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As filed with the Securities and Exchange Commission on February 26, 1999
REGISTRATION STATEMENT NO. 333-69957
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BURNHAM PACIFIC PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 33-0204162
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
610 WEST ASH STREET, SUITE 1600
SAN DIEGO, CALIFORNIA 92101
(619) 652-4700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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J. DAVID MARTIN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
DANIEL B. PLATT, CHIEF ADMINISTRATIVE OFFICER AND CHIEF FINANCIAL OFFICER
610 WEST ASH STREET, SUITE 1600
SAN DIEGO, CALIFORNIA 92101
(619) 652-4700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
WILLIAM B. KING, P.C.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
(617) 570-1000
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Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
-----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion. Dated February 26, 1999.
PROSPECTUS
BURNHAM PACIFIC PROPERTIES, INC.
4,800,000 SHARES OF SERIES 1997-A CONVERTIBLE PREFERRED STOCK,
7,804,878 SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF
AND 574,483 OTHER SHARES OF COMMON STOCK
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Selling stockholders identified in this prospectus are offering
2,800,000 shares of preferred stock to be sold in the offering. We are offering:
- an additional 2,000,000 shares of preferred stock, which we
may issue upon redemption of preferred units of limited
partnership interest of our operating partnership, Burnham
Pacific Operating Partnership, L.P.,
- 7,804,878 shares of common stock, which we may issue upon
conversion of the above referenced 4,800,000 shares of
preferred stock,
- an additional 574,483 shares of common stock, which we may
issue upon redemption of common units of limited partnership
interest of our operating partnership, and
- an indeterminate number of additional shares of common stock,
which we may issue as a result of the anti-dilution provisions
of the preferred stock.
We will not receive any proceeds from the sale of stock by the selling
stockholders or the issuance of the other securities offered by this prospectus.
Our common stock trades on the New York Stock Exchange under the symbol
"BPP." The common and preferred stock are subject to restrictions on ownership
and transfer designed to assist us in maintaining our status as a real estate
investment trust for federal income tax purposes. See "Description of
Securities--Common stock--Restrictions on transfer."
The selling stockholders and any agents or broker-dealers that
participate with them in the distribution of their shares of stock may be deemed
to be "underwriters" within the meaning of the Securities Act, and any
commissions received by them and any
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profit on the resale of their shares of stock may be deemed to be underwriting
commissions or discounts under the Securities Act of 1933, as amended.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR FACTORS YOU SHOULD CONSIDER
BEFORE DECIDING WHETHER TO REDEEM EITHER PREFERRED UNITS OR COMMON UNITS OF OUR
OPERATING PARTNERSHIP FOR SHARES OF PREFERRED STOCK OR COMMON STOCK OR WHETHER
TO BUY SHARES OF EITHER CLASS OF STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is February 26, 1999.
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PROSPECTUS SUMMARY
THIS SUMMARY ONLY HIGHLIGHTS THE MORE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN BY REFERENCE. AS THIS IS A
SUMMARY, IT MAY NOT CONTAIN ALL INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD
READ THIS ENTIRE PROSPECTUS CAREFULLY BEFORE DECIDING WHETHER TO PURCHASE SHARES
OR TO REDEEM YOUR COMMON OR PREFERRED UNITS.
SOME IMPORTANT TERMS
ALTHOUGH BURNHAM PACIFIC PROPERTIES, INC., BURNHAM PACIFIC OPERATING
PARTNERSHIP, L.P. AND THEIR SUBSIDIARIES AND AFFILIATES ARE SEPARATE LEGAL
ENTITIES, FOR EASE OF REFERENCE, THE TERMS "WE," "US," AND "OUR" REFER TO THE
BUSINESS AND PROPERTIES OF ALL OF THESE ENTITIES, UNLESS THE CONTEXT INDICATES
OTHERWISE. FOR EASE OF REFERENCE AND CLARITY, WE SOMETIMES REFER TO BURNHAM
PACIFIC PROPERTIES, INC. AND ITS PREDECESSOR, SUBSIDIARIES AND AFFILIATES AS
"BURNHAM" AND BURNHAM PACIFIC OPERATING PARTNERSHIP, L.P. AND ITS SUBSIDIARIES
AND AFFILIATES AS THE "OPERATING PARTNERSHIP."
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THE COMPANY
We are a real estate operating company that acquires, rehabilitates,
develops and manages retail properties in the western region of the United
States. Our properties are primarily neighborhood and community shopping centers
located in major metropolitan areas. We focus on shopping centers in areas with
a limited supply of vacant land and with established consumer shopping patterns,
characteristics that help limit competition. We own our properties and conduct
substantially all of our business through the operating partnership. Burnham is
the sole general partner of the operating partnership and owns a substantial
majority of the economic interests in the operating partnership.
SECURITIES THAT MAY BE OFFERED
This prospectus relates to the offer and sale from time to time of the
following securities:
- - up to 2,800,000 shares of preferred stock by the selling stockholders
identified in this prospectus;
- - up to an additional 2,000,000 shares of preferred stock which Burnham
may issue upon redemption of preferred units of the operating
partnership;
- - up to 7,804,878 shares of common stock which Burnham may issue upon
conversion of the preferred stock, based upon the current conversion
rate of approximately 1.626 shares of common stock for each share of
preferred stock;
- - up to an additional 574,483 shares of common stock which Burnham may
issue upon redemption of common units of the operating partnership; and
- - an indeterminate number of additional shares of common stock which
Burnham may issue as a result of provisions of the preferred stock
which entitle holders of preferred stock to additional equity in
Burnham if events occur that would otherwise dilute their ownership
interests.
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The preferred stock that we are registering for issuance by us may be
issued upon redemption of preferred units previously issued by the operating
partnership when it acquired certain properties on December 31, 1997. The
2,800,000 shares of preferred stock which we are registering for resale by the
selling stockholders were originally issued by Burnham as part of a related
financing on December 31, 1997.
The shares of common stock being registered for original issuance by
Burnham may be issued in connection with:
- - the conversion of shares of preferred stock, whether currently
outstanding or issuable upon redemption of preferred units, and
- - the redemption of common units issued by the operating partnership as a
part of the purchase price for a shopping center also acquired on
December 31, 1997.
Pursuant to the agreement of limited partnership of the operating
partnership, holders of common units may exchange their common units for cash
equal to the value of an equivalent number of shares of common stock, subject to
certain adjustments to prevent dilution. Holders of preferred units may exchange
their preferred units with the operating partnership for cash equal to the
greater of $25 per share of an equivalent number of shares of preferred stock or
the value of the number of shares of common stock for which the shares of
preferred stock are exchangeable. In lieu of delivering cash, however, Burnham
may, at its option, choose to issue shares of common stock for the common units
or preferred stock for the preferred units. The shares of common stock and
preferred stock will be exchanged for common units or preferred units, as
appropriate, on a one-for-one basis.
We are registering the securities covered by this prospectus to satisfy
our obligations under registration rights agreements with the selling
stockholders and holders of preferred and common units.
Neither Burnham nor the operating partnership will receive any cash
proceeds from the issuance of any common stock or preferred stock offered under
this prospectus. With each issuance of common stock or preferred stock as a
result of a redemption of partnership units, however, Burnham's economic
interest in the operating partnership will increase. Burnham also will not
receive any cash proceeds from the sale of the stock by the selling
stockholders.
RISK FACTORS
Investing in shares of our common stock or preferred stock involves
various risks. If you currently hold common or preferred units you may already
be subject to some of the business risks to which we
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are subject. However, you should consider additional risks involved in redeeming
partnership units or in owning stock of Burnham rather than partnership units of
the operating partnership. In considering whether to redeem either preferred
units or common units for shares of preferred stock or common stock or whether
to purchase shares of either class of stock, you should carefully consider the
matters discussed under "Risk Factors" beginning on page 6 of this prospectus.
TAX STATUS OF BURNHAM
Burnham has elected to qualify as a real estate investment trust (a
"REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, in
each year since 1987. As long as we qualify for taxation as a REIT, we generally
will not be subject to federal income tax on the portion of our ordinary income
and capital gains that is currently distributed to our stockholders. Even if we
qualify for taxation as a REIT, we may be required to pay state and local taxes
on our income and property and federal income and excise taxes on our
undistributed income. See "Risk Factors--We could incur unanticipated expenses
if we fail to qualify as a REIT" and "Federal Income Tax Considerations" for a
more detailed explanation.
Our offices are located at 610 West Ash Street, Suite 1600, San Diego,
California 92101. Our telephone number is (619) 652-4700.
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RISK FACTORS
BEFORE YOU PRESENT YOUR PARTNERSHIP UNITS FOR REDEMPTION, WHICH MAY
RESULT IN YOUR RECEIPT OF SHARES OF COMMON STOCK OR PREFERRED STOCK, OR BEFORE
YOU PURCHASE COMMON STOCK OR PREFERRED STOCK FROM A SELLING STOCKHOLDER, YOU
SHOULD BE AWARE THAT THERE ARE RISKS IN MAKING SUCH AN INVESTMENT. WE HAVE
DESCRIBED THE MATERIAL RISK FACTORS WHICH YOU SHOULD CONSIDER CAREFULLY,
TOGETHER WITH ALL OF THE INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS, BEFORE YOU DECIDE TO PRESENT YOUR PARTNERSHIP UNITS FOR
REDEMPTION OR BEFORE YOU PURCHASE PREFERRED STOCK. THIS SECTION INCLUDES OR
REFERS TO CERTAIN FORWARD-LOOKING STATEMENTS. WE URGE YOU TO READ THE
EXPLANATION OF THE QUALIFICATIONS AND LIMITATIONS ON SUCH FORWARD-LOOKING
STATEMENTS IMMEDIATELY BELOW.
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RISK FACTORS RELATING TO THE REDEMPTION OF PARTNERSHIP UNITS AND THE PURCHASE OF
SHARES
PROVISIONS OF OUR ORGANIZATIONAL DOCUMENTS MAY DISCOURAGE ACQUISITION PROPOSALS.
CHARTER AND BYLAWS. Certain provisions contained in our charter and
bylaws may discourage third parties from making proposals to acquire us, even if
some of our stockholders consider the proposal to be in their best interest.
These provisions include the following:
- - Our bylaws provide that a special meeting of stockholders may be called
by stockholders only when called by stockholders who hold shares
representing a majority of votes entitled to be cast at the meeting.
This provision could make it difficult for a stockholder to call a
meeting for the purpose of approving a change of control without the
support of the board of directors.
- - Our charter authorizes the board of directors to reclassify Burnham's
authorized capital stock without approval of the stockholders
generally. This allows them to increase the number of shares of
preferred stock presently authorized by a substantial amount and to
establish the preferences and rights of any class or series issued. As
a result, the board of directors could issue a class or series of
preferred stock that would discourage or delay a tender offer or change
in control.
- - Our charter generally limits any holder from acquiring more than 9.8%
of the value of our capital stock or number of shares of our
outstanding common stock. This may limit the opportunity for
stockholders to receive a premium for their shares of common stock that
might otherwise exist if an investor were attempting to assemble a
block of shares in excess of 9.8% of the outstanding shares of common
stock or otherwise effect a change in control.
- - With limited exception, our Articles Supplementary prohibit us from
taking certain actions, including the merger or consolidation of
Burnham or the operating partnership, as a result of which the
valuation of the common stock is not in excess of $15.375.
OPERATING PARTNERSHIP AGREEMENT. We conduct most of our business through
our operating partnership. We are the sole general partner of the operating
partnership and, except in limited circumstances, have exclusive management
power over the business and affairs of the operating partnership. Furthermore,
we may not be removed as general partner of the operating partnership, with or
without cause, by the holders of limited partnership units. As a result of this
structure, a third party may be deterred from making an acquisition proposal
that it might otherwise make.
WE ARE SUBJECT TO A VARIETY OF REAL ESTATE INDUSTRY RISKS.
REAL ESTATE OWNERSHIP RISKS. If revenue from our properties is
insufficient to meet our operating expenses, our cash flow and ability to pay
distributions to our stockholders will be impaired. The following factors, among
others, may diminish the value of our real estate and impair our ability to
generate revenues:
- - changes in the general economic climate;
- - local conditions, including an oversupply of space or a reduction in
demand for real estate in an area;
- - the quality and philosophy of our management;
- - competition from other available space;
- - the ability of the owner to provide adequate maintenance;
- - insurance and variable operating costs;
- - government regulations;
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- - changes in interest rate levels;
- - the availability of financing; and
- - potential liability due to changes in environmental and other laws.
ILLIQUIDITY OF REAL ESTATE. Real estate investments are relatively
illiquid and therefore we may not be able to sell one or more of our properties
in order to react promptly in response to changes in economic or other
conditions. In addition, the Internal Revenue Code limits a REIT's ability to
sell properties held for fewer than four years. This may affect our ability to
sell properties without affecting returns to stockholders.
WE DEPEND SUBSTANTIALLY ON LOCAL ECONOMIC CONDITIONS.
Our properties are all located in the western region of the United
States. A majority of them are in the State of California, primarily in the San
Diego County, greater Los Angeles and San Francisco Bay areas. We are subject to
the strengths or weaknesses of the western region economy and the aforementioned
local economies in many ways as a result of this concentration of properties.
The performance of the economy in each locality affects occupancy, market rental
rates and expenses and could lower our revenues and the underlying values of our
properties. Moreover, the financial conditions of major local employers may have
an impact on our revenues and the value of some of our properties. If there is a
downturn in the economy of the western region in general or of any of these
local economies, our results of operations could suffer and we could be unable
to make distributions to our stockholders. In that regard, we have properties in
areas that have been in the past and could be in the future harmed by reductions
in defense spending, or affected by conditions in the high technology industries
and natural disasters, including earthquakes and floods. See "-- Our insurance
coverage is limited."
OUR INVESTMENTS ARE CONCENTRATED IN THE RETAIL SEGMENT OF THE REAL ESTATE
INDUSTRY.
Our current strategy is to acquire interests only in retail shopping
centers and other properties which are related to retail shopping centers. If
there is a downturn in the retail industry, we will be in a worse position to
make distributions to our stockholders than if we diversified our portfolio by
investing in other types of properties.
We are subject to risks associated with retail tenants, including the
volatile nature of the retail business and changes in consumer preferences.
These risks may result in tenant failures or changes in physical requirements
which we may have to accommodate to retain or attract tenants. Retail chains may
overexpand in general market area, thereby creating competition with their own
stores that may be in one or more of our properties. Because many anchor tenants
have negotiating power to demand the exclusive or sole right to sell certain
types of products in a shopping center, they could impair our ability to lease
space to retailers of potentially competing products. These and similar factors
may affect the revenues, and resulting value, of our properties.
WE HAVE COMPETITORS.
Numerous retail properties compete with our properties in attracting
tenants to lease space. Some of these properties are newer and better located or
designed and may offer lower expenses or be better capitalized than our
properties. We may find it difficult to lease space at our properties or at
newly developed or acquired properties and at rents currently charged
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as a result of competitive commercial properties in a particular area.
Additionally, we compete for investment opportunities with entities which have
substantially greater financial resources than ours. These entities may be able
to accept more risk than we can prudently manage. Competition may generally
reduce the number of suitable investment opportunities offered to us and
increase the bargaining power of property owners seeking to sell.
OUR FINANCIAL CONDITION DEPENDS IN PART ON THE FINANCIAL CONDITION OF OUR
TENANTS.
At any time, any of our tenants may seek the protection of the
bankruptcy laws. This could result in the rejection and termination of that
tenant's lease and thereby cause us to lose rental income. In addition, a tenant
from time to time may experience a downturn in its business which may weaken its
financial condition and result in its failure to make rental payments when due.
A tenant's failure to affirm their lease following bankruptcy or a weakening of
their financial condition could impair our results of operations and ability to
make distributions to our stockholders.
THERE ARE RISKS ASSOCIATED WITH THE ACQUISITION AND DEVELOPMENT OF REAL ESTATE.
We intend to acquire existing retail commercial properties to the extent
that we can do so on acceptable terms. We typically acquire properties that meet
our investment criteria. Acquisitions of retail commercial properties entail
investment risks associated with most real estate investments, including the
risk that investments will not perform as expected or that estimated costs of
improving an acquired property to bring it up to standards established for the
intended market position may prove inaccurate.
We pursue commercial property development projects. Generally,
developing properties carries more risk than acquiring existing properties. For
example, development projects generally require governmental and other approvals
which we may not be able to obtain. Furthermore, approvals frequently require
the improvement of public infrastructure, or other activities to mitigate the
effects of the proposed development, which may cost more than anticipated. Our
development activities will entail a variety of other risks, including:
- - that we will devote financial and management resources to projects
which may not come to fruition;
- - that we will not complete a development project as scheduled;
- - that we will incur higher construction costs than anticipated;
- - that occupancy rates and rents at a completed project will be less than
anticipated; and
- - that expenses at a completed development will be higher than
anticipated.
These risks may harm our results of operations and ability to make distributions
to our stockholders.
We may not be able to secure financing to acquire or develop properties,
and if we do, the terms may not be favorable. Integrating the aforementioned
acquisition and development properties into our current systems and procedures
presents a challenge to our management. Failure to do so could cause us
financial harm and impair our ability to make distributions to our stockholders.
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WE DEPEND ON KEY PERSONNEL.
We depend on the efforts of our executive officers, J. David Martin, our
President and Chief Executive Officer, Joseph Wm. Byrne, our Executive Vice
President and Chief Operating Officer, and Daniel B. Platt, our Executive Vice
President, Chief Financial Officer and Chief Administrative Officer. Loss of
their services could harm our operations. We have an employment agreement with
Mr. Martin. That agreement could be terminated by either party at will and, in
the event that Burnham sought to enforce any of its terms in the future, a court
may determine that it is unenforceable in whole or in part.
OUR DEVELOPMENT OF PROPERTIES ACQUIRED FROM J.
DAVID MARTIN, OUR CHIEF EXECUTIVE OFFICER,
COULD CREATE CONFLICTS OF INTEREST.
