As filed with the Securities and Exchange Commission on October 3, 1997
Registration Statement No. 333-32565
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BERKSHIRE REALTY COMPANY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3086485
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
470 Atlantic Avenue
Boston, Massachusetts 02210
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Scott D. Spelfogel
Berkshire Realty Company, Inc.
470 Atlantic Avenue
Boston, Massachusetts 02210
(617) 423-2233
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
Alexander J. Jordan, Jr.
Peabody & Brown
101 Federal Street
Boston, Massachusetts 02110-1832
(617) 345-1103
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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, 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================
Proposed Proposed
Title of Each Class of Maximum Maximum Amount of
Securities Amount to be Offering Price Aggregate Registration
to be Registered Registered(1) Per Unit(3) Offering Price Fee
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<S> <C> <C> <C> <C>
Debt Securities (1)(2).......
Preferred Stock, $.01 par
value (1)(4).................
Common Stock, $.01 par value $400,000,000 N.A.(7) $400,000,000 $121,212 (8)
(1)(5).......................
Securities Warrants(1)(6)....
================================================================================================================
</TABLE>
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
(1) In no event will the aggregate maximum offering price of all securities
issued pursuant to this Registration Statement exceed $400,000,000 or, if
any Debt Securities are issued with original issue discount, such greater
amount as shall result in an aggregate offering price of $400,000,000. Any
securities registered hereunder may be sold separately or as units with
other securities registered hereunder.
(2) Subject to Footnote (1), there is being registered hereunder an
indeterminate principal amount of Debt Securities.
(3) 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.
(4) Subject to Footnote (1), there is being registered hereunder an
indeterminate number of shares of Preferred Stock (par value $.01 per
share) as may be sold, from time to time, by the Registrant. There is also
being registered hereunder an indeterminate number of shares of Preferred
Stock as shall be issuable upon conversion of Debt Securities or exercise
of Securities Warrants registered hereby.
(5) Subject to Footnote (1), there is being registered hereunder an
indeterminate number of shares of Common Stock (par value $.01 per share)
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 shares of Preferred Stock or Debt
Securities or exercise of Securities Warrants registered hereby.
(6) Subject to Footnote (1), there is being registered hereunder an
indeterminate number of Debt Securities Warrants, Preferred Stock Warrants
and Common Stock Warrants representing rights to purchase Debt Securities,
Preferred Stock and Common Stock, respectively, registered pursuant to this
Registration Statement.
(7) Omitted pursuant to General Instruction II.D of Form S-3.
(8) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL PROSPECTUS SUPPLEMENT
AND PROSPECTUS. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 3, 1997
PROSPECTUS
BERKSHIRE REALTY COMPANY, INC.
$400,000,000
DEBT SECURITIES, PREFERRED STOCK, COMMON STOCK AND SECURITIES WARRANTS
Berkshire Realty Company, Inc. (the "Company"), may from time to time
offer and sell in one or more series (i) its unsecured debt securities (the
"Debt Securities"); (ii) shares of its preferred stock, par value $.01 per share
(the "Preferred Stock"); (iii) shares of its common stock, par value $.01 per
share ("Common Stock"); or (iv) warrants to purchase Debt Securities (the "Debt
Securities Warrants"), warrants to purchase Preferred Stock (the "Preferred
Stock Warrants") and warrants to purchase Common Stock (the "Common Stock
Warrants") (the Debt Securities Warrants, Preferred Stock Warrants and Common
Stock Warrants, collectively, the "Securities Warrants") with an aggregate
public offering price of up to $400,000,000. The Debt Securities, Preferred
Stock, Common Stock and Securities Warrants offered pursuant hereto
(collectively, the "Offered Securities") may be offered separately or together,
in separate series, in amounts and at prices and terms to be set forth in an
accompanying supplement to this Prospectus (a "Prospectus Supplement"). The
aggregate public offering price and terms of the Offered Securities will be
determined by market conditions at the time such securities are offered. Unless
otherwise specified in a Prospectus Supplement, the proceeds from the sale of
the Offered Securities will be received by the Company and used for general
corporate purposes.
The applicable Prospectus Supplement shall set forth (i) with respect
to Debt Securities, the specific title, aggregate principal amount, currency,
form (which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Company or
repayment at the option of the holder, any sinking fund provisions and any
conversion provisions; (ii) with respect to Preferred Stock, the specific
designation and stated value per share, any dividend, liquidation, redemption,
conversion, voting and other rights, and all other specific terms of the
Preferred Stock; (iii) with respect to Common Stock, the specific number of
shares and issuance price per share; and (iv) with respect to Securities
Warrants, the duration, offering price, exercise price and detachability. The
applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be sold on a negotiated or competitive bid
basis to or through underwriters or dealers designated from time to time or by
the Company, directly or through agents. Certain terms of any offering and sale
of Offered Securities, including, where applicable, the names of the
underwriters, dealers or agents, if any, the principal amount or number of
shares or Securities Warrants to be purchased, the purchase price of the Offered
Securities, any applicable commissions, discounts and other compensation to
underwriters, dealers and agents, and the proceeds to the Company from such
sale, will be set forth in, or calculable from information contained in, a
Prospectus Supplement. See PLAN OF DISTRIBUTION.
The Common Stock is listed on the New York Stock Exchange under the
symbol BRI. Subject to certain exceptions, if a person shall become the owner of
shares of capital stock of the
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Company in excess of 9.8% of the then outstanding capital stock, such excess
shares shall be subject to certain restrictions with respect to voting rights,
dividends and distributions and transfer. See DESCRIPTION OF THE CAPITAL STOCK
OF THE COMPANY - Restrictions on the Ownership and Transfer of Excess Shares.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The date of this Prospectus is __________ __, 1997
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IN CONNECTION WITH AN OFFERING, THE UNDERWRITERS OF SUCH OFFERING MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE SECURITIES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE,
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
No dealer, salesperson or other individual has been authorized to give
any information or to make any representations not contained or incorporated by
reference in this Prospectus or any Prospectus Supplement in connection with the
offering covered by this Prospectus. If given or made, such information or
representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, any Offered Securities in any jurisdiction where, or to any
person to whom, it is unlawful to make any such offer or solicitation. Neither
the delivery of this Prospectus nor any offer or sale made hereunder shall, in
any circumstances, create an implication that there has not been any change in
the facts set forth in this Prospectus or in the affairs of the Company since
the date hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"), pursuant to the
Exchange Act. Such reports, proxy statements and other information filed by the
Company may be examined without charge at, or copies obtained upon payment of
prescribed fees from, the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549 and are also
available for inspection and copying at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, NY 10048 and at 500 West
Madison Street, Suite 1400, Chicago, IL 60661-2511. The Commission maintains a
Web site at http://www.sec.gov containing reports, proxy and information
statements and other information regarding registrants, including the Company,
that file electronically with the Commission. In addition, the Common Stock of
the Company is listed on the New York Stock Exchange, and similar information
concerning the Company can also be inspected and copied at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission, 450 Fifth Street, N.W.,
Washington, DC 20549, a Registration Statement on Form S-3 under the Securities
Act of 1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, with respect to the Offered Securities. This Prospectus,
which is part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits and
financial schedules thereto. For further information concerning the Company and
the Offered Securities, reference is made to the Registration Statement and the
exhibits and schedules filed therewith, which may be examined without charge at,
or copies obtained upon payment of prescribed fees from, the Commission at its
regional offices at the locations listed above. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission (File No. 1-10660) are incorporated herein by reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1996
and amendment to such Annual Report on Form 10-K/A;
(b) Quarterly Reports on Form 10-Q for the three- and six-month
periods ended March 31 and June 30, 1997, respectively, and
respective amendments to such Quarterly Reports on Form 10-Q/A;
and
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<PAGE>
(c) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed November
19, 1990 pursuant to the Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the filing of a post-effective amendment which indicates that all
Offered Securities offered hereby have been sold or which deregisters all
Offered Securities then remaining unsold shall be incorporated by reference in
this Prospectus and made a part hereof from the date of the filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other document subsequently filed with the Commission which also is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference herein (not including
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Request for such copies should be
directed to: Berkshire Realty Company, Inc., 470 Atlantic Avenue, Boston,
Massachusetts 02210, Attention: Marianne Pritchard, Senior Vice President and
Chief Financial Officer, telephone (888) 867-0100.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
descriptions and the financial information and statements appearing elsewhere
and incorporated in this Prospectus. As used herein, the term "Company" includes
Berkshire Realty Company, Inc., and those entities owned or controlled thereby,
including BRI OP Limited Partnership (the "Operating Partnership"), of which
Berkshire Realty Company, Inc., is the Special Limited Partner and its wholly
owned "qualified REIT subsidiary" is the general partner (the "General
Partner"), and several additional wholly owned subsidiaries that are also
"qualified REIT subsidiaries" for federal tax purposes. Where used herein, the
term "Funds from Operations" ("FFO") shall mean net income (loss) (computed in
accordance with generally accepted accounting principles), excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation and
amortization on real estate assets, and after adjustments for unconsolidated
partnerships and joint ventures, which definition has been adopted by the
National Association of Real Estate Investment Trusts ("NAREIT").
THE COMPANY
General
The Company, a Delaware corporation, is a self-administered and
self-managed equity real estate investment trust ("REIT") which specializes in
the ownership and operation of apartment communities. As of June 30, 1997, the
Company had investments in 44 properties in 8 states consisting of 40 apartment
communities having in the aggregate 13,341 units and 4 retail centers with a
total of 851,000 square feet of leasable space. One retail center is owned
through a joint venture with an affiliate of the Company. In addition, the
Company owns a mortgage loan collateralized by a multifamily apartment complex
located in Florida, a 296-unit development project located in Durham, North
Carolina, and three parcels of land for future development, two of which are in
Greenville, South Carolina, and one in Dallas, Texas. (The properties owned by
the Company are referred to herein as the "Properties.")
The Company's principal executive offices are located at 470 Atlantic
Avenue, Boston, Massachusetts 02210 and its telephone number is (888) 867-0100.
The Operating Subsidiaries of the Company
The operations of the Company are conducted primarily through the
Operating Partnership and subsidiary corporations and limited partnerships (the
"Operating Subsidiaries"), so that, among other things, the Company is able to
comply with certain technical and complex requirements under the federal tax law
relating to the assets and income that a REIT may hold or earn.
The Company currently holds 80.56% of the partnership interests in the
Operating Partnership in its capacity as a Special Limited Partner and through
its ownership of the General Partner. The remaining 19.44% of the partnership
interests in the Operating Partnership are owned by affiliated and unaffiliated
third parties who own units of limited partnership interest in the Operating
Partnership ("Units"). Units are redeemable on a one-for-one basis for shares of
Common Stock or, at the Company's election, for cash, and holders of Units
generally receive distributions per Unit equal to the dividend per share paid in
respect of the Common Stock. The Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (the "Partnership Agreement") provides
for a special allocation of net income or loss of the Operating Partnership to
holders of Units to provide such holders with the economic effect of net income
or losses realized in respect of all Properties on a consolidated basis.
Tax Status of the Company
The Company first elected to be taxed as a REIT for federal income tax
purposes for its taxable year ended December 31, 1991, and expects to continue
to elect such status. Although the Company
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believes that it was organized and has been operating in conformity with the
requirements for qualification as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), no assurance can be given that the Company will
continue to qualify as a REIT. Qualification as a REIT involves application of
highly technical and complex Code provisions for which there are only limited
judicial or administrative interpretations. If in any taxable year the Company
should fail to qualify as a REIT, the Company would not be allowed a deduction
for distributions to shareholders for computing taxable income and would be
subject to federal taxation at regular corporate rates. Unless entitled to
relief under certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable years following the
year during which REIT qualification was lost. As a result, the Company's
ability to make distributions to its shareholders would be adversely affected.
See FEDERAL INCOME TAX CONSIDERATIONS and DESCRIPTION OF THE CAPITAL STOCK OF
THE COMPANY - Restrictions on the Ownership and Transfer of Excess Shares.
PRICE AND DIVIDEND HISTORY
The Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol BRI. The high and low prices of the Company's Common Stock on
the NYSE for the quarters indicated and the dividends declared for such Common
Stock are:
Dividends
Quarter High Low Paid
1994:
First Quarter $12.38 $10.63 $.215
Second Quarter 11.25 10.25 .215
Third Quarter 10.63 9.88 .215
Fourth Quarter 10.00 8.75 .215
-----
$.860
1995:
First Quarter $10.00 $9.00 $.215
Second Quarter 10.00 9.25 .225
Third Quarter 10.38 9.50 .225
Fourth Quarter 10.00 9.25 .225
-----
$.890
1996:
First Quarter $10.38 $9.75 $.225
Second Quarter 11.00 9.88 .225
Third Quarter 11.00 9.63 .225
Fourth Quarter 10.25 9.38 .225
-----
$.900
1997:
First Quarter $11.75 $10.00 $.225
Second Quarter 11.25 10.50 .225
Third Quarter 12.38 10.63 .2325
------
$.6825
======
On September 26, 1997, the last reported sale price of the Common Stock
on the NYSE was $12.25 per share. On September 26, 1997, the Company had
approximately 26,315 shareholders.
The Company's Common Stock warrants are traded on the NYSE under the
symbol "BRI/WS." Three million warrants were admitted to trading on September 7,
1994.
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The high and low prices of the Company warrants based on a composite average
for the quarters indicated are:
Quarter High Low
1994:
Third Quarter $2.25 $.63
Fourth Quarter .75 .50
1995:
First Quarter $ .75 $ .56
Second Quarter .69 .38
Third Quarter .50 .31
Fourth Quarter .75 .41
1996:
First Quarter $ .69 $ .50
Second Quarter .75 .56
Third Quarter .69 .44
Fourth Quarter .56 .31
1997:
First Quarter $1.00 $ .44
Second Quarter .88 .50
Third Quarter .81 .44
On September 26, 1997, the last reported sale price of the warrants on the NYSE
was $.81 per warrant.
USE OF PROCEEDS
Unless otherwise described in the Prospectus Supplement which
accompanies this Prospectus, the Company intends to use the net proceeds from
the sale of the Offered Securities for general corporate purposes, which may
include the acquisition, development, rehabilitation and operation of apartment
communities as suitable opportunities arise, the improvement of certain
Properties in the Company's portfolio and the repayment of certain
then-outstanding secured or unsecured indebtedness.
DESCRIPTION OF THE CAPITAL STOCK OF THE COMPANY
The authorized capital stock of the Company consists of 140,000,000
shares of Common Stock and 60,000,000 shares of Preferred Stock.
Common Stock
Subject to such preferential rights as may be granted by the Board of
Directors in connection with the future issuance of Preferred Stock, holders of
shares of Common Stock are entitled to one vote per share on all matters to be
voted on by shareholders and are entitled to receive ratably such dividends as
may be declared in respect of the Common Stock by the Board of Directors in its
discretion from funds legally available therefor. In the event of the
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of all debts
and other
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liabilities and any liquidation preference of the holders of Preferred Stock.
Holders of Common Stock have no subscription, conversion or redemption rights.
Matters submitted for shareholder approval generally require a majority vote
of the shares present and voting thereon; certain matters, however, require
a Supermajority vote. See Charter and By-Law Provisions - Voting Requirements
below. The outstanding shares of Common Stock are fully paid and nonassessable.
Preferred Stock
General. The Board of Directors is empowered by the Company's Restated
Certificate of Incorporation to designate and issue from time to time one or
more classes or series of Preferred Stock without shareholder approval. The
Board of Directors may fix the relative rights, limitations, preferences and
privileges of each class or series of Preferred Stock so issued. Because the
Board of Directors has the power to establish the preferences and rights of each
class or series of Preferred Stock, it may afford the holders in any series or
class of Preferred Stock preferences, powers and rights, voting or otherwise,
senior to the rights of holders of Common Stock.
Series A Preferred Stock. The Company has designated and issued
2,737,000 shares of Series 1997-A Convertible Preferred Stock (the "Series A
Preferred") pursuant to the authority granted by the Restated Certificate of
Incorporation. As of the date hereof, 2,337,000 of such shares of Series A
Preferred are owned by Westbrook Berkshire Holdings, L.L.C., an affiliate of
Westbrook Real Estate Fund II, L.P., and the balance is owned by six clients of
Morgan Stanley Asset Management, Inc. The outstanding shares of Series A
Preferred are fully paid and nonassessable.
Holders of shares of Series A Preferred are entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for
the payment of dividends, preferential cumulative quarterly cash dividends equal
to the greater of (i) 2.25% of $25.00 per share (the price per share paid upon
issuance of the Series A Preferred) (such $25.00, the "Stated Value") and (ii)
the dollar amount of the dividend paid per share of Common Stock multiplied by
the number of shares of Common Stock into which each share of Series A Preferred
is then entitled to be converted. Such dividends accrue whether or not the
Company has earnings or surplus and are payable before any dividends or
distributions are paid on, or the Company makes any redemptions or purchases of,
shares of Common Stock.
