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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PS BUSINESS PARKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 95-4300881
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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701 WESTERN AVENUE
GLENDALE, CALIFORNIA 91201-2397
(818) 244-8080
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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HARVEY LENKIN
PS BUSINESS PARKS, INC.
701 WESTERN AVENUE
GLENDALE, CALIFORNIA 91201-2397
(818) 244-8080
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DAVID GOLDBERG, ESQ.
PS BUSINESS PARKS, INC.
701 WESTERN AVENUE
GLENDALE, CALIFORNIA 91201-2397
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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. [_]
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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. [_]
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
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CALCULATION OF REGISTRATION FEE
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Proposed
Maximum Proposed
Amount Offering Price Maximum Amount of
Title of Each Class of to be per Share or Aggregate Registration
Securities to be Registered Registered Unit Offering Price Fee
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Common Stock, $.01 par value
per share...................... (1)(3) (2) (1)(2)(3) N/A
Preferred Stock, $.01 par value
per share...................... (1)(4) (2) (1)(2)(4) N/A
Depositary Shares Representing
Interests in Preferred Stock... (1)(4) (2) (1)(2)(4) N/A
Equity Stock, $.01 par value per
share.......................... (1)(5) (2) (1)(2)(5) N/A
Depositary Shares Representing
Interests in Equity Stock...... (1)(5) (2) (1)(2)(5) N/A
Warrants........................ (1)(6) (2) (1)(2)(6) N/A
Total.......................... $279,509,083(7) (2) $279,509,083(7) $77,703.53(8)
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(1) In no event will the aggregate maximum offering price of all securities
issued pursuant to this Registration Statement exceed $279,509,083. Any
securities registered hereunder may be sold separately or as units with
other securities registered hereunder. 6,139,356 shares of Common Stock at
a proposed maximum aggregate offering price of $160,774,386 (pursuant to
Rule 457(c), based on the average of the high and low prices of the Common
Stock on the American Stock Exchange on May 12, 1999) being registered are
being allocated to registered resales in secondary offerings (includes any
securities issuable upon stock splits and similar transactions pursuant to
Rule 416).
(2) The proposed maximum offering price per unit will be determined, from time
to time, by the Registrant in connection with the issuance by the
Registrant of the securities registered hereunder. No separate
consideration will be received for any Depositary Shares representing
shares of Preferred Stock of the Registrant.
(3) Subject to Footnote 1, there is being registered hereunder an
indeterminate number of shares of Common Stock as may be sold, from time
to time, by the Registrant. There is also being registered hereunder an
indeterminate number of shares of Common Stock as shall be issuable upon
conversion of the Preferred Stock or the Equity Stock or exercise of
Warrants registered hereby.
(4) Subject to Footnote 1, there is being registered hereunder an
indeterminate number of shares of Preferred Stock, and Depositary Shares
representing a fractional interest in a share of Preferred Stock, as may
be sold, from time to time, by the Registrant. In the event Registrant
elects to offer to the public fractional interests in shares of the
Preferred Stock registered hereunder, Depositary Receipts will be
distributed to those persons acquiring such fractional interests and the
shares of Preferred Stock will be issued to a Depositary under a Deposit
Agreement. There is also being registered hereunder an indeterminate
number of shares of Preferred Stock as shall be issuable upon exercise of
Warrants registered hereby.
(5) Subject to Footnote 1, there is being registered hereunder an indeterminate
number of shares of Equity Stock, and Depositary Shares representing a
fractional interest in a share of Equity Stock, as may be sold, from time to
time, by the Registrant. In the event Registrant elects to offer to the
public fractional interests in shares of the Equity Stock registered
hereunder, Depositary Receipts will be distributed to those persons
acquiring such fractional interests and the shares of Equity Stock will be
issued to a Depository under a Deposit Agreement. There is also being
registered hereunder an indeterminate number of shares of Equity Stock as
shall be issuable upon exercise of Warrants registered hereby.
(6) Subject to Footnote 1, there is being registered hereunder an indeterminate
number of Warrants representing rights to purchase Common Stock, Preferred
Stock or Equity Stock, as the case may be, registered pursuant to this
Registration Statement.
(7) An additional $320,490,917 of securities were registered by Registrant under
Registration Statement No. 333-50463 (including $110,959,257 allocated to
registered resales in secondary offerings) and remain unissued or unsold.
(8) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended. $44,695.28 of the registration fee has
been allocated to the registration of the securities described in Footnote 1
for registered resales in secondary offerings. An additional $94,545
registration fee was paid by Registrant in connection with Registration
Statement No. 333-50463 (including $32,733 allocated to registered resales
in secondary offerings) with respect to securities registered thereunder
that remain unissued or unsold.
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PURSUANT TO RULE 429 OF THE RULES AND REGULATIONS UNDER THE SECURITIES ACT OF
1933, THE PROSPECTUS WHICH IS A PART OF THIS REGISTRATION STATEMENT WILL ALSO BE
USED IN CONNECTION WITH SECURITIES REGISTERED BY REGISTRANT'S REGISTRATION
STATEMENT NO. 333-50463. IN THE EVENT ANY OF SUCH PREVIOUSLY REGISTERED
SECURITIES ARE OFFERED PRIOR TO THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT THEY WILL NOT BE INCLUDED IN SUCH PROSPECTUS.
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 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
PS Business Parks, Inc.
By this prospectus, we may offer-
Common Stock
Preferred Stock
Equity Stock
Depositary Shares
Warrants
We will provide the
specific terms of these
securities in
supplements to this
prospectus. You should
read this prospectus and
the supplements
carefully before you
invest.
This prospectus may also
be used in registered
resales of common stock
as described under "Plan
of Distribution."
Please read "Risk Factors" beginning on page 1 for a discussion of material
risks you should consider before you invest.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved the securities to be issued under this
prospectus or determined if this prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
May , 1999
<PAGE>
You should rely only on the information contained in or incorporated by
reference in this prospectus supplement or the accompanying prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information contained in or
incorporated by reference in this prospectus supplement or the accompanying
prospectus is accurate as of any date other than the date on the front of this
prospectus supplement.
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TABLE OF CONTENTS
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Page
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Risk Factors
We are controlled by Public Storage..................................... 1
Provisions in our organizational documents may prevent changes in
control................................................................ 1
Our operating partnership poses additional risks to us.................. 1
We cannot sell certain properties without Public Storage's approval..... 2
Certain institutional investors have special rights..................... 2
We would incur adverse tax consequences if we fail to qualify as a
REIT................................................................... 2
Since we buy and operate real estate, we are subject to the general real
estate investment and operating risks.................................. 2
Our ability to control our properties may be adversely affected by
ownership through partnerships and joint ventures...................... 4
We can change our business policies and increase our level of debt
without shareholder approval........................................... 4
We can issue additional securities without shareholder approval......... 4
Increases in interest rates may adversely affect the market price of our
common stock........................................................... 4
Shares that become available for future sale may adversely affect the
market price of our common stock....................................... 5
We depend on key personnel.............................................. 5
About This Prospectus..................................................... 5
Where You Can Find More Information....................................... 6
Forward Looking Statements................................................ 7
The Company............................................................... 7
Use of Proceeds........................................................... 8
Ratio of Earnings to Fixed Charges........................................ 8
Description of Common Stock............................................... 8
Common Stock............................................................ 8
Ownership Limitations................................................... 9
Description of Preferred Stock............................................ 10
Outstanding Preferred Stock............................................. 10
Ownership Limitations................................................... 11
Future Series of Preferred Stock........................................ 11
Description of Equity Stock............................................... 14
Ownership Limitations................................................... 15
Terms of Equity Stock................................................... 15
Description of the Depositary Shares...................................... 17
Dividends............................................................... 17
Liquidation Rights...................................................... 17
Redemption.............................................................. 18
Conversion.............................................................. 18
Voting.................................................................. 18
Withdrawal of Preferred Stock........................................... 18
Amendment and Termination of Deposit Agreement.......................... 18
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TABLE OF CONTENTS--(Continued)
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Page
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Charges of Depositary................................................... 19
Miscellaneous........................................................... 19
Resignation and Removal of Depositary................................... 19
Federal Income Tax Considerations....................................... 19
Description of Warrants................................................... 20
Certain Federal Income Tax Considerations................................. 20
Taxation of the Company................................................. 21
Taxation of U.S. Shareholders Holding Common Stock...................... 26
Taxation of Non-U.S. Shareholders....................................... 28
Administration's Proposed Changes to REIT Qualification Requirements.... 30
Tax Aspects of the Company's Ownership of Interests in the Operating
Partnership............................................................ 31
Taxation of Holders of Preferred Stock, Equity Stock, Depositary Shares
and Warrants........................................................... 33
State and Local Taxes................................................... 33
Plan of Distribution...................................................... 33
Legal Opinions............................................................ 36
Experts................................................................... 36
</TABLE>
<PAGE>
RISK FACTORS
Before investing in our securities, you should consider the following risks
and detriments:
We are controlled by Public Storage.
Public Storage owns a substantial number of our shares. At April 30, 1999,
Public Storage owned 22% of the outstanding shares of our common stock (41%
upon conversion of its interest in our operating partnership). Consequently,
Public Storage has the ability to effectively control all matters submitted to
a vote of our shareholders, including electing directors, changing our
articles of incorporation, dissolving and approving other extraordinary
transactions. In addition, Public Storage's ownership may make it more
difficult for another party to take over our company without Public Storage's
approval.
Public Storage has a voting agreement with another large shareholder. Public
Storage and an institutional shareholder owning 26% of our common stock as of
April 30, 1999 have both agreed to vote their shares to support specified
nominees to our board of directors until the voting agreement expires, which
is not before December 2001. This voting agreement further strengthens Public
Storage's control of our company.
Provisions in our organizational documents may prevent changes in control.
Our articles generally prohibit owning more than 7% of our shares. Our
articles of incorporation restrict the number of shares that may be owned by
any other person, and the partnership agreement of our operating partnership
contains an anti-takeover provision. No shareholder (other than Public Storage
and certain other specified shareholders) may own more than 7% of the
outstanding shares of our common stock, unless our board of directors waives
this limitation. We imposed this limitation to avoid, to the extent possible,
a concentration of ownership that might jeopardize our ability to qualify as a
real estate investment trust, or REIT. This limitation, however, also makes a
change of control much more difficult (if not impossible) even if it may be
favorable to our public shareholders. These provisions will prevent future
takeover attempts not approved by Public Storage even if a majority of our
public shareholders consider it to be in their best interests because they
would receive a premium for their shares over the shares' then market value or
for other reasons.
Our board can set the terms of certain securities without shareholder
approval. Our board of directors is authorized, without shareholder approval,
to issue up to 50,000,000 shares of preferred stock and up to 100,000,000
shares of equity stock, in each case in one or more series. Our board has the
right to set the terms of each of these series of stock. Consequently, the
board could set the terms of a series of stock that could make it difficult
(if not impossible) for another party to take over our company even if it
might be favorable to our public shareholders. Our articles of incorporation
also contain other provisions that could have the same effect. We can also
cause our operating partnership to issue additional interests for cash or in
exchange for property.
The partnership agreement of our operating partnership restricts
mergers. The partnership agreement of our operating partnership provides that
generally we may not merge or engage in a similar transaction unless limited
partners of our operating partnership are entitled to receive the same
proportionate payments as our shareholders. Also we have agreed not to merge
unless the merger would have been approved had the limited partners been able
to vote together with our shareholders. These provisions may also make it more
difficult for us to merge.
Our operating partnership poses additional risks to us.
Limited partners of our operating partnership, including Public Storage,
have the right to vote on certain changes to the partnership agreement. They
may vote in a way that is against the interests of our shareholders. Also, as
general partner of our operating partnership, we are required to protect the
interests of the limited partners of our operating partnership. The interests
of the limited partners and of our shareholders may differ.
<PAGE>
We cannot sell certain properties without Public Storage's approval.
Before 2007, we may not sell 13 specified properties without Public
Storage's approval. Since Public Storage would be taxed on a sale of these
properties, the interests of Public Storage and our shareholders may differ as
to the best time to sell.
Certain institutional investors have special rights.
Certain institutional investors have rights, such as the right to approve
nominees to our board of directors, the right to purchase our securities in
certain circumstances and the right to require registration of their shares,
not available to our public shareholders.
We would incur adverse tax consequences if we fail to qualify as a REIT.
Our cash flow is reduced if we fail to qualify as a REIT. While we believe
that we have qualified since 1990 to be taxed as a REIT, and will continue to
be qualified, we cannot be certain. To continue to qualify as a REIT, we need
to satisfy certain requirements under the federal income tax laws relating to
our income, assets, distributions to shareholders and shareholder base. In
this regard, the share ownership limits in our articles of incorporation do
not necessarily ensure that our shareholder base is sufficiently diverse for
us to qualify as a REIT. For any year we fail to qualify as a REIT, we would
be taxed at regular corporate tax rates on our taxable income unless certain
relief provisions apply. Taxes would reduce our cash available for
distributions to shareholders or for reinvestment, which could adversely
affect us and our shareholders. Also we would not be allowed to elect REIT
status for five years after we fail to qualify unless certain relief
provisions apply.
Our cash flow is reduced if our predecessor failed to qualify as a REIT. For
us to qualify to be taxed as a REIT, our predecessor, American Office Park
Properties, also needed to qualify to be taxed as a REIT. We believe American
Office Park Properties qualified as a REIT beginning in 1997 until its March
1998 merger with us. If it is determined that it did not qualify as a REIT, we
could also lose our REIT qualification. Before 1997, our predecessor was a
taxable corporation and, to qualify as a REIT, was required to distribute all
of its profits before the end of 1996. While we believe American Office Park
Properties qualified as a REIT since 1997, we did not obtain an opinion of an
outside expert at the time of its merger with us.
We may need to borrow funds to meet our REIT distribution requirements. To
qualify as a REIT, we must generally distribute to our shareholders 95% of our
taxable income. Our income consists primarily of our share of our operating
partnership's income. We intend to make sufficient distributions to qualify as
a REIT and otherwise avoid corporate tax. However, differences in timing
between income and expenses and the need to make nondeductible expenditures
such as capital improvements and principal payments on debt could force us to
borrow funds to make necessary shareholder distributions.
Since we buy and operate real estate, we are subject to the general real
estate investment and operating risks.
Summary of real estate risks. We own and operate commercial properties and
are subject to the risks of owning real estate generally and commercial
properties in particular. These risks include:
. the national, state and local economic climate and real estate
conditions, such as oversupply of or reduced demand for space and
changes in market rental rates;
. how prospective tenants perceive the attractiveness, convenience and
safety of our properties;
. our ability to provide adequate management, maintenance and insurance;
. our ability to collect rent from tenants on a timely basis;
. the expense of periodically renovating, repairing and reletting spaces;
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. increasing operating costs, including real estate taxes and utilities,
if these increased costs cannot be passed through to tenants; and
. changes in tax, real estate and zoning laws.
Certain significant costs, such as mortgage payments, real estate taxes,
insurance and maintenance costs, generally are not reduced even when a
property's rental income is reduced. In addition, environmental and tax laws,
interest rate levels, the availability of financing and other factors may
affect real estate values and property income. Furthermore, the supply of
commercial space fluctuates with market conditions.
If our properties do not generate sufficient income to meet operating
expenses, including any debt service, tenant improvements, leasing commissions
and other capital expenditures, we may have to borrow additional amounts to
cover fixed costs, and we may have to reduce our distributions to
shareholders.
We only recently acquired many of our properties. We have recently acquired
many of our properties and intend to continue to acquire additional
properties. As of March 31, 1999, approximately 36% of our properties' square
footage was not managed by us before January 1, 1998. We may not be aware of
problems with newly acquired properties that could affect their value, and
their operating performance may be less than we anticipate. Also, we may have
difficulty integrating new acquisitions into our existing portfolio.
We may encounter significant delays in reletting vacant space, resulting in
losses of income. When leases expire, we will incur expenses and we may not be
able to release the space on the same terms. Certain leases provide tenants
with the right to terminate early if they pay a fee. While we have estimated
our cost of renewing leases that expire in 1999, our estimates could be wrong.
If we are unable to release space promptly, if the terms are significantly
less favorable than anticipated or if the costs are higher, we may have to
reduce our distributions to shareholders.
Tenant defaults and bankruptcies may reduce our cash flow and
distributions. We may have difficulty in collecting from tenants in default,
particularly if they declare bankruptcies. This could affect our cash flow and
distributions to shareholders.
We may be adversely affected by significant competition among commercial
properties. Many other commercial properties compete with our properties for
tenants and we expect that new properties will be built in our markets. Also,
we compete with other buyers, many of whom are larger than us, for attractive
commercial properties. Therefore, we may not be able to grow as rapidly as we
would like.
We may be adversely affected if losses on our properties are not covered by
insurance. We carry insurance on our properties that we believe is comparable
to the insurance carried by other operators for similar properties. However,
we could suffer uninsured losses that adversely affect us or even result in
loss of the property. We might still remain liable on any mortgage debt
related to that property.
The illiquidity of our real estate investments may prevent us from adjusting
our portfolio to respond to market changes. There may be delays and
difficulties in selling real estate. Therefore, we cannot easily change our
portfolio when economic conditions change. Also, tax laws limit a REIT's
ability to sell properties held for less than four years.
We may be adversely affected by changes in laws. Increases in income and
service taxes may reduce our cash flow and ability to make expected
distributions to our shareholders. Our properties are also subject to various
federal, state and local regulatory requirements, such as state and local fire
and safety codes. If we fail to comply with these requirements, governmental
authorities could fine us or courts could award damages against us. We believe
our properties comply with all significant legal requirements. However, these
requirements could change in a way that would reduce our cash flow and ability
to make distributions to shareholders.
3
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We may incur significant environmental remediation costs. Under various
federal, state and local environmental laws an owner or operator of real
estate interests may have to clean spills or other releases of hazardous or
toxic substances on or from a property. Certain environmental laws impose
liability whether or not the owner knew of, or was responsible for, the
presence of the hazardous or toxic substances. In some cases, liability may
exceed the value of the property. The presence of toxic substances, or the
failure to properly remedy any resulting contamination, may make it more
difficult for the owner or operator to sell, lease or operate its property or
to borrow money using its property as collateral. Future environmental laws
may impose additional material liabilities on us.
In May 1998, we bought a property in Beaverton, Oregon known as Creekside
Corporate Park. Under a consent order issued by the Oregon environmental
agency, the current and past owners of the property are conducting an
environmental remedial investigation of a property next to Creekside Corporate
Park, which is owned by Mattel Corporation. We are not a party to the consent
order. As part of the consent order, the Oregon environmental agency ordered
the property owners to sample soil and groundwater on our property to
determine the nature and extent of contamination resulting from past
industrial operations at the Mattel property. We executed access agreements
with the current and former property owners to allow access to our property to
conduct the required sampling and testing. The sampling and testing is
ongoing, and preliminary results from one area indicate that the contamination
from the Mattel property may have migrated onto a portion of the Creekside
Corporate Park that we own.
We believe that we bear no responsibility or liability for the
contamination. If we are held responsible for any costs related to this
matter, we believe that the party from whom the property was purchased will be
responsible for any expenses or liabilities that we may incur as a result of
this contamination.
We may be affected by the Americans with Disabilities Act. The Americans
with Disabilities Act of 1990 requires that access and use by disabled persons
of all public accommodations and commercial properties be facilitated.
Existing commercial properties must be made accessible to disabled persons.
While we have not estimated the cost of complying with this act, we do not
believe the cost will be significant.
Our ability to control our properties may be adversely affected by ownership
through partnerships and joint ventures.
We own most of our properties through our operating partnership. Our
organizational documents do not limit our investment of funds with others in
partnerships or joint ventures. This type of investment may present additional
risks. For example, our partners may have interests that differ from ours or
that conflict with ours, or our partners may become bankrupt.
We can change our business policies and increase our level of debt without
shareholder approval.
Our board of directors establishes our investment, financing, distribution
and our other business policies and may change these policies without
shareholder approval. Our organizational documents do not limit our level of
debt. A change in our policies or an increase in our level of debt could
adversely affect our operations or the price of our common stock.
We can issue additional securities without shareholder approval.
We can issue preferred and common stock without shareholder approval.
Holders of preferred stock have priority over holders of common stock, and the
issuance of additional shares of common stock reduces the interest of existing
holders in our company.
Increases in interest rates may adversely affect the market price of our
common stock.
One of the factors that influences the market price of our common stock is
the annual rate of distributions that we pay on our common stock, as compared
with interest rates. An increase in interest rates may lead
4
<PAGE>
purchasers of REIT shares to demand higher annual distribution rates, which
could adversely affect the market price of our common stock.
Shares that become available for future sale may adversely affect the market
price of our common stock.
Substantial sales of our common stock, or the perception that substantial
sales may occur, could adversely affect the market price of our common stock.
Certain of our shareholders hold significant numbers of shares of our common
stock and, subject to compliance with applicable securities laws, could sell
their shares.
We depend on key personnel.
We depend on our executive officers, including Ronald L. Havner, Jr., our
chief executive officer and president, and Mary Jayne Howard, our chief
operating officer and executive vice president. The loss of either of these
executive officers could adversely affect our operations. We maintain no key
person insurance on either of them.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a "shelf" registration process. Under
this shelf process, we may sell from time to time up to $600,000,000 of our
common stock, preferred stock, equity stock, depositary shares and warrants,
in any combination. This prospectus provides a general description of the
securities that we may offer. Each time we offer any of the types of
securities described in this prospectus, we will prepare and distribute a
prospectus supplement that will contain a description of the specific terms of
the securities being offered and of the offering. The prospectus supplement
may also supplement the information contained in this prospectus. You should
read both this prospectus and the applicable prospectus supplement, together
with the additional information described under the heading "Where You Can
Find More Information," before purchasing any securities.
This prospectus may also be used in registered resales of common stock as
described under "Plan of Distribution."
Unless otherwise indicated or unless the context requires otherwise, all
references in this prospectus to "the Company," "we," "us," "our" and similar
references mean PS Business Parks, Inc. and its subsidiaries, including PS
Business Parks, L.P. All references in this prospectus to "our operating
partnership" mean PS Business Parks, L.P.
5
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934, and are required to file annual, quarterly and special reports with
the Securities and Exchange Commission. You may read and copy any of these
documents at the Commission's public reference rooms at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices at Seven World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. You may telephone the Commission at 1-800-SEC-0330 for
further information on the Commission's public reference facilities. The
Commission also maintains a computer site on the World Wide Web
(http://www.sec.gov) that contains the reports, proxy and information
statements and other information that we and other registrants file
electronically with the Commission. You can also inspect reports and other
information we file at the offices of the American Stock Exchange, Inc., 86
Trinity Place, New York, New York 10006.
We have filed a registration statement on Form S-3, of which this prospectus
is a part, with the Commission to register offers and sales of the securities
described in this prospectus under the Securities Act of 1933. The
registration statement contains additional information about us and the
securities. You may read the registration statement and its exhibits without
charge at the office of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, or on the Commission's World Wide Web site, and you may obtain
copies of it from the Commission at prescribed rates.
The Commission allows us to provide information about our business and other
important information to you by "incorporating by reference" the information
we file with the Commission, which means that we can disclose that information
to you by referring in this prospectus to the documents we file with the
Commission. Under the Commission's regulations, any statement contained in a
document incorporated by reference in this prospectus is automatically updated
and superseded by any information contained in this prospectus, or in any
subsequently filed document of the types described below.
We incorporate into this prospectus by reference the following documents
filed by us with the Commission, each of which should be considered an
important part of this prospectus:
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SEC Filing (File No. 1-10709) Period Covered or Date of Filing
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<S> <C>
Annual Report on Form 10-K...................... Year ended December 31, 1998
Quarterly Report on Form 10-Q................... Quarter ended March 31, 1999
Current Report on Form 8-K...................... Dated April 28, 1999
Description of our common stock contained in
Registration Statement on Form 8-A, as
supplemented by the description of our common
stock contained in this prospectus............. Effective March 15, 1991
All subsequent documents filed by us under
Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act of 1934........................... After the date of this prospectus
and before the termination of the
offering
</TABLE>
You may request a copy of each of our filings at no cost, by writing or
telephoning us at the following address, telephone or facsimile number:
Investor Services Department
PS Business Parks, Inc.
701 Western Avenue
Glendale, California 91201-2397
Telephone: (800) 807-3055
(800) 421-2856
(818) 244-8080
Facsimile: (818) 241-0627
Exhibits to a document will not be provided unless they are specifically
incorporated by reference in that document.
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FORWARD-LOOKING STATEMENTS
Some of the information included or incorporated by reference in this
prospectus contains forward-looking statements, such as those pertaining to
our portfolio performance and future results of operations, market conditions
and prospects. The pro forma financial statements and other pro forma
information incorporated by reference in this prospectus also contain forward-
looking statements. You can identify forward-looking statements by their use
of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "intends," "plans," "pro forma," "estimates" or
"anticipates" or the negative of these words and phrases or similar words or
phrases. Discussion of strategy, plans or intentions also include forward-
looking statements.