We are currently developing one property and are in the process of
leasing two prior development properties, which we acquired from entities
directly or indirectly controlled by Mr. Martin concurrently with his
appointment as President and Chief Executive Officer in 1995. Mr. Martin
continues to own an equity interest in each of the partnerships which own those
properties. Burnham is the general partner of those partnerships. Mr. Martin may
receive additional equity in each partnership when each of the development
projects is completed and begins to generate rental income. The amount of
additional equity which Mr. Martin may receive will depend upon factors which we
cannot predict, including the actual cost of each project. Since Mr. Martin
personally has an interest in these development projects, there could be a
conflict between his duty to act on behalf of Burnham and his personal interest.
We have adopted procedures such as Mr. Martin's absence from discussions of our
board of directors which relate to the relevant properties. However, conflicts
of interest could arise despite our efforts to avoid them.
WE COULD INCUR UNANTICIPATED EXPENSES IF WE FAIL TO QUALIFY AS A REIT.
Burnham has elected to qualify as a real estate investment trust under
the Internal Revenue Code. We believe that since 1987 we have satisfied the REIT
qualification requirements. However, the IRS could challenge our REIT
qualification for taxable years still subject to audit. Moreover, we may fail to
qualify as a REIT in future years. Qualification as a REIT, however, involves
the application of highly technical and complex Internal Revenue Code provisions
for which there are only limited judicial or administrative interpretations. For
example, in order to qualify as a REIT, we must derive at least 95% of our gross
income in any year from qualifying sources and we must distribute annually to
stockholders 95% of our REIT taxable income, excluding net capital gains. In
addition, REIT qualification involves the determination of factual matters and
circumstances not entirely within our control.
If in any taxable year we fail to qualify as a REIT, we would not be
allowed to deduct distributions to stockholders in computing our taxable income.
Furthermore, we would be subject to federal income tax on our taxable income at
regular corporate rates. Unless entitled to statutory relief, we would also be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. As a result, the funds available for
distribution to our stockholders would be reduced for each of the years
involved. Although we currently intend to
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operate as a qualified REIT, future economic, market, legal, tax or other
considerations may impair our REIT qualification or may cause our board of
directors to revoke the REIT election. See "Federal Income Tax
Considerations."
WE COULD INCUR COSTS FROM ENVIRONMENTAL PROBLEMS, EVEN IF WE DID NOT CAUSE OR
CONTRIBUTE TO THEM.
Under 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 from the property. These
laws often impose liability regardless of whether the owner or operator knew
of, or was responsible for, the presence of the hazardous or toxic
substances. The presence of those substances, or the failure to properly
remediate them, may impair the owner's or operator's ability to sell or rent
the property or to borrow using the property as collateral. A person who
arranges for the disposal or treatment of hazardous or toxic substances may
also be liable for the costs of removing or remediating the substances at a
disposal or treatment facility, whether or not that person owns or operates
the facility. Since we own, operate, manage and develop real estate, for
liability purposes we may be considered an owner or operator of those
properties or as having arranged for the disposal or treatment of hazardous
or toxic substances. As a result, we could have to pay removal or remediation
costs. Furthermore, environmental laws impose liability for release of
asbestos-containing materials into the air. If we were ever held responsible
for releasing asbestos-containing materials, third parties could seek
recovery from us for personal injuries. Thus, we might have to pay other
costs, including governmental fines and costs related to personal injuries
and property damage, resulting from the environmental condition of our
properties, regardless of whether we actually contributed to those conditions.
WE ARE SUBJECT TO RISKS FROM DEBT FINANCED ACQUISITIONS.
Like many owners of real estate, we borrow money to pay for the
acquisition, development and operation of properties and for other general
corporate purposes. Our charter and bylaws do not limit the amount of
indebtedness that we may incur. We currently have a line of credit facility that
has both secured and unsecured portions and another line of credit facility
which is unsecured. Although provisions contained in the credit facilities limit
the amount of additional indebtedness we may incur, we may incur substantial
indebtedness beyond our current level. Some of our debt is cross-collateralized
and cross-defaulted.
We may borrow up to $205 million under one credit facility of which
$135 million is to be secured by individual properties and $70 million is
unsecured. This credit facility bears interest at rates of LIBOR (London
Inter-Bank Offer Rate) plus 1.4% for secured borrowings and LIBOR plus 1.5%
for unsecured borrowings. We may borrow up to $5 million under our other
unsecured revolving credit facility. This credit facility bears interest at
the rate of either LIBOR plus 2.0% or the prime lending rate. At December 31,
1998, approximately 35.3% of our total outstanding debt was variable rate
debt and substantially all of it reprices on a monthly basis.
Our credit facilities require that we comply with a number of financial
covenants. In addition, we have pledged some of our properties as collateral to
secure loans made by various
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lenders, including borrowings made under one of our credit facilities. We
may not be able to meet our debt service obligations, including as a result
of higher interest rates affecting our variable rate debt, or to comply with
the terms of our debt instruments. If this occurred, our lenders might be
entitled to demand immediate repayment of the related indebtedness and to
commence foreclosure proceedings against the property securing the
indebtedness. If we default on a cross-collateralized loan, the holder of the
debt may be able to foreclose not only on the properties which secure that
loan but on other properties as well. A default by Burnham on a
cross-defaulted loan will be automatically deemed a default under other
loans. All of this could cause us to lose some or all of our assets and limit
our ability to generate revenues and pay distributions to our stockholders.
Furthermore, a downturn in the economy could make it difficult for us to
borrow money on favorable terms. If this occurred, we might need to sell some of
our assets at unfavorable prices to enable us to repay some of our loans. We
would be subject to the risks normally associated with debt financing,
including:
- - the risk that our cash flow will be
insufficient to meet required payments of
principal and interest;
- - the risk that variable interest rates on
indebtedness will increase; and
- - the risk that existing indebtedness cannot be refinanced or that the
terms of refinancing will be less favorable than the terms of existing
indebtedness.
Other than indebtedness under our credit facilities, our mortgage indebtedness
is generally nonrecourse to us. However, even with respect to nonrecourse
mortgage indebtedness, we could be obligated to pay our lenders for deficiencies
resulting, among other things, from fraud, misapplication of funds and
environmental liabilities.
Both of the credit facilities described above are scheduled to mature in
November 1999. We may be unable to repay our debt under these credit facilities
or refinance it on favorable terms. If this occurs, we may need to liquidate one
or more investments in properties at terms which may not permit us to realize
the maximum return on our investment.
WE OWN PROPERTIES JOINTLY WITH OTHER ENTITIES AND
ARE COMMITTED TO EXPAND OUR JOINT VENTURE
ACTIVITIES.
We may from time to time acquire interests in joint ventures formed
to own or develop real property or interests in real property, including the
CalPERS and the CUIP joint ventures described below. We may acquire minority
interests in joint ventures and also may acquire interests as a passive
investor without rights to actively participate in management of the joint
ventures. Investments in joint ventures involve additional risks, including
the possibility:
- - that the other participants may become bankrupt or have economic or
other business interests or goals which are inconsistent with our
interests;
- - that we will be unable to direct the
management and policies of the joint
ventures; and
- - that other participants may take action contrary to our instructions or
requests or our policies and objectives or which could jeopardize our
ability to maintain qualification as a REIT.
These investments may also have the potential risk of impasse on
decisions, such as a sale, because no single entity has full control over the
joint ventures. We will, however, seek to maintain sufficient control of these
joint ventures to achieve our business objectives and to preserve our status as
a REIT, although we may not be successful in doing so. If we are not successful,
our business and operations will be impaired and we may not be able to make
distributions to our
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stockholders. There is no limitation under our organizational documents as to
the amount of available funds that we may invest in joint ventures.
CALPERS. On August 31, 1998 we entered into an agreement with the State
of California Public Employees' Retirement System ("CalPERS") pursuant to which
CalPERS has an 80% interest and the operating partnership a 20% interest in a
joint venture. The purpose of the joint venture is to serve as the vehicle
through which we and CalPERS expect to invest in neighborhood, community,
promotional and specialty retail centers in the western region of the United
States. Although the operating partnership is the manager of the joint venture,
CalPERS is entitled to certain rights which may be inconsistent with our
interests. CalPERS is entitled to a priority return on its investment in the
joint venture before any return is paid to the operating partnership. The
priority return is equal to a 5.00% annual rate of return (adjusted for
inflation) plus a premium which could raise the priority return substantially.
Also, subject to certain limitations, CalPERS may elect to convert its joint
venture interest in one or more properties held by the joint venture into shares
of our common stock (up to an aggregate of 9.8% of the number of outstanding
shares of our common stock). In addition, under the joint venture agreement, the
operating partnership is obligated to:
- - observe a number of policies established
by CalPERS with respect to its investments
generally;
- - consult regularly with CalPERS relative to
its policies for real estate investments;
- - establish an annual business plan for the
joint venture that is subject to CalPERS'
approval;
- - advise CalPERS concerning major
developments; and
- - obtain CalPERS' approval before taking specified major activities with
respect to the properties owned by the joint venture.
As of October 1, 1998, CalPERS made an initial contribution to this
new joint venture of five retail properties in Colorado, Texas and Oregon,
valued at approximately $80,000,000. CalPERS had previously been the sole
owner under arrangements with previous advisors. In addition, during the
fourth quarter of 1998, the joint venture purchased interests in five
additional retail shopping centers for an aggregate purchase price of
approximately $38,261,000. We intend to contribute properties owned directly
by our operating partnership as our initial contribution. The joint venture
agreement contemplates an aggregate $400 million investment by CalPERS and
$100 million investment by us through the period ending December 31, 1999,
and provides for up to $165 million of leverage through mortgage or line of
credit borrowings by the joint venture. Subject to certain qualifications, in
making future acquisitions, we are committed to offer qualifying retail
property investment opportunities to the joint venture until the parties'
respective investment obligations are satisfied, before making such
acquisitions solely for our own direct account. We can give no assurance that
the investment goals of the joint venture will be satisfied or that CalPERS
and we may not agree to expand such goals or to vary our respective 80/20%
participation in the joint venture.
CUIP. In addition, we have agreements with an institutional investor,
California Urban Investment Partners ("CUIP"), relating to our joint ownership
of two shopping center properties, Margarita Plaza and Ladera Center, each
acquired in 1996. Each property is owned by a separate limited liability
company, of which both CUIP and the operating partnership are managing members.
We own a 25% interest and CUIP owns a 75% interest in each joint venture. The
principal investor in CUIP is CalPERS.
"BANKRUPTCY REMOTE ENTITIES" MAY LIMIT OUR ABILITY TO AVAIL OURSELVES OF THE
PROTECTION OF BANKRUPTCY AND INSOLVENCY LAWS.
A significant portion of Burnham's properties are held in subsidiaries that are
"bankruptcy remote entities." This means that these subsidiaries have governance
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provisions that prohibit or restrict Burnham's ability to cause them to file
proceedings under bankruptcy and insolvency laws. In the event of a default by a
bankruptcy remote subsidiary of the subsidiary's obligations to its creditors,
Burnham may not be able to use the protection of bankruptcy or insolvency laws
to keep creditors from realizing on collateral or collecting the obligations
owed by the subsidiary to the creditors.
OUR INSURANCE COVERAGE IS LIMITED.
We have comprehensive general liability coverage and umbrella liability
coverage on all of our properties. We believe that our properties are adequately
insured against liability claims and the cost of defending those claims. Our
coverage is subject to deductibles and subject to the limitations described
below on insurance for losses caused by earthquake or flood. Similarly, we
believe that our properties are adequately insured on a replacement cost basis
(subject to deductibles) against the risk of direct physical damage for costs
incurred to repair or rebuild each property, including loss of rental income
during the reconstruction period. Certain types of extraordinary losses,
however, either are not insurable or are not economically insurable. Should any
uninsured loss occur, we could lose our investment in, and anticipated revenues
from, a property. An uninsured loss could harm our business and operations and
our ability to make distributions to our stockholders. Currently we also insure
some of our properties for loss caused by earthquake in the aggregate amount of
$50 million (subject to deductibles) and six of our properties for loss caused
by flood. Because of the high cost of this type of insurance coverage and the
wide fluctuations in price and availability, we have determined that the risk of
loss due to earthquake and flood does not justify the cost to increase this
coverage any further under current market conditions. However, we could suffer
material harm if an earthquake, flood or other natural disaster occurs.
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YEAR 2000 ISSUES MAY RESULT IN A DISRUPTION OF BURNHAM'S OPERATIONS AND THE
ABILITY OF BURNHAM'S TENANTS AND SUPPLIERS TO MEET THEIR OBLIGATIONS.
We continue to identify our Year 2000 issues. Currently, we are
approximately halfway through our evaluation process. Our approach to becoming
Year 2000 ready includes a standard set of methods and tools, including taking
inventory, renovating if necessary, and testing. We do not believe that the
costs associated with becoming Year 2000 ready will be material. The
manufacturer of the accounting software that we use has indicated that its
software is materially Year 2000 ready and a version of the software which is
fully Year 2000 ready will be available during the first quarter of 1999.
Depending on the timing of the availability of this updated software, we plan to
install it in the first or the second quarter of 1999. We believe that the
hardware used to run our software is Year 2000 ready.
We are currently completing an inventory of the Year 2000 readiness
status of the computer hardware and software used to run the property operating
systems such as security, energy, elevator and safety systems at our properties.
Once this inventory is complete, we will test the time-sensitive systems that we
have been informed are Year 2000 ready. We will reprogram or replace the systems
found not to be Year 2000 ready.
Our ability to complete the Year 2000 modifications outlined above prior
to any anticipated impact on our operating systems is based on numerous
assumptions of future events and is dependent upon numerous factors, including
the ability of third party software and hardware manufacturers to make necessary
modifications to current versions of their products, the availability of
resources to install and test the modified systems and other factors.
Accordingly, these modifications may not be successful.
Even if all of our own systems are Year 2000 ready, our business could
still be disrupted if our tenants, business partners, suppliers and other
parties are not ready. We are currently surveying material vendors and tenants
regarding the Year 2000 readiness status of their computer hardware and
software. We will review the results of this survey, assess the impact of the
results on our operations and take whatever action we deem necessary. Testing
may be required for several, but not all, third parties. Test strategies and
schedules will be unique to each situation once we understand the respective
requirements and readiness levels.
Our business could be harmed if other entities, including the
governmental units and utility companies that provide services to our properties
and their respective tenants and customers fail to be Year 2000 ready. In
addition to our significant tenants, we are seeking to ascertain the Year 2000
readiness:
- - of each utility company servicing each
property; and
- - each city, town, county or other governmental unit providing police,
fire, traffic control and other governmental services relevant to the
efficient operation of the property.
After we survey the Year 2000 readiness of other parties, we intend to
determine if we will need any contingency plans to deal with the non-readiness
of others. At the present time, we do not believe that Year 2000
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non-readiness of tenants is likely to have any significant effect on us and
our operations. However, if a major tenant of any of our properties is not
Year 2000 ready, its business could suffer. This could result in:
- - that tenant's inability to pay rent; and
- - decrease in customer traffic and business
of other tenants at that property.
We do not anticipate that we will need contingency plans to deal with tenant
non-readiness. However, we recognize that we may need to develop contingency
plans to provide for the continued operation of one or more individual
properties whose suppliers of services necessary for the efficient operation of
the property may not be fully Year 2000 ready by January 1, 2000. We believe
that the most reasonable worst-case year 2000 scenario that may affect our
business would be a prolonged failure of a supplier of these services,
particularly utility services that may harm operations of one or several of our
tenants.
REDEEMING PARTNERSHIP UNITS WILL CHANGE YOUR INVESTMENT.
If you hold partnership units, you may redeem some or all of them for
cash. However, we may elect to give you common stock in exchange for your common
units or preferred stock in exchange for your preferred units instead. If you
receive cash, you will no longer have any interest in the operating partnership
except to the extent that you still retain some partnership units. As a result,
you will not benefit from any subsequent increases in our share price and you
will not receive any future distributions from us unless you retain or acquire
partnership units or additional shares of capital stock in the future. If you
receive capital stock, you will become a stockholder of Burnham Pacific
Properties, Inc. rather than a holder of partnership units in Burnham Pacific
Operating Partnership, L.P. and as such will have different economic and
corporate governance rights from those you had as a holder of partnership units.
REDEEMING PARTNERSHIP UNITS WILL CREATE TAX LIABILITIES FOR YOU.
If we acquire your partnership units in exchange for cash or stock,
the redemption of your partnership units will be treated as a sale for tax
purposes. The redemption will be fully taxable to you, and you will be taxed
on an amount equal to the sum of (a) the cash you receive or the value of the
capital stock you receive plus (b) the amount of any liabilities of the
operating partnership allocable to the exchanged partnership units at the
time of the redemption or exchange less (c) your adjusted basis in your
partnership units. The amount of gain recognized or even the tax liability
resulting from that gain could exceed the amount of cash and the value of
stock you would receive in the redemption. In addition, you may not be able
to sell your stock in order to raise cash to pay your tax liabilities
associated with the redemption of partnership units as a result of
fluctuations in the market price of our common stock or the value of our
preferred stock or as a result of there being no organized public market for
preferred stock.
If we do not acquire the partnership units you tender for redemption in
exchange for our capital stock, and the operating partnership redeems the
partnership units for cash, the tax consequences may differ. See "Description of
units and redemption of units of operating partnership -- Tax consequences of
redemption."
REDEEMING PARTNERSHIP UNITS MAY CAUSE YOUR
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ORIGINAL ACQUISITION OF PARTNERSHIP UNITS TO BE SUBJECT TO TAX.
The original transaction in which you exchanged property for partnership
units may be treated as a taxable sale under the "disguised sale" rules of the
Internal Revenue Code if you redeem your partnership units. Although there are
several exceptions, the tax law generally provides that a partner's contribution
of property to a partnership and a simultaneous or subsequent transfer of money
or other consideration from the partnership to the partner will be presumed to
be a taxable sale if the two transactions happen within a two-year time period.
The presumption may be overcome if the facts and circumstances clearly establish
that the transfers are not a sale. On the other hand, if two years have passed
between the original contribution of property and the transfer of money or other
consideration, the transactions will not be presumed to be a taxable sale unless
the facts and circumstances clearly establish that they should be. You should
consult your own tax advisor regarding your personal situation prior to
tendering partnership units for redemption, and regarding any reporting
requirements.
