restrictive) of the aggregate of the outstanding shares of
Common Stock, including shares of Common Stock issuable upon
conversion of any other outstanding shares of capital stock of
the Company.
The charter deems holders to own all stock that they (1) actually
own, (2) constructively own after applying the attribution rules specified in
the Code, and (3) have the right to acquire upon exercise of any rights,
options or warrants or conversion of any convertible securities. Holders may
include natural persons, corporations, estates, trusts, partnerships or other
entities. The fact that certain affiliated entities, such as separate mutual
funds advised by the same investment adviser, may own more than 9.8% of the
value of all outstanding capital stock in the aggregate will not of itself
result in the Ownership Limit being exceeded, even though that investment
advisor may be considered to be the "beneficial owner" of such stock for
purposes of Section 13(g) of the Exchange Act.
VIOLATION OF OWNERSHIP LIMIT. The charter provides that any attempted
transfer of capital stock is null and void if it would result in a violation
of the Ownership Limit or the disqualification of the Company as a REIT.
These provisions include any transfer that results in the Company being
"closely held" within the meaning of Section 856(h) of the Code. In the event
of such an attempted transfer, the intended transferee will acquire no rights
to the capital stock attempted to be transferred. Instead, the shares of
capital stock will automatically be exchanged for shares of Excess Stock and
these shares of Excess Stock will automatically be transferred, by operation
of law, to a trustee for the exclusive benefit of one or more charitable
beneficiaries designated from time to time by the Company (except to the
extent described below). The trustee will be named by the Board of Directors
of the Company, but must be unaffiliated with the Company and the purported
transferee of the Excess Stock (the "Prohibited Owners").
RIGHTS OF EXCESS STOCK. The Excess Stock held in trust (a) will be
considered to be issued and outstanding shares of stock of the Company, (b)
will be entitled to receive distributions declared by the Company and (c) may
be voted by the trustee for the exclusive benefit of the charitable
beneficiary. The charter requires a Prohibited Owner to repay to the Company
any dividend or distribution which it receives prior to the discovery that
capital stock was transferred in violation of the Ownership Limit. The
Company is then required to turn over the amount of the repayment to the
trustee. The charter also retroactively nullifies any votes cast by the
Prohibited Owner prior to the discovery that a transfer violated the
Ownership Limit. The charter does provide, however, that the retroactive
nullification of the vote cast with respect to the relevant shares of capital
stock will not adversely affect the rights of any third party who relied in
good faith upon the effectiveness of the matter that was the subject of the
stockholder action as to which such votes were cast.
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TRANSFERABILITY OF EXCESS STOCK. As a general rule, holders may not
transfer Excess Stock. Subject to the Company's redemption right described
below, the trustee may transfer the shares of Excess Stock to a purchaser who
could own such shares without violating the Ownership Limit. Upon such sale,
the shares of Excess Stock automatically convert back into shares of the
class or series of capital stock or convertible security from which they were
originally converted.
After Excess Stock is transferred in this way, the Prohibited Owner
shall receive from the proceeds of the sale the lesser of (i) the price paid
by the Prohibited Owner for the shares and (ii) the price per share received
by the trustee from the sale of the shares. If the Prohibited Owner received
the Excess Stock by gift, devise or otherwise without giving value for such
stock, then it shall receive the lesser of the market price of the shares on
the day of the event causing the shares to be held in trust, as determined in
the manner set forth in the charter, and (ii) the price per share received by
the trustee from the sale of the shares. Any remaining sales proceeds in
excess of the amount payable to the Prohibited Owner shall be immediately
paid to the charitable beneficiary.
REDEMPTION RIGHT. In addition to the transfer restrictions described
above, the Company or its designee has the right to purchase all or any
portion of the Excess Stock from the trustee for a period of 90 days from the
time the Company receives written notice of the prohibited transfer or other
event resulting in the exchange of capital stock for Excess Stock. Under the
charter, the purchase price will be the lesser of (a) the price paid for the
stock by the Prohibited Owner or (b) the market price of the stock on the
date the Company exercises its option to purchase. If the Prohibited Owner
received such stock by gift, devise or otherwise without giving value for
such stock, the market price of the stock at the time of the prohibited
transfer will be used in lieu of the price paid. Upon any such purchase by
the Company, the trustee must distribute the purchase price to the Prohibited
Owner.
ADDITIONAL CHARTER PROVISIONS REGARDING THE OWNERSHIP LIMIT. The
Ownership Limit will not preclude settlement of transactions on the New York
Stock Exchange or any other stock exchange on which capital stock of the
Company is listed but the provisions of the charter shall remain applicable
to the transferee and to any shares transferred. If the Board of Directors
determines that it is no longer in the best interests of the Company to
continue to qualify as a REIT, then these restrictions on transferability and
ownership will not apply.
Upon demand by the Company, each stockholder and each proposed
transferee of capital stock must disclose to the Company in writing any
information with respect to the direct, indirect and constructive ownership
of shares of stock as the Board of Directors deems necessary to comply with,
or determine compliance with, the provisions of the Code applicable to REITs
or the requirements of any taxing authority or governmental agency.
CERTAIN EXCEPTIONS TO OWNERSHIP LIMIT. The Board of Directors may
waive the Ownership Limit if it obtains such representations and undertakings
as are reasonably necessary for it to ascertain that the changes in ownership
will not then or in the future jeopardize the Company's status as a REIT and
if the Board of Directors decides that such waiver is in the best interests
of the Company. Based upon representations of Blackacre under the
Contribution Agreement and of Westbrook under the Stock Purchase Agreement
that no individual would, after applying applicable attribution rules of the
Code, own more than 9.8% of the Common Stock or of the value of all of the
capital stock of the Company, and on certain other representations and
agreements, the Board of Directors has partially waived the Ownership Limits
that would otherwise limit the amount of capital stock of the Company that
Westbrook could own and that would otherwise limit the number of shares of
Preferred Stock and of Common Stock that Blackacre may acquire upon the
exchange of their Operating Partnership Units for capital stock of the
Company.
The Ownership Limit does not apply to shares of capital stock
acquired pursuant to an all cash tender offer for all outstanding shares of
capital stock in conformity with applicable laws if both of the following
conditions are met:
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- At least two-thirds of the outstanding shares of capital stock
are tendered and accepted pursuant to such tender offer. The
securities held by the tender offeror and/or its affiliates and
associates are not included in determining whether the two-thirds
threshold has been met.
- The tender offeror commits in such tender offer, if the offer is
accepted by the holders of two-thirds of the outstanding stock,
to give any non-tendering stockholders a reasonable opportunity
to put their capital stock to the tender offeror at a price not
less than that paid pursuant to the tender offer.
CERTAIN PROVISIONS OF MARYLAND LAW
MARYLAND BUSINESS COMBINATION STATUTE
Maryland law prohibits certain "business combinations," including
mergers, consolidations, share exchanges, certain asset transfers and certain
issuances of equity securities, between a Maryland corporation and any person
or entity that owns 10% or more of the voting power of the corporation's
shares (an "Interested Stockholder"). This prohibition exists for five years
after the most recent date on which the Interested Stockholder became an
Interested Stockholder. Thereafter, any such business combination must be
approved by the affirmative vote of at least 80% of the votes entitled to be
cast by holders of outstanding voting shares of the corporation other than
shares held by the Interested Stockholder with whom the business combination
is to be effected. There is an exception to this rule when, among other
things, the holders of the corporation's shares receive a minimum price (as
defined in Maryland law) for their shares and the consideration is received
in cash or in the same form as previously paid by the Interested Stockholder
for the shares that it owns. However, these provisions of Maryland law do not
apply to "business combinations" with an Interested Stockholder that are
approved or exempted by the board of directors of the corporation before that
Interested Stockholder becomes an Interested Stockholder.
Our Board of Directors has adopted a resolution rendering these
"business combinations" provisions inapplicable to the Company. However, the
Board of Directors has reserved the right to revoke their resolution if doing
so is in the best interest of the Company and our stockholders.
MARYLAND CONTROL SHARE ACQUISITION STATUTE
Maryland law 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 eligible under the
statute to be cast on that matter by stockholders. "Control Shares" are
voting shares that, if aggregated with all other such shares of stock
previously acquired by the acquiror, would entitle the acquiror to exercise
voting power in electing directors within one of the following ranges of
voting power:
(1) one-fifth or more but less than one-third;
(2) one-third or more but less than a majority; or
(3) a majority 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 expenses.
If voting rights are not approved at a stockholder 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 have previously been approved) for fair value. If voting
rights for Control Shares are approved at a stockholder meeting and
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the acquiror becomes entitled to vote a majority of the shares entitled to
vote, all other stockholders may exercise appraisal rights.
The Company's bylaws contain a provision which exempts the
acquisition of the Company's capital stock from these restrictions. However,
the Board of Directors, by two-thirds majority vote, may repeal this
exemption either before or after an acquisition of control shares if it
determines that doing so is in the best interest of our stockholders. The
Board of Directors may do this without stockholder approval.
DESCRIPTION OF UNITS AND REDEMPTION OF UNITS OF OPERATING PARTNERSHIP
THE FOLLOWING DESCRIPTION OF CERTAIN PROVISIONS OF THE OPERATING
PARTNERSHIP AGREEMENT, AND OF THE FIRST AMENDMENT THERETO THAT WAS ENTERED INTO
CONCURRENTLY WITH THE CLOSING OF THE ACQUISITION OF THE GOLDEN STATE PROPERTIES
PORTFOLIO ON DECEMBER 31, 1997, IS QUALIFIED IN ALL RESPECTS BY THE PROVISIONS
OF THE OPERATING PARTNERSHIP AND OF THE FIRST AMENDMENT FILED AS EXHIBITS TO THE
COMPANY'S REPORTS ON FORM 8-K DATED DECEMBER 16, 1997 AND JANUARY 14, 1998,
RESPECTIVELY, AND OF SCHEDULE C TO SUCH FIRST AMENDMENT FILED AS AN EXHIBIT TO
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997,
WHICH EXHIBITS ARE HEREBY INCORPORATED BY REFERENCE HEREIN.
COMMON UNITS.
The Operating Partnership Agreement provides that, subject to the
preferences of any class or series of partnership interest established by the
general partner, the Operating Partnership shall make distributions pro rata
to partners holding Common Units and to the general partner as such in
proportion to their respective partnership interests. The Company will hold
as many Common Units (including for this purpose all Units held by it as
general partner and as limited partner) as there are shares of Common Stock
of the Company outstanding from time to time, and contemplates making
quarterly distributions to the holders of Common Units concurrently with and
in the same amounts as dividends paid by the Company on its Common Stock
(which amount is currently at the quarterly rate of $0.2625).
In addition, the Operating Partnership Agreement provides that on the
December 31 or June 30 coinciding with or next following the first
anniversary of the issuance of Common Units (or earlier in the event of
certain extraordinary transactions), the holder of each Common Unit will have
the right to require the Operating Partnership to redeem the Unit at a
redemption price equal to the then market value of a share of Common Stock.
Such redemption will be in cash, except that the Company may assume the
redemption obligation and pay the redemption in the form of registered shares
of its Common Stock.
PREFERRED UNITS.
By the First Amendment, the Company, as general partner of the
Operating Partnership, established a series of 4,800,000 preferred units of
limited partnership interest designated as "Series 1997-A Preferred Limited
Partner Units" and issued 2,000,000 Preferred Units to the contributors of
the Golden State Properties Portfolio and 2,800,000 Preferred Units to the
Company. The economic rights of holders of Preferred Units, with respect to
distributions and upon liquidation, are identical to the rights of holders of
Preferred Stock. Distributions by the Operating Partnership with respect to
Preferred Units held by the Company will provide the funds to enable the
Company to make its distributions to the holders of the Preferred Stock.
