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PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JULY 18, 1997)
965,518 SHARES
BURNHAM PACIFIC PROPERTIES, INC.
COMMON STOCK
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Burnham Pacific Properties, Inc. (the "Company") is a fully-integrated real
estate operating company which acquires, rehabilitates, develops and manages
retail properties on the West Coast. As of February 28, 1998, the Company owned
interests in 60 retail properties containing 8.0 million square feet of Company-
owned gross leasable area and in two retail projects in various stages of
development. The Company acquired 23 of its retail properties on or after
December 31, 1997. The Company also owns four office and industrial properties
which it considers non-strategic and which it may sell as suitable opportunities
arise. The Company has elected to qualify as a real estate investment trust
("REIT") for federal income tax purposes.
All of the shares of common stock, par value $.01 per share, of the Company
(the "Common Stock") being offered hereby are being sold by the Company. The
Common Stock is listed on the New York Stock Exchange under the symbol "BPP." On
March 25, 1998, the reported last sale price of the Common Stock on the New York
Stock Exchange was $14.50 per share.
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SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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EVEREN Securities, Inc. (the "Underwriter") has agreed to purchase 965,518
shares of Common Stock from the Company at a price of $13.775 per share,
resulting in aggregate proceeds to the Company of $13,300,010 before payment of
expenses by the Company estimated at $90,000, subject to the terms and
conditions of an Underwriting Agreement. The Underwriter intends to sell the
shares of Common Stock to the sponsor of a newly-formed unit investment trust
(the "Trust") at an aggregate purchase price of $13,538,010, resulting in an
aggregate underwriting discount of $238,000. See "Underwriting." Such sponsor
intends to deposit the shares of Common Stock into the Trust in exchange for
units in the Trust. The units of the Trust will be sold to investors at a price
based upon the net asset value of the securities in the Trust. For purposes of
this calculation, the value of the Common Stock as of the evaluation time for
units of the Trust on March 25, 1998 was $14.50 per share of Common Stock.
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The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriter, and subject to approval of certain legal matters
by Gibson, Dunn & Crutcher LLP, counsel for the Underwriter. It is expected that
delivery of the shares of Common Stock will be made on or about March 30, 1998,
at the offices of EVEREN Securities, Inc., Chicago, Illinois, against payment
therefor in immediately available funds.
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EVEREN SECURITIES, INC.
The date of this Prospectus Supplement is March 25, 1998
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No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated herein by reference in this Prospectus Supplement or in the
accompanying Prospectus in connection with the offer made by this Prospectus
Supplement and the accompanying Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Underwriter. This Prospectus Supplement and the
accompanying Prospectus do not constitute an offer to sell or a solicitation of
any offer to buy any security other than the Common Stock offered hereby, nor do
they constitute an offer to sell or a solicitation of any offer to buy the
Common Stock by anyone in any jurisdiction in which such offer or solicitation
is not authorized, or in which the person making such offer or solicitation is
not qualified to do so, or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus Supplement or the
accompanying Prospectus nor any sale or offer made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof.
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUPPLEMENT
The Company............................................................... S-1
Use of Proceeds........................................................... S-2
Federal Income Tax Considerations......................................... S-2
Underwriting.............................................................. S-8
Experts................................................................... S-8
Legal Matters............................................................. S-9
Incorporation of Certain Documents by Reference........................... S-9
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
The Company............................................................... 3
Ratio of Earnings to Fixed Charges........................................ 3
Use of Proceeds........................................................... 3
Risk Factors.............................................................. 4
Description of Debt Securities............................................ 10
Description of Capital Stock.............................................. 25
Description of Depositary Shares Representing Preferred Stock............. 35
Description of Warrants or Rights......................................... 38
Description of Units of Securities........................................ 39
Federal Income Tax Considerations......................................... 39
Plan of Distribution...................................................... 41
Legal Matters............................................................. 42
Experts................................................................... 42
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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THE FOLLOWING INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS OR INCORPORATED HEREIN OR THEREIN BY REFERENCE. AS USED
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, THE TERM
"COMPANY" INCLUDES BURNHAM PACIFIC PROPERTIES, INC., A MARYLAND CORPORATION, AND
ITS SUBSIDIARIES AND AFFILIATED PARTNERSHIPS ON A CONSOLIDATED BASIS, OR, AS THE
CONTEXT MAY REQUIRE, BURNHAM PACIFIC PROPERTIES, INC. ONLY, AND, AS THE CONTEXT
MAY REQUIRE, ITS PREDECESSORS.
STATEMENTS MADE OR INCORPORATED IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS INCLUDE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"). FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS "ANTICIPATES," "BELIEVES," "ESTIMATES,"
"EXPECTS," "INTENDS," "PLANS," "FUTURE" AND WORDS OF SIMILAR IMPORT WHICH
EXPRESS MANAGEMENT'S BELIEF, EXPECTATIONS OR INTENTIONS REGARDING THE COMPANY'S
FUTURE PERFORMANCE OR FUTURE EVENTS OR TRENDS. FORWARD-LOOKING STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, INCLUDING
THOSE FACTORS IDENTIFIED UNDER "RISK FACTORS" IN THE ACCOMPANYING PROSPECTUS,
WHICH MAY CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO
DIFFER MATERIALLY FROM ANTICIPATED FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. IN ADDITION, THE
COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS
OR OTHERWISE.
THE COMPANY
Burnham Pacific Properties, Inc. is a fully-integrated real estate operating
company which acquires, rehabilitates, develops and manages retail properties on
the West Coast. The Company began operations through a predecessor in 1963,
became a real estate investment trust ("REIT") in 1987 and today is one of the
largest public owners and operators of non-mall retail properties on the West
Coast. The Company's properties are predominantly anchored community shopping
centers located at in-fill locations in major metropolitan market areas. As of
February 28, 1998, the Company owned interests in 60 retail properties
comprising approximately 8.0 million square feet of Company-owned gross leasable
area ("GLA") and in two retail projects currently under development. The Company
also owns four office and industrial properties which it considers non-strategic
and which it may sell as suitable opportunities arise.
Since the appointment of a new management team in October 1995, the Company
has undergone a significant repositioning and substantial growth. As part of its
repositioning, which was largely accomplished in 1996, the Company increased its
financial flexibility, added personnel and in-house capabilities and enhanced
its property focus and the geographic diversity of its portfolio. The Company's
senior management team averages 25 years of experience in the retail real estate
business. The Company employs 72 individuals in four regional and three property
management offices in California, Oregon and Washington.
During 1997, the Company acquired 42 properties comprising 5.6 million
square feet of Company-owned GLA for approximately $598.1 million and completed
one development project comprising 183,413 square feet of Company-owned GLA and
one major rehabilitation project. In 1997, the Company also expanded its market
presence with its entry into the Pacific Northwest, and continued to expand its
management team and in-house capabilities with the addition of two senior
management team members and augmentation of its asset management, leasing and
finance operations.
The Company believes its West Coast markets share the following favorable
characteristics: strong growth in key economic variables (such as population,
employment and income); constrained supply due to regulation and limited
availability of development sites; and a consolidation opportunity occasioned by
the fragmented ownership of non-mall retail properties.
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In 1997, the Company formed and transferred substantially all of its assets
to Burnham Pacific Operating Partnership, L.P. (the "Operating Partnership") to
provide sellers the opportunity to contribute properties to the Company (through
the Operating Partnership) on a tax-deferred basis in exchange for limited
partnership units of the Operating Partnership. The Company believes that its
ability to offer tax-deferred transactions to sellers through this "UPREIT"
structure will enhance its attractiveness to local owners and developers. The
Company formed the Operating Partnership under the Delaware Revised Uniform
Limited Partnership Act in November 1997 and, by year-end, the Company had
transferred to the Operating Partnership legal or beneficial ownership of
substantially all of the real property and related personal property owned by
the Company and its subsidiaries, and of the beneficial interest owned by the
Company and its subsidiaries in any partnership or limited liability company
that owns a direct or indirect interest in real property and related personal
property. The Company intends that the Operating Partnership will be the vehicle
through which the Company will own its current assets, will make its future
acquisitions and generally conduct its business. The Company has already taken
advantage of the structure through its use of Operating Partnership units as
currency in its recent acquisitions of a portfolio of 20 shopping centers
located in California and a promotional center located in Simi Valley,
California.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, after deducting underwriting discounts and commissions and estimated
offering expenses, are expected to be approximately $13,210,010. In exchange for
additional units, the Company will contribute the net proceeds to the Operating
Partnership, which will use such net proceeds to reduce outstanding borrowings
under the Credit Facility. The Credit Facility currently bears a
weighted-average interest rate of 7.07% and matures in November 1998, with an
option for an extension of such maturity for one year. As of March 18, 1998,
approximately $190.9 million was outstanding under the Credit Facility. The
indebtedness under the Credit Facility incurred within the last year was used
for general working capital purposes and for the acquisitions of properties made
in the ordinary course of the Company's business.
FEDERAL INCOME TAX CONSIDERATIONS
The following description of certain federal income tax considerations
supplements the description in the accompanying Prospectus to discuss the
federal income taxation of the Company generally, to reflect certain changes in
the Internal Revenue Code of 1986, as amended (the "Code"), effected by the
Taxpayer Relief Act of 1997 (the "1997 Tax Act") enacted subsequently to the
date of the Prospectus, and to discuss the federal income tax effect on the
Company of holding assets through the Operating Partnership.
The following discussion is based on current law (which is subject to
change, possibly on a retroactive basis), is for general information only, and
is not tax advice. The tax treatment of a holder of Common Stock will vary
depending upon such holder's particular situation, and this discussion does not
purport to deal with all aspects of taxation that may be relevant to particular
stockholders in light of their personal investment or tax circumstances, or to
certain types of stockholders subject to special treatment under the federal
income tax laws, including, without limitation, life insurance companies,
certain financial institutions, dealers in securities or currencies,
stockholders holding Common Stock as part of a conversion transaction, as part
of a hedge or hedging transaction, or as a position in a straddle for tax
purposes, tax-exempt organizations, foreign corporations, foreign partnerships
and persons who are not citizens or residents of the United States (as
determined for federal income tax purposes). In addition, the summary below does
not consider the effects of any foreign, state, local or other tax laws that may
be applicable to prospective stockholders.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT ITS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE PURCHASE, OWNERSHIP AND
SALE OF COMMON STOCK AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REAL
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ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. The Company has elected to qualify as a REIT under the Code. In
the opinion of Goodwin, Procter & Hoar LLP, the Company has been organized in
conformity with the requirements for qualification as a REIT under the Code, and
its manner of operations has met and will continue to meet the requirements for
qualification and taxation as a REIT under the Code. This opinion is based on
various assumptions and is conditioned upon representations made by the Company
as to factual matters and the continuation of such factual matters. Investors
should be aware, however, that opinions of counsel are not binding upon the
Internal Revenue Service ("IRS") or any court. Moreover, such qualification and
taxation as a REIT in any tax year depends upon the Company's ability to meet in
its actual results for the tax year the various source of income, ownership of
assets, distribution and diversity of ownership requirements of the Code for
qualification as a REIT, which results will not be reviewed by Goodwin, Procter
& Hoar LLP. Accordingly, no assurance can be given that the actual results of
the Company for any particular tax year will in fact satisfy the requirements
for qualification as a REIT. Likewise, although the Company believes that it has
operated in a manner which satisfies the REIT qualification requirements under
the Code since it commenced operations in 1987, no assurance can be given that
the Company's qualification as a REIT will not be challenged by the IRS for
taxable years still subject to audit.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions that
currently govern the federal income tax treatment of the Company and its
stockholders. For the particular provisions that govern the federal income tax
treatment of the Company and its stockholders, reference is made to Sections 856
through 860 of the Code and the regulations thereunder. The following summary is
qualified in its entirely by such reference.
Under the Code, if certain requirements discussed generally below are met in
a taxable year, a REIT generally will not be subject to federal income tax with
respect to income that it distributes to its stockholders. However, the Company
may be subject to federal income tax under certain circumstances, including
taxes at regular corporate rates on any undistributed REIT taxable income or net
capital gains, the alternative minimum tax on its items of tax preference, and
taxes imposed at a 100% rate on gain generated by certain sales of property
deemed to have been held for sale to customers in the ordinary course of
business. As discussed below, however, for taxable years beginning after
December 31, 1997, stockholders may be credited for all or a portion of the
taxes paid by the Company on its retained net capital gains.
FAILURE TO QUALIFY. If the Company fails to qualify during any taxable year
as a REIT, unless the failure is a result of not satisfying the 75% or 95% gross
income requirements discussed below and certain relief provisions are available,
it will be subject to tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates, which would have a material
adverse effect upon its stockholders. In addition, unless certain other relief
provisions apply, the Company would be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost,
and if it reelected REIT status it could be subject to tax at regular corporate
rates on gains from the subsequent sale of its properties. It is not possible to
state whether in all circumstances the Company would be entitled to any such
relief. Even if relief from a failure to satisfy one of the gross income tests
is available, the Company would be required to pay a 100% tax based upon the
greater of the amount by which the Company failed the 75% or 95% gross income
test, less certain adjustments. See "Risk Factors -- Consequences of Failure to
Quality as a REIT" in the accompanying Prospectus.
REQUIREMENTS FOR QUALIFICATION. The Code generally defines a REIT to
include a corporation, the beneficial ownership of which is evidenced by
transferable shares held by 100 or more persons, provided that
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no more than 50% in value of the outstanding stock of the corporation is owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during a specified portion of each taxable year (the
"5/50 Rule") and that it meets certain other tests, described below, regarding
the nature of its income and assets and its distributions. For taxable years of
the Company beginning on or after January 1, 1998, the Company will be treated
as satisfying the 5/50 Rule if it complies with certain demand letter and
recordkeeping requirements and if it does not know, and exercising reasonable
diligence would not have known, whether it failed to satisfy the 5/50 Rule.
OWNERSHIP OF A PARTNERSHIP INTEREST. In applying the income and asset tests
described below, the Company generally will be deemed to own its proportionate
share of the assets of the Operating Partnership (and of any other partnership
or limited liability company in which the Operating Partnership owns a direct or
indirect interest) based on the Company's relative capital interest in the
Operating Partnership (or indirect capital interest in such other entity). In
addition, the character of the assets and gross income of partnership retain the
same character in the hands of the Company for purposes satisfying the gross
income tests and asset tests described below. Thus, the Company's proportionate
share of the assets, liabilities and items of income of the Operating
Partnership and in the partnerships and limited liability companies in which the
Operating Partnership holds an interest will be treated as assets, liabilities
and items of the Company for purposes of applying the income and asset tests
described below.
INCOME TESTS. In order to maintain qualification as a REIT, there are two
gross income requirements that must be satisfied annually. First, at least 75%
of the REIT's gross income (excluding gross income from sales of property, other
than certain foreclosure property, held primarily for sale in the ordinary
course of business ("prohibited transactions")) for each taxable year must be
derived directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property" as defined in
the Code and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the REIT's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, and from dividends, interest and
gain from the sale or disposition of stock or securities, or from any
combination of the foregoing. In addition, prior to 1998, short-term gain from
the sale or other disposition of stock or securities, gains from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year. The
term "rents from real property" excludes (i) rents received from certain persons
related to the Company, (ii) rents attributable to personal property leased in
connection with a lease of real property if more than 15% of the total rent
under the lease for the year is attributable to personal property, and (iii)
rents received with respect to property if the Company operates or manages the
property or furnishes or renders certain services to tenants of the property
(other than through an independent contractor from whom the Company derives no
revenue) that are not "usually or customarily rendered" in connection with the
rental of space for occupancy only or are considered "rendered to the occupant"
("disqualified services"), other than certain minimal services. While the
Company provides services with respect to its properties, it believes that it
does not provide disqualified services.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets and certain temporary investments of new capital raised by the
Company. Second, not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the Company's
total assets, and the Company may not own more than 10% of any one issuer's
outstanding voting securities. However, a corporation which is a qualified REIT
subsidiary is not treated as a separate corporation for federal income tax
purposes, and all assets, liabilities, and items of income, deduction, and
credit of the corporation are treated as assets, liabilities, and items of the
REIT. A "qualified REIT subsidiary" means any corporation if
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100 percent of the stock of the corporation is held by the REIT. For taxable
years that began prior to January 1, 1998, the stock of such corporation must
have been held by the REIT at all times during the period such corporation was
in existence.