Holders of Shares of Series A Preferred are entitled to vote, together
with the holders of Common Stock as one class, on all matters on which the
holders of Common Stock are entitled to vote. Each share of Series A Preferred
is entitled to the number of votes as equal the number of shares of Common Stock
into which a share of Series A Preferred is then entitled to be converted. The
affirmative vote of a majority of the Series A Preferred is required to (i)
issue additional shares of Series A Preferred or increase the number of
authorized shares of Series A Preferred, (ii) authorize any reclassification of
the Series A Preferred, (iii) require the exchange of Series A Preferred, (iv)
amend, alter or repeal any provisions of the By-Laws of the Company in a manner
that would adversely affect the holders of Series A Preferred or (v) amend,
alter or repeal any provisions of the Restated Certificate of Incorporation of
the Company, the terms of the Series A Preferred or any other pertinent
organizational document in a manner that would adversely affect the rights and
preferences of the Series A Preferred.
In addition, for so long as there is outstanding at least 793,730
shares of Series A Preferred, the affirmative vote of a majority of the Series A
Preferred is required for the following actions: (i) the transfer by the Company
of the ownership of any interest in the General Partner of the Operating
Partnership, the transfer by the General Partner to a third party of the right
to exercise all or a portion of its rights as the
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General Partner of the Operating Partnership or the transfer by the Company in a
single transaction or series of transactions of assets owned directly or
indirectly by the Company having a value in excess of 10% of the fully-diluted
market capitalization of the Company within any 90-day period or 20% of such
market capitalization within any 360-day period, (ii) the Company's termination
as a REIT, (iii) the alteration of the Company's business such that real estate
assets owned directly or indirectly by the Company are, on a square foot basis,
less than 90% invested in multifamily residential properties or (iv) the
transfer, on or before September 19, 1998, of more than 30% of the Common Stock
or Units held directly or indirectly by either Douglas Krupp or David Marshall.
Holders of Series A Preferred are entitled to elect one Director to the
Board of Directors of the Company. In addition, if four consecutive Series A
Preferred quarterly dividends are in arrears, then the number of directors of
the Company will be increased by the smallest number representing a majority of
the number of Directors of the Company, and the holders of Series A Preferred
will be entitled to elect such number of Directors.
Upon (i) the transfer of substantially all the assets owned directly or
indirectly by the Company, (ii) the merger or consolidation of the Company or
the Operating Partnership with a third party (other than a merger of the Company
and a wholly-owned subsidiary of the Company in which the fully-diluted market
capitalization of the Company is unchanged), (iii) any recapitalization of the
Company, the Operating Partnership and subsidiaries of the Company, considered
as a whole, in a single transaction or series of transactions, aggregating 50%
or more of the fully-diluted market capitalization of the Company or (iv) a
"Change of Control" (as defined below), holders of Series A Preferred will be
entitled to receive at their option either (i) out of the assets of the Company
available for distribution to stockholders and before any payment to holders of
Common Stock, an amount per share equal to 115% of the sum of the Stated Value
and all accrued and unpaid dividends or (ii) Common Stock on conversion of their
Series A Preferred.
A Change of Control will be deemed to have occurred if any of the
following occur (or, in the case of any proposal, if any of the following could
occur as a result thereof): (i) the Company takes or fails to take any action
such that it ceases to be required to file reports under Section 13 of the
Exchange Act or any successor to that Section; (ii) any "person" (as defined in
Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of either
(A) 20% or more of the outstanding shares of Common Stock, or (B) 20% (by right
to vote or grant or withhold any approval) of the outstanding securities of any
other class or classes which individually or together have the power to elect a
majority of the members of the Board; (iii) the Board determines to recommend,
or fails to determine to recommend, the acceptance of any proposal set forth in
a tender offer statement or proxy statement filed by any person with the
Commission which indicates the intention on the part of that person to acquire,
or acceptance of which would otherwise have the effect of that person acquiring,
either (A) 20% or more of the outstanding shares of the Common Stock, or (B) 20%
(by right to vote or grant or withhold any approval) of the outstanding
securities of any other class or classes which individually or together have the
power to elect a majority of the members of the Board; (iv) other than as a
result of the death or disability of one or more of the directors within a
three-month period, and other than by reason of the holders of Series A
Preferred exercising their rights to elect directors in the event of a failure
to pay dividends, a majority of the members of the Board for any period of three
consecutive months are not persons who (A) had been directors of the Company for
at least the preceding 24 consecutive months or (B) when they initially were
elected to the Board, (x) were nominated (if they were elected by the
shareholders) or elected (if they were elected by the directors) with the
affirmative concurrence of 66-2/3% of the directors who were Continuing
Directors at the time of the nomination or election by the Board and (y) were
not elected as a result of an actual or threatened solicitation of proxies or
consents by a person other than the Board or an agreement intended to avoid or
settle such a proxy solicitation (the directors described in clauses (A) and (B)
of this subsection (iv) being "Continuing Directors"); (v) the Company or a
subsidiary of the Company ceases to be the sole General Partner of the Operating
Partnership or grants or sells to any person, or consents to any amendment to
the Partnership Agreement of the Operating Partnership, or the organizational
documents of the other subsidiaries, which has the effect of transferring, the
power to control or direct the actions of the Operating Partnership or such
other subsidiaries as if such person (A) is a general partner of the Operating
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Partnership or (B) is a limited partner of the Operating Partnership with
consent or approval rights greater than the consent or approval rights held by
the limited partners of the Operating Partnership on the date hereof; or (vi)
the Operating Partnership is a party to any entity conversion or any merger or
consolidation in which the Operating Partnership is not surviving entity in such
merger or consolidation or in which the effect is of the nature set forth in the
next preceding clause (v).
Upon liquidation, dissolution or winding-up of the Company, holders of
Series A Preferred will be entitled to receive at their option either (i) out of
the assets of the Company available for distribution to shareholders and before
any payment to holders of Common Stock, an amount per share equal to 115% of the
sum of the Stated Value and all accrued and unpaid dividends if such event
occurs before September 25, 2002, 110% of such sum if such event occurs on or
after September 25, 2002 but before September 25, 2003, 105% of such sum if such
event occurs on or after September 25, 2003 but before September 25, 2004 and
100% of such sum if such event occurs on or after September 25, 2004 or (ii)
Common Stock on conversion of their Series A Preferred. Notwithstanding the
foregoing, if such event occurs as a result of the adoption and implementation
of a plan of liquidation pursuant to rights granted to shareholders in the
Company's Restated Certificate of Incorporation (see Termination below), then
holders of Series A Preferred who voted in favor of the adoption of such plan
will be entitled to receive at their option either (i) an amount per share equal
to the 100% of the sum of the Stated Value and all accrued and unpaid dividends
or (ii) Common Stock on conversion of their Series A Preferred.
Each share of Series A Preferred is convertible at the option of the
holder beginning September 19, 1998 into 2.0619 shares of Common Stock, based on
a conversion price of $12.125 per share of Common Stock. The conversion price is
subject to adjustment in certain events. Further, the conversion price in effect
from time to time will be reduced to 50% of such price in the event of the
Company's failure to comply with certain of the terms of the Series A Preferred.
After September 25, 2002, the Company has the right to convert at any time and
from time to time not less than 500,000 shares of Series A Preferred on not less
than 90 nor more than 120 days' notice into a number of shares of Common Stock
equal to the product of (i) the number of shares of Series A Preferred to be
converted and (ii) the sum of the Stated Value and all accrued and unpaid
dividends divided by the conversion price then in effect. Such mandatory
conversion is permitted only if the Common Stock has traded above the conversion
price for 20 of the 30 consecutive trading days immediately prior to both the
notice date and the mandatory conversion date, including the date immediately
prior to both the notice date and the mandatory conversion date. Notwithstanding
the Company's mandatory conversion right, each holder of Series A Preferred will
have the right upon receipt of a mandatory conversion notice to require the
Company to redeem any or all of such holder's shares of Series A Preferred at a
redemption price per share equal to 110% of the sum of the Stated Value and all
accrued and unpaid dividends. The Company in turn may elect to deliver to each
holder of Series A Preferred who has elected such cash payment option such
number of shares of Common Stock as equals the quotient of (i) the product of
104%, the redemption price and the number of shares of Series A Preferred
noticed for redemption and (ii) the current market price of the Company's Common
Stock.
In the event of the Company's termination as a REIT, each holder of
Series A Preferred will have the right to require the Company to redeem any or
all of such holder's shares of Series A Preferred at a redemption price per
share equal to 115% of the sum of the Stated Value and all accrued and unpaid
dividends.
The terms of the Series A Preferred provide that it will rank prior to
any other series of Preferred Stock, prior to Common Stock and prior to any
other class or series of capital stock of the Company with respect to the
payment of dividends, the right to redemption and the distribution preference in
the event of a change in ownership or the liquidation, dissolution or winding-up
of the Company. Except as otherwise agreed to in the Stock Purchase Agreement
among the Company, Westbrook Real Estate Fund II, L.P. and Westbrook Berkshire
Holdings, L.L.C., pursuant to which the shares of Series A Preferred were issued
and sold, holders of Series A Preferred have no preemptive rights.
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The applicable Prospectus Supplement will describe each of the
following terms that may be applicable in respect of any Preferred Stock offered
and issued pursuant to this Prospectus: (1) the specific designation, number of
shares, seniority and purchase price; (2) any liquidation preference per share;
(3) any maturity date; (4) any mandatory or optional redemption or repayment
dates and terms or sinking fund provisions; (5) any dividend rate or rates and
the dates on which any dividends will be payable (or the method by which such
rates or dates will be determined); (6) any voting rights; (7) any rights to
convert the Preferred Stock into other securities or rights, including a
description of the securities or rights into which such Preferred Stock is
convertible (which may include other Preferred Stock) and the terms and
conditions upon which such conversions will be effected including, without
limitation, conversion rates or formulas, conversion periods and other related
provisions; (8) the place or places where dividends and other payments with
respect to the Preferred Stock will be payable; (9) any additional voting,
dividend, liquidation, redemption and other rights, preferences, privileges,
limitations and restrictions, including restrictions imposed for the purpose of
maintaining the Company's qualification as a REIT. Upon issuance and delivery
against payment therefor, the Preferred Stock will be fully paid and
nonassessable.
Warrants
Three million warrants were admitted to trading on the NYSE on
September 7, 1994. Upon exercise, each warrant entitles the holder to the right
to acquire one share of Common Stock. The warrants are exercisable until
September 8, 1998. The exercise price was $10.75 until September 7, 1995, and
$11.79 thereafter. As of September 26, 1997, 2,661 shares of Common Stock had
been issued upon exercise of warrants, and 2,997,339 warrants remained
outstanding.
Charter and By-Law Provisions
Shareholders' rights and related matters are governed by the Delaware
General Corporation Law, the Company's Restated Certificate of Incorporation
(the "Certificate") and its By-Laws (the "By-Laws") (the Certificate and the
By-Laws, collectively, the "Organizational Documents"). Certain provisions of
the Organizational Documents, which are summarized below, may make it more
difficult to change the composition of the Board of Directors and may discourage
or make more difficult any attempt by a person or group to obtain control of the
Company.
Voting Requirements. Holders of shares of Common Stock and Series A
Preferred (voting on an as converted basis with the holders of shares of Common
Stock as though part of the same class), by a majority or Supermajority vote,
may take certain actions, including approving amendments to the Company's
Certificate. Any such change, if approved by the holders of the requisite number
of shares, would be binding on all nonconsenting shareholders. Under the
Organizational Documents, a Supermajority vote is required in order to amend
those portions of the Organizational Documents which concern: (1) the definition
of "Supermajority"; (2) the requirements for amending the Organizational
Documents; (3) the requirements regarding Excess Share ownership (see
Restrictions on the Ownership and Transfer of Excess Shares below); (4) the
actions which require a Supermajority vote; (5) the requirements regarding
Business Combinations (see Business Combinations below); (6) the staggering of
the terms of the Directors; (7) the limitation of the liability of Directors;
and (8) the perpetual life of the Company. A Supermajority vote is defined to
mean the vote or consent of shareholders owning at least 66-2/3% of the
outstanding shares of capital stock entitled at the time to vote on the election
of any Directors, In addition, holders of shares of Series A Preferred have the
special voting rights described above under Preferred Stock - Series A Preferred
Stock. Shareholders may not take action by written consent without a meeting.
Special Meetings. Special meetings may be called, to address specific
Company matters, by the Chairman of the Board, the President of the Company or a
majority of the Directors or independent Directors. Holders of shares of Common
Stock may not call a special meeting.
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Staggered Board of Directors. The Certificate classifies the Directors,
concerning the term of their respective directorships, into three classes, one
of which is elected annually.
Advance Notice of Shareholder Proposals and Nominations of Directors.
The By-Laws of the Company provide that no matter proposed by a shareholder will
be considered at any annual meeting of special meeting or shareholders unless
notice of such matter is provided to the Company not less than 50 days, nor more
than 150 days, before the scheduled meeting. If, however, less than 70 days'
notice of the scheduled meeting is given, the Company must receive notice of
shareholder proposals by the close of business on the fifteenth day following
the day such notice was mailed. Furthermore, subject to the special rights of
holders of Series A Preferred with respect to the election of Directors,
shareholders are not permitted to nominate individuals to serve as Directors
unless notice of such nomination is given to the Company not less than 60 days,
nor more than 150 days, before an annual meeting. If, however, on the day notice
is given to shareholders of such annual meeting less than 70 days remain until
such meeting, the Company must receive notice of a shareholder nomination within
10 days of such day.
The provisions for a classified Board, together with related provisions
designed to strengthen the position of the Board by (i) providing for
limitations on the removal of Directors and the filling of vacancies on the
Board, (ii) requiring that shareholder action be taken only at an annual meeting
or a special meeting and limiting the ability of shareholders to call special
meetings, (iii) prescribing procedures for the advance notice of shareholder
proposals and nominations of Directors by the shareholders and (iv) requiring a
Supermajority vote to effect changes in certain provisions, have the overall
effect of making it more difficult to acquire and exercise control of the
Company and to remove incumbent officers and Directors, providing such officers
and Directors with enhanced ability to retain their positions. Such provisions
may also limit shareholder participation in certain types of transactions that
might be proposed whether or not such transactions were favored by a majority of
shareholders.
Business Combinations
The Organizational Documents affirmatively adopt Section 203 of the
Delaware General Corporation Law, which prohibits Interested Shareholders from
engaging in a Business Combination with the Company. Accordingly, the
Organizational Documents provide that the Company shall not engage in any
Business Combination with any Interested Shareholder for a period of three years
following the time that such shareholder became an Interested Shareholder,
unless: (a) prior to such time, the Board approved either the Business
Combination or the transaction which resulted in the shareholder becoming an
Interested Shareholder; or (b) upon consummation of the transaction which
resulted in the shareholder becoming an Interested Shareholder, the Interested
Shareholder owned at least 85% of the voting shares of the Company then
outstanding, excluding shares held by Directors who are also officers of the
Company and employees' stock plans in which employees do not have the right to
determine confidentially whether shares held by the plan will be tendered in a
tender or exchange offer; or (c) at or subsequent to such time, the Business
Combination is approved by the Board and authorized by a Supermajority of vote,
excluding the shares owned by the Interested Shareholder. The term "Business
Combination" is defined to include, among other things, a merger or
consolidation of the Company with, or caused by, an Interested Shareholder and
other specified transactions which would have the effect of the Interested
Shareholder gaining control of the Company. An "Interested Shareholder"
includes, among others, any person owning 15% or more of the outstanding voting
shares of the Company; provided, however that the term "Interested Shareholder"
does not include any person whose ownership of shares in excess of 15% is the
result of action taken solely by the Company. In that event, such person would
be considered an Interested Shareholder if he thereafter acquired additional
voting shares of the Company, except as a result of further Company action not
caused by such Interested Shareholder.
The provisions of the Organizational Documents concerning Business
Combinations cannot be changed except by amendment of the Organizational
Documents by a Supermajority vote.
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Pursuant to the Delaware General Corporation Law, the Company cannot
merge with or sell all or substantially all of the assets of the Company, except
pursuant to a resolution approved by the affirmative vote of a majority of the
outstanding shares entitled to vote on the resolution. In addition, the
Partnership Agreement requires that any merger or sale of all or substantially
all of the assets of or dissolution of the Operating Partnership be approved by
the affirmative vote of a majority of the outstanding Units.
Shareholder Rights Plan
It is possible that the Board will adopt a Shareholder Rights Plan (a
plan intended to force the initiator of a hostile takeover to negotiate by
granting the shareholders rights to buy shares at a bargain price). Such a Plan
(i) may have the effect of discouraging changes of control of the Company, and
(ii) may limit the opportunity of a shareholder to receive a premium for his or
her shares in the event an investor is making purchases to assemble a block of
shares.