Holders of Preferred Units other than the Company have the right to redeem
their Preferred Units for cash equal to the greater of the $25 per share
Stated Value of an equivalent number of shares of Preferred Stock or the
value of the number of shares of Common Stock for which the shares of
Preferred Stock are exchangeable. In lieu of delivering cash, however, the
Company may, at its option, choose to acquire any Preferred Units so tendered
by issuing shares of Preferred Stock in exchange (upon which exchange the
number of Preferred Units held by the Company will increase so that the
Company will always hold a number of Preferred Units equal to the number of
outstanding shares of Preferred Stock).
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In general, the terms of the First Amendment that define the economic
rights of holders of Preferred Units other than the Company are substantially
identical to the provisions of the Articles Supplementary that define the
economic rights of the holders of Preferred Stock. See "Description of
Securities--Preferred Stock" above.
TAX CONSEQUENCES OF REDEMPTION
The following discussion summarizes certain federal income tax
considerations that may be relevant to a Unitholder who redeems its Units.
TAX TREATMENT OF EXCHANGE OR REDEMPTION OF UNITS
If the Company elects to purchase Preferred Units or Common Units
tendered for redemption, the Operating Partnership Agreement provides that
the transaction will be treated as a sale of Units by the Unitholder to the
Company at the time of the redemption. The sale will be fully taxable to the
redeeming Unitholder and the redeeming Unitholder will be treated as
realizing for tax purposes an amount equal to the sum of the cash value or
the value of the shares of Preferred Stock or Common Stock received in the
exchange plus the amount of any Operating Partnership liabilities allocable
to the redeemed Units at the time of the redemption. The determination of the
amount and character of gain or loss is discussed more fully below. See
"--Computation and Character of Gain or Loss" below.
If the Company does not elect to purchase a Unitholder's Units
tendered for redemption, and the Operating Partnership redeems the Units for
cash that the Company contributes to the Operating Partnership to effect the
redemption, the redemption likely would be treated for tax purposes as a sale
of the Units to the Company in a fully taxable transaction, although the
matter is not free from doubt. In that event, the tax consequences would be
the same as if the Company elected to purchase the Units for cash, as
described above.
If the Company does not elect to purchase the Units tendered for
redemption, and the Operating Partnership redeems all of a Unitholder's Units
for cash that is not contributed by the Company to effect the redemption, the
tax consequences would likely be the same as described in the previous
paragraph, although the matter is not free from doubt. If the Operating
Partnership redeems less than all of a Unitholder's Units, however, the
Unitholder would not be permitted to recognize any loss occurring on the
transaction and would recognize taxable gain only to the extent that the
cash, plus the amount of any Operating Partnership liabilities allocable to
the redeemed Units, exceeded the Unitholder's adjusted basis in all of the
Unitholder's Units immediately before the redemption. This result may differ
if the redemption were treated as a disguised sale. See "Potential
Application of the Disguised Sale Regulations to a Redemption of Units" below.
If the Company contributes cash to the Operating Partnership to
effect a partial redemption of a Unitholder's Units, and the form of the
transaction is respected for tax purposes so that the redemption transaction
is treated as the redemption of the Unitholder's Units by the Operating
Partnership rather than a sale of Units to the Company, the income tax
consequences to a Unitholder would be the same as described in the preceding
paragraph.
COMPUTATION AND CHARACTER OF GAIN OR LOSS
If a Unitholder disposes of a Unit in a manner that is treated as a
sale of the Unit, or a Unitholder otherwise disposes of a Unit, the
determination of gain or loss from the sale or other disposition will be
based on the difference between the amount considered realized for tax
purposes and the tax basis in such Unit. See "--Basis of Units" below. Upon
the sale of a Unit, the "amount realized" will be measured by the sum of the
cash and fair market value of the capital stock received plus the amount of
any Operating Partnership liabilities allocable to the Units sold. To the
extent that the amount of cash or property received plus the allocable share
of any Operating Partnership liabilities exceeds the Unitholder's basis for
the Units disposed of, the Unitholder will recognize gain. 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/or the value of any capital
stock received upon such disposition.
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Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount
realized upon the sale of a Unit attributable to a Unitholder's share of
"unrealized receivables" of the Operating Partnership (as defined in Section
751 of the Code) exceeds the basis attributed to those assets, such excess
will be treated as ordinary income. Unrealized receivables include, to the
extent not previously included in Operating Partnership income, any rights to
payment for services rendered or to be rendered. Unrealized receivables also
include amounts that would be subject to recapture as ordinary income if the
Operating Partnership had sold its assets at their fair market value at the
time of the transfer of a Unit.
BASIS OF UNITS
In general, a Unitholder who acquired his Units by contribution of
property and/or money to the Operating Partnership had an initial tax basis
in his Units ("Initial Basis") equal to the sum of (i) the amount of money
contributed (or deemed contributed as described below) and (ii) his adjusted
tax basis in any other property contributed in exchange for such Units, and
less the amount of any money distributed (or deemed distributed, as described
below) in connection with the acquisition of the Units. The Initial Basis of
Units acquired by other means would have been determined under the general
rules of the Code, including the partnership provisions, governing the
determination of tax basis. Other rules, including the "disguised sale" rules
discussed below, also may affect Initial Basis, and Unitholders are urged to
consult their own tax advisors regarding their Initial Basis. A Unitholder's
Initial Basis in his Units generally is increased by (i) such Unitholder's
share of Operating Partnership taxable and tax-exempt income and (ii)
increases in such Unitholder's allocable share of liabilities of the
Operating Partnership (including any increase in his share of liabilities
occurring in connection with the acquisition of his Units). Generally, a
Unitholder's basis in his Units is decreased (but not below zero) by (i) the
Unitholder's share of Operating Partnership distributions, (ii) decreases in
the Unitholder's allocable share of liabilities of the Operating Partnership
(including any decrease in his share of liabilities of the Operating
Partnership occurring in connection with the acquisition of his Units), (iii)
the Unitholder's share of losses of the Operating Partnership and (iv) the
Unitholder's share of nondeductible expenditures of the Operating Partnership
that are not chargeable to his capital account.
POTENTIAL APPLICATION OF THE DISGUISED SALE REGULATIONS TO A
REDEMPTION OF UNITS
There is a risk that a redemption by the Operating Partnership of
Units issued in exchange for a contribution of property to the Operating
Partnership may cause the original transfer of property to the Operating
Partnership in exchange for Units to be treated as a "disguised sale" of
property. Section 707 of the Code and the Treasury Regulations thereunder
(the "Disguised Sale Regulations") generally provide that, unless one of the
prescribed exceptions is applicable, a partner's contribution of property to
a partnership and a simultaneous or subsequent transfer of money or other
consideration (which may include the assumption of or taking subject to a
liability) from the partnership to the partner will be presumed to be a sale,
in whole or in part, of such property by the partner to the partnership if
the two transactions happen within a two-year time period. This presumption
may be overcome if the facts and circumstances clearly establish that the
transfers do not constitute a sale. Nonetheless, if the transactions occur
within a two-year period, the partner may be obliged to report them to the
IRS. The Disguised Sale Regulations also provide that if two years have
passed between the transfer of money or other consideration and the
contribution of property, the transactions will be presumed not to be a sale
unless the facts and circumstances clearly establish that the transfers
constitute a sale.
Accordingly, if a Unit is redeemed by the Operating Partnership from
a Unitholder who holds Units that were issued in exchange for a contribution
of property to the Operating Partnership, the IRS could contend that the
Disguised Sale Regulations apply because the Unitholder will thus receive
cash subsequent to a previous contribution of property to the Operating
Partnership. In that event, the IRS could contend that the contribution was
taxable as a disguised sale under the Disguised Sale Regulations. Any gain
recognized thereby may be eligible for installment reporting under Section
453 of the Code, subject to certain limitations. In addition, in such event,
the Disguised Sale Regulations might apply to cause a portion of the proceeds
received by a redeeming Unitholder to be characterized as original issue
discount on a deferred obligation which would be taxable as interest income
in accordance with the provisions of Section 1272 of the Code. Each
Unitholder is advised to consult its own tax advisors to determine whether
redemption of its Units could be subject to the Disguised Sale Regulations.
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COMPARISON OF OWNERSHIP OF UNITS AND COMMON STOCK
The nature of any investment in the Company's Preferred Stock or
Common Stock is generally economically equivalent to an investment in
Preferred Units or Common Units (as the case may be) in the Operating
Partnership. A holder of a share of capital stock receives the same
distribution that a holder of the equivalent class of Units receives and
stockholders and Unitholders generally share in the risks and rewards of
ownership in the same enterprise. There are, however, differences between
ownership of Units and ownership of capital stock, some of which may be
material to investors.
The information below highlights a number of significant differences
between the Operating Partnership and the Company relating to, among other
things, form of organization, permitted investments, policies and
restrictions, management structure, compensation and fees, investor rights
and federal income taxation and compares certain legal rights associated with
being a partner in the Operating Partnership and being a stockholder of the
Company, respectively. These comparisons are intended to assist Unitholders
in understanding how their investment will be changed if their Units are
acquired for capital stock. This discussion is summary in nature and does not
constitute a complete discussion of these matters. 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.
FORM OF ORGANIZATION AND ASSETS OWNED
THE OPERATING PARTNERSHIP
The Operating Partnership is
organized as a Delaware limited
partnership and is the entity through
which the Company conducts
substantially all of its business and
owns (either directly or indirectly
through subsidiaries) substantially
all of its assets. The Board of
Directors of the Company manages the
affairs of the Operating Partnership
by directing the affairs of the
Company.
THE COMPANY
The Company is a Maryland corporation
which has elected to be taxed as a
REIT under the Code and intends to
maintain its qualifications as a
REIT. The Company maintains interests
as the sole general partner in the
Operating Partnership, and as the
holder of both Preferred and Common
limited partner Units in the
Operating Partnership, which gives
the Company an indirect investment in
those properties and other assets
owned by the Operating Partnership.
LENGTH OF INVESTMENT
THE OPERATING PARTNERSHIP
The Operating Partnership has a
stated termination date of December
31, 2095, although it may be
terminated earlier under certain
circumstances.
THE COMPANY
The Company has a perpetual term and
intends to continue its operations
for an indefinite time period.
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NATURE OF INVESTMENT IN PREFERRED EQUITY AND DISTRIBUTION RIGHTS
THE OPERATING PARTNERSHIP
The Preferred Units constitute equity
interests entitling each Preferred
Unitholder to his pro rata share of
cash distributions made to the
Preferred Unitholders of the
Operating Partnership. In general,
the Operating Partnership is
structured so that Preferred
Unitholders receive distributions on
their Preferred Units equal to the
dividend for the same period on a
share of Preferred Stock of the
Company.
As a partnership, the Operating
Partnership is not subject to federal
income taxation. In determining their
federal income tax, partners of the
Operating Partnership, including
Preferred Unitholders, must take into
account their allocable share of
partnership income, gain, deduction
and loss (regardless of whether
distributed), and otherwise are
subject to the rules governing the
taxation of partnerships and
partners. By contrast, Preferred
Unitholders who receive Preferred
Stock upon exercise of their
redemption rights will be taxed on
such investment in accordance with
the rules governing REITs. See
"Federal Income Tax Considerations."
THE COMPANY
The Preferred Stock constitutes an
equity interest in the Company. The
Company is entitled to receive any
operating cash flow and capital cash
flow remaining after a distribution
to the holders of Preferred Units and
Common Units has been effected. Each
stockholder will be entitled to his
pro rata share of any dividends or
distributions paid with respect to
Preferred Stock. The dividends
payable to the holders of Preferred
Stock are cumulative and not fixed in
amount, but are only paid if, when
and as declared by the Board of
Directors. In order to qualify as a
REIT, the Company must distribute at
least 95% of its taxable income
(excluding capital gains), and any
taxable income (including capital
gains) not distributed will be
subject to corporate income tax.