ANNUAL DISTRIBUTION REQUIREMENT. The Company, in order to qualify as a
REIT, generally is required to distribute dividends (other than capital gain
dividends) to its stockholders in an amount at least equal to 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the REIT's net capital gain). Distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before the Company timely files its tax return for such year and if paid on or
before the first regular dividend payment after such declaration. To the extent
that the Company does not distribute all of its net capital gain or distributes
at least 95%, but less than 100%, of its "REIT taxable income," as adjusted, or
it does not distribute income attributable to certain non-cash income items, it
will be subject to tax on the undistributed amount at regular capital gains and
ordinary corporate tax rates. Furthermore, if the Company fails to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain income for such year,
and (iii) any undistributed taxable income from prior periods (less certain
adjustments), the Company will be subject to a 4% excise tax on the excess of
such required distribution over the amounts actually distributed.
The Company's REIT taxable income generally will be determined with
reference to its allocable share of the income of the Operating Partnership. In
the case of a property contributed to the Operating Partnership in exchange for
Partnership Units, the adjusted basis of the property in the hands of the
Operating Partnership immediately after the contribution generally is the same
as the adjusted basis of the property immediately before the contribution in the
hands of the person contributing the property, which basis is lower than the
fair market value of the property at that time (the difference between such
basis and value being referred to as a "book-tax difference"). The Operating
Partnership's depreciation deductions are determined with reference to such
lower basis, and any gain from the sale of the property is determined with
reference to such lower basis as subsequently adjusted by depreciation and
capital expenditures. While certain provisions of the Code are designed to
allocate the income attributable to a book-tax difference to the partner
contributing the property, the effect of the carryover of a property's tax basis
to the Operating Partnership could be to cause the Company to be allocated lower
depreciation or other deductions, or more gain, than if the property were
purchased for cash, which could cause the Company to recognize REIT taxable
income in excess of its economic or "book" income and in excess of cash
receipts, which could adversely affect the Company's ability to satisfy the
annual distribution requirement.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
GENERAL. As long as the Company qualifies as a REIT, distributions made to
the Company's taxable U.S. stockholders out of current or accumulated earnings
and profits (and not designated as a capital gain dividends) will be taken into
account by such U.S. Stockholders as ordinary income and will not be eligible
for the dividends-received deduction generally available to corporations.
Earnings and profits of the Company generally will be allocated first to
distributions with respect to preferred stock (including the Series A Preferred
Stock), and thereafter to distributions with respect to Common Stock. As used
herein, the term "U.S. Stockholder" means a holder of Common Stock that for
United States federal income tax purposes is (i) a citizen or resident of the
United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, (iii) an estate, the income of which is subject to United States
federal income taxation regardless of its source or (iv) a trust, if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust and (v) is not an
entity that has a special status under the Code (such as a tax-exempt
organization or dealer in securities). Subject to the discussion below regarding
the changes to the capital gains tax rates, distributions that are designated as
capital gains dividends will be taxed as capital gains (to the extent they do
not exceed
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the Company's actual net capital gain for the taxable year) without regard to
the period for which the stockholder has held his or her Common Stock. However,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. Capital gain dividends are not eligible for
the dividends-received deduction for corporations. In addition, any dividend
declared by the Company in October, November or December of any year and payable
to a stockholder of record on a specified date in any such month shall be
treated as both paid by the Company and received by the stockholder on December
31 of such year, provided that the distribution is actually paid by the Company
during January of the following calendar year.
The Company may elect to retain and pay income tax on its net long-term
capital gains received during the taxable year. For taxable years beginning
after December 31, 1997, if the Company so elects for a taxable year, the
stockholders would include in income as long-term capital gains their
proportionate share of such portion of the Company's undistributed long-term
capital gains for the taxable year as the Company may designate. A stockholder
would be deemed to have paid his share of the tax paid by the Company on such
undistributed capital gains, which would be credited or refunded to the
stockholder. The stockholder's basis in his Common Stock would be increased by
the amount of undistributed long-term capital gains included in the
stockholder's long-term capital gains, less such stockholder's share of the
capital gains tax paid by the Company. As discussed below, stockholders should
note that the IRS has issued Notice 97-64 which provides interim guidance on the
proper treatment of capital gains dividends and undistributed capital gains for
individuals, estates and certain trusts.
The 1997 Tax Act alters the taxation of capital gain income. Under the 1997
Tax Act, individuals (as well as estates and certain trusts) who hold capital
assets for more than 18 months may be taxed at maximum long-term capital gain
rate of 20% on the sale or exchange of those investments. Gains from capital
assets held for more than 12 months but not more than 18 months may be taxed at
a maximum mid-term capital gain rate of 28%. The Act also provides a maximum
rate of 25% for "unrecaptured section 1250 gain" for individuals, trusts, and
estates and special rules for "qualified 5-year gain," and makes other changes
to prior law. IRS Notice 97-64 provides that, until further notice, to the
extent that the Company has net capital gain for a taxable year, dividends paid
during the year (or that are deemed to be paid for taxable years beginning after
December 31, 1997) may be designated by it as a 20% rate gain distribution, an
unrecaptured section 1250 gain distribution, or a 28% rate gain distribution,
based on the net amount of each class of capital gain recognized by the Company.
Unless specifically designated otherwise by the Company, a distribution
designated as a capital gain dividend will be taxable as 28% rate gain
distribution. If any capital gain dividend is received on or after May 7, 1997,
but is treated as being paid during a taxable year that ends on or before that
date, the dividend will be taxable as a 28% rate gain distribution. This interim
guidance may be changed in the future. As a result, prospective investors are
urged to consult their own tax advisors with respect to the proper treatment of
capital gain dividends and undistributed capital gains.
Distributions, other than capital gain dividends, in excess of current and
accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's Common
Stock, but rather will reduce the adjusted basis of such stock. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a stockholder's Common Stock, the distribution will
be treated as long-term capital gain or loss if the shares of Common Stock have
been held for more than 12 months (or, in the case of individuals, estates and
certain trusts, mid-term capital gain or loss if the shares have been held for
more than 12 months but not more than 18 months and long-term capital gain or
loss if the shares have been held for more than 18 months) and otherwise as
short-term capital gain or loss.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would be
carried over by the Company for potential offset against its future income
(subject to certain limitations). Taxable distributions from the Company and
gain from the disposition of Common Stock will not be treated as passive
activity income and, therefore, stockholders generally will not be able to apply
any "passive activity losses" (such as losses from certain types
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<PAGE>
of limited partnerships in which the stockholder is a limited partner) against
such income. In addition, taxable distributions from the Company generally will
be treated as investment income for purposes of the investment interest
deduction limitations. Capital gain distributions and capital gains from the
distribution of Common Stock (and distributions treated as such) will be treated
as investment income for purposes of the investment interest deduction
limitations only if and to the extent the stockholder so elects, in which case
such capital gain distributions and capital gains will be taxed at ordinary
income rates to the extent of such election. The Company will notify
stockholders after the close of the Company's taxable year as to the portions of
the distributions attributable to that year that constitute ordinary income,
return of capital, and capital gain.
BACKUP WITHHOLDING AND REPORTING. The Company will report to its
stockholders and the IRS the amount of dividends paid during the year, the
amount of tax withheld therefrom, if any, and certain other information. Under
the backup withholding rules, a stockholder may be subject to backup withholding
at a rate of 31% with respect to dividends paid unless such holder (i) is a
corporation or comes within certain other exemptions and, when required,
demonstrates this fact, or (ii) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. The
Company may nonetheless institute backup withholding if it is advised to do so
by the IRS. A stockholder who does not provide the Company with its correct
taxpayer identification number may also be subject to penalties imposed by the
IRS. Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability.
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<PAGE>
UNDERWRITING
Pursuant to the terms and subject to the conditions of the Underwriting
Agreement (the "Underwriting Agreement") between the Company and EVEREN
Securities, Inc. (the "Underwriter"), the Underwriter has agreed to purchase
from the Company, and the Company has agreed to sell to the Underwriter, 965,518
shares of Common Stock.
The Underwriter intends to sell the shares of Common Stock to Nike
Securities L.P., which intends to deposit such shares, together with shares of
common stock of other entities also acquired from the Underwriter, into a
newly-formed unit investment trust (the "Trust") registered under the Investment
Company Act of 1940, as amended, in exchange for units in the Trust. The
Underwriter is not an affiliate of Nike Securities L.P. or the Trust. The
Underwriter intends to sell the shares of Common Stock to Nike Securities L.P.
at an aggregate purchase price of $13,538,010. It is anticipated that the
Underwriter will also participate as sole underwriter in the distribution of
units of the Trust and will receive compensation therefor.
Pursuant to the Underwriting Agreement, the Company has agreed to indemnify
the Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the Underwriter
may be required to make in respect thereof.
Until the distribution of the shares of Common Stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the Underwriter
to bid for and purchase shares of Common Stock. As an exception to these rules,
the Underwriter is permitted to engage in certain transactions that stabilize
the price of the Common Stock. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the Common Stock.
It is not currently anticipated that the Underwriter will engage in any such
transactions in connection with this offering.
If the Underwriter creates a short position in the Common Stock in
connection with this offering, i.e., if it sells more shares of Common Stock
than are set forth on the cover page of this Prospectus Supplement, the
Underwriter may reduce that short position by purchasing shares in the open
market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above might have on the price of the shares. In addition, neither the
Company nor the Underwriter makes any representation that the Underwriter will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
In the ordinary course of business, the Underwriter and its affiliates have
engaged, and may in the future engage, in investment banking transactions with
the Company. The Underwriter is also acting as an underwriter of the Common
Stock in a registered offering of 7,475,000 shares of Common Stock (the "Public
Offering") at a price of $14.125 per share. The Public Offering is expected to
close on March 30, 1998. The offering made hereby and the Public Offering are
not conditioned upon each other.
EXPERTS
The Company's consolidated financial statements and the related financial
statement schedule incorporated in this Prospectus Supplement and the
accompanying Prospectus by reference from the Company's annual report on Form
10-K have been audited by Deloitte & Touche LLP, independent auditors, as stated
in its reports thereon. Such reports are incorporated herein and in the
accompanying Prospectus by reference and have been so incorporated by reference
herein and therein in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
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<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby, as well as certain legal
matters relating to the Company, will be passed upon for the Company by Goodwin,
Procter & Hoar LLP, Boston, Massachusetts. Certain legal matters related to the
offering will be passed upon for the Underwriter by Gibson, Dunn & Crutcher LLP,
Los Angeles, California. Gibson, Dunn & Crutcher LLP, Los Angeles will rely on
the opinion of Goodwin, Procter & Hoar LLP as to certain matters of Maryland
law.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
In addition to the documents and information incorporated by reference or
deemed to be incorporated by reference in the accompanying Prospectus, which
Prospectus is supplemented by this Prospectus Supplement, the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 filed with the
Commission on March 20, 1998 and the Company's Current Report on Form 8-K filed
with the Commission on January 14, 1998 pursuant to the Exchange Act are hereby
incorporated in this Prospectus Supplement by reference. All documents
subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus Supplement and prior to
the termination of the offering of the securities contemplated hereby shall be
deemed to be incorporated by reference in this Prospectus Supplement and to be a
part hereof from the date of the filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus Supplement to the extent that a statement contained herein or in any
subsequently filed document that is incorporated or deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed to constitute a part of this
Prospectus Supplement or the accompanying Prospectus, except as so modified or
superseded.
The Company will provide, without charge, to each person, including any
beneficial owner, to whom a copy of this Prospectus Supplement is delivered, at
the request of such person, a copy of any or all of the documents incorporated
herein by reference (other than exhibits thereto, unless such exhibits are
specifically incorporated by reference into such documents). Written requests
for such copies should be directed to Daniel B. Platt, Chief Financial Officer,
Burnham Pacific Properties, Inc., 610 West Ash Street, Suite 1600, San Diego,
California 92101, telephone (619) 652-4700.
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<PAGE>
PROSPECTUS
$321,728,125
BURNHAM PACIFIC PROPERTIES, INC.
DEBT SECURITIES
COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES REPRESENTING PREFERRED STOCK
WARRANTS OR RIGHTS
UNITS OF SECURITIES
------------------------
Burnham Pacific Properties, Inc. ("Burnham" or the "Company") may offer from
time to time in one or more series (i) its unsecured debt securities consisting
of bonds, debentures, notes and/or other evidences of indebtedness ("Debt
Securities"), (ii) shares of its common stock, par value $.01 per share ("Common
Stock"), (iii) shares of its preferred stock, par value $.01 per share
("Preferred Stock" and, together with the Common Stock, the "Capital Stock"),
(iv) Preferred Stock represented by depositary shares ("Depositary Shares"), (v)
warrants or rights ("Warrants") for Common Stock, Preferred Stock and/or Debt
Securities and (vi) units ("Units") consisting of two or more of the foregoing
securities, with an aggregate public offering price of up to $321,728,125 in
amount, at prices and on terms to be determined at the time of offering. The
Debt Securities, Common Stock, Preferred Stock, Depositary Shares, Warrants and
Units (collectively, the "Securities") may be offered separately or together, in
separate series, in amounts, at prices and on terms to be set forth in one or
more supplements to this Prospectus (each a "Prospectus Supplement").
The specific terms of the Securities for which this Prospectus is being
delivered will be set forth in the applicable Prospectus Supplement and will
include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, ranking, currency, form (which may be
registered or bearer, or certificated or global), authorized denominations,
maturity, rate (or manner of calculation thereof) and time of payment of
interest, terms for redemption at the option of the Company or repayment at the
option of the holder, terms for sinking fund payments, terms for conversion into
Preferred Stock or Common Stock, covenants and the offering price; (ii) in the
case of Common Stock, the offering price; (iii) in the case of Preferred Stock,
the specific designation and stated value per share, any dividend, liquidation,
redemption, conversion, voting and other rights, and the offering price; (iv) in
the case of Depositary Shares, the fractional shares of Preferred Stock
represented by each such Depositary Share; (v) in the case of Warrants, the
number and terms thereof, any applicable designation thereof, and the
designation and the number of securities issuable upon their exercise, the
exercise price, the terms of the offering and sale thereof and, where
applicable, the duration and detachability thereof; and (vi) in the case of
Units, a description of the securities comprising such Units and the offering
price thereof. In addition, such specific terms may include limitations on
direct or beneficial ownership and restrictions on transfer of the Securities,
in each case as may be consistent with the Company's Articles of Incorporation,
as amended (the "Charter") or otherwise appropriate to preserve the status of
the Company as a real estate investment trust ("REIT") for federal income tax
purposes.
The applicable Prospectus Supplement will also contain information, where
appropriate, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered directly by the Company, through agents
designated from time to time by the Company or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such Securities.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
The date of this Prospectus is July 18, 1997.
<PAGE>
AVAILABLE INFORMATION
No person has been authorized to give any information or to make any
representation not contained or incorporated by reference in this Prospectus or
any accompanying Prospectus Supplement and, if given or made, such information
or representation must not be relied upon as having been authorized by the
Company or any underwriter, dealer or agent. Neither the delivery of this
Prospectus or any accompanying Prospectus Supplement nor any sale made hereunder
or thereunder shall, under any circumstances, create an implication that the
information contained herein or in the accompanying Prospectus Supplement is
correct as of any date subsequent to the date hereof or thereof or that there
has been no change in the affairs of the Company since the date hereof or
thereof. Neither this Prospectus nor any accompanying Prospectus Supplement
constitutes an offer to sell or a solicitation of an offer to buy Securities in
any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to any person to whom it is unlawful to make such offer or solicitation.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith
files periodic and current reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Copies of such
material can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Such reports, proxy statements and other information can also be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices located at 500 West Madison Street (Suite
1400), Chicago, Illinois 60661 and at 7 World Trade Center, 13th Floor, New
York, New York 10048 and at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005. The Commission also maintains a Web site
that contains reports, proxy statements and other information about the Company
filed electronically with the Commission: http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement, copies of
which may be obtained upon payment of a fee prescribed by the Commission, or may
be examined free of charge at the principal office of the Commission in
Washington, D.C.