Forward-looking statements inherently involve risks and uncertainties and
you should not rely on them as predictions of future events. The factors
described above under the heading "Risk Factors," as well as changes in the
commercial real estate market and the general economy, could cause future
events and actual results to differ materially from those set forth or
contemplated in the forward-looking statements.
THE COMPANY
We are a self-advised and self-managed real estate investment trust or REIT
that acquires, develops, owns and operates commercial properties. We are the
sole general partner of our operating partnership, PS Business Parks, L.P.,
through which we conduct most of our activities. At March 31, 1999, we owned
approximately 73% of our operating partnership with substantially all of the
balance owned by Public Storage, Inc.
In a March 1998 merger with American Office Park Properties, Inc., we
acquired the commercial property business previously operated by Public
Storage and were renamed "PS Business Parks, Inc." At March 31, 1999, we owned
114 commercial properties in 11 states containing approximately 11.3 million
square feet of space.
We elected to be taxed as a REIT beginning with our 1990 taxable year. To
the extent that we continue to qualify as a REIT, we will not be taxed, with
certain limited exceptions, on the net income that we distribute currently to
our shareholders. We were incorporated in California in 1990. Our principal
executive offices are located at 701 Western Avenue, Glendale, California
91201-2397. Our telephone number is (818) 244-8080.
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USE OF PROCEEDS
We intend to use the net proceeds from the sale of the securities described
in this prospectus for the acquisition of commercial properties, repayment of
our outstanding debt and for general business purposes. Pending their use, we
may invest the net proceeds in short-term, interest bearing securities.
RATIO OF EARNINGS TO FIXED CHARGES
We compute our ratio of earnings to combined fixed charges and preferred
stock dividends by dividing our earnings by our fixed charges. Earnings
consists of net income before minority interest in income, loss on early
extinguishment of debt and gain on disposition of real estate plus fixed
charges less the portion of minority interest in income which does not
contribute to fixed charges. In computing our ratio for periods prior to
March 17, 1998, we used the operations and fixed charges of American Office
Park Properties, Inc., our predecessor for accounting and financial reporting
purposes.
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31, For the Year Ended December 31,
------------- ------------------------------
1999 1998 1998 1997 1996 1995 1994
------ ------ ----- --------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to combined
fixed charges and preferred
stock dividends.............. 12.17 29.92 16.34 12,403.00 N/A N/A N/A
</TABLE>
N/A--not applicable as we did not have any fixed charges in this period.
DESCRIPTION OF COMMON STOCK
We are authorized to issue 100,000,000 shares of common stock. At April 30,
1999, we had outstanding 23,637,410 shares of common stock (exclusive of a
total of 7,903,666 shares issuable upon exchange of interests in our operating
partnership and shares subject to options).
Common Stock
The following description of our common stock sets forth certain general
terms and provisions of the common stock to which any prospectus supplement
may relate, including a prospectus supplement providing that common stock will
be issuable upon conversion of preferred stock or upon the exercise of
warrants. The statements below describing our common stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of our articles of incorporation and bylaws.
Holders of our common stock will be entitled to receive dividends when, as
and if declared by our board of directors, out of funds legally available
therefor. Payment and declaration of dividends on our common stock and
purchases of shares of common stock by us will be subject to certain
restrictions if we fail to pay dividends on outstanding preferred stock. See
"Description of Preferred Stock." Upon any liquidation, dissolution or winding
up of the Company, holders of common stock will be entitled to share equally
and ratably in any assets available for distribution to them, after payment or
provision for payment of the debts and our other liabilities and the
preferential amounts owing with respect to any of our outstanding preferred
stock. Holders of our common stock have no preemptive rights, except such as
have been provided to certain of our shareholders by contract, which means
public shareholders have no right to acquire any additional shares of common
stock that we may issue at a later date.
Each outstanding share of our common stock entitles the holder to one vote
on all matters presented to our holders for a vote, with the exception that
they have cumulative voting rights with respect to the election of our board
of directors, in accordance with California law. Cumulative voting means that
each holder of our common stock is entitled to cast as many votes as there are
directors to be elected multiplied by the number of shares
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<PAGE>
registered in his or her name. A holder of our common stock may cumulate the
votes for directors by casting all of the votes for one candidate or by
distributing the votes among as many candidates as he or she chooses. The
outstanding shares of our common stock are, and additional shares of common
stock will be, when issued, fully paid and nonassessable.
The rights, preferences and privileges of holders of our common stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of our preferred stock or our equity stock which we may
designate and issue in the future. See "Description of Preferred Stock" and
"Description of Equity Stock."
Ownership Limitations
For us to qualify as a REIT under the Code, no more than 50% in value of our
outstanding shares of capital stock may be owned, directly or constructively
under the applicable attribution rules of the Code, by five or fewer
individuals (as defined in the Code to include certain entities) during the
last half of a taxable year. In order to maintain our qualification as a REIT,
our articles of incorporation provide certain restrictions on the shares of
capital stock that any shareholder may own.
Our articles of incorporation provide that, subject to certain exceptions,
no holder may own, or be deemed to own by virtue of the attribution provisions
of the Code, more than (A) 7.0% of the outstanding shares of our common stock
and (B) 9.9% of the outstanding shares of each class or series of shares of
our preferred stock or equity stock and that all shares of stock be imprinted
with a legend setting forth that restriction. Our articles of incorporation
provide, however, that no person shall be deemed to exceed the ownership limit
solely by reason of the beneficial ownership of shares of any class of stock
to the extent that such shares of stock were beneficially owned by such person
(including Public Storage) upon completion of, and after giving effect to, the
merger with American Office Park Properties. Thus, this limitation does not
affect the ownership of common stock held by Public Storage and certain other
shareholders at the time of the merger. Furthermore, the limitation does not
apply with respect to shares of stock deemed to be owned by a person as a
result of such person's ownership of shares of Public Storage (however, such
ownership will be taken into account in determining whether a subsequent
acquisition or transfer of our shares (but not Public Storage) violates the
ownership limit). The ownership limitation is intended to assist in preserving
our REIT status in view of Public Storage's substantial ownership interest in
us and the Hughes family's substantial ownership interest in Public Storage.
There can be no assurance, however, that such ownership limit will enable us
to satisfy the requirement that a REIT not be "closely held" within the
meaning of Section 856(h) of the Code for any given taxable year, in part as a
result of the provision described above providing that the ownership
limitation generally does not apply to our shares deemed to be owned as a
result of a person's ownership of shares of Public Storage.
Our articles of incorporation provide that our board of directors, in its
sole and absolute discretion, may grant exceptions to the ownership limits, so
long as (A) our board has determined that we would not be "closely held"
within the meaning of Section 856(h) of the Code (without regard to whether
the event in question takes place during the second half of a taxable year)
and would not otherwise fail to qualify as a REIT, after giving effect to an
acquisition by an excepted person of beneficial ownership of the maximum
amount of capital stock permitted as a result of the exception to be granted,
and taking into account the existing and permitted ownership by other persons
of stock (taking into account any other exceptions granted) and (B) the
excepted persons provide to our board such representations and undertakings as
our board may require. In any case, no holder may own or acquire, either
directly, indirectly or constructively under the applicable attribution rules
of the Code, any shares of any class of capital stock if such ownership or
acquisition (i) would cause more than 50% in value of outstanding capital
stock to be owned, either directly or constructively, under the applicable
attribution rules of the Code, by five or fewer individuals (as defined in the
Code to include certain tax-exempt entities, other than, in general, qualified
domestic pension funds), (ii) would result in the Company's stock being
beneficially owned by less than 100 persons (determined without reference to
any rules of attribution), or (iii) would otherwise result in our failing to
qualify as a REIT.
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<PAGE>
Our articles of incorporation generally provide that if any holder of
capital stock purports to transfer shares to a person or there is a change in
our capital structure, and either the transfer or the change in capital
structure would result in our failing to qualify as a REIT, or such transfer
or the change in capital structure would cause the transferee to hold shares
in excess of the applicable ownership limit, then the shares causing the
violation will be automatically transferred to a trust for the benefit of a
designated charitable beneficiary. The purported transferee of those shares
will have no right to receive dividends or other distributions with respect to
them and will have no right to vote the shares. Any dividends or other
distributions paid to such purported transferee prior to the discovery by us
that the shares have been transferred to a trust will be paid to the trustee
of the trust for the benefit of the charitable beneficiary upon demand. The
trustee will designate a transferee of those shares so long as the shares
would not violate the restrictions on ownership or transfer in the articles of
incorporation in the hands of the designated transferee. Upon the sale of such
shares, the purported transferee will receive out of any proceeds remaining
after payment of expenses of the charitable trust and us the lesser of (A)(i)
the price per share such purported transferee paid for the stock in the
purported transfer that resulted in the transfer of the shares to the trust,
or (ii) if the transfer or other event that resulted in the transfer of the
shares to the trust was not a transaction in which the purported transferee
gave full value for such shares, a price per share equal to the market price
on the date of the purported transfer or other event that resulted in the
transfer of the shares to the trust and (B) the price per share received by
the trustee from the sale or other disposition of the shares held in the
trust. Each purported transferee shall be deemed to have waived any claims
such purported transferee may have against the trustee and us arising from the
disposition of the shares, except for claims arising from the trustee's or our
gross negligence, willful misconduct, or failure to make payments when
required by the articles of incorporation.
DESCRIPTION OF PREFERRED STOCK
We are authorized to issue 50,000,000 shares of preferred stock. At April
30, 1999, we had 2,200 outstanding shares of preferred stock (represented by
2,200,000 depositary shares) and 510,000 shares reserved for issuance. Our
articles of incorporation provide that the preferred stock may be issued from
time to time in one or more series and give our board of directors broad
authority to fix the dividend and distribution rights, conversion and voting
rights, if any, redemption provisions and liquidation preferences of each
series of preferred stock. Holders of preferred stock have no preemptive
rights. The preferred stock will be, when issued, fully paid and
nonassessable.
Although the issuance of preferred stock with special voting rights (or
common stock) could be used to deter attempts to obtain control of us in
transactions not approved by our board of directors, we have no present
intention to issue stock for that purpose.
Outstanding Preferred Stock
At April 30, 1999, we had outstanding a series of preferred stock. It
(1) has a stated value of $25 per depositary share, (2) in preference to the
holders of shares of our common stock and any other capital stock ranking
junior to the preferred stock as to payment of dividends, provides for
cumulative quarterly dividends of 9 1/4% of the stated value and (3) is
subject to redemption, in whole or in part, at our option at a cash redemption
price of $25 per depositary share, plus accrued and unpaid dividends, on and
after April 30, 2004.
In the event of our voluntary or involuntary liquidation, dissolution or
winding up, the holders of the preferred stock will be entitled to receive out
of our assets available for distribution to shareholders, before any
distribution of assets is made to holders of our common stock or any other
shares of capital stock ranking as to such distributions junior to the
preferred stock, liquidating distributions in the amount of $25 per depositary
share, plus all accrued and unpaid dividends.
Except as expressly required by law and in certain other limited
circumstances, holders of the preferred stock are not entitled to vote. The
consent of holders of at least 66 2/3% of the outstanding shares of the
preferred stock (and any other series of preferred stock ranking on a parity
therewith), voting as a single class, is required to authorize another class
of shares senior to the preferred stock.
10
<PAGE>
Ownership Limitations
For a discussion of the ownership limitations that apply to preferred stock,
see "Description of Common Stock--Ownership Limitations."
Future Series of Preferred Stock
The following description of preferred stock sets forth certain general
terms and provisions of the preferred stock to which any prospectus supplement
may relate. The statements below describing the preferred stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of our articles of incorporation (including the
applicable form of certificate of determination) and bylaws.
Reference is made to the prospectus supplement relating to the preferred
stock offered thereby for specific terms, including, where applicable, the
following: (1) the title and stated value of such preferred stock; (2) the
number of shares of such preferred stock offered, the liquidation preference
per share and the offering price of such preferred stock; (3) the dividend
rate(s), period(s) and/or payment date(s) or method(s) of calculation
applicable to such preferred stock; (4) the date from which dividends on such
preferred stock shall accumulate, if applicable; (5) the provision for a
sinking fund, if any, for such preferred stock; (6) the provision for
redemption, if applicable, of such preferred stock; (7) any listing of such
preferred stock on any securities exchange; (8) the terms and conditions, if
applicable, upon which such preferred stock will be convertible into common
stock, including the conversion price (or manner of calculation); (9) the
voting rights, if any, of such preferred stock; (10) any other specific terms,
preferences, rights, limitations or restrictions of such preferred stock; (11)
the relative ranking and preferences of such preferred stock as to dividend
rights and rights upon liquidation, dissolution or winding up of our affairs;
and (12) any limitations on issuance of any series of preferred stock ranking
senior to or on a parity with such series of preferred stock as to dividend
rights and rights upon liquidation, dissolution or winding up of our affairs.
Ranking. The ranking of the preferred stock is set forth in the applicable
prospectus supplement. Unless otherwise specified in the applicable prospectus
supplement, such preferred stock will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of our affairs, rank (i)
senior to the common stock, any additional class of common stock and any
series of preferred stock expressly made junior to such preferred stock; (ii)
on a parity with all preferred stock previously issued by us the terms of
which specifically provide that such preferred stock rank on a parity with the
preferred stock offered hereby; and (iii) junior to all preferred stock
previously issued by us the terms of which specifically provide that such
preferred stock rank senior to the preferred stock offered hereby.
Dividends. Holders of shares of the preferred stock of each series offered
hereby will be entitled to receive, when, as and if declared by our board of
directors, out of our assets legally available for payment, cash dividends at
such rates and on such dates as will be set forth in the applicable prospectus
supplement. Each such dividend shall be payable to holders of record as they
appear on the stock transfer books of the Company on such record dates as
shall be fixed by our board of directors.
Dividends on any series of the preferred stock offered hereby may be
cumulative or non-cumulative, as provided in the applicable prospectus
supplement. Dividends, if cumulative, will be cumulative from and after the
date set forth in the applicable prospectus supplement. If our board of
directors fails to declare a dividend payable on a dividend payment date on
any series of the preferred stock for which dividends are noncumulative, then
the holders of such series of the preferred stock will have no right to
receive a dividend in respect of the dividend period ending on such dividend
payment date, and we will have no obligation to pay the dividend accrued for
such period, whether or not dividends on such series are declared payable on
any future dividend payment date.
No dividends (other than in common stock or other capital stock ranking
junior to the preferred stock of any series as to dividends and upon
liquidation) will be declared or paid or set aside for payment (nor will any
other distribution be declared or made upon the common stock, or any other
capital stock of us ranking junior to
11
<PAGE>
or on a parity with the preferred stock of such series as to dividends or upon
liquidation), nor will any common stock or any other of our capital stock
ranking junior to or on a parity with the preferred stock of such series as to
dividends or upon liquidation be redeemed, purchased or otherwise acquired for
any consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any shares of any such stock) by us (except by
conversion into or exchange for other capital stock of us ranking junior to
the preferred stock of such series as to dividends and upon liquidation)
unless (i) if such series of preferred stock has a cumulative dividend, full
cumulative dividends on the preferred stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and
the then current dividend period, and (ii) if such series of preferred stock
does not have a cumulative dividend, full dividends on the preferred stock of
such series have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for the
then current dividend period.
Any dividend payment made on shares of a series of cumulative preferred
stock offered hereby will first be credited against the earliest accrued but
unpaid dividend due with respect to shares of such series which remains
payable.
Redemption. If so provided in the applicable prospectus supplement, the
shares of preferred stock will be subject to mandatory redemption or
redemption at our option, in whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such prospectus
supplement.
The prospectus supplement relating to a series of preferred stock offered
hereby that is subject to mandatory redemption will specify the number of
shares of such preferred stock that will be redeemed by us in each year
commencing after a date to be specified, at a redemption price per share to be
specified, together with an amount equal to all accrued and unpaid dividends
thereon (which will not, if such preferred stock does not have a cumulative
dividend, include any accumulation in respect of unpaid dividends for prior
dividend periods) to the date of redemption. The redemption price may be
payable in cash, securities or other property, as specified in the applicable
prospectus supplement.
Notwithstanding the foregoing, no shares of any series of preferred stock
offered hereby will be redeemed and we will not purchase or otherwise acquire
directly or indirectly any shares of preferred stock of such series (except by
conversion into or exchange for capital stock of us ranking junior to the
preferred stock of such series as to dividends and upon liquidation) unless
all outstanding shares of preferred stock of such series are simultaneously
redeemed unless, in each case, (i) if such series of preferred stock has a
cumulative dividend, full cumulative dividends on the preferred stock of such
series will have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all
past dividend periods and the then current dividend period and (ii) if such
series of preferred stock does not have a cumulative dividend, full dividends
on the preferred stock of such series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period; provided, however,
that the foregoing shall not prevent the purchase or acquisition of shares of
preferred stock of such series pursuant to a purchase or exchange offer made
on the same terms to holders of all outstanding shares of preferred stock of
such series.
If fewer than all of the outstanding shares of preferred stock of any series
offered hereby are to be redeemed, the number of shares to be redeemed will be
determined by us and such shares may be redeemed pro rata from the holders of
record of such shares in proportion to the number of such shares held by such
holders (with adjustments to avoid redemption of fractional shares) or any
other equitable method determined by us.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of preferred stock of
any series to be redeemed at the address shown on our stock transfer books.
Each notice will state: (i) the redemption date; (ii) the number of shares and
series of the preferred stock to be redeemed; (iii) the redemption price; (iv)
the place or places where certificates for such preferred stock are to be
surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed
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<PAGE>
will cease to accrue on such redemption date; and (vi) the date upon which the
holder's conversion rights, if any, as to such shares shall terminate. If
fewer than all the shares of preferred stock of any series are to be redeemed,
the notice mailed to each such holder thereof shall also specify the number of
shares of preferred stock to be redeemed from each such holder and, upon
redemption, a new certificate shall be issued representing the unredeemed
shares without cost to the holder thereof. In order to facilitate the
redemption of shares of preferred stock, our board of directors may fix a
record date for the determination of shares of preferred stock to be redeemed,
such record date to be not less than 30 or more than 60 days prior to the date
fixed for such redemption.
Notice having been given as provided above, from and after the date
specified therein as the date of redemption, unless we default in providing
funds for the payment of the redemption price on such date, all dividends on
the preferred stock called for redemption will cease. From and after the
redemption date, unless we so default, all rights of the holders of the
preferred stock as our shareholders, except the right to receive the
redemption price (but without interest), will cease.
Subject to applicable law and the limitation on purchases when dividends on
preferred stock are in arrears, we may, at any time and from time to time,
purchase any shares of preferred stock in the open market, by tender or by
private agreement.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding up of our affairs, then, before any distribution or
payment shall be made to the holders of any common stock or any other class or
series of our capital stock ranking junior to any series of the preferred
stock in the distribution of assets upon our liquidation, dissolution or
winding up, the holders of such series of preferred stock will be entitled to
receive out of our assets legally available for distribution to shareholders
liquidating distributions in the amount of the liquidation preference per
share (set forth in the applicable prospectus supplement), plus an amount
equal to all dividends accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if such
preferred stock does not have a cumulative dividend). After payment of the
full amount of the liquidating distributions to which they are entitled, the
holders of preferred stock will have no right or claim to any of our remaining
assets. In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, our legally available assets are insufficient to
pay the amount of the liquidating distributions on all outstanding shares of
any series of preferred stock and the corresponding amounts payable on all
shares of other classes or series of our capital stock ranking on a parity
with the preferred stock in the distribution of assets upon liquidation,
dissolution or winding up, then the holders of such series of preferred stock
and all other such classes or series of capital stock shall share ratably in
any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
preferred stock, our remaining assets will be distributed among the holders of
any other classes or series of capital stock ranking junior to such series of
preferred stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, our consolidation or merger
with or into any other corporation, or the sale, lease, transfer or conveyance
of all or substantially all of our property or business will not be deemed to
constitute a liquidation, dissolution or winding up.
Voting Rights. Holders of the preferred stock offered hereby will not have
any voting rights, except as set forth below or as otherwise expressly
required by law or as indicated in the applicable prospectus supplement.
If the equivalent of six quarterly dividends payable on any series of
preferred stock are in default (whether or not declared or consecutive), the
holders of all such series of preferred stock, voting as a single class with
all other series of preferred stock upon which similar voting rights have been
conferred and are exercisable, will be entitled to elect two additional
directors until all dividends in default have been paid or declared and set
apart for payment.
Such right to vote separately to elect directors shall, when vested, be
subject, always, to the same provisions for vesting of such right to elect
directors separately in the case of future dividend defaults. At any time when
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<PAGE>
such right to elect directors separately shall have so vested, we may, and
upon the written request of the holders of record of not less than 20% of our
total number of preferred shares then outstanding shall, call a special
meeting of shareholders for the election of directors. In the case of such a
written request, such special meeting shall be held within 90 days after the
delivery of such request and, in either case, at the place and upon the notice
provided by law and in the bylaws, provided that we will not be required to
call such a special meeting if such request is received less than 120 days
before the date fixed for the next ensuing annual meeting of shareholders, and
the holders of all classes of outstanding preferred stock are offered the
opportunity to elect such directors (or fill any vacancy) at such annual
meeting of shareholders. Directors so elected will serve until the next annual
meeting of shareholders or until their respective successors are elected and
qualify. If, prior to the end of the term of any director so elected, a
vacancy in the office of such director shall occur, during the continuance of
a default by reason of death, resignation, or disability, such vacancy shall
be filled for the unexpired term of such former director by the appointment of
a new director by the remaining director or directors so elected.
The affirmative vote or consent of the holders of at least a majority of the
outstanding shares of each series of preferred stock will be required to amend
or repeal any provision of or add any provision to, our articles of
incorporation, including the certificate of determination, if such action
would materially and adversely alter or change the rights, preferences or
privileges of such series of preferred stock.
No consent or approval of the holders of any series of preferred stock
offered hereby will be required for the issuance from our authorized but
unissued preferred stock of other shares of any series of preferred stock
ranking on a parity with or junior to such series of preferred stock, or
senior to a series of preferred stock expressly made junior to other series of
preferred stock as to payment of dividends and distribution of assets,
including other shares of such series of preferred stock.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of preferred stock had been
redeemed or called for redemption upon proper notice and sufficient funds had
been deposited in trust to effect such redemption.
Conversion Rights. The terms and conditions, if any, upon which shares of
any series of preferred stock offered hereby are convertible into common stock
will be set forth in the applicable prospectus supplement relating thereto.
Such terms will include the number of shares of common stock into which the
preferred stock is convertible, the conversion price (or manner of calculation
thereof), the conversion period, provisions as to whether conversion will be
at our option or at the option of the holders of the preferred stock or
automatically upon the occurrence of certain events, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of such preferred stock.
DESCRIPTION OF EQUITY STOCK
We are authorized to issue 100,000,000 shares of equity stock. At April 30,
1999, we had no outstanding shares of equity stock. Our articles of
incorporation provide that the equity stock may be issued from time to time in
one or more series and give our board of directors broad authority to fix the
dividend and distribution rights, conversion and voting rights, redemption
provisions and liquidation rights of each series of equity stocks. Holders of
equity stock have no preemptive rights. The shares of equity stock will be,
when issued, fully paid and nonassessable.
The issuance of equity stock with special voting rights (or common stock)
could be used to deter attempts by a single shareholder or group of
shareholders to obtain control of us in transactions not approved by our board
of directors. We have no intention to issue the equity stock (or common stock)
for such purposes.
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Ownership Limitations
For a discussion of the ownership limitations that apply to equity stock,
see "Description of Common Stock--Ownership Limitations."
Terms of Equity Stock
The following description of equity stock sets forth certain general terms
and provisions of the equity stock to which any prospectus supplement may
relate. The statements below describing the equity stock are in all respects
subject to and qualified in their entirety by reference to the applicable
provisions of our articles of incorporation (including the applicable form of
certificate of determination) and bylaws.
Reference is made to the prospectus supplement relating to the equity stock
offered thereby for specific terms, including, where applicable, the
following: (1) the designation of such equity stock; (2) the number of shares
of such equity stock offered, the liquidation rights and the offering price of
such equity stock; (3) the dividend rate(s), period(s) and/or payment date(s)
or method(s) of calculation applicable to such equity stock; (4) the provision
for redemption, if applicable, of such equity stock; (5) any listing of such
equity stock on any securities exchange; (6) the terms and conditions, if
applicable, upon which such equity stock will be convertible into common
stock, including the conversion price (or manner of calculation thereof); (7)
the voting rights, if any, of such equity stock; (8) any other specific terms,
rights, limitations or restrictions of such equity stock; and (9) the relative
ranking of such equity stock as to dividend rights and rights upon
liquidation, dissolution or winding up of our affairs.
Ranking. The ranking of the equity stock is set forth in the applicable
prospectus supplement. Unless otherwise specified in the applicable prospectus
supplement, such equity stock will, with respect to dividend rights and rights
upon liquidation, dissolution or winding up of our affairs, rank on a parity
with the common stock.