Restrictions on the Ownership and Transfer of Excess Shares
For the Company to qualify as a REIT under the Code not more than 50%
of its outstanding shares may be owned by five or fewer individuals during the
last half of the year, and the shares of Common Stock must be owned by 100 or
more persons during at least 335 days of a taxable year of 12 months or during a
proportionate part of a shorter taxable year. Furthermore, the Company cannot
own, directly or by attribution, 10% or more of any tenant of a Property or a
Property securing a mortgage loan investment from which the Company is entitled
to receive an additional equity return. The Organizational Documents (1) provide
that if any person or group of affiliated persons directly or indirectly
acquires ownership, in the aggregate, of more than 9.8% of the then outstanding
shares of capital stock ("Excess Shares"), such Excess Shares shall be deprived
of voting rights, shall not be included in any quorum count and any dividends
and distributions on such shares shall be paid into an escrow account payable to
the holder of the Excess Shares at the time they cease to be Excess Shares, and
(2) empower the Board (i) to refuse to permit any transfer of shares of capital
stock which, in its sole discretion, would jeopardize the status of the Company
as a REIT and (ii) to repurchase any Excess Shares to maintain or bring the
ownership of shares into conformity with such 9.8% limit. The 9.8% limit on
ownership of shares of Common Stock encompasses shares held directly or
indirectly as a result of options, warrants or other convertible securities.
The Company may require each proposed transferee of shares of capital
stock to deliver a statement or affidavit setting forth the number of shares, if
any, already owned, directly, indirectly or by attribution by such transferee
and may refuse to permit any transfer of shares which would cause an
accumulation of shares that would jeopardize the status of the Company as a
REIT. A shareholder who knowingly holds Excess Shares is required to indemnify
the Company for any losses the Company may suffer as a result of such holdings.
Excess Shares shall be deemed to be offered for sale to the Company or
its designees. The purchase price will be the average closing sales price as
reported by the NYSE during the 30-day period ending on the business day prior
to the purchase date. The Organizational Documents further provide that the
purchase price may be paid in the form of a promissory note of the Company.
However, if the person from whom the Excess Shares were purchased sells a like
number of his or her remaining shares within 30 days of the purchase date, then
the Company shall rescind the purchase of the Excess Shares unless counsel to
the Company is of the opinion that such rescission would jeopardize the
Company's tax status as a REIT. In that event, in lieu of rescission, the
Company shall make immediate payment for the shares.
Such provisions do not apply to the acquisition of shares by an
underwriter in a public offering by the Company or to any transaction involving
the issuance of shares by the Company when its qualification as a REIT would not
be jeopardized. Such provisions did not apply to the issuance and sale of the
Series A Preferred.
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The provisions of the Organizational Documents concerning Excess Shares
cannot be changed except by amendment of the Organizational Documents by a
Supermajority vote.
Termination
The Company may be dissolved at any time by Supermajority vote and,
otherwise, pursuant to the procedure set forth in the Delaware General
Corporation Law. In 1991 when it commenced operations as a REIT, the Company
granted the shareholders the right to vote on its continued existence after a
period of approximately six and one-half years of operations. Therefore, the
Certificate requires the Company's Board of Directors to prepare and submit to
the shareholders on or before December 31, 1998 a proposal to liquidate the
Company's assets and distribute the net proceeds of such liquidation. The
liquidation proposal will become effective only if approved by shareholders
holding a majority of voting shares then outstanding.
Limitation of Directors' Liability
The Company's Certificate provides for indemnification of its officers
and Directors to the fullest extent permitted by Sections 145 and 102(b)(7) of
the Delaware General Corporation Law and relieves the Directors of certain
monetary liabilities to the Company and its shareholders. In general, Delaware
law permits the Company to indemnify its officers and Directors so long as they
act in good faith and in a manner reasonably believed by them to be in, or not
opposed to, the best interests of the Company. Subject to the provisions of
Sections 145 and 102(b)(7) of the Delaware General Corporation Law, the Company
intends to indemnify its officers and Directors against losses, liabilities and
expenses (including attorneys' fees) incurred by them that are related to their
being officers or Directors of the Company.
Other Matters
The transfer agent and registrar for the Company's Common Stock is
American Stock Transfer & Trust Company.
FEDERAL INCOME TAX CONSIDERATIONS
General
The following summary of material federal income tax considerations
that may be relevant to a holder of Common Stock is based on current law, and is
not intended as tax advice. The following discussion, which is not exhaustive of
all possible tax considerations, does not include a detailed discussion 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
stockholder in light of his or her particular circumstances or to certain types
of stockholders (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 the federal income tax laws.
The statements and opinions in this discussion are based on current
provisions of the Code, existing, temporary and currently proposed Treasury
Regulations under the Code, the legislative history of the Code, existing
administrative rulings and practices of the Internal Revenue Service ("IRS") and
judicial decisions. No assurance can be given that legislative, judicial or
administrative changes will not affect the accuracy of any statements in this
Prospectus with respect to transactions entered into or contemplated prior to
the effective date of such changes.
EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT WITH
HIS OR HER OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER
OF THE PURCHASE, OWNERSHIP AND SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE
TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
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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,
1991. The Company believes that it has been organized and operated in a manner
so as to qualify for taxation as a REIT under the Code, and the Company intends
to continue to operate in such a manner. No assurance, however, can be given
that the Company has operated in a manner so as to qualify as a REIT or will
continue to operate in a manner so as to remain qualified as a REIT.
Qualification and taxation as a REIT depend upon the Company's ability to meet,
on a continuing basis, through actual annual operating results, distribution
levels, diversity of stock ownership, and the various other qualification tests
imposed under the Code on REITs, some of which are summarized below. While the
Company intends to operate so that it will qualify as a REIT, given the highly
complex nature of the rules governing REITs, the ongoing importance of factual
determinations and the possibility of future changes in circumstances of the
Company, no assurance can be given that the Company will so qualify for any
particular year. See - Failure to Qualify.
In the opinion of Peabody & Brown, counsel to the Company ("Counsel"),
commencing with its taxable year ended December 31, 1991, the Company has been
organized in conformity with the requirements for qualification and taxation as
a REIT under the Code and the proposed method of operation of the Company and
the Operating Partnership will enable the Company to continue to meet the
requirements for qualification and taxation as a REIT. It must be emphasized
that Counsel's opinion is based on various assumptions and is conditioned upon
certain representations made by the Company, the Operating Partnership and the
Operating Subsidiaries as to factual matters. In addition, Counsel's opinion is
based upon factual representations of the Company concerning its business and
properties, and the business and properties of the Operating Partnership and the
Operating Subsidiaries. Unlike a tax ruling, an opinion of counsel is not
binding upon the IRS and no assurance can be given that the IRS will not
challenge the status of the Company as a REIT. Moreover, such qualification and
taxation as a REIT depend upon the Company's ability to meet, through actual
annual operating results, distribution levels, diversity of stock ownership and
various other qualification tests imposed under the Code discussed below, the
results of which will not be reviewed by Counsel. Accordingly, no assurance can
be given that the actual results of the Company's operation for any one taxable
year will satisfy such requirements. See - Failure to Qualify.
The following is a general summary of the Code provisions that govern
the federal income tax treatment of a REIT and its stockholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, Treasury
Regulations and administrative and judicial interpretations thereof.
If the Company qualifies for taxation as a REIT, it generally will not
be subject to federal corporate income tax on net income that it distributes
currently to its stockholders. This treatment substantially eliminates the
"double taxation" (taxation at both the corporate and stockholder levels) that
generally results from an investment in a corporation. However, the Company will
be subject to federal income or excise tax as follows: (i) the Company will be
taxed at regular corporate rates on any undistributed REIT taxable income and
undistributed net capital gains; (ii) under certain circumstances, the Company
may be subject to the "alternative minimum tax" on its items of tax preference,
if any; (iii) if the Company has (1) net income from the sale or other
disposition of "foreclosure property" (generally, property acquired by reason of
a foreclosure or otherwise on default of a loan secured by the property) that is
held primarily for sale to customers in the ordinary course of business or (2)
other nonqualifying net income from foreclosure property, it will be subject to
tax at the highest corporate rate on such income; (iv) if the Company has net
income from prohibited transactions (which are, in general, certain sales or
other dispositions of property (other than dispositions of foreclosure property,
and, as a result of the Taxpayer Relief Act of 1997, enacted August 5, 1997 (the
"Taxpayer Relief Act"), effective for the Company's taxable year ending December
31, 1998, dispositions of property that occur due to involuntary conversion)
held primarily for sale to customers in the ordinary course of business), such
income will be subject to a 100% tax; (v) 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
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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% test, multiplied by a fraction intended to reflect the Company's
profitability; (vi) if the Company should fail to distribute with respect to
each calendar year at least the sum of (1) 85% of its REIT ordinary income for
such year, (2) 95% of its REIT capital gain net income for such year, and (3)
any undistributed taxable income from prior years, the Company would be subject
to a 4% excise tax on the excess of such required distribution over the amounts
actually distributed; (vii) if the Company acquires any asset from a C
corporation (i.e., generally a corporation subject to full corporate-level tax)
in a transaction in which the basis of the asset in the Company's hands is
determined by reference to the basis of the asset (or any other property) in the
hands of the C corporation and the Company subsequently recognizes gain on the
disposition of such asset during the 10-year period (the "Recognition Period")
beginning on the date on which the asset was acquired by the Company (or the
Company first qualified as a REIT), then the excess of (1) the fair market value
of the asset as of the beginning of the applicable Recognition Period, over (2)
the REIT's adjusted basis in such asset as of the beginning of such Recognition
Period will be subject to tax at the highest regular corporate rate (pursuant to
Treasury Regulations issued by the IRS which have not yet been promulgated).
Requirements for Qualification. The Code defines a REIT as a
corporation, trust or association (i) that is managed by one or more trustees or
directors; (ii) the beneficial ownership of which is evidenced by transferable
Common Stock, or by transferable certificates of beneficial interest; (iii) that
would be taxable as a domestic corporation but for Sections 856 through 859 of
the Code; (iv) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code; (v) that has the calendar year as its
taxable year; (vi) the beneficial ownership of which is held by 100 or more
persons; (vii) 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);
and (viii) that meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (i) through (v),
inclusive, must be met during the entire taxable year and that condition (vi)
must be 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. Conditions (vi) and
(vii), however, will not apply until after the first taxable year for which an
election is made to be taxed as a REIT. The Company believes that it currently
satisfies conditions (vi) and (vii). In addition, the Company's Organizational
Documents include restrictions regarding the transfer of the Company's Common
Stock that are intended to assist the Company in continuing to satisfy the share
ownership requirements described in (vi) and (vii) above. See DESCRIPTION OF THE
CAPITAL STOCK OF THE COMPANY Restrictions on the Ownership and Transfer of
Excess Shares. In addition, the Company intends to continue to comply with the
Treasury Regulations requiring it to ascertain the actual ownership of its
shares. The Taxpayer Relief Act eliminates the rule that a failure to comply
with these Regulations will result in a loss of REIT status. Instead, a failure
to comply with these regulations will result in a fine. This provision will be
effective for the Company's taxable year ending December 31, 1998.
The Company has several "qualified REIT subsidiaries." A corporation
that is a "qualified REIT subsidiary" is not treated as a separate corporation
for federal income tax purposes, and all assets, liabilities and items of
income, deduction and credit of a "qualified REIT subsidiary" are treated as
assets, liabilities and items of the REIT. In applying the requirements
described herein, any "qualified REIT subsidiary" of the Company will be
ignored, and all assets, liabilities and items of income, deduction and credit
of such subsidiary will be treated as assets, liabilities and items of the
Company. Any "qualified REIT subsidiary" of the Company is therefore not be
subject to federal corporate income taxation, although it may be subject to
state or local taxation.
In the case of a REIT that is a partner in a partnership, the REIT is
deemed to own its proportionate share of the assets of the partnership and is
deemed to receive the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership shall
retain the same character in the hands of the REIT. Thus, the Company's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership are treated as assets, liabilities and items of income of
the Company for purposes of applying the requirements described herein, provided
that the Operating Partnership is treated as a partnership for federal income
tax purposes. See Other Tax Considerations - Effect of Tax Status of the
Operating Partnership on REIT Qualification.
Income Tests. In order to qualify as a REIT, there are three gross
income requirements that must be satisfied annually. First, at least 75% of the
REIT'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 REIT'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% gross income test,
and from dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing. Third, short-term gain
from the sale or other disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the REIT's gross income
(including gross income from prohibited transactions) for each taxable year. The
Taxpayer Relief Act repeals the 30% gross income test for taxable years
beginning after its enactment. Thus, the 30% gross income test will no longer
apply after the Company's taxable year ending December 31, 1997.
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Rents received by a REIT will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT 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. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the REIT, or
a direct orindirect owner of 10% or more of the REIT, directly or
constructively, owns 10% or more of such tenant (a "Related Party Tenant").
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." Finally, in order for rents received with
respect to a property to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render services
to tenants, except through an "independent contractor" who is adequately
compensated and from whom the Company derives no income. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by the REIT are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant." The Taxpayer Relief Act provides a de minimis rule
for non-customary services which is effective for taxable years beginning after
August 5, 1997. If the value of the non-customary service income with respect to
a property (valued at no less than 150% of the Company's direct costs of
performing such services) is 1% or less of the total income derived from the
property, then all rental income except the non-customary service income will
quality as "rents from real property." This provision will be effective for the
Company's taxable year ending December 31, 1998.
The Company does not anticipate charging rent that is based in whole or
in part on the income or profits of any person (except by reason of being based
on a fixed percentage or percentages of receipts of sales consistent with the
rule described above). The Company does not anticipate receiving more than a de
minimis amount of rents from any Related Party Tenants. The Company does not
anticipate deriving rent attributable to personal property leased in connection
with real property that exceeds 15% of the total rents.
The Company provides certain services with respect to the Properties
through the Operating Partnership, which is not an "independent contractor."
However, the Company believes that all of such services are considered "usually
or customarily rendered" in connection with the rental of space for occupancy
only, so that the provision of such services do not jeopardize the qualification
of rent from the Properties as "rents from real property." In the case of any
services that are not "usual and customary" under the foregoing rules, the
Company intends to employ "independent contractors" to provide such services.
If the Company fails to satisfy one or both of the 75% or the 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.
These relief provisions generally will be available if the Company's failure to
meet any such tests was due to reasonable cause and not due to willful neglect,
the Company attaches a schedule of the sources of its income to its federal
income tax return and any incorrect information on the schedule was not due to
fraud with the intent to evade tax. It is not possible, however, to state
whether in all circumstances the Company would be entitled to the benefit of
these relief provisions. As discussed above, even if these relief provisions
were to apply, a tax would be imposed on certain excess net income.
Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets: (i) at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) its allocable share of real estate assets held by
partnerships in which the Company has an interest and (ii) stock or debt
instruments purchased with the proceeds of a stock offering on long-term (at
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least five years) debt offering of the Company and held for not more than one
year following the receipt by the Company of such proceeds), cash, cash items
and government securities; (ii) not more than 25% of the Company's total assets
may be represented by securities other than those in the 75% asset class; and
(iii) of the investments included in the 25% asset class, the value of any one
issuer's securities (other than an interest in a partnership or shares of a
"qualified REIT subsidiary" or another REIT) owned by the Company may not exceed
5% of the value of the Company's total assets, and the Company may not own more
than 10% of any one issuer's outstanding voting securities (other than an
interest in a partnership or securities of a "qualified REIT subsidiary" or
another REIT).
After initially meeting the assets tests at the close of any quarter,
the Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, 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 plans to take such
other action within 30 days after the close of any quarter as may be required to
cure any noncompliance. However, there can be no assurance that such other
action will always be successful.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders 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 REIT'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
noncash income (including, as a result of the Taxpayer Relief Act of 1997, inter
alia cancellation of indebtedness and original issue discount income). Such
distributions must be paid during the taxable year to which they relate (or
during the following taxable year, if declared before the Company timely files
its tax return for the preceding year and paid on or before the first regular
dividend payment after such declaration). To the extent that the Company does
not distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "REIT taxable income," as adjusted, it will be subject to tax
on the undistributed amount at regular corporate capital gains rates and
ordinary income tax rates. Furthermore, if the Company fails to distribute
during each calendar year at least the sum of (i) 85% of its REIT ordinary
income of such year, (ii) 95% of its REIT capital gain income for such year and
(iii) any undistributed taxable income from prior periods, the Company will be
subject to a 4% excise tax on the excess of such amounts over the amounts
actually distributed. In addition, if the Company disposes of any asset subject
to the Built-In Gain Rule during its Recognition Period, the Company will be
required to distribute at least 95% of the Built-In Gain (after tax), if any,
recognized on the disposition.
The Company intends to make timely distributions sufficient to satisfy
the annual distribution requirements. In this regard, 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 noncash charges in the computing of REIT
taxable income. Moreover, the Partnership Agreement of the Operating Partnership
authorizes the General Partner to take such steps as may be necessary to cause
the Operating Partnership to make distributions to its partners of amounts
sufficient to permit the Company to meet these distribution requirements. It is
possible, however, that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between the actual receipt of income and actual payment of
deductible expenses and the inclusion of such income and deduction of such
expenses in arriving at REIT taxable income of the Company, or due to an excess
of nondeductible expenses such as principal amortization or capital expenditures
over noncash deductions such as depreciation. In the event that such
circumstances do occur, then in order to meet the 95% distribution requirement,
the Company may cause the Operating Partnership to arrange for short-term, or
possibly long-term, borrowings to permit the payment of required dividends.