Statements made in this Prospectus or in the accompanying Prospectus
Supplement as to the contents of any contract or other document referred to do
not purport to be complete, and reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference (i) its Annual Report on Form
10-K for the year ended December 31, 1996 filed with the Commission on March 25,
1997, (ii) its Proxy Statement dated March 31, 1997 for its 1997 Annual Meeting
of Shareholders, (iii) its Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997 filed on May 15, 1997, (iv) its Current Report on Form 8-K/A
dated January 31, 1997 filed on April 15, 1997, and (v) the description of its
Common Stock contained in its Registration Statement on Form 8-B filed on June
2, 1997.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the 1934 Act after the date of this Prospectus and prior
to the termination of the Offering of the Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of the filing of such documents. Any statement contained herein or in a
document incorporated or deemed to
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<PAGE>
be incorporated by reference shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein (or
in an applicable Prospectus Supplement) or in any subsequently filed document
that is incorporated or deemed to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part of this Prospectus or any Prospectus
Supplement, except as so modified or superseded.
The Company will provide, without charge, to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, at the request
of such person, a copy of any or all of the documents incorporated herein by
reference (other than exhibits thereto, unless such exhibits are specifically
incorporated by reference into such documents). Written requests for such copies
should be directed to Daniel B. Platt, Chief Financial Officer, Burnham Pacific
Properties, Inc., 610 West Ash Street, Suite 1600, San Diego, California 92101,
telephone (619) 652-4700.
THE COMPANY
The Company is a fully-integrated, self-managed real estate operating
company which acquires, rehabilitates, develops and manages retail properties on
the West Coast. The Company was originally incorporated as a California
corporation in 1986 and in 1987 became the successor to a publicly-traded real
estate limited partnership which was organized in 1963. The Company reorganized
as a Maryland corporation in May 1997. The Company has elected to qualify as a
real estate investment trust ("REIT") for federal income tax purposes since
1987.
The Company's principal, executive office is located at 610 West Ash Street,
Suite 1600, San Diego, California, 92101, and its telephone number is (619)
652-4700.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
QUARTER
ENDED
YEAR ENDED DECEMBER 31, MARCH 31
------------------------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges................................ 1.09 1.94 2.13 -- 1.67 1.23
Deficiency in the coverage of fixed charges by earnings before
fixed charges................................................... -- -- -- $ 15,048 -- --
</TABLE>
The ratio of earnings to fixed charges equals earnings before fixed charges
divided by fixed charges. For purposes of calculating the ratio of earnings to
fixed charges, earnings before fixed charges consist of income from operations
plus fixed charges (other than capitalized interest). Fixed charges consist of
interest expense and capitalized interest.
Exclusive of impairments/write downs of assets, the ratio of earnings to
fixed charges for the year ended December 31, 1995, would have been 1.61.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of Securities primarily to
repay indebtedness, to acquire additional retail shopping centers or other
retail or entertainment facilities and to fund the development, expansion and/or
improvement of new or existing retail shopping centers or other retail or
entertainment centers already owned by the Company. The net proceeds from the
sale of Securities may also be used for other general corporate purposes.
Pending their use as described above, net proceeds from the sale of Securities
may be invested in short term investments.
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RISK FACTORS
In addition to the other information set forth and incorporated by reference
herein, prospective investors should carefully consider the following
information in evaluating the Company and its business before making an
investment in the Securities offered hereby. The information contained and
incorporated by reference in this Prospectus and the applicable Prospectus
Supplement contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
that involve a number of risks and uncertainties. A number of factors could
cause results to differ materially from those anticipated by such
forward-looking statements. These factors include, but are not limited to, the
competitive environment in the retail industry in general and in the Company's
specific market areas, changes in prevailing interest rates and the availability
of financing, inflation, economic conditions in general and in the Company's
specific market areas, labor disturbances, demands placed on management by a
substantial increase in the number of properties owned by the Company (the
"Properties"), and changes in the Company's acquisition plans and certain other
factors described below or in the Prospectus Supplement relating to a specific
issuance of Securities. In addition, such forward-looking statements are
necessarily dependent upon assumptions, estimates and data that may be incorrect
or imprecise. Accordingly, any forward-looking statements included or
incorporated by reference in this Prospectus and the applicable Prospectus
Supplement do not purport to be predictions of future events or circumstances
and may not be realized. Forward-looking statements can be identified by, among
other things, the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "seeks," "pro forma," or "anticipates," or
the negative thereof, or other variations thereon or comparable terminology, or
by discussions of strategy or intentions.
GENERAL REAL ESTATE INVESTMENT RISKS
Real property investments are subject to a variety of risks. The yields
available from equity investments in real estate depend on the amount of income
generated and expenses incurred. If the Properties do not generate sufficient
income to meet operating expenses, including debt service and capital
expenditures, the Company's results of operations and ability to make
distributions to its stockholders will be adversely affected. The performance of
the economy in each of the areas in which the Company's Properties are located
affects occupancy, market rental and vacancy rates and expenses, and,
consequently, has an impact on the revenues from the Properties and their
underlying values. The financial results of major local employers may have an
impact on the revenues and value of certain of the Properties.
Revenues from the Company's Properties may be further adversely affected by,
among other things, the general economic climate, local economic conditions in
which the Properties are located, such as oversupply of space or a reduction in
demand for rental space, the attractiveness of the Properties to tenants,
competition from other available space, the ability of the Company to provide
for adequate maintenance and insurance and increased operating expenses
(including real estate taxes and utilities) which may not be passed through to
tenants, and the expense of periodically renovating, repairing and re-leasing
space. There is also the risk that as leases on the Properties expire, tenants
will enter into new leases on terms that are less favorable to the Company.
Revenues and real estate values may also be adversely affected by such factors
as applicable laws (e.g., the Americans With Disabilities Act of 1990 and tax
laws), interest rate levels and the availability and terms of financing. In
addition, real estate investments are relatively illiquid and, therefore, will
tend to limit the ability of the Company to vary its portfolio promptly in
response to changes in economic or other conditions.
Most of the leases of the Company's retail Properties, as is common with
many multi-tenant shopping centers, provide for tenants to reimburse the Company
for a portion (frequently based upon the portion of total retail space in the
Property that is occupied by the tenant) of the common area maintenance, real
estate taxes, insurance and other operating expenses of the Property. To the
extent that a Property has vacant rentable space, not only will the Company be
deprived of the base rent that it would receive if the vacant space were
occupied, but the Company itself will have to bear the unreimbursed expense
applicable
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to such vacant space. Likewise, such expenses are generally not reduced when
circumstances cause a reduction in rental revenues from the Property. If a
Property is mortgaged to secure the payment of indebtedness and if the Company
is unable to meet its mortgage payments, a loss could be sustained as a result
of foreclosure on the Property or the exercise of other remedies by the
mortgagee. Likewise, if a Property suffers sustained reductions in revenues, the
Company may sustain a writedown of the asset value and a related charge to
earnings.
GEOGRAPHIC CONCENTRATION
The Company's Properties are all located on the West Coast, substantially
all within the State of California, and within such state primarily in the San
Diego County, greater Los Angeles and San Francisco Bay areas. This
concentration of Properties subjects the Company to the strengths or weaknesses
of the California economy 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, consequently, has an impact on the revenues from
the Company's Properties and their underlying values. The financial results of
major local employers may have an impact on the revenues and value of certain of
the Properties. A downturn in the economy of California in general or of any of
these local economies could adversely affect the Company's results of operations
and ability to make distributions to its stockholders. In that regard, certain
areas of California (particularly the greater Los Angeles area) have in the past
been adversely affected 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 have been and remain subject to
various natural disasters, including earthquakes and floods. See "-- Insurance
Coverage Limitations."
INVESTMENT IN SINGLE INDUSTRY
The Company's current strategy is to acquire interests only in retail
shopping centers and related properties. As a result, the Company will be
subject to risks inherent in investments in a single industry. The effects on
cash available for distribution to the Company's stockholders resulting from a
downturn in the retail industry might be more pronounced than if the Company's
portfolio were more diversified as to property types.
Among the risks that the Company as an owner of Properties leased primarily
to retail tenants may face are the volatile nature of the retail business and
changes in consumer preferences, which may result in tenant failures or changes
in the physical requirements of retailers that the Company may be required to
accommodate in order 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 the Company's Properties. Because many
anchor tenants frequently 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 adversely limit the Company's ability to lease space in the
center to retailers of potentially competing products. The foregoing and similar
factors may affect the revenues, and resulting value, of the Company's
Properties.
COMPETITION
Numerous retail properties compete with the Company's Properties in
attracting tenants to lease space. Some of these competing properties are newer
and better located or designed and may offer lower expenses or be better
capitalized than the Company's Properties. The number of competitive commercial
properties in a particular area could have a material adverse effect on the
Company's ability to lease space in its Properties or at newly developed or
acquired properties and on the rents charged.
Additionally, the Company may be competing for investment opportunities with
entities which have substantially greater financial resources than the Company.
These entities may generally be able to accept more risk than the Company can
prudently manage. Competition may generally reduce the number of
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<PAGE>
suitable investment opportunities offered to the Company and increase the
bargaining power of property owners seeking to sell.
BANKRUPTCY AND FINANCIAL CONDITION OF TENANTS
At any time, a tenant of the Properties may seek the protection of the
bankruptcy laws, which could result in the rejection and termination of such
tenant's lease and thereby adversely affect the Company's results of operations
and ability to make distributions to its stockholders. Although the Company has
not experienced material losses from tenant bankruptcies, no assurance can be
given that tenants will not file for bankruptcy protection in the future, or if
any tenants file, that they will affirm their leases and continue to make rental
payments in a timely manner. In addition, a tenant from time to time may
experience a downturn in its business which may weaken its financial condition
and result in the failure to make rental payments when due. If tenant leases are
not affirmed following bankruptcy or if a tenant's financial condition weakens,
the Company's results of operations and ability to make distributions to its
stockholders may be adversely affected.
ACQUISITION AND DEVELOPMENT ACTIVITIES
The Company intends to acquire existing retail commercial properties to the
extent that they can be acquired on acceptable terms and meet the Company's
investment criteria, including the availability of suitable financing.
Acquisitions of retail commercial properties entail general investment risks
associated with any real estate investment, including the risk that investments
will fail to perform as expected or that estimates of the cost of improvements
to bring an acquired property up to standards established for the intended
market position may prove inaccurate.
The Company is pursuing certain commercial property development projects and
expects to develop other projects. As a general matter, property development
projects typically carry a higher, and sometimes substantially higher, level of
risk than the acquisition of existing properties. For example, development
projects generally require various governmental and other approvals, the receipt
of which cannot be assured. Approvals frequently require undertakings for public
infrastructure improvements or other activities to mitigate the effects of the
proposed development, whose costs also cannot be assured. The Company's
development activities will entail a variety of other risks, including the risk
that funds will be expended and management time will be devoted to projects
which may not come to fruition; the risk that a project will not be developed by
the scheduled completion date; the risk that construction costs of a project may
exceed original estimates, possibly making the project economically unfavorable
to operate or requiring a writedown of the carrying amount of the project; the
risk that occupancy rates and rents at a completed project will be less than
anticipated; and the risk that expenses at a completed development will be
higher than anticipated. These risks may adversely affect the Company's results
of operations and ability to make distributions to its stockholders.
The integration of the aforementioned acquisition and development properties
into the systems and procedures of the Company presents a management challenge,
and the failure to integrate such properties into the Company's operating
structures could have a material adverse effect on the Company's results of
operations and ability to make distributions to its stockholders.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers, J. David
Martin, President and Chief Executive Officer of the Company, and Daniel B.
Platt, Executive Vice President, Chief Financial Officer and Chief
Administrative Officer of the Company, and the loss of their services could have
an adverse affect on the operations of the Company. The Company has an
employment agreement with Mr. Martin, which is terminable by either party at
will.
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CONFLICTS OF INTEREST
The Company currently has various development projects which it acquired
from Mr. Martin, concurrently with Mr. Martin's appointment as President and
Chief Executive Officer in 1995. While the Company has adopted procedures for
decision-making with respect to such projects (including Mr. Martin's absence
from Board of Directors meetings during certain discussions involving such
projects), nevertheless the arrangement could result in conflicts of interest in
one or more of the projects.
CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
The Company has elected to qualify as a REIT under the Internal Revenue Code
of 1986, as amended (the "Code"). Although the Company believes that it has
operated in a manner which satisfies the REIT qualification requirements since
1987, no assurance can be given that the Company's qualification as a REIT will
not be challenged by the Internal Revenue Service for taxable years still
subject to audit or that the Company will continue to qualify as a REIT in
future years. A REIT generally is not taxed on distributed income so long as 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 Code provisions for which there are only limited judicial
or administrative interpretations and involves the determination of various
factual matters and circumstances not entirely within the Company's control. If
in any taxable year the Company were to fail to qualify as a REIT, the Company
would not be allowed a deduction for distributions to stockholders in computing
taxable income and would be subject to federal income tax on its taxable income
at regular corporate rates. Unless entitled to relief under certain statutory
provisions, the Company 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 the Company's stockholders
would be reduced for each of the years involved. Although the Company currently
intends to operate in a manner designed to qualify as a REIT, it is possible
that future economic, market, legal, tax or other considerations may cause the
Company to fail to qualify as a REIT or may cause the Company's Board of
Directors to revoke the REIT election. See "Federal Income Tax Considerations."
ENVIRONMENTAL MATTERS
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.
Such laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remediate such substances, may adversely affect the owner's or operator's
ability to sell or rent such property or to borrow using such property as
collateral. Persons who arrange for the disposal or treatment of such hazardous
or toxic substances may also be liable for the costs of removal or remediation
of such substances at a disposal or treatment facility, whether or not such
facility is owned or operated by such person. In connection with the ownership
(direct or indirect), operation, management and development of real properties,
the Company may be considered an owner or operator of such properties or as
having arranged for the disposal or treatment of hazardous or toxic substances
and, therefore, may be potentially liable for removal or remediation costs.
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. The Company may be potentially liable for removal or
remediation costs, as well as certain other costs, including governmental fines
and costs related to injuries to persons and property, resulting from the
environmental condition of its Properties, regardless of whether the Company
itself actually contributed to such condition.
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RISKS OF LEVERAGE
Like many owners of real estate, the Company relies on borrowings to assist
it in acquiring, developing and holding its properties. The Company currently
has a line of credit facility (the "Credit Facility") that has secured and
unsecured portions and also owns various Properties that are encumbered by deeds
of trust or mortgages to various lenders. Neither the Charter nor the Bylaws of
the Company limit the amount of indebtedness the Company may incur. Although
financial covenants contained in the Credit Facility limit the amount of
additional indebtedness the Company may incur, those covenants currently would
permit the Company to incur substantial additional indebtedness. Currently, the
maximum committed amount available under the Company's Credit Facility is $205
million. The Company has utilized the Credit Facility to finance certain recent
acquisitions and may use the Credit Facility to fund the acquisition of
additional properties and for other general corporate purposes. A portion of the
Credit Facility is currently secured by certain Properties owned by the Company
and the Credit Facility requires that the Company comply with a number of
financial covenants. The Company is also obligated by other indebtedness secured
by individual Properties. There can be no assurances that the Company will be
able to meet its debt service obligations or to comply with the financial
covenants in its debt instruments and, to the extent that it cannot, the lenders
typically would be entitled to demand immediate repayment of the related
indebtedness and to commence foreclosure proceedings against the property
securing such indebtedness, thereby subjecting the Company to the risk of loss
of some or all of its assets, including certain of its Properties. Adverse
economic conditions could cause the terms on which borrowings become available
to be unfavorable. In such circumstances, if the Company is in need of capital
to repay indebtedness in accordance with its terms or otherwise, it could be
required to liquidate one or more investments in Properties at unfavorable
prices. The Company will be subject to the risks normally associated with debt
financing, including the risk that the Company's cash flow will be insufficient
to meet required payments of principal and interest, the risk of increases in
interest rates on indebtedness (such as borrowings under the Credit Facility)
which bears interest at floating rates, the risk that existing indebtedness
cannot be refinanced or that the terms of such refinancing will not be as
favorable as the terms of existing indebtedness. The Company's mortgage
indebtedness (other than indebtedness under the Credit Facility) is generally
nonrecourse to the Company. However, even with respect to nonrecourse mortgage
indebtedness, the lenders may have the right to recover deficiencies from the
Company in certain circumstances, including fraud, misapplication of funds and
environmental liabilities.