Dividends. Holders of shares of the equity stock of each series offered
hereby shall be entitled to receive, when, as and if declared by our board of
directors, out of our assets legally available for payment, cash dividends at
such rates and on such dates as will be set forth in the applicable prospectus
supplement. Each such dividend shall be payable to holders of record as they
appear on our stock transfer books on such record dates as shall be fixed by
our board of directors. Unless otherwise specified in the applicable
prospectus supplement, dividends on such equity stock will be non-cumulative.
Redemption. If so provided in the applicable prospectus supplement, the
shares of equity stock will be subject to mandatory redemption or redemption
at our option, in whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such prospectus supplement.
The prospectus supplement relating to a series of equity stock offered
hereby that is subject to mandatory redemption will specify the number of
shares of such equity stock that we redeem in each year commencing after a
date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such equity stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash, securities or other property, as specified in the applicable prospectus
supplement.
If fewer than all of the outstanding shares of equity stock of any series
offered hereby are to be redeemed, the number of shares to be redeemed will be
determined by us and such shares may be redeemed pro rata from the holders of
record of such shares in proportion to the number of such shares held by such
holders (with adjustments to avoid redemption of fractional shares) or any
other equitable method determined by us.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of equity stock of
any series to be redeemed at the address shown on our stock transfer
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books. Each notice shall state: (i) the redemption date; (ii) the number of
shares and series of the equity stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such equity stock are
to be surrendered for payment of the redemption price; (v) that dividends on
the shares to be redeemed will cease to accrue on such redemption date; and
(vi) the date upon which the holder's conversion rights, if any, as to such
shares shall terminate. If fewer than all the shares of equity stock of any
series are to be redeemed, the notice mailed to each such holder thereof shall
also specify the number of shares of equity stock to be redeemed from each
such holder and, upon redemption, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof. In
order to facilitate the redemption of shares of equity stock, our board of
directors may fix a record date for the determination of shares of equity
stock to be redeemed, such record date to be not less than 30 or more than 60
days prior to the date fixed for such redemption.
Notice having been given as provided above, from and after the date
specified therein as the date of redemption, unless we default in providing
funds for the payment of the redemption price on such date, all dividends on
the Equity Stock called for redemption will cease. From and after the
redemption date, unless we so default, all rights of the holders of the equity
stock as our shareholders, except the right to receive the redemption price
(but without interest), will cease.
Liquidation Rights. If we voluntarily or involuntarily liquidate, dissolve
or wind-up our affairs, then, before any distribution or payment may be made
to the holders of the equity stock or any other class or series of our capital
stock ranking junior to any series of the preferred stock in the distribution
of assets upon our liquidation, dissolution or winding up, the holders of such
series of preferred stock will be entitled to receive out of our assets
legally available for distribution to shareholders liquidating distributions
in the amount of the liquidation preference per share, plus an amount equal to
all dividends accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if such
preferred stock does not have a cumulative dividend). After payment of the
full amount of the liquidating distributions to which they are entitled, the
holders of Preferred Stock will have no right or claim to any of our remaining
assets. If we voluntarily or involuntarily liquidate, dissolve or wind-up our
affairs and our legally available assets are insufficient to pay the amount of
the liquidating distributions on all outstanding shares of any series of
preferred stock and the corresponding amounts payable on all shares of other
classes or series of our capital stock ranking on a parity with the preferred
stock in the distribution of assets upon liquidation, dissolution or winding
up, then the holders of such series of preferred stock and all other such
classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions have been made in full to all holders of
preferred stock, our remaining assets will be distributed among the holders of
any other classes or series of capital stock ranking junior to such series of
preferred stock upon liquidation, dissolution or winding up, including the
equity stock, according to their respective rights and in each case according
to their respective number of shares. For such purposes, our consolidation or
merger with or into any other corporation, or the sale, lease, transfer or
conveyance of all or substantially all of our property or business, will not
be deemed to constitute a liquidation, dissolution or winding up.
Unless otherwise specified in the applicable prospectus supplement, upon any
voluntary or involuntary liquidation, dissolution or winding up of our
affairs, holders of the equity stock will rank on a parity with the holders of
the common stock, subject to any maximum or minimum distribution to holders of
equity stock specified in such prospectus supplement.
Voting Rights. Unless otherwise specified in the applicable prospectus
supplement, holders of the equity stock will have the same voting rights as
holders of the common stock.
No consent or approval of the holders of any series of equity stock will be
required for the issuance from our authorized but unissued equity stock of
other shares of any series of equity stock including shares of such series of
equity stock.
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Conversion Rights. The terms and conditions, if any, upon which shares of
any series of equity stock offered hereby are convertible into common stock
will be set forth in the applicable prospectus supplement relating thereto.
Such terms will include the number of shares of common stock into which the
equity stock is convertible, the conversion price (or manner of calculation),
the conversion period, provisions as to whether conversion will be at our
option or at the option of the holders of the equity stock or automatically
upon the occurrence of certain events, the events requiring an adjustment of
the conversion price and provisions affecting conversion in the event of the
redemption of such equity stock.
DESCRIPTION OF THE DEPOSITARY SHARES
We may, at our option, elect to offer depositary shares rather than full
shares of preferred stock or equity stock. In the event such option is
exercised, each of the depositary shares will represent ownership of and
entitlement to all rights and preferences of a fraction of a share of
preferred stock or equity stock of a specified series (including dividend,
voting, redemption and liquidation rights). The applicable fraction will be
specified in the prospectus supplement. The shares of preferred stock or
equity stock represented by the depositary shares will be deposited with a
depositary named in the applicable prospectus supplement, under a deposit
agreement, among the depositary, the holders of the depositary receipts and
us. Depositary receipts, which are certificates evidencing depositary shares,
will be delivered to those persons purchasing depositary shares in the
offering. The depositary will be the transfer agent, registrar and dividend
disbursing agent for the depositary shares. Holders of depositary receipts
agree to be bound by the deposit agreement, which requires holders to take
certain actions such as filing proof of residence and paying certain charges.
The summary of terms of the depositary shares contained in this prospectus
does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the deposit agreement, our articles of
incorporation and the form of certificate of determination for the applicable
series of preferred stock or equity stock.
Dividends
The depositary will distribute all cash dividends or other cash
distributions received in respect of the series of preferred stock represented
by the depositary shares to the record holders of depositary receipts in
proportion to the number of depositary shares owned by such holders on the
relevant record date, which will be the same date as the record date fixed by
us for the applicable series of preferred stock or equity stock. The
depositary, however, will distribute only such amount as can be distributed
without attributing to any depositary share a fraction of one cent, and any
balance not so distributed will be added to and treated as part of the next
sum received by the depositary for distribution to record holders of
depositary receipts then outstanding.
In the event of a distribution other than in cash, the depositary will
distribute property received by it to the record holders of depositary
receipts entitled thereto, in proportion, as nearly as may be practicable, to
the number of depositary shares owned by such holders on the relevant record
date, unless the depositary determines (after consultation with us) that it is
not feasible to make such distribution, in which case the depositary may (with
our approval) adopt any other method for such distribution as it deems
equitable and appropriate, including the sale of such property (at such place
or places and upon such terms as it may deem equitable and appropriate) and
distribution of the net proceeds from such sale to such holders.
Liquidation Rights
In the event of the liquidation, dissolution or winding up of our affairs,
whether voluntary or involuntary, the holders of each depositary share will be
entitled to the fraction of the liquidation amount accorded each share of the
applicable series of preferred stock or equity stock, as set forth in the
prospectus supplement.
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Redemption
If the series of preferred stock represented by the applicable series of
depositary shares is redeemable, such depositary shares will be redeemed from
the proceeds received by the depositary resulting from the redemption, in
whole or in part, of preferred stock or equity stock held by the depositary.
Whenever we redeem any preferred stock or equity stock held by the depositary,
the depositary will redeem as of the same redemption date the number of
depositary shares representing the preferred stock or equity stock so
redeemed. The depositary will mail the notice of redemption promptly upon
receipt of such notice from us and not less than 30 nor more than 60 days
prior to the date fixed for redemption of the preferred stock or equity stock
and the depositary shares to the record holders of the depositary receipts.
Conversion
If the series of preferred stock or equity stock represented by the
applicable series of depositary shares is convertible into a different class
of our securities, the depositary shares will be also be convertible on the
terms described in the applicable prospectus supplement.
Voting
Promptly upon receipt of notice of any meeting at which the holders of the
series of preferred stock or equity stock represented by the applicable series
of depositary shares are entitled to vote, the depositary will mail the
information contained in such notice of meeting to the record holders of the
depositary receipts as of the record date for such meeting. Each such record
holder of depositary receipts will be entitled to instruct the depositary as
to the exercise of the voting rights pertaining to the number of shares of
preferred stock or equity stock represented by such record holder's depositary
shares. The depositary will endeavor, insofar as practicable, to vote such
preferred stock or equity stock represented by such depositary shares in
accordance with such instructions, and we will agree to take all action which
may be deemed necessary by the depositary in order to enable the depositary to
do so. The depositary will abstain from voting any of the preferred stock or
equity stock to the extent that it does not receive specific instructions from
the holders of depositary receipts.
Withdrawal of Preferred Stock
Upon surrender of depositary receipts at the principal office of the
depositary, upon payment of any unpaid amount due the depositary, and subject
to the terms of the deposit agreement, the owner of the depositary shares
evidenced thereby is entitled to delivery of the number of whole shares of
preferred stock or equity stock and all money and other property, if any,
represented by such depositary shares. Partial shares of preferred stock or
equity stock will not be issued. If the depositary receipts delivered by the
holder evidence a number of depositary shares in excess of the number of
depositary shares representing the number of whole shares of preferred stock
or equity stock to be withdrawn, the depositary will deliver to such holder at
the same time a new depositary receipt evidencing such excess number of
depositary shares. Holders of preferred stock or equity stock thus withdrawn
will not thereafter be entitled to deposit such shares under the deposit
agreement or to receive depositary receipts evidencing depositary shares
therefor.
Amendment and Termination of Deposit Agreement
The form of depositary receipt evidencing the depositary shares and any
provision of the deposit agreement may at any time and from time to time be
amended by agreement between the Depositary and us. However, any amendment
which materially and adversely alters the rights of the holders (other than
any change in fees) of depositary shares will not be effective unless such
amendment has been approved by at least a majority of the depositary shares
then outstanding. No such amendment may impair the right, subject to the terms
of the deposit agreement, of any owner of any depositary shares to surrender
the depositary receipt evidencing such depositary shares with instructions to
the depositary to deliver to the holder the preferred stock and all money and
other property, if any, represented thereby, except in order to comply with
mandatory provisions of applicable law. The deposit agreement may be
terminated by the depositary or us only if (i) all outstanding depositary
shares
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have been redeemed or (ii) there has been a final distribution in respect of
the preferred stock or equity stock in connection with our liquidation,
dissolution or winding up and such distribution has been made to all the
holders of depositary shares.
Charges of Depositary
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the depositary arrangements. We will pay charges
of the depositary in connection with the initial deposit of the preferred
stock or equity stock and the initial issuance of the depositary shares, and
redemption of the preferred stock or equity stock and all withdrawals of
preferred stock or equity stock by owners of depositary shares. Holders of
depositary receipts will pay transfer, income and other taxes and governmental
charges and certain other charges as are provided in the deposit agreement to
be for their accounts. In certain circumstances, the depositary may refuse to
transfer depositary shares, may withhold dividends and distributions and sell
the depositary shares evidenced by such depositary receipt if such charges are
not paid.
Miscellaneous
The depositary will forward to the holders of depositary receipts all
reports and communications from us which are delivered to the depositary and
which we are required to furnish to the holders of the preferred stock. In
addition, the depositary will make available for inspection by holders of
depositary receipts at the principal office of the depositary, and at such
other places as it may from time to time deem advisable, any reports and
communications received from us which are received by the depositary as the
holder of preferred stock or equity stock.
Neither the depositary nor we assume any obligation or will be subject to
any liability under the deposit agreement to holders of depositary receipts
other than for its negligence or willful misconduct. Neither the depositary
nor we will be liable if the depositary is prevented or delayed by law or any
circumstance beyond its control in performing its obligations under the
deposit agreement. Our obligations and those of the depositary under the
deposit agreement will be limited to performance in good faith of their duties
thereunder, and they will not be obligated to prosecute or defend any legal
proceeding in respect of any depositary shares or preferred stock unless
satisfactory indemnity is furnished. We and the depositary may rely on written
advice of counsel or accountants, on information provided by holders of
depositary receipts or other persons believed in good faith to be competent to
give such information and on documents believed to be genuine and to have been
signed or presented by the proper party or parties.
Resignation and Removal of Depositary
The depositary may resign at any time by delivering to us notice of its
election to do so, and we may at any time remove the depositary, any such
resignation or removal to take effect upon the appointment of a successor
depositary and its acceptance of such appointment. Such successor depositary
must be appointed within 60 days after delivery of the notice for resignation
or removal and must be a bank or trust company having its principal office in
the United States of America and having a combined capital and surplus of at
least $150,000,000.
Federal Income Tax Considerations
Owners of the depositary shares will be treated for federal income tax
purposes as if they were owners of the preferred stock or equity stock
represented by such depositary shares. Accordingly, such owners will be
entitled to take into account, for federal income tax purposes, income and
deductions to which they would be entitled if they were holders of such
preferred stock. In addition, (i) no gain or loss will be recognized for
federal income tax purposes upon the withdrawal of preferred stock in exchange
for depositary shares, (ii) the tax basis of each share of preferred stock or
equity stock to an exchanging owner of depositary shares will, upon such
exchange, be the same as the aggregate tax basis of the depositary shares
exchanged therefor, and (iii) the holding period for preferred stock or equity
stock in the hands of an exchanging owner of depositary shares will include
the period during which such person owned such depositary shares.
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DESCRIPTION OF WARRANTS
We have no warrants outstanding (other than options issued under our stock
option plan). We may issue warrants for the purchase of common stock,
preferred stock or equity stock. Warrants may be issued independently or
together with any other securities offered by any prospectus supplement and
may be attached to or separate from such securities. Each series of warrants
will be issued under a separate warrant agreement to be entered into between
the Company, a warrant agent specified in the applicable prospectus supplement
and us. The warrant agent will act solely as our agent in connection with the
warrants of such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of warrants. The
following sets forth certain general terms and provisions of the warrants
offered hereby. Further terms of the warrants and the applicable warrant
agreement will be set forth in the applicable prospectus supplement.
The applicable prospectus supplement will describe the terms of the warrants
in respect of which this prospectus is being delivered, including, where
applicable, the following: (1) the title of such warrants; (2) the aggregate
number of such warrants; (3) the price or prices at which such warrants will
be issued; (4) the designation, number and terms of the shares of common
stock, preferred stock or equity stock purchasable upon exercise of such
warrants; (5) the designation and terms of the other securities, if any, with
which such warrants are issued and the number of such warrants issued with
each such security; (6) the date, if any, on and after which such warrants and
the related common stock, preferred stock or equity stock, if any, will be
separately transferable; (7) the price at which each share of common stock,
preferred stock or equity stock purchasable upon exercise of such warrants may
be purchased; (8) the date on which the right to exercise such warrants shall
commence and the date on which such right shall expire; (9) the minimum or
maximum amount of such warrants which may be exercised at any one time; and
(10) any other terms of such warrants, including terms, procedures and
limitations relating to the exchange and exercise of such warrants.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain federal income tax
considerations relating to the Company and to the acquisition, ownership and
disposition of Common Stock. The applicable Prospectus Supplement will contain
information about additional federal income tax considerations, if any,
relating to Securities other than Common Stock. The following discussion,
which is not exhaustive of all possible tax considerations, does not give a
detailed description of any state, local, or foreign tax considerations. Nor
does it discuss all of the aspects of federal income taxation that may be
relevant to a prospective Shareholder in light of his or her particular
circumstances or to certain types of Shareholders (including insurance
companies, tax-exempt entities, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the
United States) who are subject to special treatment under federal income tax
laws. The information in this section is based on the Code, current, temporary
and proposed Treasury Regulations thereunder, the legislative history of the
Code, current administrative interpretations and practices of the IRS
(including its practices and policies as endorsed in private letter rulings,
which are not binding on the IRS except with respect to the taxpayer that
receives such a ruling), and court decisions, all as of the date hereof. No
assurance can be given that future legislation, Treasury Regulations,
administrative interpretations and court decisions will not significantly
change current law or adversely affect existing interpretations of current
law. Any such change could apply retroactively to transactions preceding the
date of the change. The Company has not requested and does not plan to request
any rulings from the IRS concerning the tax treatment of the Company or the
Operating Partnership. Thus, no assurance can be provided that the statements
set forth herein (which do not bind the IRS or the courts) will not be
challenged by the IRS or will be sustained by a court if so challenged.
EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OR HER TAX ADVISOR, REGARDING THE TAX CONSEQUENCES
TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND SALE OF THE SECURITIES,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF
SUCH ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE
TAX LAWS.
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As used under this heading, the term "Company" refers solely to PS Business
Parks, Inc.
Taxation of the Company
General. The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Code commencing with its taxable year ended December 31,
1990. The Company believes that its has been organized and operated in a
manner so as to qualify as a REIT, and the Company intends to continue to
operate in such a manner. So long as the Company qualifies for taxation as a
REIT, it generally will not be subject to federal corporate income taxes on
net income that it distributes currently to Shareholders. However, the Company
will be subject to federal income tax in the following circumstances. First,
the Company will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax" on its items of tax preference. Third, if the Company has (i) net income
from the sale or other disposition of "foreclosure property" (which is, in
general, property acquired by foreclosure or otherwise on default of a lease
or a loan secured by the property) which is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, if the Company has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property (other than foreclosure property) held primarily for
sale to customers in the ordinary course of business), such income will be
subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), and has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on the net income
attributable to the greater of the amount by which the Company fails the 75%
or 95% gross income test. Sixth, if the Company should fail to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income for such year, (ii) 95% of its REIT capital gain net income for such
year, and (iii) any undistributed taxable income from prior periods, it would
be subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. Seventh, if the Company acquires or has
acquired any asset from a taxable C corporation in a transaction in which the
basis of the asset in the acquiror's hands is determined by reference to the
basis of the asset (or any other asset) in the hands of the C corporation and
the acquiror recognizes gain on the disposition of such asset during the 10
year period beginning on the date on which such asset was acquired by it, then
to the extent of such asset's "Built-In Gain" (i.e., the excess of (a) the
fair market value of such asset at the time of the acquisition by the Company
over (b) the adjusted basis in such asset, determined at the time of such
acquisition), such gain will be subject to tax at the highest regular
corporate rate applicable, pursuant to anticipated Treasury Regulations that
have yet to be promulgated. The results described above with respect to the
recognition of Built-In Gain assume that the Company will make an election
pursuant to Notice 88-19 with respect to any such acquisition. Prior to 1997,
AOPP was taxable as a regular C corporation. In making its election to be
taxed as a REIT for 1997, AOPP elected to be subject to the Built-In Gain
rules of Notice 88-19.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) that is managed by one or more trustees or directors,
(2) the beneficial ownership of which is evidenced by transferable shares of
stock, or by transferable certificates of beneficial interest, (3) that would
be taxable as a domestic corporation, but for Sections 856 through 860 of the
Code, (4) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code, (5) the beneficial ownership of
which is held by 100 or more persons, (6) that during the last half of each
taxable year not more than 50% in value of the outstanding stock of which is
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities), (7) that makes an election to be taxable as
a REIT, or has made such election for a previous taxable year which has not
been revoked or terminated, and satisfies all relevant filing and other
administrative requirements established by the IRS that must be met in order
to elect and maintain REIT status; (8) that uses a calendar year for federal
income tax purposes and complies with recordkeeping requirements of the Code
and regulations promulgated thereunder; and (9) that meets certain other
tests, described below, regarding the nature of its income and assets and the
amount of its distributions. The Code provides that conditions (1) through
(4), inclusive, must be met during the entire taxable year and that condition
(5) must be
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met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. For purposes of
determining stock ownership under condition (6), a supplemental unemployment
compensation benefits plan, a private foundation or a portion of a trust
permanently set aside or used exclusively for charitable purposes generally is
considered an individual. However, a trust that is a qualified trust under
Code section 401(a) generally is not considered an individual and
beneficiaries of such trust are treated as holding shares of a REIT in
proportion to their actuarial interests in such trust for purposes of
condition (6).
The Company's Articles of Incorporation contain restrictions regarding the
transfer of its capital stock that are intended to assist the Company in
continuing to satisfy the stock ownership requirements described in conditions
(5) and (6). See "Description of Common Stock--Ownership Limitations." In
connection with condition (6), a REIT is required to send annual letters to
its shareholders requesting information regarding the actual ownership of
shares. For the Company's taxable years commencing on or after January 1,
1998, if the Company complies with the annual letters requirement and the
Company does not know, or exercising reasonable diligence would not have
known, whether it failed to meet requirement (6) above, the Company will be
treated as having met the requirement.
The ownership restrictions in the Company's articles of incorporation
generally prohibit the actual or constructive ownership of more than 2% of the
outstanding shares of Common Stock (excluding the interest held by PSI) or
more than 9.9% of the outstanding shares of each class or series of shares of
Preferred Stock, unless an exception is established by the Board of Directors.
The restrictions provide that if, at any time, for any reason, those ownership
limitations are violated or more than 50% in value of the Company's
outstanding stock otherwise would be considered owned by five or fewer
individuals, then a number of shares of stock necessary to cure the violation
will automatically and irrevocably be transferred from the person causing the
violation to a designated charitable beneficiary.
The REIT protective provisions are modeled after certain arrangements that
the IRS has ruled in private letter rulings will preclude a REIT from being
considered to violate the ownership restrictions so long as the arrangements
are enforceable as a matter of state law and the REIT seeks to enforce them as
and when necessary. There can be no assurance, however, that the IRS might not
seek to take a different position with respect to the Company (a private
letter ruling is legally binding only with respect to the taxpayer to whom it
was issued and the Company will not seek a private ruling on this or any other
issue) or contend that the Company failed to enforce these various
arrangements. Moreover, the Company's limitations will not apply to the
ownership of shares at the time of the Merger, or to shares of stock of the
Company deemed to be owned by a person as a result of such person's ownership
of shares of PSI (however, such deemed ownership will be taken into account in
determining whether a subsequent acquisition or transfer of shares of the
Company (but not PSI) violates the limitations), exceptions not contained in
the private letter rulings previously issued by the IRS. Accordingly, there
can be no assurance that these arrangements necessarily will preserve the
Company's REIT status. The Company believes, however, that it has issued and
outstanding sufficient shares with sufficient diversity of ownership to allow
it to satisfy the REIT ownership requirements.
A REIT is not permitted to have at the end of any taxable year any
undistributed earnings and profits that are attributable to a "C corporation"
taxable year. As a result of the Merger, the Company succeeded to various tax
attributes of AOPP, including any undistributed earnings and profits. AOPP was
taxable as a "C corporation" prior to 1997, and does not believe that it has
transferred any undistributed "C corporation earnings and profits" to the
Company. However, neither AOPP nor the Company has sought an opinion of
counsel or outside accountants to the effect that the Company has not acquired
any "C corporation earnings and profits" from AOPP. There can be no assurance
that the IRS would not contend otherwise on a subsequent audit of AOPP. It
appears that the Company could keep from being disqualified as a REIT by using
"deficiency dividend" procedures to distribute the "C corporation" earnings
and profits. In order to use this procedure, an affected REIT would have to
make an additional distribution to its shareholders (in addition to
distributions made for purposes of satisfying the normal REIT distribution
requirements), within 90 days of the IRS determination.
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In addition, the REIT would have to pay to the IRS an interest charge on 50%
of the acquired C corporation earnings and profits that were not distributed
prior to the end of the REIT's taxable year in which they were acquired. If
C corporation earnings and profits were deemed to have been acquired by the
Company, there can be no assurance, however, that the IRS would not take the
position either that the procedure is not available at all (in which case the
Company would fail to qualify as a REIT) or, alternatively, that even if the
procedure is available, the Company cannot qualify as a REIT for its taxable
year in which the earnings and profits were acquired, but it could qualify as
a REIT for subsequent taxable years. Finally, if AOPP were determined not to
have qualified as a REIT for the taxable year ended December 31, 1997 or its
short taxable year ending at the time of the Merger, the Company would not be
eligible to elect REIT status for up to four years after the year in which
AOPP failed to qualify as a REIT. AOPP made an election to be taxed as a REIT
commencing with its taxable year ended December 31, 1997. The Company and AOPP
believe that AOPP's election is valid and that AOPP was organized, and
operated in 1997 and until the time of the Merger, in conformity with the
requirements for taxation as a REIT.