THERE IS NO PUBLIC MARKET FOR OUR PREFERRED
STOCK.
At the present time, there is no trading market for the preferred stock,
and the limited number of shares of preferred stock, even if all of them were
issued, would likely inhibit the development of an organized public market. A
stockholder's ability to sell preferred stock will depend upon a variety of
factors including the amount available for sale, the terms under which they are
available to purchasers and the objectives of potential investors in Burnham.
THE PRICE OF OUR CAPITAL STOCK IS SUBJECT TO
GENERAL MARKET FORCES.
A variety of factors may influence the price of our capital stock. The
price of our capital stock, including shares of our common stock which are
listed on the New York Stock Exchange, could drop based on such factors as:
- - an increase in market interest rates;
- - public perception that companies dependent on retail tenants are doing
poorly in comparison to other companies owning other types of properties
and catering to different types of tenants;
- - the announcement of new acquisitions or
development projects by us or our
competitors;
- - quarterly variations in our operating results
or the operating results of our competitors;
and
- - changes in earnings (losses) or other estimates by analysts or reported
results that vary from those estimates.
In addition, the stock market may experience significant price
fluctuations which, although unrelated to our performance, could cause the
market value of our capital stock to drop. If the market value of our capital
stock experiences periods of volatility, securities litigation could be
initiated against us. This litigation could cost us substantial financial and
management resources and could harm our business and operations and our ability
to make distributions to our stockholders.
BURNHAM'S ABILITY TO PAY DIVIDENDS DEPENDS UPON DISTRIBUTIONS RECEIVED FROM THE
OPERATING PARTNERSHIP.
The operating partnership owns our properties and conducts our business.
Accordingly,
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we pay all of our dividends from distributions we receive from the
operating partnership. We receive distributions as both general partner and a
limited partner owning preferred units and common units of the operating
partnership. Although Burnham, as sole general partner of the operating
partnership, intends to cause the operating partnership to make distributions in
amounts sufficient to enable it to pay dividends to the holders of its capital
stock, if the operating partnership fails to make distributions at any time
Burnham's ability to pay dividends would be impaired.
THE REGISTRATION AND OTHER RIGHTS OF THE CAPITAL STOCK MAY LOWER THE MARKET
PRICE OF THE SHARES.
We have given holders of preferred stock, preferred units and common
units registration rights which include "demand" and "piggyback" registration
rights with respect to the following shares of capital stock that are the
subject of this prospectus:
- - 2,800,000 shares of preferred stock which
the selling stockholders may offer for sale;
- - up to 2,000,000 shares of preferred stock
which we may issue upon redemption of
preferred units;
- - up to 7,804,878 shares of common stock
which we may issue upon conversion of
the preferred stock; and
- - up to 574,472 shares of common stock
which we may issue upon redemption of
currently outstanding common units that
were issued in connection with an
acquisition, plus an additional
undetermined number of additional
common units that may be issuable
pursuant to an "earn-out" provision of
another acquisition but which are not being
registered for sale under this prospectus.
The operating partnership has also invested in other real estate
partnerships and limited liability companies and has issued common units to
contributors of other properties. The common units issued in exchange for those
other properties are not being registered for sale under this prospectus.
Partners in those other limited partnerships and limited liability companies and
the holders of those common units have the right to have their interests in the
partnerships and limited liability companies redeemed for cash or, at our
option, for shares of our common stock. These partners also have certain
"demand" and "piggyback" registration rights with respect to the shares of our
common stock that may be issued in exchange for their limited partnership,
limited liability company or operating partnership interests. All of the
registration rights discussed above could lower the market price for our capital
stock.
In addition, holders of preferred stock have rights of first offer to
purchase shares of our capital stock which we may offer in the future. These
rights of first offer could lower the market price for our capital stock.
ANTI-DILUTION PROVISIONS OF THE PREFERRED STOCK MAY LEAD TO SUBSTANTIAL
DILUTION OF THE HOLDERS OF COMMON STOCK.
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Each share of preferred stock is convertible, at the option of the
holder, into a number of shares of common stock determined by applying a
formula set forth in Burnham's Articles Supplementary. This formula may be
adjusted in order to protect holders of preferred stock against dilution of
their ownership interest in Burnham. If Burnham sells shares of common stock
or securities convertible into common stock below certain purchase or
exercise prices (as applicable) set forth in the Articles Supplementary, the
formula will be adjusted in order to entitle holders of preferred stock to
more common stock upon conversion of their preferred stock than they would
have otherwise received. Holders of preferred stock may exercise their
conversion rights with respect to 25% of the shares held of record by each
stockholder on and after each of December 31, 1998, March 31, 1999, June 30,
1999 and September 30, 1999 (or earlier in certain circumstances defined by
the Articles Supplementary). As of December 31, 1998, each share of preferred
stock was convertible into approximately 1.626 shares of common stock. It is
likely that any adjustment of the conversion formula entitling holders of
preferred stock to more common stock than they otherwise would have received
would have a significant dilutive effect on the holders of common stock both
as a result of the initial dilutive transaction as well as the impact of the
antidilution provisions of the preferred stock triggered by the transaction.
See "Description of Securities--Preferred stock--Conversion right." The
proportionate ownership, voting power and earnings per share of the holders
of common stock could be substantially diluted if we engage in a dilutive
transaction and consequently issue a substantial number of additional shares
of common stock and/or preferred stock. This, in turn, could lower the market
price of the shares offered by this prospectus.
CONCENTRATION OF VOTING AND CONSENT POWER OF THE HOLDERS OF THE PREFERRED STOCK
MAY BE DETRIMENTAL TO THE HOLDERS OF COMMON STOCK.
The holders of shares of preferred stock have the right to vote on all
matters on which the holders of common stock are entitled to vote. For purposes
of determining voting results, their shares of stock will be treated as if they
had been converted into common stock and as though part of the same class of
common stock.
While any shares of preferred stock are outstanding, Burnham may not,
without approval of holders of at least a majority of the outstanding shares of
preferred stock voting separately as a class, take any of several actions
described in the Articles Supplementary that would diminish the right of the
holders of preferred stock (including the
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authorization or issuance of any class or series of stock that would rank
prior to or on a parity with the preferred stock) or that would result in
Burnham's transfer of its general partnership interest in the operating
partnership or a merger or consolidation of assets which would result in the
common stock having a value of less than $15.375 per share, or the
termination (as defined in the Articles Supplementary) of Burnham's
qualification as a real estate investment trust, or a change of control (as
defined in the Articles Supplementary) or certain other actions. See
"Description of Securities--Preferred stock--Conversion right."
The holders of the preferred stock have the contractual right to
recommend to the nominating committee of the board of directors one candidate
for election as a director at each annual meeting of stockholders (until the
number of outstanding shares of preferred stock is reduced to a specified
number). In addition, under Burnham's Articles Supplementary, if Burnham does
not pay the full amount of the preferred stock preferential dividend for four
consecutive quarters or if Burnham defaults under certain obligations relating
to the voting rights of the holders of preferred stock, the holders of the
preferred stock will have the right, as a class, to elect two additional
directors of Burnham, until those defaults are cured. The interests of the
holders of the preferred stock, and indirectly the director or directors elected
by the holders of the preferred stock, may differ from or conflict with the
interests of the holders of common stock. See "Description of
Securities--Preferred Stock--Voting Rights" for a description of certain other
rights of the holders of preferred stock and of holders of preferred units, and
of certain obligations of Burnham in connection therewith.
The holders of the preferred stock have the right to consent to some of
our actions. We may not, among other things, make certain revisions to our
corporate structure and operations, without the approval of holders of at least
a majority of the outstanding shares of preferred stock, voting as a separate
class. Such separate class vote is required to approve:
- - revisions that would affect the rights,
priority and preferences of the preferred
stock,
- - the merger or consolidation of us or the
operating partnership with another entity,
- - the sale of all or substantially all of our
assets, and
- - any transaction that would result in a
change in control of either us or the
operating partnership. See "Description of
Securities--Preferred stock--Voting
rights."
As of the date of this prospectus, the selling stockholders named in
this prospectus hold the substantial majority of all outstanding shares of the
preferred stock.
In addition, upon conversion of all of the preferred stock outstanding
as of December 31, 1998 or which may be issued upon redemption of all of the
preferred units outstanding as of December 31, 1998 into shares of
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common stock, the holders of preferred stock would hold approximately 18.8%
of all outstanding shares of common stock (assuming that all of these shares
of preferred stock were fully convertible on such date). Consequently, if
this occurred, the holders of preferred stock would be the largest
stockholder in Burnham and could have considerable influence with respect to
the election of directors and the approval or disapproval of significant
corporate actions. See "Description of Securities--Preferred
stock--Conversion right."
In view of the substantial influence of the holders of the preferred
stock over our affairs, you should note that interests of the holders of the
preferred stock do not necessarily coincide with those of the holders of the
common stock. Therefore, actions by the holders of the preferred stock will not
necessarily be in the best interests of the holders of common stock.
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ABOUT THIS PROSPECTUS AND WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of the registration statement that we filed with
the Securities and Exchange Commission to register the shares of stock offered
in this offering. It does not repeat important information that you can find in
our registration statement or in the annual, quarterly and special reports,
proxy statements and other documents that we file with the Securities and
Exchange Commission. Our Securities and Exchange Commission file number is
001-09524.
We file annual, quarterly and special reports, proxy statements and
other information electronically with the Securities and Exchange Commission.
You may read and copy any document we file at the Securities and Exchange
Commission's public reference rooms at 450 Fifth Street, Mail Stop 1-2, N.W.,
Washington, D.C. 20549 or you may obtain them from the Securities and Exchange
Commission by mail at the prescribed rates. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the public
reference rooms or on how to receive our filings by mail. Our SEC filings are
also available from the New York Stock Exchange, located at 20 Broad Street, New
York, New York 10005 and at the Securities and Exchange Commission's website at
http://www.sec.gov.
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with it. This means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is an important part of this prospectus
and information that we file later with the Securities and Exchange Commission
will automatically update and supersede this information. We incorporate by
reference the documents filed by Burnham that are listed below, and any future
filings made by us with the Securities and Exchange Commission under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended:
- - our Annual Report on Form 10-K for the fiscal year ended December 31,
1997;
- - our quarterly reports on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998;
- - our proxy statement dated April 7, 1998 with respect to our annual
meeting of stockholders on May 11, 1998;
- - our current reports on Form 8-K filed with the Securities and Exchange
Commission on January 14, 1998, April 6, 1998, June 1, 1998 and
December 23, 1998; and
- - the description of our Common Stock contained or incorporated by
reference in our Registration Statement on Form 8-B filed on June 2,
1997, including any amendments thereto.
WE WILL PROVIDE, WITHOUT CHARGE, AT THE WRITTEN OR ORAL REQUEST OF
ANYONE TO WHOM THIS PROSPECTUS IS DELIVERED, COPIES OF THE DOCUMENTS
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, OTHER THAN AN EXHIBIT TO A FILING
UNLESS THAT EXHIBIT IS SPECIFICALLY INCORPORATED BY REFERENCE INTO THAT FILING.
WRITTEN REQUESTS SHOULD BE DIRECTED TO BURNHAM PACIFIC PROPERTIES, INC., 610
WEST ASH STREET, SUITE 1600, SAN DIEGO, CALIFORNIA 92101, ATTENTION: CHIEF
FINANCIAL OFFICER. TELEPHONE REQUESTS MAY BE DIRECTED TO (619) 652-4700.
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone to provide you with
different information. Any statement contained in this prospectus or in a
document incorporated by reference in this prospectus shall be deemed to be
modified or superseded to the extent that a statement contained in this
prospectus (in the case of a statement in a previously filed document
incorporated by reference herein), in any applicable prospectus supplement or in
any other subsequently filed document which also is incorporated by reference
herein modifies or supersedes such statement. Any such
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statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus or any accompanying
prospectus supplement. Subject to the foregoing, all information appearing in
this prospectus and each accompanying prospectus supplement is qualified in its
entirety by the information appearing in the documents incorporated by
reference.
We are not making an offer of the securities offered by this prospectus
in any state where the offer is not permitted. You should not assume that the
information in this prospectus, in any prospectus supplement or in any document
incorporated by reference herein or in such prospectus supplement is accurate as
of any date other than the date on the front of those documents.
Statements contained in this prospectus as to the contents of any
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the registration statement or as an exhibit to another filing, each such
statement being qualified in all respects by such reference and the exhibits and
schedules thereto.
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THE COMPANY
We are a real estate operating company which acquires, rehabilitates,
develops and manages retail properties in the western region of the United
States. Burnham 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 in the western region of the
United States. Our properties are primarily neighborhood and community shopping
centers located in major metropolitan areas. We focus on shopping centers in
areas with a limited supply of vacant land and with established consumer
shopping patterns. These characteristics help limit potential future competition
in a trade area. We also own four office and industrial properties which we
consider non-strategic and which we may sell as suitable opportunities arise.
Title to our properties is held by or for the benefit of the operating
partnership or various subsidiaries of the operating partnership.
We own our properties and conduct most of our business through an
operating partnership, of which Burnham is the sole general partner. Burnham
owns a substantial majority of the economic interests in the operating
partnership. Other limited partners of the operating partnership have
contributed interests in properties to the operating partnership in exchange for
limited partnership units. Those transactions have enabled us to reduce the
amount of cash paid for the acquired properties while also providing the
contributors the opportunity to defer recognition of federal income taxes on
their disposition of those properties. Holders (other than Burnham) of
partnership units issued on those acquisitions generally have the right, after a
specified period of time, to cause the operating partnership to redeem their
partnership units for cash. In lieu of redemption for cash, Burnham may exchange
a like number of shares of its capital stock for the partnership units being
redeemed.
Among the properties that we have acquired where units of the operating
partnership were issued as part of the acquisition price are the following:
- - On December 31, 1997, we acquired Simi Valley Plaza shopping center in
Simi Valley, California from Simi Valley Plaza LLC. The operating
partnership issued 574,483 common units as part of the payment for the
acquisition.
- - Also on December 31, 1997, we acquired a portfolio of 20 California
shopping centers from investment funds affiliated with Blackacre
Capital Group, L.P. and individuals affiliated with Highridge Partners
(collectively "Blackacre") pursuant to a contribution agreement. For
ease of reference, we later refer to that group of properties as the
"Golden State Properties Portfolio." The operating partnership issued
2,000,000 preferred units to members of Blackacre, and undertook to
issue additional common units and/or cash as a part of an "earn-out"
provision in the Golden State Properties Portfolio contribution
agreement. Burnham contributed additional funds to enable the operating
partnership to acquire these properties. These funds included the
proceeds from Burnham's issuance to Westbrook Burnham Holdings, L.L.C.
and Westbrook Burnham Co-Holdings, L.L.C. (collectively "Westbrook") of
2,800,000 shares of preferred
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stock. Concurrently with Burnham's issuance of these shares of
preferred stock, the operating partnership issued to Burnham 2,800,000
preferred units whose distribution and other economic terms mirror the
distribution and other economic terms of the preferred stock. (As a
matter of convenience among themselves, Westbrook and Blackacre
requested us to issue 10 of the 2,800,000 shares of preferred stock in
the name of Blackacre and 10 of the 2,000,000 preferred units in the
name of Westbrook.)
See "Description of partnership units and redemption of partnership units of
operating partnership" for a description of the common units and preferred units
that were issued in those transactions.
In August 1998, the operating partnership and the State of California
Public Employees' Retirement System ("CalPERS") entered into a joint venture
agreement for the acquisition of neighborhood, community, promotional and
specialty retail centers in the western region of the United States. The joint
venture agreement contemplates an aggregate $400 million investment by CalPERS
and $100 million investment by us through the period ending December 31, 1999,
and provides for up to $165 million of leverage through mortgage or line of
credit borrowings by the joint venture. Subject to certain qualifications, in
making future acquisitions, we are committed to offer qualifying retail property
investment opportunities to the joint venture until CalPERS' and our respective
investment obligations are satisfied, before making such acquisitions solely for
our own direct account. We can give no assurance that the investment goals of
the joint venture will be satisfied or that CalPERS and we may not agree to
expand such goals or to vary our respective 80/20% participation in the joint
venture. See "Risk Factors - We own properties jointly with other entities and
are committed to expand our joint venture activities."
FORWARD LOOKING INFORMATION
Some of the statements made in the "Risk Factors" section or under the
caption "The Company" and elsewhere in this prospectus, or incorporated by
reference into this prospectus, are "forward-looking statements."
Forward-looking statements may include, without limitation, statements relating
to acquisitions, including financial information, and other business development
activities, future capital expenditures, financing sources and availability and
the effects of regulations (including environmental regulation) and competition.
When we use the words "anticipate," "assume," "believe," "estimate,"
"expect," "intend" and other similar expressions, they are generally
forward-looking statements. You should be cautious in interpreting and relying
on forward-looking statements since they involve known and unknown risks,
uncertainties and other factors which are, in some cases, beyond our control and
could materially change our actual results, performance or achievements.
Factors that could cause our actual results, performance or achievements
to differ materially from those expressed or implied by such forward-looking
statements include, but are not limited to, the following:
- - we are subject to general risks affecting the real estate industry,
including the need to enter into new leases or renew leases on favorable
terms to generate rental revenues and dependence on our tenants'
financial condition;
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- - we may fail to identify, acquire, construct or develop additional
properties; we may develop properties that do not generate desired
returns; or we may fail to effectively integrate acquisitions of
properties or portfolios of properties;
- - financing may not be available, or may not be available on favorable
terms;
- - we need to make distributions to our stockholders for us to qualify as
a REIT, and if we need to borrow the funds to make distributions the
borrowings may not be available on favorable terms;
- - we depend on the primary markets where our properties are located, and
these markets may be harmed by local economic and market conditions
which are beyond our control;
- - we are subject to potential environmental liabilities;
- - we are subject to complex regulations relating to our status as a REIT
and would be harmed if we failed to qualify as a REIT; and
- - market interest rates could harm the market prices for our common stock
and our performance and cash flow.