INVESTMENTS IN JOINT VENTURES
The Company has agreements with an institutional investor, California Urban
Investment Partners ("CUIP"), relating to the joint ownership of two shopping
center properties, Margarita Plaza and Ladera Center. Each property is owned by
a separate limited liability company, of which both the Company and CUIP are
managing members. The Company's interest in Margarita Plaza is 25%, and CUIP's
is 75%. While the Company has substantially all of the ownership interest in
Ladera Center at the date of this Prospectus, CUIP is obligated to fund its
acquisition of a 75% interest in Ladera Center in the near future, which will
reduce the Company's interest to a minority 25%.
The Company occasionally makes acquisitions through what are sometimes
referred to as "DownREIT partnerships." In general, these transactions involve
the existing owners (usually partnerships) contributing their interests in the
acquired property to a new limited partnership of which the Company is the
general partner, in exchange for consideration which includes the issuance to
the contributors of limited partnership interests that are exchangeable after a
specified period of time for a fixed number of shares of Common Stock of the
Company. A principal objective of contributors in structuring the sale of
property to such a partnership is to defer the recognition of income taxes that
would be incurred if the consideration received were other than a partnership
interest; and the agreements relating to such transactions generally require
that the partnerships hold the properties and/or maintain certain levels of
indebtedness for negotiated periods of time in order to accommodate the
contributors' objectives. Although the Company as general partner of such
DownREIT partnerships has full control
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over the operations of the partnerships and the contributed properties, its
ability to sell or refinance the properties may be limited by the terms of the
agreements with the contributors.
The Company may in the future acquire interests in other limited liability
companies or in limited and general partnerships, joint ventures and other
enterprises (collectively, "Joint Ventures") formed to own or develop real
property or interests in real property. The Company may acquire minority
interests in certain such 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
those of the Company, that the Company will not have the right or power to
direct the management and policies of the Joint Ventures and that such other
participants may take action contrary to the instructions or requests of the
Company and its policies and objectives or which could jeopardize the Company's
ability to maintain its qualification as a REIT. Such investments may also have
the potential risk of impasse on decisions, such as a sale, because neither the
Company nor any of the other participants have full control over the Joint
Ventures. The Company will, however, seek to maintain sufficient control of such
Joint Ventures to permit the Company's business objectives to be achieved and
its status as a REIT preserved, although there can be no assurance that it will
be successful in doing so, which could have a material adverse effect on the
Company and its ability to make distributions to stockholders. There is no
limitation under the Company's organizational documents as to the amount of
available funds that may be invested in Joint Ventures.
INSURANCE COVERAGE LIMITATIONS
The Company carries comprehensive general liability coverage and umbrella
liability coverage on all of its Properties with limits of liability which the
Company deems adequate (subject to deductibles and subject to the limitations
described below on insurance for losses caused by earthquake or flood) to insure
against liability claims and provide for the cost of defense. Similarly, the
Company is insured against the risk of direct physical damage in amounts the
Company estimates to be adequate (subject to deductibles) to reimburse the
Company on a replacement cost basis for costs incurred to repair or rebuild each
Property, including loss of rental income during the reconstruction period.
There are, however, certain types of extraordinary losses which may be either
uninsurable, or not economically insurable. Should any uninsured loss occur, the
Company could lose its investment in, and anticipated revenues from, a Property,
which could have a material adverse effect on the Company and its ability to
make distributions to stockholders. Currently the Company also insures certain
of its Properties for loss caused by earthquake in the aggregate amount of $50
million (subject to deductibles) and one of its 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, the Company has made the determination
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,
there can be no assurance that the occurrence of an earthquake, flood or other
natural disaster will not adversely affect the Company.
EFFECT OF VARIOUS MARKET FACTORS ON PRICE OF STOCK
A variety of factors may influence the price of the Company's Common Stock
in public trading markets. The Company believes that investors generally
perceive REITs as yield-driven investments and compare the annual yield from
distributions by REITs with yields on various other types of financial
instruments. Thus an increase in market interest rates generally could adversely
affect the market price of the Company's Common Stock. Similarly, to the extent
that the investing public has a negative perception of companies in the retail
business or REITs that own and operate retail shopping centers and other
properties catering to retail tenants, the value of the Company's Common Stock
may be negatively impacted in comparison to shares of other REITs owning other
types of properties and catering to different types of tenants.
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The market price for the Common Stock may be affected by factors such as the
announcement of new acquisitions or development projects by the Company or its
competitors, quarterly variations in the Company's operating results or the
operating results of the Company's competitors, changes in earnings (losses) or
other estimates by analysts or reported results that vary from such estimates.
In addition, the stock market may experience significant price fluctuations
which could affect the market price of the Company's Common Stock which may be
unrelated to the operating performance of the Company. Following periods of
volatility in the market price of the Company's Common Stock, securities class
action litigation could be initiated against the Company which could result in
substantial costs and a diversion of management's attention and resources, which
would have a material adverse effect on the Company and its ability to make
distributions to stockholders.
The same factors may also adversely affect the market value of any shares of
Preferred Stock (or Depositary Receipts representing interests therein) that the
Company may issue. Whether or not a market for any series of Preferred Stock (or
Depositary Receipts representing interests therein) develops will depend upon a
variety of factors including the amount and terms of such series and the number
and investment objectives of the purchasers thereof. See "Description of Capital
Stock--Preferred Stock".
DEBT SECURITIES SUBJECT TO EVENT RISK
Except as may be set forth in any Prospectus Supplement, the Debt Securities
will not contain any provisions that would limit the ability of the Company to
incur indebtedness or that would afford holders of Debt Securities protection in
the event of a highly leveraged or similar transaction involving the Company or
in the event of a change of control. Restrictions on ownership and transfers of
the Common Stock and Preferred Stock are designed to preserve the Company's
status as a REIT and, therefore, may act to prevent or hinder a change of
control. See "Description of Capital Stock--Restrictions on Transfers" Reference
is made to the applicable Prospectus Supplement for information with respect to
any deletions from, modifications of, or additions to, the events of default or
covenants of the Company that are described below, including any addition of a
covenant or other provision providing event risk or similar protection.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Debt Securities") or subordinated
Debt Securities ("Subordinated Debt Securities"). The Debt Securities will be
issued under one or more indentures, each dated as of a date prior to the
issuance of the Debt Securities to which it relates. Senior Debt Securities and
Subordinated Debt Securities may be issued pursuant to separate indentures
(respectively, a "Senior Indenture" and a "Subordinated Indenture"), in each
case between the Company and a trustee (a "Trustee"), which may be the same
Trustee, and in the form that will be incorporated as an exhibit to the
Registration Statement of which this Prospectus is a part prior to or at the
time of the offering of the Debt Securities, subject to such amendments as may
be adopted from time to time. The Senior Indenture and the Subordinated
Indenture, as amended or supplemented from time to time, are sometimes
hereinafter referred to collectively as the "Indentures". The Indentures will be
subject to and governed by the Trust Indenture Act of 1939, as amended (the
"TIA"). The statements made under this heading relating to the Debt Securities
and the Indentures are summaries of the anticipated provisions thereof, do not
purport to be complete and are qualified in their entirety by reference to the
Indentures and such Debt Securities and to any further discussions thereof made
in the applicable Prospectus Supplement relating to the specific Debt
Securities.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable Indenture.
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TERMS
GENERAL. The Debt Securities will be direct, unsecured obligations of the
Company. Unless otherwise indicated in the applicable Prospectus Supplement, the
indebtedness represented by the Senior Debt Securities will rank equally with
all other unsecured and unsubordinated indebtedness of the Company. The
indebtedness represented by Subordinated Debt Securities will be subordinated in
right of payment to the prior payment in full of Senior Indebtedness of the
Company as described under "--Subordination." The particular terms of the Debt
Securities offered by a Prospectus Supplement will be described in the
applicable Prospectus Supplement, along with any applicable modifications of or
additions to the general terms of the Debt Securities as described herein and in
the applicable Indenture and any applicable federal income tax considerations.
Accordingly, for a description of the terms of any series of Debt Securities,
reference must be made to both the Prospectus Supplement relating thereto and
the description of the Debt Securities set forth in this Prospectus.
Except as set forth in any Prospectus Supplement, the Debt Securities may be
issued without limit as to aggregate principal amount, in one or more series, in
each case as established from time to time by the Company or as set forth in the
applicable Indenture or in one or more indentures supplemental to such
Indenture. All Debt Securities of one series need not be issued at the same time
and, unless otherwise provided, a series may be reopened, without the consent of
the holders of the Debt Securities of such series, for issuance of additional
Debt Securities of such series.
Each Indenture will provide that the Company may, but need not, designate
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the applicable
Indenture separate and apart from the trust administered by any other Trustee,
and, except as otherwise indicated herein, any action described herein to be
taken by each Trustee may be taken by each such Trustee with respect to, and
only with respect to, the one or more series of Debt Securities for which it is
Trustee under the applicable Indenture.
The following summaries set forth certain general terms and provisions of
the Indentures and the Debt Securities. The Prospectus Supplement relating to
the series of Debt Securities being offered will contain further terms of such
Debt Securities, including the following specific terms:
(1) The title of such Debt Securities and whether such Debt Securities
are Senior Debt Securities or Subordinated Debt Securities;
(2) The aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) The price (expressed as a percentage of the principal amount
thereof) at which such Debt Securities will be issued and, if other than the
principal amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity thereof, or (if
applicable) the portion of the principal amount of such Debt Securities that
is convertible into Common Stock or Preferred Stock, or the method by which
any such portion shall be determined;
(4) If convertible, the terms on which such Debt Securities are
convertible, including the initial conversion price or rate and the
conversion period and any applicable limitations on the ownership or
transferability of the Common Stock or Preferred Stock receivable on
conversion;
(5) The date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt Securities
will bear interest, if any;
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(7) The date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment dates,
or the method by which such dates shall be determined, the persons to whom
such interest shall be payable, and the basis upon which interest shall be
calculated if other than that of a 360-day year of twelve 30-day months;
(8) The place or places where the principal of (and premium or
Make-Whole Amount (as defined in the Indenture), if any) and interest, if
any, on such Debt Securities will be payable, where such Debt Securities may
be surrendered for registration of transfer or exchange and where notices or
demands to or upon the Company in respect of such Debt Securities and the
applicable Indenture may be served;
(9) The period or periods, if any, within which, the price or prices at
which and the other terms and conditions upon which such Debt Securities
may, pursuant to any optional or mandatory redemption provisions, be
redeemed, as a whole or in part, at the option of the Company;
(10) The obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a holder thereof, and the period or periods within which,
the price or prices at which and the other terms and conditions upon which
such Debt Securities will be redeemed, repaid or purchased, as a whole or in
part, pursuant to such obligation;
(11) If other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium or
Make-Whole Amount, if any, including any amount due upon redemption, if any)
or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on the yield on or trading price of other
securities, including United States Treasury securities, or on a currency,
currencies, currency unit or units, or composite currency or currencies) and
the manner in which such amounts shall be determined;
(13) Whether the principal of (and premium or Make-Whole Amount, if any)
or interest on the Debt Securities of the series are to be payable, at the
election of the Company or a holder thereof, in a currency or currencies,
currency unit or units or composite currency or currencies other than that
in which such Debt Securities are denominated or stated to be payable, the
period or periods within which, and the terms and conditions upon which,
such election may be made, and the time and manner of, and identity of the
exchange rate agent with responsibility for, determining the exchange rate
between the currency or currencies, currency unit or units or composite
currency or currencies in which such Debt Securities are denominated or
stated to be payable and the currency or currencies, currency unit or units
or composite currency or currencies in which such Debt Securities are to be
so payable;
(14) Provisions, if any, granting special rights to the holders of Debt
Securities of the series upon the occurrence of such events as may be
specified;
(15) Any deletions from, modifications of or additions to the Events of
Default (as defined in the Indenture) or covenants of the Company with
respect to Debt Securities of the series, whether or not such Events of
Default or covenants are consistent with the Events of Default or covenants
described herein;
(16) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax, assessment
or governmental charge and, if so, whether the Company will have the option
to redeem such Debt Securities in lieu of making such payment;
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(17) Whether Debt Securities of the series are to be issuable as
Registered Securities, Bearer Securities (with or without coupons) or both,
any restrictions applicable to the offer, sale or delivery of Bearer
Securities and the terms upon which Bearer Securities of the series may be
exchanged for Registered Securities of the series and vice versa (if
permitted by applicable laws and regulations), whether any Debt Securities
of the series are to be issuable initially in temporary global form and
whether any Debt Securities of the series are to be issuable in permanent
global form with or without coupons and, if so, whether beneficial owners of
interests in any such permanent global Security may exchange such interests
for Debt Securities of such series and of like tenor of any authorized form
and denomination and the circumstances under which any such exchanges may
occur, if other than in the manner provided in the Indenture, and, if
Registered Securities of the series are to be issuable as a Global Security
(as defined), the identity of the Depositary for such series;
(18) The date as of which any Bearer Securities of the series and any
temporary Global Security representing outstanding Debt Securities of the
series shall be dated if other than the date of original issuance of the
first Security of the series to be issued;
(19) The Person to whom any interest on any Registered Security of the
series shall be payable, if other than the Person in whose name that
Security (or one or more Predecessor Securities) is registered at the close
of business on the Regular Record Date for such interest, the manner in
which, or the Person to whom, any interest on any Bearer Security of the
series shall be payable, if otherwise than upon presentation and surrender
of the coupons appertaining thereto as they severally mature, and the extent
to which, or the manner in which, any interest payable on a temporary Global
Security on an Interest Payment Date will be paid if other than in the
manner provided in the Indenture;
(20) The applicability, if any, of the defeasance and covenant
defeasance provisions of the Indenture to the Debt Securities of the series;
(21) If the Debt Securities of such series are to be issuable in
definitive form (whether upon original issue or upon exchange of a temporary
Security of such series) only upon receipt of certain certificates or other
documents or satisfaction of other conditions, then the form and/or terms of
such certificates, documents or conditions;
(22) The obligation, if any, of the Company to permit the conversion of
the Debt Securities of such series into Common Stock or Preferred Stock, as
the case may be, and the terms and conditions upon which such conversion
shall be effected (including, without limitation, the initial conversion
price or rate, the conversion period, any adjustment of the applicable
conversion price and any requirements relative to the reservation of such
shares for purposes of conversion); and
(23) Any other terms of the series (which terms shall not be
inconsistent with the provisions of the Indenture under which the Debt
Securities are issued).
If so provided in the applicable Prospectus Supplement, the Debt Securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities"). In
such cases, all material U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof. Where Debt Securities of any series are issued in
bearer form, the special restrictions and considerations, including special
offering restrictions and special federal income tax considerations, applicable
to any such Debt Securities and to payment on and transfer and exchange of such
Debt Securities will be described in the applicable Prospectus Supplement.
Bearer Debt Securities will be transferable by delivery.
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Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium or Make-Whole Amount, if any) and interest
on any series of Debt Securities will be payable at the corporate trust office
of the applicable Trustee, the address of which will be stated in the applicable
Prospectus Supplement; provided that, at the option of the Company, payment of
interest may be made by check mailed to the address of the person entitled
thereto as it appears in the applicable register for such Debt Securities or by
wire transfer of funds to such person at an account maintained within the United
States.
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security in registered form ("Defaulted
Interest") will forthwith cease to be payable to the holder on the applicable
Regular Record Date and may either be paid to the Person in whose name such Debt
Security is registered at the close of business on a special record date (the
"Special Record Date") for the payment of such Defaulted Interest to be fixed by
the Trustee, in which case notice thereof shall be given to the holder of such
Debt Security not less than 10 days prior to such Special Record Date, or may be
paid at any time in any other lawful manner, all as more completely described in
the applicable Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for any
authorized denomination of other Debt Securities of the same series and of a
like aggregate principal amount and tenor upon surrender of such Debt Securities
at the corporate trust office of the applicable Trustee or at the office of any
transfer agent designated by the Company for such purpose. In addition, subject
to certain limitations imposed upon Debt Securities issued in book-entry form,
the Debt Securities of any series may be surrendered for registration of
transfer or exchange thereof at the corporate trust office of the applicable
Trustee or at the office of any transfer agent designated by the Company for
such purpose. Every Debt Security in registered form surrendered for
registration of transfer or exchange must be duly endorsed or accompanied by a
written instrument of transfer, and the person requesting such action must
provide evidence of title and identity satisfactory to the applicable Trustee or
transfer agent. No service charge will be made for any registration of transfer
or exchange of any Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. If the applicable Prospectus Supplement refers to any transfer agent
(in addition to the applicable Trustee) initially designated by the Company with
respect to any series of Debt Securities, the Company may at any time rescind
the designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Company will be
required to maintain a transfer agent in each place of payment for such series.