Under certain circumstances, the Company may be able to rectify a
failure to meet the distribution requirement for year by paying "deficiency
dividends" to stockholders in a later year that 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 would be required to pay to the IRS interest based upon the amount
of any deduction taken for deficiency dividends.
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Failure to Qualify. If the Company fails to qualify for taxation as a
REIT in any taxable year and special relief provisions do not apply, the Company
will be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. Distributions to stockholders in
any year in which the Company fails to qualify as a REIT will not be deductible,
nor will they be required to be made. In such event, to the extent of current
and accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income and, subject to certain limitations in the Code,
corporate distributees may be eligible for the "dividends received deduction."
Unless entitled to relief under specific statutory provisions, the Company also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief.
Taxation of Stockholders
Taxation of Taxable Domestic Stockholders. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income, and corporate stockholders will not be eligible for the
dividends received deduction as to such amounts. Distributions that are
designated as capital gain dividends will be taxed as gains from the sale or
exchange of a capital asset held for more than one year (to the extent they do
not exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the stockholder has held its stock. However,
corporate stockholders may be required to treat up to 20% of certain capital
gain dividends as ordinary income. The Taxpayer Relief Act provides that,
beginning with the Company's taxable year ending December 31, 1998, if the
Company elects to retain and pay income tax on any net long-term capital gain,
domestic stockholders of the Company would include in their income as long-term
capital gain their proportionate share of such net long-term capital gain. A
domestic stockholder would also receive a refundable tax credit for such
stockholder's proportionate share of the tax paid by the Company on such
retained capital gains and an increase in its basis in the stock of the Company
in an amount equal to the difference between the undistributed long-term capital
gains and the amount of tax paid by the Company. Distributions in excess of
current and accumulated earnings and profits will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's Common Stock, but rather will reduce the adjusted basis of such
Common Stock. To the extent that such distributions exceed the adjusted basis of
a stockholder's Common Stock, they will be included in income as capital gain,
assuming the Common Stock is a capital asset in the hands of the stockholder. In
addition, any dividend declared by the Company in October, November or December
of any year and payable to a stockholder of record on a specific date in any
such month shall be treated as both paid by the Company and received by the
stockholder on December 31 of such year, provided that the dividend is actually
paid by the Company during January of the following calendar year. Stockholders
may not include in their individual income tax returns any net operating losses
or capital losses of the Company.
In general, a domestic stockholder will realize capital gain or loss on
the disposition 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 stockholder's adjusted basis of such Common Stock. For dispositions
after July 28, 1997, the Taxpayer Relief Act provides that such gain or loss
will generally constitute either short-term, mid-term, or long-term capital gain
or loss depending on the length of time the stockholder has held such shares.
Under the Taxpayer Relief Act, an individual, trust or estate that holds shares
of Common Stock for more than 18 months will generally be subject to a maximum
tax of 20% on gains from the sale or disposition of such shares. See Recent
Legislation below. Loss upon a sale or exchange of Common Stock by a stockholder
who has held such 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 stockholder as
long-term capital gain.
Backup Withholding. The Company will report to its domestic
stockholders 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 stockholder may be subject to backup withholding at the
rate of 31% with respect to dividends paid unless such holder (i) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (ii) provides a taxpayer
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identification number and certifies as to no loss of exemption, and otherwise
complies with the applicable requirements of the backup withholdings rules. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. The United States Treasury has recently issued proposed
regulations regarding the withholding and information reporting rules discussed
above. In general, the proposed regulations do not alter the substantive
withholding and information reporting requirements but unify current
certification procedures and forms and clarify and modify reliance standards. If
finalized in their current form, the proposed regulations would generally be
effective for payments made after December 31, 1997, subject to certain
transition rules.
In addition, the Company may be required to withhold a portion of
capital gain distributions made to any stockholders which fail to certify their
non foreign status to the Company. See - Taxation of Foreign Stockholders.
Taxation of Tax-Exempt Stockholders. The IRS has ruled that amounts
distributed as dividends by a qualified REIT generally do not constitute
unrelated business taxable income ("UBTI") when received by a tax-exempt entity.
Based on that ruling, the dividend income from the Common Stock will not be UBTI
to a tax-exempt stockholder, provided that the tax-exempt stockholder has not
held its shares of Common Stock as "debt financed property" within the meaning
of the Code and such shares are not otherwise used in a trade or business.
Similarly, income from the sale of Common Stock will not constitute UBTI unless
such tax-exempt stockholder has held such shares as "debt financed property"
within the meaning of the Code or has used the shares in a trade or business.
Notwithstanding the above, however, a portion of the dividends paid by
a "pension held REIT" will be treated as UBTI as to any trust which is described
in Section 401(a) of the Code and is tax-exempt under Section 501(a) of the Code
(a "qualified trust") and which holds more than 10% (by value) of the interests
in the REIT. A REIT is a "pension held REIT" if (i) it would not have qualified
as a REIT but for the application of a "look-through" exception to the "not
closely held" requirement applicable to qualified trusts, and (ii) either (A) at
least one such qualified trust holds more than 25% (by value) of the interests
in the REIT, or (B) one or more such qualified trusts, each of which owns more
than 10% (by value) of the interests in the REIT, hold in the aggregate more
than 50% (by value) of the interests in the REIT. The percentage of any REIT
dividend treated as UBTI is equal to the ratio of (i) the gross income (less
direct expenses related thereto) of the REIT from unrelated trades or businesses
(determined as if the REIT were a qualified trust) to (ii) the total gross
income (less direct expenses related thereto) of the REIT. A de minimis
exception applies where this percentage is less than 5% for any year. The
provisions requiring qualified trusts to treat a portion of REIT distributions
as UBTI will not apply if the REIT is able to satisfy the "not closely held"
requirement without relying upon the "look-through" exception with respect to
qualified trusts. As a result of certain limitations on transfer and ownership
of Common Stock contained in the Charter, the Company does not expect to be
classified as a "pension held REIT."
Taxation of Foreign Stockholders. The rules governing United States
federal income taxation of nonresident alien individuals, foreign corporation,
foreign partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex and no attempt will be made herein to provide more
than a summary of such rules. Prospective Non-U.S. Stockholders should consult
with their own tax advisors to determine the impact of federal, state, and local
income tax laws with regard to an investment in shares, including any reporting
requirements, as well as the tax treatment of such an investment under their
home country laws.
In general, Non-U.S. Stockholders will be subject to regular United
States federal income taxation with respect to their investment in shares of
Common Stock in the same manner as a U.S. Stockholder (i.e., at graduated rates
on a net basis, after allowance of deductions) if such investment is
"effectively connected" with the conduct by such Non-U.S. Stockholder of a trade
or business in the United States. A Non-U.S. Stockholder that is a corporation
and that receives income with respect to its investment in shares of Common
Stock that is (or is treated as) "effectively connected" with the conduct of a
trade or business in the United States may also be subject to the 30% branch
profits tax imposed under Section
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884 of the Code, which is payable in addition to the regular United States
corporate income tax. The following discussion addresses only the federal income
taxation of Non-U.S. Stockholders whose investment in shares of Common Stock is
not "effectively connected" with the conduct of a trade or business in the
United States. Prospective investors whose investment in shares of Common Stock
may be "effectively connected" with the conduct of a United States trade or
business should consult their own tax advisors as to the tax consequences
thereof.
Distributions that are not attributable to gain from sales or exchanges
by the Company of United States real property interests and not designated by
the Company as capital gains dividends will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions ordinarily will be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces or eliminates that tax. Pursuant to current
Treasury Regulations, dividends paid to an address in a country outside the
United States are generally presumed to be paid to a resident of such country
for purposes of determining the applicability of withholding discussed above and
the availability of a reduced tax treaty rate. Under proposed Treasury
Regulations, not currently in effect, however, a Non-U.S. Stockholder who wishes
to claim the benefit of an applicable treaty rate would be required to satisfy
certain certification and other requirements. Distributions made by the Company
in excess of its current and accumulated earnings and profits will not be
taxable to a stockholder to the extent they do not exceed the adjusted basis of
the stockholder's shares, but rather will reduce the adjusted basis of such
shares (but not below zero). To the extent that such distributions exceed the
adjusted basis of the Non-U.S. Stockholder's shares, they will give rise to tax
liability if the Non-U.S. Stockholder would otherwise be subject to tax on any
gain from the sale or disposition of his shares in the Company, as described
below.
As a result of a legislative change made by the Small Business Job
Protection Act of 1996, effective for distributions made after August 20, 1996,
the Company is required to withhold 10% of any distribution 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 the extent that the Company does not do so any portion of a
distribution not subject to withholding at a rate of 30% will be subject to
withholding at a rate of 10%. However, the Non-U.S. Stockholder may seek a
refund of such amounts from the IRS if it is 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.
Stockholder's United States tax liability, if any, with respect to the
distribution.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by the Company of United
States real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Stockholder as if such gain were effectively connected with the conduct of a
United States trade or business. Non-U.S. Stockholders would thus be taxed at
the normal capital gain rates applicable to U.S. stockholders (subject to
applicable alternative minimum tax and special alternative minimum tax in the
case of nonresident alien individuals), without regard as to whether such
distributions are designated by the Company as capital gain dividends. Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate stockholder not entitled to treaty exemption.
The Company is required by Treasury Regulations to withhold 35% of any
distribution to a Non-U.S. Stockholder that could be designated by the Company
as a capital gain dividend. This amount is creditable against the Non-U.S.
Stockholder's FIRPTA tax liability.
Gain recognized by the Non-U.S. Stockholder upon a sale of shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of its stock was held directly
or indirectly by foreign persons. The Company believes that it will be a
domestically controlled REIT and therefore, that the sale of its shares will not
be subject to taxation under FIRPTA. However, because the Common Stock will be
publicly traded, no assurance can be given that the Company will continue to so
qualify.
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Notwithstanding the foregoing, gain from the sale or exchange of shares of
Company stock not otherwise subject to FIRPTA generally will be taxable to a
Non-U.S. Stockholder if the Non-U.S. Stockholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States. In such case, the
nonresident alien individual will be subject to a 30% United States withholding
tax on the amount of such individual's gain.
If the Company does not qualify as or ceases to be a
"domestically-controlled REIT," whether gain arising from the sale or exchange
by a Non-U.S. Stockholder of shares of Common Stock would be subject to U.S.
taxation under FIRPTA will depend on whether the shares are "regularly traded"
(as defined in applicable Treasury Regulations) on an established securities
market (such as the NYSE on which the Common Stock is traded) and on the size of
the selling Non-U.S. Stockholder's interest in the Company. If the gain on the
sale of shares were to be subject to tax under FIRPTA, the Non-U.S. Stockholder
would be subject to the same treatment as a domestic stockholder with respect to
such gain (subject to applicable alternative minimum tax and 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), and the purchaser of the shares would be required to withhold and
remit to the IRS 10% of the purchase price.
Other Tax Considerations
Effect of Tax Status of the Operating Partnership on REIT
Qualification. The Company believes that the Operating Partnership is properly
treated as a partnership for tax purposes (and not as an association taxable as
a corporation). If, however, the Operating Partnership is treated as an
association taxable as a corporation, the Company would cease to qualify as a
REIT. Furthermore, in such a situation, the Operating Partnership would be
subject to corporate income taxes and the Company would not be able to deduct
its share of any losses generated by the Operating Partnership in computing its
taxable income.
Tax Allocations with Respect to the Properties. The Operating
Partnership was formed by way of contributions of appreciated property
(including certain of the Properties). When property is contributed to a
partnership in exchange for an interest in the partnership, the partnership
generally takes a carryover basis in that property for tax purposes equal to the
adjusted basis of the contributing partner in the property, rather than a basis
equal to the fair market value of the property at the time of contribution (this
difference is referred to as a "Book-Tax Difference"). The partnership agreement
of the Operating Partnership requires allocations of income, gain, loss and
deduction with respect to contributed Property to be made in a manner consistent
with the special rules in Section 704(c) of the Code, and the regulations
thereunder, which tend to eliminate the Book-Tax Differences with respect to the
contributed Properties over the life of the Operating Partnership. However,
because of certain technical limitations, the special allocation rules of
Section 704(c) may 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 Properties in the hands of the
Operating Partnership could cause the Company to be allocated lower amounts of
depreciation and other deductions for tax purposes or increased gain on a sale
or disposition of a Property by the Company than would be allocated to the
Company if all Properties were to have a tax basis equal to their fair market
value at the time of acquisition. The foregoing principles also apply in
determining the earnings and profits of the Company for purposes of determining
the portion of distributions taxable as dividend income. The application of
these rules over time may result in a higher portion of distributions being
taxed as dividends than would have occurred had the Company purchased its
interests in the Properties at their agreed value.
State and Local Taxes. The Company and its stockholders may be subject
to state or local taxation in various state or local jurisdictions, including
those in which it or they transact business or reside. The state and local tax
treatment of the Company and its stockholders may not conform to the federal
income tax consequences discussed above. Consequently, prospective stockholders
should
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consult with their own tax advisors regarding the effect of state, local and
other tax laws of any investment in the Common Stock of the Company.
In particular, the State of Texas imposes a franchise tax upon
corporations and limited liability companies that do business in Texas,
including REITs that are organized as corporations. The Texas franchise tax
imposed on a corporation doing business in Texas is generally equal to the
greater of (i) .25% of "taxable capital" (generally, financial accounting net
worth with certain adjustments) apportioned to Texas; or (ii) 4.5% of "taxable
earned surplus" (generally, federal taxable income with certain adjustments)
apportioned to Texas. A corporation's taxable capital and taxable earned surplus
are apportioned to Texas based upon a fraction, the numerator of which is the
corporation's gross receipts from business transacted in Texas and the
denominator of which is the corporation's gross receipts from all sources. The
office of the Texas State Comptroller of Public Accounts (the "Comptroller"),
the agency that administers the Texas franchise tax, has issued a regulation
providing that a corporation is not considered to be doing business in Texas for
Texas franchise tax purposes merely because the corporation owns an interest as
a limited partner in a limited partnership that does business in Texas. The same
regulation provides, however, that a corporation is considered to be doing
business in Texas if it owns an interest as a general partner in a partnership
that does business in Texas. This regulation applies for purposes of the net
taxable capital component of the Texas franchise tax. The Comptroller has not
made a similar public determination with regard to the earned surplus component.
The Comptroller has also expressed, although not in a formal regulation, that a
corporation is not considered to be doing business in Texas for Texas franchise
tax purposes merely because the corporation owns stock in another corporation
that does business in Texas.
The Company, organized as a Delaware corporation, is a limited partner
in the Operating Partnership and is not otherwise doing business in Texas.
Accordingly, the Company should not be subject to Texas franchise tax. However,
the General Partner, organized as a corporation, is the general partner of a
partnership doing business in Texas (i.e., the Operating Partnership) and has
registered in the State of Texas as a foreign corporation qualified to transact
business in Texas. Accordingly, the General Partner is subject to Texas
franchise tax. The Operating Subsidiaries, to the extent those organizations are
corporations deemed to be doing business in Texas, will be subject to the Texas
franchise tax.
There is no assurance that the Comptroller will not contend that the
Company will be doing business in Texas for Texas franchise tax purposes. First,
no assurance exists that the Comptroller will not revoke the pronouncements
described above and contend that the activities of the Company constitute the
doing of business in Texas. Second, as noted above, it is not clear whether the
Comptroller considers these pronouncements equally applicable to the tax on net
taxable earned surplus. Third, no assurance exists that the Comptroller will not
contend that in light of the overall structure of the Company, the Operating
Partnership, and the Operating Subsidiaries, the pronouncements are otherwise
inapplicable. If any of the preceding were to occur, the Company may be subject
to Texas franchise tax on income earned from its limited partnership interest in
the Operating Partnership.
The Operating Partnership itself will not be subject to the Texas
franchise tax under the laws in existence at the time of this Prospectus. There
is no assurance, however, that the Texas legislature will not expand the scope
of the franchise tax to apply to limited partnerships such as the Operating
Partnership.
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Recent Legislation
In addition to changes to the requirements for qualification and
taxation as a REIT discussed above, the Taxpayer Relief Act also contains
significant changes to the taxation of capital gains of individuals, trusts and
estates. For gains realized after July 28, 1997, and subject to certain
exceptions, the maximum rate of tax on net capital gains of individuals, trusts
and estates from the sale or exchange of capital assets held for more than 18
months has been reduced to 20%, and the maximum rate is reduced to 18% for
assets acquired after December 31, 2000 and held for more than five years. The
maximum rate for long-term capital gains attributable to the sale of depreciable
real property held for more than 18 months is 25% to the extent of the
deductions for depreciation with respect to such property. Long term capital
gain allocated to a stockholder by the Company will be subject to the 25% rate
to the extent that the gain does not exceed depreciation on real property sold
by the Company. The maximum rate of capital gains tax for capital assets held
for more than one year but not more than 18 months remains at 28%. The taxation
of capital gains of corporations was not changed by the Taxpayer Relief Act.