In general, we and our business are subject to the matters described in
the "Risk Factors" section of this prospectus.
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DESCRIPTION OF SECURITIES
THE DESCRIPTION OF BURNHAM'S CAPITAL STOCK SET FORTH BELOW DOES NOT
PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
BURNHAM'S CHARTER AND BYLAWS, EACH AS AMENDED AND RESTATED, COPIES OF WHICH ARE
EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. SEE
"AVAILABLE INFORMATION."
GENERAL
Under its charter, Burnham has authority to issue up to 100 million
shares of stock, consisting of 75 million shares of common stock, five million
shares of preferred stock and 20 million shares of "excess stock" each with a
par value of $.01 per share. As of December 31, 1998, Burnham had 31,954,008
shares of common stock and 2,800,000 shares of preferred stock issued and
outstanding. The 2,800,000 shares of preferred stock were held by the selling
stockholders. In addition, as of December 31, 1998, the operating partnership
had 2,800,000 preferred units and 1,785,474 common units outstanding not
including those held by Burnham. If presented to the operating partnership for
redemption, the partnership units held by persons other than Burnham may be
exchanged for shares of preferred stock or common stock, as the case may be, on
a one-for-one basis at the option of Burnham, subject to the expiration of
certain "lock-out" periods specified in agreements relating to the issuance of
those partnership units and subject to certain adjustments to prevent dilution
and certain limitations imposed to protect Burnham's status as a REIT.
PREFERRED STOCK
As part of the financing for Burnham's acquisition of a portfolio of the
Golden State Properties Portfolio, which was completed on December 31, 1997,
Burnham issued 2,800,000 shares of its preferred stock to Westbrook Burnham
Holdings, L.L.C. and Westbrook Burnham Co-Holdings, L.L.C. in a privately
negotiated sale. The preferred stock is the only series of preferred stock of
Burnham that is outstanding as of the date of this prospectus. The preferred
stock ranks senior to the common stock with respect to dividend rights and
distributions upon liquidation, dissolution and winding up of Burnham. The
principal terms of the preferred stock are summarized below. This summary is not
complete and is qualified by the complete text of the Articles Supplementary to
Burnham's charter filed as an exhibit to Burnham's Report on Form 8-K dated
January 14, 1998, which is incorporated by reference herein.
STATED VALUE AND LIQUIDATION PREFERENCE
The preferred stock has a stated value of $25 per share. Upon the
distribution of assets on the liquidation, dissolution or winding up of Burnham
each share of preferred stock is entitled to a payment equal to the stated value
plus any accrued and unpaid dividends prior to the payment of any amount with
respect to shares of the common stock.
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Burnham will not make any payment to holders of common stock upon the
liquidation, dissolution or winding up of Burnham until the holders of preferred
stock have received their payment in full. If, upon liquidation, dissolution or
winding up, the assets of Burnham, or the proceeds thereof, are insufficient to
pay the holders of preferred stock the amounts owed to them, then Burnham's
assets, or the proceeds thereof, will be distributed pro rata to the holders of
shares of the preferred stock and any shares of stock which are on parity with
the preferred stock as to distributions on liquidation in accordance with their
respective holdings.
Neither a consolidation or merger of Burnham with another corporation,
nor a sale or transfer of all or any part of Burnham's assets for cash or
securities, will be considered a liquidation, dissolution or winding up of
Burnham.
DIVIDENDS AND DISTRIBUTIONS
Each share of preferred stock is entitled to receive cumulative
quarterly cash dividends equal to the greater of (1) 2.00% of the per share
stated value, and (2) the amount of dividends payable on the number of shares of
common stock into which the shares of preferred stock are then convertible. The
dividends will accrue daily and will, to the extent not paid in full on the
applicable dividend payment date, together with accruals thereon, accrue at the
compounded quarterly rate of 2.00% from that date until payment is made, whether
or not Burnham has earnings or surplus.
Unless and until all accrued dividends on the preferred stock through
the most recent dividend payment date have been paid, Burnham may not:
- - declare or pay any dividend, make any distribution other than those
payable solely in shares of common stock, or set aside any funds or
assets for payment or distribution with regard to any common stock or
any other stock junior to the preferred stock;
- - redeem or purchase or set aside any funds or other assets for the
redemption or purchase of, any shares of stock ranking junior to the
preferred stock; or
- - authorize, take or cause to be taken any action as general partner of
the operating partnership that will result in (A) the declaration or
payment by the operating partnership of any distribution to its
partners (other than distributions made concurrently with distributions
payable to Burnham in respect of its partnership interest or preferred
units in each case that will be used by Burnham to fund the payment of
dividends), or set aside any funds or assets for payment of any
distributions (other than authorized distributions) or (B) the
redemption or purchase, or the setting aside of any funds or other
assets for the redemption or purchase of, any partnership interests in
the operating partnership.
While any shares of preferred stock are outstanding, Burnham may not pay
any dividend on any shares of any class or series of stock of Burnham which
ranks on a parity with the preferred stock as to payment of dividends unless at
least
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a proportionate payment is made with regard to all accrued dividends on the
preferred stock through the most recent preceding dividend payment date.
CONVERSION RIGHT
Each share of preferred stock is convertible into the number of shares
of common stock obtained by dividing the stated value per share by the
conversion price. As of December 31, 1998, each share of preferred stock was
convertible into approximately 1.626 shares of common stock. The conversion
price will be adjusted if Burnham:
- - pays a dividend or makes a distribution on its common stock in shares
of its common stock;
- - subdivides its outstanding common stock into a greater number of
shares;
- - combines its outstanding common stock into a smaller number of shares;
- - issues rights or warrants to the holders of its common stock as a class
entitling them to purchase common stock at a price per share less than
the then conversion price; or
- - distributes to the holders of its common stock as a class any shares of
stock of Burnham, other than common stock or evidences of indebtedness
or assets other than those referred to in the previous clause, to
purchase any of its securities.
Furthermore, in the event (1) Burnham issues or sells common stock, or
securities exercisable for or convertible into common stock, at a purchase or
exercise price (as applicable) of less than $14.375 per share and (2) that
issuance would trigger a reduction in the conversion price of at least 1.0%
under the formula set forth in the Articles Supplementary, then the conversion
price will be reduced pursuant to a formula based upon the proportion of the
value of common stock issuable at less than the conversion price to the value of
all common stock to be outstanding following such issuance.
If, however, any shares of common stock are issued or issuable at or
less than $11.00 per share, then the conversion price will be fully reduced
to that lower price. This type of reduction in the conversion price would
likely dilute the holders of common stock significantly as a result of both
the initial dilutive transaction and the impact of the antidilution
provisions of the preferred stock triggered by the transaction. The
conversion right is exercisable by a holder of preferred stock with respect
to 25% of the shares held of record by that holder on and after each of
December 31, 1998, March 31, 1999, June 30, 1999 and September 30, 1999. The
conversion may be exercisable at an earlier time in the event of a change of
control or certain other events set forth in the Articles Supplementary.
On and after January 1, 2003, Burnham may give notice of mandatory
conversion of all of the outstanding preferred stock if the average of the
volume weighted average price of the common stock on each of the twenty trading
days immediately prior to the notice of mandatory conversion and the volume
weighted average price on the trading day immediately prior to the notice of
mandatory conversion and the trading day immediately prior to the date of the
intended conversion is greater than the conversion price, and after that notice
all outstanding shares shall be mandatorily converted into common stock; except
that each holder of
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preferred stock shall have the right, prior to the date established for
mandatory conversion, instead to cause Burnham to redeem his or her preferred
stock at its stated value plus accrued dividends to the redemption date
multiplied by a percentage equal to 105% if the redemption date is prior to
December 31, 2003, decreasing by 1% each year thereafter (but not less than 100%
after December 31, 2007).
VOTING RIGHTS
The holders of shares of preferred stock have the right to vote on all
matters on which the holders of common stock are entitled to vote on an "as
converted" basis with holders of shares of the common stock, as though part of
the same class as holders of common stock.
While any shares of preferred stock are outstanding, Burnham may not,
without approval of holders of at least a majority of the outstanding shares of
preferred stock voting separately as a class, take any of several actions
described in the Articles Supplementary that would diminish the right of the
holders of preferred stock or that would result in Burnham's transfer of its
general partnership interest in the operating partnership or a merger or
consolidation of assets which would result in the common stock having a value of
less than $15.375 per share, or the termination of Burnham's qualification as a
real estate investment trust, or a change of control (as defined in Burnham's
Articles Supplementary) or certain other actions.
The holders of the preferred stock have the right to submit a
recommendation to the nominating committee of the board of directors of a
candidate for election as a director at each annual meeting of stockholders.
This right will continue until the number of outstanding shares of preferred
stock is significantly reduced. In addition, if Burnham fails to pay the full
amount of the preferred stock preferential dividend for four consecutive
quarters or if Burnham does not fulfill some of its other obligations with
respect to the preferred stock, the holders of the preferred stock will have the
right, as a class, to elect two additional directors of Burnham, until those
defaults are cured. See "Risk Factors -Anti- dilution provisions of the
preferred stock may lead to substantial dilutions of the holders of common
stock."
If Burnham is entitled or requested to act in its capacity as a holder
of preferred units of the operating partnership it will do so by voting or
otherwise acting with respect to all of its preferred units solely in accordance
with instructions received from a majority of the holders of preferred stock.
REGISTRATION RIGHTS
Burnham has entered into registration rights agreements with the holders
of preferred stock and preferred units which require it, under some
circumstances, to register under the Securities Act shares of preferred stock
which are (a) currently issued and outstanding and (b) issuable upon redemption
of preferred units and shares of common stock issuable upon conversion of
preferred stock. These registration rights agreements give the holders of the
applicable securities both "demand" and "piggyback" registration rights.
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COMMON STOCK
DISTRIBUTION RIGHTS
Holders of common stock are entitled to receive distributions on their
shares if, as and when the board of directors authorizes and declares
distributions, subject to the provisions of Burnham's charter regarding excess
stock. A description of excess stock may be found below under the heading
"--Excess stock."
LIQUIDATION/DISSOLUTION RIGHTS
In a liquidation or dissolution of Burnham, each share of common stock
entitles its holder to share in any assets that remain after Burnham pays its
liabilities and any preferential distributions owed to the holders of preferred
stock and any other series of preferred stock issued in the future. Each holder
of common stock will receive a share of those assets based on the percentage of
shares of common stock which he or she holds.
VOTING RIGHTS
Subject to the provisions of Burnham's charter regarding excess stock,
each outstanding share of common stock entitles the holder to one vote on all
matters submitted to a vote of stockholders, including the election of
directors. Except as otherwise required by law or except as provided with
respect to any other class or series of preferred stock issued in the future,
the holders of common stock and the holders of preferred stock possess exclusive
voting power. The holders of preferred stock have the right to vote on all
matters submitted to a vote of the holders of common stock on an "as-converted"
basis. There is no cumulative voting in the election of directors, which means
that the holders of a majority of the votes cast for directors can, subject to
certain rights of holders of preferred stock, elect all of the directors then
standing for election.
RESTRICTIONS ON TRANSFER
See "--Excess stock" below for a description of certain provisions of
Burnham's charter designed to preserve Burnham's status as a qualified REIT.
These provisions limit the transfer of, and provide Burnham with a right to
redeem, shares of capital stock and that also provide for the conversion of that
stock into excess stock, in some circumstances.
OTHER TERMS
Subject to the provisions of Burnham's charter regarding excess stock,
all shares of common stock have equal dividend, distribution, liquidation and
other rights, which rights are, however, subject to preferential rights of
shares of preferred stock and any other series of preferred stock that may be
outstanding. Holders of shares of common stock have no preference, conversion,
sinking fund, redemption or exchange rights or preemptive rights. A conversion
feature is one where a stockholder has the option to convert his shares to a
different security, such as debt or preferred stock. A sinking fund or
redemption right is one where a stockholder will have the right to redeem his
shares for cash or other securities at some point in the future. Sometimes a
redemption right is paired with an obligation of Burnham to create an account
into which Burnham must deposit money to fund redemption (i.e., a sinking fund).
Preemptive rights are rights granted to stockholders to subscribe for a
percentage of any other securities we offer in the future based on the
percentage of shares owned.
REGISTRATION RIGHTS
Burnham has entered into registration rights agreements with certain
holders of common units which require it, under certain circumstances, to
register under the Securities Act certain shares of common stock issuable upon
redemption of the common units and upon conversion of preferred stock. These
registration rights agreements give the
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holders of the applicable securities both "demand" and "piggyback" registration
rights.
INFORMATION
Burnham furnishes its stockholders with annual reports containing
audited consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm and quarterly reports for the first three
quarters of each fiscal year containing unaudited financial information.
EXTRAORDINARY TRANSACTIONS
Pursuant to Maryland law and Burnham's charter, Burnham generally cannot
dissolve, amend its charter, merge, sell all or substantially all of its assets,
engage in a share exchange or engage in similar transactions outside the
ordinary course of business unless approved by the affirmative vote of holders
of shares entitled to cast a majority of all the votes entitled to be cast. In
addition, a number of other provisions of Maryland law could significantly
affect the shares of common stock and the rights and obligations of its holders.
See "--Certain provisions of Maryland law."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is First Chicago
Trust Company of New York, a division of EquiServe, 525 Washington Boulevard,
Jersey City, New Jersey 07303.
POWER TO ISSUE ADDITIONAL SHARES OF STOCK
The charter grants the board of directors the power to authorize the
issuance of additional authorized but unissued shares of common stock and
preferred stock. The board of directors may also classify or reclassify unissued
shares of common stock or preferred stock or excess stock and authorize the
issuance of these classified or reclassified shares of stock. Under Maryland law
and the charter, the board of directors is required to fix the terms and
conditions for each class or series, subject to the provisions of the charter
regarding excess stock, prior to the issuance of the shares of each class or
series of stock. These terms and conditions include preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption.
This power provides the board of directors with increased flexibility in
structuring possible future financings and acquisitions and in meeting other
needs which might arise. Unless stockholder action is required by applicable law
or the rules of any stock exchange or automated quotation system on which
Burnham's securities may be listed or traded, the additional classes or series,
as well as the common stock, will generally be available for issuance without
further action by stockholders. However, the issuance of additional series of
preferred stock with rights senior to the currently issued preferred stock must
be approved by the holders of the currently issued preferred stock. Although the
board of directors does not intend to do so at the present time, it could
authorize the issuance of a class or series that could delay, defer or prevent a
change of control or other transaction that holders of common stock might
believe to be in their best interests or in which holders of some, or a majority
of, the common stock might receive a premium for their shares over the
then-current market price.
EXCESS STOCK
GENERAL. As a protective measure, Burnham's charter provides for the
issuance of a separate class of capital stock, referred to as "excess stock," to
attempted transferees of capital stock in transactions that may endanger
Burnham's REIT qualification. The specific terms of excess stock and the
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conditions giving rise to its issuance are described in more detail below.
OWNERSHIP LIMIT. As a REIT, Burnham is required to comply with a number
of complicated rules under the Internal Revenue Code. Among other things, the
Internal Revenue Code requires that, with certain limited exceptions, REITs
satisfy the following ownership limitations:
- - not more than 50% in value of the REIT's outstanding capital stock may
be owned, directly or indirectly after applying complex attribution
rules, by five or fewer "individuals" (which is defined to include a
variety of types of tax-exempt entities or relationships) during the
last half of its taxable year, and
- - the REIT's capital stock must be beneficially owned by 100 or more
persons during at least 335 days of each taxable year.
In order to protect its status as a qualified REIT, Burnham's charter
limits the amount of its capital stock that any one party may hold. These
ownership limits prohibit any holder from wning, or being deemed to own by
virtue of the attribution provisions of the Internal Revenue Code:
- - more than 9.8% in value of Burnham's outstanding capital stock; or
- - more than 9.8% (in value or in number of shares, whichever is more
restrictive) of the aggregate of the outstanding shares of common
stock, including shares of common stock issuable upon conversion of any
other outstanding shares of capital stock of Burnham.
The charter deems holders to own all stock that they (1) actually own,
(2) constructively own after applying the attribution rules specified in the
Internal Revenue Code, and (3) have the right to acquire upon exercise of any
rights, options or warrants or conversion of any convertible securities. Holders
may include natural persons, corporations, estates, trusts, partnerships or
other entities. The fact that affiliated entities, such as separate mutual funds
advised by the same investment adviser, may own more than 9.8% of the value of
all outstanding capital stock in the aggregate will not of itself result in the
ownership limit being exceeded, even though that investment advisor may be
considered to be the "beneficial owner" of the stock for purposes of Section
13(g) of the Exchange Act.
VIOLATION OF OWNERSHIP LIMIT. The charter provides that any attempted
transfer of capital stock is null and void if it would result in a violation of
the ownership limit or the disqualification of Burnham as a REIT. These
provisions include any transfer that results in Burnham being "closely held"
within the meaning of Section 856(h) of the Internal Revenue Code. In the event
of an attempted transfer, the intended transferee will acquire no rights to the
capital stock. Instead, the shares of capital stock will automatically be
exchanged for shares of excess stock and these shares of excess stock will
automatically be transferred, by operation of law, to a trustee for the
exclusive benefit of one or more beneficiaries designated from time to time by
Burnham (except to the extent described below). The trustee will be named by the
board of directors of Burnham, but must be unaffiliated with Burnham and that
person whose acquisition of stock would result in a violation of the ownership
limit or the disqualification of Burnham as a REIT.
RIGHTS OF EXCESS STOCK. The excess stock held in trust (a) will be
considered to be issued and outstanding shares of Burnham stock, (b) will be
entitled to receive distributions declared by Burnham and (c) may be voted by
the trustee for the exclusive benefit of the beneficiary. The charter requires a
person whose acquisition of stock would result in a violation of the ownership
limit to repay to Burnham any
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dividend or distribution which it receives prior to the discovery that capital
stock was transferred in violation of the ownership limit. Burnham would then be
required to turn over the amount of the repayment to the trustee. The charter
also retroactively nullifies any votes cast by that person prior to the
discovery that a transfer of stock to him or her violated the ownership limit.