The Company may at any time designate additional transfer agents with respect to
any series of Debt Securities.
Neither the Company nor any Trustee shall be required to (i) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before the selection of any Debt
Securities for redemption and ending at the close of business on the day of
mailing of the notice of redemption; (ii) register the transfer of or exchange
any Debt Security, or portion thereof, so selected for redemption, in whole or
in part, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) issue, register the transfer of or exchange any Debt Security
that has been surrendered for repayment at the option of the holder, except the
portion, if any, of such Debt Security not to be so repaid.
Payment in respect of Debt Securities in bearer form will be made in the
currency and in the manner designated in the applicable Prospectus Supplement,
subject to any applicable laws and regulations, at such paying agencies outside
the United States as the Company may appoint from time to time. The paying
agents outside the United States, if any, initially appointed by the Company for
a series of Debt Securities will be named in the Prospectus Supplement. Unless
otherwise provided in the applicable Prospectus Supplement, the Company may at
any time designate additional paying agents or rescind the designation of any
paying agents, except that, if Debt Securities of a series are issuable in
registered form, the Company will be required to maintain at least one paying
agent in each place of payment for such series
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and if Debt Securities of a series are issuable in bearer form, the Company will
be required to maintain at least one paying agent in a place of payment outside
the United States where Debt Securities of such series and any coupons
appertaining thereto may be presented and surrendered for payment.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indentures will provide that the Company may, without the consent of the
holders of any outstanding Debt Securities, consolidate with, or sell, lease or
convey all or substantially all of its assets to, or merge with or into, any
other entity provided that (i) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets is organized under the laws of any domestic jurisdiction
and assumes the Company's obligations to pay principal of (and premium or
Make-Whole Amount, if any) and interest on all of the Debt Securities and the
due and punctual performance and observance of all of the covenants and
conditions contained in such Indenture; (ii) immediately after giving effect to
such transaction and treating any indebtedness that becomes an obligation of the
Company or any subsidiary as a result thereof as having been incurred by the
Company or such subsidiary at the time of such transaction, no Event of Default
under such Indenture, and no event which, after notice or the lapse of time, or
both, would become such an Event of Default, shall have occurred and be
continuing; and (iii) an officers' certificate and legal opinion covering such
conditions shall be delivered to each Trustee.
CERTAIN COVENANTS
The applicable Prospectus Supplement will describe any material covenants in
respect of a series of Debt Securities that are not described in this
Prospectus. Unless otherwise indicated in the applicable Prospectus Supplement,
Senior Debt Securities will include the following covenants of the Company:
EXISTENCE. Except as permitted under "--Merger, Consolidation or Sale of
Assets," the Indentures will require the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (by Charter, Bylaws and statute) and franchises; provided,
however, that the Company shall not be required to preserve any right or
franchise if its Board of Directors determines that the preservation thereof is
no longer desirable in the conduct of its business.
MAINTENANCE OF PROPERTIES. The Indentures will require the Company to cause
all of its material properties used or useful in the conduct of its business or
the business of any subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that the Company and
its subsidiaries shall not be prevented from selling or otherwise disposing of
their properties for value in the ordinary course of business.
INSURANCE. The Indentures will require the Company to cause each of its and
its subsidiaries' insurable properties to be insured against loss or damage at
least equal to their then full insurable value with insurers of recognized
responsibility and, if described in the applicable Prospectus Supplement, having
a specified rating from a recognized insurance rating service.
PAYMENT OF TAXES AND OTHER CLAIMS. The Indentures will require the Company
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any subsidiary or upon the income, profits or property of the
Company or any subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith.
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EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (i) default in the
payment of any interest on any Debt Security of such series when such interest
becomes due and payable that continues for a period of 30 days; (ii) default in
the payment of the principal of (or premium or Make-Whole Amount, if any, on)
any Debt Security of such series when due and payable; (iii) default in making
any sinking fund payment as required for any Debt Security of such series; (iv)
default in the performance, or breach, of any other covenant or warranty of the
Company in the applicable Indenture with respect to the Debt Securities of such
series and continuance of such default or breach for a period of 60 days after
written notice as provided in the Indenture; (v) default under any bond,
debenture, note, mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company (or by any Subsidiary, the repayment of which the
Company has guaranteed or for which the Company is directly responsible or
liable as obligor or guarantor), having a specified aggregate principal amount
outstanding, whether such indebtedness exists at the time the debt securities
are issued or are thereafter created, which default shall have resulted in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such indebtedness
having been discharged, or such acceleration having been rescinded or annulled,
within a period of 30 days after written notice to the Company as provided in
the Indenture; (vi) certain events of bankruptcy, insolvency or reorganization,
or court appointment of a receiver, liquidator or trustee of the Company or any
Significant Subsidiary; and (vii) any other event of default provided with
respect to a particular series of Debt Securities. The term "Significant
Subsidiary" has the meaning ascribed to such term in Regulation S-X promulgated
under the Securities Act.
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% in
principal amount of the Debt Securities of that series will have the right to
declare the principal amount (or, if the Debt Securities of that series are
Original Issue Discount Securities or indexed securities, such portion of the
principal amount as may be specified in the terms thereof) of, and premium or
Make-Whole Amount, if any, on, all the Debt Securities of that series to be due
and payable immediately by written notice thereof to the Company (and to the
applicable Trustee if given by the holders). However, at any time after such a
declaration of acceleration with respect to Debt Securities of such series has
been made, but before a judgment or decree for payment of the money due has been
obtained by the applicable Trustee, the holders of not less than a majority in
principal amount of outstanding Debt Securities of such series may rescind and
annul such declaration and its consequences if (i) the Company shall have
deposited with the applicable Trustee all required payments of the principal of
(and premium or Make-Whole Amount, if any) and interest on the Debt Securities
of such series, plus certain fees, expenses, disbursements and advances of the
applicable Trustee and (ii) all Events of Default, other than the non-payment of
accelerated principal (or specified portion thereof and the premium or
Make-Whole Amount, if any), with respect to Debt Securities of such series have
been cured or waived as provided in such Indenture. The Indentures will also
provide that the holders of not less than a majority in principal amount of the
outstanding Debt Securities of any series may waive any past default with
respect to such series and its consequences, except a default (a) in the payment
of the principal of (or premium or Make-Whole Amount, if any) or interest on any
Debt Security of such series or (b) in respect of a covenant or provision
contained in the applicable Indenture that cannot be modified or amended without
the consent of the holder of each outstanding Debt Security affected thereby.
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The Indentures will require each Trustee to give notice to the holders of
Debt Securities within 90 days of a default under the applicable Indenture
unless such default shall have been cured or waived; provided, however, that
such Trustee may withhold notice to the holders of any series of Debt Securities
of any default with respect to such series (except a default in the payment of
the principal of (or premium or Make-Whole Amount, if any) or interest on any
Debt Security of such series or in the payment of any sinking fund installment
in respect of any Debt Security of such series) if specified responsible
officers of such Trustee consider such withholding to be in the interest of such
holders.
The Indentures will provide that no holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the case of failure of the
applicable Trustee, for 60 days, to act after it has received a written request
to institute proceedings in respect of an Event of Default from the holders of
not less than 25% in principal amount of the outstanding Debt Securities of such
series, as well as an offer of indemnity reasonably satisfactory to it. This
provision will not prevent, however, any holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and premium
or Make-Whole Amount, if any) and interest on such Debt Securities at the
respective due dates or redemption dates thereof.
The Indentures will provide that, subject to provisions in each Indenture
relating to its duties in case of default, a Trustee will be under no obligation
to exercise any of its rights or powers under an Indenture at the request or
direction of any holders of any series of Debt Securities then outstanding under
such Indenture, unless such holders shall have offered to the Trustee thereunder
reasonable security or indemnity. The holders of not less than a majority in
principal amount of the outstanding Debt Securities of any series (or of all
Debt Securities then outstanding under an Indenture, as the case may be) shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the applicable Trustee, or of exercising any trust
or power conferred upon such Trustee. However, a Trustee may refuse to follow
any direction which is in conflict with any law or the applicable Indenture,
which may involve such Trustee in personal liability or which may be unduly
prejudicial to the holders of Debt Securities of such series not joining
therein.
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any default under the applicable Indenture and, if so, specifying
each such default and the nature and status thereof.
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding Debt Securities issued under such Indenture affected
by such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the holder of each such Debt Security
affected thereby, (i) change the stated maturity of the principal of, or any
installment of interest (or premium or Make-Whole Amount, if any) on, any such
Debt Security; (ii) reduce the principal amount of, or the rate or amount of
interest on, or any premium or Make-Whole Amount payable on redemption of, any
such Debt Security, or reduce the amount of principal of an Original Issue
Discount Security that would be due and payable upon declaration of acceleration
of the maturity thereof or would be provable in bankruptcy, or adversely affect
any right of repayment of the holder of any such Debt Security; (iii) change the
place of payment, or the coin or currency, for payment of principal of, premium
or Make-Whole Amount, if any, or interest on any such Debt Security; (iv) impair
the right to institute suit for the enforcement of any payment on or with
respect to any such Debt Security; (v) reduce the above-stated percentage of
outstanding Debt Securities of any series necessary to modify or amend the
applicable Indenture, to waive compliance with certain provisions thereof or
certain defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the applicable Indenture; (vi) change the currency or
currency unit in which any Debt Security or any premium or interest thereon is
payable; (vii) in the case of
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the Subordinated Indenture, modify the subordination provisions thereof in a
manner adverse to the holders of Subordinated Debt Securities of any series then
outstanding; or (viii) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or to provide
that certain other provisions may not be modified or waived without the consent
of the holder of such Debt Security.
The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of each series may, on behalf of all holders of Debt Securities
of that series, waive, insofar as that series is concerned, compliance by the
Company with certain restrictive covenants of the applicable Indenture.
Modifications and amendments of an Indenture will be permitted to be made by
the Company and the respective Trustee thereunder without the consent of any
holder of Debt Securities for any of the following purposes: (i) to evidence the
succession of another person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in such Indenture; (iii) to add events of default for
the benefit of the holders of all or any series of Debt Securities; (iv) to add
or change any provisions of an Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, provided that
such action shall not adversely affect the interests of the holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate any
provisions of an Indenture, provided that any such change or elimination shall
become effective only when there are no Debt Securities outstanding of any
series created prior thereto which are entitled to the benefit of such
provision; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series; (viii) to provide for the acceptance of
appointment by a successor Trustee or facilitate the administration of the
trusts under an Indenture by more than one Trustee; (ix) to cure any ambiguity,
defect or inconsistency in an Indenture, provided that such action shall not
adversely affect the interests of holders of Debt Securities of any series
issued under such Indenture; or (x) to supplement any of the provisions of an
Indenture to the extent necessary to permit or facilitate defeasance and
discharge of any series of such Debt Securities, provided that such action shall
not adversely affect the interests of the holders of the outstanding Debt
Securities of any series.
The Indentures will provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of any Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant such
Indenture, and (iv) Debt Securities owned by the Company or any other obligor
upon the Debt Securities or any affiliate of the Company or of such other
obligor shall be disregarded.
The Indentures will contain provisions for convening meetings of the holders
of Debt Securities of a series. A meeting will be permitted to be called at any
time by the applicable Trustee, and also, upon request, by the Company or the
holders of at least 25% in principal amount of the outstanding Debt Securities
of such series, in any such case upon notice given as provided in such
Indenture. Except for any consent that must be given by the holder of each Debt
Security affected by certain modifications and amendments of an Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present may be adopted by the affirmative vote of the holders of a
majority in
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principal amount of the outstanding Debt Securities of that series; provided,
however, that, except as referred to above, any resolution with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that may be made, given or taken by the holders of a specified
percentage, which is less than a majority, in principal amount of the
outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the outstanding Debt Securities of that series. Any resolution passed or
decision taken at any meeting of holders of Debt Securities of any series duly
held in accordance with an Indenture will be binding on all holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the holders of
not less than a specified percentage in principal amount of the outstanding Debt
Securities of a series, the persons holding or representing such specified
percentage in principal amount of the outstanding Debt Securities of such series
will constitute a quorum.
Notwithstanding the foregoing provisions, the Indentures will provide that
if any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or of the holders of
such series and one or more additional series: (i) there shall be no minimum
quorum requirement for such meeting and (ii) the principal amount of the
outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
CERTAIN DEFINITIONS
"Indebtedness" means, with respect to any person, (i) any obligation of such
person to pay the principal of, premium, if any, interest on (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to such person, whether or not a claim for such
post-petition interest is allowed in such proceeding), penalties, reimbursement
or indemnification amounts, fees, expenses or other amounts relating to any
indebtedness of such person (a) for borrowed money (whether or not the recourse
of the lender is to the whole of the assets of such person or only to a portion
thereof), (b) evidenced by notes, debentures or similar instruments (including
purchase money obligations) given in connection with the acquisition of any
property or assets (other than trade accounts payable for inventory or similar
property acquired in the ordinary course of business), including securities, for
the payment of which such person is liable, directly or indirectly, or the
payment of which is secured by a lien, charge or encumbrance on property or
assets of such person, (c) for goods, materials or services purchased in the
ordinary course of business (other than trade accounts payable arising in the
ordinary course of business), (d) with respect to letters of credit or bankers
acceptances issued for the account of such person or performance bonds, (e) for
the payment of money relating to a Capitalized Lease Obligation (as defined in
the Indenture) or (f) under interest rate swaps, caps or similar agreements and
foreign exchange contracts, currency swaps or similar agreements; (ii) any
liability of others of the kind described in the preceding clause (i) which such
person has guaranteed or which is otherwise its legal liability; and (iii) any
and all deferrals, renewals, extensions and refunding of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (i) or (ii).
"Senior Indebtedness" means Indebtedness of the Company, whether outstanding
on the date of issue of any Subordinated Debt Securities or thereafter created,
incurred, assumed or guaranteed by the Company, other than the following: (i)
any Indebtedness as to which, in the instrument evidencing such
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Indebtedness or pursuant to which such Indebtedness was issued, it is expressly
provided that such Indebtedness is subordinate in right of payment to all
indebtedness of the Company not expressly subordinated to such Indebtedness;
(ii) any Indebtedness which by its terms refers explicitly to the Subordinated
Debt Securities and states that such Indebtedness shall not be senior, shall be
PARI PASSU or shall be subordinated in right of payment to the Subordinated Debt
Securities; and (iii) with respect to any series of Subordinated Debt
Securities, any Indebtedness of the Company evidenced by Subordinated Debt
Securities of the same or of another series. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness shall not include: (a)
Indebtedness of or amounts owed by the Company for compensation to employees, or
for goods, materials and services purchased in the ordinary course of business
or (b) Indebtedness of the Company to a subsidiary of the Company.
SUBORDINATION
Unless otherwise provided in the applicable Prospectus Supplement,
Subordinated Debt Securities will be subject to the following subordination
provisions.
The payment of the principal of, interest on, or any other amounts due on,
the Subordinated Debt Securities will be subordinated in right of payment to the
prior payment in cash in full of all Senior Indebtedness of the Company. No
payment on account of the principal of, redemption of, interest on or any other
amounts due on the Subordinated Debt Securities and no redemption, purchase or
other acquisition of the Subordinated Debt Securities may be made, unless (i)
full payment in cash of amounts then due for principal, sinking funds, interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company, whether or not a claim
for such post-petition interest is allowed in such proceeding), penalties,
reimbursement or indemnification amounts, fees and expenses, and of all other
amounts then due on all Senior Indebtedness shall have been made or duly
provided for pursuant to the terms of the instrument governing such Senior
Indebtedness, and (ii) at the time of, or immediately after giving effect to,
any such payment, redemption, purchase or other acquisition, there shall not
exist under any Senior Indebtedness or any agreement pursuant to which any
Senior Indebtedness has been issued, any default which shall not have been cured
or waived and which shall have resulted in the full amount of such Senior
Indebtedness being declared due and payable and not rescinded. In addition, the
Subordinated Indenture provides that, if holders of any Senior Indebtedness
notify the Company and the Subordinated Trustee that a default has occurred
giving the holders of such Senior Indebtedness the right to accelerate the
maturity thereof, no payment on account of principal, sinking fund or other
redemption, interest or any other amounts due on the Subordinated Debt
Securities and no purchase, redemption or other acquisition of the Subordinated
Debt Securities will be made for the period (the "Payment Blockage Period")
commencing on the date such notice is received and ending on the earlier of (a)
the date on which such event of default shall have been cured or waived or (b)
180 days from the date such notice is received. Notwithstanding the foregoing,
only one payment blockage notice with respect to the same event of default or
any other events of default existing and known to the person giving such notice
at the time of such notice on the same issue of Senior Indebtedness may be given
during any period of 360 consecutive days. No new Payment Blockage Period may be
commenced by the holders of Senior Indebtedness during any period of 360
consecutive days unless all events of default which triggered the preceding
Payment Blockage Period have been cured or waived. Upon any distribution of its
assets in connection with any dissolution, winding-up, liquidation or
reorganization of the Company, all Senior Indebtedness must be paid in full in
cash before the holders of the Subordinated Debt Securities are entitled to any
payments whatsoever.