DESCRIPTION OF DEBT SECURITIES
Capitalized terms not otherwise defined herein shall have the meanings
set forth in the Indenture.
The Debt Securities are to be issued under an Indenture, a copy of the
form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part and incorporated herein by reference, subject to
such supplements and amendments as may be adopted from time to time (each an
"Indenture" and collectively, the "Indentures"). The Indentures will be executed
by the Company and one or more trustees (each a "Trustee"). The Indenture is
subject to, and governed by, the Trust Indenture Act of 1939, as amended (the
"TIA"). The statements made hereunder relating to the Indenture and the Debt
Securities to be issued thereunder are summaries of certain provisions thereof
and do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all provisions of the Indenture and such Debt
Securities. All section references appearing herein are to sections of the
Indenture, and capitalized terms used but not defined herein shall have the
respective meanings set forth in the Indenture.
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General
The Debt Securities will be direct and unsecured general obligations of
the Company, unless otherwise provided in the Prospectus Supplement. As
indicated in the applicable Prospectus Supplement, the Debt Securities may be
either senior debt, senior to all future subordinated indebtedness of the
Company and pari passu with other current and future unsecured, unsubordinated
indebtedness of the Company, or, in the alternative, subordinated debt
subordinate in right of payment to current and future senior debt and pari passu
with other future subordinated indebtedness of the Company. The Indenture
provides that the Debt Securities may be issued without limit as to aggregate
principal amount, in one or more series, in each case as established from time
to time in or pursuant to authority granted by a resolution of the Board of
Directors of the Company or as established in one or more indentures
supplemental to the Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section
3.1).
The Indenture provides that there may be more than one Trustee
hereunder, each with respect to one or more series of Debt Securities. Any
Trustee under the Indenture may resign or be removed with respect to one or more
series of Debt Securities, and a successor Trustee may be appointed to act with
respect to such series (Section 6.9). In the event that two or more persons are
acting as Trustee with respect to different series of Debt Securities, each such
Trustee shall be a Trustee of a trust under the Indenture separate and apart
from the trust administered by any other Trustee (Section 6.10), and, except as
otherwise indicated herein, any action described herein to be taken by the
Trustee may be taken by each such Trustee with respect to, and only with respect
to, the one or more series of Debt Securities for which it is Trustee under the
Indenture.
Reference is made to the Prospectus Supplement relating to the series
of Debt Securities being offered for the specific terms thereof, including:
1. the title of such Debt Securities (including whether they are
senior debt or subordinated debt and whether they are convertible);
2. the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
3. the date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be
payable;
4. the rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
5. the date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the Interest
Payment Dates on which any such interest will be payable, the
Regular Record Dates for such Interest Payment Dates, or the method
by which such dates shall be determined, the Person to whom such
interest shall be payable, and the basis upon which interest shall
be calculated if other than that of a 360 day year of twelve 30 day
months;
6. the place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, such
Debt Securities may be surrendered for conversion or registration
of transfer or exchange, and notices or
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demands to or upon the Company in respect of such Debt Securities
and the Indenture may be served;
7. the period or periods within which, the price or prices at which
and the terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the option of the Company, if
the Company is to have such an option;
8. the obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or
periods within which, the price or prices at which and the terms
and conditions upon which such Debt Securities will be redeemed,
repaid or purchased, as a whole or in part, pursuant to such
obligation;
9. the percentage of the principal at which such Debt Securities will
be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof, or (if applicable) the
portion of the principal amount of such Debt Securities which is
convertible into shares of Common Stock, Preferred Stock or Debt
Securities of another series, or the method by which any such
portion shall be determined;
10. if other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a
foreign currency or units of two or more foreign currencies or a
composite currency or currencies, and the terms and conditions
relating thereto;
11. whether the amount of payments of principal of (and premium, if
any) on interest, if any, on such Debt Securities may be determined
with reference to an index, formula or other method (which index,
formula or method may, but need not be, based on a currency,
currencies, currency unit or units or composite currency or
currencies) and the manner in which such amounts shall be
determined;
12. any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to the Events of Default or
covenants set forth in the Indenture;
13. whether such Debt Securities will be issued in certificated or
book-entry form;
14. whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than
$1,000 and any integral multiple thereof and, if in bearer form,
the denominations thereof and terms and conditions relating
thereto;
15. the applicability, if any, of the defeasance and covenant
defeasance provisions of Article 14 of the Indenture;
16. the terms, if any, upon which Debt Securities may be convertible
into Common Stock, Preferred Stock or Debt Securities of another
series of the Company and the terms and conditions upon which such
conversion will be effected, including, without limitation, the
initial conversion price or rate and the conversion period;
17. if convertible, in connection with the preservation of the
Company's status as a REIT, any applicable limitations on the
ownership or transferability of the Common Stock, Preferred Stock
or other capital stock of the Company into which such Debt
Securities are convertible;
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18. whether and under what circumstances the Company will pay
Additional Amounts as contemplated in the Indenture on such Debt
Securities in respect of any tax, assessment or governmental charge
and, if so, whether the Company will have the option to redeem such
Debt Securities in lieu of making such payment;
19. the terms, if any, upon which such Debt Securities will be
subordinate to other debt of the Company; and
20. any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture (Section 3.1).
The Debt Securities may provide for less than the entire principal
amount thereof to be payable upon declaration of acceleration of the maturity
thereof or bear no interest or bear interest at a rate which at the time of
issuance is below market rates ("Original Issue Discount Securities"). Special
U.S. federal income tax accounting and other considerations applicable to
Original Issue Discount Securities will be described in the applicable
Prospectus Supplement.
The Indenture does not contain any other provisions that would limit
the ability of the Company to incur indebtedness or that would afford holders of
Debt Securities protection in the event of a highly leveraged or similar
transaction involving the Company or in the event of a change of control.
However, restrictions on ownership and transfers of the Company's Common Stock
are designed to preserve its status as a REIT and, therefore, may act to prevent
or hinder a change of control. See DESCRIPTION OF THE CAPITAL STOCK OF THE
COMPANY. Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of or additions to
the Events of Default or covenants of the Company that are described below,
including any addition of a covenant or other provision providing event risk or
similar protection.
Denominations, Interest, Registration and Transfer
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof (Section 3.2).
Unless otherwise described in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the Trustee, provided that, at
the option of the Company, payment of interest may be made by check mailed to
the address of the Person entitled thereto as it appears in the Security
Register (Sections 3.5 and 3.7).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the Holder of such Debt Security not
less than ten days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the Trustee. In addition,
subject to certain limitations imposed upon Debt Securities issued in book-entry
form, the Debt Securities of any series shall be surrendered for conversion (if
applicable) or registration of transfer thereof at the corporate trust office of
the Trustee. Every Debt Security surrendered for conversion, registration of
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer. No service charge will be made for any
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registration of transfer or exchange of any Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (Section 3.5). If the applicable
Prospectus Supplement refers to any transfer agent (in addition to the Trustee)
initially designated by the Company with respect to any series of Debt
Securities, the Company may at any time rescind the designation of any such
transfer agent or approve a change in the location through which any such
transfer agent acts, except that the Company will be required to maintain a
transfer agent in each Place of Payment for such series. The Company may at any
time designate additional transfer agents with respect to any series of Debt
Securities (Section 10.2).
Neither the Company nor the Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; or (iii) issue, register the transfer of or exchange any Debt Security
which has been surrendered for repayment at the option of the Holder, except the
portion, if any, of such Debt Security not to be so repaid (Section 3.5).
Merger, Consolidation or Sale
The Company, without the consent of the Holders of any of the Debt
Securities, may consolidate with, or sell, lease or convey all or substantially
all of its assets to, or merge with or into, any other corporation, provided
that (a) either the Company shall be the continuing corporation or, the
successor corporation (if other than the Company) formed by or resulting from
any such consolidation or merger or which shall have received the transfer of
such assets shall expressly assume payment of the principal of (and premium, if
any) and interest on all of the Debt Securities and the due and punctual
performance and observance of all of the covenants and conditions contained in
the Indenture; (b) immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of the Company or any
Subsidiary as a result thereof as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default, and no event
which would become an Event of Default, shall have occurred and be continuing;
and (c) an officer's certificate and legal opinion covering such conditions
shall be delivered to the Trustee (Sections 8.1 and 8.3).
Certain Covenants
Existence. Except as permitted under "Merger, Consolidation or Sale,"
the Company will do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence, rights (charter and
statutory) and franchises; provided, however, that the Company shall not be
required to preserve any right or franchise if it determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Holders of the Debt Securities (Section 10.6).
Maintenance of Properties. The Company will cause all of its properties
used or useful in the conduct of its business or the business of any Subsidiary
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements and improvements thereof, all as in the judgment
of the Company may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that the Company and its Subsidiaries shall not be prevented from
selling or otherwise disposing for value its properties in the ordinary course
of business (Section 10.7).
Insurance. The Company will, and will cause each of its Subsidiaries
to, keep all of its insurable properties insured against loss or damage at least
equal to their then full insurable value with insurers of recognized
responsibility (Section 10.8).
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Payment of Taxes and Other Claims. The Company will pay or discharge or
cause to be paid or discharged, before the same shall become delinquent, (i) all
taxes, assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the Company or any
Subsidiary; and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Company or any
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings (Section 10.9).
Provision of Financial Information. Whether or not the Company is
subject to Section 13 or 15(d) of the Exchange Act, the Company will, to the
extent permitted under the Exchange Act, file with the Commission the annual
reports, quarterly reports and other documents which the Company would have been
required to file with the Commission pursuant to such Section 13 or 15(d) (the
"Financial Statements") if the Company were so subject, such documents to be
filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which the Company would have been required to file such
documents if the Company were so subject (Section 10.10). The Company will also
in any event (x) within 15 days of each Required Filing Date file with the
Trustee copies of the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act if the Company were subject to such
Section; and (y) if filing such documents by the Company with the Commission is
not permitted under the Exchange Act, promptly upon written request and payment
of the reasonable cost of duplication and delivery, supply copies of such
documents to any Holder (Section 7.3).
Additional Covenants. Any additional covenants of the Company with
respect to any series of Debt Securities will be set forth in the Prospectus
Supplement relating thereto.
Events of Default, Notice and Waiver
The Indenture provides that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder: (a)
default for 30 days in the payment of any installment of interest on any Debt
Security of such series; (b) default in the payment of the principal of (or
premium, if any, on) any Debt Security of such series at its Maturity or in the
deposit of any sinking fund payment when and as due by the terms of any Debt
Security; (c) default in the performance of any other covenant of the Company
contained in the Indenture (other than a covenant added to the Indenture solely
for the benefit of a series of Debt Securities issued thereunder other than such
series), continued for 60 days after written notice as provided in the
Indenture; (d) default in the payment of an aggregate principal amount not less
than $10,000,000 of any evidence of indebtedness of the Company or any mortgage,
indenture or other instrument under which such indebtedness is issued or by
which such indebtedness is secured, such default having occurred after the
expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such indebtedness
is not discharged or such acceleration is not rescinded or annulled within a
period of ten (10) days after written notice as provided in the Indenture; (e)
certain events of bankruptcy, insolvency or reorganization, or court appointment
of a receiver, liquidator or trustee of the Company or for substantially all of
its properties; and (f) any other Event of Default provided with respect to a
particular series of Debt Securities (Section 5.1).
If an Event of Default under the Indenture with respect to Debt
Securities of any series at the time Outstanding occurs and is continuing, then
in every such case the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Debt Securities of that series may declare the
principal amount (or, if the Debt Securities of the series are Original Issue
Discount Securities or Indexed Securities, such portion of the principal amount
as may be specified in the terms thereof) of all of the Debt Securities of that
series to be due and payable immediately by written notice thereof to the
Company (and to the Trustee if given by the Holders). However, at any time after
such a declaration of acceleration with respect to Debt Securities of such
series has been made, but before a judgment or decree for payment of the money
due has been obtained by the Trustee, the holders of a majority in principal
amount of Outstanding Debt Securities of such series may rescind and annul such
declaration and its consequences
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if (a) the Company shall have deposited with the Trustee all required payments
of the principal of (and premium, if any) and interest on the Debt Securities of
such series, plus certain fees, expenses, disbursements and advances of the
Trustee, and (b) all Events of Default, other than the non-payment of
accelerated principal (or specified portion thereof), with respect to Debt
Securities of such series have been cured or waived as provided in the Indenture
(Section 5.2). The Indenture also provides that the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
may waive any past default with respect to such series and its consequences,
except a default (x) in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series or (y) in respect of a covenant or
provisions contained in the Indenture that cannot be modified or amended without
the consent of the Holder of each outstanding Debt Security affected thereby
(Section 5.13).
The Trustee is required to give notice to the Holders of Debt
Securities within 90 days of a default under the Indenture; provided, however,
that the Trustee may withhold notice to the holders of any series of Debt
Securities of any default with respect to such series (except a default in the
payment of the principal of (or premium, if any) or interest on any Debt
Security of such series or in the payment of any sinking fund installment in
respect of any Debt Security of such series) if the Responsible Officers of the
Trustee consider such withholding to be in the interest of such Holders (Section
6.2).
The Indenture provides that no holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to the
Indenture or for any remedy thereunder, except in the case of failure of the
Trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an Event of Default from the Holders of not
less than 25% in principal amount of the outstanding Debt Securities of such
series as well as an offer of reasonable indemnity (Section 5.7). This provision
will not prevent, however, any holder of Debt Securities from instituting suit
for the enforcement of payment of the principal of (and premium, if any) and
interest on such Debt Securities at the respective due dates thereof (Section
5.8).
Subject to the provisions in the Indenture relating to its duties in
case of default, the Trustee is under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any Holders
of any series of Debt Securities then outstanding under the Indenture, unless
such Holders shall have offered to the Trustee reasonable security or indemnity
(Section 6.3). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or of exercising any trust or power conferred upon the Trustee.
However, the Trustee may refuse to follow any direction which is in conflict
with any law or the Indenture, which may involve the Trustee in personal
liability or which may be unduly prejudicial to the Holders of Debt Securities
of such series not joining therein (Section 5.12).
Within 120 days after the close of each fiscal year, the Company must
deliver to the Trustee a certificate, signed by one of several specified
officers, stating whether or not such officer has knowledge of any default under
the Indenture and, if so, specifying each such default and the nature and status
thereof (Section 10.11).
Modification of the Indenture
Modifications and amendments of the Indenture may be made only with the
consent of the Holders of not less than a majority in principal amount of all
outstanding Debt Securities which are affected by such modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of the holder of each such Debt Security affected thereby,
(a) change the Stated Maturity of the principal of, or any installment of
interest (or premium, if any) on, any such Debt Security; (b) reduce the
principal amount of, or the rate or amount of interest on, or any premium on
redemption of, any such Debt Security, or reduce the amount of principal of an
Original Issue Discount Security that would be due and payable upon declaration
of acceleration of the maturity thereof or would be provable in bankruptcy, or
adversely affect any right of repayment of the Holder of any such Debt Security;
(c) change the Place of Payment, or the coin or currency, for payment of
principal of, premium, if any, or interest on
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any such Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any such Debt Security; (e)
reduce the above-stated percentage of outstanding Debt Securities of any series
necessary to modify or amend the Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the Indenture; or (f) modify any
of the foregoing provisions or any of the provisions relating to the waiver of
certain past defaults or certain covenants, except to increase the required
percentage to effect such action or to provide that certain other provisions may
not be modified or waived without the consent of the Holder of such Debt
Security (Section 9.2).
The Holders of not less than a majority in principal amount of each
series of Outstanding Debt Securities have the right to waive compliance by the
Company with certain covenants in the Indenture (Section 10.13).
Modifications and amendments of the Indenture may be made by the
Company and the Trustee without the consent of any Holder of Debt Securities for
any of the following purposes: (i) to evidence the succession of another person
to the Company as obligor under the Indenture; (ii) to add to the covenants of
the Company for the benefit of the Holders of all or any series of Debt
Securities or to surrender any right or power conferred upon the Company in the
Indenture; (iii) to add Events of Default for the benefit of the Holders of all
or any series of Debt Securities; (iv) to add or change any provisions of the
Indenture to facilitate the issuance of, or to liberalize certain terms of, Debt
Securities in bearer form, or to permit or facilitate the issuance of Debt
Securities in uncertificated form, provided that such action shall not adversely
affect the interest of the Holders of the Debt Securities of any series in any
material respect; (v) to change or eliminate any provisions of the Indenture,
provided that any such change or elimination shall become effective only when
there are no Debt Securities Outstanding of any series created prior thereto
which are entitled to the benefit of such provisions; (vi) to secure the Debt
Securities; (vii) to establish the form or terms of Debt Securities of any
series, including the provisions and procedures, if applicable, for the
conversion of such Debt Securities into Common Stock or Preferred Stock of the
Company; (viii) to provide for the acceptance of appointment by a successor
Trustee or facilitate the administration of the trusts under the Indenture by
more than one Trustee; (ix) to cure any ambiguity, correct or supplement any
provision which may be defective or inconsistent or make any other provisions
with respect to matters or questions arising under the Indenture, provided that
such action shall not adversely affect the interests of Holders of Debt
Securities of any series in any material respect; or (x) to supplement any of
the provisions of the Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities, provided that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect (Section 9.1).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof; (ii) the principal amount
of a Debt Security denominated in a Foreign Currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above); (iii) the
principal amount of an Indexed Security that shall be deemed outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to
Section 3.1 of the Indenture; and (iv) Debt Securities owned by the Company or
any other obligor upon the Debt Securities or any Affiliate of the Company or
such other obligor shall be disregarded (Section 1.1).