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NATURE OF INVESTMENT IN COMMON EQUITY AND DISTRIBUTION RIGHTS
THE OPERATING PARTNERSHIP
The Common Units constitute equity
interests entitling each Common
Unitholder to his pro rata share of
cash distributions made to the Common
Unitholders of the Operating
Partnership. In general, the
Operating Partnership is structured
so that Common Unitholders receive
distributions on their Common Units
equal in amount to the dividend for
the same period on a share of Common
Stock of the Company.
As a partnership, the Operating
Partnership is not subject to federal
income taxation. In determining their
federal income tax, partners of the
Operating Partnership, including
Common Unitholders, must take into
account their allocable share of
partnership income, gain, deduction
and loss (regardless of whether
distributed), and otherwise are
subject to the rules governing the
taxation of partnerships and
partners. By contrast, Common
Unitholders who receive Common Stock
upon exercise of their redemption
rights will be taxed on such
investment in accordance with the
rules governing REITs. See "Federal
Income Tax Considerations."
THE COMPANY
The Common Stock constitutes an
equity interest in the Company. The
Company is entitled to receive any
operating cash flow and capital cash
flow remaining after a distribution
to the holders of Preferred Units and
Common Units has been effected. Each
stockholder will be entitled to his
pro rata share of any dividends or
distributions paid with respect to
Common Stock after the payment of
dividends on outstanding Preferred
Stock. The dividends payable on
Common Stock are not fixed in amount
and are only paid if, when and as
declared by the Board of Directors.
In order to qualify as a REIT, the
Company must distribute at least 95%
of its taxable income (excluding
capital gains), and any taxable
income (including capital gains) not
distributed will be subject to
corporate income tax.
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ISSUANCE OF ADDITIONAL EQUITY
THE OPERATING PARTNERSHIP
The Operating Partnership is
authorized to issue additional Units
and such other partnership interests
(including partnership interests of
different series or classes that may
be senior to Common Units) as the
Company may determine in its sole
discretion as general partner;
provided, however, that the Operating
Partnership may not issue partnership
interests senior or on parity with
the Preferred Units without consent
of holders of at least a majority of
the Preferred Units. Subject to
certain limitations with respect to
the rights of Preferred Units, the
relative rights, powers and duties of
such additional Units or other
interests will be determined by the
Company in its sole discretion. The
Operating Partnership may issue Units
and other partnership interests to
the Company, as long as such
interests are issued in connection
with a comparable issuance of its
capital stock and proceeds raised in
connection with the issuance of such
capital stock are contributed to the
Operating Partnership. The issuance
of additional Units or other similar
partnership interests may result in
the dilution of the interests of the
existing Unitholders.
THE COMPANY
The Board of Directors of the Company
may issue, in its discretion,
additional equity securities
consisting of Common Stock or any
other series of capital stock (which
may be classified and issued as a
variety of equity securities,
including one or more classes of
Common or Preferred Stock, in the
discretion of the Board of Directors)
so long as the total number of shares
issued does not exceed the authorized
number of shares of capital stock set
forth in the Company's charter. The
Company may not issue additional
equity securities which would
adversely affect the rights of the
Preferred Stock without consent of
holders of at least a majority of the
Preferred Stock. The issuance of
additional shares of Common Stock,
Preferred Stock or other similar
equity securities may result in the
dilution of the interests of the
existing stockholders. The Operating
Partnership Agreement contemplates
that the Company will contribute the
proceeds of any additional equity
securities to the Operating
Partnership. Each time the Company
issues additional shares of Common
Stock, the number of Common Units
held by the Company will increase so
that the Company will always hold the
same number of Common Units as there
are shares of Common Stock
outstanding. Similarly, there will be
an increase in the number of
Preferred Units held by the Company
to correspond with an increase in the
number of outstanding shares of
Preferred Stock.
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LIQUIDITY OF COMMON EQUITY
THE OPERATING PARTNERSHIP
Subject to certain limitations, a
Common Unitholder may transfer the
economic interest to all or any
portion of his Common Units without
the consent of the general partner.
However, the general partner's
consent is required in circumstances
where a transfer (i) would affect the
treatment of the Company or Operating
Partnership under state or federal
law, particularly with respect to
tax, partnership, and securities
laws, or (ii) would impose legal
obligations on the Company or
Operating Partnership.
Subject to certain conditions,
including the expiration of one or
more specified "lock-out" periods,
each Common Unitholder has the right
to elect to have his Common Units
redeemed by the Operating
Partnership. Upon redemption, the
Unitholder will receive, at the
Company's election, either shares of
Common Stock or the cash equivalent
in exchange for Common Units.
THE COMPANY
The Company's Common Stock is freely
transferable subject to the
requirements of the Securities Act.
The Common Stock is listed on the New
York Stock Exchange. The breadth and
strength of this market will depend,
among other things, upon the number
of shares outstanding, the Company's
financial results and prospects, the
general interest in the Company's and
other real estate investments and the
Company's dividend yield compared to
that of other debt and equity
securities.
LIQUIDITY OF PREFERRED EQUITY
THE OPERATING PARTNERSHIP
Subject to certain limitations, a
Preferred Unitholder may transfer the
economic interest to all or any
portion of his Preferred Units
without the consent of the general
partner. However, the general
partner's consent is required in
circumstances where a transfer (i)
would affect the treatment of the
Company or Operating Partnership
under state or federal law,
particularly with respect to tax,
partnership, and securities laws, or
(ii) would impose legal obligations
on the Company or Operating
Partnership.
Subject to certain conditions,
including the expiration of one or
more specified "lock-out" periods,
each Preferred Unitholder has the
right to elect to have his Preferred
Units redeemed by the Operating
Partnership. Upon redemption, the
Unitholder will receive, at the
Company's election, either shares of
Preferred Stock or cash equal to the
greater of the Stated Value plus
accrued and due dividends or the
value of shares of Common Stock into
which the Preferred Stock is
convertible.
THE COMPANY
The Company's Preferred Stock is
freely transferable subject to the
requirements of the Securities Act.
The Preferred Stock is not listed on
an exchange and is not publicly
traded.
On and after December 31, 1998, March
31, 1999, June 30, 1999, and
September 30, 1999, each holder of
shares of Preferred Stock may convert
25% of its Preferred Stock into
shares of Common Stock. Upon
conversion, each holder of Preferred
Stock will be entitled to receive for
each of its shares of Preferred Stock
a number of shares of Common Stock
equal to Stated Value plus accrued
and due dividends, divided by a
conversion price of $15.375 (subject
to antidilution adjustments).
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PURPOSE AND PERMITTED INVESTMENTS
THE OPERATING PARTNERSHIP
The Operating Partnership's purpose
is to conduct any business that may
be lawfully conducted by a Delaware
limited partnership, except that the
Operating Partnership Agreement
requires the business of the
Operating Partnership to be conducted
in a manner that permits the Company
to be classified as a REIT for
Federal income tax purposes and
avoids any Federal income or excise
tax liability. Subject to the
foregoing limitation, the Operating
Partnership may invest or enter into
partnerships, joint ventures or
similar arrangements, own interests
in any other entity, lend Operating
Partnership funds, or reinvest the
Operating Partnership's cash flow and
net sale or refinancing proceeds.
THE COMPANY
Under its charter, the Company may
engage in any lawful activity
permitted under Maryland law.
Neither the Company's charter nor its
bylaws impose any restrictions upon
the types of investments made by the
Company.
BORROWING POLICIES
THE OPERATING PARTNERSHIP
The Operating Partnership has no
restrictions on borrowings, except
that it may not enter into a
financing relationship with the
Company or an affiliate of the
Company.
THE COMPANY
The Company is not restricted under
its organizational documents from
incurring borrowings.
MANAGEMENT CONTROL
THE OPERATING PARTNERSHIP
Generally, all management powers over
the business and affairs of the
Operating Partnership are vested in
the Company as general partner and no
other Unitholder of the Operating
Partnership has any right to
participate in or exercise control or
management power over the business
and affairs of the Operating
Partnership. The Operating
Partnership Agreement provides that
the Company shall be reimbursed for
all expenses incurred by it relating
to the management and business of the
Operating Partnership.
THE COMPANY
The Board of Directors has exclusive
control over the Company's business
and affairs subject only to the
restrictions in its charter and
bylaws. The stockholders of the
Company will elect the Board of
Directors at each annual meeting of
stockholders. The policies adopted by
the Board of Directors may be altered
or eliminated without advice of the
stockholders. Accordingly, except for
their vote in the elections of
Directors, stockholders have no
control over the ordinary business
policies of the Company.
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MANAGEMENT LIABILITY AND INDEMNIFICATION
THE OPERATING PARTNERSHIP
The Operating Partnership Agreement
generally provides that the general
partner and any person acting on its
behalf will incur no liability to the
Operating Partnership or any
Unitholder for any act or omission
within the scope of the general
partner's authorities unless the
general partner acted in bad faith
and the act or omission was material
to the matter giving rise to the
liability.
The Operating Partnership Agreement
also provides for the indemnification
of the general partner and its
affiliates and any individual acting
on their behalf from any loss,
damage, claim or liability,
including, but not limited to,
reasonable attorneys' fees and
expenses, incurred by them by reason
of any act performed by them unless
(i) the act or omission was committed
in bad faith or with deliberate
dishonesty, (ii) the person
committing the act or omission
received improper benefit from the
conduct, or (iii) in the context of a
criminal proceeding, the person had
reason to believe the conduct was
unlawful in accordance with the
standards set forth above or in
enforcing the provisions of this
indemnity.
THE COMPANY
Maryland law requires the Company
(unless the Company's charter
provides otherwise, which it does
not) to indemnify a director or
officer who has been successful in
the defense of any proceeding to
which he or she is made a party by
reason of service as an officer or
director. Maryland law permits us to
indemnify present and former
directors and officers against
judgments, penalties, fines,
settlements and reasonable expenses
incurred by them in connection with
any proceeding to which they are made
a party by reason of their service,
among other things, as an officer or
director, unless it is established
that (i) the act or omission of the
director or officer was material to
the matter giving rise to the
proceeding and (a) was committed in
bad faith or (b) was the result of
active and deliberate dishonesty,
(ii) the director or officer actually
received an improper personal benefit
in money, property or services or,
(iii) in the case of any criminal
proceeding, the director or officer
had reasonable cause to believe that
the act or omission was unlawful. The
Company's charter and bylaws
eliminate, to the fullest extent
permitted under Maryland law, the
personal liability of a director or
officer of the Company for monetary
damages for breaches of that person's
duty of care or other duties as a
director or officer. Furthermore,
each of the Company and the Operating
Partnership have entered into
individual indemnification agreements
with all of our officers and
directors providing the maximum
indemnification permitted under
Maryland law. The effect of these
agreements and the relevant
provisions of our charter and bylaws
is generally to eliminate the rights
of the Company and its stockholders
(through stockholders' derivative
suits on behalf of the Company) to
recover monetary damages against a
director or officer for breach of the
fiduciary duty of care (including
breaches resulting from negligent or
grossly negligent behavior). This
does not limit or eliminate the
rights of the Company or any
stockholder to seek non-monetary
relief such as an injunction or
recision in the event of a breach of
a director's or officer's duty of
care nor does it alter the liability
of a director or officer under
federal securities laws.
37
<PAGE>
ANTITAKEOVER PROVISIONS
THE OPERATING PARTNERSHIP
Except in limited circumstances, the
general partner has exclusive
management power over the business
and affairs of the Operating
Partnership. The general partner may
not be removed by the Unitholders
with or without cause.
THE COMPANY
The Company's charter and bylaws and
Maryland law contain a number of
provisions that may have the effect
of delaying or discouraging an
unsolicited proposal to acquire the
Company or remove incumbent
management. See "Risk
Factors--Certain Provisions in
Organizational Documents May
Discourage Acquisition Proposals."