The charter does provide, however, that the retroactive nullification of the
vote cast with respect to the relevant shares of capital stock will not harm the
rights of any third party who relied in good faith upon the vote and its
consequences.
TRANSFERABILITY OF EXCESS STOCK. As a general rule, holders may not
transfer excess stock. Subject to Burnham's redemption right described below,
the trustee may transfer the shares of excess stock to a purchaser who could own
such shares without violating the ownership limit. When sold, the shares of
excess stock would automatically convert back into shares of the class or series
of capital stock or convertible security from which they were originally
converted.
After excess stock is transferred in this way, the person who attempted
to acquire the shares but was not permitted to do so shall receive from the
proceeds of the sale the lesser of (a) the price paid by that prohibited owner
for the shares and (b) the price per share received by the trustee from the sale
of the shares. If the prohibited owner received the excess stock by gift, devise
or otherwise without paying for it, then he or she shall receive the lesser of
(a) the market price of the shares on the day of the event causing the shares to
be held in trust, as determined in the manner set forth in the charter, and (b)
the price per share received by the trustee from the sale of the shares. Any
remaining sales proceeds in excess of the amount payable to the prohibited owner
shall be immediately paid to the charitable beneficiary.
REDEMPTION RIGHT. In addition to the transfer restrictions described
above, Burnham or its designee has the right to purchase all or any portion of
the excess stock from the trustee for a period of 90 days from the time Burnham
receives written notice of the prohibited transfer or other event resulting in
the exchange of capital stock for excess stock. Under the charter, the purchase
price will be the lesser of (a) the price paid for the stock by the prohibited
owner or (b) the market price of the stock on the date Burnham exercises its
option to purchase. If the prohibited owner received the stock without paying
for it, the market price of the stock at the time of the prohibited transfer
will be used in lieu of a price paid. Upon any purchase by Burnham, the trustee
must distribute the purchase price to the prohibited owner.
ADDITIONAL CHARTER PROVISIONS REGARDING THE OWNERSHIP LIMIT. The
ownership limit will not preclude settlement of transactions on the New York
Stock Exchange or any other stock exchange on which capital stock of Burnham is
listed but the provisions of the charter shall remain applicable to the
transferee and to any shares transferred. If the board of directors determines
that it is no longer in the best interests of Burnham to continue to qualify as
a REIT, then these restrictions on transferability and ownership will not apply.
Upon demand by Burnham, each stockholder and each proposed transferee of
capital stock must disclose to Burnham in writing any information with respect
to the direct, indirect and constructive ownership of shares of stock as the
board of directors deems necessary to comply with, or determine compliance with,
the provisions of the Internal Revenue Code applicable to REITs or the
requirements of any taxing authority or governmental agency.
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CERTAIN EXCEPTIONS TO OWNERSHIP LIMIT. The board of directors may waive
the ownership limit if it obtains representations and undertakings reasonably
necessary for it to ascertain that the changes in ownership will not jeopardize
Burnham's status as a REIT and if the board of directors decides that the waiver
is in Burnham's best interest. Based upon representations of Blackacre under the
Contribution Agreement and of Westbrook under the Stock Purchase Agreement that
no individual would, after applying applicable the rules of the Internal Revenue
Code, own more than 9.8% of the common stock or of the value of all of the
capital stock of Burnham, and on certain other representations and agreements,
the board of directors has partially waived the ownership limits that would
otherwise limit the amount of capital stock of Burnham that Westbrook could own
and that would otherwise limit the number of shares of preferred stock and of
common stock that Blackacre may acquire upon the exchange of their operating
partnership units for capital stock of Burnham.
The ownership limit does not apply to shares of capital stock acquired
pursuant to an all cash tender offer for all outstanding shares of capital stock
in conformity with applicable laws if both of the following conditions are met:
- - At least two-thirds of the outstanding shares of capital stock are
tendered and accepted pursuant to the tender offer. The securities held
by the tender offeror and/or its affiliates and associates are not
included in determining whether the two-thirds threshold has been met.
- - The tender offeror commits in the tender offer, if the offer is
accepted by the holders of two-thirds of the outstanding stock, to give
any non-tendering stockholders a reasonable opportunity to put their
capital stock to the tender offeror at a price not less than that paid
pursuant to the tender offer.
CERTAIN PROVISIONS OF MARYLAND LAW
MARYLAND BUSINESS COMBINATION STATUTE
Maryland law prohibits certain "business combinations," including
mergers, consolidations, share exchanges, certain asset transfers and certain
issuances of equity securities, between a Maryland corporation and any person or
entity that owns 10% or more of the voting power of the corporation's shares.
This prohibition exists for five years after the most recent date on which the
ten percent owner became a ten percent owner. Thereafter, any business
combination must be approved by the affirmative vote of at least 80% of the
votes entitled to be cast by holders of outstanding voting shares of the
corporation other than shares held by the person with whom the business
combination is to be effected. There is an exception to this rule when, among
other things, the holders of the corporation's shares receive a minimum price
for their shares in accordance with Maryland law and the consideration is
received in cash or in the same form as previously paid by the ten percent owner
for the shares that it owns. However, these provisions of Maryland law do not
apply to "business combinations" with a ten percent owner that are approved or
exempted by the board of directors of the corporation before that ten percent
owner becomes a ten percent owner.
Burnham's board of directors has adopted a resolution rendering these
"business combinations" provisions inapplicable to Burnham. However, the board
of directors has reserved the right to revoke their resolution if doing so is in
the best interest of Burnham and our stockholders.
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MARYLAND CONTROL SHARE ACQUISITION STATUTE
Maryland law provides that "Control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes eligible under the statute
to be cast on that matter by stockholders. "Control Shares" are voting shares
that, if aggregated with all other such shares of stock previously acquired by
the acquiror, would entitle the acquiror to exercise voting power in electing
directors within one of the following ranges of voting power:
(1) one-fifth or more but less than one-third;
(2) one-third or more but less than a majority; or
(3) a majority of all voting power.
Control Shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain expenses.
If voting rights are not approved at a stockholder meeting or if the
acquiring person does not deliver an acquiring person statement as required by
the statute, then, subject to certain conditions and limitations, the
corporation may redeem any or all of the control shares (except those for which
voting rights have previously been approved) for fair value. If voting rights
for control shares are approved at a stockholder meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights.
Burnham's bylaws contain a provision which exempts the acquisition of
Burnham's capital stock from these restrictions. However, the board of
directors, by two-thirds majority vote, may repeal this exemption either before
or after an acquisition of control shares if it determines that doing so is in
the best interest of our stockholders. The board of directors may do this
without stockholder approval.
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DESCRIPTION OF UNITS AND REDEMPTION OF UNITS OF OPERATING PARTNERSHIP
THE FOLLOWING DESCRIPTION OF CERTAIN PROVISIONS OF THE OPERATING
PARTNERSHIP AGREEMENT, AND OF THE FIRST AMENDMENT THERETO THAT WAS ENTERED INTO
CONCURRENTLY WITH THE CLOSING OF THE ACQUISITION OF THE GOLDEN STATE PROPERTIES
PORTFOLIO ON DECEMBER 31, 1997, IS QUALIFIED IN ALL RESPECTS BY THE PROVISIONS
OF THE OPERATING PARTNERSHIP AND OF THE FIRST AMENDMENT FILED AS EXHIBITS TO
BURNHAM'S REPORTS ON FORM 8-K DATED DECEMBER 16, 1997 AND JANUARY 14, 1998,
RESPECTIVELY, AND OF SCHEDULE C TO SUCH FIRST AMENDMENT FILED AS AN EXHIBIT TO
BURNHAM'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997, WHICH
EXHIBITS ARE HEREBY INCORPORATED BY REFERENCE HEREIN.
COMMON UNITS.
The operating partnership agreement provides that, subject to the
preferences of any class or series of partnership interest established by the
general partner, the operating partnership shall make distributions pro rata to
partners holding common units and to the general partner as such in proportion
to their respective partnership interests. Burnham will hold as many common
units, including for this purpose all partnership units held by it as general
partner and as limited partner, as there are shares of common stock of Burnham
outstanding from time to time, and contemplates making quarterly distributions
to the holders of common units concurrently with and in the same amounts as
dividends paid by Burnham on its common stock. This amount is currently at the
quarterly rate of $0.2625.
In addition, the operating partnership agreement provides that on the
December 31 or June 30 coinciding with or next following the first anniversary
of the issuance of common units (or earlier in the event of certain
extraordinary transactions), the holder of each common unit will have the right
to require the operating partnership to redeem the unit at a redemption price
equal to the then market value of a share of common stock. Such redemption will
be in cash, except that Burnham may assume the redemption obligation and pay the
redemption in the form of registered shares of its common stock.
PREFERRED UNITS.
By the First Amendment, Burnham, as general partner of the operating
partnership, established a series of 4,800,000 preferred units of limited
partnership interest designated as "Series 1997-A Preferred Limited Partner
Units" and issued 2,000,000 preferred units to the contributors of the Golden
State Properties Portfolio and 2,800,000 preferred units to Burnham. The
economic rights of holders of preferred units, with respect to distributions and
upon liquidation, are identical to the rights of holders of preferred stock.
Distributions by the operating partnership with respect to preferred units held
by Burnham will provide the funds to enable Burnham to make its distributions to
the holders of the preferred stock. Holders of preferred units other than
Burnham have the right to redeem their preferred units for cash equal to the
greater of the $25 per share of an equivalent number of shares of preferred
stock or the value of the number of shares of common stock for which the shares
of preferred stock are exchangeable. In lieu of delivering cash, however,
Burnham may, at its option, choose to acquire preferred units by issuing shares
of preferred stock in exchange. If this occurs, the number of preferred units
held by Burnham will increase so that Burnham will always hold a number of
preferred units equal to the number of outstanding shares of preferred stock.
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In general, the terms of the First Amendment that define the economic
rights of holders of preferred units other than Burnham are substantially
identical to the provisions of the Articles Supplementary that define the
economic rights of the holders of preferred stock. See "Description of
Securities--Preferred stock" above.
TAX CONSEQUENCES OF REDEMPTION.
The following discussion summarizes certain federal income tax
considerations that may be relevant to a unitholder who redeems its partnership
units.
TAX TREATMENT OF EXCHANGE OR REDEMPTION OF UNITS
Burnham may elect to purchase units presented to its operating partnership
for redemption. If it does so, the operating partnership agreement provides that
the transaction will be treated as a sale of partnership units by the unitholder
to Burnham at the time of the redemption. The sale will be fully taxable to the
redeeming unitholder. The determination of the amount and character of gain or
loss is discussed below. See "--Computation and character of gain or loss"
below.
If Burnham does not elect to purchase a unitholder's partnership units
tendered for redemption, and the operating partnership redeems the partnership
units for cash that Burnham contributes to the operating partnership to effect
the redemption, the redemption likely would be treated for tax purposes as a
sale of the partnership units to Burnham in a fully taxable transaction. In that
event, the tax consequences would be the same as if Burnham elected to purchase
the partnership units for cash, as described above.
If Burnham does not elect to purchase the partnership units tendered for
redemption, and the operating partnership redeems all of a unitholder's
partnership units for cash that is not contributed by Burnham to effect the
redemption, the tax consequences would likely be the same as described in the
previous paragraph. If the operating partnership redeems less than all of a
unitholder's units, however, the unitholder would not be permitted to recognize
any loss occurring on the transaction and would recognize taxable gain only to
the extent that the cash, plus the amount of any operating partnership
liabilities allocable to the redeemed partnership units, exceeded the
unitholder's adjusted basis in all of the unitholder's units immediately before
the redemption. This result may differ if the redemption is treated as a
disguised sale. See "Potential application of the disguised sale regulations to
a redemption of units" below.
If Burnham contributes cash to the operating partnership to effect a
partial redemption of a unitholder's units, and the form of the transaction is
respected for tax purposes so that the redemption transaction is treated as the
redemption by the operating partnership rather than a sale to Burnham, the
income tax consequences to a unitholder would be the same as described in the
preceding paragraph.
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COMPUTATION AND CHARACTER OF GAIN OR LOSS
The amount of gain or loss from any transaction treated as a sale of units
will be based on the difference between the amount realized for tax purposes and
the tax basis in the units. See "--Basis of units" below. Upon the sale of
partnership units, the "amount realized" will be measured by the sum of the cash
and fair market value of the capital stock received plus the amount of any
operating partnership liabilities allocable to the partnership units sold. To
the extent that the amount of cash or property received plus the allocable share
of any operating partnership liabilities exceeds the unitholder's basis for the
partnership units, the unitholder will recognize gain. The amount of gain
recognized or even the tax liability resulting from that gain could exceed the
amount of cash and/or the value of any capital stock received.
In general, any gain from a sale or other disposition of partnership units
will be treated as gain resulting from the sale or disposition of a capital
asset. To the extent, however, that the amount realized upon the sale of a unit
attributable to a unitholder's share of "unrealized receivables" of the
operating partnership (as defined in Section 751 of the Internal Revenue Code)
exceeds the basis attributed to those assets, the excess will be treated as
ordinary income. Unrealized receivables include, to the extent not previously
included in operating partnership income, any rights to payment for services
rendered or to be rendered. Unrealized receivables also include amounts that
would be subject to recapture as ordinary income if the operating partnership
had sold its assets at their fair market value at the time of the transfer of a
unit.
BASIS OF UNITS
In general, a unitholder who acquired his or her partnership units by
contribution of property and/or money to the operating partnership had an
initial tax basis in these partnership units equal to the sum of (a) the amount
of money contributed, (b) his or her adjusted tax basis in any other property
contributed in exchange for the partnership units and (c) his or her share of
the operating partnership's liabilities, less (d) the amount of any liabilities
assumed by the operating partnership and any money distributed in connection
with the acquisition of the partnership units. The initial basis of partnership
units acquired by other means would have been determined under the general rules
of the Internal Revenue Code, including the partnership provisions, governing
the determination of tax basis. Other rules, including the "disguised sale"
rules discussed below, also may affect initial basis. Unitholders should consult
their own tax advisors regarding their initial basis. A unitholder's initial
basis in his or her partnership units generally is increased by his or her share
of the (a) operating partnership taxable and tax-exempt income and (b) increases
in liabilities of the operating partnership. Generally, a unitholder's basis in
his or her partnership units is decreased by his or her share of the (a)
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operating partnership distributions, (b) decreases in liabilities of the
operating partnership, (c) losses of the operating partnership and (d)
nondeductible expenditures of the operating partnership that are not chargeable
to his or her capital account. A unitholder's basis in units cannot be less than
zero.
POTENTIAL APPLICATION OF THE DISGUISED SALE REGULATIONS TO A REDEMPTION OF UNITS
A redemption of partnership units originally issued in exchange for a
contribution of property to the operating partnership may cause the original
transfer of property to be treated as a "disguised sale" of property. Section
707 of the Internal Revenue Code and the Treasury Regulations thereunder
generally provide that, unless one of the prescribed exceptions is applicable, a
partner's contribution of property to a partnership and a simultaneous or
subsequent transfer of money or other consideration, including the assumption of
a liability, from the partnership to the partner will be presumed to be a sale
of the property by the partner to the partnership if the two transactions happen
within a two-year time period. This presumption may be overcome if the facts and
circumstances clearly establish that the transfers do not constitute a sale.
Nonetheless, if the transactions occur within a two-year period, the partner may
be obliged to report them to the IRS. The disguised sale regulations also
provide that if two years have passed between the transfer of money or other
consideration and the contribution of property, the transactions will be
presumed not to be a sale unless the facts and circumstances clearly establish
that the transfers constitute a sale.
Accordingly, if a unitholder who received units in exchange for a
contribution of property to the operating partnership presents units for
redemption, the IRS could contend that the original contribution of property was
taxable as a disguised sale under the disguised sale regulations. Any gain
recognized thereby may be eligible for installment reporting under Section 453
of the Internal Revenue Code, subject to certain limitations. In addition, a
portion of the proceeds received by a redeeming unitholder could be
characterized as original issue discount on a deferred obligation. This would be
taxable as interest income under Section 1272 of the Internal Revenue Code. Each
unitholder should consult its own tax advisors to determine whether redemption
of its partnership units could be subject to the disguised sale regulations.
COMPARISON OF OWNERSHIP OF PARTNERSHIP UNITS AND COMMON STOCK
The nature of any investment in Burnham's preferred stock or common stock
is generally economically equivalent to an investment in preferred units or
common units (as the case may be) in the operating partnership. A holder of a
share of capital stock receives the same distribution that a holder of the
equivalent class of partnership units receives and stockholders and unitholders
generally share in the risks and rewards of ownership in the same enterprise.
There are, however, differences between ownership of partnership units and
ownership of capital stock, some of which may be material to investors.
The information below highlights a number of significant differences
between the operating partnership and Burnham relating to, among other things,
form of organization, permitted investments, policies and restrictions,
management structure, compensation and fees,
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investor rights and federal income taxation and compares certain legal rights
associated with being a partner in the operating partnership and being a
stockholder of Burnham, respectively. These comparisons are intended to assist
unitholders in understanding how their investment will be changed if their
partnership units are acquired for capital stock. This discussion is summary in
nature and does not constitute a complete discussion of these matters. Holders
of partnership units should carefully review the balance of this prospectus and
the registration statement of which this prospectus is a part for additional
important information about Burnham.
THE OPERATING PARTNERSHIP
FORM OF ORGANIZATION AND ASSETS OWNED
The operating partnership is organized as a Delaware limited partnership
and is the entity through which Burnham conducts substantially all of its
business and owns, directly or indirectly, most of its assets. The board of
directors of Burnham manages the affairs of the operating partnership by
directing the affairs of Burnham.
THE COMPANY
FORM OF ORGANIZATION AND ASSETS OWNED
Burnham is a Maryland corporation which has elected to be taxed as a REIT
under the Internal Revenue Code and intends to maintain its qualifications as a
REIT. Burnham maintains interests as the sole general partner in the operating
partnership, and as the holder of both preferred and common limited partnership
units in the operating partnership, which gives Burnham an indirect investment
in those properties and other assets owned by the operating partnership.