The Subordinated Indenture does not restrict the amount of Senior
Indebtedness or other indebtedness of the Company or any Subsidiary. As a result
of these subordination provisions, in the event of the Company's insolvency,
holders of the Subordinated Debt Securities may recover ratably less than
general creditors of the Company.
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If this Prospectus is being delivered in connection with a series of
Subordinated Debt Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Indebtedness outstanding as of the end of the Company's most
recent fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company will be permitted, at its option, to discharge certain obligations to
holders of any series of Debt Securities issued under any Indenture that have
not already been delivered to the applicable Trustee for cancellation and that
either have become due and payable or will become due and payable within one
year (or scheduled for redemption within one year) by irrevocably depositing
with the applicable Trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness on
such Debt Securities in respect of principal (and premium or Make-Whole Amount,
if any) and interest to the date of such deposit (if such Debt Securities have
become due and payable) or to the stated maturity or redemption date, as the
case may be.
The Indentures will provide that, unless otherwise indicated in the
applicable Prospectus Supplement, the Company may elect either (i) to defease
and be discharged from any and all obligations with respect to such Debt
Securities (except for the obligations to register the transfer or exchange of
such Debt Securities, to replace temporary or mutilated, destroyed, lost or
stolen Debt Securities, to maintain an office or agency in respect of such Debt
Securities, and to hold moneys for payment in trust) ("defeasance") or (ii) to
be released from certain obligations with respect to such Debt Securities under
the applicable Indenture (including the restrictions described under "--Certain
Covenants") or, if provided in the applicable Prospectus Supplement, its
obligations with respect to any other covenant, and any omission to comply with
such obligations shall not constitute an Event of Default with respect to such
Debt Securities ("covenant defeasance"), in either case upon the irrevocable
deposit by the Company with the applicable Trustee, in trust, of an amount, in
such currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable at stated maturity, or
Government Obligations (as defined below ), or both, applicable to such Debt
Securities, which through the scheduled payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal of (and premium or Make-Whole Amount, if any) and interest on such
Debt Securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
holders of such Debt Securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such opinion of counsel,
in the case of defeasance, will be required to refer to and be based upon a
ruling received from or published by the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
Indenture. In the event of such defeasance, the holders of such Debt Securities
would thereafter be able to look only to such trust fund for payment of
principal (and premium or Make-Whole Amount, if any) and interest.
"Government Obligations" means securities that are (i) direct obligations of
the United States of America or the government which issued the foreign currency
in which the Debt Securities of a particular series are payable, for the payment
of which its full faith and credit is pledged or (ii) obligations of a person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America or such government which issued the foreign currency in
which the Debt Securities of such series
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are payable, the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or such other government,
which, in either case, are not callable or redeemable at the option of the
issuer thereof, and shall also include a depositary receipt issued by a bank or
trust company as custodian with respect to any such Government Obligation or a
specific payment of interest on or principal of any such Government Obligation
held by such custodian for the account of the holder of a depositary receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depositary
receipt from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the Government
Obligation evidenced by such depositary receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(i) the holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(ii) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium or Make-Whole Amount, if any) and interest on such Debt Security as
they become due out of the proceeds yielded by converting the amount so
deposited in respect of such Debt Security into the currency, currency unit or
composite currency in which such Debt Security becomes payable as a result of
such election or such cessation of usage based on the applicable market exchange
rate. "Conversion Event" means the cessation of use of (a) a currency, currency
unit or composite currency both by the government of the country which issued
such currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (b) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities or
(iii) any currency unit or composite currency other than the ECU for the
purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium or
Make-Whole Amount, if any) and interest on any Debt Security that is payable in
a foreign currency that ceases to be used by its government of issuance shall be
made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (iv) under "--Events of Default, Notice and Waiver" with respect to
specified sections of an Indenture (which sections would no longer be applicable
to such Debt Securities) or described in clause (vii) under "--Events of
Default, Notice and Waiver" with respect to any other covenant as to which there
has been covenant defeasance, the amount in such currency, currency unit or
composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the applicable Trustee, will be sufficient to pay
amounts due on such Debt Securities at the time of their stated maturity but may
not be sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Event of Default. However, the Company would
remain liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into shares of Common Stock or
Preferred Stock,
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the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders or the
Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities and any restrictions on conversion, including restrictions directed
at maintaining the Company's REIT status.
BOOK-ENTRY SYSTEM
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the Prospectus Supplement relating to such series. Global Securities, if any,
issued in the United States are expected to be deposited with The Depository
Trust Company ("DTC"), as Depositary. Global Securities may be issued in either
fully registered or bearer form and in either temporary or permanent form.
Unless and until it is exchanged in whole or in part for the individual Debt
Securities represented thereby, a Global Security may not be transferred except
as a whole by the Depositary for such Global Security to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any nominee of such
Depositary to a successor Depositary or any nominee of such successor.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the Prospectus Supplement relating to such
series. The Company expects that unless otherwise indicated in the applicable
Prospectus Supplement, the following provisions will apply to depositary
arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual Debt Securities
represented by such Global Security to the accounts of persons that have
accounts with such Depositary ("Participants"). Such accounts shall be
designated by the underwriters, dealers or agents with respect to such Debt
Securities or by the Company if such Debt Securities are offered directly by the
Company. Ownership of beneficial interests in such Global Security will be
limited to Participants or persons that may hold interests through Participants.
The Company expects that, pursuant to procedures established by DTC,
ownership of beneficial interests in any Global Security with respect to which
DTC is the Depositary will be shown on, and the transfer of that ownership will
be effected only through, records maintained by DTC or its nominee (with respect
to beneficial interests of Participants) and records of Participants (with
respect to beneficial interests of persons who hold through Participants).
Neither the Company nor the Trustee will have any responsibility or liability
for any aspect of the records of DTC or for maintaining, supervising or
reviewing any records of DTC or any of its Participants relating to beneficial
ownership interests in the Debt Securities. The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to own, pledge or
transfer beneficial interest in a Global Security.
So long as the Depositary for a Global Security or its nominee is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as described below or in the applicable Prospectus
Supplement, owners of beneficial interest in a Global Security will not be
entitled to have any of the individual Debt Securities represented by such
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of any such Debt Securities in definitive form and
will not be considered the owners or holders thereof under the applicable
Indenture. Beneficial owners of Debt Securities evidenced by a Global Security
will not be considered the owners or holders thereof under the applicable
Indenture for any purpose, including with respect to the giving of any
direction, instructions or approvals to the Trustee thereunder. Accordingly,
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each person owning a beneficial interest in a Global Security with respect to
which DTC is the Depositary must rely on the procedures of DTC and, if such
person is not a Participant, on the procedures of the Participant through which
such person owns its interests, to exercise any rights of a holder under the
applicable Indenture. The Company understands that, under existing industry
practice, if it requests any action of holders or if an owner of a beneficial
interest in a Global Security desires to give or take any action which a holder
is entitled to give or take under the applicable Indenture, DTC would authorize
the Participants holding the relevant beneficial interest to give or take such
action, and such Participants would authorize beneficial owners through such
Participants to give or take such actions or would otherwise act upon the
instructions of beneficial owners holding through them.
Payments of principal of, any premium or Make-Whole Amount and any interest
on individual Debt Securities represented by a Global Security registered in the
name of a Depositary or its nominee will be made to or at the direction of the
Depositary or its nominee, as the case may be, as the registered owner of the
Global Security under the applicable Indenture. Under the terms of the
applicable Indenture, the Company and the Trustee may treat the persons in whose
name Debt Securities, including a Global Security, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Debt Securities (including
principal, premium or Make-Whole Amount, if any, and interest). The Company
believes, however, that it is currently the policy of DTC to immediately credit
the accounts of relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant Global Security as shown on the records of DTC or its nominee. The
Company also expects that payments by Participants to owners of beneficial
interests in such Global Security held through such Participants will be
governed by standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered in
street name, and will be the responsibility of such Participants. Redemption
notices with respect to any Debt Securities represented by a Global Security
will be sent to the Depositary or its nominee. If less than all of the Debt
Securities of any series are to be redeemed, the Company expects the Depositary
to determine the amount of the interest of each Participant in such Debt
Securities to be redeemed to be determined by lot. None of the Company, the
Trustee, any Paying Agent or the Security Registrar for such Debt Securities
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Security for such Debt Securities or for maintaining any records with respect
thereto.
Neither the Company nor the Trustee will be liable for any delay by the
holders of a Global Security or the Depositary in identifying the beneficial
owners of Debt Securities and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the holder of a
Global Security or the Depositary for all purposes. The rules applicable to DTC
and its Participants are on file with the SEC.
If a Depositary for any Debt Securities is at any time unwilling, unable or
ineligible to continue as depositary and a successor depositary is not appointed
by the Company within 90 days, the Company will issue individual Debt Securities
in exchange for the Global Security representing such Debt Securities. In
addition, the Company may at any time and in its sole discretion, subject to any
limitations described in the Prospectus Supplement relating to such Debt
Securities, determine not to have any of such Debt Securities represented by one
or more Global Securities and in such event will issue individual Debt
Securities in exchange for the Global Security or Securities representing such
Debt Securities. Individual Debt Securities so issued will be issued in
denominations of $1,000 and integral multiples thereof.
The Debt Securities of a series may also be issued in whole or in part in
the form of one or more bearer global securities (a "Bearer Global Security")
that will be deposited with a depositary, or with a nominee for such depositary,
identified in the applicable Prospectus Supplement. Any such Bearer Global
Securities may be issued in temporary or permanent form. The specific terms and
procedures, including the specific terms of the depositary arrangement, with
respect to any portion of a series of Debt Securities to be represented by one
or more Bearer Global Securities will be described in the applicable Prospectus
Supplement.
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PAYMENT AND PAYING AGENTS
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium or Make-Whole Amount, if any) and interest
on any series of Debt Securities will be payable at the corporate trust office
of the Trustee, the address of which will be stated in the applicable Prospectus
Supplement; provided that, at the option of the Company, payment of interest may
be made by check mailed to the address of the person entitled thereto as it
appears in the applicable register for such Debt Securities or by wire transfer
of funds to such person at an account maintained within the United States.
All moneys paid by the Company to a paying agent or a Trustee for the
payment of the principal of or any premium, Make-Whole Amount or interest on any
Debt Security which remain unclaimed at the end of two years after such
principal, premium, Make-Whole Amount or interest has become due and payable
will be repaid to the Company, and the holder of such Debt Security thereafter
may look only to the Company for payment thereof.
DESCRIPTION OF CAPITAL STOCK
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.
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, 20 million
shares of "Excess Stock" (as described below) and 5 million shares of Preferred
Stock. The Directors have authority to issue authorized shares of Common Stock
and of Preferred Stock and to classify or reclassify any unissued shares of
either class in one or more classes or series of stock, each without action by
the stockholders. Under Maryland law, stockholders generally are not responsible
for a corporation's debts or obligations. As of the date of this Prospectus,
there are approximately 23,432,852 shares of Common Stock issued and
outstanding, and no Preferred Stock or Excess Stock is outstanding.
COMMON STOCK
All shares of Common Stock offered hereby have been duly authorized and
will, when issued and paid for as described in the applicable Prospectus
Supplement, be fully paid and nonassessable. Subject to the preferential rights
of any shares or series of Preferred Stock and to the provisions of the
Company's Charter regarding Excess Stock, holders of shares of Common Stock are
entitled to receive dividends on Common Stock if, as and when authorized and
declared by the Board of Directors of the Company out of assets legally
available therefor and to share ratably in the assets of the Company legally
available for distribution to its stockholders in the event of its liquidation,
dissolution or winding-up after payment of, or adequate provision for, all known
debts and liabilities of the Company.
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, and, except as provided with respect to any other class or series of
stock, the holders of Common Stock will possess exclusive voting power. There is
no cumulative voting in the election of directors, which means that the holders
of a majority of the outstanding shares of Common Stock can, subject to any
rights of holders of Preferred Stock, elect all of the directors then standing
for election, and the holders of the remaining shares of Common Stock will not
be able to elect any directors.
See "--Restrictions on Transfer; Excess Stock" below for a description of
certain provisions of the Company's Charter designed to preserve the status of
the Company 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
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Common Stock) and that also provide for the conversion of such stock to Excess
Stock, in certain circumstances.
Subject to the Company's Charter regarding Excess Stock, all shares of
Common Stock have equal dividend, distribution, liquidation and other rights,
and have no preferences, appraisal or exchange rights. Holders of Common Stock
have no conversion, sinking fund or redemption rights, or preemptive rights to
subscribe for any securities of the Company.
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.
Pursuant to the Maryland General Corporation Law ("MGCL") and the Company's
Charter, the Corporation 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 Board of Directors and the affirmative vote of holders of shares
entitled to cast a majority of all the votes entitled to be cast on such
matters.
The transfer agent and registrar for the Common Stock is The First Chicago
Trust Company of New York, 525 Washington Boulevard, Jersey City, New Jersey
07303.
PREFERRED STOCK
GENERAL. Shares of Preferred Stock may be issued from time to time, in one
or more series, as authorized by the Board of Directors of the Company. Prior to
issuance of shares of each series, the Board of Directors is required by the
MGCL and the Company's Charter to fix for each series, subject to the provisions
of the Company's Charter regarding Excess Stock, the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption, as are permitted by Maryland law. The Preferred Stock will, when
issued, be fully paid and nonassessable by the Company and will have no
preemptive rights, other than as determined by the Board of Directors. The Board
of Directors could authorize the issuance of shares of Preferred Stock with
terms and conditions that could have the effect of discouraging a takeover 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 shares of Common
Stock might receive a premium for their shares over the then market price of
such shares of Common Stock.
TERMS. The following description of the Preferred Stock sets forth certain
general terms and provisions of the Preferred Stock to which any Prospectus
Supplement may relate. The statements below describing the Preferred Stock are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Charter and Bylaws and any applicable
amendment to the Charter designating terms of a series of Preferred Stock (a
"Designating Amendment").
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(5) The voting rights, if any, of such Preferred Stock;
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(6) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(7) The provision for a sinking fund, if any, for such Preferred Stock;
(8) The provision for redemption, if applicable, of such Preferred
Stock;
(9) Any listing of such Preferred Stock on any securities exchange;
(10) If convertible, the terms and conditions upon which such Preferred
Stock will be convertible into Common Stock, including the initial
conversion price (or manner of calculation thereof) and the conversion
period;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(12) Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(13) A discussion of certain federal income tax considerations
applicable to such Preferred Stock;
(14) The relative ranking and preference of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
(15) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(16) Any limitations on direct or beneficial ownership and restrictions
on transfer, in each case as may be appropriate to preserve the status of
the Company as a qualified REIT.
RANK. Unless otherwise specified in the Prospectus Supplement, the
Preferred Stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Stock of the Company, and to all equity securities
ranking junior to such Preferred Stock; (ii) on a parity with all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank on a parity with the Preferred Stock; and (iii)
junior to all equity securities issued by the Company the terms of which
specifically provide that such equity securities rank senior to the Preferred
Stock. The term "equity securities" does not include convertible debt
securities.