VOTING RIGHTS
THE OPERATING PARTNERSHIP
Holders of Common Units have no right
to elect or remove the Company as the
general partner of the Operating
Partnership. Under the Operating
Partnership Agreement, the Company as
general partner may take any action
in a manner that it reasonably
believes to be in the best interests
of its stockholders or complies with
the REIT requirements for the
Company. The Company's ability to
make amendments to the Operating
Partnership Agreement is limited to
the extent described below.
THE COMPANY
The Board of Directors directs the
Company's business and affairs.
Stockholders elect the Board of
Directors at annual meetings. All
shares of Common Stock have one vote
per share. 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;
and holders of Preferred Stock have
the right to vote on a fully
converted basis with the holders of
Common Stock, as well as to vote as a
separate class on certain specified
matters.
Stockholders of the Company have the
right to vote, among other things, on
a merger or sale of all or
substantially all of the assets of
the Company, certain amendments to
the charter and dissolution of the
Company. Under Maryland law and the
charter, the sale of all or
substantially all of the assets of
the Company or any merger or
consolidation of the Company requires
the approval of the Board of
Directors and holders of a majority
of the outstanding shares of stock
entitled to vote on the matter. No
approval of the stockholders is
required for the sale of less than
substantially all of the Company's
assets. Under Maryland law and the
Company's charter and bylaws the
Board of Directors must obtain
approval of holders of a majority of
the votes entitled to be cast at a
meeting of stockholders in order to
dissolve the Company.
38
<PAGE>
AMENDMENT OF THE PARTNERSHIP AGREEMENT OR THE COMPANY'S CHARTER
THE OPERATING PARTNERSHIP
Generally, the Operating Partnership
Agreement may be amended by the
general partner without the consent
of the other holders of limited
partnership Units. Certain amendments
affecting the rights, obligations,
authority and outside activities of
the general partner, the transfer of
partnership interests, transactions
with affiliates of the partnership
and dissolution of the partnership,
among other things set forth in the
Operating Partnership Agreement,
require consent of the Unitholders
holding a majority-in-interest of the
outstanding limited partnership units
(excluding limited partnership Units
which may be voted by the general
partner). Furthermore, the general
partner may not amend the Operating
Partnership Agreement in any manner
affecting the terms and conditions
of, or the rights or preferences of
the Preferred Units without approval
of (i) holders of at least a majority
of outstanding shares of Preferred
Stock, voting separately as a class,
and (ii) holders of at least a
majority of the outstanding Preferred
Units.
THE COMPANY
Amendments to the charter must be
approved by the Board of Directors
and generally by the vote of a
majority of the votes entitled to be
cast at a meeting of stockholders
except as otherwise provided by law.
The Company may not amend the charter
in such a manner as would affect
adversely the preferences, conversion
and other rights, voting powers,
restrictions, limitations as to
dividends and other distributions,
qualifications and terms and
conditions of redemption of the
Preferred Stock without approval of
holders of at least a majority of
outstanding shares of Preferred
Stock, voting separately as a class.
COMPENSATION, FEES AND DISTRIBUTIONS
THE OPERATING PARTNERSHIP
The general partner is not entitled
to receive any compensation for its
services as general partner of the
Operating Partnership. As a partner
in the Operating Partnership,
however, the general partner has the
same right to allocations and
distributions as other partners of
the Operating Partnership. In
addition, the Operating Partnership
will reimburse the general partner
for administrative expenses incurred
relating to the ongoing operation of
the Company and certain other
expenses arising in connection with
its role as general partner. All
officers of the Company are employees
of the Operating Partnership.
THE COMPANY
The Directors receive compensation
for their services in the form of
capital stock of the Company. The
Operating Partnership pays the
compensation of the officers of the
Company.
LIABILITY OF INVESTORS
THE OPERATING PARTNERSHIP
Under the Operating Partnership
Agreement and applicable Delaware
law, the liability of the limited
partners for the Operating
Partnership's debts and obligations
is generally limited to the amount of
their investment in the Operating
Partnership, together with any
interest in any undistributed income.
THE COMPANY
Under Maryland law, stockholders
generally are not personally liable
for the debts or obligations of the
Company.
39
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
As a REIT, the Company must comply with highly technical and complex
requirements under the Code. The following discussion summarizes these
requirements and their effect on the Company and its stockholders. The
summary discussion is for general information only and is not an exhaustive
list of all tax considerations that may be material. For example, this
discussion does not address any state, local or foreign tax considerations.
Also, this discussion does not address issues that arise as a result of your,
or any other investor's, special circumstances or special status under the
Code. The summary is qualified in its entirety by, and you should refer to,
Sections 856 through 860 of the Code and the regulations thereunder, which
set forth the particular provisions applicable to REITs.
This discussion is not intended to be, nor should you construe it as,
tax advice. You are urged to consult your own tax advisor to determine the
impact of owning the Company's stock on your own personal situation,
including tax consequences arising under the laws of any state, municipality
or other taxing jurisdiction. In particular, foreign investors should consult
their own tax advisors concerning the tax consequences of an investment in
the Company, including the possibility of United States income tax
withholding on Company distributions.
GENERAL
Under the Code, if certain requirements are met in a taxable year,
including the requirement that the REIT distribute to its stockholders at
least 95% of its real estate investment trust taxable income for the taxable
year, a REIT generally will not be subject to federal income tax with respect
to income that it distributes to its stockholders. For these purposes,
taxable income will be computed without regard to the dividends paid
deduction and the Company's net capital gain. 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 on income and gain generated by certain extraordinary
transactions. 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. If the Company
fails to qualify during any taxable year as a REIT, unless 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 could have a material adverse effect upon its stockholders.
THE COMPANY BELIEVES BUT CANNOT GUARANTEE THAT IT QUALIFIES AS A REIT
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 operation 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. You should be aware, moreover, that
opinions of counsel are not binding upon the IRS or any court. In addition,
qualification and taxation as a REIT in any tax year depends upon the
Company's ability to meet the various source of income, ownership of assets,
distribution and diversity of ownership requirements of the Code for
qualification as a REIT in its actual results each tax year, 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.
Likewise, although the Company believes that it has operated in a manner
which satisfies the REIT qualification requirements under the Code since
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.
40
<PAGE>
UNDISTRIBUTED LONG-TERM CAPITAL GAINS
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 the portion of the Company's undistributed
long-term capital gains for the taxable year that the Company designates. A
stockholder would be deemed to have paid his share of the tax paid by the
Company on the undistributed capital gains, and the tax paid would be
credited or refunded to the stockholder. The stockholder's basis in his stock
would be increased by the amount of undistributed long-term capital gains
included in the stockholder's long-term capital gains, less the 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.
ORDINARY DIVIDENDS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. Stockholders (as defined below) out of current or
accumulated earnings and profits (and not designated as a capital gain
dividends) will be taken into account by U.S. Stockholders as ordinary income
and will not be eligible for the dividends received deduction generally
available to corporations. For purposes of determining whether distributions
on the Company's stock are out of current or accumulated earnings and
profits, the Company's earnings and profits will be allocated first to the
outstanding Preferred Stock, and then allocated to the Company's Common Stock.
As used herein, the term "U.S. Stockholder" means a holder of Common
or Preferred Stock that for United States federal income tax purposes is:
- a citizen or resident of the United States, or
- a corporation, partnership or other entity created or organized
in or under the laws of the United States or any political
subdivision thereof, or
- an estate, the income of which is subject to United States
federal income taxation regardless of its source, or
- 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
- is not an entity that has a special status under the Code (such
as a tax-exempt organization or dealer in securities).
CAPITAL GAIN DIVIDENDS
To the extent that the Company has net capital gain for a taxable
year, dividends paid during the year (or that are deemed paid as discussed
above, see "--Undistributed Long-Term Capital Gains") properly designated by
it as long-term capital gains will be treated as such for the taxable year
without regard to the period for which the stockholder has held his 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.
41
<PAGE>
OTHER DIVIDENDS
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 stock, but rather will reduce the adjusted basis of the stock.
To the extent that distributions in excess of current and accumulated
earnings and profits exceed the adjusted basis of a stockholder's stock, the
distribution will be treated as long-term capital gain or loss if the shares
of stock have been held for more than 12 months and otherwise as short-term
capital gain or loss, assuming the stock is a capital asset in the hands of
the stockholder. 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 special 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.
CONVERSION OF PREFERRED STOCK TO COMMON STOCK
No gain or loss generally will be recognized upon conversion of
Preferred Stock into Common Stock except with respect to any cash paid in
lieu of fractional shares of Common Stock. The tax basis of the Common Stock
received upon such conversion will be equal to the tax basis of the Preferred
Stock converted, and, provided the Preferred Stock is held as a capital
asset, the holding period of the Common Stock will include the holding period
of the Preferred Stock converted. Additionally, if a conversion takes place
when there is a dividend arrearage on the Preferred Stock and the fair market
value of the Common Stock exceeds the issue price of the Preferred Stock, a
portion of the Common Stock received might be treated as a dividend
distribution taxable as ordinary income.
ADJUSTMENT OF CONVERSION PRICE
When the conversion price of convertible preferred stock is adjusted
to reflect certain taxable distributions with respect to the stock into which
it is convertible, regulations under Section 305 of the Code treat the
adjustment as a constructive distribution by the issuer, taxable as a
dividend to the extent of the issuer's current or accumulated earnings and
profits. Accordingly, under certain circumstances, an adjustment to the
conversion price of the Preferred Stock may give rise to a deemed taxable
dividend to the holders of such stock, whether or not they exercise their
conversion privilege. In addition, the failure to fully adjust the conversion
price of the Preferred Stock under some circumstances may give rise to a
deemed taxable dividend to the holders of Common Stock.
42
<PAGE>
NO PROCEEDS TO THE COMPANY
Neither the Company nor the Operating Partnership will receive any
cash proceeds from the issuance of any shares of Common Stock or Preferred
Stock offered under this Prospectus. With each such issuance of shares of
Common Stock or Preferred Stock as a result of a redemption of Units,
however, the Company's economic interest in the Operating Partnership will
increase.
The Company also will not receive any cash proceeds from the sale of
the Shares by the Selling Stockholders.
SELLING STOCKHOLDERS
2,800,000 shares of Preferred Stock (the "Preferred Shares") may be
offered from time to time by or for the account of the Selling Stockholders.
The following table sets forth the name and number of shares of Preferred
Stock beneficially owned by the Selling Stockholders as of December 1, 1998
and the respective percentages of Preferred Stock beneficially owned by each
Selling Stockholder outstanding as of that date and that would be owned if
the Company issues all 2,000,000 shares of Preferred Stock upon redemption of
all outstanding Preferred Units of the Operating Partnership prior to any
sale (or conversion into Common Stock) of the Preferred Shares owned by the
Selling Stockholders. The number of shares of Preferred Stock beneficially
owned by each Selling Stockholder is based upon information furnished by the
Selling Stockholders which the Company believes to be accurate.
<TABLE>
<CAPTION>
Percent of Class
-----------------
After Issuance
Preferred of 2,000,000 Shares
Shares of Preferred Stock
Beneficially Outstanding Upon Redemption
Selling Stockholder Owned at 12/31/98 of Preferred Units
- ------------------- -------------- ----------- --------------------
<S> <C> <C> <C>
Westbrook Burnham Holdings, L.L.C. .......... 2,495,538 89.1% 52.0%
Westbrook Burnham Co-Holdings, L.L.C. ....... 304,462 10.9% 6.3%
----------- ------ -------
2,800,000* 100% 58.3%
</TABLE>
- ------------------
* Blackacre SMC Master Holdings, L.L.C. is the record holder
of 10 of these Shares.