THE OPERATING PARTNERSHIP
LENGTH OF INVESTMENT
The operating partnership has a stated termination date of December 31,
2095, although it may be terminated earlier under certain circumstances.
THE COMPANY
LENGTH OF INVESTMENT
Burnham has a perpetual term and intends to continue its operations for an
indefinite time period.
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THE OPERATING PARTNERSHIP
NATURE OF INVESTMENT IN PREFERRED EQUITY AND DISTRIBUTION RIGHTS
The preferred units constitute equity interests entitling each holder to
his or her pro rata share of cash distributions made to the preferred
unitholders of the operating partnership. In general, the operating partnership
is structured so that preferred unitholders receive distributions on their
preferred units equal to the dividend for the same period on a share of
preferred stock of Burnham.
As a partnership, the operating partnership is not subject to federal
income taxation. In determining their federal income tax, partners of the
operating partnership, including preferred unitholders, must take into account
their allocable share of partnership income, gain, deduction and loss
(regardless of whether distributed), and otherwise are subject to the rules
governing the taxation of partnerships and partners. By contrast, preferred
unitholders who receive preferred stock upon exercise of their redemption rights
will be taxed on these investments in accordance with the rules governing REITs.
See "Federal Income Tax Considerations."
THE COMPANY
NATURE OF INVESTMENT IN PREFERRED EQUITY AND DISTRIBUTION RIGHTS
The preferred stock constitutes an equity interest in Burnham. Burnham is
entitled to receive any operating cash flow and capital cash flow remaining
after a distribution to the holders of preferred units and common units has been
effected. Each stockholder will be entitled to his or her pro rata share of any
dividends or distributions paid with respect to preferred stock. The dividends
payable to the holders of preferred stock are cumulative and not fixed in
amount, but are only paid if, when and as declared by the board of directors. In
order to qualify as a REIT, Burnham must distribute at least 95% of its taxable
income (excluding capital gains), and any taxable income (including capital
gains) not distributed will be subject to corporate income tax.
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THE OPERATING PARTNERSHIP
NATURE OF INVESTMENT IN COMMON EQUITY AND DISTRIBUTION RIGHTS
The common units constitute equity interests entitling each common
unitholder to his or her pro rata share of cash distributions made to the common
unitholders of the operating partnership. In general, the operating partnership
is structured so that common unitholders receive distributions on their common
units equal in amount to the dividend for the same period on a share of common
stock of Burnham.
As a partnership, the operating partnership is not subject to federal
income taxation. In determining their federal income tax, partners of the
operating partnership, including common unitholders, must take into account
their allocable share of partnership income, gain, deduction and loss
(regardless of whether distributed), and otherwise are subject to the rules
governing the taxation of partnerships and partners. By contrast, common
unitholders who receive common stock upon exercise of their redemption rights
will be taxed on their investment in accordance with the rules governing REITs.
See "Federal Income Tax Considerations."
THE COMPANY
NATURE OF INVESTMENT IN COMMON EQUITY AND DISTRIBUTION RIGHTS
The common stock constitutes an equity interest in Burnham. Burnham is
entitled to receive any operating cash flow and capital cash flow remaining
after a distribution to the holders of preferred units and common units has been
effected. Each stockholder will be entitled to his or her pro rata share of any
dividends or distributions paid with respect to common stock after the payment
of dividends on outstanding preferred stock. The dividends payable on common
stock are not fixed in amount and are only paid if, when and as declared by the
board of directors. In order to qualify as a REIT, Burnham must distribute at
least 95% of its taxable income (excluding capital gains), and any taxable
income (including capital gains) not distributed will be subject to corporate
income tax.
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THE OPERATING PARTNERSHIP
ISSUANCE OF ADDITIONAL EQUITY
The operating partnership is authorized to issue additional partnership
units and such other partnership interests, including partnership interests of
different series or classes that may be senior to common units, as Burnham may
determine in its sole discretion as general partner; provided, however, that the
operating partnership may not issue partnership interests senior or on parity
with the preferred units without consent of holders of at least a majority of
the preferred units. Subject to certain limitations with respect to the rights
of preferred units, the relative rights, powers and duties of such additional
partnership units or other interests will be determined by Burnham in its sole
discretion. The operating partnership may issue partnership units and other
partnership interests to Burnham, as long as such interests are issued in
connection with a comparable issuance of its capital stock and proceeds raised
in connection with the issuance of such capital stock are contributed to the
operating partnership. The issuance of additional partnership units or other
similar partnership interests may result in the dilution of the interests of the
existing unitholders.
THE COMPANY
ISSUANCE OF ADDITIONAL EQUITY
The board of directors of Burnham may issue, in its discretion, additional
equity securities consisting of common stock or any other series of capital
stock so long as the total number of shares issued does not exceed the
authorized number of shares of capital stock set forth in Burnham's charter.
Burnham may not issue additional equity securities which would impair the rights
of the preferred stock without consent of holders of at least a majority of the
preferred stock. The issuance of additional shares of common stock, preferred
stock or other similar equity securities may result in the dilution of the
interests of the existing stockholders. The operating partnership agreement
contemplates that Burnham will contribute the proceeds of any additional equity
securities to the operating partnership. Each time Burnham issues additional
shares of common stock, the number of common units held by Burnham will increase
so that Burnham will always hold the same number of common units as there are
shares of common stock outstanding. Similarly, there will be an increase in the
number of preferred units held by Burnham to correspond with an increase in the
number of outstanding shares of preferred stock.
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THE OPERATING PARTNERSHIP
LIQUIDITY OF COMMON EQUITY
Subject to certain limitations, a common unitholder may transfer the
economic interest to all or any portion of his or her common units without the
consent of the general partner. However, the general partner's consent is
required in circumstances where a transfer (1) would affect the treatment of
Burnham or the operating partnership under state or federal law, particularly
with respect to tax, partnership, and securities laws, or (2) would impose legal
obligations on Burnham or the operating partnership.
Subject to certain conditions, including the expiration of one or more
specified "lock-out" periods, each common unitholder has the right to elect to
have his or her common units redeemed by the operating partnership. Upon
redemption, the unitholder will receive, at Burnham's election, either shares of
common stock or the cash equivalent in exchange for common units.
THE COMPANY
LIQUIDITY OF COMMON EQUITY
Burnham's common stock is freely transferable subject to the requirements
of the Securities Act. The common stock is listed on the New York Stock
Exchange. The breadth and strength of this market will depend, among other
things, upon the number of shares outstanding, Burnham's financial results and
prospects, the general interest in Burnham's and other real estate investments
and Burnham's dividend yield compared to that of other debt and equity
securities.
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THE OPERATING PARTNERSHIP
LIQUIDITY OF PREFERRED EQUITY
Subject to certain limitations, a preferred unitholder may transfer the
economic interest to all or any portion of his or her preferred units without
the consent of the general partner. However, the general partner's consent is
required in circumstances where a transfer (1) would affect the treatment of
Burnham or the operating partnership under state or federal law, particularly
with respect to tax, partnership, and securities laws, or (2) would impose legal
obligations on Burnham or the operating partnership.
Subject to certain conditions, including the expiration of one or more
specified "lock-out" periods, each preferred unitholder has the right to elect
to have his or her preferred units redeemed by the operating partnership. Upon
redemption, the unitholder will receive, at Burnham's election, either shares of
preferred stock or cash equal to the greater of the stated value plus accrued
and due dividends or the value of shares of common stock into which the
preferred stock is convertible.
THE COMPANY
LIQUIDITY OF PREFERRED EQUITY
Burnham's preferred stock is freely transferable subject to the
requirements of the Securities Act. The preferred stock is not listed on an
exchange and is not publicly traded.
On and after December 31, 1998, March 31, 1999, June 30, 1999, and
September 30, 1999, each holder of shares of preferred stock may convert 25% of
his or her preferred stock into shares of common stock. Upon conversion, each
holder of preferred stock will be entitled to receive for each share of
preferred stock a number of shares of common stock equal to stated value plus
accrued and due dividends, divided by a conversion price of $15.375. This
conversion price is subject to antidilution adjustments.
THE OPERATING PARTNERSHIP
PURPOSE AND PERMITTED INVESTMENTS
The operating partnership's purpose is to conduct any business that may be
lawfully conducted by a Delaware limited partnership, except that the operating
partnership agreement requires the business of the operating partnership to be
conducted in a manner that permits Burnham to be classified as a REIT for
Federal income tax purposes and avoids any Federal income or excise tax
liability. Subject to the foregoing limitation, the operating partnership may
invest or enter into partnerships, joint ventures or similar arrangements, own
interests in any other entity, lend operating partnership funds, or reinvest the
operating partnership's cash flow and net sale or refinancing proceeds.
THE COMPANY
PURPOSE AND PERMITTED INVESTMENTS
Under its charter, Burnham may engage in any lawful activity permitted
under Maryland law.
Neither Burnham's charter nor its bylaws impose any restrictions upon the
types of investments made by Burnham.
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THE OPERATING PARTNERSHIP
BORROWING POLICIES
The operating partnership has no restrictions on borrowings, except that it
may not enter into a financing relationship with Burnham or an affiliate of
Burnham.
THE COMPANY
BORROWING POLICIES
Burnham is not restricted under its organizational documents from incurring
borrowings.
THE OPERATING PARTNERSHIP
MANAGEMENT CONTROL
Generally, all management powers over the business and affairs of the
operating partnership are vested in Burnham as general partner. No other
unitholder of the operating partnership has any right to participate in or
exercise control or management power over the business and affairs of the
operating partnership. The operating partnership agreement provides that Burnham
shall be reimbursed for all expenses incurred by it relating to the management
and business of the operating partnership.
THE COMPANY
MANAGEMENT CONTROL
The board of directors has exclusive control over Burnham's business and
affairs subject only to the restrictions in its charter and bylaws. The
stockholders of Burnham elect the board of directors at each annual meeting of
stockholders. The policies adopted by the board of directors may be altered or
eliminated without advice of the stockholders. Accordingly, except for their
vote in the elections of Directors, stockholders have no control over the
ordinary business policies of Burnham.
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THE OPERATING PARTNERSHIP
MANAGEMENT LIABILITY AND INDEMNIFICATION
THE COMPANY
MANAGEMENT LIABILITY AND INDEMNIFICATION
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THE OPERATING PARTNERSHIP
The operating partnership agreement generally provides that the general partner
and any person acting on its behalf will incur no liability to the operating
partnership or any unitholder for any act or omission within the scope of the
general partner's authorities unless the general partner acted in bad faith and
the act or omission was material to the matter giving rise to the liability.
The operating partnership agreement also provides for the indemnification of the
general partner and its affiliates and any individual acting on their behalf
from any loss, damage, claim or liability, including, but not limited to,
reasonable attorneys' fees and expenses, incurred by them by reason of any act
performed by them unless:
- -- the act or omission was committed in bad
faith or with deliberate dishonesty,
- -- the person committing the act or omission
received improper benefit from the
conduct, or
- -- in the context of a criminal proceeding, the person had reason to
believe the conduct was unlawful in accordance with the standards set
forth above or in enforcing the provisions of this indemnity.
THE COMPANY
Maryland law requires Burnham to indemnify a director or officer who has been
successful in the defense of any proceeding to which he or she is made a party
by reason of service as an officer or director. Maryland law permits Burnham to
indemnify present and former directors and officers against judgments,
penalties, fines, settlements and reasonable expenses incurred by them in
connection with any proceeding to which they are made a party by reason of their
service, among other things, as an officer or director, unless it is established
that (1) the act or omission of the director or officer was material to the
matter giving rise to the proceeding and (a) was committed in bad faith or (b)
was the result of active and deliberate dishonesty, (2) the director or officer
actually received an improper personal benefit in money, property or services
or, (3) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. Burnham's
charter and bylaws eliminate, to the fullest extent permitted under Maryland
law, the personal liability of a director or officer of Burnham for monetary
damages for breaches of that person's duty of care or other duties as a director
or officer. Furthermore, Burnham and the operating partnership have entered into
individual indemnification agreements with each officer and director of Burnham
providing the maximum indemnification permitted under Maryland law. The effect
of these agreements and the relevant provisions of our charter and bylaws is
generally to eliminate the rights of Burnham and its stockholders to recover
monetary damages against a director or officer for breach of the fiduciary duty
of care, including breaches resulting from negligent or grossly negligent
behavior. This does not limit or eliminate the rights of Burnham or any
stockholder to seek non-monetary relief such as an injunction or recision in the
event of a breach of a director's or officer's duty of care nor does it alter
the liability of a director or officer under federal securities laws.
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THE OPERATING PARTNERSHIP
ANTITAKEOVER PROVISIONS
Except in limited circumstances, the general partner has exclusive management
power over the business and affairs of the operating partnership. The general
partner may not be removed by the unitholders with or without cause.
THE COMPANY
ANTITAKEOVER PROVISIONS
Burnham's charter and bylaws and Maryland law contain provisions that may delay
or discourage an unsolicited proposal to acquire Burnham or remove incumbent
management. See "Risk Factors--Provisions of our organizational documents may
discourage acquisition proposals."
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THE OPERATING PARTNERSHIP
VOTING RIGHTS
Holders of common units have no right to elect or remove Burnham as the general
partner of the operating partnership. Under the operating partnership agreement,
Burnham as general partner may take any action in a manner that it reasonably
believes to be in the best interests of its stockholders or complies with the
REIT requirements for Burnham. Burnham's ability to make amendments to the
operating partnership agreement is limited to the extent described below.
THE COMPANY
VOTING RIGHTS
The board of directors directs Burnham's business and affairs. Stockholders
elect the board of directors at annual meetings. All shares of common stock have
one vote per share. The charter permits the board of directors to classify and
issue preferred stock in one or more series having voting power which may differ
from that of the common stock; and holders of preferred stock have the right to
vote on a fully converted basis with the holders of common stock, as well as to
vote as a separate class on certain specified matters.
Stockholders of Burnham have the right to vote, among other things, on a merger
or sale of all or substantially all of the assets of Burnham, certain amendments
to the charter and dissolution of Burnham. Under Maryland law and the charter,
the sale of all or substantially all of the assets of Burnham or any merger or
consolidation of Burnham requires the approval of the board of directors and
holders of a majority of the outstanding shares of stock entitled to vote on the
matter. Approval of the stockholders is not required for the sale of less than
substantially all of Burnham's assets. Under Maryland law and Burnham's charter
and bylaws the board of directors must obtain approval of holders of a majority
of the votes entitled to be cast at a meeting of stockholders in order to
dissolve Burnham.
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THE OPERATING PARTNERSHIP
AMENDMENT OF THE PARTNERSHIP AGREEMENT OR BURNHAM'S CHARTER
Generally, the operating partnership agreement may be amended by the general
partner without the consent of the other holders of limited partnership units.
Certain amendments affecting the rights, obligations, authority and outside
activities of the general partner, the transfer of partnership interests,
transactions with affiliates of the partnership and dissolution of the
partnership, among other things set forth in the operating partnership
agreement, require consent of the unitholders holding a majority-in-interest of
the outstanding limited partnership units. This excludes limited partnership
units which may be voted by the general partner. Furthermore, the general
partner may not amend the operating partnership agreement in any manner
affecting the terms and conditions of, or the rights or preferences of the
preferred units without approval of (1) holders of at least a majority of
outstanding shares of preferred stock, voting separately as a class, and (2)
holders of at least a majority of the outstanding preferred units.
THE COMPANY
AMENDMENT OF THE PARTNERSHIP AGREEMENT OR BURNHAM'S CHARTER
Amendments to the charter must be approved by the board of directors and
generally by the vote of a majority of the votes entitled to be cast at a
meeting of stockholders except as otherwise provided by law. Burnham may not
amend the charter in such a manner as would impair the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications and terms and conditions of
redemption of the preferred stock without approval of holders of at least a
majority of outstanding shares of preferred stock, voting separately as a
class.
THE OPERATING PARTNERSHIP
COMPENSATION, FEES AND DISTRIBUTIONS
The general partner is not entitled to receive any compensation for its services
as general partner of the operating partnership. As a partner in the operating
partnership, however, the general partner has the same right to allocations and
distributions as other partners of the operating partnership. In addition, the
operating partnership will reimburse the general partner for administrative
expenses incurred relating to the ongoing operation of Burnham and certain other
expenses arising in connection with its role as general partner. All officers of
Burnham are employees of the operating partnership.
THE COMPANY
COMPENSATION, FEES AND DISTRIBUTIONS
The directors receive compensation for their services in the form of capital
stock of Burnham. The operating partnership pays the compensation of the
officers of Burnham.
52
<PAGE>
THE OPERATING PARTNERSHIP
LIABILITY OF INVESTORS
Under the operating partnership agreement and applicable Delaware law, the
liability of the limited partners for the operating partnership's debts and
obligations is generally limited to the amount of their investment in the
operating partnership, together with any interest in any undistributed income.
THE COMPANY
LIABILITY OF INVESTORS
Under Maryland law, stockholders generally are not personally liable for the
debts or obligations of Burnham.
53
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
As a REIT, Burnham must comply with highly technical and complex
requirements under the Internal Revenue Code. The following discussion
summarizes these requirements and their effect on Burnham and its stockholders.
The summary discussion is for general information only and is not an exhaustive
list of all tax considerations that may be material. For example, this
discussion does not address any state, local or foreign tax considerations.
Also, this discussion does not address issues that arise as a result of your, or
any other investor's, special circumstances or special status under the Internal
Revenue Code. The summary is qualified in its entirety by, and you should refer
to, Sections 856 through 860 of the Internal Revenue Code and the related
Treasury regulations, which set forth the particular provisions applicable to
REITs.
This discussion is not intended to be, nor should you construe it as,
tax advice. You should consult your own tax advisor to determine the impact of
owning Burnham's stock on your own personal situation, including tax
consequences arising under the laws of any state, municipality or other taxing
jurisdiction. In particular, foreign investors should consult their own tax
advisors concerning the tax consequences of an investment in Burnham, including
the possibility of United States income tax withholding on company
distributions.