Income Tests. In order to maintain qualification as a REIT, the Company must
satisfy certain gross income requirements, which are applied on an annual
basis. First, at least 75% of the Company's gross income (excluding gross
income from prohibited transactions) for each taxable year must be derived
directly or indirectly from investments relating to real property or mortgages
on real property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments.
Second, at least 95% of the Company's gross income (excluding gross income
from prohibited transactions) for each taxable year must be derived from the
same items which qualify under the 75% income test, and from dividends,
interest and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing.
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. The Company anticipates that none of its annual gross
income will be attributable to rents that are based in whole or in part on the
income of any person (excluding rents based on a percentage of receipts or
sales, which, as described above, are permitted). Second, the Code provides
that rents received from a tenant will not qualify as "rents from real
property" if the Company, or an owner of 10% or more of the Company, directly
or constructively owns 10% or more of such tenant (a "Related Party Tenant").
The Company does not anticipate that it will receive income from Related Party
Tenants. Third, if rent attributable to personal property, leased in
connection with a lease of real property, is greater than 15% of the total
rent received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property." The Company
does not anticipate deriving rent attributable to personal property leased in
connection with real property that exceeds 15% of the total rents. Finally,
for rents to qualify as "rents from real property," the Company generally must
not operate or manage the property or furnish or render services to tenants,
other than through an "independent contractor" that is adequately compensated
and from whom the Company derives no revenue. The "independent contractor"
requirement, however, does not apply to the extent the services provided by
the Company are "usually or customarily rendered" in connection with the
rental of space for occupancy only and are not otherwise considered "rendered
to the occupant." Any services with respect to certain properties that the
Company believes may not be provided by the Company directly without
jeopardizing the qualification of rent as "rents from real property" will be
performed by "independent contractors."
For the Company's taxable years commencing on or after January 1, 1998,
rents received generally will qualify as rents from real property even if the
Company were to provide services that are not permissible services so long as
the amount received for such services meets a de minimis standard. The amount
received for "impermissible services" with respect to a property (or, if
services are available only to certain tenants, possibly with respect to such
tenants) cannot exceed 1% of all amounts received, directly or indirectly, by
the Company with respect to such property (or, if services are available only
to certain tenants, possibly with respect to such tenants). In computing any
such amounts, the amount that the Company would be deemed to have received for
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performing "impermissible services" will be the greater of the actual amount
so received or 150% of the direct cost to the Company of providing those
services. If the impermissible service income exceeds 1% of the Company's
total income from a property, then all of the income from that property will
fail to qualify as rents from real property.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. It is
not possible, however, to state whether in all circumstances the Company would
be entitled to the benefit of these relief provisions. Even if these relief
provisions were to apply, however, a 100% tax would be imposed with respect to
the "excess net income" attributable to the failure to satisfy the 75% and 95%
gross income tests.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must satisfy three tests relating to the nature of its assets. First, at least
75% of the value of the Company's total assets must be represented by real
estate assets. The Company's real estate assets include, for this purpose, its
allocable share of real estate assets held by the Operating Partnership and
the non-corporate subsidiaries of the Operating Partnership, as well as stock
or debt instruments held for less than one year purchased with the proceeds of
a stock offering, or long-term (at least five years) debt offering of the
Company, cash, cash items and government securities. Second, not more than 25%
of the Company's total assets may be represented by securities other than
those in the 75% asset class. Third, of the investments included in the 25%
asset class, the value of any one issuer's securities owned by the Company may
not exceed 5% of the value of the Company's total assets, and, except for
REITs or "qualified REIT subsidiaries," the Company may not own more than 10%
of any one issuer's outstanding voting securities.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the 25% or
5% asset tests at the end of a later quarter solely by reason of changes in
the relative values of its assets. If the failure to satisfy the 25% or 5%
asset tests results from an acquisition of securities or other property during
a quarter, including, for example, as a result of the Company increasing its
interest in the Operating Partnership as a result of a merger, the exercise of
unit redemption rights or an additional capital contribution of proceeds of an
offering of shares by the Company, the failure can be cured by disposition of
sufficient nonqualifying assets within 30 days after the close of that
quarter. The Company intends to maintain adequate records of the value of its
assets to ensure compliance with the asset tests and to take any available
actions within 30 days after the close of any quarter as may be required to
cure any noncompliance with the 25% or 5% asset tests. If the Company fails to
cure noncompliance with the asset tests within such time period, the Company
would cease to qualify as a REIT.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends)
to its shareholders in an amount at least equal to (i) the sum of (a) 95% of
the Company's "REIT taxable income" (computed without regard to the dividends
paid deduction and the Company's net capital gain) and (b) 95% of the net
income (after tax), if any, from foreclosure property, minus (ii) the sum of
certain items of non-cash income. In addition, if the Company disposes of any
Built-In Gain Asset during the 10 year period beginning on the date the
Company acquired that asset, the Company will be required, pursuant to
Treasury Regulations which have not yet been promulgated, to distribute at
least 95% of the Built-In Gain (after tax), if any, recognized on the
disposition of such asset. See "--General" above for a discussion of "Built-In
Gain Assets." Such distributions must be paid in the taxable year to which
they relate, or in the following taxable year if declared before the Company
timely files its tax return for such year and if paid on or before the first
regular dividend payment date after such declaration.
To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its "REIT taxable
income," as adjusted, it will be subject to tax thereon at regular ordinary
and capital gain corporate tax rates. The Company may elect to require the
shareholders to include the Company's undistributed net capital gains in their
income by designating, in a written notice to shareholders, those amounts as
undistributed capital gains in respect of its shareholders' shares. If the
Company makes such
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an election, the shareholders will (i) include in their income as capital
gains their proportionate share of such undistributed capital gains and (ii)
be deemed to have paid their proportionate share of the tax paid by the
Company on such undistributed capital gains and thereby receive a credit or
refund for such amount. A shareholder will increase the basis in its Common
Shares by the difference between the amount of capital gain included in its
income and the amount of the tax that the Company is deemed to have paid on
the shareholder's behalf. The earnings and profits of the Company will be
adjusted appropriately. For a more detailed description of the tax
consequences to a shareholder of such a designation, see "--Taxation of U.S.
Shareholders Holding Common Stock."
In addition, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject
to a 4% excise tax on the excess of such required distribution over the sum of
amounts actually distributed during the calendar year by the REIT and the
amount, if any, on which the REIT paid income tax for such year.
The Company intends to make timely distributions sufficient to satisfy its
annual distribution requirements. It is expected that the Company's REIT
taxable income will be less than its cash flow due to the allowance of
depreciation and other non-cash charges in computing REIT taxable income.
Accordingly, the Company anticipates that it will generally have sufficient
cash or liquid assets to enable it to satisfy the distribution requirements
described above. It is possible, however, that the Company, from time to time,
may not have sufficient cash or other liquid assets to meet these distribution
requirements due to timing differences between (i) the actual receipt of
income and actual payment of deductible expenses and (ii) the inclusion of
such income and deduction of such expenses in arriving at taxable income of
the Company, or due to the need to make nondeductible payments, such as
principal payments on any indebtedness it may have. If such circumstances
occur, in order to meet the distribution requirements, the Company may find it
necessary to arrange for short-term, or possibly long-term, borrowings or to
pay dividends in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends;
however, the Company will be required to pay interest based upon the amount of
any deduction taken for deficiency dividends.
Recordkeeping Requirements. Pursuant to applicable Treasury Regulations, the
Company must comply with certain recordkeeping requirements to qualify for
taxation as a REIT.
Failure of the Company to Qualify as a REIT. For any taxable year that the
Company fails to qualify as a REIT, the Company would be taxed at the usual
corporate rates on all of its taxable income. Those taxes would reduce the
amount of cash available to the Company for distribution to its Shareholders.
Distributions to shareholders in any year in which the Company fails to
qualify as a REIT will not be deductible and will not be required to be made.
In addition, if the Company fails to qualify as a REIT, all distributions to
shareholders will be taxed as ordinary income, to the extent of the Company's
current and accumulated earnings and profits, and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends received deduction.
Unless certain relief provisions apply, the Company's election to be treated
as a REIT will terminate automatically if the Company fails to meet the
qualification requirements described above and the Company will not be
eligible to elect REIT status again until the fifth taxable year that begins
after the first year for which the Company's election was terminated (or
revoked). If the Company loses its REIT status, but later qualifies and elects
to be taxed as a REIT again, the Company may face significant adverse tax
consequences.
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Taxation of U.S. Shareholders Holding Common Stock
As used herein, the term "U.S. Shareholder" means a holder of shares of
Common Stock who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership,
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, (iii) is an estate the income of which
is subject to United States federal income taxation regardless of its source
or (iv) is a trust the administration of which is subject to the primary
supervision of a United States court and which has one or more Untied States
persons who have the authority to control all substantial decisions of the
trust. Notwithstanding the preceding sentence, to the extent provided in
regulations, certain trusts in existence on August 20, 1996, and treated as
United States persons prior to such date that elect to continue to be treated
as United States persons, shall also be considered U.S. Shareholders.
Distributions by the Company. As long as the Company qualifies as a REIT,
distributions made to the Company's taxable U.S. Shareholders (and not
designated as capital gain dividends) will generally be taxable to such
Shareholders as ordinary income to the extent of the Company's current or
accumulated earnings and profits. For purposes of determining whether
distributions on shares of Common Stock are out of current or accumulated
earnings and profits, the earnings and profits of the Company will be
allocated first to shares of Preferred Stock and second to shares of Common
Stock. There can be no assurance that the Company will have sufficient
earnings and profits to cover distributions on any shares of Preferred Stock.
Such distributions will not be eligible for the dividends received deductions
in the case of Shareholders that are corporations. Dividends declared during
the last quarter of a calendar year and actually paid during January of the
immediately following calendar year generally are treated as if received by
the Shareholders on December 31 of the calendar year during which they were
declared.
Distributions designated by the Company as capital gain dividends generally
will be taxed as gain from the sale or exchange of a capital asset held for
more than one year (to the extent that the distributions do not exceed the
Company's actual net capital gain for the taxable year) without regard to the
period for which the Shareholder has held its stock. Corporate Shareholders
however, may be required to treat up to 20% of certain capital gain dividends
as ordinary income.
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would
be carried over by the Company for potential offset against future income
(subject to certain limitations). Distributions made by the Company and gain
arising from the sale or exchange by a holder of Common Stock will not be
treated as passive activity income, and, as a result, holders of Common Stock
generally will not be able to apply any "passive losses" against such income
or gain. Future regulations may require that Shareholders take into account,
for purposes of computing their individual alternative minimum tax liability,
certain tax preference items of the Company. In addition, taxable
distributions from the Company generally will be treated as investment income
for purposes of the investment interest limitations. Capital gain dividends
and capital gain from the disposition of shares, including distributions
treated as such, however, will be treated as investment income for purposes of
the investment interest limitation only if the U.S. Shareholder so elects, in
which case such capital gains will be taxed at ordinary income rates. The
Company will notify shareholders after the close of the Company's taxable year
as to the portions of distributions attributable to that year that constitute
ordinary income, return of capital and capital gain.
Distributions in excess of current or accumulated earnings and profits will
not be taxable to a U.S. shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares of Common Stock, but rather will
reduce the adjusted basis of such shares of Common Stock. To the extent that
such distributions exceed the adjusted basis of a U.S. shareholder's shares of
Common Stock, they will be included in income as capital gains, assuming the
shares of Common Stock are a capital asset in the hands of the U.S.
Shareholder.
For the Company's taxable years commencing on or after January 1, 1998, the
Company may elect to require the holders of Common Stock to include the
Company's undistributed net long-term capital gains in their income. If the
Company makes such an election, the holders of Common Stock will (i) include
in their income as long-term capital gains their proportionate share of such
undistributed capital gains and (ii) be deemed to have
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paid their proportionate share of the tax paid by the Company on such
undistributed capital gains and thereby receive a credit or refund for such
amount. A holder of Common Stock will increase the basis in its Common Stock
by the difference between the amount of capital gain included in its income
and the amount of the tax it is deemed to have paid. The earnings and profits
of the Company will be adjusted appropriately. With respect to such long-term
capital gain of a taxable domestic shareholder that is an individual or an
estate or trust, the IRS has authority to issue regulations that could apply
the special tax rate applicable to sales of depreciable real property by an
individual or an estate or trust to the portion of the long-term capital gains
of an individual or an estate or trust attributable to deductions for
depreciation taken with respect to depreciable real property.
Sales of Shares. In general, a U.S. Shareholder will realize gain or loss on
the disposition of shares of Common Stock equal to the difference between (i)
the amount of cash and the fair market value of any property received on such
disposition and (ii) the shareholder's adjusted basis of such shares of Common
Stock. Such gain or loss will be capital gain or loss if the shares have been
held as a capital asset. In the case of a taxable U.S. Shareholder who is an
individual or an estate or trust, such gain or loss will be long-term capital
gain or loss, and such long-term capital gain shall be subject to the maximum
capital gain rate of 20%. In the case of a taxable U.S. Shareholder that is a
corporation, such gain or loss will be long-term capital gain or loss if such
shares have been held for more than one year and any such capital gain shall
be subject to the maximum capital gain rate of 35%. Loss upon a sale or
exchange of shares of Common Stock by a shareholder who has held such shares
of Common Stock for six months or less (after applying certain holding period
rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gain.
Taxpayer Relief Act and IRS Restructuring Act Changes to Capital Gain
Taxation. The Taxpayer Relief Act of 1997 (the "Taxpayer Relief Act") altered
the taxation of capital gain income. Under the Taxpayer Relief Act,
individuals, trusts and estates that hold certain investments for more than
18 months may be taxed at a maximum long-term capital gain rate of 20% on the
sale or exchange of those investments. Individuals, trusts and estates that
hold certain assets for more than one year but not more than 18 months may be
taxed at a maximum long-term capital gain rate of 28% on the sale or exchange
of those investments. The Taxpayer Relief Act also provides a maximum rate of
25% for "unrecaptured Section 1250 gain" for individuals, trusts and estates,
special rules for "qualified 5-year gain" and other changes to prior law. The
recently enacted IRS Restructuring Act of 1998, however, reduced the holding
period requirement established by the Taxpayer Relief Act for the application
of the 20% and 25% capital gain tax rates to 12 months from 18 months for
sales of capital gain assets after December 31, 1997 and thus eliminated the
28% rate. The Taxpayer Relief Act allows the IRS to prescribe regulations on
how the Taxpayer Relief Act's capital gain rates will apply to sales of
capital assets by "pass-through entities," including REITs, such as the
Company and to sales of interests in "pass-through entities." Shareholders are
urged to consult with their own tax advisors with respect to the rules
contained in the Taxpayer Relief Act and the IRS Restructuring Act.
On November 10, 1997, the IRS issued IRS Notice 97-64, which provides
generally that the Company may classify portions of its designated capital-
gain dividend as (i) a 20% rate gain distribution (which would be taxed as
long-term capital gain in the 20% group), (ii) an unrecaptured Section 1250
gain distribution (which would be taxed as long-term capital gain in the 25%
group), or (iii) a 28% rate gain distribution (which would be taxed as long-
term capital gain in the 28% group). (If no designation is made, the entire
designated capital gain dividend will be treated as a 28% rate gain
distribution.) IRS Notice 97-64 provides that a REIT must determine the
maximum amounts that it may designate as 20% and 25% rate capital gain
dividends by performing the computation required by the Code as if the REIT
were an individual whose ordinary income were subject to a marginal tax rate
of at least 28%. The Notice further provides that designations made by the
REIT will only be effective to the extent that they comply with Revenue Ruling
89-81, which requires that distributions made to different classes of shares
be composed proportionately of dividends of a particular type. Although Notice
97-64 will apply to sales of capital gain assets after July 28, 1997 and
before January 1, 1998, it is expected that the IRS will issue clarifying
guidance, most likely applying the same principles set forth in Notice 97-64,
regarding a REIT's designation of capital gain dividends in light of the new
holding period requirements.
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Backup Withholding. The Company will report to its domestic shareholders and
the IRS the amount of dividends paid during each calendar year, and the amount
of tax withheld, if any, with respect thereto. Under the backup withholding
rules, a shareholder may be subject to backup withholding at the rate of 31%
with respect to dividends paid unless such holder (a) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
this fact, or (b) provides a taxpayer identification number and certifies as
to no loss of exemption from backup withholding. Amounts withheld as backup
withholding will be creditable against the stockholder's income tax liability.
In addition, the Company may be required to withhold a portion of capital gain
distributions made to any shareholders who fail to certify their non-foreign
status to the Company. See "--Taxation of Non-U.S. Shareholders" below.
Taxation of Tax-Exempt Shareholders. As a general rule, amounts distributed
to a tax-exempt entity by a corporation do not constitute "unrelated business
taxable income" ("UBTI"), and thus distributions by the Company to a
stockholder that is a tax-exempt entity generally should not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
shares of Common Stock with "acquisition indebtedness" within the meaning of
the Code and the shares of Common Stock are not otherwise used in an unrelated
trade or business of the tax-exempt entity. However, distributions by a REIT
to a tax-exempt employee's pension trust that owns more than 10% of the REIT
will be treated as UBTI in an amount equal to the percentage of gross income
of the REIT that is derived from an "unrelated trade or business" (determined
as if the REIT were a pension trust) divided by the gross income of the REIT
for the year in which the dividends are paid. This rule only applies, however,
if (i) the percentage of gross income of the REIT that is derived from an
unrelated trade or business for the year in which the dividends are paid is at
least 5%, (ii) the REIT qualifies as a REIT only because the pension trust is
not treated as a single individual for purposes of the "five-or-fewer rule"
(see "--Taxation of the Company--Requirements for Qualification" above), and
(iii) (A) one pension trust owns more than 25 percent of the value of the REIT
or, (B) a group of pension trusts individually holding more than 10 percent of
the value of the REIT collectively own more than 50 percent of the value of
the REIT. The Company currently does not expect that this rule will apply.
Taxation of Non-U.S. Shareholders
The rules governing U.S. federal income taxation of non-U.S. Shareholders
are complex, and the following discussion is intended only as a summary of
such rules. Prospective non-U.S. Shareholders should consult with their tax
advisors to determine the impact of federal, state, local and foreign income
tax laws on an investment in the Company, including any reporting
requirements.
Distributions by the Company. Distributions to a non-U.S. Shareholder that
are not attributable to gain from sales or exchanges by the Company of U.S.
real property interests and not designated by the Company as capital gain
dividends will generally be subject to tax as ordinary income to the extent of
the Company's current or accumulated earnings and profits as determined for
U.S. federal income tax purposes. Such distributions will generally be subject
to a withholding tax equal to 30% of the gross amount of the distribution,
unless reduced by an applicable tax treaty or unless such dividends are
treated as effectively connected with a United States trade or business. If
the amount distributed exceeds a non-U.S. Shareholder's allocable share of
such earnings and profits, the excess will be treated as a tax-free return of
capital to the extent of such non-U.S. Shareholder's adjusted basis in the
Common Stock. To the extent that such distributions exceed the adjusted basis
of a non-U.S. Shareholder's Common Stock, such distributions will generally be
subject to tax if such non-U.S. Shareholder would otherwise be subject to tax
on any gain from the sale or disposition of its Common Stock, as described
below.
For withholding tax purposes, the Company currently is required to treat all
distributions as if made out of its current or accumulated earnings and
profits and thus intends to withhold at the rate of 30% (or a reduced treaty
rate if applicable) on the amount of any distribution (other than
distributions designated as capital gain dividends) made to a Non-U.S.
Shareholder. Under regulations generally effective for distributions on or
after January 1, 1999, the Company would not be required to withhold at the
30% rate on distributions it reasonably
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estimates to be in excess of the Company's current and accumulated earnings
and profits. If it cannot be determined at the time a distribution is made
whether such distribution will be in excess of current and accumulated
earnings and profits, the distribution will be subject to withholding at the
rate applicable to ordinary dividends. As a result of a legislative change
made by the Small Business Job Protection Act of 1996, under current law, it
appears that the Company will be required to withhold 10% of any distribution
to a non-U.S. Shareholder in excess of the Company's current and accumulated
earnings and profits. Consequently, although the Company intends to withhold
at a rate of 30% on the entire amount of any distribution to a non-U.S.
Shareholder (or lower applicable treaty rate), to the extent the Company does
not do so, any portion of such a distribution not subject to withholding at a
rate of 30% (or lower applicable treaty rate) will be subject to withholding
at a rate of 10%. However, the non-U.S. Shareholder may seek a refund of such
amounts from the IRS if it subsequently determined that such distribution was,
in fact, in excess of current or accumulated earnings and profits of the
Company, and the amount withheld exceeded the non-U.S. Shareholder's United
States tax liability, if any, with respect to the distribution.
Distributions to a non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those
arising from the disposition of a United States real property interest)
generally will not be subject to United States federal income taxation, unless
(i) the investment in the Common Stock is effectively connected with the non-
U.S. Shareholder's United States trade or business, in which case the non-U.S.
Shareholder will be subject to the same treatment as U.S. Shareholders with
respect to such gain (except that a shareholder that is a foreign corporation
may also be subject to the 30% branch profits tax) or (ii) the non-U.S.
Shareholder is a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year and certain other
requirements are met, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains.
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"),
distributions to a non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests
(whether or not designated as a capital gain dividend) will be taxed to a non-
U.S. Shareholder at the normal capital gains rates applicable to domestic
Shareholders (subject to a special alternative minimum tax in the case of
nonresident alien individuals). Also, distributions subject to FIRPTA may be
subject to a 30% branch profits tax in the hands of a non-U.S. Shareholder
that is a corporation and that is not entitled to treaty relief or exemption.
The Company is required by applicable FIRPTA Treasury Regulations to withhold
35% of any such distribution that is or could be designated by the Company as
a capital gain dividend. That amount is creditable against the non-U.S.
Shareholder's United States FIRPTA tax liability.
Even if the Company does not qualify or ceases to be a domestically
controlled REIT, gain arising from the sale or exchange by a non-U.S.
Shareholder of Common Stock would still not be subject to U.S. taxation under
FIRPTA as a sale of a United States real property interest if (i) the class or
series of shares being sold is "regularly traded," as defined by applicable
Treasury Regulations, on an established securities market such as the New York
Stock Exchange, and (ii) the selling non-U.S. Shareholder owned 5% or less of
the value of the outstanding class or series of shares being sold throughout
the five-year period ending on the date of the sale or exchange.
If gain on the sale or exchange of Common Stock were subject to taxation
under FIRPTA, the non-U.S. Shareholder would be subject to regular United
States income tax with respect to such gain in the same manner as a taxable
U.S. Shareholder, subject to any applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporations. The purchaser of the Common Stock would be required to withhold
and remit to the IRS 10% of the purchase price.
Although the law is not entirely clear on the matter, it appears that
amounts designated by the Company pursuant to the Taxpayer Relief Act as
undistributed capital gains in respect of shares of Common Stock (see
"Taxation of U.S. Shareholders Holding Common Stock" above) would be treated
with respect to non-U.S. Shareholders in the manner outlined in the preceding
paragraph for actual distributions by the Company of
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<PAGE>
capital gain dividends. Under that approach, the non-U.S. Shareholders would
be able to offset as a credit against their United States federal income tax
liability resulting therefrom their proportionate share of the tax paid by the
Company on such undistributed capital gains (and to receive from the IRS a
refund to the extent their proportionate share of such tax paid by the Company
were to exceed their actual United States federal income tax liability).
Sale of Common Stock. Gain recognized by a non-U.S. Shareholder upon a sale
of its Common Stock will generally not be subject to tax under FIRPTA if the
Company is a "domestically controlled REIT," which is defined generally as a
REIT in which at all times during a specified testing period less than 50% in
value of its shares were held directly or indirectly by non-U.S. persons.
Because only a minority of the Shareholders are non-U.S. Shareholders, the
Company expects to qualify as a "domestically controlled REIT." Accordingly, a
non-U.S. Shareholder should not be subject to U.S. tax on gains recognized
upon disposition of the Common Stock, provided that such gain is not
effectively connected with the conduct of a United States trade or business
and, in the case of an individual Shareholder, such holder is not present in
the United States for 183 days or more during the year of sale and certain
other requirements are met.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at a rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to non-U.S. Shareholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends, or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Stock by or through a foreign office of a foreign
broker. Information reporting (but not backup withholding) will apply,
however, to a payment of the proceeds of a sale of Common Stock by a foreign
office of a broker that (a) is a United States person, (b) derives 50% or more
of its gross income for certain periods from the conduct of a trade or
business in the United States or (c) is a "controlled foreign corporation"
(generally a foreign corporation controlled by United States Shareholders) for
United States tax purposes, unless the broker has documentary evidence in its
records that the holder is a non-U.S. Shareholder and certain other conditions
are met, or the Shareholder otherwise establishes an exemption. Payment to or
through a United States office of a broker of the proceeds of a sale of Common
Stock is subject to both backup withholding and information reporting unless
the Shareholder certifies under penalty of perjury that the Shareholder is a
non-U.S. Shareholder, or otherwise establishes an exemption. A non-U.S.
Shareholder may obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.