At the current exchange rate of 1.626 shares of Common Stock for each
share of Preferred Stock, the conversion of all of the Preferred Shares held
by the Selling Stockholders would result in Westbrook Burnham Holdings L.L.C.
owning 4,057,745 shares of Common Stock and Westbrook Burnham Co-Holdings
L.L.C. owning 495,055 shares of Common Stock for an aggregate of 4,552,800
shares of Common Stock.
Any Prospectus Supplement which may be circulated relating to the
sale or sales from time to time of a number of Preferred Shares (or, if the
Preferred Shares have been converted into Common Stock, of shares of Common
Stock) that is less than all of the Preferred Shares (or shares of Common
Stock) owned by any Selling Stockholder will set forth the number and the
percentage of the outstanding shares of Preferred Stock (or Common Stock)
continuing to be held by the Selling Stockholder after completion of the
sales described in the Prospectus Supplement.
43
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time of
(i) up to 2,800,000 Preferred Shares by the holders thereof, (ii) up to an
additional 2,000,000 shares of our Preferred Stock which we may issue upon
redemption of Preferred Units of the Operating Partnership, (iii) up to
7,804,878 shares of our Common Stock which we may issue upon conversion of
the above referenced Preferred Stock at the initial conversion ratio of
approximately 1.626 shares of Common Stock for each share of Preferred Stock,
(iv) up to an additional 574,483 shares of our Common Stock which we may
issue upon redemption of Common Units of the Operating Partnership, and (v)
an indeterminate number of additional shares of our Common Stock which we may
issue as a result of the anti-dilution provisions of the Preferred Stock. We
are filing the registration statement of which this Prospectus is a part to
fulfill our contractual obligations to the Selling Stockholders and to the
holders of the Preferred Units and Common Units and to provide them with
freely tradable securities.
The Selling Stockholders from time to time may offer and sell the
Preferred Shares or shares of Common Stock into which the Preferred Shares
are convertible (collectively, the "Shares") held by them directly or through
agents or broker-dealers on terms to be determined at the time of sale. To
the extent required, the names of any agent or broker-dealer and applicable
commissions or discounts and any other required information with respect to
any particular offer will be set forth in an accompanying Prospectus
Supplement. Each of the Selling Stockholders reserves the sole right to
accept or reject, in whole or in part, any proposed purchase of the Shares to
be made directly or through agents.
We will not receive any proceeds from the sale of the Shares by the
Selling Shareholders or the issuance of the other securities offered hereby.
We have agreed to bear certain expenses of registration of the Shares and
other securities offered under this Prospectus under federal and state
securities laws.
The Selling Stockholders and any agents or broker-dealers that
participate with the Selling Stockholders in the distribution of Shares may
be deemed to be "underwriters" within the meaning of the Securities Act, and
any commissions received by them and any profit on the resale of the Shares
may be deemed to be underwriting commissions or discounts under the
Securities Act. See "Registration Rights" for indemnification arrangements
between the Company and the Selling Stockholders. Alternatively, the Selling
Stockholders may from time to time offer the Shares through dealers or
agents, who may receive compensation in the form of commissions from the
Selling Stockholders and/or the purchasers of Shares for whom they may act as
agent. The Selling Stockholders and any dealers or agents that participate in
the distribution of Shares may be deemed to be "underwriters" within the
meaning of the Securities Act and any profit on the sale of Shares by them
and any commissions received by any such dealers or agents might be deemed to
be underwriting commissions under the Securities Act.
The distribution of the Shares by or for the account of the Selling
Stockholders also may be effected from time to time in one or more
underwritten transactions at a fixed price or prices, which may be changed,
or at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Any such underwritten
offering may be on a "best efforts" or a "firm commitment" basis. In
connection with any such underwritten offering, underwriters or agents may
receive compensation in the form of discounts, concessions or commissions
from the Selling Stockholders or from purchasers of Shares for whom they may
act as agents. Underwriters may sell Shares to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. The Company has agreed to indemnify the
underwriters, if any, against certain liabilities, including liabilities
under the Securities Act.
At a time a particular offer of Shares is made by or for the account
of the Selling Stockholders, a Prospectus Supplement, may, if required, be
distributed that will set forth the name and names of any dealers or agents
and any commissions and other terms constituting compensation from the
Selling Stockholders and any other required information. The Shares may be
sold from time to time at varying prices determined at the time of sale or at
negotiated prices.
44
<PAGE>
In order to comply with the securities laws of certain states, if
applicable, the Shares to be sold by or for the account of the Selling
Stockholders may be sold only through registered or licensed brokers or
dealers. In addition, in certain states, the Shares may not be sold unless
they have been registered or qualified for sale in such state or an exemption
from such registration or qualification requirement is available and is
complied with.
The Shares may also be sold by or for the account of the Selling
Stockholders in one or more of the following transactions: (a) block
transactions (which may involve crosses) in which a broker-dealer may sell
all or a portion of such stock as agent but may position and resell all or a
portion of the block as principal to facilitate the transaction; (b)
purchases by any such broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to a Prospectus Supplement; (c) a
special offering, an exchange distribution or a secondary distribution in
accordance with applicable New York Stock Exchange or other stock exchange
rules; (d) ordinary brokerage transactions and transactions in which any such
broker-dealer solicits purchasers; (e) sales "at the market" to or through a
market maker or into an existing trading market, on an exchange or otherwise,
for such shares; and (f) sales in other ways not involving market makers or
established trading markets, including direct sales to purchasers. In
effecting sales, broker-dealers engaged by the Selling Stockholders may
arrange for other broker-dealers to participate.
LEGAL MATTERS
Certain legal matters, including the legality of the shares of
Preferred Stock and Common Stock offered hereby, will be passed upon for the
Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements and the related financial
statement schedule incorporated in this Prospectus and in the Registration
Statement by reference from the Company's Annual Report on Form 10-K for the
year ended December 31, 1997, have been audited by Deloitte & Touche,
independent auditors, as stated in their reports, which are incorporated
herein and in the Registration Statement by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
45
<PAGE>
- -----------------------------------------------------
- -----------------------------------------------------
You should rely only on the
information contained in this
Prospectus, incorporated herein by
reference or contained in a
Prospectus Supplement. We have not
authorized anyone else to provide you
with different or additional
information. Neither we nor the
Selling Stockholders named herein are
making an offer of these securities
in any state where the offer is not
permitted. You should not assume that
the information in this Prospectus or
information incorporated in this
Prospectus by reference or contained
or incorporated by reference in any
Prospectus Supplement is accurate as
of any date other than the date on
the front of the documents containing
such information.
---------------------------
TABLE OF CONTENTS
Page
Available Information............................ 2
Incorporation of Certain Documents by
Reference..................................... 2
Prospectus Summary............................... 4
Risk Factors..................................... 6
The Company...................................... 18
Description of Securities........................ 20
Description of Units and Redemption of
Units of Operating Partnership ............... 28
Federal Income Tax Considerations ............... 40
No Proceeds to the Company....................... 43
Selling Stockholders............................. 43
Plan of Distribution............................. 44
Legal Matters.................................... 45
Experts.......................................... 45
---------------------------
4,800,000 SHARES
SERIES 1997-A CONVERTIBLE
PREFERRED STOCK
AND
7,804,878 SHARES
COMMON STOCK ISSUABLE UPON
CONVERSION THEREOF
AND
574,483 OTHER SHARES
COMMON STOCK
BURNHAM PACIFIC PROPERTIES, INC.
---------------------
Prospectus
---------------------
January __, 1999
- -----------------------------------------------------
- -----------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of the fees
and expenses (other than underwriting commissions and discounts) anticipated
to be paid by the Company in connection with the issuance and distribution of
the Securities.
SEC Registration fee $35,127
Legal fees and expenses 50,000
Accounting fees and expenses 5,000
Printing fees and expenses 5,000
Transfer and Agency fees 1,000
Miscellaneous 3,873
-------
TOTAL $ 100,000
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Maryland General Corporation Law ("MGCL") permits a Maryland
corporation to include in its charter a provision limiting the liability of
its directors and officers to the corporation and its stockholders for money
damages except for liability resulting from (i) actual receipt of an improper
benefit or profit in money, property or services or (ii) active and
deliberate dishonesty established by a final judgment as being material to
the cause of action. The charter of Burnham Pacific Properties, Inc. (the
"Company") contains such a provision which eliminates such liability to the
maximum extent permitted by Maryland law.
The charter of the Company authorizes it, 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 (i) any individual who is a present or former director, officer, employee
or agent of the Company or of its predecessor, Burnham Pacific Properties,
Inc., a California corporation (the "Predecessor Corporation") or (ii) any
individual who, while a director of the Company or Predecessor Corporation
and at the request of the Company or Predecessor Corporation, serves or has
served as a director, officer, partner or trustee of another corporation,
partnership, joint venture, trust, employee benefit plan or any other
enterprise. The bylaws of the Company obligate it, to the maximum extent
permitted by Maryland law, to indemnify (a) any individual who is a present
or former director, officer, employee or agent of the Company or Predecessor
Corporation or (b) any individual who, while a director of the Company or
Predecessor Corporation and at the request of the Company or Predecessor
Corporation, serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
officer, partner or trustee.
The MGCL requires a corporation (unless its charter provides
otherwise, which the Company's 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 (i)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (a) was committed in bad faith or (b) was
the result of active and deliberate dishonesty, (ii) the director or officer
actually received an improper personal benefit in money, property or services
or (iii) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by
or in the right of the corporation. In addition, the MGCL allows a
corporation to advance expenses to a director or officer, provided that, as a
condition to advancing expenses, the corporation obtains (x) 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
as authorized by the bylaws and (y) a written statement 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.
II-1
<PAGE>
ITEM 16. EXHIBITS.
Exhibit No. Description
4.1 Charter of the Company, as Amended and Restated May 6, 1997,
incorporated by reference to pages B-1 through B-13 of the Company's
Proxy Statement for its 1997 Annual Meeting, filed March 31, 1997.
4.2 Articles Supplementary Designating 4,800,000 shares of Preferred
Stock as 4,800,000 shares of Series 1997-A Convertible Preferred
Stock, incorporated by reference to Exhibit 3.1.2 to the Company's
Current Report on Form 8-K dated December 31, 1997.
4.3 Bylaws of the Company, as amended November 19, 1997, incorporated by
reference to Exhibit 3.2 of the Company's Current Report on Form 8-K,
filed December 16, 1997.
4.4.1 Form of Common Stock Certificate of the Company, incorporated by
reference to Exhibit 4.0 of the Company's Registration Statement No.
33-20489 and subsequently overprinted to state "THE CORPORATION IS
NOW INCORPORATED IN THE STATE OF MARYLAND WITH $0.01 PAR VALUE PER
SHARE."
*4.4.2 Form of Series 1997-A Convertible Preferred Stock Certificate of the
Company.
4.5 Agreement of Limited Partnership of Burnham Pacific Operating
Partnership, L.P. dated as of November 14, 1997, incorporated by
reference to Exhibit 10.1.1 of the Company's Current Report on
Form 8-K dated November 7, 1997.
4.6 First Amendment to Agreement of Limited Partnership of Burnham
Pacific Operating Partnership, L.P. dated as of December 31, 1997,
incorporated by reference to Exhibit 10.1 of the Company's Report on
Form 8-K dated December 31, 1997, and, with respect to Exhibit C
thereto ("Rights of Preferred Units and Common Units"), to Exhibit
10.1.3 of the Company's 1997 Annual Report on Form 10-K filed March
20, 1998.
4.7 Third Amendment to the Agreement of Limited Partnership of Burnham
Pacific Operating Partnership, L.P. incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K dated June
1, 1998.
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being registered.
*8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
10.1 Operating Agreement of BPP Retail, LLC between State of California
Public Employees' Retirement System and Burnham Pacific Operating
Partnership, L.P., dated August 31, 1998 (being the joint venture
agreement with CalPERS), incorporated by reference to Exhibit 10.1
of the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
10.2 Agreement to Contribute among Burnham Pacific Properties, Inc.,
Burnham Pacific Operating Partnership, L.P. and the Contributors and
Existing Partners Listed on Exhibit A-1 thereto, incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form 8-K
dated November 7, 1997.