GENERAL
Under the Internal Revenue Code, if certain requirements are met in a
taxable year, including the requirement that the REIT distribute to its
stockholders at least 95% of its real estate investment trust taxable income for
the taxable year, a REIT generally will not be subject to federal income tax
with respect to income that it distributes to its stockholders. However, Burnham
may be subject to federal income tax under certain circumstances, including
taxes at regular corporate rates on any undistributed REIT taxable income or net
capital gains, the alternative minimum tax on its items of tax preference, and
taxes imposed on income and gain generated by certain extraordinary
transactions. As discussed below, however, for taxable years beginning after
December 31, 1997, stockholders may be credited for all or a portion of the
taxes paid by Burnham on its retained net capital gains. If Burnham fails to
qualify during any taxable year as a REIT, unless relief is available, it will
be subject to tax on its taxable income at regular corporate rates. This could
harm its stockholders.
BURNHAM BELIEVES BUT CANNOT GUARANTEE THAT IT QUALIFIES AS A REIT
Burnham has elected to qualify as a REIT under the Internal Revenue
Code. In the opinion of Goodwin, Procter & Hoar LLP, Burnham has been organized
in conformity with the requirements for qualification as a REIT under the
Internal Revenue Code, and its manner of operation has met and will continue to
meet the requirements for qualification and taxation as a REIT under the
Internal Revenue Code. This opinion is based on various assumptions and is
conditioned upon representations made by Burnham as to factual matters and the
continuation of such factual matters. You should be aware, moreover, that
opinions of counsel are not binding upon the IRS or any court. In addition,
qualification and taxation as a REIT in any tax year requires that Burnham meet
the various source of income, ownership of assets, distribution and diversity of
ownership requirements of the Internal Revenue Code for qualification as a REIT
in its actual results each tax year, which results will not be reviewed by
Goodwin, Procter & Hoar LLP. Accordingly, no assurance can be given that the
actual results of Burnham for any particular tax year will in fact satisfy the
requirements for qualification. Likewise, although Burnham believes that it has
operated in a
54
<PAGE>
manner which satisfies the REIT qualification requirements under the Internal
Revenue Code since 1987, Burnham's qualification as a REIT could be
challenged by the IRS for taxable years still subject to audit.
UNDISTRIBUTED LONG-TERM CAPITAL GAINS
Burnham 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 Burnham so elects for a taxable year, the
stockholders would include in income as long-term capital gains their
proportionate share of the portion of Burnham's undistributed long-term capital
gains for the taxable year that Burnham designates. A stockholder would be
deemed to have paid his share of the tax paid by Burnham on the undistributed
capital gains, and the tax paid would be credited or refunded to the
stockholder. The stockholder's basis in his stock would be increased by the
amount of undistributed long-term capital gains included in the stockholder's
long-term capital gains, less the stockholder's share of the capital gains tax
paid by Burnham. As discussed below, stockholders should note that the IRS has
issued Notice 97-64 which provides interim guidance on the proper treatment of
capital gains dividends and undistributed capital gains for individuals, estates
and certain trusts.
ORDINARY DIVIDENDS
As long as Burnham qualifies as a REIT, distributions made to its
taxable U.S. Stockholders (as defined below) out of current or accumulated
earnings and profits (and not designated as a capital gain dividends) will be
taken into account by U.S. Stockholders as ordinary income and will not be
eligible for the dividends received deduction generally available to
corporations. For purposes of determining whether distributions on Burnham's
stock are out of current or accumulated earnings and profits, Burnham's earnings
and profits will be allocated first to the outstanding preferred stock, and then
allocated to Burnham's common stock.
When we refer to a "U.S. Stockholder," we mean a holder of common or
preferred stock that for United States federal income tax purposes is:
o a citizen or resident of the United States,
or
o a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision
thereof, or
o an estate, the income of which is subject to
United States federal income taxation
regardless of its source, or
o 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
o is not an entity that has a special status under the Internal Revenue
Code, such as a tax-exempt organization or dealer in securities.
CAPITAL GAIN DIVIDENDS
To the extent that Burnham has net capital gain for a taxable year,
dividends either paid or deemed to be paid during the year which are properly
designated as long-term capital gains will be treated as such for the taxable
year regardless of the period for which the stockholder has held his stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Capital gain dividends are not
eligible for the dividends-received deduction for corporations.
55
<PAGE>
OTHER DIVIDENDS
Distributions, other than capital gain dividends, in excess of Burnham's
current and accumulated earnings and profits will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's stock, but rather will reduce the adjusted basis of the stock. To
the extent that distributions in excess of current and accumulated earnings and
profits exceed the adjusted basis of a stockholder's stock, the distribution
will be treated as long-term capital gain or loss if the shares of stock have
been held for more than 12 months and otherwise as short-term capital gain or
loss, assuming the stock is a capital asset in the hands of the stockholder. In
addition, any dividend declared by Burnham in October, November or December of
any year and payable to stockholders of record on a specified date in any such
month shall be treated as both paid by Burnham and received by the stockholder
on December 31 of such year, provided that the distribution is actually paid by
Burnham during January of the following calendar year.
CONVERSION OF PREFERRED STOCK TO COMMON STOCK
No gain or loss generally will be recognized upon conversion of
preferred stock into common stock except with respect to any cash paid in lieu
of fractional shares of common stock. The tax basis of the common stock received
upon conversion will be equal to the tax basis of the preferred stock converted,
and, provided the preferred stock is held as a capital asset, the holding period
of the common stock will include the holding period of the preferred stock
converted. Additionally, if a conversion takes place when there is a dividend
arrearage on the preferred stock and the fair market value of the common stock
exceeds the issue price of the preferred stock, a portion of the common stock
received might be treated as a dividend distribution taxable as ordinary income.
ADJUSTMENT OF CONVERSION PRICE
When the conversion price of convertible preferred stock is adjusted to
reflect certain taxable distributions with respect to the stock into which it is
convertible, regulations under Section 305 of the Internal Revenue Code treat
the adjustment as a constructive distribution by the issuer, taxable as a
dividend to the extent of the issuer's current or accumulated earnings and
profits. Accordingly, under certain circumstances, an adjustment to the
conversion price of the preferred stock may give rise to a deemed taxable
dividend to the holders of such stock, whether or not they exercise their
conversion privilege. In addition, the failure to fully adjust the conversion
price of the preferred stock under some circumstances may give rise to a deemed
taxable dividend to the holders of common stock.
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<PAGE>
NO PROCEEDS TO BURNHAM
Neither Burnham nor the operating partnership will receive any cash
proceeds from the issuance of any shares of common stock or preferred stock
offered under this prospectus. With each issuance of shares of common stock or
preferred stock as a result of a redemption of partnership units, however,
Burnham's economic interest in the operating partnership will increase.
Burnham also will not receive any cash proceeds from the sale of the
shares held by the selling stockholders.
SELLING STOCKHOLDERS
2,800,000 shares of preferred stock may be offered from time to time by
or for the account of the selling stockholders. The following table sets forth
the name of each selling stockholder, the number of shares of preferred stock
beneficially owned by each selling stockholder as of December 31, 1998 and the
respective percentages of preferred stock beneficially owned by each selling
stockholder outstanding as of that date and that would be owned if Burnham
issues all 2,000,000 shares of preferred stock upon redemption of all
outstanding preferred units of the operating partnership prior to any sale (or
conversion into common stock) of the preferred stock owned by the selling
stockholders. The number of preferred stock beneficially owned by each selling
stockholder is based upon information furnished by the selling stockholders
which Burnham believes to be accurate.
<TABLE>
<CAPTION>
PERCENT OF CLASS
----------------------------------------
Preferred After Issuance of 2,000,000
Shares Shares of Preferred Stock
Beneficially Outstanding Upon Redemption
SELLING STOCKHOLDER OWNED AT 12/31/98 OF PREFERRED UNITS
- ------------------- ------------ ----------- ---------------------------
<S> <C> <C> <C>
Westbrook Burnham Holdings, L.L.C. 2,495,538 89.1% 52.0%
Westbrook Burnham Co-Holdings, L.L.C. 304,462 10.9% 6.3%
--------- ----- ----
2,800,000* 100.0% 58.3%
========= ===== ====
</TABLE>
- ------------------
* Blackacre SMC Master Holdings, L.L.C. is the record holder of 10 of
these shares.
At the exchange rate effective at December 31, 1998 of approximately
1.626 shares of common stock for each share of preferred stock, the conversion
of all of the preferred stock held by the selling stockholders would result in
Westbrook Burnham Holdings, L.L.C. owning 4,057,785 shares of common stock and
Westbrook Burnham Co-Holdings, L.L.C. owning 495,060 shares of common stock, for
an aggregate of 4,552,845 shares of common stock.
Any prospectus supplement which may be circulated relating to
57
<PAGE>
the sale or sales from time to time of preferred stock or, if the preferred
stock has been converted into common stock, of shares of common stock that is
less than all of the preferred stock or shares of common stock owned by any
selling stockholder will set forth the number and the percentage of the
outstanding shares of preferred stock or common stock continuing to be held
by the selling stockholder after completion of the sales described in the
prospectus supplement.
58
<PAGE>
PLAN OF DISTRIBUTION
This prospectus relates to the offer and sale from time to time of:
- - up to 2,800,000 shares of preferred stock by the holders thereof,
- - up to an additional 2,000,000 shares of our preferred stock which we may
issue upon redemption of preferred units of the operating partnership,
- - up to 7,804,878 shares of our common stock which we may issue upon
conversion of the above referenced preferred stock at the initial
conversion ratio of approximately 1.626 shares of common stock for each
share of preferred stock,
- - up to an additional 574,483 shares of our common stock which we may issue
upon redemption of common units of the operating partnership, and
- - an indeterminate number of additional shares of our common stock which we
may issue as a result of the anti-dilution provisions of the preferred
stock.
We are filing the registration statement of which this prospectus is a part
to fulfill our contractual obligations to the selling stockholders and to the
holders of the preferred units and common units and to provide them with freely
tradable securities.
The selling stockholders from time to time may offer and sell their
preferred stock or shares of common stock into which their preferred stock is
convertible directly or through agents or broker-dealers on terms to be
determined at the time of sale. To the extent required, the names of any agent
or broker-dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in an
accompanying prospectus supplement. Each of the selling stockholders reserves
the sole right to accept or reject, in whole or in part, any proposed purchase
of the stock to be made directly or through agents.
We will not receive any proceeds from the sale of the stock by the selling
stockholders or the issuance of the other securities offered hereby. We have
agreed to bear certain expenses of registration of the securities offered under
this prospectus under federal and state securities laws.
The selling stockholders and any agents or broker-dealers that
participate in the distribution of stock may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions received by
them and any profit on the resale of the stock may be deemed to be
underwriting commissions or discounts under the Securities Act. See
"Registration rights" for indemnification arrangements between Burnham and
the selling stockholders. Alternatively, the selling stockholders may from
time to time offer the stock through dealers or agents, who may receive
compensation in the form of commissions from the selling stockholders and/or
the purchasers of stock for whom they may act as agent.
The distribution of the stock by or for the account of the selling
stockholders also may be effected from time to time in one or more underwritten
transactions at a fixed price or prices, which may be changed, or
59
<PAGE>
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Any such underwritten offering
may be on a "best efforts" or a "firm commitment" basis. In connection with any
such underwritten offering, underwriters or agents may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
or from purchasers of stock for whom they may act as agents. Underwriters may
sell stock 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. Burnham has
agreed to indemnify the underwriters, if any, against certain liabilities,
including liabilities under the Securities Act.
At a time a particular offer of stock is made by or for the account of the
selling stockholders, a prospectus supplement, may, if required, be distributed
that will set forth the names of any underwriters and the amounts underwritten
by each underwriter, the nature of the underwriters' obligations and any
commissions and discounts paid to each underwriter for each security and in
total and other terms constituting compensation from the selling stockholders
and any other required information. The stock may be sold from time to time at
varying prices determined at the time of sale or at negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, the stock to be sold by or for the account of the selling
stockholders may be sold only through registered or licensed brokers or dealers.
In addition, in certain states, the stock may not be sold unless they have been
registered or qualified for sale in such state or an exemption from such
registration or qualification requirement is available and is complied with.
The stock may also be sold by or for the account of the selling
stockholders in one or more of the following transactions:
- - block transactions in which a broker-dealer may sell all or a portion of
the stock as agent but may position and resell all or a portion of the
block as principal to facilitate the transaction; o purchases by a
broker-dealer as principal and resale by such broker-dealer for its own
account pursuant to a prospectus supplement;
- - a special offering, an exchange distribution or a secondary distribution in
accordance with applicable New York Stock Exchange or other stock exchange
rules;
- - ordinary brokerage transactions and transactions in which any such broker-
dealer solicits purchasers;
- - sales "at the market" to or through a market maker or into an existing
trading market, on an exchange or otherwise, for such shares; and
- - sales in other ways not involving market makers or established trading
markets, including direct sales to purchasers.
In effecting sales, broker-dealers engaged by the selling stockholders may
arrange for other broker-dealers to participate.
LEGAL MATTERS
Certain legal matters, including the legality of the shares of preferred
stock and common stock offered hereby, will be passed upon for Burnham by
Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
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<PAGE>
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this prospectus by reference from Burnham's Annual
Report on Form 10-K for the year ended December 31, 1997, have been audited by
Deloitte & Touche, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
61
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus,
incorporated herein by reference or contained in a prospectus supplement. We
have not authorized anyone else to provide you with different or additional
information. Neither we nor the selling stockholders named herein are making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus or information
incorporated in this prospectus by reference or contained or incorporated by
reference in any prospectus supplement is accurate as of any date other than the
date on the front of the document containing such information.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 6
About This Prospectus and Where You
Can Find More Information..................... 22
The Company...................................... 24
Forward Looking Information...................... 25
Description of Securities........................ 27
Description of Units and Redemption
of Units of Operating Partnership............. 37
Federal Income Tax Considerations................ 54
No Proceeds to Burnham........................... 57
Selling Stockholders............................. 57
Plan of Distribution............................. 59
Legal Matters.................................... 60
Experts.......................................... 61
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,800,000 Shares
Series 1997-A Convertible
Preferred Stock
and
7,804,878 Shares
Common Stock Issuable Upon
Conversion Thereof
and
574,483 Other Shares
Common Stock
Burnham Pacific Properties, Inc.
----------------
Prospectus
----------------
February 26, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of the fees and
expenses (other than underwriting commissions and discounts) anticipated to be
paid by Burnham in connection with the issuance and distribution of the
Securities.
<TABLE>
<S> <C>
SEC Registration fee $35,127
Legal fees and expenses 50,000
Accounting fees and expenses 5,000
Printing fees and expenses 5,000
Transfer and Agency fees 1,000
Miscellaneous 3,873
---------
TOTAL $ 100,000
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Maryland General Corporation Law ("MGCL") permits a Maryland
corporation to include in its charter a provision limiting the liability of its
directors and officers to the corporation and its stockholders for money damages
except for liability resulting from (i) actual receipt of an improper benefit or
profit in money, property or services or (ii) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. The
charter of Burnham Pacific Properties, Inc. ("Burnham") contains such a
provision which eliminates such liability to the maximum extent permitted by
Maryland law.
The charter of Burnham authorizes it, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (i) any individual
who is a present or former director, officer, employee or agent of Burnham or of
its predecessor, Burnham Pacific Properties, Inc., a California corporation (the
"Predecessor Corporation") or (ii) any individual who, while a director of
Burnham or Predecessor Corporation and at the request of Burnham or Predecessor
Corporation, serves or has served as a director, officer, partner or trustee of
another corporation, partnership, joint venture, trust, employee benefit plan or
any other enterprise. The bylaws of Burnham obligate it, to the maximum extent
permitted by Maryland law, to indemnify (a) any individual who is a present or
former director, officer, employee or agent of Burnham or Predecessor
Corporation or (b) any individual who, while a director of Burnham or
Predecessor Corporation and at the request of Burnham or Predecessor
Corporation, serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
officer, partner or trustee.
The MGCL requires a corporation (unless its charter provides otherwise,
which Burnham's charter does not) to indemnify a director or officer who has
been successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (i) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (a) was
committed in bad faith or (b) was the result of active and deliberate
dishonesty, (ii) the director or officer actually received an improper personal
benefit in money, property or services or (iii) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation. In
addition, the MGCL allows a corporation to advance expenses to a director or
officer, provided that, as a condition to advancing expenses, the corporation
obtains (x) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the corporation as authorized by
II-1
<PAGE>
the bylaws and (y) a written statement by or on his behalf to repay the amount
paid or reimbursed by the corporation if it shall ultimately be determined that
the standard of conduct was not met.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
4.1 Charter of Burnham, as Amended and Restated May 6, 1997, incorporated by
reference to pages B- 1 through B-13 of Burnham's Proxy Statement for
its 1997 Annual Meeting, filed March 31, 1997.
4.2 Articles Supplementary Designating 4,800,000 shares of preferred stock
as 4,800,000 shares of Series 1997-A Convertible preferred stock,
incorporated by reference to Exhibit 3.1.2 to Burnham's Current Report
on Form 8-K dated December 31, 1997.
4.3 Bylaws of Burnham, as amended November 19, 1997, incorporated by
reference to Exhibit 3.2 of Burnham's Current Report on Form 8-K, filed
December 16, 1997.
4.4.1 Form of common stock certificate of Burnham, incorporated by reference
to Exhibit 4.0 of Burnham's registration statement No. 33-20489 and
subsequently overprinted to state "THE CORPORATION IS NOW INCORPORATED
IN THE STATE OF MARYLAND WITH $0.01 PAR VALUE PER SHARE."
*4.4.2 Form of Series 1997-A Convertible Preferred Stock Certificate of
Burnham.
4.5 Agreement of Limited Partnership of Burnham Pacific Operating
Partnership, L.P. dated as of November 14, 1997, incorporated by
reference to Exhibit 10.1.1 of Burnham's Current Report on Form 8-K
dated November 7, 1997.