DIVIDENDS. Holders of the Preferred Stock of each series will be entitled
to receive, when, as and if declared by the Board of Directors of the Company,
out of assets of the Company legally available for payment, cash dividends at
such rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend shall be payable to holders of record as they
appear on the share transfer books of the Company on such record dates as shall
be fixed by the Board of Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are non-cumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Preferred Stock
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of such series for all past dividend periods and the then current dividend
period or (ii) if such series of Preferred Stock does not have a cumulative
dividend, full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for such payment on the Preferred Stock of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon Preferred Stock of any series and the shares
of any other series of Preferred Stock ranking on a parity as to dividends with
the Preferred Stock of such series, all dividends declared upon Preferred Stock
of such series and any other series of Preferred Stock ranking on a parity as to
dividends with such Preferred Stock shall be declared pro rata so that the
amount of dividends declared per share of Preferred Stock of such series and
such other series of Preferred Stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the Preferred Stock of such
series (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such Preferred Stock does not have a cumulative
dividend) and such other series of Preferred Stock bear to each other. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on Preferred Stock of such series which may be
in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other shares of
capital stock ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment nor shall any other distribution be declared or made upon the Common
Stock, or any other capital stock of the Company ranking junior to or on a
parity with the Preferred Stock of such series as to dividends or upon
liquidation, nor shall any shares of Common Stock, or any other shares of
capital stock of the Company ranking junior to or on a parity with the Preferred
Stock of such series as to dividends or upon liquidation be redeemed, purchased
or otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Company (except by conversion into or exchange for other capital stock of the
Company, including Excess Stock, ranking junior to the Preferred Stock of such
series as to dividends and upon liquidation).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION. If so provided in the applicable Prospectus Supplement, the
Preferred Stock shall be subject to mandatory redemption or redemption at the
option of the Company, as a whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of shares of capital stock of the Company, the terms of
such Preferred Stock may provide that, if no such shares of capital stock shall
have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Stock shall automatically and mandatorily be
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converted into the applicable shares of capital stock of the Company pursuant to
conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Stock has
a cumulative dividend, full cumulative dividends on all shares of such series of
Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, and (ii) if a
series of Preferred Stock does not have a cumulative dividend, full dividends on
all shares of the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, no shares of such
series of Preferred Stock shall be redeemed unless all outstanding shares of
Preferred Stock of such series are simultaneously redeemed; provided, however,
that the foregoing shall not prevent the purchase or acquisition of Preferred
Stock of such series to preserve the REIT status of the Company or pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
shares of Preferred Stock of such series. In addition, unless (i) if such series
of Preferred Stock has a cumulative dividend, full cumulative dividends on all
outstanding shares of such series of Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period, and (ii) if such series of Preferred Stock does not
have a cumulative dividend, full dividends on the Preferred stock of such series
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, the Company shall not purchase or otherwise acquire directly or
indirectly any shares of Preferred Stock of such series (except by conversion
into or exchange for capital stock of the Company ranking junior to the
Preferred Stock of such series as to dividends and upon liquidation); provided,
however, that the foregoing shall not prevent the purchase or acquisition of
shares of Preferred Stock of such series to preserve the REIT status of the
Company or pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding shares of Preferred Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption of
fractional shares) or by lot in a manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment shall be made to the holders of any Common Stock or any
other class or series of capital stock of the Company ranking junior to the
Preferred Stock in the distribution of assets upon any liquidation, dissolution
or winding up of the Company, the holders of each series of Preferred Stock
shall be entitled to receive out of assets of the Company legally
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available for distribution to stockholders liquidating distributions in the
amount of the liquidation preference per share (set forth in the applicable
Prospectus Supplement), plus an amount equal to all dividends accrued and unpaid
thereon (which shall not include any accumulation in respect of unpaid
noncumulative dividends for prior dividend periods). After payment of the full
amount of the liquidating distributions to which they are entitled, the holders
of Preferred Stock will have no right or claim to any of the remaining assets of
the Company. In the event that, upon any such voluntary or involuntary
liquidation, dissolution or winding up, the available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding shares of Preferred Stock and the corresponding amounts payable on
all shares of other classes or series of capital stock of the Company ranking on
a parity with the Preferred Stock in the distribution of assets, then the
holders of the Preferred Stock and all other such classes or series of capital
stock shall share ratably in any such distribution of assets in proportion to
the full liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of capital stock ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
VOTING RIGHTS. Holders of the Preferred Stock will not have any voting
rights, except as set forth below or as indicated in the applicable Prospectus
Supplement.
Whenever dividends on any shares of Preferred Stock shall be in arrears for
six or more consecutive quarterly periods, the holders of such shares of
Preferred Stock (voting separately as a class with all other series of Preferred
Stock upon which like voting rights have been conferred and are exercisable)
will be entitled to vote for the election of two additional directors of the
Company at a special meeting called by the holders of record of at least ten
percent (10%) of any series of Preferred Stock so in arrears (unless such
request is received less than 90 days before the date fixed for the next annual
or special meeting of the stockholders) or at the next annual meeting of
stockholders, and at each subsequent annual meeting until (i) if such series of
Preferred Stock has a cumulative dividend, all dividends accumulated on such
shares of Preferred Stock for the past dividend periods and the then current
dividend period shall have been fully paid or declared and a sum sufficient for
the payment thereof set aside for payment or (ii) if such series of Preferred
Stock does not have a cumulative dividend, four consecutive quarterly dividends
shall have been fully paid or declared and a sum sufficient for the payment
thereof set aside for payment. In such case, the entire Board of Directors of
the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock of a series remain outstanding, the Company will not,
without the affirmative vote or consent of the holders of at least a majority of
the shares of such series of Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking prior to such
series of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized capital stock of the Company into such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (ii) amend, alter or repeal the provisions
of the Company's Charter or the Designating Amendment for such series of
Preferred Stock, whether by merger, consolidation or otherwise (an "Event"), so
as to materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Stock or the holders thereof; provided,
however, with respect to the occurrence of any of the Events set forth in (ii)
above, so long as the Preferred Stock remains outstanding with the terms thereof
materially unchanged, taking into account that upon the occurrence of an Event
the Company may not be the surviving entity, the occurrence of any such Event
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shall not be deemed to materially and adversely affect such rights, preferences,
privileges or voting power of holders of Preferred Stock and provided further
that (a) any increase in the amount of the authorized Preferred Stock or the
creation or issuance of any other series of Preferred Stock, or (b) any increase
in the amount of authorized shares of such series or any other series of
Preferred Stock, in each case ranking on a parity with or junior to the
Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been set
aside by the Company in trust for the benefit of the holders of such shares to
effect such redemption.
CONVERSION RIGHTS. The terms and conditions, if any, upon which any series
of Preferred Stock is convertible into shares of Common Stock will be set forth
in the applicable Prospectus Supplement relating thereto. Such terms will
include the number of shares of Common Stock into which the shares of Preferred
Stock are convertible, the conversion price (or manner of calculation thereof),
the conversion period, provisions as to whether conversion will be at the option
of the holders of the Preferred Stock or the Company, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such series of Preferred Stock.
RESTRICTIONS ON OWNERSHIP. As discussed below under "--Restrictions on
Transfer; Excess Stock," for the Company to qualify as a REIT under the Code not
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year. To assist the Company
in meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, by a single person of the
Company's outstanding equity securities, including any Preferred Stock of the
Company. Therefore, the Designating Amendment for each series of Preferred Stock
may contain provisions restricting the ownership and transfer of the Preferred
Stock and/or providing for the automatic exchange of shares of Preferred Stock
into shares of Excess Stock in certain circumstances. The applicable Prospectus
Supplement will specify any additional ownership limitation relating to a series
of Preferred Stock.
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for the
Preferred Stock will be set forth in the applicable Prospectus Supplement.
RESTRICTIONS ON TRANSFERS; EXCESS STOCK
For the Company to qualify as a REIT under the Code, among other things, not
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals (defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year), and such capital stock must be beneficially owned by 100 or more persons
during at least 335 days of a taxable year of 12 months (other than the first
year) or during a proportionate part of a shorter taxable year. The Charter of
the Company contains provisions, designed to preserve the Company's
qualification as a REIT, that limit any holder from owning, or being deemed to
own by virtue of the attribution provisions of the Code either (i) more than
9.8% (in value or in number of shares, whichever is more restrictive) of the
outstanding shares of Common Stock (the "Common Stock Ownership Limit") or (ii)
shares of capital stock having a value that is more than 9.8% of the value of
all outstanding capital stock of the Company (the "Ownership Limit"). The
Charter provides that each person (which includes natural persons, corporations,
trusts, partnerships and other entities) shall be deemed to own stock that such
person (i) actually owns, (ii) constructively owns after applying attribution
rules specified in the Code, and (iii) has the right to acquire upon exercise of
any rights, options or warrants or conversion of any convertible securities held
by such person. The fact that certain affiliated entities, such as separate
mutual
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funds advised by the same investment adviser, may own more than 9.8% of all
outstanding shares of Common Stock or of the value of all outstanding capital
stock in the aggregate will not of itself result in either the Common Stock
Ownership Limit or the Ownership Limit being exceeded, merely because a single
person may be considered to be the "beneficial owner" of such stock for purposes
of Section 13(g) of the Exchange Act. The Board of Directors may waive either
the Common Stock Ownership Limit or the Ownership Limit if evidence satisfactory
to the Board of Directors and the Company's tax counsel is presented that the
changes in ownership will not then or in the future jeopardize the Company's
status as a REIT.
Any transfer of capital stock or any Security convertible into capital stock
that would create direct or indirect ownership of capital stock in excess of
either the Common Stock Ownership limit or the Ownership Limit or that would
result in the disqualification of the Company as a REIT, including any transfer
that results in the Company being "closely held" within the meaning of Section
856(h) of the Code, shall be null and void, and the intended transferee will
acquire no rights to the capital stock. Shares of capital stock owned, or deemed
to be owned, or transferred to a stockholder in excess of either the Common
Stock Ownership Limit or the Ownership Limit will automatically be exchanged for
shares of Excess Stock that will be transferred, by operation of law, to a
trustee (to be named by the Board of Directors of the Company, but unaffiliated
with the Company) as trustee for the exclusive benefit (except to the extent
described below) of one or more charitable beneficiaries designated from time to
time by the Company. The Excess Stock held in trust will be considered as issued
and outstanding shares of stock of the Company, will be entitled to receive
distributions declared by the Company and may be voted by the trustee for the
exclusive benefit of the charitable beneficiary. Any dividend or distribution
paid to a purported transferee of Excess Stock prior to the discovery by the
Company that capital stock has been transferred in violation of the provisions
of the Company's Charter (a "prohibited transfer") shall be repaid to the
Company upon demand and thereupon paid over by the Company to the trustee. Any
votes of holders of shares of capital stock purported to have been cast by a
purported transferee prior to such discovery of a prohibited transfer will be
retroactively deemed not to have been cast and may be recast by the trustee for
the benefit of the charitable beneficiary, but said retroactive nullification or
recast of the vote of the relevant shares of capital stock shall not adversely
affect the rights of any person (other than the purported transferee) who has
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.
EXCESS STOCK IS NOT TRANSFERABLE. Subject to the redemption rights of the
Company discussed below, the trustee of the trust may, however, sell and
transfer the interest in the trust to a transferee in whose hands the interest
in the trust representing Excess Stock would not be an interest in Excess Stock,
and upon such sale the shares of Excess Stock represented by the sold interest
shall be automatically exchanged for shares of capital stock of the class that
was originally exchanged into such Excess Stock. Upon such sale, the trustee
shall distribute to the purported transferee only so much of the sales proceeds
as is not more than the price paid by the purported transferee in the prohibited
transfer that resulted in the exchange of Excess Stock for the capital stock
purported to have been transferred (or, if the purported transferee received
such capital stock by gift, devise or otherwise without giving value for such
stock, only an amount that does not exceed the market price for such stock, as
determined in the manner set forth in the Charter, at the time of the prohibited
transfer), and the trustee shall distribute all remaining proceeds from such
sale to the charitable beneficiary.
In addition to the foregoing transfer restrictions, the Company will have
the right, for a period of 90 days during the time any Excess Stock is held by
the trustee, to purchase all or any portion of the Excess Stock from the trustee
for the lesser of the price paid for the capital stock by the original purported
transferee (or, if the purported transferee received such capital stock by gift,
devise or otherwise without giving value for such stock, the market price of the
capital stock at the time of such prohibited transfer) or the market price of
the capital stock on the date the Company exercises its option to purchase. Upon
any such purchase by the Company, the trustee shall distribute the purchase
price to the original purported
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transferee. The 90-day period begins on the date on which the Company receives
written notice of the prohibited transfer or other event resulting in the
exchange of capital stock for Excess Stock.
The Charter provides that if the foregoing transfer restrictions are
determined to be void or invalid by virtue of any legal decision, statute, rule
or regulation, then the intended transferee of any Excess Stock may be deemed,
at the option of the Company, to have acted as an agent on behalf of the Company
in acquiring the Excess Stock and to hold the Excess Stock on behalf of the
Company.
These restrictions 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. The foregoing restrictions on transferability and ownership
also will not apply 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.
The Company's Charter requires that, upon demand by the Company, each
stockholder and each proposed transferee of capital stock will 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 the provisions of the Code applicable to REITs, to
comply with the requirements of any taxing authority or governmental agency or
to determine any such compliance.
The Ownership Limitation provided by the Company's Charter may have the
effect of delaying, deferring or preventing the acquisition of control of the
Company. However, the Charter provides that the Ownership Limit shall 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 where not
less than two-thirds of the outstanding shares of capital stock (not including
securities held by the tender offeror and/or its affiliates and associates) are
tendered and accepted pursuant to such tender offer and where the tender offeror
commits in such tender offer, if the offer is accepted by the holders of
two-thirds of the outstanding stock, promptly after the tender offeror's
purchase of the tendered 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
The following summary of certain provisions of the MGCL does not purport to
be complete and is qualified in its entirety by reference to the MGCL.
BUSINESS COMBINATIONS. Under the MGCL, certain "business combinations"
(including a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between a Maryland corporation and any person who beneficially owns
10% or more of the voting power of the corporation's shares of capital stock or
an affiliate of the corporation who, at any time within the two-year period
prior to the date in question, was the beneficial owner of 10% or more of the
voting power of the then-outstanding voting stock of the corporation (an
"Interested Stockholder") or an affiliate thereof are prohibited for five years
after the most recent date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, any such business combination must be
recommended by the board of directors of the corporation and approved by the
affirmative vote of at least (i) 80% of the votes entitled to be cast by holders
of outstanding voting shares of the corporation and (ii) two-thirds of the votes
entitled to be cast by holders of outstanding voting shares of the corporation
other than shares held by the Interested Stockholder with whom (or with whose
affiliate) the business combination is to be effected, unless, among other
conditions, the corporation's common stockholders receive a minimum price (as
defined in the MGCL) for their shares and the consideration is received in cash
or in the same form as previously paid by the Interested Stockholder for its
shares. These provisions of Maryland law do not apply, however, to business
combinations that are approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder.
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Pursuant to authority contained in the MGCL, the Company's Board of
Directors has adopted a resolution providing that the "business combination"
provisions of the MGCL shall not apply to the Company, reserving however the
right to offer, revoke or repeal such resolution if the Board of Directors
determines that such alteration, revocation or repeal is in the best interest of
the Company and its stockholders.
CONTROL SHARE ACQUISITIONS. The MGCL provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock owned by the
acquiror or by officers or directors who are employees of the corporation.
"Control shares" are voting shares of stock that, if aggregated with all other
shares of stock previously acquired by that person, or in respect of which the
acquiror is able to exercise or direct the exercise of voting power (except
solely by virtue of a revocable proxy), would entitle the acquiror to exercise
voting power in electing directors within one of the following ranges of voting
power: (i) one-fifth or more but less than one-third, or (ii) one-third or more
but less than a majority, or (iii) 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
exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors to call a special meeting of stockholders to
be held within 50 days of demand to consider the voting rights of the shares. If
no request for a meeting is made, the corporation may itself present the
question at any meeting of stockholders.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have been
previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of stockholders at
which the voting rights of such shares are considered and not approved. If
voting rights for control shares are approved at a stockholders meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights. The fair value of the shares
as determined for purposes of the appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by a corporation's articles
of incorporation or bylaws.
The Company's Bylaws contain a provision exempting any and all acquisitions
of the Company's shares of capital stock from the control shares provision of
the MGCL. The Board of Directors, however, by vote of two-thirds of its members,
has authority at any time, without stockholder approval, to repeal or amend such
exemption, whether before or after an acquisition of control shares, if it
determines that such repeal or amendment is in the best interests of the
stockholders of the Company. Alternatively, the Bylaws may be amended or
repealed by the affirmative vote of a majority of the Board of Directors and a
majority of all votes cast by holders of stock entitled to vote generally in the
election of directors.