The Indenture contains provisions for convening meetings of the Holders
of Debt Securities of a series (Section 15.1). A meeting may be called at any
time by the Trustee and also, upon request, by the Company or the Holders of at
least 10% in principal amount of the Outstanding Debt Securities of such
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series, in any such case upon notice given as provided in the Indenture (Section
15.2). Except for any consent that must be given by the Holder of each Debt
Security affected by certain modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present may be adopted by the affirmative vote of the Holders of a
majority in principal amount of the Outstanding Debt Securities of that series;
provided, however, that, except as referred to above any resolution with respect
to any request, demand, authorization, direction, notice, consent, waiver or
other action that may be made, given or taken by the Holders of a specified
percentage, which is less than a majority, in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of
the Holders of such specified percentage in principal amount of the Outstanding
Debt Securities of that series. Any resolution passed or decision taken at any
meeting of Holders of Debt Securities of any series duly held in accordance with
the Indenture will be binding on all Holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be Persons holding or representing a majority in principal amount
of the Outstanding Debt Securities of a series; provided, however, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the Holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 15.4).
Notwithstanding the foregoing provisions, if any action is to be taken
at a meeting of Holders of Debt Securities of any series with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that the Indenture expressly provides may be made, given or taken by the
Holders of a specified percentage in principal amount of all Outstanding Debt
Securities affected thereby, or of the Holders of such series and one or more
additional series: (i) there shall be no minimum quorum requirement for such
meeting; and (ii) the principal amount of the Outstanding Debt Securities of
such series that vote in favor of such request, demand, authorization,
direction, notice, consent, waiver or other action shall be taken into account
in determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under the
Indenture (Section 15.4).
Discharge, Defeasance and Covenant Defeasance
The Company may discharge certain obligations to Holders of any series
of Debt Securities that have not already been delivered to the Trustee for
cancellation and that either have become due and payable or will become due and
payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the Trustee, in trust, funds in such currency or
currencies, currency unit or units or composite currency or currencies in which
such Debt Securities are payable in an amount sufficient to pay the entire
indebtedness on such Debt Securities in respect of principal (and premium, if
any) and interest to the date of such deposit (if such Debt Securities have
become due and payable) or to the Stated Maturity or Redemption Date, as the
case may be (Section 4.1).
The Indenture provides that, if the provisions of Article Fourteen are
made applicable to the Debt Securities of or within any series pursuant to
Section 14.4 of the Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("Defeasance") (Section 14.2) or (b) to be released from its obligations with
respect to such Debt Securities under Section 10.4 to 10.10, inclusive, of the
Indenture (being the restrictions described under "Certain Covenants") or, if
provided pursuant to Section 3.1 of the Indenture, its obligations with respect
to any other covenant, and any omissions to comply with such obligations shall
not constitute a default or an Event of Default with respect to such Debt
Securities ("Covenant Defeasance") (Section 14.3), in either case upon the
irrevocable deposit by the Company with the Trustee, in trust, of an amount, in
such currency or currencies, currency unit or units or composite
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<PAGE>
currency or currencies in which such Debt Securities are payable at Stated
Maturity, or Governmental Obligations (as defined below), or both, applicable to
such Debt Securities which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest on such
Debt Securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the
Company has delivered to the Trustee an Opinion of Counsel (as specified in the
Indenture) to the effect that the Holders of such Debt Securities will not
recognize income, gain or loss for U.S. federal income tax purposes as a result
of such Defeasance or Covenant Defeasance and will be subject to U.S. federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Defeasance or Covenant Defeasance had not
occurred, and such Opinion of Counsel, in the case of Defeasance, must refer to
and be based upon a ruling of the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
Indenture (Section 14.4).
"Governmental Obligations" means securities which are (i) direct
obligations of the United States of America or the government which issued the
Foreign Currency in which the Debt Securities of a particular series are
payable, for the payment of which its full faith and credit is pledged or (ii)
obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which issued
the Foreign Currency in which the Debt Securities or such series are payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, which, in
either case, are not callable or redeemable at the option of the issuer thereof,
and shall also include a depository receipt issued by the bank or trust company
as custodian with respect to any such Government Obligation or a specific
payment of interest on or principal of any such Government Obligation held by
such custodian for the account of the holder of a depository receipt, provided
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the Government Obligation or
the specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt (Section 1.1).
Unless otherwise provided in the applicable Prospectus Supplement, if
after the Company has deposited funds and/or Government Obligations to effect
Defeasance or Covenant Defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 14.5 of the Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate (Section 14.5).
"Conversion Event" means the cessation of use of (i) a currency, currency unit
or composite currency both by the government of the country which issued such
currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities or
(iii) any currency unit or composite currency other than the ECU for the
purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium, if
any) and interest on any Debt Security that is payable in Foreign Currency that
ceases to be used by its government of issuance shall be made in U.S. dollars
(Section 1.1).
In the event the Company effects Covenant Defeasance with respect to
any Debt Securities and such Debt Securities are declared due and payable
because of the occurrence of any Event of Default
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<PAGE>
other than the Event of Default described in clause (d) under "Events of
Default, Notice and Waiver" with respect to Sections 10.4 to 10.10, inclusive,
of the Indenture (which Sections would no longer be applicable to such Debt
Securities) or described in clause (g) under "Events of Default, Notice and
Waiver" with respect to any other covenant as to which there has been Covenant
Defeasance, the amount in such currency, currency unit or composite currency in
which such Debt Securities are payable, and Government Obligations on deposit
with the Trustee, will be sufficient to pay amounts due on such Debt Securities
at the time of their Stated Maturity but may not be sufficient to pay amounts
due on such Debt Securities at the time of the acceleration resulting from such
Event of Default. However, the Company would remain liable to make payment of
such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the
provisions, if any, permitting such Defeasance or Covenant Defeasance, including
any modifications to the provision described above, with respect to the Debt
Securities of or within a particular series.
Conversion Rights
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock, Preferred Stock or Debt Securities of another
series will be set forth in the applicable Prospectus Supplement relating
thereto. Such terms will include whether such Debt Securities are convertible
into Common Stock, Preferred Stock or Debt Securities of another series, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the Holders or the
Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities. To protect the Company's status as a REIT, a Holder may not convert
any Debt Security, and such Debt Security shall not be convertible by any
Holder, if as a result of such conversion any person would then be deemed to
own, directly or indirectly, more than 9.8% of the Company's capital stock.
Global Securities
The Debt Securities of a series may be issued in whole or in part in
the form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depository (the "Depository") identified in
the applicable Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer from and in either temporary or
permanent form. The specific terms of the depository arrangement with respect to
a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery as such securities in
definitive form. Such laws may impair the ability to transfer beneficial
interests in Debt Securities represented by Global Securities.
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<PAGE>
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Debt
Securities, Preferred Stock or Common Stock. Securities Warrants may be issued
independently or together with any other Offered Securities offered by any
Prospectus Supplement and may be attached to or separate from such Offered
Securities. Each series of Securities Warrants will be issued under a separate
warrant agreement (each, a "Warrant Agreement") to be entered into between the
Company and a warrant agent specified in the applicable Prospectus Supplement
(the "Warrant Agent"). The Warrant Agent will act solely as an agent of the
Company in connection with the Securities Warrants of such series and will not
assume any obligations or relationship of agency or trust for or with any
holders or beneficial owners of Securities Warrants. The following summaries of
certain provisions of the Warrant Agreement and the Securities Warrants do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of the Warrant Agreement and the Securities
Warrant certificates relating to each series of Securities Warrants which will
be filed with the Commission and incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part at or prior to the
time of the issuance of such series of Securities Warrants.
If Securities Warrants are offered, the applicable Prospectus
Supplement will describe the terms of the Securities Warrants, including, in the
case of Securities Warrants for the purchase of Debt Securities, the following
where applicable: (i) the offering price; (ii) the denominations and terms of
the series of Debt Securities purchasable upon exercise of such Securities
Warrants; (ii) the designation and terms of any series of Debt Securities with
which such Securities Warrants are being offered and the number of such
Securities Warrants being offered with such Debt Securities; (iv) the date, if
any, on and after which such Securities Warrants and the related series of Debt
Securities will be transferable separately; (v) the principal amount of the
series of Debt Securities purchasable upon exercise of each such Securities
Warrant and the price at which such principal amount of Debt Securities shall be
purchasable; (vi) the date on which the right to exercise such Securities
Warrants shall commence and the date on which such right shall expire (the
"Expiration Date"); (vii) whether the Securities Warrants will be issued in
registered or bearer form; (viii) all material U.S. federal income tax
consequences; (ix) the terms, if any, on which the Company may accelerate the
date by which the Securities Warrants must be exercised; and (x) any other
material terms of such Securities Warrants.
In the case of Securities Warrants for the purchase of Preferred Stock
or Common Stock, the applicable Prospectus Supplement will describe the terms of
such Securities Warrants, including the following where applicable: (i) the
offering price; (ii) the aggregate number of shares purchasable upon exercise of
such Securities Warrants, the exercise price, and in the case of Securities
Warrants for Preferred Stock, the designation, aggregate number and terms of the
series of Preferred Stock purchasable upon exercise of such Securities Warrants;
(iii) the designation and terms of any series of Preferred Stock with which such
Securities Warrants are being offered and the number of such Securities Warrants
being offered with such Preferred Stock; (iv) the date, if any, on and after
which such Securities Warrants and the related series of Preferred Stock or
Common Stock will be transferable separately; (v) the date on which the right to
exercise such Securities Warrants shall commence and the Expiration Date; (vi)
any special U.S. federal income tax consequences; and (vii) any other material
terms of such Securities Warrants.
Securities Warrant certificates may be exchanged for new Securities
Warrant certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Securities Warrant Agent or any other office indicated in
the applicable Prospectus Supplement. Prior to the exercise of any Securities
Warrant to purchase Debt Securities, holders of such Securities Warrants will
not have any of the rights of holders of the Debt Securities purchasable upon
such exercise, including the right to receive payments of principal, premium, if
any, or interest, if any, on such Debt Securities or to enforce covenants in the
applicable indenture. Prior to the exercise of any Securities Warrants to
purchase Preferred Stock or Common Stock, holders of such Securities Warrants
will not have any of the rights of holders of the Preferred Stock or Common
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<PAGE>
Stock purchasable upon such exercise, including the right to receive payments of
dividends, if any, on such Preferred Stock or Common Stock, or to exercise any
applicable right to vote.
Exercise of Securities Warrants
Each Securities Warrant will entitle the holder thereof to purchase
such principal amount of Debt Securities or number of shares of Preferred Stock
or Common Stock, as the case may be, at such exercise price as shall in each
case be set forth in, or calculable from, the Prospectus Supplement relating to
the offered Securities Warrants. After the close of business on the Expiration
Date (or such later date to which such Expiration Date may be extended by the
Company), unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to the Warrant Agent
payment as provided in the applicable Prospectus Supplement of the amount
required to purchase the Debt Securities, Preferred Stock or Common Stock, as
the case may be, purchasable upon such exercise together with certain
information set forth on the reverse side of the Securities Warrant certificate.
Securities Warrants will be deemed to have been exercised upon receipt of
payment of the exercise price, subject to the receipt within five business days
of the Securities Warrant certificate evidencing such Securities Warrants. Upon
receipt of such payment and the Securities Warrant certificate properly
completed and duly executed at the corporate trust office of the Warrant Agent
or any other office indicated in the applicable Prospectus Supplement, the
Company will, as soon as practicable, issue and deliver the Debt Securities,
Preferred Stock or Common Stock, as the case may be, purchasable upon such
exercise. If fewer than all of the Securities Warrants represented by such
Securities Warrant certificate are exercised, a new Securities Warrant
certificate will be issued for the remaining amount of Securities Warrants.
Amendments and Supplements to Warrant Agreement
The Warrant Agreement(s) may be amended or supplemented without consent
of the holders of the Securities Warrants issued thereunder to effect changes
that are not inconsistent with the provisions of the Securities Warrants and
that do not adversely affect the interests of the holders of the Securities
Warrants.
Adjustments
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of shares of Common Stock covered by, a Common
Stock Warrant are subject to adjustment in certain events, including (i) payment
of a dividend on the Common Stock payable in shares of Common Stock and stock
splits, combinations or reclassifications of Common Stock; (ii) issuance to all
holders of Common Stock of rights or warrants to subscribe for or purchase
shares of Common Stock at less than their current market price (as defined in
the Warrant Agreement for such series of Common Stock Warrants); and (iii)
certain distributions of evidences of indebtedness or assets (including
securities but excluding cash dividends or distributions paid out of
consolidated earnings or retained earnings or dividends payable in Common Stock)
or of subscription rights and warrants (excluding those referred to above).
No adjustment in the exercise price of, and the number of shares of
Common Stock covered by, a Common Stock Warrant will be made for regular or
quarterly or other periodic or recurring cash dividends or distributions or for
cash dividends or distributions to the extent paid from consolidated earnings or
retained earnings. No adjustment will be required unless such adjustment would
require a change of at least 1% in the exercise price then in effect. Except as
stated above, the exercise price of, and the number of shares of Common Stock
covered by, a Common Stock Warrant will not be adjusted for the issuance of
shares of Common Stock or any securities convertible into or exchangeable for
shares of Common Stock, or carrying the right or option to purchase or otherwise
acquire the foregoing, in exchange for cash, other property or services.
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<PAGE>
In the event of any (i) consolidation or merger of the Company with or
into any entity (other than a consolidation or merger that does not result in
any reclassification, conversion, exchange or cancellation of outstanding shares
of Common Stock); ((ii) sale, transfer, lease or conveyance of all or
substantially all of the assets of the Company; or (iii) reclassification,
capital reorganization or change of the Common Stock (other than solely a change
in par value or from par value to no par value), then any holder of a Common
Stock Warrant will be entitled, on or after the occurrence of any such event, to
receive on exercise of such Common Stock Warrant the kind and amount of shares
of stock or other securities, cash or other property (or any combination
thereof) that the holder would have received had such holder exercised such
holder's Common Stock Warrant immediately prior to the occurrence of such event.
If the consideration to be received upon exercise of the Common Stock Warrant
following any such event consists of common stock of the surviving entity, then
from and after the occurrence of such event, the exercise price of such Common
Stock Warrant will be subject to the same anti-dilution and other adjustments
described in the second preceding paragraph, applied as if such common stock
were Common Stock.
PLAN OF DISTRIBUTION
The Offered Securities may be sold (i) through agents, (ii) through
underwriters, (iii) through dealers or (iv) directly to purchasers (through a
specific bidding or auction process or otherwise). The distribution of Offered
Securities may be effected from time to time in one or more transactions at a
fixed price or prices, which may be changed, or at market prices prevailing at
the time of sale, at prices relating to such prevailing market prices or at
negotiated prices.
Offers to purchase the Offered Securities may be solicited by agents
designated by the Company from time to time. Any such agent involved in the
offer or sale of the Offered Securities will be named, and any commissions
payable by the Company to such agent will be set forth, in the Prospectus
Supplement. Unless otherwise indicated in the Prospectus Supplement, any such
agent will be acting on a best efforts basis for the period of its appointment.
Any such agent may be deemed to be an underwriter, as that term is defined in
the Securities Act, of the Offered Securities so offered and sold.
If an underwriter or underwriters are utilized in the sale of Offered
Securities, the Company will execute an underwriting agreement with such
underwriters at the time an agreement for such sale is reached, and the names of
the specific managing underwriter or underwriters, as well as any other
underwriters, and the terms of the transactions including compensation of the
underwriters and dealers, if any, will be set forth in the Prospectus
Supplement, which will be used by the underwriters to make resales of the
Offered Securities.
If a dealer is utilized in the sale of the Offered Securities, the
Company will sell such Offered Securities to the dealer, as principal. The
dealer may then resell such Offered Securities to the public at varying prices
to be determined by such dealer at the time of resale. The name of the dealer
and the terms of the transactions will be set forth in the Prospectus Supplement
relating thereto.
Offers to purchase the Offered Securities may be solicited directly by
the Company and sales thereof may be made by the Company directly to
institutional investors or others. The terms of any such sales, including the
terms of any bidding or auction prices, if utilized, will be described in the
Prospectus Supplement relating thereto.
Agents, underwriters and dealers may be entitled under agreements which
may be entered into with the Company to indemnification by the Company against
certain liabilities under the Securities Act, and any such agents, underwriters
or dealers, or their affiliates, may be customers of, engage in transactions
with or perform services for the Company in the ordinary course of business.