The United States Treasury Department has recently finalized regulations
regarding the withholding and information reporting rules discussed above. In
general, these regulations do not alter the substantive withholding and
information reporting requirements but unify certification procedures and
forms and clarify and modify reliance standards. These regulations generally
are effective for payments made after December 31, 1999, subject to certain
transition rules. Valid withholding certificates that are held on December 31,
1999, will remain valid until the earlier of December 31, 2000, or the date of
the expiration of the certificate under rules currently in effect, unless
otherwise invalidated due to changes in the circumstances of the person whose
name is on such certificate. A non-U.S. Shareholder should consult its advisor
regarding the effect of the new Treasury Regulations.
Administration's Proposed Changes to REIT Qualification Requirements
The administration's fiscal year 2000 budget proposal, announced February 1,
1999, includes a proposal that would change the 10% voting securities test to
a 10% vote or value test. Under the proposal, a REIT would not be able to own
more than 10% of the vote or value of the outstanding securities of any
corporation, except for a qualified REIT subsidiary or another REIT (see
"Taxation of the Company--Asset Tests" above). The proposal also contains an
exception to the 5% and 10% asset tests that would allow a REIT to have
"taxable
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<PAGE>
REIT subsidiaries," including both "qualified independent contractor
subsidiaries," which could perform noncustomary and other currently prohibited
services for tenants and other customers, and "qualified business
subsidiaries," which could undertake third-party management and development
activities as well as other non-real estate related activities. Under the
proposal, no more than 15% of a REIT's total assets could consist of taxable
REIT subsidiaries and no more than 5% of a REIT's total assets could consist
of qualified independent contractor subsidiaries. Under the budget proposal, a
taxable REIT subsidiary would not entitled to deduct any interest on debt
funded directly or indirectly by the REIT. This proposal would be effective
after the date of enactment and a REIT would be allowed to combine and convert
existing corporate subsidiaries into taxable REIT subsidiaries tax-free prior
to a certain date. A transition period would allow for conversion of existing
corporate subsidiaries before the 10% vote or value test would become
effective. For the Company's taxable years after the effective date of the
proposal and after any applicable transition period, the 10% vote or value
test would apply to the Company's ownership in any of the non-qualified REIT
subsidiaries not converted into taxable REIT subsidiaries. It is presently
uncertain whether any proposal regarding REIT subsidiaries, including the
budget proposal, will be enacted or, if enacted, what the terms, including the
effective date, of such proposal will be.
On April 28, 1999, the Real Estate Investment Trust Modernization Act of
1999 (the "bill") was introduced in Congress. The bill is similar to the
administration's proposal in several respects. Like the administration's
proposal, the bill would create "taxable REIT subsidiaries" that would not be
subject to the 5% asset test, but that would remain subject to the 25% asset
test (see "Taxation of the Company--Asset Tests" above). The "taxable REIT
subsidiaries" would also be subject to "earnings stripping" limitations on the
deductibility of interest. Under the bill, a REIT would be able to rent up to
10% of a property to a taxable REIT subsidiary and generally have the rent
qualify as good income. The bill would also change the 10% voting securities
test to a 10% vote or value test unless the corporation elects to be a taxable
REIT subsidiary or the securities qualify for the "grandfather rule." In
general, the "grandfather rule" would apply to securities of a corporation in
which the REIT owned an interest on April 28, 1999. The grandfather rule would
also apply to securities acquired in a tax-free exchange for "grandfathered
securities" and to securities acquired in a qualifying tax-free reorganization
with another REIT, if those securities were grandfathered in the hands of the
other REIT. Securities of a corporation will lose their "grandfathered" status
if the corporation acquires any substantial asset or engages in a substantial
new line of business after April 28, 1999 (other than pursuant to a binding
contract in effect on that date).
Tax Aspects of the Company's Ownership of Interests in the Operating
Partnership
General. A significant portion of the Company's investments will be held
indirectly through the Operating Partnership. In general, partnerships are
"pass-through" entities that are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income,
gain, loss, deduction and credit of a partnership, and are potentially subject
to tax on those items, without regard to whether the partners receive a
distribution from the partnership. In the case of a REIT which is a partner in
a partnership, Treasury Regulations provide that for purposes of applying the
REIT gross income and gross asset tests, the REIT will be deemed to own its
proportionate share of the assets of the partnership and will be deemed to be
entitled to the income of the partnership attributable to that share, in each
case based on its "capital interest" in the partnership. In addition, the
character of the gross income and assets of the partnership shall retain the
same character in the hands of the REIT for purposes of Section 856 of the
Code which includes the gross income and asset tests described above. The
Company will have direct control of the Operating Partnership and intends to
operate it consistent with the requirements for qualification as a REIT. The
Company will include in its income its proportionate share of the foregoing
partnership items for purposes of the various REIT income tests and will take
into account its distributive share of partnership items in the computation of
its REIT taxable income. Moreover, for purposes of the REIT asset tests, the
Company will include its proportionate share of assets held through the
Operating Partnership.
Entity Classification. If the Operating Partnership were treated as an
association, the entity would be taxable as a corporation and therefore would
be subject to an entity level tax on its income. In such a situation,
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<PAGE>
the character of the Company's assets and items of gross income would change
and would preclude the Company from qualifying as a REIT. The same result
could occur if any subsidiary partnership failed to qualify for treatment as a
partnership.
Prior to January 1, 1997, an organization formed as a partnership or a
limited liability company was treated as a partnership for federal income tax
purposes rather than as a corporation only if it had no more than two of the
four corporate characteristics that the Treasury Regulations in effect at that
time used to distinguish a partnership from a corporation for tax purposes.
These four characteristics were (i) continuity of life, (ii) centralization of
management, (iii) limited liability and (iv) free transferability of
interests.
Under final Treasury Regulations that became effective January 1, 1997, the
four factor test has been eliminated and an entity formed as a partnership or
as a limited liability company will be taxed as a partnership for federal
income tax purposes unless it specifically elects otherwise. The Treasury
Regulations provide that the IRS will not challenge the classification of an
existing partnership or limited liability company for tax periods prior to
January 1, 1997 so long as (1) the entity had a reasonable basis for its
claimed classification, (2) the entity and all its members recognized the
federal income tax consequences of any changes in the entity's classification
within the 60 months prior to January 1, 1997, and (3) neither the entity nor
any member of the entity had been notified in writing on or before May 8,
1996, that the classification of the entity was under examination by the IRS.
The Company believes that the Operating Partnership will be treated as a
partnership for federal income tax purposes (and not as an association taxable
as a corporation).
Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and loss among partners, those allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the related Treasury Regulations. Generally,
those provisions require that partnership allocations reflect the economic
arrangement of the partners. The allocations of taxable income and loss
provided for in the Operating Partnership Agreement are intended to comply
with the requirements of Section 704(b) of the Code and the related Treasury
Regulations. If an allocation is not recognized for federal income tax
purposes, the item subject to the allocation will be reallocated in accordance
with the partners' interests in the partnership, which will be determined by
taking into account all of the facts and circumstances relating to the
economic arrangement of the partners with respect to that item.
Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership, must be allocated in a manner so that the
contributing partner is charged with, or benefits from, respectively, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of the unrealized gain or unrealized loss is
generally equal to the difference between the fair market value of contributed
property at the time of contribution and the adjusted tax basis of the
property at that time (a "Book-Tax Difference"). These allocations are solely
for federal income tax purposes and do not affect the book capital accounts or
other economic or legal arrangements among the partners. Similar rules can
apply in the case of appreciated or depreciated properties held by a
partnership at the time of new contributions to the partnership. The Operating
Partnership was formed by way of contributions of appreciated and depreciated
properties. Consequently, the Operating Partnership Agreement requires that
those allocations be made in a manner consistent with Section 704(c) of the
Code.
In general, the partners of the Operating Partnership who contributed assets
will be allocated differing depreciation deductions than if they had retained
the contributed property. In addition, on the disposition of any contributed
asset that has a Book-Tax Difference, the income or loss attributable to the
Book-Tax Difference generally will be allocated to the contributing partner.
These allocations will tend to eliminate the Book-Tax Difference over the life
of the Operating Partnership. However, the special allocation rules of Section
704(c) do not always entirely eliminate the Book-Tax Difference on an annual
basis or with respect to a specific taxable transaction such as a sale. Thus,
the carryover basis of the contributed assets in the hands of the Operating
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Partnership may cause the Company to be allocated lower depreciation and other
deductions, and possibly an amount of taxable income in the event of a sale of
the contributed assets in excess of the economic or book income allocated to
it as a result of that sale. Such an allocation might cause the Company to
recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with the REIT distribution
requirements.
Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including the "traditional method" or the election of certain methods that
would permit any distortions caused by a Book-Tax Difference to be entirely
rectified on an annual basis or with respect to a specific taxable transaction
such as a sale. The Operating Partnership and the Company will determine with
respect to each contribution to the Operating Partnership which method to use.
Taxation of Holders of Preferred Stock, Equity Stock, Depositary Shares and
Warrants
If the Company offers one or more series of Preferred Stock, Equity Stock,
Depositary Shares or Warrants, there may be tax consequences for the holders
of such Securities not discussed herein. For a discussion of any such
additional consequences, see the applicable Prospectus Supplement.
State and Local Taxes
The tax treatment of the Company and the Shareholders in states having
taxing jurisdiction over them may differ from the federal income tax
treatment. Accordingly, no discussion of state taxation of the Company and the
Shareholders is provided nor is any representation made as to the tax status
of the Company in such states. All investors should consult their tax advisors
as to the treatment of the Company under the respective state tax laws
applicable to them.
PLAN OF DISTRIBUTION
We may sell the securities to one or more underwriters for public offering
and sale by them or may sell the securities to investors directly or through
agents. Any such underwriter or agent involved in the offer and sale of the
securities will be named in the applicable prospectus supplement.
Direct sales to investors may be accomplished through subscription offerings
or through shareholder purchase rights distributed to shareholders. In
connection with subscription offerings or the distribution of shareholder
purchase rights to shareholders, if all of the underlying securities are not
subscribed for, we may sell such unsubscribed securities to third parties
directly or through underwriters or agents and, in addition, whether or not
all of the underlying securities are subscribed for, we may concurrently offer
additional securities to third parties directly or through underwriters or
agents. Any such underwriter or agent involved in the offer and sale of the
securities will be named in the applicable prospectus supplement. If
securities are to be sold through shareholder purchase rights, such
shareholder purchase rights will be distributed as a dividend to the
shareholders for which they will pay no separate consideration. The prospectus
supplement with respect to the offer of securities pursuant to shareholder
purchase rights will set forth the relevant terms of the shareholder purchase
rights, including (i) whether common shares or common share warrants, or both,
will be offered pursuant to the shareholder purchase rights and the number of
common shares and common share warrants, as applicable, which will be offered
pursuant to the shareholder purchase rights, (ii) the period during which and
the price at which the shareholder purchase rights will be exercisable, (iii)
the number of shareholder purchase rights then outstanding, (iv) any
provisions for changes to or adjustments in the exercise price of the
shareholder purchase rights and (v) any other material terms of the
shareholder purchase rights.
Underwriters may offer and sell the securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. We also may, from time to time,
authorize underwriters acting as our agents to offer and sell the securities
upon the terms and conditions as are set forth in the applicable prospectus
supplement. In connection with the sale of securities, underwriters may
33
<PAGE>
be deemed to have received compensation from us in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
securities for whom they may act as agent. Underwriters may sell securities to
or through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agent.
Any underwriting compensation paid by us to underwriters or agents in
connection with the offering of securities, and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set
forth in the applicable prospectus supplement. Underwriters, dealers and
agents participating in the distribution of the securities may be deemed to be
underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the securities may be deemed to be
underwriting discounts and commissions, under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered
into with us, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
Securities may also be offered and sold, if so indicated in the applicable
prospectus supplement, in connection with a remarketing upon their purchase,
in accordance with a redemption or repayment pursuant to their terms, or
otherwise, by one or more firms ("remarketing firms"), acting as principals
for their own accounts or as our agents. Any remarketing firm will be
identified and the terms of its agreement, if any, with us and its
compensation will be described in the applicable prospectus supplement.
Remarketing firms may be deemed to be underwriters in connection with the
securities remarketed thereby. Remarketing firms may be entitled under
agreements which may be entered into with us to indemnification by us against
certain liabilities, including liabilities under the Securities Act, and may
be customers of, engage in transactions with or perform services for us in the
ordinary course of business.
If so indicated in the applicable prospectus supplement, we will authorize
dealers acting as our agents to solicit offers by certain institutions to
purchase securities at the offering price set forth in such prospectus
supplement pursuant to delayed delivery contracts providing for payment and
delivery on the date or dates stated in such prospectus supplement. Each
contract will be for an amount not less than, and the aggregate principal
amount of securities sold pursuant to contracts shall be not less nor more
than, the respective amounts stated in the applicable prospectus supplement.
Institutions with whom contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to our approval. Contracts will not be subject to
any conditions except (i) the purchase by an institution of the securities
covered by its contracts will not at the time of delivery be prohibited under
the laws of any jurisdiction in the United States to which such institution is
subject, and (ii) if the securities are being sold to underwriters, we will
have sold to such underwriters the total principal amount of the securities
less the principal amount thereof covered by contracts. Agents and
underwriters will have no responsibility in respect of the delivery or
performance of contracts.
Certain of the underwriters, if any, and their affiliates may be customers
of, engage in transactions with and perform services for us in the ordinary
course of business.
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<PAGE>
This prospectus may also be used in registered resales by the following
holders of common stock:
<TABLE>
<CAPTION>
Shares of Percentage of
Shares of Common Shares of Common Stock Outstanding Shares
Stock Percentage of Common Stock Beneficially of Common Stock
Beneficially Outstanding Shares Being Registered Owned After Beneficially Owned
Name Owned of Common Stock for Resale Resale After Resale
---- ---------------- ------------------ ---------------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Acquiport Two
Corporation............ 6,110,265 25.8% 6,110,265 0 0%
State Treasurer, State
of Michigan............ 2,131,611 9.0% 888,172(1) 1,243,439 5.3%
Cohen & Steers Capital
Management, Inc.(2).... 1,176,234 4.9% 888,171(1) 288,063 1.2%
Morgan Stanley Asset
Management(2).......... 693,493 2.9% 693,493(1) 0 0%
Harvard Private Capital
Realty, Inc............ 874,074 3.7% 592,114(1) 281,960 1.2%
ABKB/LaSalle Securities
Limited
Partnership(2)......... 2,331,148 9.9% 592,113(1) 1,739,035 7.4%
Fidelity Real Estate
Investment Portfolio... 348,219 1.5% 348,219(1) 0 0%
Stanford University..... 437,037 1.8% 296,058(1) 140,979 (3)
The Fidelity REIT
Collective Pool........ 66,048 (3) 44,742(1) 21,306 (3)
State Employees'
Retirement Fund of the
State of Delaware...... 30,911 (3) 20,940(1) 9,971 (3)
J.W. McConnell Family
Foundation............. 7,821 (3) 5,298(1) 2,523 (3)
</TABLE>
- --------
(1) Reflects an aggregate of 4,588,885 shares issued to these holders in May
1998 pursuant to a Common Stock Purchase Agreement dated as of January 23,
1998.
(2) All shares of common stock held as agent for and for the benefit of
certain of such holder's clients.
(3) Less than 1%.
This prospectus may also be used in registered resales of common stock by
the following persons upon exchange of interests in our operating partnership
for common stock:
<TABLE>
<CAPTION>
Shares of Common Shares of Common Shares of Common
Stock Beneficially Stock Being Registered Stock Beneficially
Name Owned(1)(2) for Resale(1) Owned After Resale
---- ------------------ ---------------------- ------------------
<S> <C> <C> <C>
Galaxy Partnership...... 14,384 14,384 0
Galaxy Associates,
L.L.C.................. 79,464 79,464 0
Galaxy Associates II,
L.L.C. ................ 13,669 13,669 0
Faraton Corp............ 1,748 1,748 0
</TABLE>
- --------
(1) Reflects shares to be issued upon exchange of interests in our operating
partnership.
(2) Less than 1% of the outstanding shares of common stock.
We have registered the shares of common stock by the holders in the tables
above to provide them with freely tradeable common stock, but the registration
of such shares does not necessarily mean that all of such shares will be
issued by us or any will be offered or sold by such holders. We will not
receive any proceeds from the offering by such holders.
The holders in the tables above may sell the shares of common stock to
investors directly or through agents or to one or more underwriters for public
offering and sale by them in any of the types of transactions described above.
Any such underwriter or agent involved in the offer and sale of such shares
will be named in the applicable prospectus supplement.
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<PAGE>
Any profits realized on sales pursuant to this prospectus by the holders in
the tables above of such shares may be regarded as underwriting compensation.
We will pay all expenses incident to the offering and sale of such shares,
other than commissions, discounts and fees of underwriters, broker-dealers or
agents. We have agreed to indemnify the holders of such shares against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
LEGAL OPINIONS
David Goldberg, our vice president and counsel, has delivered an opinion to
the effect that the securities offered by this prospectus will be validly
issued, fully paid and nonassessable. Hogan & Hartson L.L.P., Washington,
D.C., has delivered an opinion as to our status as a REIT. See "Certain
Federal Income Tax Considerations." Mr. Goldberg owns 4,256 shares of common
stock, and has options to acquire an additional 7,991 shares of common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K
for the year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this prospectus supplement and accompanying
prospectus and elsewhere in the registration statement. Our financial
statements and schedule are incorporated by reference in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
36
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses, other than underwriting discounts and commissions,
in connection with the offerings of the Securities, are as follows:
<TABLE>
<S> <C>
Registration Fee--Securities and Exchange Commission............... $ 77,704
Transfer Agent and Depositary Fees................................. 125,000
Rating Agency Fees................................................. 100,000
Printing and Engraving Expenses.................................... 200,000
Legal Fees and Expenses............................................ 100,000
Accounting Fees and Expenses....................................... 100,000
Miscellaneous...................................................... 22,296
--------
Total............................................................ $725,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers.
The Company's Articles of Incorporation provide that the Company may
indemnify the agents of the Company to the maximum extent permitted under
California law. See Articles V and VI of the Restated Articles of
Incorporation (Exhibit 3.1) and Article VII of the Restated Bylaws (Exhibit
3.2) which are incorporated herein by this reference. The Company has also
entered into indemnity agreements with its management and non-management
directors and executive officers. The agreements permit the Company to
indemnify directors and executive officers to the maximum extent permitted
under California law and prohibit the Company from terminating its
indemnification obligations as to acts or omissions of any director or
executive officer occurring before the termination. The indemnification and
limitations on liability permitted by the Articles of Incorporation and the
agreements are subject to the limitations set forth by California law. The
Company believes the indemnification agreements will assist it in attracting
and retaining qualified individuals to serve as directors and executive
officers of the Company.
Item 16. Exhibits.
See Exhibit Index contained herein.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
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;
II-1
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement;
provided, however, that subparagraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in 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.
(3) 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 Section 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 herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(4) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment any
of the Securities being registered which remains unsold at the termination of
the offering.
(6) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(7) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus 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.
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 foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Glendale, State of California, on the 17th day of
May, 1999.
PS BUSINESS PARKS, INC.
/s/ Ronald L. Havner, Jr.
By: _________________________________
Ronald L. Havner, Jr.,
President
Each person whose signature appears below hereby authorizes Ronald L.
Havner, Jr. and Harvey Lenkin, and each of them, as attorney-in-fact, to sign
on his behalf, individually and in each capacity stated below, any amendment,
including post-effective amendments to this Registration Statement, and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/ Ronald L. Havner, Jr. Chairman of the Board, Chief May 17, 1999
____________________________________ Executive Officer,
Ronald L. Havner, Jr. President
and Director
(principal executive
officer)
/s/ Jack E. Corrigan Vice President and Chief May 17, 1999
____________________________________ Financial Officer
Jack E. Corrigan (principal financial officer
and principal accounting
officer)
/s/ Harvey Lenkin Director May 17, 1999
____________________________________
Harvey Lenkin
/s/ Vern O. Curtis Director May 17, 1999
____________________________________
Vern O. Curtis
/s/ Arthur M. Friedman Director May 17, 1999
____________________________________
Arthur M. Friedman
/s/ James H. Kropp Director May 17, 1999
____________________________________
James H. Kropp
/s/ Alan K. Pribble Director May 17, 1999
____________________________________
Alan K. Pribble
/s/ Jack D. Steele Director May 17, 1999
____________________________________
Jack D. Steele
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
3.1 Restated Articles of Incorporation.
3.2 Restated Bylaws.(2)
4.1 Form of Certificate of Determination for additional series of Preferred
Stock.(1)
4.2 Form of Deposit Agreement.(1)
4.3 Form of Certificate of Determination for series of Equity Stock.(1)
4.4 Form of Warrant Agreement.(1)
5.1 Opinion of David Goldberg as to the legality of the securities being
registered.
8.1 Opinion of Hogan & Hartson L.L.P. re tax matters.
12.1 Statement on computation of ratio of earnings to fixed charges.(3)
23.1 Consent of Ernst & Young LLP.
23.2 Consent of David Goldberg (included in Exhibit 5.1).
23.3 Consent of Hogan & Hartson L.L.P. (included in Exhibit 8.1).
24.1 Power of Attorney (included on page II-3).
</TABLE>
- --------
(1) To be filed by amendment or as an exhibit to a document to be incorporated
by reference herein in connection with the offering of Securities.
(2) Filed with the registrant's Current Report on Form 8-K dated March 17,
1998 and incorporated herein by reference.
(3) Filed with the registrant's Form 10-Q for the quarterly period ended March
31, 1999 and incorporated herein by reference.
II-4
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
PS BUSINESS PARKS, INC.
[As filed in the Office of the Secretary of State of the
State of California May 17, 1999]
David Goldberg and Jack E. Corrigan certify that:
1. They are the Vice President and Secretary, respectively, of PS Business
Parks, Inc., a California corporation (the "Corporation").
2. The Articles of Incorporation of this Corporation are amended and
restated to read in full as follows:
I
The name of this corporation is PS BUSINESS PARKS, INC.
II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III
3.01 This corporation is authorized to issue only three classes of shares
to be designated respectively "Preferred Stock," "Common Stock" and "Equity
Stock" and referred to herein either as Preferred Stock or Preferred shares,
Common Stock or Common shares or Equity Stock or Equity shares. The total number
of shares which this corporation is authorized to issue is Two Hundred Fifty
Million (250,000,000); the number of Preferred shares shall be Fifty Million
(50,000,000) of the par value of One Cent ($.01) each, the number of Common
shares shall be One Hundred Million (100,000,000) of the par value of One Cent
($.01) each and the number of Equity shares shall be One Hundred Million
(100,000,000) of the par value of One Cent ($.01) each.
3.02 The Preferred shares may be issued from time to time in one or more
series. The Board of Directors is authorized to fix the number of shares of any
series of Preferred shares and to determine the designation of any such series.
The Board of Directors is also authorized to determine or alter the rights
granted to or imposed upon any wholly unissued series of Preferred shares
including the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices and the liquidation preference, and, within the
limits and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series, to
increase or decrease (but not below the number of shares then outstanding) the
number of shares of any such series subsequent to the issue of shares of that
series. In case the number of shares of any series shall be so decreased, the
shares constituting such decrease shall resume the status which they had prior
to the adoption of the resolution originally fixing the number of shares of such
series.
<PAGE>
3.03 (a) Subject to any preference with respect to the Preferred shares
or the Equity shares, the Common shares shall be entitled to distributions out
of funds legally available therefor, when, as and if declared by the Board of
Directors.
(b) In the event of any liquidation, dissolution or winding up of
this corporation, whether voluntary or involuntary, subject to any preference
with respect to the Preferred shares or the Equity shares, the entire assets of
this corporation available for distribution to shareholders shall be distributed
ratably among the Common shares.
3.04 The Equity shares may be issued from time to time in one or more
series. The Board of Directors is authorized to fix the number of shares of any
series of Equity shares and to determine the designation of any such series.
The Board of Directors is also authorized to determine or alter the rights
granted to or imposed upon any wholly unissued series of Equity shares including
the dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price or
prices and the liquidation rights, and, within the limits and restrictions
stated in any resolution or resolutions of the Board of Directors originally
fixing the number of shares constituting any series, to increase or decrease
(but not below the number of shares then outstanding) the number of shares of
any such series subsequent to the issue of shares of that series. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series. The
dividend and liquidation rights of the Equity shares shall be junior to the
Preferred shares and may be senior to, junior to, or pari passu with, the Common
shares.
3.05 There is a series of Preferred shares of this Corporation designated
"9 1/4% Cumulative Preferred Stock, Series A" which shall consist of 2,300
shares and shall have the following rights, preferences and privileges:
(a) Dividend Rights.