10.3 Stock Purchase Agreement dated as of December 5, 1997 by and among
Burnham Pacific Properties, Inc., Burnham Pacific Operating
Partnership, L.P., Westbrook Burnham Holdings, L.L.C. and Westbrook
Burnham Co-Holdings, L.L.C. incorporated by reference to Exhibit 4.1
of the Company's Current Report on Form 8-K dated December 31, 1997.
*10.4 Form of Indemnification Agreement between Burnham Pacific Properties,
Inc. and Burnham Pacific Operating Partnership, L.P. as
indemnitors and their Directors and Officers as indemnitees.
*23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibits 5.1 and
8.1 hereto). 24.1 Powers of Attorney (included on the signature page
hereof).
99.1 Registration Rights Agreement dated as of December 31, 1997 by and
among the Company, Westbrook Burnham Holdings, L.L.C. and Westbrook
Burnham Co-Holdings, L.L.C., incorporated by reference to
Exhibit 4.2.1 of the Company's Current Report on Form 8-K dated
December 31, 1997.
99.2 Registration Rights Agreement dated as of December 31, 1997 by and
among the Company, Westbrook Burnham Holdings, L.L.C. and each of
the Existing Partners Listed on Exhibit A-1 thereto, incorporated
by reference to Exhibit 4.2.2 of the Company's Current Report on
Form 8-K dated December 31, 1997.
- ----------------------
* Filed herewith.
II-2
<PAGE>
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, as amended (the
"Securities Act")
(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 and 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 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 the registration statement or any material
change to such information in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the undersigned registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), that are incorporated by
reference in the registration statement;
(2) That, for the purpose of determining any liability
under the Securities Act, 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; and
(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 registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d)
of the Exchange Act 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 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions
described under Item 15 above, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange
Commission (the "Commission") such indemnification is against
public policy as expressed in the Securities 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 Securities Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, 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 December 29, 1998.
BURNHAM PACIFIC PROPERTIES, INC.
By: /s/ J. David Martin
------------------------------------
J. David Martin, President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the dates indicated, each of whom also constitutes
and appoints J. David Martin and Daniel B. Platt, and each of them singly,
his true and lawful attorney-in-fact and agent, for him, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and a further registration statement filed conforming to Rule
462(b) under the Securities Act of 1933, as amended, relating to securities
of the same class(es) registered under this Registration Statement and to
file the same and all exhibits thereto and any other documents in connection
therewith with the Securities and Exchange Commission, granting unto each
attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ J. David Martin President, Chief Executive December 29, 1998
- ------------------- Officer (Principal Executive Officer)
J. David Martin and Director
/s/ Daniel B. Platt Chief Financial Officer (Principal December 29, 1998
- ------------------- Financial Officer)
Daniel B. Platt
/s/ Marc A. Artino Vice President Finance and Treasurer December 29, 1998
- ------------------- (Principal Accounting Officer)
Marc A. Artino
/s/ Malin Burnham Director December 29, 1998
- -------------------
Malin Burnham
/s/ James D. Harper, Jr. Director December 29, 1998
- -------------------
James D. Harper, Jr.
/s/ James D. Klingbeil Director December 29, 1998
- ----------------------
James D. Klingbeil
/s/ Nina B. Matis Director December 29, 1998
- -----------------
Nina B. Matis
/s/ Donne P. Moen Director December 29, 1998
- -----------------
Donne P. Moen
/s/ Thomas A. Page Director December 29, 1998
- ------------------
Thomas A. Page
/s/ Philip S. Schlein Director December 29, 1998
- ---------------------
Philip S. Schlein
Director December __, 1998
- -------------------
Robin Wolaner
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
4.1 Charter of the Company, as Amended and Restated May 6, 1997,
incorporated by reference to pages B-1 through B-13 of the Company's
Proxy Statement for its 1997 Annual Meeting, filed March 31, 1997.
4.2 Articles Supplementary Designating 4,800,000 shares of Preferred
Stock as 4,800,000 shares of Series 1997-A Convertible Preferred
Stock, incorporated by reference to Exhibit 3.1.2 to the Company's
Current Report on Form 8-K dated December 31, 1997.
4.3 Bylaws of the Company, as amended November 19, 1997, incorporated by
reference to Exhibit 3.2 of the Company's Current Report on Form 8-K,
filed December 16, 1997.
4.4.1 Form of Common Stock Certificate of the Company, incorporated by
reference to Exhibit 4.0 of the Company's Registration Statement No.
33-20489 and subsequently overprinted to state "THE CORPORATION IS
NOW INCORPORATED IN THE STATE OF MARYLAND WITH $0.01 PAR VALUE PER
SHARE."
*4.4.2 Form of Series 1997-A Convertible Preferred Stock Certificate of
the Company.
4.5 Agreement of Limited Partnership of Burnham Pacific Operating
Partnership, L.P. dated as of November 14, 1997, incorporated by
reference to Exhibit 10.1.1 of the Company's Current Report on
Form 8-K dated November 7, 1997.
4.6 First Amendment to Agreement of Limited Partnership of Burnham
Pacific Operating Partnership, L.P. dated as of December 31, 1997,
incorporated by reference to Exhibit 10.1 of the Company's Report on
Form 8-K dated December 31, 1997, and, with respect to Exhibit C
thereto ("Rights of Preferred Units and Common Units"), to Exhibit
10.1.3 of the Company's 1997 Annual Report on Form 10-K filed March
20, 1998.
4.7 Third Amendment to the Agreement of Limited Partnership of Burnham
Pacific Operating Partnership, L.P. incorporated by reference to
Exhibit 10.1 of the Company's Current Report on Form 8-K dated June
1, 1998.
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being registered.
*8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
10.1 Operating Agreement of BPP Retail, LLC between State of California
Public Employees' Retirement System and Burnham Pacific Operating
Partnership, L.P., dated August 31, 1998 (being the joint venture
agreement with CalPERS), incorporated by reference to Exhibit 10.1
of the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
10.2 Agreement to Contribute among Burnham Pacific Properties, Inc.,
Burnham Pacific Operating Partnership, L.P. and the Contributors and
Existing Partners Listed on Exhibit A-1 thereto, incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form 8-K
dated November 7, 1997.
10.3 Stock Purchase Agreement dated as of December 5, 1997 by and among
Burnham Pacific Properties, Inc., Burnham Pacific Operating
Partnership, L.P., Westbrook Burnham Holdings, L.L.C. and Westbrook
Burnham Co-Holdings, L.L.C. incorporated by reference to Exhibit 4.1
of the Company's Current Report on Form 8-K dated December 31, 1997.
*10.4 Form of Indemnification Agreement between Burnham Pacific Properties,
Inc. and Burnham Pacific Operating Partnership, L.P. as
indemnitors and their Officers and Directors as indemnitees.
*23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibits 5.1
and 8.1 hereto). 24.1 Powers of Attorney (included on the signature
page hereof).
99.1 Registration Rights Agreement dated as of December 31, 1997 by and
among the Company, Westbrook Burnham Holdings, L.L.C. and Westbrook
Burnham Co-Holdings, L.L.C., incorporated by reference to Exhibit
4.2.1 of the Company's Current Report on Form 8-K dated December 31,
1997.
99.2 Registration Rights Agreement dated as of December 31, 1997 by and
among the Company, Westbrook Burnham Holdings, L.L.C. and each of
the Existing Partners Listed on Exhibit A-1 thereto, incorporated by
reference to Exhibit 4.2.2 of the Company's Current Report on
Form 8-K dated December 31, 1997.
- ----------------------
* Filed herewith.
<PAGE>
Exhibit 4.4.2
SEE PAGES 2 AND 3 FOR IMPORTANT NOTICE
REGARDING RESTRICTIONS ON TRANSFERABILITY
AND OTHER INFORMATION
Number Shares of
--- ---------------
Convertible Preferred Stock
Series 1997-A
BURNHAM PACIFIC PROPERTIES, INC.
a Maryland corporation
THIS CERTIFIES that _______________________________ is the record
holder of _________________________shares of Series 1997-A Convertible Preferred
Stock, par value $0.01 per share (the "Preferred Stock"), of Burnham Pacific
Properties, Inc., a Maryland corporation (the "Corporation"), transferable only
on the share register of the Corporation, in person or by duly authorized
attorney, upon surrender of this certificate properly endorsed or assigned.
The shares represented by this certificate are convertible into shares
of Common Stock, par value $0.01 per share, of the Corporation and redeemable,
both as set forth in the Articles Supplementary of the Corporation relating to
the Preferred Stock (the "Articles Supplementary").
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed on its behalf by its duly authorized officer this ___ day of
___________, 19___.
SEAL
- ---------------------------------- --------------------------------------
Secretary Vice President
1
<PAGE>
NOTICE: THE SIGNATURE OF THE TRANSFEROR MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATSOEVER.
NOTICE OF ELECTION TO CONVERT
THE UNDERSIGNED HEREBY IRREVOCABLY ELECTS TO CONVERT _____________
SHARES OF PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE INTO SUCH NUMBER OF
SHARES OF COMMON STOCK OF THE CORPORATION AS DETERMINED IN ACCORDANCE WITH AND
SUBJECT TO THE TERMS OF SECTION 5 OF THE ARTICLES SUPPLEMENTARY RELATING TO THE
PREFERRED STOCK.
[NOTICE TO HOLDER: INCLUDE ANY OTHER INFORMATION REQUIRED
BY THE ARTICLES OF AMENDMENT AND RESTATEMENT OF THE
CORPORATION, AS AMENDED, AND THE ARTICLES SUPPLEMENTARY.]
DATED , (19)(20)
---------------------------- -----------------------------------
SIGNATURE
IMPORTANT NOTICE
The securities represented by this certificate has not been registered
under the Securities Act of 1933, as amended (the "Act"), and have been issued
pursuant to exemptions under the Act and under applicable state securities laws.
Such securities may not be sold, offered for sale, pledged or hypothecated
except (i) pursuant to an effective registration statement with respect to such
securities under the Act, (ii) to a "Qualified Institutional Buyer" within the
meaning of Rule 144A under the Act, (iii) pursuant to and in compliance with
Rule 144 under the Act, or (iv) pursuant to an exemption from or in a
transaction not subject to the registration requirements of the Act and any
applicable state securities laws provided that the Corporation shall have been
provided an opinion of counsel satisfactory to the Corporation that such
registration is not required under the Act and such securities laws.
The Corporation will furnish to any stockholder, on request and without
charge, a full statement of the information required by Section 2-211(b) of the
Corporation and Associations Articles of the Annotated Code of Maryland with
respect to the designations, preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the stock of each class which the Corporation has
authority to issue and (i) the differences in the relative rights and
preferences between the shares of each series to the extent they have been set,
and (ii) the authority of the Board of Directors to set the relative rights and
preferences or subsequent series. Any such
2
<PAGE>
summary does not purport to be complete and is subject to and qualified in its
entirety by reference to the Charter of the Corporation, as amended and
supplemented to the date of this certificate (including the Articles
Supplementary), and as the same may be further amended or supplemented from time
to time, a copy of which will be sent without charge to each stockholder who so
requests. Such request must be made to the Secretary of Corporation as its
principal office.