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DESCRIPTION OF DEPOSITARY SHARES REPRESENTING PREFERRED STOCK
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate Deposit Agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (the "Preferred
Shares Depositary") and the holders from time to time of the Depositary
Receipts. Subject to the terms of the Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular series of Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipt, to all rights and preferences of
the Preferred Stock represented by such Depositary Shares (including dividend,
voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to the Preferred Shares
Depositary, the Company will cause the Preferred Shares Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the following summary of the form thereof that will be incorporated
as an exhibit to the Registration Statement of which this Prospectus is a part
at the time of the offering of the Depository Shares is qualified in its
entirety by reference thereto.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Shares Depositary will distribute all cash dividends or other
cash distributions received in respect of the Preferred Stock to the record
holders of Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the Preferred Shares
Depositary.
In the event of a distribution other than in cash, the Preferred Shares
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Shares Depositary, unless the Preferred Shares
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Shares Depositary may, with the approval of the
Company, sell such property and distribute the net proceeds from such sale to
such holders.
WITHDRAWAL OF SHARES
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Shares Depositary (unless the related Depositary Shares have
previously been called for redemption), the holders thereof will be entitled to
delivery at such office, to or upon such holder's order, of the number of whole
or fractional shares of Preferred Stock and any money or other property
represented by the Depositary Shares evidenced by such Depositary Receipts.
Holders of Depositary Receipts will be entitled to receive whole or fractional
shares of the related Preferred Stock on the basis of the proportion of
Preferred Stock represented by each Depositary Share as specified in the
applicable Prospectus Supplement, but holders of such shares of Preferred Stock
will not thereafter be entitled to receive Depositary Shares therefor. If the
Depositary Receipts delivered by the holder evidence a number of Depositary
Shares in excess of the number of Depositary Shares representing the number of
shares of Preferred Stock to be withdrawn, the Preferred Shares Depositary will
deliver to such holder at the same time a new Depositary Receipt evidencing such
excess number of Depositary Shares. The Company does not expect that there will
be any public market for shares of Preferred Stock that are withdrawn as
described in this paragraph.
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REDEMPTION OF DEPOSITARY SHARES
Whenever the Company redeems shares of Preferred Stock held by the Preferred
Shares Depositary, the Preferred Shares Depositary will redeem as of the same
redemption date the number of Depositary Shares representing the shares of
Preferred Stock so redeemed, provided the Company shall have paid in full to the
Preferred Shares Depositary the redemption price of the Preferred Stock to be
redeemed plus an amount equal to any accrued and unpaid dividends thereon to the
date fixed for redemption. The redemption price per Depositary Share will be
equal to the redemption price and any other amounts per share payable with
respect to the Preferred Stock. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company.
From and after the date fixed for redemption, all dividends in respect of
shares of Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the Preferred Shares Depositary.
VOTING
Upon receipt of notice of any meeting at which the holders of shares of
Preferred Stock are entitled to vote, the Preferred Shares Depositary will mail
the information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such shares
of Preferred Stock. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for the Preferred Stock) will be entitled to instruct the Preferred Shares
Depositary as to the exercise of the voting rights pertaining to the amount of
Preferred Stock represented by such holder's Depositary Shares. The Preferred
Shares Depositary will vote the amount of Preferred Stock represented by such
Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the
Preferred Shares Depositary in order to enable the Preferred Shares Depositary
to do so. The Preferred Shares Depositary will abstain from voting the amount of
Preferred Stock represented by such Depositary Shares to the extent it does not
receive specific instructions from the holders of Depositary Receipts evidencing
such Depositary Shares. The Preferred Shares Depositary shall not be responsible
for any failure to carry out any instruction to vote, or for the manner or
effect of any such vote made, as long as any such action or non-action is in
good faith and does not result from negligence or willful misconduct of the
Preferred Shares Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION
The Depositary Shares, as such, are not convertible into shares of Common
Stock or any other securities or property of the Company. Nevertheless, if so
specified in the applicable Prospectus Supplement relating to an offering of the
Depositary Shares, the Depositary Receipts may be surrendered by holders thereof
to the Preferred Shares Depositary with written instructions to the Preferred
Shares Depositary to instruct the Company to cause conversion of the Preferred
Stock represented by the Depositary Shares evidenced by such Depositary Receipts
into whole shares of Common Stock, other
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shares of Preferred Stock of the Company or other shares of beneficial interest,
and the Company has agreed that, upon receipt of such instructions and any
amounts payable in respect thereof, it will cause the conversion thereof
utilizing the same procedures as those provided for delivery of shares of
Preferred Stock to effect such conversion. If the Depositary Shares evidenced by
a Depositary Receipt are to be converted in part only, a new Depositary Receipt
will be issued for any Depositary Shares not to be converted. No fractional
shares of Common Stock will be issued upon conversion, and if such conversion
will result in a fractional share being issued, an amount will be paid in cash
by the Company equal to the value of the fractional interest based upon the
closing price of the Common Stock on the last business day prior to the
conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Stock and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and the Preferred Shares
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts or that would be materially and
adversely inconsistent with the rights granted to the holders of the related
Preferred Stock will not be effective unless such amendment has been approved by
the existing holders of at least a majority of the Depositary Shares evidenced
by the Depositary Receipts then outstanding. No amendment shall impair the
right, subject to certain exceptions in the Deposit Agreement, of any holder of
Depositary Receipts to surrender any Depositary Receipt with instructions to
deliver to the holder the related Preferred Stock and all money and other
property, if any, represented thereby, except in order to comply with law. Every
holder of an outstanding Depositary Receipt at the time any such amendment
becomes effective shall be deemed, by continuing to hold such Depositary
Receipt, to consent and agree to such amendment and to be bound by the Deposit
Agreement as amended thereby.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Shares Depositary if (i) such
termination is necessary to preserve the Company's status as a REIT or (ii) at
least two-thirds of each series of Preferred Stock affected by such termination
consents to such termination, whereupon the Preferred Shares Depositary shall
deliver or make available to each holder of Depositary Receipts, upon surrender
of the Depositary Receipts held by such holder, such number of whole or
fractional shares of Preferred Stock as are represented by the Depositary Shares
evidenced by such Depositary Receipts together with any other property held by
the Preferred Shares Depositary with respect to such Depositary Receipt. The
Company has agreed that, if the Deposit Agreement is terminated to preserve the
Company's status as a REIT, the Company will use its best efforts to list the
shares of Preferred Stock issued upon surrender of the related Depositary Shares
on a national securities exchange. In addition, the Deposit Agreement will
automatically terminate if (a) all outstanding Depositary Shares shall have been
redeemed or converted, or (b) there shall have been a final distribution in
respect of the related Preferred Stock in connection with any liquidation,
dissolution or winding up of the Company and such distribution shall have been
distributed to the holders of Depositary Receipts evidencing the Depositary
Shares representing such Preferred Stock.
CHARGES OF PREFERRED SHARES DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Shares Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay certain other transfer and
other taxes and governmental charges as well as the fees and expenses of the
Preferred Shares Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
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RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Shares Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Shares Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Shares Depositary. A successor
Preferred Shares Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Shares Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Shares Depositary with respect to the related Preferred Stock.
Neither the Preferred Shares Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Shares Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence or willful misconduct, and the Company and the Preferred Shares
Depositary will not be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. The
Company and the Preferred Shares Depositary may rely on written advice of
counsel or accountants, or information provided by persons presenting shares of
Preferred Stock represented thereby for deposit, holders of Depositary Receipts
or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event the Preferred Shares Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, the Preferred Shares Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
DESCRIPTION OF WARRANTS OR RIGHTS
The Company may issue warrants or rights (collectively, the "Warrants") for
the purchase of any series of Debt Securities, Depositary Shares or shares of
any class of capital stock of the Company. Warrants may be issued independently
or together with any other Securities and may be attached to or separate from
such Securities. Each series of Warrants will be issued under a separate warrant
agreement or rights agreement (each, a "Warrant Agreement") to be entered into
between the Company and a warrant agent or rights agent ("Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection with the
Warrants of such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of Warrants.
The applicable Prospectus Supplement will describe the following terms,
where applicable, of the Warrants in respect of which this Prospectus is being
delivered: (i) the title of such Warrants; (ii) the aggregate number of such
Warrants; (iii) the price or prices at which such Warrants will be issued; (iv)
the designation, aggregate principal amount and terms of the Securities
purchasable upon exercise of such Warrants; (v) the designation and terms of the
Securities, if any, with which such Warrants are issued and the number of such
Warrants issued with each such Security; (vi) if applicable, the date on and
after which such Warrants and the related Securities will be separately
transferable; (vii) the price at which the Securities purchasable upon exercise
of such Warrants may be purchased; (viii) the date on which the right to
exercise such Warrants shall commence and the date on which such right shall
expire; (ix) the minimum or maximum amount of such Warrants which may be
exercised at any one time; (x) information with respect to book-entry
procedures, if any; (xi) a discussion of certain applicable federal income tax
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considerations; and (xii) any other terms of such Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Warrants.
DESCRIPTION OF UNITS OF SECURITIES
The Company may issue Units consisting of two or more other constituent
Securities, which Units may be issuable as, and for the period of time specified
therein may be transferable as, a single Security only, as distinguished from
the separate constituent Securities comprising such Units. Any such Units will
be offered pursuant to a Prospectus Supplement which will (i) identify and
designate the title of any series of Units; (ii) identify and describe the
separate constituent Securities comprising such Units; (iii) set forth the price
or prices at which such Units will be issued; (iv) describe, if applicable, the
date on and after which the constituent Securities comprising the Units will
become separately transferable; (v) provide information with respect to
book-entry procedures, if any; (vi) discuss certain applicable federal income
tax considerations relating to the Units; and (vii) describe any other terms of
the Units and their constituent Securities.
FEDERAL INCOME TAX CONSIDERATIONS
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. Investors
should be aware, however, that opinions of counsel are not binding upon the
Internal Revenue Service or any court. Moreover, such qualification and taxation
as a REIT in any tax year depends upon the Company's ability to meet in its
actual results for the tax year the various source of income, ownership of
assets, distribution and diversity of ownership requirements of the Code for
qualification as a REIT, which results will not be reviewed by Goodwin, Procter
& Hoar LLP. Accordingly, no assurance can be given that the actual results of
the Company for any particular tax year will in fact satisfy the requirements
for qualification. Likewise, although the Company believes that it has operated
in a manner which satisfies the REIT qualification requirements under the Code
for all years since and including 1987, no assurance can be given that the
Company's qualification as a REIT will not be challenged by the Internal Revenue
Service for taxable years still subject to audit.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and very general summary of certain provisions
which currently govern the federal income tax treatment of the Company and its
stockholders. For the particular provisions which govern the federal income tax
treatment of the Company and its stockholders, reference is made to Sections 856
through 860 of the Code and the income tax regulations promulgated thereunder.
The following summary is qualified in its entirety by such reference. This
discussion does not address any state tax considerations or issues that arise as
a result of an investor's special circumstances or special status under the
Code.
Under the Code, if certain requirements are met in a taxable year, including
the requirement that the REIT distribute to the stockholders at least 95% of its
real estate investment trust taxable income for the taxable year, a REIT will
generally not be subject to federal income tax with respect to income which it
distributes to its stockholders. However, the Company may be subject to federal
income tax under certain circumstances, including taxes at regular corporate
rates on any undistributed REIT taxable income, the alternative minimum tax on
its items of tax preference, and taxes imposed on income and gain generated by
certain extraordinary transactions. 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 the Company and its ability to make distributions to its
stockholders. For additional discussion of
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certain issues relating to the Company's qualification as a REIT, see "Risk
Factors--Consequences of Failure to Qualify as a REIT."
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. stockholders out of current or accumulated earnings and
profits (and not designated as a capital gain dividends) will be taken into
account by such U.S. stockholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. As
used herein, the term "U.S. stockholder" means a holder of Common Stock that for
U.S. federal income tax purposes is (i) a citizen or resident of the United
States, (ii) a corporation, partnership, or other entity created or organized in
or under the laws of the United States or any political subdivision thereof, or
(iii) an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source and (iv) does not have special status under
the Code, such as tax-exempt organization; provided, however, for taxable years
beginning after December 31, 1996 (or certain earlier periods if the trust so
elects) trusts are to be included as "U.S. stockholders" only if a court within
the United States is able to exercise primary supervision over the
administration of such trust and one or more United States fiduciaries have the
authority to control all substantial decisions of the trust. Distributions that
are designated as capital gain dividends will be taxed as long-term capital
gains (to the extent they do not exceed the Company's actual net capital gain
for the taxable year) without regard to the period for which the stockholder has
held his Common Stock. However, corporate stockholders may be required to treat
up to 20% of certain capital gain dividends as ordinary income. Distributions in
excess of current and accumulated earnings and profits will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's Common Stock, but rather will reduce the adjusted basis of such
stock. To the extent that distributions in excess of current and accumulated
earnings and profits exceed the adjusted basis of stockholder's Common Stock,
the distribution will be included in income as long-term capital gain (or
short-term capital gain if the Common Stock has been held for one year or less)
assuming the Common 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 specified date in any
such month shall be treated as both paid by the Company and received by the
stockholder on December 31 of such year, provided that the distribution is
actually paid by the Company during January of the following calendar year.
Investors are urged to consult their own tax advisors with respect to the
tax consequences arising under federal law and the laws of any state,
municipality or other taxing jurisdiction. 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.
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PLAN OF DISTRIBUTION
The Company may sell Securities through underwriters or dealers, directly to
one or more purchasers, or through agents.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale or at prices related to such prevailing
market prices, or at negotiated prices.
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities, for whom
they may act as agents, in the form of discounts, concessions, or commissions.
Underwriters may sell Securities 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. Underwriters, dealers, and agents that participate in the distribution
of Securities may be deemed to be underwriters, and any discounts or commissions
they receive from the Company, and any profit on the resale of Securities they
realize may be deemed to be underwriting discounts and commissions, under the
Securities Act. Any such underwriter or agent will be identified, and any such
compensation received from the Company will be described, in the applicable
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each series
of Securities will be a new issue with no established trading market, other than
the Common Stock which is listed on the NYSE. Any shares of Common Stock sold
pursuant to a Prospectus Supplement will be listed on the NYSE, subject to
official notice of issuance. The Company may elect to list any series of Debt
Securities or Preferred Stock on an exchange, but is not obligated to do so. It
is possible that one or more underwriters may make a market in a series of
Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of, or the trading market for, the Securities.
Under agreements into which the Company may enter, underwriters will be, and
dealers and agents who participate in the distribution of Securities may be,
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, or be customers of, the Company in the ordinary course of
business.
If so indicated in the applicable Prospectus Supplement, the Company may
itself, or may authorize underwriters or other persons acting as the Company's
agents to, solicit offers by certain institutions to purchase Securities from
the Company pursuant to contracts providing for payment and delivery on a future
date. Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Company. The obligations of any purchaser
under any such contract will be subject to the condition that the purchase of
the Securities shall not at the time of delivery be prohibited under the laws of
the jurisdiction to which such purchaser is subject. The underwriters and such
other agents will not have any responsibility in respect of the validity or
performance of such contracts.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers.
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LEGAL MATTERS
The validity of the Securities that are subject to this Prospectus will be
passed upon for the Company by Goodwin, Procter & Hoar LLP, Boston,
Massachusetts. In the case of an underwritten public offering, certain legal
matters will be passed upon for the Underwriters by legal counsel named in the
applicable Prospectus Supplement.
EXPERTS
The financial statements and related financial statement schedules
incorporated in this Prospectus by reference to the Company's Annual Report on
Form 10-K have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The BRE Portfolio's Combined Statement of Gross Income and Direct Operating
Expenses for each of the three years in the period ended December 31, 1996
incorporated by reference herein has been audited by Ernst & Young LLP,
independent auditors, as stated in their report thereon incorporated herein and
has been so incorporated by reference herein in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The combined statements of revenue and direct operating expenses of The
Downey Portfolio for each of the years in the three-year period ended December
31, 1996, have been incorporated by reference herein in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing. Such report contains a paragraph that states that the
combined statements of revenue and certain expenses were prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission as described in note 1. It is not intended to be a complete
presentation of The Downey Portfolio's combined revenue and expenses.
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BURNHAM PACIFIC