---------------
(1) Dividends shall be payable in cash on the shares of this Series
when, as and if declared by the Board of Directors, out of funds legally
available therefor: (i) for the period (for the purpose of this Section 3.05,
the "Initial Dividend Period") from the Deemed Original Issue Date (as defined
below) to but excluding July 1, 1999, and (ii) for each quarterly dividend
period thereafter (for the purpose of this Section 3.05, the Initial Dividend
Period and each quarterly dividend period being hereinafter individually
referred to as a "Dividend Period" and collectively referred to as "Dividend
Periods"), which quarterly Dividend Periods shall be in four equal amounts and
shall commence on January 1, April 1, July 1 and October 1 in each year (for the
purpose of this Section 3.05, each, a "Dividend Period Commencement Date"),
commencing on July 1, 1999, and shall end on and include the day next preceding
the next Dividend Period Commencement Date, at a rate per annum equal to 9 1/4%
of the $25,000 per share stated value thereof (for the purpose of this Section
3.05, the "Dividend Rate"). Dividends on each share of this Series shall be
cumulative from the Deemed Original Issue Date of such share and shall be
payable, without interest thereon, when, as and if declared by the Board of
Directors, on or before March 31, June 30, September 30 and December 31 of each
year, commencing on June 30, 1999 or, in the case of shares of this Series with
a Deemed Original Issue Date after June 30, 1999, the first such dividend
payment da te following such Deemed Original Issue Date; provided, that if any
--------
such day shall be a Saturday, Sunday, or a day on which banking institutions in
the State of New York or the State of California are authorized or obligated by
law to close, or a day which is or is declared a national or a New York or
California state holiday (for the purpose of this Section 3.05, any of the
foregoing a "Non-
2
<PAGE>
Business Day"), then the payment date shall be the next succeeding day which is
not a Non-Business Day. Each such dividend shall be paid to the holders of
record of shares of this Series as they appear on the stock register of the
Corporation on such record date, not more than 45 days nor less than 15 days
preceding the payment date thereof, as shall be fixed by the Board of Directors.
Dividends on account of arrears for any past Dividend Periods may be declared
and paid at any time, without reference to any regular dividend payment date, to
holders of record on such date, not more than 45 days nor less than 15 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
After full cumulative dividends on this Series have been paid or declared and
funds therefor set aside for payment, including for the then current Dividend
Period, the holders of shares of this Series will not be entitled to any further
dividends with respect to that Dividend Period.
"Deemed Original Issue Date" means, for the purpose of this Section 3.05,
(a) in the case of any share which is part of the first issuance of shares of
this Series or part of a subsequent issuance of shares of this Series prior to
July 1, 1999, the date of such first issuance or subsequent issuance, as the
case may be, and (b) in the case of any share which is part of a subsequent
issuance of shares of this Series on or after July 1, 1999, the later of (x)
July 1, 1999 and (y) the latest Dividend Period Commencement Date which precedes
the date of issuance of such share and which succeeds the last Dividend Period
for which full cumulative dividends have been paid; provided that, in the case
of any share which is part of a subsequent issuance, the date of issuance of
which falls between (i) the record date for dividends payable on the first
succeeding dividend payment date and (ii) such dividend payment date, the
"Deemed Original Issue Date" means, for the purpose of this Section 3.05, the
date of the Dividend Period Commencement Date that immediately follows the date
of issuance.
(2) Dividends payable on shares of this Series for any period greater or
less than a full Dividend Period, including the Initial Dividend Period, shall
be computed on the basis of a 360-day year consisting of twelve 30-day months.
(3) The Corporation shall not declare or pay or set apart for payment any
dividends on any series of preferred shares ranking, as to dividends, on a
parity with or junior to the shares of this Series unless full cumulative
dividends have been or contemporaneously are declared and paid, or declared and
a sum sufficient for payment thereof is set apart for payment, for all Dividend
Periods terminating on or prior to the date of payment of any such dividends on
such other series of preferred shares. When dividends are not paid in full upon
the shares of this Series and any other series of preferred shares ranking on a
parity therewith as to dividends, all dividends declared upon shares of this
Series and any other series of preferred shares ranking on a parity therewith as
to dividends shall be declared pro rata so that the amount of dividends declared
per share on the shares of this Series and such other series of preferred shares
shall in all cases bear to each other that same ratio that the accumulated
dividends per share on the shares of this Series and such other series of
preferred shares bear to each other. Except as provided in the preceding
sentence, unless full cumulative dividends on the shares of this Series have
been paid for all past Dividend Periods, no dividends (other than in shares of
the Corporation's common stock, par value $.01 per share (together with any
other shares of capital stock of the Corporation into which such shares shall be
reclassified or changed (for the purpose of this Section 3.05, "Common Shares"),
or another stock ranking junior to the shares of this Series as to dividends and
upon liquidation) shall be declared or paid or set aside for payment nor shall
any other distribution be made upon the Common Shares or on any other stock of
the Corporation ranking junior to or on a parity with the shares of this Series
as to dividends or upon liquidation. Unless full cumulative dividends on the
shares of this Series have been paid for all past Dividend Periods, no Common
Shares or any other stock of the Corporation ranking junior to or on a parity
with the shares of this Series as to dividends or upon liquidation shall be
redeemed, purchased, or
3
<PAGE>
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any such stock)
by the Corporation or any subsidiary, except by conversion into or exchange for
stock of the Corporation ranking junior to the shares of this Series as to
dividends and upon liquidation.
(b) Liquidation.
-----------
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up of the Corporation, the holders of shares of this Series are
entitled to receive out of the assets of the Corporation available for
distribution to shareholders, before any distribution of assets is made to
holders of Common Shares or any other class or series of shares ranking junior
to the shares of this Series upon liquidation, liquidating distributions in the
amount of $25,000 per share plus all accumulated and unpaid dividends (whether
or not earned or declared) for the then current and all past Dividend Periods.
If, upon any voluntary or involuntary liquidation, dissolution, or winding up of
the Corporation the amounts payable with respect to the shares of this Series
and any other shares of the Corporation ranking as to any such distribution on a
parity with the shares of this Series are not paid in full, the holders of
shares of this Series and of such other shares will share ratably in any such
distribution of assets of the Corporation in proportion to the full respective
preferential amounts to which they are entitled. After payment of the full
amount of the liquidating distribution to which they are entitled, the holders
of shares of this Series will not be entitled to any further participation in
any distribution of assets by the Corporation.
(1) Written notice of any such liquidation, dissolution or winding up
of the Corporation, stating the payment date or dates when, and the place or
places where the amounts distributable in such circumstances shall be payable,
shall be given by first class mail, postage pre-paid, not less than 30 nor more
than 60 days prior to the payment date stated therein, to each record holder of
the shares of this Series at the respective addresses of such holders as the
same shall appear on the stock transfer records of the Corporation.
(2) For purposes of liquidation rights, a reorganization (as defined
in Section 181 of the California Corporations Code) or consolidation or merger
of the Corporation with or into any other corporation or corporations or a sale
of all or substantially all of the assets of the Corporation shall be deemed not
to be a liquidation, dissolution or winding up of the Corporation.
(c) Redemption.
----------
(1) Except as provided in clause (9) below, the shares of this Series
are not redeemable prior to April 30, 2004. On and after such date, the shares
of this Series are redeemable at the option of the Corporation, by resolution of
the Board of Directors, in whole or in part, from time to time upon not less
than 30 nor more than 60 days' notice, at a cash redemption price of $25,000 per
share plus all accumulated and unpaid dividends (whether or not earned or
declared) to the date of redemption.
(2) If fewer than all the outstanding shares of this Series are to be
redeemed, the number of shares to be redeemed will be determined by the Board of
Directors, and such shares shall be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held by such holders
(with adjustments to avoid redemption of fractional shares) or by lot in a
manner determined by the Board of Directors.
4
<PAGE>
(3) Notwithstanding the foregoing, if any dividends, including any
accumulation, on the shares of this Series are in arrears, no shares of this
Series shall be redeemed unless all outstanding shares of this Series are
simultaneously redeemed, and the Corporation shall not purchase or otherwise
acquire, directly or indirectly, any shares of this Series; provided, however,
-------- -------
that the foregoing shall not prevent the purchase or acquisition of shares of
this Series pursuant to a purchase or exchange offer provided such offer is made
on the same terms to all holders of shares of this Series.
(4) Immediately prior to any redemption of shares of this Series, the
Corporation shall pay, in cash, any accumulated and unpaid dividends through the
redemption date, unless a redemption date falls after a dividend payment record
date and prior to the corresponding dividend payment date, in which case each
holder of shares of this Series at the close of business on such dividend
payment record date shall be entitled to the dividend payable on such shares on
the corresponding dividend payment date notwithstanding the redemption of such
shares before such dividend payment date. Except as expressly provided herein
above, the Corporation shall make no payment or allowance for unpaid dividends,
whether or not in arrears, on shares of this Series called for redemption.
(5) Notice of redemption shall be given by publication in a newspaper of
general circulation in the County of Los Angeles and The City of New York, such
publication to be made once a week for two successive weeks, commencing not less
than 30 nor more than 60 days prior to the date fixed for redemption thereof. A
similar notice will be mailed by the Corporation by first class mail, postage
pre-paid, to each record holder of the shares of this Series to be redeemed, not
less than 30 nor more than 60 days prior to such redemption date, to the
respective addresses of such holders as the same shall appear on the stock
transfer records of the Corporation. Each notice shall state: (i) the
redemption date; (ii) the number of shares of this Series to be redeemed; (iii)
the redemption price; (iv) the place or places where certificates for such
shares are to be surrendered for payment of the redemption price; and (v) that
dividends on the shares to be redeemed will cease to accumulate on such
redemption date. If fewer than all the shares of this Series held by any holder
are to be redeemed, the notice mailed to such holder shall also specify the
number of shares of this Series to be redeemed from such holder.
(6) In order to facilitate the redemption of shares of this Series, the
Board of Directors may fix a record date for the determination of the shares to
be redeemed, such record date to be not less than 30 nor more than 60 days prior
to the date fixed for such redemption.
(7) Notice having been given as provided above, from and after the date
fixed for the redemption of shares of this Series by the Corporation (unless the
Corporation shall fail to make available the money necessary to effect such
redemption), the holders of shares selected for redemption shall cease to be
shareholders with respect to such shares and shall have no interest in or claim
against the Corporation by virtue thereof and shall have no voting or other
rights with respect to such shares, except the right to receive the moneys
payable upon such redemption from the Corporation, less any required tax
withholding amount, without interest thereon, upon surrender (and endorsement or
assignment of transfer, if required by the Corporation and so stated in the
notice) of their certificates, and the shares represented thereby shall no
longer be deemed to be outstanding. If fewer than all the shares represented by
a certificate are redeemed, a new certificate shall be issued, without cost to
the holder thereof, representing the unredeemed shares. The Corporation may, at
its option, at any time after a notice of redemption has been given, deposit the
redemption price for the shares of this Series designated for redemption and not
yet redeemed, plus any accumulated and unpaid dividends thereon to the date
fixed for redemption, with the transfer agent or agents for this Series, as a
trust fund for the benefit of the holders of the shares of this Series
designated for redemption, together with irrevocable instructions and authority
to such transfer
5
<PAGE>
agent or agents that such funds be delivered upon redemption of such shares and
to pay, on and after the date fixed for redemption or prior thereto, the
redemption price of the shares to their respective holders upon the surrender of
their share certificates. From and after the making of such deposit, the holders
of the shares designated for redemption shall cease to be shareholders with
respect to such shares and shall have no interest in or claim against the
Corporation by virtue thereof and shall have no voting or other rights with
respect to such shares, except the right to receive from such trust fund the
moneys payable upon such redemption, without interest thereon, upon surrender
(and endorsement, if required by the Corporation) of their certificates, and the
shares represented thereby shall no longer be deemed to be outstanding. Any
balance of such moneys remaining unclaimed at the end of the five-year period
commencing on the date fixed for redemption shall be repaid to the Corporation
upon its request expressed in a resolution of its Board of Directors.
(8) Any shares of this Series that shall at any time have been redeemed
shall, after such redemption, have the status of authorized but unissued
preferred shares, without designation as to series until such shares are once
more designated as part of a particular series by the Board of Directors.
(9) If the Board of Directors of the Corporation shall, at any time and in
good faith, be of the opinion that ownership of securities of the Corporation
has or may become concentrated to an extent that may prevent the Corporation
from qualifying as a real estate investment trust under the REIT Provisions of
the Internal Revenue Code (as defined below), then the Board of Directors shall
have the power, by lot or other means deemed equitable by them to prevent the
transfer of and/or to call for redemption a number of shares of this Series
sufficient, in the opinion of the Board of Directors, to maintain or bring the
direct or indirect ownership thereof into conformity with the requirements of
such a real estate investment trust under the REIT Provisions of the Internal
Revenue Code. The redemption price to be paid for shares of this Series so
called for redemption, on the date fixed for redemption, shall be the closing
price of the shares on the principal national stock exchange on which the shares
are listed on the last business day prior to the redemption date, or if no sales
of shares were made on such date, the average of the highest bid and the lowest
asked quotations on the last business day prior to the redemption date as
reported by the National Quotation Bureau, Incorporated or a similar
organization selected from time to time by the Corporation or if there be no
such bid and asked quotations, as determined by the Board of Directors in good
faith; provided that if interests in shares of this Series are represented by
depositary shares, then the redemption price shall be determined in accordance
with the foregoing, but with respect to one depositary share, multiplied by the
number of depositary shares that together represent an interest in one share of
this Series. From and after the date fixed for redemption by the Board of
Directors, the holder of any shares of this Series so called for redemption
shall cease to be entitled to any distributions, voting rights and other
benefits with respect to such shares of this Series, other than the right to
payment of the redemption price determined as aforesaid. "REIT Provisions of
the Internal Revenue Code" shall mean, for the purpose of this Section 3.05,
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. In
order to exercise the redemption option set forth in this clause (9), with
respect to the shares of this Series, the Corporation shall give notice of
redemption by publication in a newspaper of general circulation in the County of
Los Angeles and The City of New York, such publication to be made once a week
for two successive weeks, commencing not less than 30 nor more than 60 days
prior to the date fixed for redemption. A similar notice will be mailed by the
Corporation by first class mail, postage pre-paid, to each record holder of the
shares of this Series to be redeemed, not less than 30 nor more than 60 days
prior to such redemption date, to the respective addresses of such holders as
the same shall appear on the stock transfer records of the Corporation. Each
notice shall state: (i) the redemption date; (ii) the number of shares of this
Series to be redeemed; (iii) the redemption price; (iv) the place or places
where certificates for such shares are to be surrendered for payment of the
redemption
6
<PAGE>
price; and (v) that dividends on the shares to be redeemed will cease to
accumulate on such redemption date. If fewer than all the shares of this Series
held by any holder are to be redeemed, the notice mailed to such holder shall
also specify the number of shares of this Series to be redeemed from such
holder.
(d) Voting Rights. The shares of this Series shall not have any voting
-------------
powers either general or special, except as required by law, except that:
(1) If the Corporation shall fail to pay full cumulative dividends on
the shares of this Series or any other of its preferred shares for six quarterly
dividend payment periods, whether or not consecutive (for the purpose of this
Section 3.05, a "Dividend Default"), the holders of all outstanding preferred
shares, voting as a single class without regard to series, will be entitled to
elect two Directors until full cumulative dividends for all past dividend
payment periods on all preferred shares have been paid or declared and funds
therefor set apart for payment. Such right to vote separately as a class to
elect Directors shall, when vested, be subject, always, to the same provisions
for the vesting of such right to elect Directors separately as a class in the
case of future Dividend Defaults. At any time when such right to elect Directors
separately as a class shall have so vested, the Corporation may call, and, upon
the written request of the holders of record of not less than 20% of the total
number of preferred shares of the Corporation then outstanding, shall call, a
special meeting of stockholders for the election of Directors. In the case of
such a written request, such special meeting shall be held within 90 days after
the delivery of such request and, in either case, at the place and upon the
notice provided by law and in the Bylaws of the Corporation, provided that the
Corporation shall not be required to call such a special meeting if such request
is received less than 120 days before the date fixed for the next ensuing Annual
Meeting of Shareholders of the Corporation and the holders of all classes of
outstanding preferred shares are afforded the opportunity to elect such
Directors (or fill any vacancy) at such Annual Meeting of Shareholders.
Directors elected as aforesaid shall serve until the next Annual Meeting of
Shareholders of the Corporation or until their respective successors shall be
elected and qualified. If, prior to the end of the term of any Director elected
as aforesaid, a vacancy in the office of such Director shall occur during the
continuance of a Dividend Default by reason of death, resignation, or
disability, such vacancy shall be filled for the unexpired term by the
appointment of a new Director for the unexpired term of such former Director,
such appointment to be made by the remaining Director elected as aforesaid.
(2) The affirmative vote or consent of the holders of at least 66 2/3%
of the outstanding shares of this Series, voting separately as a class, will be
required for any amendment to the Articles of Incorporation of the Corporation
that will adversely alter or change the powers, preferences, privileges or
rights of the shares of this Series, except as set forth below. The affirmative
vote or consent of the holders of at least 66 2/3% of the outstanding shares of
this Series and any other series of preferred shares ranking on a parity with
this Series as to dividends and upon liquidation, voting as a single class
without regard to series, will be required to issue, authorize or increase the
authorized amount of any class or series of shares ranking prior to this Series
as to dividends or upon liquidation or to issue or authorize any obligation or
security convertible into or evidencing a right to purchase any such security,
but the Articles of Incorporation may be amended to increase the number of
authorized preferred shares ranking on a parity with or junior to this Series or
to create another class of preferred shares ranking on a parity with or junior
to this Series without the vote of the holders of outstanding shares of this
Series.
(3) Nothing herein shall be taken to require a class vote or consent in
connection with the authorization, designation, increase or issuance of any
shares of any class or series (including additional preferred shares of any
series) that rank junior to or on a parity with this Series as to
7
<PAGE>
dividends and liquidation rights or in connection with the authorization,
designation, increase or issuance of any bonds, mortgages, debentures or other
debt obligations of the Corporation.
(e) Conversion. The shares of this Series are not convertible into
----------
shares of any other class or series of the capital stock of the Corporation.
3.06 There is a series of Preferred shares of this Corporation designated
"8 7/8% Series B Cumulative Redeemable Preferred Stock" which shall consist of
510,000 shares and shall have the following rights, preferences and privileges:
1. Rank. The 8 7/8% Series B Cumulative Redeemable Preferred Stock
----
(for the purpose of this Section 3.06, the "Series B Preferred Stock") will,
with respect to distributions and rights upon voluntary or involuntary
liquidation, winding-up or dissolution of the Corporation, or both, rank senior
to all classes or series of Common Shares and to all classes or series of equity
securities of the Corporation now or hereafter authorized, issued or
outstanding, other than any class or series of equity securities of the
Corporation expressly designated as ranking on a parity with or senior to the
Series B Preferred Stock as to distributions and rights upon voluntary or
involuntary liquidation, winding-up or dissolution of the Corporation. For
purposes of this Section 3.06, the term "Parity Preferred Stock" shall be used
----------------------
to refer to any class or series of capital stock of the Corporation now or
hereafter authorized, issued or outstanding expressly designated by the
Corporation to rank on a parity with Series B Preferred Stock with respect to
distributions and rights upon voluntary or involuntary liquidation, winding-up
or dissolution of the Corporation (including the Corporation's 9 1/4% Cumulative
Preferred Stock, Series A). For purposes of the preceding sentence, "capital
stock" means any equity securities (including Common Shares and Preferred
Stock), shares, participation or other ownership interests (however designated)
and any rights (other than debt securities convertible into or exchangeable for
equity securities) or options to purchase any of the foregoing.
2. Distributions Rights. (a) Payment of Distributions. Subject to
-------------------- ------------------------
the rights of holders of Parity Preferred Stock as to the payment of
distributions, holders of Series B Preferred Stock shall be entitled to receive
the Series B Priority Return, when, as and if declared by the Board of Directors
of the Corporation, out of funds legally available for the payment of
distributions. Such distributions shall be cumulative, shall accrue from the
original date of issuance of the Series B Preferred Stock and will be payable
(A) quarterly in arrears, on March 31, June 30, September 30 and December 31 of
each year commencing on the last day of the calendar quarter following the date
of issuance of such stock and, (B) in the event of a redemption, on the
redemption date (for the purpose of this Section 3.06, each a "Series B
--------
Preferred Stock Distribution Payment Date"). If any Preferred Stock
- -----------------------------------------
Distribution Payment Date is not a Business Day (as defined herein), then
payment of the distribution to be made on such date shall be made on the
Business Day immediately preceding such Preferred Stock Distribution Payment
Date in each case with the same force and effect as if made on such date.
Distributions on the Series B Preferred Stock will be made to the holders of
record of the Series B Preferred Stock on the relevant record dates to be fixed
by the Board of Directors of the Corporation, which record dates shall in no
event be more than 45 days or less than 15 days prior to the relevant Series B
Preferred Stock Distribution Payment Date (for the purpose of this Section 3.06,
each a "Distribution Record Date").
------------------------
For purposes of this Section 3.06, the following terms shall have the
meanings set forth herein: (i) "Liquidation Preference" shall mean, with respect
----------------------
to the Series B Preferred Stock, $25.00 per share of Series B Preferred Stock,
plus the amount of any accumulated and unpaid Series B Priority Return (as
hereinafter defined) with respect to such share, whether or not declared, minus
any distributions in
8
<PAGE>
excess of the Series B Priority Return that has occurred with respect to such
Series B Preferred Stock, to the date of payment; (ii) "Series B Priority
-----------------
Return" shall mean an amount equal to 8 7/8% per annum of the Liquidation
- ------
Preference per share of Series B Preferred Stock, commencing on the date of
issuance of such share of Series B Preferred Stock, determined on the basis of a
365-day year (and actual days for any period), cumulative to the extent not
distributed on any Series B Preferred Stock Distribution Payment Date; and (iii)
"Business Day" shall mean each day, other than a Saturday or a Sunday, which is
------------
not a day on which banking institutions in New York, New York are authorized or
required by law, regulation or executive order to close.
(b) Prohibition on Distributions. No distributions on Series B
----------------------------
Preferred Stock shall be authorized by the Board of Directors of the Corporation
or paid or set apart for payment by the Corporation at any such time as the
terms and provisions of any agreement of the Corporation including any agreement
relating to indebtedness, prohibits such authorization, payment or setting apart
for payment or provides that such authorization, payment or setting apart for
payment would constitute a breach thereof or a default thereunder, or to the
extent that such authorization or payment shall be restricted or prohibited by
law.
(c) Distributions Cumulative. Distributions on the Series B Preferred
------------------------
Stock will accrue whether or not the terms and provisions of any agreement of
the Corporation, including any agreement relating to its indebtedness at any
time prohibits the current payment of distributions, whether or not the
Corporation has earnings, whether or not there are funds legally available for
the payment of such distributions and whether or not such distributions are
authorized or declared. Accrued but unpaid distributions on the Series B
Preferred Stock will accumulate as of the Series B Preferred Stock Distribution
Payment Date on which they first become payable. Distributions on account of
arrears for any past distribution periods may be declared and paid at any time,
without reference to a regular Series B Preferred Stock Distribution Payment
Date to holders of record of the Series B Preferred Stock on the record date
fixed by the Board of Directors which date shall not be more than 45 days or
less than 15 days prior to the payment date. Accumulated and unpaid
distributions will not bear interest.
(d) Priority as to Distributions. (i) So long as any Series B
----------------------------
Preferred Stock is outstanding, no distribution of cash or other property shall
be authorized, declared, paid or set apart for payment on or with respect to any
class or series of Common Shares or any class or series of other stock of the
Corporation ranking junior as to the payment of distributions or rights upon
voluntary or involuntary dissolution, liquidation or winding-up of the
Corporation to the Series B Preferred Stock (for the purpose of this Section
3.06, such Common Shares or other junior stock, collectively, "Junior Stock"),
------------
nor shall any cash or other property be set aside for or applied to the
purchase, redemption or other acquisition for consideration of any Series B
Preferred Stock, any Parity Preferred Stock or any Junior Stock, unless, in each
case, all distributions accumulated on all Series B Preferred Stock and all
classes and series of outstanding Parity Preferred Stock have been paid in full.
The foregoing sentence shall not prohibit (i) distributions payable solely in
Junior Stock, and (ii) the conversion of Series B Preferred Stock, Junior Stock
or Parity Preferred Stock into stock of the Corporation ranking junior to the
Series B Preferred Stock as to distributions.
(ii) So long as distributions have not been paid in full (or a sum
sufficient for such full payment is not irrevocably deposited in trust for
payment) upon the Series B Preferred Stock, all distributions authorized and
declared on the Series B Preferred Stock and all classes or series of
outstanding Parity Preferred Stock with respect to distributions shall be
authorized and declared so that the amount of distributions authorized and
declared per share of Series B Preferred Stock and such other
9
<PAGE>
classes or series of Parity Preferred Stock shall in all cases bear to each
other the same ratio that accrued distributions per share on the Series B
Preferred Stock and such other classes or series of Parity Preferred Stock
(which shall not include any accumulation in respect of unpaid distributions for
prior distribution periods if such class or series of Parity Preferred Stock do
not have cumulative distribution rights) bear to each other.