If so indicated in the Prospectus Supplement, the Company will
authorize agents and underwriters to solicit offers by certain institutions to
purchase Debt Securities from the Company at the public offering
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<PAGE>
price set forth in the Prospectus Supplement pursuant to Delayed Delivery
Contracts ("Contracts") providing for payment and delivery on the date stated in
the Prospectus Supplement. Such Contracts will be subject to only those
conditions set forth in the Prospectus Supplement. A commission indicated in the
Prospectus Supplement will be paid to underwriters and agents soliciting
purchases of Debt Securities pursuant to Contracts accepted by the Company.
EXPERTS
The Consolidated Financial Statements of Berkshire Realty Company, Inc.
and its subsidiaries included in the Report on Form 10-K of the Company for the
fiscal year ended December 31, 1996, referred to above have been audited by
Coopers & Lybrand L.L.P., independent accountants, as set forth in their report
dated February 13, 1997 accompanying such financial statements, except for Note
Q, for which the date is February 28, 1997, and are incorporated herein by
reference in reliance upon the report of such firm, which report is given upon
their authority as experts in auditing and accounting.
Any financial statements and schedules hereafter incorporated by
reference in the Registration Statement of which this Prospectus is a part that
have been audited and are the subject of a report by independent accountants
will be so incorporated by reference in reliance upon such reports and upon the
authority of such firms as experts in accounting and auditing to the extent
covered by consents filed with the Commission.
LEGAL MATTERS
The validity of the issuance of the Offered Securities will be passed
upon for the Company by Peabody & Brown, Boston, Massachusetts.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Registration fee to the SEC .................... $121,212
Printing expense................................ 3,000
Accounting fees and expenses.................... 10,000
Legal fees and expenses......................... 25,000
Miscellaneous expenses.......................... 3,000
Total........................................... $162,212
All fees and expenses are estimates except for the registration fee
to the SEC.
Item 15. Indemnification of Directors and Officers.
The Certificate of the Company provides for indemnification of the
Company's officers and Directors to the fullest extent permitted by Sections 145
and 102(b)(7) of the Delaware General Corporation Law and relieves the Directors
of certain monetary liabilities to the Company and its shareholders. In general,
Delaware law permits the Company to indemnify its officers and Directors so long
as they act in good faith and in a manner reasonably believed by them to be in,
or not opposed to, the best interests of the Company. Subject to the provisions
of Sections 145 and 102(b)(7) of the Delaware General Corporation Law, the
Company intends to indemnify its officers and Directors against losses,
liabilities and expenses (including attorneys' fees) incurred by them that are
related to their being officers or Directors of the Company.
The Company has purchased director and officer liability insurance for
the purpose of providing a source of funds to pay any indemnification described
above.
Item 16. Exhibits
Exhibit Numbers Description
--------------- -----------
*1.1 Form of Underwriting Agreement (for Common Stock)
*1.2 Form of Underwriting Agreement (for Preferred Stock)
*1.3 Form of Underwriting Agreement (for Debt Securities)
**4.1 Restated Certificate of Incorporation of the
Company, as amended, incorporated by reference
to Exhibit 3.1 to the Company's Registration
Statement on Form S-4 and Exhibit 3.11 to
Post-Effective Amendment No. 1 thereto (File
No. 33-37592).
4.2 Certificate of Designation, Preferences and
Rights Designating 2,737,000 shares
of Preferred Stock
**4.3 By-Laws of the Company, as amended,
incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1993 and Exhibit 3.4 to
the Annual Report on Form 10-K for the year
ended December 31, 1995 (File No. 1-10660).
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<PAGE>
4.4 Amendments to the By-Laws of the Company
adopted September 18, 1997
**4.5 Form of Common Stock Certificate, incorporated
by reference to Exhibit 4.5 to the Company's
registration statement on Form S-4 (No. 33-37592),
dated November 2, 1990, as amended
**4.6 Form of Indenture governing Debt Securities
*4.7 Form of Debt Security
*4.8 Form of Securities Warrant Agreement
*4.9 Form of Certificate of Designations with respect
to Preferences, Conversion and Other Rights of
Preferred Stock
* 4.10 Form of Preferred Stock Certificate
**5.1 Opinion Regarding Legality
**12.1 Statements regarding computation of ratios
**23.1 Consent of Coopers & Lybrand L.L.P.
**23.2 Consent of Peabody & Brown (included in Exhibit 5.1)
**24 Power of Attorney (included on the Signature Page to the
initial filing of this Registration Statement)
*26.1 Form T-1 Statement of Eligibility and Qualification
- ---------------------------
* To be filed by post-effective amendment or by a current report on Form 8-K
pursuant to the Securities Exchange Act of 1934, as appropriate.
** Previously filed.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or most recent
post-effective amendment thereof) which, individually, or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
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<PAGE>
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
Registration Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed 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 of 1933, 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) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the Trustee to act
under subsection (a) of Section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
(c) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant for 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 Act and will
be governed by the final adjudication of such issue.
(e) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, 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.
(2) For the purpose of determining any liability under the
Securities Act of 1933, 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.
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<PAGE>
SIGNATURES
Pursuant to the requirement 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 Amendment
No. 1 to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Boston, Massachusetts, on October 3,
1997.
BERKSHIRE REALTY COMPANY, INC.
By: David F. Marshall
-----------------------------------
David F. Marshall President, Chief Executive
Officer and Director of Berkshire Realty
Company, Inc.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Douglas Krupp* Chairman of the Board and Director of Berkshire October 3, 1997
- -------------------------------- Realty Company, Inc.
Douglas Krupp
David F. Marshall* President, Chief Executive Officer and Director October 3, 1997
- -------------------------------- of Berkshire Realty Company, Inc.
David F. Marshall
Marianne Pritchard* Senior Vice President and Chief Financial October 3, 1997
- -------------------------------- Officer of Berkshire Realty Company, Inc.
Marianne Pritchard
J. Paul Finnegan* Director of Berkshire Realty Company, Inc. October 3, 1997
- --------------------------------
J. Paul Finnegan
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Laurence Gerber* Director of Berkshire Realty Company, Inc. October 3, 1997
- --------------------------------
Laurence Gerber
Charles N. Goldberg* Director of Berkshire Realty Company, Inc. October 3, 1997
- --------------------------------
Charles N. Goldberg
E. Robert Roskind* Director of Berkshire Realty Company, Inc. October 3, 1997
- --------------------------------
E. Robert Roskind
David M. deWilde* Director of Berkshire Realty Company, Inc. October 3, 1997
- --------------------------------
David M. deWilde
</TABLE>
*By: David F. Marshall
-----------------------------------
David F. Marshall, Attorney-in-Fact
-43-
<PAGE>
Exhibit Index to Registration Statement on Form S-3
The following exhibits are filed as part of this Registration Statement on Form
S-3.
Exhibit Numbers Description
--------------- -----------
*1.1 Form of Underwriting Agreement (for Common Stock)
*1.2 Form of Underwriting Agreement (for Preferred Stock)
*1.3 Form of Underwriting Agreement (for Debt Securities)
**4.1 Restated Certificate of Incorporation of the Company, as
amended, incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-4 and Exhibit
3.11 to Post-Effective Amendment No. 1 thereto (File No.
33-37592).
4.2 Certificate of Designation, Preferences and Rights
Designating 2,737,000 shares of Preferred Stock
**4.3 By-Laws of the Company, as amended, incorporated by
reference to Exhibit 3.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993 and Exhibit
3.4 to the Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-10660).
4.4 Amendments to the By-Laws of the Company adopted September
18, 1997
**4.5 Form of Common Stock Certificate, incorporated by
reference to Exhibit 4.5 to the Company's registration
statement on Form S-4 (No. 33-37592), dated November 2,
1990, as amended
**4.6 Form of Indenture governing Debt Securities
*4.7 Form of Debt Security
*4.8 Form of Securities Warrant Agreement
*4.9 Form of Certificate of Designations with respect to
Preferences, Conversion and Other Rights of Preferred
Stock
*4.10 Form of Preferred Stock Certificate
**5.1 Opinion Regarding Legality
**12.1 Statements regarding computation of ratios
**23.1 Consent of Coopers & Lybrand L.L.P.
**23.2 Consent of Peabody & Brown (included in Exhibit 5.1)
**24 Power of Attorney (included on the Signature Page to the
initial filing of this Registration Statement)
*26.1 Form T-1 Statement of Eligibility and Qualification
-44-
<PAGE>
- ---------------------------
* To be filed by post-effective amendment or by a current report on Form 8-K
pursuant to the Securities Exchange Act of 1934, as appropriate.
** Previously filed.
-45-
BERKSHIRE REALTY COMPANY, INC.
CERTIFICATE OF DESIGNATION
Designating 2,737,000 shares of Preferred Stock
as 2,737,000 shares of
SERIES A CONVERTIBLE PREFERRED STOCK
(par value $0.01 per share)
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Berkshire Realty Company, Inc., a corporation organized and existing
under the laws of Delaware (the "Corporation"), does hereby certify that:
Pursuant to the authority contained in Article IV of the Restated
Certificate of Incorporation of the Corporation, as amended (the "Charter"), and
in accordance with the provisions of Section 151 of the General Corporation Law
of the State of Delaware (the "DGCL"), the Board of Directors of the Corporation
duly adopted the following resolution creating a series of the Preferred Stock,
par value $.01 (the "Preferred Stock"), designated as Series A Convertible
Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred
Stock, par value $.01, of the Company be hereby created, and that the
designation and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations and restrictions thereof are as follows:
Section 1. Designation, Amount and Price.
Of the 60,000,000 authorized shares of Preferred Stock,
2,737,000 shares are designated Series A Convertible Preferred Stock (the
"Series A Convertible Preferred Stock").
Section 2. Dividends and Distributions.
(a) Holders of shares of Series A Convertible Preferred Stock
will be entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the payment of dividends, cumulative
quarterly cash dividends (rounded up to the nearest whole cent) equal to the
greater of (i) 2.25% of $25.00 per share (such $25.00, the "Stated Value"), and
(ii) the per share Common Stock Dividend Amount, payable in each case in arrears
on March 31, June 30, September 30 and December 31 of each year, commencing on
the first such day after the issuance of a share of Series A Convertible
Preferred Stock (each a "Dividend Payment Date"). The "Common Stock Dividend
Amount" applicable as of any Dividend Payment Date shall mean the amount which
is the product of (i) the dollar amount of the dividend paid per share of Common
Stock on the dividend payment date with respect to the shares of Common Stock
(other than a distribution payable solely in shares of Common Stock) which
occurs on such Dividend Payment Date or, if no such dividend payment date occurs
on such Dividend Payment Date, the dividend payment date with respect to the
shares of Common Stock next preceding such Dividend Payment Date and (ii) the
number of shares of Common Stock into which each share of Series A Convertible
Preferred Stock is entitled to be converted, at the Conversion Price then in
effect and otherwise as set forth in this Certificate of Designation, as of the
record date established for such Dividend Payment Date (determined, for purposes
of this computation, to the fourth decimal place). Such dividends will accrue
daily on the basis of a 360-day year of twelve 30-day months, and will, to the
extent not paid in full on a Dividend Payment Date, compound quarterly at a rate
of 2.25% per quarter, whether or not the Corporation has earnings or surplus.
The dividend payable to a holder of a share of Series A Convertible Preferred
Stock on the first Dividend Payment Date after the share is issued will be the
accrued dividend calculated from the day the share is issued to such
<PAGE>
Dividend Payment Date. If any Dividend Payment Date is not a Business Day, the
dividend due on that Dividend Payment Date will be paid on the Business Day
immediately succeeding that Dividend Payment Date. Each Dividend Payment Date
will be on a date which is the date fixed for payment of dividends with respect
to the shares of Common Stock or is not more than five Business Days after the
date fixed for payment of dividends with respect to the shares of Common Stock.
As used with regard to the Series A Convertible Preferred Stock, the term
"Business Day" means a day on which both state and federally chartered banks in
New York, New York are required to be open for general banking business, and all
accrued and compounded dividends together with all accrued but not yet due
dividends (whether or not declared or authorized) are referred to as "Accrued
Dividends."
(b) Each dividend will be payable to holders of record of the
Series A Convertible Preferred Stock on a date (a "Record Date") selected by the
Board of Directors which is not less than 10 nor more than 45 days before the
Dividend Payment Date on which the dividend is to be paid. No Record Date will
precede the close of business on the date the Record Date is fixed.
(c) Unless and until all Accrued Dividends on the Series A
Convertible Preferred Stock under Section 2(a) through the last preceding
Dividend Payment Date have been paid, the Corporation may not (i) declare or pay
any dividend, make any distribution (other than a distribution payable solely in
shares of Common Stock), or set aside any funds or assets for payment or
distribution with regard to any Junior Shares (as herein defined), (ii) redeem
or purchase (directly or through the Operating Partnership or Subsidiaries), or
set aside any funds or other assets for the redemption or purchase of, any
Junior Shares or (iii) authorize, take or cause or permit to be taken any action
of the general partner of the Operating Partnership, that will result in (A) the
declaration or payment by the Operating Partnership (defined below) of any
distribution to its partners (other than distributions made concurrently with
distributions payable to the Corporation in respect of its partnership interest
that will be used by the Corporation to fund the payment of dividends on the
Series A Convertible Preferred Stock (such distributions to the Corporation
being referred to as "Authorized LP Distributions")), or set aside any funds or
assets for payment of any distributions to its partners (other than those made
concurrently with Authorized LP Distributions) or (B) the redemption or purchase
(directly or through the Operating Partnership or Subsidiaries), or the setting
aside of any funds or other assets for the redemption or purchase of, any
partnership interests in the Operating Partnership, except for conversions of
partnership interests in the Operating Partnership in the ordinary course into
shares of Common Stock. As used with regard to the Series A Convertible
Preferred Stock, the term "Junior Shares" means all shares of Common Stock and
all shares of any other class or series of stock of the Corporation to which the
shares of Series A Convertible Preferred Stock are prior in rank with regard to
payment of dividends or payments upon the liquidation, dissolution or winding-up
of the Corporation; the term "Operating Partnership" means BRI OP Limited
Partnership, a Delaware limited partnership, or any successor thereto; and the
term "Subsidiary" means any Person in which the Company directly or indirectly
owns any equity interest. As used herein, "Person" shall mean an individual,
partnership, corporation, limited liability company, business trust, joint stock
company, trust, unincorporated association, joint venture, nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government or other entity of whatever nature.
(d) While any shares of Series A Convertible Preferred Stock
are outstanding, the Corporation may not pay any dividend, or set aside any
funds for the payment of a dividend, with regard to any shares of any class or
series of stock of the Corporation which ranks on a parity with Series A
Convertible Preferred Stock as to payment of dividends unless at least a
proportionate payment is made with regard to all Accrued Dividends on the Series
A Convertible Preferred Stock (except, as to any shares of the Series A
Convertible Preferred Stock as to which a notice of conversion has been
furnished by the holder thereof, at the effective time of conversion). A payment
of dividends with regard to the Series A Convertible Preferred Stock will be
proportionate to a payment of a dividend with regard to another class or series
of stock if the dividend per share of Series A Convertible Preferred Stock is
the same percentage of the Accrued Dividends (except as aforesaid) with regard
to a share of Series A Convertible Preferred Stock that the dividend paid with
regard to a share of stock of the other class or series is of the Accrued
Dividends (except as aforesaid) with regard to a share of stock of that other
class or series.
(e) Any dividend paid with regard to shares of Series A
Convertible Preferred Stock will be paid equally with regard to each outstanding
share of Series A Convertible Preferred Stock, except to the extent that
2
<PAGE>
shares of Series A Convertible Preferred Stock are outstanding for differing
amounts of time during the relevant dividend period.
Section 3. Voting Rights.
The voting rights of the holders of shares of Series A
Convertible Preferred Stock will be only the following:
(a) The holders of shares of Series A Convertible Preferred
Stock will have the right to vote on all matters on which the holders of Common
Stock are entitled to vote on an "as converted" basis with holders of shares of
the Common Stock, as though part of the same class as holders of Common Stock,
with such number of shares of Common Stock deemed held of record by holders of
shares of Series A Convertible Preferred Stock on any Record Date as would be
the number of shares of Common Stock into which the shares of Series A
Convertible Preferred Stock held by such holder would be entitled to be
converted on such Record Date. The holders of shares of Series A Convertible
Preferred Stock shall receive all notices of meetings of the holders of shares
of Common Stock, and all other notices and correspondence to the holders of
shares of Common Stock provided by the Corporation, and shall be entitled to
take such actions, and shall have such rights, as are set forth in this
Certificate of Designation or are otherwise available to the holders of shares
of Common Stock in the Charter and in the By-laws of the Corporation as are in
effect on the date hereof, in each case with the same effect as would be taken
by holders of Series A Convertible Preferred Stock if deemed to be holders of
such number of shares of Common Stock as determined as aforesaid.