The shares of Preferred Stock represented by this certificate are subject to
restrictions on transfer for the purpose of maintenance of the Corporation's
status as a real estate investment trust under the Internal Revenue Code of
1986, as amended (the "Code"). No Person, other than Excepted Holder, shall (i)
Beneficially Own or Constructively Own shares of Capital Stock in excess of the
Ownership Limit, or (ii) Beneficially Own or Constructively Own shares of Common
Stock in excess of the Common Stock Ownership Limit. No Excepted Holder shall
Beneficially Own or Constructively Own shares of Capital Stock in excess of the
Excepted holder Limit for such Excepted Holder. No Person shall (i) Beneficially
Own or Constructively Own shares of Capital Stock to the extent that such
Beneficial or Constructive Ownership of Capital Stock would result in the
Corporation being "closely held" within the meaning of Section 856(n) of the
Code (without regard to whether the ownership interest is held during the last
half of a taxable year), or otherwise [failing] to qualify as a REIT (including,
but not limited to, Beneficial or Constructive Ownership that would result in
the Corporation owning (actually or constructively) an interest in a tenant that
is described in Section 856(d)(2)(B) of the Code if the income derived by the
Corporation from such tenant would cause the Corporation to fail to satisfy any
of the gross income requirements of Section 856(c) of the Code), or (ii)
Beneficially Own shares of Capital Stock that would result in Beneficial
Ownership of Capital Stock by fewer than 100 Persons (as determined under
Section 856(a)(5) of the Code). All capitalized terms in this legend have the
meanings defined in the Corporation's Articles of Amendment and Restatement, as
amended and supplemented to the date of this certificate and as the same may be
further amended or supplemented from time to time, a copy of which, including
the restrictions on transfer, will be sent without charge to each stockholder
who so requests. Such request must be made to the Secretary of the Corporation
at its principal office. If the restrictions on transfer are violated, the
shares of Preferred Stock represented hereby will be automatically exchanged for
Excess Shares which will be held in trust by the Trustee of a Trust for the
exclusive benefit of the Charitable Beneficiary designated by the Corporation.
The foregoing summary of the restrictions on transfer of shares of Preferred
Stock is qualified in its entirety by references to the Corporation's Articles
of Amendment and Restatement, as amended to the date of this certificate and as
the same may be further amended from time to time.
3
<PAGE>
Exhibit 5.1
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
December 29, 1998
Burnham Pacific Properties, Inc.
610 West Ash Street, 16th Floor
San Diego, California 92101
Ladies and Gentlemen:
This opinion is furnished in connection with the registration on Form
S-3 (the "Registration Statement") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), of (i) up to 2,800,000 shares of Series 1997-A
Convertible Preferred Stock, $.01 par value per share ("Preferred Stock"), of
Burnham Pacific Properties, Inc. (the "Company") by holders thereof, (ii) up to
an additional 2,000,000 shares of the Company's Preferred Stock that may be
issued if, and to the extent that, certain holders of preferred units of limited
partnership interest ("Preferred Units") of Burnham Pacific Operating
Partnership, L.P. (the "Operating Partnership") tender such Preferred Units to
the Operating Partnership for redemption and the Company exercises its
contractual right to acquire such tendered Preferred Units for Preferred Stock,
(iii) up to 7,804,878 shares of the Company's common stock, $.01 par value per
share (the "Common Stock"), which may be issued upon conversion of the above
referenced 4,800,000 shares of Preferred Stock at the initial conversion ratio
of approximately 1.626 shares of Common Stock for each share of Preferred Stock,
(iv) up to an additional 574,482 shares of Common Stock which may be issued if,
and to the extent that, certain holders of common units of limited partnership
interest ("Common Units") of the Operating Partnership tender such Common Units
to the Operating Partnership for redemption and the Company exercises its
contractual right to acquire such tendered Common Units for Common Stock, and
(v) an indeterminate number of additional shares of Common Stock which may be
issued as a result of the anti-dilution provisions of the Preferred Stock.
In connection with rendering this opinion, we have examined the
Charter, Articles Supplementary Designating 4,800,000 Shares of Series 1997-A
Convertible Preferred Stock, and Bylaws of the Company, each as amended to date;
such records of the corporate proceedings of the Company as we deemed material;
the Agreement of Limited Partnership of
<PAGE>
Burnham Pacific Properties, Inc.
December 29, 1998
Page 2
Burnham Pacific Operating Partnership, L.P., as amended to date; and such other
certificates, receipts, records and documents as we considered necessary for the
purposes of this opinion. In our examination, we have assumed the genuineness of
all signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as certified, photostatic or facsimile copies, the
authenticity of the originals of such copies and the authenticity of telephonic
confirmations of public officials and others. As to facts material to our
opinion, we have relied upon certificates or telephonic confirmations of public
officials and certificates, documents, statements and other information of the
Company or representatives or officers thereof.
We are attorneys admitted to practice in The Commonwealth of
Massachusetts. We express no opinion concerning the laws of any jurisdictions
other than the laws of the United States of America and the General Corporation
Law of the State of Maryland as in effect on the date hereof, and also express
no opinion with respect to the blue sky or securitites laws of any state,
including Maryland.
Based upon the foregoing, we are of the opinion that (i) the 2,800,000
shares of Preferred Stock being registered for resale by the Registration
Statement are duly authorized, legally issued, fully paid and nonassessable by
the Company under the General Corporation Law of the State of Maryland, and (ii)
when and to the extent that (A) shares of Preferred Stock or Common Stock have
been issued in exchange for Preferred Units or Common Units, respectively,
tendered to the Operating Partnership for redemption as contemplated by the
limited partnership agreement of the Operating Partnership, and (B) shares of
Common Stock are issued upon conversion of the above referenced shares of
Preferred Stock or as a result of the anti-dilution provisions of such Preferred
Stock, such issued shares will be validly issued, fully paid and nonassessable
under the General Corporation Law of the State of Maryland.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us with respect to this opinion
under the heading "Legal Matters" in the Prospectus which is a part of such
Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit 8.1
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
December 29, 1998
Burnham Pacific Properties, Inc.
610 West Ash Street
Suite 1600
San Diego, California 92101
Re: Certain Federal Income Tax Matters
Ladies and Gentlemen:
This opinion is furnished to you in our capacity as counsel to Burnham
Pacific Properties, Inc. (the "Company") in connection with the Company's
Registration Statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
relating to up to 4,800,000 Shares of the Company's Series 1997-A Convertible
Preferred Stock, 7,804,878 Shares of the Company's Common Stock issuable upon
conversion thereof and 574,482 other Shares of Common Stock. This opinion
relates to the Company's qualification for federal income tax purposes as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Code") and the accuracy of certain statements in the Registration
Statement.
In rendering the following opinions, we have made such legal and
factual examinations and inquiries as we have deemed necessary or appropriate
for purposes of rendering the opinions set forth herein, including an
examination of the Articles of Incorporation of the Company and of all documents
constituting amendments thereto (as so amended, the "Charter"); the Bylaws of
the Company as amended to date (the "Bylaws"); the Articles of Incorporation and
amendments thereto of the Company's predecessor corporation (the "Predecessor"),
a California corporation that merged with and into the Company as of May 6, 1997
(which merger is referred to herein as the "Reincorporation"); the Agreement and
Plan of Merger dated as of May 6, 1997 between the Predecessor and the Company
regarding the Reincorporation; the Agreement of Limited Partnership of Burnham
Pacific Operating
<PAGE>
Burnham Pacific Properties, Inc.
December 29, 1998
Page 2
Partnership, L.P. (the "Operating Partnership") as amended to date; the
Registration Statement; and such other records, certificates and documents as we
have deemed necessary or appropriate for purposes of rendering the opinion set
forth herein. We also have relied upon the representations of the Company
regarding the manner in which the Company has been and will continue to be owned
and operated. We have neither independently investigated nor verified such
representations, and we assume that such representations are true, correct and
complete and that all representations made "to the best of the knowledge and
belief" of any person(s) or party(ies) or with similar qualification are and
will be true, correct and complete as if made without such qualification. We
assume that the Company has been and will be operated in accordance with
applicable laws and the terms and conditions of applicable documents. In
addition, we have relied on certain additional facts and assumptions described
below.
In rendering the opinions set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all documents submitted to us as originals, (iii) the conformity
to the original documents of all documents submitted to us as copies, (iv) the
conformity of final documents to all documents submitted to us as drafts, (v)
the authority and capacity of the individual or individuals who executed any
such documents on behalf of any person other than the Company, (vi) the accuracy
and completeness of all records made available to us, and (vii) the factual
accuracy of all representations, warranties and other statements made by all
persons. In addition, we have assumed that (i) the Reincorporation was
consummated in accordance with the Merger Agreement, (ii) each of the
Predecessor and the Company complied and will comply with all reporting
obligations with respect to the Reincorporation required under the Code and the
Treasury Regulations thereunder, and (iii) the Merger Agreement was valid and
binding in accordance with its terms. We also have assumed, without
investigation, that all documents, certificates, warranties and covenants on
which we have relied in rendering the opinion set forth below and that were
given or dated earlier than the date of this letter continue to remain accurate,
insofar as relevant to the opinion set forth herein, from such earlier date
through and including the date of this letter.
The discussion and conclusions set forth below are based upon the Code,
the Income Tax Regulations and Procedure and Administration Regulations
promulgated thereunder and existing administrative and judicial interpretations
thereof, all of which are subject to change. No assurance can therefore be given
that the federal income tax consequences described below will not be altered in
the future. As used below, the "Company" includes the Predecessor for all
taxable periods of the Predecessor beginning with its taxable year ended
December 31, 1987 through and including the Reincorporation.
<PAGE>
Burnham Pacific Properties, Inc.
December 29, 1998
Page 3
Based upon and subject to the foregoing, we are of the opinion that:
1. Commencing with the Company's taxable year ending December 31,
1987, the Company has been organized in conformity with the
requirements for qualification as a "real estate investment
trust" under the Code, and the Company's manner of operation
has met and will continue to meet the requirements for
qualification and taxation as a "real estate investment trust"
under the Code.
The Company's 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 us. 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.
2. The statements in the Registration Statement set forth under
the captions "DESCRIPTION OF UNITS AND REDEMPTION OF UNITS OF
OPERATING PARTNERSHIP--Tax Consequences of Redemption" and
"FEDERAL INCOME TAX CONSIDERATIONS," to the extent such
information constitutes matters of law, summaries of legal
matters or legal conclusions, have been reviewed by us and are
accurate in all material respects.
We express no opinion with respect to the matters described in the
Registration Statement other than those expressly set forth herein. You should
recognize that our opinions are not binding on the Internal Revenue Service and
that the Internal Revenue Service may disagree with the opinions contained
herein. Although we believe that our opinions will be sustained if challenged,
there can be no assurance that this will be the case.
<PAGE>
Burnham Pacific Properties, Inc.
December 29, 1998
Page 4
We consent to being named as counsel to the Company in the Registration
Statement, to the references in the Registration Statement to our firm and to
the inclusion of a copy of this opinion letter as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit 10.4
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made this _____ day of ___________,
199_ ("Agreement"), by and among BURNHAM PACIFIC PROPERTIES, INC., a Maryland
corporation (the "Company"), BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P., a
Delaware limited partnership (the "Operating Partnership") and
________________________ ("Indemnitee").
WHEREAS, at the request of the Company, Indemnitee currently serves as
director and/or officer of the Company and may, therefore, be subjected to
claims, suits or proceedings arising as a result of Indemnitee's service in such
capacity; and
WHEREAS, as an inducement to Indemnitee to continue to serve as such
director and/or an officer, the Company has agreed to indemnify Indemnitee
against expenses and costs incurred by Indemnitee in connection with any such
claims, suits or proceedings, to the fullest extent that is lawful; and
WHEREAS, as recited in Section 15 hereof, it is in the interests of the
parties that the Operating Partnership have the same indemnification obligations
to the Indemnitee as the indemnification obligations of the Company to the
Indemnitee; and
WHEREAS, the parties by this Agreement desire to set forth their
agreement regarding indemnification;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the parties hereto covenant and agree as follows:
Section 1. Definitions. For purposes of this Agreement:
(a) "Board of Directors" means the Board of Directors of the
Company.