(e) No Further Rights. Holders of Series B Preferred Stock shall not
-----------------
be entitled to any distributions, whether payable in cash, other property or
otherwise, in excess of the full cumulative distributions described herein.
3. Liquidation. (a) Payment of Liquidating Distributions. Subject
----------- ------------------------------------
to the rights of holders of Parity Preferred Stock with respect to rights upon
any voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation and subject to any series of capital stock ranking senior to the
Series B Preferred Stock with respect to rights upon any voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, the
holders of Series B Preferred Stock shall be entitled to receive out of the
assets of the Corporation legally available for distribution or the proceeds
thereof, after payment or provision for debts and other liabilities of the
Corporation, but before any payment or distributions of the assets shall be made
to holders of Common Shares or any other class or series of shares of the
Corporation that ranks junior to the Series B Preferred Stock as to rights upon
liquidation, dissolution or winding-up of the Corporation, an amount equal to
the Liquidation Preference per share of Series B Preferred Stock. If upon such
voluntary or involuntary liquidation, dissolution or winding-up, there are
insufficient assets to permit full payment of liquidating distributions to the
holders of Series B Preferred Stock and any Parity Preferred Stock as to rights
upon liquidation, dissolution or winding-up of the Corporation, all payments of
liquidating distributions on the Series B Preferred Stock and such Parity
Preferred Stock shall be made so that the payments on the Series B Preferred
Stock and such Parity Preferred Stock shall in all cases bear to each other the
same ratio that the respective rights of the Series B Preferred Stock and such
other Parity Preferred Stock (which shall not include any accumulation in
respect of unpaid distributions for prior distribution periods if such Parity
Preferred Stock does not have cumulative distribution rights) upon liquidation,
dissolution or winding-up of the Corporation bear to each other.
(b) Notice. Written notice of any such voluntary or involuntary
------
liquidation, dissolution or winding-up of the Corporation, stating the payment
date or dates when, and the place or places where, the amounts distributable in
such circumstances shall be payable, shall be given by (i) fax and (ii) by first
class mail, postage pre-paid, not less than 10 and not more than 60 days prior
to the payment date stated therein, to each record holder of the Series B
Preferred Stock at the respective addresses of such holders as the same shall
appear on the share transfer records of the Corporation.
(c) No Further Rights. After payment of the full amount of the
-----------------
liquidating distributions to which they are entitled, the holders of Series B
Preferred Stock will have no right or claim to any of the remaining assets of
the Corporation.
(d) Consolidation, Merger or Certain Other Transactions. The
---------------------------------------------------
voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
property or assets of the Corporation to, or the consolidation or merger or
other business combination of the Corporation with or into, any corporation,
trust or other entity (or of any corporation, trust or other entity with or into
the Corporation) or a statutory share exchange shall not be deemed to constitute
a liquidation, dissolution or winding-up of the Corporation.
10
<PAGE>
4. Redemption. (a) Right of Optional Redemption. The Series B
---------- ----------------------------
Preferred Stock may not be redeemed prior to April 23, 2004. On or after such
date, the Corporation shall have the right to redeem the Series B Preferred
Stock, in whole (but not in part), at any time, upon not less than 30 nor more
than 60 days' written notice, at a redemption price, payable in cash, equal to
the Liquidation Preference (for the purpose of this Section 3.06, the "Series B
--------
Redemption Price").
- ----------------
(b) Limitation on Redemption. The redemption price of the Series B
------------------------
Preferred Stock will be payable solely to the extent such payment would be
permitted as a distribution under the California Corporations Code.
(c) Procedures for Redemption. (i) Notice of redemption will be (i)
-------------------------
faxed, and (ii) mailed by the Corporation, postage prepaid, not less than 30 nor
more than 60 days prior to the redemption date, addressed to the respective
holders of record of the Series B Preferred Stock to be redeemed at their
respective addresses as they appear on the transfer records of the Corporation.
No failure to give or defect in such notice shall affect the validity of the
proceedings for the redemption of any Series B Preferred Stock except as to the
holder to whom such notice was defective or not given. In addition to any
information required by law or by the applicable rules of any exchange upon
which the Series B Preferred Stock may be listed or admitted to trading, each
such notice shall state: (i) the redemption date, (ii) the redemption price,
(iii) the number of shares of Series B Preferred Stock to be redeemed, (iv) the
place or places where such shares of Series B Preferred Stock are to be
surrendered for payment of the redemption price, (v) that distributions on the
Series B Preferred Stock to be redeemed will cease to accumulate on such
redemption date and (vi) that payment of the redemption price and any
accumulated and unpaid distributions will be made upon presentation and
surrender of such Series B Preferred Stock.
(ii) If the Corporation gives a notice of redemption in respect of
Series B Preferred Stock (which notice will be irrevocable) then, by 12:00 noon,
New York City time, on the redemption date, the Corporation will deposit
irrevocably in trust for the benefit of the Series B Preferred Stock being
redeemed funds sufficient to pay the applicable Series B Redemption Price, and
will give irrevocable instructions and authority to pay such Series B Redemption
Price to the holders of the Series B Preferred Stock upon surrender of the
certificate evidencing the Series B Preferred Stock by such holders at the place
designated in the notice of redemption. On and after the date of redemption,
distributions will cease to accumulate on the Series B Preferred Stock called
for redemption, unless the Corporation defaults in the payment thereof. If any
date fixed for redemption of Series B Preferred Stock is not a Business Day,
then payment of the redemption price payable on such date will be made on the
next succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay) except that, if such Business Day falls in
the next calendar year, such payment will be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on such
date fixed for redemption. If payment of the Series B Redemption Price or any
accumulated or unpaid distributions in respect of the Series B Preferred Stock
is improperly withheld or refused and not paid by the Corporation, distributions
on such Series B Preferred Stock will continue to accumulate from the original
redemption date to the date of payment, in which case the actual payment date
will be considered the date fixed for redemption for purposes of calculating the
applicable Series B Redemption Price.
(d) Status of Redeemed Stock. Any Series B Preferred Stock that shall
------------------------
at any time have been redeemed shall after such redemption, have the status of
authorized but unissued Preferred Stock, without designation as to class or
series until such shares are once more designated as part of a particular class
or series by the Board of Directors.
11
<PAGE>
5. Voting Rights. (a) General. Holders of the Series B Preferred
------------- -------
Stock will not have any voting rights, except as set forth below.
(b) Right to Elect Directors. If the Corporation shall fail to pay
------------------------
full cumulative dividends on the shares of Series B Preferred Stock or any other
of its preferred shares for six quarterly dividend payment periods, whether or
not consecutive (for the purpose of this Section 3.06, a "Dividend Default"),
the holders of all outstanding preferred shares, voting as a single class
without regard to series, will be entitled to elect two Directors until full
cumulative dividends for all past dividend payment periods on all preferred
shares have been paid or declared and funds therefor set apart for payment.
Such right to vote separately as a class to elect Directors shall, when vested,
be subject, always, to the same provisions for the vesting of such right to
elect Directors separately as a class in the case of future Dividend Defaults.
At any time when such right to elect Directors separately as a class shall have
so vested, the Corporation may call, and, upon the written request of the
holders of record of not less than 20% of the total number of preferred shares
of the Corporation then outstanding, shall call, a special meeting of
stockholders for the election of Directors. In the case of such a written
request, such special meeting shall be held within 90 days after the delivery of
such request and, in either case, at the place and upon the notice provided by
law and in the Bylaws of the Corporation; provided that the Corporation shall
not be required to call such a special meeting if such request is received less
than 120 days before the date fixed for the next ensuing Annual Meeting of
Shareholders of the Corporation and the holders of all classes of outstanding
preferred shares are afforded the opportunity to elect such Directors (or fill
any vacancy) at such Annual Meeting of Shareholders. Directors elected as
aforesaid shall serve until the next Annual Meeting of Shareholders of the
Corporation or until their respective successors shall be elected and qualified.
If, prior to the end of the term of any Director elected as aforesaid, a vacancy
in the office of such Director shall occur during the continuance of a Dividend
Default by reason of death, resignation, or disability, such vacancy shall be
filled for the unexpired term by the appointment of a new Director for the
unexpired term of such former Director, such appointment to be made by the
remaining Director elected as aforesaid.
(c) Certain Voting Rights. So long as any Series B Preferred Stock or
---------------------
Series B Preferred Units exchangeable into Series B Preferred Stock remain
outstanding, the Corporation shall not, without the affirmative vote of the
holders of a majority of the Series B Preferred Stock outstanding at the time
(i) designate or create, or increase the authorized or issued amount of, any
class or series of shares ranking prior to the Series B Preferred Stock with
respect to payment of distributions or rights upon liquidation, dissolution or
winding-up or reclassify any authorized shares of the Corporation into any such
shares, or create, authorize or issue any obligations or security convertible
into or evidencing the right to purchase any such shares, (ii) designate or
create, or increase the authorized or issued amount of, any Parity Preferred
Stock or reclassify any authorized shares of the Corporation into any such
shares, or create, authorize or issue any obligations or security convertible
into or evidencing the right to purchase any such shares, but only to the extent
such Parity Preferred Stock is issued to an Affiliate of the Corporation on
terms that differ from the terms of any Parity Preferred Stock issued to the
public or non-Affiliates of the Corporation, or (iii) either (A) consolidate,
merge into or with, or convey, transfer or lease its assets substantially as an
entirety, to any corporation or other entity, or (B) amend, alter or repeal the
provisions of the Corporation's Charter (including this Section 3.06) or By-
laws, whether by merger, consolidation or otherwise, in each case that would
materially and adversely affect the powers, special rights, preferences,
privileges or voting power of the Series B Preferred Stock or the holders
thereof; provided, however, that with respect to the occurrence of a merger,
consolidation or a sale or lease of all of the Corporation's assets as an
entirety, so long as (a) the Corporation is the surviving entity and the Series
B Preferred Stock remains outstanding with the terms thereof unchanged, or (b)
the resulting, surviving or transferee entity is a corporation organized under
the laws of any state and substitutes the Series B
12
<PAGE>
Preferred Stock for other preferred stock having substantially the same terms
and same rights as the Series B Preferred Stock, including with respect to
distributions, voting rights and rights upon liquidation, dissolution or
winding-up, then the occurrence of any such event shall not be deemed materially
and adversely affect such rights, privileges or voting powers of the holders of
the Series B Preferred Stock; and provided, further, that any increase in the
amount of authorized Preferred Stock or the creation or issuance of any other
class or series of Preferred Stock, or any increase in an amount of authorized
shares of each class or series, in each case ranking either (a) junior to the
Series B Preferred Stock with respect to payment of distributions and the
distribution of assets upon liquidation, dissolution or winding-up, or (b) on a
parity with the Series B Preferred Stock with respect to payment of
distributions or the distribution of assets upon liquidation, dissolution or
winding-up to the extent such Preferred Stock is not issued to an Affiliate of
the Corporation on terms that differ from the terms of any Parity Preferred
Stock issued to the public or non-Affiliates of the Corporation, shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.
The affirmative vote or consent of the holders of at least 66 2/3%
of the outstanding shares of this Series and any other series of preferred
shares ranking on a parity with this Series as to dividends and upon
liquidation, voting as a single class without regard to series, will be required
to issue, authorize or increase the authorized amount of any class or series of
shares ranking prior to this Series as to dividends or upon liquidation or to
issue or authorize any obligation or security convertible into or evidencing a
right to purchase any such security, but subject to clause 5(c)(ii) of this
Section 3.06, the Articles of Incorporation may be amended to increase the
number of authorized preferred shares ranking on a parity with or junior to this
Series or to create another class of preferred shares ranking on a parity with
or junior to this Series without the vote of the holders of outstanding shares
of this Series.
6. Conversion. The holders of the Series B Preferred Stock shall not
----------
have any rights to convert such shares into shares of any other class or series
of stock or into any other securities of, or interest in, the Corporation.
7. No Sinking Fund. No sinking fund shall be established for the
---------------
retirement or redemption of Series B Preferred Stock.
8. No Preemptive Rights. No holder of the Series B Preferred Stock
--------------------
of the Corporation shall, as such holder, have any preemptive rights to purchase
or subscribe for additional shares of stock of the Corporation or any other
security of the Corporation which it may issue or sell.
IV
4.01 Ownership Limitations
(a) Basic Ownership Limits. Except as provided in Section 4.01(b) and
Section 4.03, no Person shall Beneficially Own shares of Common Stock or any
series of Preferred Stock or Equity Stock in excess of the Ownership Limit set
forth in this Section 4.01(a). In the case of Common Stock, the Ownership Limit
is 7.0% of the outstanding shares of Common Stock. In the case of any series of
Preferred Stock or Equity Stock, the Ownership Limit is 9.9% of the outstanding
shares of such series of Preferred Stock or Equity Stock.
(b) Certain Exceptions. The limitation set forth in Section 4.01(a)
shall apply only to a Transfer of Stock or other event with respect to Stock
occurring subsequent to the effective date of the
13
<PAGE>
merger of American Office Park Properties, Inc. with and into this corporation.
Notwithstanding anything to the contrary in this Section 4.01, no Person shall
be deemed to exceed the Ownership Limit set forth in Section 4.01(a) solely by
reason of the Beneficial Ownership of shares of any class of Stock to the extent
such shares of Stock were Beneficially Owned by such Person on the effective
date of the merger of American Office Park Properties, Inc. with and into this
corporation (but the Beneficial Ownership of any such shares of Stock shall be
taken into account in determining whether any subsequent Transfer or other event
violates Section 4.01(a)). For purposes of the preceding sentence, in evaluating
Beneficial Ownership of any Person on the effective date of the merger, there
shall also be taken into account Beneficial Ownership of any shares that would
have been Beneficially Owned on that date if redemption rights provided in the
Operating Partnership Agreement had been exercised at that time (whether or not
then exercisable) resulting in an exchange of partnership units for shares. In
addition, no Person shall be deemed to exceed the Ownership Limit set forth in
Section 4.01(a) solely by reason of the Beneficial Ownership of shares of any
class of Stock that are treated as owned because of such Person's actual or
Beneficial Ownership of shares of Public Storage, Inc., to the extent that such
Person's actual or Beneficial Ownership of shares of Public Storage, Inc.
complies with the ownership restrictions applicable to shareholders of Public
Storage, Inc. (but the Beneficial Ownership of any such shares of Stock because
of such Person's actual or Beneficial Ownership of shares of Public Storage,
Inc. shall be taken into account in determining whether any other Transfer,
Acquisition or other event violates Section 4.01(a)).
(c) No Ownership Producing "Closely Held" Status. Notwithstanding any
other provisions contained in the corporation's Articles of Incorporation, no
Person shall Beneficially Own shares of any class of Stock of this corporation
to the extent that, if effective, such Beneficial Ownership would result in this
corporation being "closely held" within the meaning of Section 856(h) of the
Code (without regard to whether the ownership interest is purportedly held
during the second half of a taxable year) or otherwise would result in this
corporation failing to qualify as a REIT.
(d) Application to Partnership Exchange Rights. It is expressly
intended that the restrictions on ownership and transfer described in this
Article IV shall apply to the redemption rights provided in the Operating
Partnership Agreement. Notwithstanding any provisions of the Operating
Partnership Agreement or any related agreements to the contrary, partners of the
Partnership shall not be entitled to exchange interests in the Partnership for
Stock to the extent the Beneficial Ownership of those shares would violate the
restrictions otherwise contained in this Article IV (taking into account the
provisions of Section 4.01(b)).
4.02 Remedies
(a) Transfers in Trust. If, notwithstanding the other provisions
contained in this Article IV, at any time after the effective date of the merger
of American Office Park Properties, Inc. with and into this corporation, there
is a purported Transfer or other event that, if effective, would result in the
violation of one or more of the restrictions on ownership and transfer described
in Section 4.01, then that number of shares of Stock the Beneficial Ownership of
which otherwise would cause such Person to violate Section 4.01 (rounded up to
the next whole share) shall be automatically transferred to a Charitable Trust
for the benefit of a Charitable Beneficiary, as described in Section 4.08,
effective as of the close of business on the day immediately prior to the date
of such purported Transfer or other event, and such Person shall acquire no
rights in such shares of Stock.
(b) Void Ab Initio. If the transfer to the Charitable Trust described
in Section 4.02(a) would not be effective for any reason to prevent any Person
from Beneficially Owning Stock in violation
14
<PAGE>
of Section 4.01, then the Transfer or other event that would otherwise cause
such Person to violate Section 4.01 shall be void ab initio.
(c) No Ownership by Less than 100 Persons. Notwithstanding any other
provision of the corporation's Articles of Incorporation, any Transfer of shares
of Stock (whether or not such Transfer is the result of a transaction engaged in
through the facilities of the Exchange or any other automated inter-dealer
quotation system) that, if effective, would result in the Stock being owned
beneficially by less than 100 persons (determined under the principles of
Section 856(a)(5) of the Code) shall be void ab initio, and the intended
transferee shall acquire no rights in such shares of Stock.
(d) Other Actions. In addition to, and without limitation by, Section
4.02(a) through (c) above, if the Board of Directors or its designees shall at
any time determine in good faith that a Transfer or other event has taken place
in violation of Article IV or that a Person intends to acquire or has attempted
to acquire, ownership, beneficial ownership (determined under the principles of
Section 856(a)(5) of the Code) or Beneficial Ownership of any Stock in violation
of Article IV (whether or not the violation is intended), the Board of Directors
or its designees shall take such action as it deems advisable to refuse to give
effect to or to prevent such Transfer or other event, including, but not limited
to, causing this corporation to redeem Stock, refuse to give effect to such
Transfer or other event on the books of this corporation or instituting
proceedings to enjoin such Transfer or other event; provided, however, that any
Transfer or attempted Transfer or other event in violation of Section 4.01 shall
automatically result in the transfer to the Charitable Trust described in
Section 4.02(a), without regard to any action (or non-action) by the Board of
Directors, and if applicable, such Transfer or other event shall be void ab
initio as provided above without regard to any action or inaction by the Board
of Directors or its designees.
(e) No Limit on Authority. Nothing contained in this Section 4.02
shall limit the authority of the Board of Directors to take such other action as
it deems necessary or advisable to protect this corporation and the interests of
its stockholders by preservation of this corporation's status as a REIT.
4.03 Waivers and Exceptions
(a) Board May Grant Exceptions. Subject to Section 4.01(c), the Board
of Directors, in its sole and absolute discretion, may grant to any Person an
exception to the Ownership Limit set forth in Section 4.01(a) with respect to
Common Stock or any series of Preferred Stock or Equity Stock if the Board of
Directors shall have determined that this corporation would not be "closely
held" within the meaning of Section 856(h) of the Code (without regard to
whether the purported Acquisition, Transfer or other event takes place during
the second half of a taxable year) and would not otherwise fail to qualify as a
REIT, after giving effect to an acquisition by such Person of Beneficial
Ownership of the maximum amount of Common Stock, Preferred Stock and Equity
Stock permitted as a result of the exception to be granted, and taking into
account the existing and permitted ownership by other Persons of the Stock of
this corporation (taking into account any other exceptions granted under this
Section 4.03(a)). If a member of the Board of Directors requests that the Board
of Directors grant an exception to the Ownership Limit with respect to such
member or with respect to any other Person if such member of the Board of
Directors would be considered to be the Beneficial Owner of shares of Stock
owned by such Person, such member of the Board of Directors shall not
participate in the decision of the Board of Directors as to whether to grant any
such exception.
(b) Conditions to Exceptions. As a condition to the granting of an
exception under Section 4.03(a) to any Person, the Board of Directors may
require such Person to provide the Board of
15
<PAGE>
Directors such representations and undertakings as the Board of Directors may,
in its sole and absolute discretion, require (including, without limitation, an
agreement as to a reduced Ownership Limit for such Person with respect to the
Beneficial Ownership of one or more other classes of Stock not subject to the
exception), and such Person must agree that any violation of such
representations and undertakings or attempted violations will result in the
application of the remedies set forth in Section 4.02 with respect to shares of
Stock producing the violation or attempted violation. In addition, prior to
granting any exception, the Board of Directors may require a ruling from the IRS
or an opinion of counsel, in either case in form and substance satisfactory to
the Board of Directors, in its sole and absolute discretion as it may deem
necessary or advisable in order to determine or ensure this corporation's status
as a REIT, provided, however, that obtaining a favorable ruling or opinion shall
not be required for the Board of Directors to grant an exception.
4.04 Certain Definitions
Unless the context otherwise requires, the terms defined in this
Section 4.04 shall have, for all purposes, the meanings specified below (with
terms defined in the singular having comparable meanings when used in the
plural).
"Beneficial Ownership" shall mean ownership of Common Stock or
Preferred Stock or Equity Stock by a Person, whether the interest in the shares
of Stock is held directly or indirectly (including by a nominee), and shall
include interests that would be treated as owned through the application of
Section 544 of the Code, as modified by Section 856(h)(1)(B) of the Code. The
terms "Beneficial Owner," "Beneficially Owns," and "Beneficially Owned" shall
have correlative meanings.
"Charitable Beneficiary" shall mean one or more beneficiaries of the
Charitable Trust as determined pursuant to Section 4.08, provided that each such
organization must be described in Section 501(c)(3) of the Code and
contributions to each such organization must be eligible for deduction under
each of Sections 170(b)(1)(A), 2055, and 2522 of the Code.
"Charitable Trust" shall mean the trust created pursuant to Section
4.08(a).
"Charitable Trustee" shall mean the Person that is initially
appointed by this corporation, or any successor subsequently designated by this
corporation, to serve as trustee of the Charitable Trust provided that such
Person is unaffiliated with this corporation or the Purported Owner.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Exchange" shall mean the New York Stock Exchange or the American
Stock Exchange.
"IRS" shall mean the United States Internal Revenue Service.
"Market Price" shall mean, with respect to any class or series of
Stock, the last reported sales price on the Exchange of such shares on the day
immediately preceding the relevant date, or if such shares are not then traded
on the Exchange, the last reported sales price of such shares on the day
immediately preceding the relevant date as reported on any exchange or quotation
system or for which such shares may be traded, provided, however, that if the
Board of Directors determines in good faith that a lower price is appropriate,
then the Market Price shall be such lower price as determined in good faith by
the Board of Directors, or if such shares are not then traded over any exchange
or quotation system, the
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Market Price shall be the price determined in good faith by the Board of
Directors of this corporation as the fair market value of shares on the relevant
date.
"Operating Partnership Agreement" shall mean that certain Agreement
of Limited Partnership of American Office Park Properties, L.P. dated January 1,
1997, as amended from time to time.
"Ownership Limit" shall mean the maximum amount of Common Stock
and/or Preferred Stock and/or Equity Stock that may be Beneficially Owned by a
Person under Section 4.01(a), determined without regard to any exception or
waiver that may be granted under Section 4.03 (but taking into account ownership
permitted under Section 4.01(b)).
"Person" shall mean an individual, corporation, partnership, limited
liability company, estate, trust (including a trust qualified under Section
401(a) or 501(c)(17) of the Code), a portion of a trust permanently set aside
for or to be used exclusively for the purposes described in Section 642(c) of
the Code, association, private foundation within the meaning of Section 509(a)
of the Code, joint stock company or other entity; but does not include, to the
extent appropriate to facilitate a public offering or private placement of
Stock, an underwriter that participates in such a public offering or private
placement provided that the ownership of Stock by such underwriter would not
result in this corporation being "closely held" within the meaning of Section
856(h) of the Code and would not otherwise result in this corporation failing to
qualify as a REIT.
"Purported Owner" shall mean, with respect to any purported
Acquisition that would result in a violation of the limitations in Section 4.01,
the Person who would have owned shares of Stock if such Acquisition had been
valid under Section 4.01 and, if appropriate in the context, shall also mean any
Person who would have been the record owner of the shares that the Purported
Owner would have so owned.
"REIT" shall mean a "real estate investment trust" within the meaning
of Section 856 of the Code.
"Stock" shall mean shares of stock of this corporation that are
Common Stock or Preferred Stock or Equity Stock.
"Transfer" shall mean any issuance, sale, transfer, gift, assignment,
devise or other disposition of Stock, as well as any other event that causes a
Person to acquire Beneficial Ownership, including (i) the granting or exercise
of any option or warrant, convertible security, pledge, security interest, or
similar right to acquire Stock or entering into any agreement for the sale,
transfer or other disposition of Stock or (ii) the sale, transfer, assignment or
other disposition of any securities (or rights convertible into or exchangeable
for Stock), (iii) a change in the capital structure of the corporation, (iv) a
change in the relationship between two or more Persons that causes a change in
ownership of Stock by application of Section 544 of the Code, as modified by
Section 856(h), or (v) Transfers of interests in other entities that result in
changes in Beneficial Ownership of Stock; in each case, whether voluntarily or
involuntarily, whether owned of record or beneficially or Beneficially, and
whether by operation of law or otherwise. (For purposes of this Article 4, the
right of a limited partner under the Operating Partnership Agreement to require
the partnership to redeem the partner's limited partnership units shall not be
considered to be an option or similar right to acquire Stock.)