4.6 First Amendment to Agreement of Limited Partnership of Burnham Pacific
Operating Partnership, L.P. dated as of December 31, 1997, incorporated
by reference to Exhibit 10.1 of Burnham's Report on Form 8-K dated
December 31, 1997, and, with respect to Exhibit C thereto ("Rights of
Preferred Units and Common Units"), to Exhibit 10.1.3 of Burnham's 1997
Annual Report on Form 10-K filed March 20, 1998.
4.7 Third Amendment to the Agreement of Limited Partnership of Burnham
Pacific Operating Partnership, L.P. incorporated by reference to Exhibit
10.1 of Burnham's Current Report on Form 8-K dated June 1, 1998.
**5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being registered.
**8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
10.1 Operating Agreement of BPP Retail, LLC between State of California
Public Employees' Retirement System and Burnham Pacific Operating
Partnership, L.P., dated August 31, 1998 (being the joint venture
agreement with CalPERS), incorporated by reference to Exhibit 10.1 of
Burnham's Quarterly Report on Form 10-Q for the quarter ended September
30, 1998.
10.2 Agreement to Contribute among Burnham Pacific Properties, Inc., Burnham
Pacific Operating Partnership, L.P. and the Contributors and Existing
Partners Listed on Exhibit A-1 thereto, incorporated by reference to
Exhibit 10.2 to Burnham's Current Report on Form 8-K dated November 7,
1997.
10.3 Stock Purchase Agreement dated as of December 5, 1997 by and among
Burnham Pacific Properties, Inc., Burnham Pacific Operating Partnership,
L.P., Westbrook Burnham Holdings, L.L.C. and Westbrook Burnham
Co-Holdings, L.L.C. incorporated by reference to Exhibit 4.1 of
Burnham's Current Report on Form 8-K dated December 31, 1997.
*10.4 Form of Indemnification Agreement between Burnham Pacific Properties,
Inc. and Burnham Pacific Operating Partnership, L.P. as indemnitors and
their Directors and Officers as indemnitees.
**23.1 Consent of Deloitte & Touche LLP.
**23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibits 5.1 and 8.1
hereto).
*24.1 Powers of Attorney.
99.1 Registration Rights Agreement dated as of December 31, 1997 by and among
Burnham, Westbrook Burnham Holdings, L.L.C. and Westbrook Burnham
Co-Holdings, L.L.C., incorporated by reference to Exhibit 4.2.1 of
Burnham's Current Report on Form 8-K dated December 31, 1997.
99.2 Registration Rights Agreement dated as of December 31, 1997 by and among
Burnham, Westbrook Burnham Holdings, L.L.C. and each of the Existing
Partners Listed on
</TABLE>
II-2
<PAGE>
Exhibit A-1 thereto, incorporated by reference to Exhibit 4.2.2 of
Burnham's Current Report on Form 8-K dated December 31, 1997.
- ----------------------
* Previously filed on December 30, 1998.
** Filed herewith.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933, as amended (the "Securities Act")
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
by the undersigned registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that are incorporated by reference in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the Exchange Act
that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial BONA FIDE offering
thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under
Item 15 above, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission (the
"Commission") such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public
II-4
<PAGE>
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this
Pre-Effective Amendment No. 1 to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
State of California on February 26, 1999.
BURNHAM PACIFIC PROPERTIES, INC.
By: /s/ J. David Martin
---------------------------------
J. David Martin, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment No. 1 to the registration statement has been signed
by the following persons in the capacities and on February 26, 1999.
NAME TITLE
/s/ J. DAVID MARTIN President, Chief Executive
- -------------------------- Officer (Principal Executive Officer)
J. David Martin and Director
* Chief Financial Officer (Principal
- -------------------------- Financial Officer)
Daniel B. Platt
* Vice President Finance and Treasurer
- -------------------------- (Principal Accounting Officer)
Marc A. Artino
* Director
- --------------------------
Malin Burnham
* Director
- --------------------------
James D. Harper, Jr.
* Director
- --------------------------
James D. Klingbeil
* Director
- --------------------------
Nina B. Matis
* Director
- --------------------------
Donne P. Moen
* Director
- --------------------------
Thomas A. Page
II-6
<PAGE>
* Director
- --------------------------
Philip S. Schlein
- -------------------------- Director
Robin Wolaner
*By:/S/ J. DAVID MARTIN
J. David Martin,
as attorney-in-fact
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
4.1 Charter of Burnham, as Amended and Restated May 6, 1997, incorporated
by reference to pages B-1 through B-13 of Burnham's Proxy Statement
for its 1997 Annual Meeting, filed March 31, 1997.
4.2 Articles Supplementary Designating 4,800,000 shares of preferred stock
as 4,800,000 shares of Series 1997-A Convertible Preferred Stock,
incorporated by reference to Exhibit 3.1.2 to Burnham's Current Report
on Form 8-K dated December 31, 1997.
4.3 Bylaws of Burnham, as amended November 19, 1997, incorporated by
reference to Exhibit 3.2 of Burnham's Current Report on Form 8-K,
filed December 16, 1997.
4.4.1 Form of common stock certificate of Burnham, incorporated by reference
to Exhibit 4.0 of Burnham's registration statement No. 33-20489 and
subsequently overprinted to state "THE CORPORATION IS NOW INCORPORATED
IN THE STATE OF MARYLAND WITH $0.01 PAR VALUE PER SHARE."
*4.4.2 Form of Series 1997-A Convertible Preferred Stock Certificate of
Burnham.
4.5 Agreement of Limited Partnership of Burnham Pacific Operating
Partnership, L.P. dated as of November 14, 1997, incorporated by
reference to Exhibit 10.1.1 of Burnham's Current Report on Form 8-K
dated November 7, 1997.
4.6 First Amendment to Agreement of Limited Partnership of Burnham Pacific
Operating Partnership, L.P. dated as of December 31, 1997,
incorporated by reference to Exhibit 10.1 of Burnham's Report on Form
8-K dated December 31, 1997, and, with respect to Exhibit C thereto
("Rights of Preferred Units and Common Units"), to Exhibit 10.1.3 of
Burnham's 1997 Annual Report on Form 10-K filed March 20, 1998.
4.7 Third Amendment to the Agreement of Limited Partnership of Burnham
Pacific Operating Partnership, L.P. incorporated by reference to
Exhibit 10.1 of Burnham's Current Report on Form 8-K dated June 1,
1998.
**5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the
securities being registered.
**8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.
10.1 Operating Agreement of BPP Retail, LLC between State of California
Public Employees' Retirement System and Burnham Pacific Operating
Partnership, L.P., dated August 31, 1998 (being the joint venture
agreement with CalPERS), incorporated by reference to Exhibit 10.1 of
Burnham's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
10.2 Agreement to Contribute among Burnham Pacific Properties, Inc.,
Burnham Pacific Operating Partnership, L.P. and the Contributors and
Existing Partners Listed on Exhibit A-1 thereto, incorporated by
reference to Exhibit 10.2 to Burnham's Current Report on Form 8-K
dated November 7, 1997.
10.3 Stock Purchase Agreement dated as of December 5, 1997 by and among
Burnham Pacific Properties, Inc., Burnham Pacific Operating
Partnership, L.P., Westbrook Burnham Holdings, L.L.C. and Westbrook
Burnham Co-Holdings, L.L.C. incorporated by reference to Exhibit 4.1
of Burnham's Current Report on Form 8-K dated December 31, 1997.
*10.4 Form of Indemnification Agreement between Burnham Pacific Properties,
Inc. and Burnham Pacific Operating Partnership, L.P. as indemnitors
and their Directors and Officers as indemnitees.
**23.1 Consent of Deloitte & Touche LLP.
**23.2 Consent of Goodwin, Procter & Hoar LLP (included in Exhibits 5.1 and
8.1 hereto).
*24.1 Powers of Attorney.
99.1 Registration Rights Agreement dated as of December 31, 1997 by and
among Burnham, Westbrook Burnham Holdings, L.L.C. and Westbrook
Burnham Co-Holdings, L.L.C., incorporated by reference to Exhibit
4.2.1 of Burnham's Current Report on Form 8-K dated December 31, 1997.
99.2 Registration Rights Agreement dated as of December 31, 1997 by and
among Burnham, Westbrook Burnham Holdings, L.L.C. and each of the
Existing Partners Listed on Exhibit A-1 thereto, incorporated by
reference to Exhibit 4.2.2 of Burnham's Current Report on Form 8-K
dated December 31, 1997.
</TABLE>
- ----------------------
* Previously filed on December 30, 1998.
** Filed herewith.
<PAGE>
Exhibit 5.1
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE: (617) 570-1000
TELECOPIER (617) 523-1231
February 26, 1999
Burnham Pacific Properties, Inc.
610 West Ash Street, 16th Floor
San Diego, California 92101
Ladies and Gentlemen:
This opinion is furnished in connection with the registration on Form
S-3 (the "Registration Statement") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), of (i) up to 2,800,000 shares of Series 1997-A
Convertible Preferred Stock, $.01 par value per share ("Preferred Stock"), of
Burnham Pacific Properties, Inc. (the "Company") by holders thereof, (ii) up to
an additional 2,000,000 shares of the Company's Preferred Stock that may be
issued if, and to the extent that, certain holders of preferred units of limited
partnership interest ("Preferred Units") of Burnham Pacific Operating
Partnership, L.P. (the "Operating Partnership") tender such Preferred Units to
the Operating Partnership for redemption and the Company exercises its
contractual right to acquire such tendered Preferred Units for Preferred Stock,
(iii) up to 7,804,878 shares of the Company's common stock, $.01 par value per
share (the "Common Stock"), which may be issued upon conversion of the above
referenced 4,800,000 shares of Preferred Stock at the initial conversion ratio
of approximately 1.626 shares of Common Stock for each share of Preferred Stock,
(iv) up to an additional 574,482 shares of Common Stock which may be issued if,
and to the extent that, certain holders of common units of limited partnership
interest ("Common Units") of the Operating Partnership tender such Common Units
to the Operating Partnership for redemption and the Company exercises its
contractual right to acquire such tendered Common Units for Common Stock, and
(v) an indeterminate number of additional shares of Common Stock which may be
issued as a result of the anti-dilution provisions of the Preferred Stock.
In connection with rendering this opinion, we have examined the Charter,
Articles Supplementary Designating 4,800,000 Shares of Series 1997-A Convertible
Preferred Stock, and Bylaws of the Company, each as amended to date; such
records of the corporate proceedings of the Company as we deemed material; the
Agreement of Limited Partnership of Burnham Pacific Operating Partnership, L.P.,
as amended to date; and such other certificates, receipts, records and documents
as we considered necessary for the purposes of this opinion. In our examination,
we have assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to us as certified,
photostatic or facsimile copies, the authenticity of the originals of such
<PAGE>
Burnham Pacific Properties, Inc.
February 26, 1999
Page 2
copies and the authenticity of telephonic confirmations of public officials and
others. As to facts material to our opinion, we have relied upon certificates or
telephonic confirmations of public officials and certificates, documents,
statements and other information of the Company or representatives or officers
thereof.
We express no opinion concerning the laws of any jurisdictions other
than the laws of the United States of America and the General Corporation Law of
the State of Maryland as in effect on the date hereof, and also express no
opinion with respect to the blue sky or securitites laws of any state, including
Maryland.
Based upon the foregoing, we are of the opinion that (i) the 2,800,000
shares of Preferred Stock being registered for resale by the Registration
Statement are duly authorized, legally issued, fully paid and nonassessable by
the Company under the General Corporation Law of the State of Maryland, and (ii)
when and to the extent that (A) shares of Preferred Stock or Common Stock have
been issued in exchange for Preferred Units or Common Units, respectively,
tendered to the Operating Partnership for redemption as contemplated by the
limited partnership agreement of the Operating Partnership, and (B) shares of
Common Stock are issued upon conversion of the above referenced shares of
Preferred Stock or as a result of the anti-dilution provisions of such Preferred
Stock, such issued shares will be validly issued, fully paid and nonassessable
under the General Corporation Law of the State of Maryland.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us with respect to this opinion
under the heading "Legal Matters" in the Prospectus which is a part of such
Registration Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit 8.1
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE: (617) 570-1000
TELECOPIER (617) 523-1231
February 26, 1999
Burnham Pacific Properties, Inc.
610 West Ash Street
Suite 1600
San Diego, California 92101
Re: CERTAIN FEDERAL INCOME TAX MATTERS
Ladies and Gentlemen:
This opinion is furnished to you in our capacity as counsel to Burnham
Pacific Properties, Inc. (the "Company") in connection with the Company's
Registration Statement on Form S-3 (File No. 333-69957) filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
through the date hereof (the "Registration Statement"), relating to up to
4,800,000 Shares of the Company's Series 1997-A Convertible Preferred Stock,
7,804,878 Shares of the Company's Common Stock issuable upon conversion thereof
and 574,482 other Shares of Common Stock. This opinion relates to the Company's
qualification for federal income tax purposes as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, as amended (the "Code") and
the accuracy of certain statements in the Registration Statement.
In rendering the following opinions, we have made such legal and factual
examinations and inquiries as we have deemed necessary or appropriate for
purposes of rendering the opinions set forth herein, including an examination of
the Articles of Incorporation of the Company and of all documents constituting
amendments thereto (as so amended, the "Charter"); the Bylaws of the Company as
amended to date (the "Bylaws"); the Articles of Incorporation and amendments
thereto of the Company's predecessor corporation (the "Predecessor"), a
California corporation that merged with and into the Company as of May 6, 1997
(which merger is referred to herein as the "Reincorporation"); the Agreement and
Plan of Merger dated as of May 6, 1997 between the Predecessor and the Company
regarding the
<PAGE>
Burnham Pacific Properties, Inc.
February 26, 1999
Page 2
Reincorporation; the Agreement of Limited Partnership of Burnham Pacific
Operating Partnership, L.P. (the "Operating Partnership") as amended to date;
the Registration Statement; and such other records, certificates and documents
as we have deemed necessary or appropriate for purposes of rendering the opinion
set forth herein. We also have relied upon representations of the Company as to
matters of fact regarding the manner in which the Company has been and will
continue to be owned and operated. We have neither independently investigated
nor verified such representations, and we assume that such representations are
true, correct and complete and that all representations made "to the best of the
knowledge and belief" of any person(s) or party(ies) or with similar
qualification are and will be true, correct and complete as if made without such
qualification. We assume that the Company has been and will be operated in
accordance with applicable laws and the terms and conditions of applicable
documents. In addition, we have relied on certain additional facts and
assumptions described below.
In rendering the opinions set forth herein, we have assumed (i) the
genuineness of all signatures on documents we have examined, (ii) the
authenticity of all documents submitted to us as originals, (iii) the conformity
to the original documents of all documents submitted to us as copies, (iv) the
conformity of final documents to all documents submitted to us as drafts, (v)
the authority and capacity of the individual or individuals who executed any
such documents on behalf of any person other than the Company, (vi) the accuracy
and completeness of all records made available to us, and (vii) the factual
accuracy of all representations, warranties and other statements made by all
persons. In addition, we have assumed that (i) the Reincorporation was
consummated in accordance with the Merger Agreement, (ii) each of the
Predecessor and the Company complied and will comply with all reporting
obligations with respect to the Reincorporation required under the Code and the
Treasury Regulations thereunder, and (iii) the Merger Agreement was valid and
binding in accordance with its terms. We also have assumed, without
investigation, that all documents, certificates, warranties and covenants on
which we have relied in rendering the opinion set forth below and that were
given or dated earlier than the date of this letter continue to remain accurate,
insofar as relevant to the opinion set forth herein, from such earlier date
through and including the date of this letter.
The discussion and conclusions set forth below are based upon the Code,
the Income Tax Regulations and Procedure and Administration Regulations
promulgated thereunder and existing administrative and judicial interpretations
thereof, all of which are subject to change. No assurance can therefore be given
that the federal income tax consequences described below will not be altered in
the future. As used below, the "Company" includes the Predecessor for
<PAGE>
Burnham Pacific Properties, Inc.
February 26, 1999
Page 3
all taxable periods of the Predecessor beginning with its taxable year ended
December 31, 1987 through and including the Reincorporation.
Based upon and subject to the foregoing, we are of the opinion that:
1. Commencing with the Company's taxable year ending December 31,
1987, the Company has been organized in conformity with the
requirements for qualification as a "real estate investment
trust" under the Code, and the Company's manner of operation has
met and will continue to meet the requirements for qualification
and taxation as a "real estate investment trust" under the Code.
The Company's qualification and taxation as a REIT in any tax
year depends upon the Company's ability to meet in its actual
results for the tax year the various source of income, ownership
of assets, distribution and diversity of ownership requirements
of the Code for qualification as a REIT, which results will not
be reviewed by us. Accordingly, no assurance can be given that
the actual results of the Company for any particular tax year
will in fact satisfy the requirements for qualification as a
REIT.
2. The statements in the Registration Statement set forth under the
captions "DESCRIPTION OF UNITS AND REDEMPTION OF UNITS OF
OPERATING PARTNERSHIP--Tax Consequences of Redemption" and
"FEDERAL INCOME TAX CONSIDERATIONS," to the extent such
information constitutes matters of law, summaries of legal
matters or legal conclusions, have been reviewed by us and are
accurate in all material respects.
We express no opinion with respect to the matters described in the
Registration Statement other than those expressly set forth herein. You should
recognize that our opinions are not binding on the Internal Revenue Service and
that the Internal Revenue Service may disagree with the opinions contained
herein. Although we believe that our opinions will be sustained if challenged,
there can be no assurance that this will be the case.
<PAGE>
Burnham Pacific Properties, Inc.
February 26, 1999
Page 4
We consent to being named as counsel to the Company in the Registration
Statement, to the references in the Registration Statement to our firm and to
the inclusion of a copy of this opinion letter as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Goodwin, Procter & Hoar, LLP
GOODWIN, PROCTER & HOAR LLP
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Amendment No. 1 to
Registration Statement No. 333-69957 of Burnham Pacific Properties, Inc. on
Form S-3 of our reports dated February 12, 1998 appearing in the Annual
Report on Form 10-K of Burnham Pacific Properties, Inc. for the year ended
December 31, 1997 and to the reference to us under the heading "Experts" in
the Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
San Diego, California
February 23, 1999