(b) "Change in Control" means a change in control of the
Company occurring after the date of this Agreement of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or
not the Company is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be deemed to
have occurred if after the date of this Agreement (i) any "person" (as such term
is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of
either (A) 30% or more of the outstanding shares of Common Stock of the Company
or (B) 30% (by right to vote or to grant or withhold approval) of any other
class or classes which individually or together have the power to elect a
majority of the Company's Board of Directors without the prior approval of at
least two-thirds of the members of the Board of Directors in office
<PAGE>
immediately prior to such person attaining such percentage interest; (ii) there
occurs a proxy contest, or the Company is a party to a merger, consolidation,
sale of assets, plan of liquidation or other reorganization not approved by at
least two-thirds of the members of the Board of Directors then in office, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iii) during any period of two consecutive years,
other than as a result of an event described in clause (b)(ii) of this Section
1, individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
(c) "Corporate Status" means the status of a person as a
director, officer, employee or agent of the Company or of any other corporation,
partnership, limited liability company, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the request of
the Company.
(d) "Disinterested Director" means a director of the Company
who is not and was not a party to the Proceeding in respect of which
indemnification or advance of Expenses is sought by Indemnitee.
(e) "Expenses"shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a
law firm, selected by the Board of Directors by vote as set forth in Section
8(b), that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or the Operating Partnership or Indemnitee in any matter material to any such
party, or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company, the Operating Partnership or Indemnitee in an
action to determine Indemnitee's rights under this Agreement.
(g) "MGCL" mean the Maryland General Corporation Law.
(h) "Proceeding" includes any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing or
any other proceeding, whether civil, criminal, administrative or investigative,
except one (i) initiated by an Indemnitee pursuant to Section 10 of this
Agreement to enforce his rights under this Agreement or (ii) currently pending
as of the date of this Agreement.
2
<PAGE>
Section 2. Services by Indemnitee. Indemnitee agrees to serve as a
director and/or an officer of the Company and may at any time and for any reason
resign from such position (subject to any other contractual obligation or any
obligation imposed by operation of law), in which event the Company shall have
no obligation under this Agreement to continue Indemnitee in such position.
Section 3. Indemnification - General. The Company shall indemnify, and
advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) to the
fullest extent permitted by Maryland law in effect on the date hereof and as
amended from time to time; provided, however, that no change in Maryland law
shall have the effect of reducing the benefits available to Indemnitee hereunder
based on Maryland law as in effect on the date hereof. The rights of Indemnitee
provided in this Section shall include, but shall not be limited to, the rights
set forth in the other Sections of this Agreement.
Section 4. Proceedings Other Than Proceedings by or in the Right of the
Company or Operating Partnership. Indemnitee shall be entitled to the rights of
indemnification provided in this Section 4 if, by reason of his Corporate
Status, he is, or is threatened to be, made a party to any threatened, pending,
or completed Proceeding, other than a Proceeding by or in the right of the
Company or Operating Partnership. Pursuant to this Section 4, Indemnitee shall
be indemnified against all Expenses, judgments, penalties, fines and amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with a Proceeding by reason of his Corporate Status.
Section 5. Proceedings by or in the Right of the Company or Operating
Partnership. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 5, if, by reason of his Corporate Status, he is made a
party to any threatened, pending or completed Proceeding brought by or in the
right of the Company or Operating Partnership to procure a judgment in its
favor. Pursuant to this Section 5, Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with such Proceeding.
Section 6. Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, made a party to
and is successful, on the merits or otherwise, in the defense of any Proceeding,
he shall be indemnified against all Expenses actually and reasonably incurred by
him or on his behalf in connection therewith. If Indemnitee is not wholly
successful in such Proceeding but is successful, on the merits or otherwise, as
to one or more but less than all claims, issues or matters in such Proceeding,
the Company shall indemnify Indemnitee against all Expenses actually and
reasonably incurred by him or on his behalf in connection with each successfully
resolved claim, issue or matter. For purposes of this Section and without
limitation, the termination of any claim, issue or matter in such a Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
3
<PAGE>
Section 7. Advance of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding to which Indemnitee is, or is threatened to be, made a party,
within ten days after the receipt by the Company of a statement or statements
from Indemnitee requesting such advance or advances from time to time, whether
prior to or after final disposition of such Proceeding. Such statement or
statements shall reasonably evidence the Expenses incurred by Indemnitee and
shall include or be preceded or accompanies by
(a) a written affirmation by the Indemnitee of the
Indemnitee's good faith belief that the standard of conduct necessary for
indemnification by the Company is authorized by law and by this Agreement has
been met and (b) a written undertaking by or on behalf of Indemnitee to repay
any Expenses advanced if it shall ultimately be determined that such standard of
conduct has not been met or as required by Section 6 if Indemnitee is not wholly
successful.
Section 8. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 8(a) hereof, a determination, if
required by applicable law, with respect to Indemnitee's entitlement thereto
shall promptly be made in the specific case: (i) if a Change in Control shall
have occurred, by Independent Counsel in a written opinion to the Board of
Directors, a copy of which shall be delivered to Indemnitee; or (ii) if a Change
in Control shall not have occurred, (A) by the Board of Directors by a majority
vote of a quorum consisting of Disinterested Directors, or (B) if a quorum of
the Board of Directors consisting of Disinterested Directors is not obtainable
or, even if obtainable, such quorum of Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee or (C) if so directed by a majority of
the members of the Board of Directors, by the stockholders of the Company. If it
is determined that Indemnitee is entitled to indemnification, payment to
Indemnitee shall be made within ten days after such determination. Indemnitee
shall cooperate with the person making such determination with respect to
Indemnitee's entitlement to indemnification, including providing to such person
upon reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including reasonable attorneys' fees and disbursements)
incurred by Indemnitee in so cooperating with the person making such
determination, in response to a request by such person, shall be borne by the
Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification).
4
<PAGE>
Section 9. Presumptions and Effect of Certain Proceedings.
(a) If a Change in Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, (i) the
person making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request for
indemnification in accordance with Section 8(a) of this Agreement, and (ii) the
Company shall have the burden of proof to overcome that presumption in
connection with the making of any determination contrary to that presumption.
(b) The termination of any proceeding by judgment, order,
settlement, conviction, a plea of nolo contendere or its equivalent, or an entry
of an order of probation prior to judgment, does not create a presumption that
Indemnitee did not meet the requisite standard of conduct described herein for
indemnification.
Section 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 8 that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section
8, (iii) no determination of entitlement to indemnification shall have been made
pursuant to Section 8(b) within 90 days after receipt by the Company of the
request for indemnification, (iv) payment of indemnification is not made
pursuant to Section 6 within ten days after receipt by the Company of a written
request therefor, or (v) payment of indemnification is not made within ten days
after a determination has been made that Indemnitee is entitled to
indemnification, Indemnitee shall be entitled to an adjudication in an
appropriate court of the State of Maryland, or in any other court of competent
jurisdiction, of his entitlement to such indemnification or advancement of
Expenses. Alternatively, Indemnitee, at his option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the commercial
Arbitration Rules of the American Arbitration Association. Indemnitee shall
commence such proceeding seeking an adjudication or an award in arbitration
within 180 days after the date on which Indemnitee first has the right to
commence such proceeding pursuant to his Section 10(a).
(b) If a Change in Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 10 the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made pursuant to
Section 8(b) of this Agreement that Indemnitee is entitled to indemnification,
the Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Section 10, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
5
<PAGE>
(d) In the event that Indemnitee, pursuant to this Section 10,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 1) actually and reasonably incurred by him in such
judicial adjudication or arbitration, but only if he prevails therein. If it
shall be determined in said judicial adjudication or arbitration that Indemnitee
is entitled to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
Section 11. Non-Exclusivity; Insurance; Subrogation; Exclusions.
(a) The rights of indemnification and advance of Expenses as
provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may at any time be entitled under applicable law, the charter
of Bylaws of the Company, any agreement, a vote of stockholders or a resolution
of directors, or otherwise. No amendment, alteration or repeal of this Agreement
or of any provision hereof shall limit or restrict any right of Indemnitee under
this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal.
(b) To the extent that the Company maintains liability
insurance for directors, officers, employees, or agents of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person serves at the request of the Company,
Indemnitee shall be covered by such policy or policies in accordance with its or
their terms to the maximum extent of the coverage available for any such
director, officer, employee or agent under such policy or policies.
(c) In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to
make any payment or amounts otherwise indemnifiable hereunder if and to the
extent that Indemnitee has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
(e) Notwithstanding any other provision of this Agreement to
the Contrary, the Company shall not be liable for indemnification or advance of
Expenses in connection with any settlement or judgment for insider trading or
for disgorgement of profits pursuant to Section 16(b) of the Securities Exchange
Act of 1934.
Section 12. Duration of Agreement. This Agreement shall continue until
and terminate ten years after the date that Indemnitee shall have ceased to
serve as a director, officer, employee, or agent of the Company or of any other
corporation, partnership, limited liability company, joint
6
<PAGE>
venture, trust, employee benefit plan or other enterprise which Indemnitee
served at the request of the Company; provided, that the rights of Indemnitee
hereunder shall continue until the final termination of any proceeding then
pending in respect of which Indemnitee is granted rights of indemnification or
advancement of expenses hereunder and of any proceeding commenced by Indemnitee
pursuant to Section 10 relating thereto. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his heirs, executors and administrators.
Section 13. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.
Section 14. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advance of Expenses under this
Agreement with respect to any Proceeding brought by Indemnitee, unless the
bringing of such Proceeding or making of such claim shall have been approved by
the Board of Directors.
Section 15. Obligations of Operating Partnership. The Operating
Partnership shall have the same obligations to the Indemnitee as the obligations
of the Company hereunder, the Operating Partnership hereby acknowledging and
confirming to the Indemnitee (a) that the services of the Indemnitee as a
director and/or an officer of the Company are important and valuable to the
Operating Partnership because of the Company's status as general partner of the
Operating Partnership, and (b) that the business and affairs of the Company are
conducted primarily through, and the assets of the Company are owned primarily
by, the Operating Partnership. Without limiting the other provisions of this
Agreement, and subject only to any limitations in the Partnership Agreement of
the Operating Partnership as restated and amended through the date of this
Agreement, the Indemnitee shall be entitled to indemnification and to his other
rights hereunder with respect to matters arising in the conduct of the affairs
of the Operating Company to the same extent as with respect to matters arising
in the conduct of the affairs of the Company.
Section 16. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
7
<PAGE>
Section 17. Headings. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
Section 18. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by all
of the parties signatory hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
Section 19. Notice by Indemnitee. Indemnitee shall promptly notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advance of Expenses covered
hereunder.
Section 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed: (a) if to Indemnitee, at the principal
residence of the Indemnitee on the most recent personnel records of the Company
or of the Operating Partnership provided by the Indemnitee; (b) if to the
Company or to the Operating Partnership, to the Corporate Secretary of the
Company at the Company's corporate headquarters in San Diego, California; or in
either case to such other address as may have been furnished to Indemnitee by
the Company or the Operating Partnership or to the Company and the Operating
Partnership by Indemnitee, as the case may be. In any event, notice to either
the Company or to the Operating Partnership shall constitute notice to the other
of them.
Section 21. Governing Law. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Maryland.
Section 22. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
ATTEST: BURNHAM PACIFIC PROPERTIES, INC.
BURNHAM PACIFIC OPERATING
PARTNERSHIP, L.P.
Each by:
- ------------------------- ------------------------------
Secretary President
9
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in this Registration
Statement of Burnham Pacific Properties, Inc. on Form S-3 of our reports dated
February 12, 1998 appearing in the Annual Report on Form 10-K of Burnham Pacific
Properties, Inc. for the year ended December 31, 1997 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
registration statement.
/s/ Deloitte & Touche LLP
San Diego, California
December 28, 1998