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4.05 Reporting of Transfers and Ownership
(a) Notice of Restricted Transfers. Any Person who acquires or
attempts or intends to acquire Stock or other securities in violation of Article
IV or any Person who is a transferee in a Transfer or is otherwise affected by
an event other than a Transfer that results in a violation of Article IV, shall
immediately give written notice to this corporation of such event, or in the
case of such a proposed or attempted event, give at least 15 days prior written
notice to this corporation of such event, and shall provide to this corporation
such other information as this corporation may request in order to determine the
effect, if any, of such acquisition, ownership or other event on this
corporation's status as a REIT and to ensure compliance with the limitations set
forth in this Article IV.
(b) Owners Required to Provide Information. From and after the
effective date of the merger of American Office Park Properties, Inc. with and
into this corporation, each Person who is a beneficial owner or Beneficial Owner
of Stock and each Person (including the stockholder of record) who is holding
Stock for a Beneficial Owner shall provide to this corporation such information
as this corporation may request, in good faith, in order to determine this
corporation's status as a REIT, to ensure compliance with the limitations set
forth in this Article IV, to comply with the requirements of any taxing
authority or governmental agency, or to determine any such compliance.
4.06 Ambiguity
In the case of an ambiguity or uncertainty in the interpretation or
application of any of the provisions of this Article IV, including any
definition contained in Section 4.04, the Board of Directors shall have the
power to determine the interpretation or application of the provisions with
respect to any situation based on the facts known to it. The value of
outstanding shares of any class or series of the Stock of the Corporation may be
determined by the Board of Directors in good faith, and any such determination
shall be conclusive. If any provision of Article IV requires an action by the
Board of Directors but does not provide specific guidance with respect to such
action, the Board of Directors shall have the power to determine the action to
be taken so long as such action is not contrary to the provisions of Article IV.
4.07 Legend
Each certificate for shares of any class of Stock shall bear
substantially the following legend or such other legend as the corporation may
from time-to-time determine to be appropriate:
"The shares of Stock represented by this certificate are subject to
restrictions on ownership and transfer for the purpose of assisting this
corporation to maintain its status as a Real Estate Investment Trust under
the Internal Revenue Code of 1986, as amended. Except as set forth in
Article IV of this corporation's Articles of Incorporation, no person may
Beneficially Own (i) more than 7.0% of the outstanding shares of Common
Stock of this corporation, or (ii) more than 9.9% of the outstanding shares
of any series of Preferred Stock or Equity Stock of this corporation, with
certain further restrictions and exceptions as are set forth in this
corporation's Articles of Incorporation. Any Person who attempts to own or
Beneficially Own Stock in excess of the above limitations must notify this
corporation in writing at least 15 days prior to such attempt. If any of
the restrictions on transfer or ownership set forth in Article IV of the
Articles of Incorporation are violated, the Stock represented hereby will
be automatically transferred to the Charitable Trustee of a Charitable
Trust for the benefit of a Charitable Beneficiary pursuant to the terms of
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Article IV of the Articles of Incorporation. In addition, attempted
transfers of Stock in violation of the limitations described above (as
modified or expanded upon in Article IV of the Articles of Incorporation),
may be void ab initio. All capitalized terms in this legend have the
meanings defined in this corporation's Articles of Incorporation, as the
same may be amended from time to time. This corporation will furnish to
the holder hereof, upon request and without charge, a complete written
statement of the terms and conditions of Article IV of the Articles of
Incorporation. Requests for such documents may be directed to the
corporate secretary."
4.08 Transfer of Stock in Trust
(a) Ownership in Trust; Status of Shares Held in Charitable Trust.
Upon any purported Transfer (whether or not such Transfer is the result of a
transaction engaged in through the facilities of the Exchange or any other
automated inter-dealer quotation system) or other event that results in the
transfer of Stock to a Charitable Trust pursuant to Section 4.02, such shares of
Stock shall be deemed to have been transferred to the Charitable Trustee in its
capacity as Charitable Trustee for the exclusive benefit of one or more
Charitable Beneficiaries. Each Charitable Beneficiary shall be designated by
this corporation as provided in Section 4.08(f). Shares of Stock so held in
Charitable Trust shall remain issued and outstanding shares of Stock of the
Corporation and shall be entitled to the same rights and privileges on identical
terms and conditions as are all other issued and outstanding shares of Stock of
the same class and series.
The Purported Owner shall not benefit economically from ownership
of any shares of Stock held in Charitable Trust by the Charitable Trustee, shall
have no rights to dividends and shall not possess any rights to vote or other
rights attributable to the shares held in Charitable Trust. The Purported Owner
of shares of Stock in violation of Section 4.01 shall have no claim, cause of
action, or any other recourse whatsoever against the purported transferor of
such shares.
(b) Distribution and Dividend Rights. The Charitable Trustee shall
have all rights to distributions and dividends with respect to shares of Stock
held in the Charitable Trust, which rights shall be exercised for the exclusive
benefit of the Charitable Beneficiary. Any distributions or dividend declared
but unpaid shall be paid when due to the Charitable Trustee. Any distributions
or dividends paid prior to the discovery by this corporation that the shares of
Stock have been transferred to the Charitable Trustee with respect to such
shares shall be paid over to the Charitable Trustee by the recipient upon
demand. The corporation may take all measures that it determines reasonably
necessary to recover the amount of any such distribution, including, if
necessary, withholding any portion of future distributions payable on shares of
Stock of the Purported Owner or amounts otherwise payable to the Purported Owner
(such as pursuant to Section 4.08(d)); and, as soon as reasonably practicable
following the corporation's receipt or withholding thereof, shall pay over to
the Charitable Trustee, the distributions so received or withheld, as the case
may be. Any distributions or dividends so paid over to the Charitable Trustee
shall be held in trust for the Charitable Beneficiary.
(c) Rights upon Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of or any distribution of the
assets of this corporation, the Charitable Trustee shall be entitled to receive,
ratably with each other holder of Stock of the class or series of Stock that is
held in the Charitable Trust, that portion of the assets of this corporation
available for distribution to the holders of such class or series (determined
based upon the ratio that the number of shares of such class or series of Stock
held by the Charitable Trustee bears to the total number of shares of such class
or series
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of Stock then outstanding). The Charitable Trustee shall distribute any such
assets received in respect of the Stock held in the Charitable Trust in any
liquidation, dissolution or winding up of, or distribution of the assets of the
Corporation in accordance with Section 4.08(d).
(d) Sale of Shares by Charitable Trustee. As reasonably promptly as
possible after receiving notice from this corporation that shares of Stock have
been transferred to the Charitable Trust, in an orderly fashion so as not to
affect the Market Price of the shares held in the Charitable Trust materially
and adversely, the Charitable Trustee shall sell the shares held in Charitable
Trust to a Person, designated by the Charitable Trustee, whose ownership of the
shares of Stock held in the Charitable Trust would not violate the ownership
limitations set forth in Section 4.01. Upon such sale, the interest of the
Charitable Beneficiary in the shares sold shall terminate and the Charitable
Trustee shall distribute the net proceeds of the sale to the Purported Owner and
to the Charitable Beneficiary as provided in this Section 4.08(d).
The Charitable Trustee shall first pay all reasonable expenses of
the Charitable Trust and of the corporation incurred in connection with the
formation of the Charitable Trust and disposition of the shares. The Purported
Owner shall receive out of any excess the lesser of (1) (x) the price per share
such Purported Owner paid for the Stock in the purported Transfer that resulted
in the transfer of shares of Stock to the Charitable Trust, or (y) if the
Transfer or other event that resulted in the transfer of shares of Stock to the
Charitable Trust was not a transaction in which the Purported Owner gave full
value for such shares of Stock, a price per share equal to the Market Price on
the date of the purported Transfer or other event that resulted in the transfer
of such shares of Stock to the Charitable Trust and (2) the price per share
received by the Charitable Trustee from the sale or other disposition of the
shares held in the Charitable Trust. Any net sales proceeds in excess of the
amount payable to the Purported Owner shall be immediately paid to the
Charitable Beneficiary.
If, prior to the discovery by this corporation that shares of
Stock have been transferred to the Charitable Trustee, such shares are sold by
the Purported Owner, then (i) such shares shall be deemed to have been sold on
behalf of the Charitable Trust and (ii) to the extent that the Purported Owner
received an amount for such shares that exceeds the amount such Purported Owner
was entitled to receive pursuant to this Section 4.08(d), such excess shall be
paid to the Charitable Trustee upon demand.
The Charitable Trustee shall have the right and power (but not
the obligation) to offer any share of Stock held in the Charitable Trust for
sale to this corporation on such terms and conditions as the Charitable Trustee
shall determine appropriate.
Each Charitable Beneficiary and Purported Owner waive any and all
claims that they may have against the Charitable Trustee and the corporation
arising out of the disposition of shares, except for claims arising out of the
gross negligence or willful misconduct of such Charitable Trustee or the
corporation, or the Charitable Trustee's or the corporation's failure to make
payments in accordance with Section 4.08.
(e) Voting and Notice Rights. The Charitable Trustee shall have all
voting rights and rights to receive any notice of any meetings, which rights
shall be exercised for the exclusive benefit of the Charitable Beneficiary. The
Purported Owner shall have no voting rights with respect to shares held in
Charitable Trust. Any vote by or on behalf of a Purported Owner as a holder of
shares of Stock prior to the discovery by the corporation that the shares of
Stock have been transferred to the Charitable Trust shall be subject to
rescission by the Charitable Trustee if the rescission is permitted by
applicable law and the Board of Directors concludes that the rescission will not
materially and adversely affect the corporation.
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In the case of any such rescission, to the extent permitted by applicable law,
any such votes shall be void ab initio with respect to the shares held by the
Charitable Trustee.
Notwithstanding the provisions of this Article IV, until the
corporation has received notification that shares of Stock have been transferred
to the Charitable Trustee, the corporation shall be entitled to rely on its
share transfer and other stockholder records for purposes of preparing lists of
stockholders entitled to vote at meetings, determining the validity and
authority of proxies and otherwise conducting votes of stockholders.
(f) Designation of Charitable Beneficiary(ies). By written notice to
the Charitable Trustee, this corporation shall designate one or more nonprofit
organizations to be the Charitable Beneficiary of the interest in the Charitable
Trust such that (1) the shares of Stock held in the Charitable Trust would not
violate the restrictions set forth in Section 4.01 in the hands of such
Charitable Beneficiary and (2) each Charitable Beneficiary is described in
Section 501(c)(3) of the Code and contributions to each such organization must
be eligible for deduction under each of Sections 170(b)(1)(A), 2055, and 2522 of
the Code.
4.09 Settlement
Nothing in this Article IV shall preclude the settlement of any
transaction entered into through the facilities of the Exchange (but the fact
that settlement of a transaction is permitted shall not negate the effect of any
other provision and all of the provisions shall apply to the purported
transferee of the shares of Stock in such transaction).
V
The liability of directors of the corporation for monetary damages shall be
eliminated to the fullest extent permissible under California law.
VI
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the applicable
limits set forth in Section 204 of the California Corporations Code with respect
to actions for breach of duty to the corporation and its shareholders.
3. The foregoing amendment and restatement has been approved by the Board
of Directors of the Corporation.
4. The foregoing amendment has been approved by the required vote of the
shareholders of the Corporation in accordance with Section 902 of the General
Corporation Law of California. The total number of outstanding shares entitled
to vote with respect to the foregoing amendment was 23,637,410 shares of Common
Stock. The number of shares voting in favor of the foregoing amendment equaled
or exceeded the vote required; such required vote being a majority of the
outstanding shares of Common Stock.
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We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.
Date: May 13, 1999
/s/ David Goldberg
------------------------------------
David Goldberg, Vice President
/s/ Jack E. Corrigan
------------------------------------
Jack E. Corrigan, Secretary
22
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Exhibit 5.1
David Goldberg
Vice President and Counsel
PS Business Parks, Inc.
701 Western Avenue
Glendale, California 91201-2397
May 17, 1999
PS Business Parks, Inc.
701 Western Avenue
Glendale, California 91201-2397
Gentlemen:
As Vice President and Counsel of PS Business Parks (the "Company"), I have
examined (A) the Registration Statement on Form S-3 filed by the Company with
the Securities and Exchange Commission (the "Commission") on April 20, 1998, as
amended through the date hereof (File No. 333-50463) and (B) the Registration
Statement on Form S-3, which is expected to be filed by the Company with the
Commission on or about the date of delivery of this opinion (collectively, the
"Registration Statements"), which includes a Prospectus to be used in connection
with securities registered under the Registration Statements (the "Prospectus").
The Prospectus relates to the offer and sale of up to $600,000,000 stated amount
of (i) shares of common stock, par value $.01 per share (the "Common Shares"),
(ii) shares of preferred stock, par value $.01 per share (the "Preferred
Shares"), (iii) shares of equity stock , par value $.01 per share (the "Equity
Shares"), (iv) depositary shares (the "Depositary Shares") representing a
fractional interest in a Preferred Share or an Equity Share and (v) warrants
(the "Warrants").
I am familiar with the proceedings taken or to be taken by the Company
relating to the authorization and issuance of the Common Shares, the Preferred
Shares, the Equity Shares, the Depositary Shares and the Warrants in the manner
set forth in the Registration Statements. I have also examined the Company's
Restated Articles of Incorporation and Restated Bylaws and have made such other
investigation as I have deemed necessary in order to express the opinions
contained herein.
It is my opinion that:
1. The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of California.
2. The Common Shares, the Preferred Shares, the Equity Shares, the
Depositary Shares and the Warrants, when issued and delivered in the manner and
on the terms described in the Registration Statements and payment of the agreed
consideration therefor has been received by the Company, will be legally issued,
fully paid and nonassessable.
I hereby consent to the reference to me under the caption "Legal Opinions"
in the Registration Statements and to the filing of this opinion as an exhibit
to each of the Registration Statements or amendments thereto.
Very truly yours,
/s/ DAVID GOLDBERG
DAVID GOLDBERG
<PAGE>
[Letterhead of Hogan & Hartson L.L.P.]
Exhibit 8.1
May 17, 1999
PS Business Parks, Inc.
701 Western Avenue
Glendale, California 91201-2397
Ladies and Gentlemen:
We have acted as special tax counsel to PS Business Parks, Inc., a
California corporation (the "Company"), in connection with the registration of
shares of common stock, par value $.01 per share (the "Common Stock"), shares of
preferred stock, par value $.01 per share (the "Preferred Stock"), shares of
equity stock, par value $.01 per share (the "Equity Stock"), depositary shares
representing a fractional interest in a share of Preferred Stock or Equity Stock
(the "Depositary Shares") and warrants to purchase Common Stock, Preferred Stock
or Equity Stock (the "Warrants") with an aggregate public offering price of up
to $600,000,000, on terms to be determined at the time of offering as more fully
described in the Company's Registration Statement filed with the Securities and
Exchange Commission on or about the date hereof ("Registration Statement," which
includes the "Prospectus"). In connection with such registration, we have been
asked to provide you with an opinion regarding certain federal income tax
matters related to the Company. Capitalized terms used in this letter and not
otherwise defined herein have the meaning set forth in the Prospectus.
Basis for Opinions
The opinions set forth in this letter are based on our best judgment
regarding the application of relevant provisions of the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations thereunder (including
proposed and temporary Treasury Regulations), and interpretations of the
foregoing as expressed in court decisions, applicable legislative history, and
administrative rulings and practices of the Internal Revenue Service ("IRS")
(including its practices and policies endorsed in issuing private letter
rulings, which are not binding on the IRS except with respect to a taxpayer that
receives such a ruling), all as of the date hereof. These provisions and
interpretations are subject to change, which may or may not be retroactive in
effect, that might result in material modifications of our opinions.
Our opinion does not foreclose the possibility of a contrary
determination by the IRS or a court of competent jurisdiction, or of a contrary
determination made by the IRS or the Treasury Department in regulations or
rulings issued in the future. In this regard, although we believe that our
opinions set forth herein will be sustained if challenged, an opinion of counsel
<PAGE>
PS Business Parks, Inc.
May 17, 1999
Page 2
with respect to an issue is not binding on the IRS or the courts, and is not a
guarantee that the IRS will not assert a contrary position with respect to such
issue or that a court will not sustain such a position asserted by the IRS.
In rendering the following opinions, we have examined such statutes,
regulations, records, agreements, certificates and other documents as we have
considered necessary or appropriate as a basis for such opinions, including the
following:
(1) the Prospectus;
(2) the Amended and Restated Agreement and Plan of Reorganization
(the "Merger Agreement") dated as of December 17, 1997, by and among Public
Storage Properties XI, Inc., American Office Park Properties, Inc., a California
corporation ("AOPP") and Public Storage, Inc. ("PSI");
(3) the Agreement of Limited Partnership of PS Business Parks, L.P.
(the "Operating Partnership") dated as of March 17, 1998, as amended through the
date hereof;
(4) the Restated Articles of Incorporation of the Company as filed
with the California Secretary of State on March 17, 1998, as amended through the
date hereof (the "Articles of Incorporation");
(5) the Agreement of Contribution and Merger dated December 23, 1997,
by and among AOPP, New York State Common Retirement Fund, Acquiport Two
Corporation, Acquiport Three Corporation and AOPP Acquisition Corp. Three;
(6) the Common Stock Purchase Agreement, dated January 23, 1998, by
and among AOPP, ABKB/La Salle Securities Limited Partnership, Harvard Private
Capital Realty, Inc., Cohen & Steers Capital Management, Inc., Morgan Stanley
Asset Management, certain Fidelity entities and Stanford University; and
(7) such other instruments and documents related to the organization
and operation of the Company as we have deemed necessary or appropriate.
The opinions set forth in this letter also are premised on certain
written representations of the Company contained in a letter dated or about the
date hereof regarding the assets, operations, and activities of the Company (the
"Management Representation Letter").
We have made such factual and legal inquiries, including examination
of the documents set forth above, as we have deemed necessary or appropriate for
purposes of our opinions. For purposes of rendering our opinions, however, we
have not made an independent
<PAGE>
PS Business Parks, Inc.
May 17, 1999
Page 3
investigation or audit of the facts set forth in the above-referenced documents,
including the Prospectus and the Management Representation Letter. We
consequently have relied upon your representations and assumed that the
information presented in such documents or otherwise furnished to us is accurate
and complete in all material respects relevant to our opinions. Without
limiting the foregoing, we have not undertaken to review and determine the tax
status, as a partnership for federal income tax purposes, of each limited
partnership and each limited liability company in which the Company owns an
interest. Instead, we have, with the Company's consent, relied upon the
Company's representations, set forth in the Management Representation Letter, as
to the status of these entities for federal income tax purposes. If any one or
more of these entities were to be classified as an association taxable as a
corporation for federal income tax purposes, and the Company were considered to
own more than 10% of the voting securities of such entity, that would preclude
the Company from qualifying as a "real estate investment trust" for federal
income tax purposes and therefore would have a material adverse impact on the
opinions set forth herein.
In our review, we have assumed, with your consent, that all of the
obligations imposed by any documents on the parties thereto have been and will
be performed or satisfied substantially in accordance with their terms. We also
have assumed the genuineness of all signatures, the proper execution of all
documents that are executed, the authenticity of all documents submitted to us
as originals, the conformity to originals of documents submitted to us as
copies, and the authenticity of the originals from which any copies were made.
Moreover, we have assumed that the Company and the Operating Partnership have
been and will continue to be operated in the manner described in the relevant
partnership agreement, articles (or certificate) of incorporation or other
organizational documents and in the Prospectus.
We also have assumed for the purposes of our opinions that (i) the
Company is a validly organized and duly incorporated corporation under the laws
of the State of California, (ii) the Operating Partnership is a duly organized
and validly existing partnership under the laws of the State of California, and
(iii) AOPP made an election to be taxed as a REIT for its taxable year ended
December 31, 1997, and has not revoked such election for its short taxable year
ending at the effective time of the merger of AOPP with and into the Company
(the "AOPP Merger") and that as of December 31, 1997, AOPP did not have any
undistributed "earnings and profits" (as defined for purposes of Section
857(a)(2) of the Code) that were accumulated in a taxable year of AOPP,
Acquiport Three Corporation, or any other "C corporation" prior to December 31,
1997. In the event any of the statements, representations, or assumptions upon
which we have relied in rendering this opinion is incorrect or incomplete, our
opinion could be adversely affected and may not be relied upon.
<PAGE>
PS Business Parks, Inc.
May 17, 1999
Page 4
Opinions
Based upon the foregoing, and subject to the various assumptions,
limitations, and qualifications set forth in this letter, we are of the opinion
that:
1. The Company was organized and has operated in conformity with the
requirements for qualification and taxation as a real estate investment trust
("REIT") under the Code for the taxable year ended December 31, 1998 and the
Company's current organization and method of operation (as described in the
Prospectus and the Management Representation Letter) will enable it to continue
to meet the requirements for qualification and taxation as a REIT.
2. The statements in the Prospectus under the heading "Certain
Federal Income Tax Considerations," to the extent that it describes matters of
law or legal conclusions, is correct in all material respects.
An opinion of counsel merely represents counsel's best judgment with
respect to the probable outcome on the merits and is not binding on the IRS or
the courts. There can be no assurance that positions contrary to our opinions
will not be taken by the IRS, or that a court considering the issues would not
hold contrary to such opinions.
We assume no obligation to advise you of any new developments in the
application and interpretation of the federal income tax laws subsequent to the
date of this opinion letter, and we are not undertaking to update the opinion
letter from time to time.
The Company's qualification and taxation as a REIT depends upon the
Company's ability to meet on a continuing basis, through actual annual operating
and other results, the various requirements under the Code and described in the
Prospectus with regard to, among other things, the sources of its gross income,
the composition of its assets, the level of its distributions to stockholders,
and the diversity of its share ownership. Hogan & Hartson L.L.P. will not
review the Company's compliance with these requirements on a continuing basis.
Accordingly, no assurance can be given that the actual results of operations of
the Company or the Operating Partnership, the sources of their income, the
nature of their assets, the level of the Company's distributions to its
shareholders and the diversity of the Company's share ownership for any given
taxable year will satisfy the requirements under the Code for qualification and
taxation as a REIT.
In this regard, we are expressing our opinion only as to the specific
matters set forth in the numbered paragraphs under the caption "Opinions." The
Company's ability to qualify as a REIT also depends upon the Company not having
any "earnings and profits" accumulated in any prior taxable year of the Company
or any of its predecessors. The calculation of "earnings and profits" depends
upon a number of factual and legal interpretations
<PAGE>
PS Business Parks, Inc.
May 17, 1999
Page 5
related to the activities and operations of the Company and its corporate
affiliates during their entire corporate existence and is subject to review and
challenge by the IRS. The Company has represented to us for purposes of our
opinion that the Company does not have and has not had at the close of any prior
taxable year of the Company or any of its predecessor or subsidiaries, any
undistributed "earnings and profits." There can be no assurance, however, that
the IRS will not examine the tax returns of the Company and its predecessors and
their affiliates for all years prior to the AOPP Merger and propose adjustments
to increase their taxable income, which could result in the Company being
considered to have undistributed "earnings and profits" at the close of its
taxable year commencing January 1, 1997, in which event there could be no
assurance the Company would qualify as a REIT for such year and possibly
subsequent years.
We note that the Prospectus does not currently address the federal
income tax considerations that may be relevant to a holder of the Preferred
Stock, the Equity Stock, the Warrants or the Depositary Shares. It is our
understanding that in the event the Company issues Preferred Stock, Equity
Stock, Warrants, or Depositary Shares the Company will prepare a supplement to
the Prospectus, which supplement will address the federal income tax
considerations that are likely to be material to a holder of such securities.
This opinion letter has been prepared solely for your benefit in
connection with the filing of the Registration Statement. This opinion may not
be used or relied upon by any other person or for any other purpose and may not
be disclosed, quoted, or filed with a governmental agency or otherwise referred
to without our prior written consent. We hereby consent to the filing of this
opinion letter as Exhibit 8.1 to the Registration Statement and to the reference
to this firm under the caption "Legal Matters" in the Prospectus. In giving
this consent, we do not thereby admit that we are an "expert" within the meaning
of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Hogan & Hartson L.L.P.
HOGAN & HARTSON L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" in the
Prospectus of PS Business Parks, Inc. (included in the Registration Statement on
Form S-3 (No. 333-_____)) and which will also be used in connection with
the Registration Statement on Form S-3 (No. 333-50463) for the registration of
shares of its common stock, its preferred stock, its equity stock, its
depositary shares and warrants for the purchase of its common stock, preferred
stock and equity stock and to the incorporation by reference therein of our
report dated February 2, 1999 with respect to the consolidated financial
statements and schedule of PS Business Parks, Inc. in its Annual Report on Form
10-K for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Los Angeles, California
May 17, 1999