(b) While any shares of Series A Convertible Preferred Stock
are outstanding, the Corporation will not, directly or indirectly, including
through a merger or consolidation with any other corporation or otherwise,
without approval of holders of at least a majority of the outstanding shares of
Series A Convertible Preferred Stock, voting separately as a class, (i) issue
any shares of Series A Convertible Preferred Stock except pursuant to that
certain Stock Purchase Agreement dated as of September 19, 1997, by and among
the Corporation, Westbrook Berkshire Holdings, L.L.C., and Westbrook Real Estate
Fund II, L.P., or increase the number of authorized shares of Series A
Convertible Preferred Stock; (ii) combine, split or reclassify the outstanding
shares of Series A Convertible Preferred Stock into a smaller or larger number
of shares; (iii) exchange or convert any shares of Series A Convertible
Preferred Stock for other securities or the right to receive cash, or propose or
require an exchange or conversion other than as provided in this Certificate of
Designation, or reclassify any shares of Series A Convertible Preferred Stock,
or to authorize, create, classify, reclassify or issue any class or series of
stock ranking prior to or on a parity with the Series A Convertible Preferred
Stock either as to dividends or upon liquidation, dissolution or winding-up of
the Corporation or as to the rights of the Series A Convertible Preferred Stock
set forth in this Section 3; (iv) amend, alter or repeal, or permit to be
amended, altered or repealed, the following provisions of the By-laws of the
Corporation: Article I, Section 8, Article II, Section 2 and Article VI, Section
7 or 9 or (v) amend, alter or repeal, or permit to be amended, altered or
repealed, any of the provisions of the Charter, this Certificate of Designation,
the By-laws of the Corporation, the agreement of limited partnership of the
Operating Partnership, or any organizational document of any Subsidiary, in such
a manner as would affect adversely the preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends and other
distributions, qualifications and terms and conditions of redemption of (A) the
Series A Convertible Preferred Stock (including, without limitation, taking any
such action the result of which could be to alter the manner or rate of exchange
of partnership interests in the Operating Partnership for securities of the
Corporation as in effect on the date hereof) or, (B) in the case of a proposed
amendment to the agreement of limited partnership of the Operating Partnership,
or any organizational document of any Subsidiary, in such a manner as would
affect adversely the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends and other distributions, and
qualifications of the holders of shares of the Series A Convertible Preferred
Stock or the Common Stock and the shares of Series A Convertible Preferred
Stock, considered as a whole.
(c) Until March 19, 1999, and for so long thereafter as there
shall be outstanding a number of shares of Series A Convertible Preferred Stock
not less than 29% of the shares of Series A Convertible Preferred Stock issued
by the Corporation to Westbrook Berkshire Holdings, L.L.C., the Corporation will
not, directly or indirectly, including through a merger or consolidation with
any other corporation or otherwise, without the approval
3
<PAGE>
of the holders of not less than a majority of the outstanding shares of the
Series A Convertible Preferred Stock, voting separately as a class, propose,
authorize, take, or cause to be taken or allow to occur any of the following
actions: (i) the Transfer (as defined below) of the record or beneficial
ownership of any interest in Berkshire Apartments, Inc., the Transfer by
Berkshire Apartments, Inc. to a third party of the right to exercise all or a
portion of its rights as the general partner of the Operating Partnership, or
the Transfer in a single transaction or series of transactions of the assets of
the Corporation, the Operating Partnership and the Subsidiaries, considered as a
whole, including for such purpose any Person (except that, with respect to any
such Person in which the Corporation or the Operating Partnership has a direct
or indirect minority interest such that a sale, transfer or assignment is not
within the Corporation's or Operating Partnership's control, and is not
otherwise a part of the transaction or series of transactions otherwise
occurring, this provision shall not apply) owned directly or indirectly by the
Corporation to the extent of the Corporation's attributed interest in such other
Person, having a fair market value (based on the value of the total
consideration of each such transaction, including, without limitation, any debt
assumed by any purchaser in connection therewith) in excess of 10% of the
Corporation Market Capitalization within any 90-day period or 20% of the
Corporation Market Capitalization within any 360-day period, (ii) the
Corporation's termination of the election, or the taking of any action by the
Corporation which would cause termination other than by election, of the
Corporation as a real estate investment trust under the Internal Revenue Code of
1986, as amended, (iii) any alteration in the Corporation's or the Operating
Partnership's business, or the business of the Corporation, the Operating
Partnership and the Subsidiaries, considered as a whole, such that real estate
assets owned directly or indirectly by the Corporation are, on a square foot
basis, less than 90% invested in multifamily residential properties; or (iv) the
Transfer on or before September 19, 1998, of more than 30% of the Common Stock
or units of the Operating Partnership held directly or indirectly, of record or
beneficially, by any of Douglas Krupp or David Marshall, as of the date hereof,
by any of such Persons. There shall be excluded from the transactions requiring
approval of not less than a majority of the outstanding shares of Series A
Convertible Preferred Stock, as set forth in clause (i) of this Section 3(c),
the (a) public market trading of shares of Common Stock in unsolicited
transactions, (b) sale of Common Stock or other securities of the Corporation in
any underwritten, widely distributed offering and (c) a transaction which is of
the nature described in and subject to Section 4(a)(iii) of this Certificate of
Designation. There shall be excluded from the transactions requiring approval of
not less than a majority of the outstanding shares of Series A Convertible
Preferred Stock, as set forth in clause (iv) of this Section 3(c), any Transfer,
as to any said Person, which occurs solely and directly as a result of the death
or proceedings in divorce of such Person. As used herein, "Corporation Market
Capitalization" is the total market capitalization of the Corporation determined
by reference to (determined based upon the Current Market Price, as defined in
Section 5(e)(viii) of this Certificate of Designation) (i) outstanding (assuming
for this purpose the exercise of all then outstanding warrants or other rights
to acquire Common Stock, and the conversion of all other Common Stock
equivalents not otherwise referenced below) shares of Common Stock, (ii)
outstanding shares of Series A Convertible Preferred Stock (determined as the
quotient of (x) the product of (A) the Current Market Price of a share of Common
Stock and (B) the aggregate Stated Value and Accrued Dividends of all
outstanding shares of Series A Convertible Preferred Stock, and (y) the
Conversion Price then in effect), and (iii) all partnership and other interests
in the Operating Partnership and the other Subsidiaries held by Persons (other
than the Company and the Subsidiaries) (assuming for this purpose the exchange
or conversion of all such third-Person partnership and other interests in the
Operating Partnership or other Subsidiaries for shares of Common Stock), plus
total consolidated and unconsolidated debt of the Corporation, the Operating
Partnership and the other Subsidiaries, but excluding (i) all nonrecourse
consolidated debt in excess of the Corporation's proportionate share of such
debt and (ii) all nonrecourse unconsolidated debt of partnerships of which the
Corporation is directly or indirectly a limited partner. As used herein,
"Transfer" means any sale, transfer by operation of law or otherwise,
assignment, disposition or arrangement, whether voluntary or involuntary, which
has the effect, directly or indirectly, of altering the holding of or causing or
permitting another Person to succeed to, any voting control or economic
interest, whether beneficial or of record or both, including any arrangement for
collateral purposes only, or which could, with the passage of time or the
occurrence of any event, or both, have such effect.
(d) The holders of shares of Series A Convertible Preferred
Stock, voting as a separate class, shall be entitled at all times and at any
time to elect one director (the "Series A Preferred Director") to the Board of
Directors of the Corporation (the "Board"); provided, however, that the size of
the Board shall not be increased above nine at any time unless Westbrook Real
Estate Fund II, L.P. shall be entitled to elect or appoint that number of
directors to such expanded Board that will permit ERISA counsel to Westbrook
Real Estate Fund II, L.P. to
4
<PAGE>
confirm that Westbrook Berkshire Holdings, L.L.C.'s investment in the Series A
Convertible Preferred Stock will continue to qualify as a "venture capital
investment" under the plan asset rules and regulations promulgated under and the
provisions of the Employee Retirement Income Security Act of 1974, as amended,
or any successor thereto. The Series A Preferred Director, who has been elected
by the Board and agreed to serve until his successor is elected and qualified,
is Paul D. Kazilionis, who shall be considered a "third class" director in
accordance with Article II, Section 2(b) of the Bylaws of the Corporation (as
amended to the date hereof), and who shall sit as he may request on each
committee of the Board (other than the executive committee of the Board) or on
any other group so acting, whether or not formally constituted as a committee of
the Board. In the event that the Series A Preferred Director is unable to attend
any meeting of the Board for any reason, then such Series A Preferred Director
may designate, in writing, one person (the "Observer") who shall have the right
to attend, but not vote at, such meeting. The Observer shall not be deemed to be
a member of the Board of Directors and shall have none of the rights, duties,
privileges or powers of a member of the Board of Directors, including, without
limitation, the right to notice of or to vote at meetings of the Board of
Directors, and shall not be counted as a member of the Board of Directors for
the purpose of determining whether a quorum is present at any meeting of the
Board of Directors. The Series A Preferred Director from time to time sitting as
a member of the Board may be removed by the holders of record of not less than a
majority of the outstanding shares of Series A Convertible Preferred Stock and,
if so removed, a successor individual to serve as the Series A Preferred
Director may be appointed by the holders of record of not less than a majority
of the outstanding shares of Series A Convertible Preferred Stock. At any annual
meeting of the holders of Common Stock at which "third class" directors are to
be elected, the incumbent Series A Preferred Director shall be nominated and,
upon the affirmative vote of not less than a majority of the holders of shares
of Series A Convertible Preferred Stock, shall be elected to serve as the Series
A Preferred Director. Upon the occurrence of a "Preferred Default" (defined
below), (i) the number of members of the entire Board (as if there were no
vacancies or unfilled newly-created directorships thereon) shall be
automatically increased such that the holders of the Series A Convertible
Preferred Stock shall be entitled to elect, when considered with the Series A
Preferred Director, a number of directors of the Corporation equivalent to the
smallest number representing a majority of the number of members of the entire
Board as if there were no vacancies or unfilled newly created directorships on
such Board, and (ii) the holders of shares of Series A Convertible Preferred
Stock, voting as a separate class, shall be entitled, at each annual meeting of
stockholders of the Corporation and at each special meeting of stockholders of
the Corporation called for the election of directors by the holders of Series A
Convertible Preferred Stock, to elect a number of directors of the Corporation
equivalent to the smallest number representing a majority of the number of
members of the entire Board as if there were no vacancies or unfilled newly
created directorships on such Board. As used herein, "Preferred Default" shall
mean a failure by the Corporation on any four consecutive Dividend Payment Dates
to pay in full the dividends due and payable on such dates such that there are
Accrued Dividends (whether or not declared) with respect to such four
consecutive Dividend Payment Dates. Whenever the holders of shares of Series A
Convertible Preferred Stock have the right under this Section 3(d) to elect a
director or directors, but have not done so, the Secretary of the Corporation
will, upon the written request of the holders of record of at least 25% of the
outstanding shares of Series A Convertible Preferred Stock, call a special
meeting of the holders of Series A Convertible Preferred Stock for the purpose
of removing and/or electing a director or directors, as the case may be. The
meeting will be held at the earliest practicable date upon the notice required
for annual meetings of the shareholders of the Corporation (or such shorter
notice as is stipulated in the written requests for such meeting or is otherwise
agreed in writing by the holders of record of the outstanding shares of Series A
Convertible Preferred Stock before or within 10 days after the meeting) at the
place specified in the request for a meeting, or if there is none, at a place in
New York, New York, designated by the Secretary of the Corporation. If the
meeting has not been called within 2 days after delivery of the written request
to the Secretary of the Corporation, or within 4 days after the request is
mailed by registered mail, addressed to the Secretary of the Corporation at the
Corporation's principal office, the holders of record of at least 25% of the
outstanding shares of Series A Convertible Preferred Stock may designate in
writing one holder to call and appoint an individual to chair (who need not be
an officer or member of the Board) the meeting at the expense of the
Corporation, and the meeting may be called by that person upon the notice
required for annual meetings (or such shorter notice as aforesaid). Any holder
of shares of Series A Convertible Preferred Stock or its representative will
have access to the stock ledger of the Corporation relating to the Series A
Convertible Preferred Stock for the purpose of causing a meeting of shareholders
to be called in accordance with this Section 3(d). Except as otherwise provided
above in this Section 3(d), a director elected in accordance with this Section
5
<PAGE>
3(d) will serve until the next annual meeting of the shareholders of the
Corporation and until his or her successor is elected and qualified by the
holders of Series A Convertible Preferred Stock.
Section 4. Change of Control; Liquidation.
(a) Upon (i) the Transfer in a single transaction, or series
of transactions, of all or substantially all of the assets of the Corporation,
the Operating Partnership and the Subsidiaries, considered as a whole, including
for such purpose the assets of any Subsidiary (except that with respect to any
such Subsidiary in which the Corporation or the Operating Partnership has a
direct or indirect minority interest such that a sale, transfer or assignment is
not within the Corporation's or Operating Partnership's control, and is not a
part of, or occurring in connection with, a transaction or series of
transactions covered hereby, this provision shall not apply), (ii) the merger or
consolidation of the Corporation or the Operating Partnership with any other
Person (other than a merger of the Corporation with or into a wholly-owned
Subsidiary of the Corporation in which the Corporation Market Capitalization is
unchanged), (iii) any recapitalization of the Corporation, the Operating
Partnership and the Subsidiaries, considered as a whole, in a single transaction
or a series of transactions, in an amount or amounts which aggregate 50% or more
of Corporation Market Capitalization or (iv) a Change of Control (as defined
herein), the holders of the Series A Convertible Preferred Stock, may at their
option receive, and, if so electing by written notice to the Corporation to such
effect, will be entitled to receive, out of the assets of the Corporation
available for distribution to its stockholders, whether from capital, surplus or
earnings, before any distributions made to holders of any Junior Shares, an
amount per share (the "Change of Control Preference") equal to the product of
(A) 115% and (B) the sum of (1) Stated Value plus (2) the per share amount of
Accrued Dividends with regard to the Series A Convertible Preferred Stock to the
date of final distribution (whether or not declared). For the purposes of this
Section 4(a), Corporation Market Capitalization shall be calculated on the date
of the first of any transactions in a series for purposes of determining the
percentage thereof represented by all transactions in such series. There shall
be excluded from transactions as a result of which the holders of Series A
Convertible Preferred Stock are entitled to elect and receive the Change of
Control Preference (i) the public market trading of shares of Common Stock in
unsolicited transactions, and (ii) the sale of Common Stock or other securities
of the Corporation in underwritten, widely distributed offerings. The
Corporation shall provide proper notice to each holder of record of shares of
Series A Convertible Preferred Stock of any event of the nature set forth in
clauses (i) to (iv) of this Section 4(a).
(b) In the event of a voluntary or an involuntary liquidation,
dissolution or winding-up of the Corporation (including, without limitation, the
Plan of Liquidation (as defined in the Certificate of Amendment of the
Corporation dated December 7, 1990, included in the Charter), the holders of the
Series A Convertible Preferred Stock, may at their option receive, and, if so
electing by written notice to the Corporation to such effect, shall be entitled
to receive, out of the assets of the Corporation available for distribution to
its stockholders, whether from capital, surplus or earnings, before any
distributions made to holders of any Junior Shares, an amount per share as set
forth in this Section 4(b) as a liquidation preference (the "Liquidation
Preference") in the manner and as provided in Section 4(a), except that the
Liquidation Preference shall be at an amount per share equal to the Liquidation
Percentage (as defined and established below) multiplied by the sum of (i)
Stated Value plus (ii) the per share amount of Accrued Dividends with respect to
the Series A Convertible Preferred Stock to the date of final distribution
(whether or not declared). As used herein, the "Liquidation Percentage" shall
for the periods specified mean the percentage specified as set forth in the
following table:
6
<PAGE>
<TABLE>
<CAPTION>
The effective date of the plan of liquidation, dissolution or
winding-up, in terms of the anniversary of the date of the initial Liquidation
issuance of shares of Series A Convertible Preferred Stock Percentage
- ------------------------------------------------------------------ -----------
<S> <C>
Before the 5th anniversary 115%
After the 5th but before the 6th anniversary 110%
After the 6th but before the 7th anniversary 105%
After the 7th anniversary 100%
</TABLE>
Notwithstanding the foregoing, upon the liquidation, dissolution or winding-up
of the Corporation solely and directly as a result of the adoption and
implementation of the Plan of Liquidation (as defined in the Certificate of
Amendment of the Corporation dated December 7, 1990, included in the Charter),
holders of shares of Series A Convertible Preferred Stock which vote in favor of
the adoption of the Plan of Liquidation shall be entitled to receive the
Liquidation Percentage measured as if such Plan of Liquidation was adopted after
the seventh anniversary of the initial issuance of Series A Convertible
Preferred Stock, regardless of the date on which such Plan of Liquidation was
actually adopted.
(c) Holders of Series A Convertible Preferred Stock may
further elect, when delivering the written notice to the Corporation with
respect to the election under Section 4(a) or Section 4(b), in lieu of receiving
the Change of Control Preference or the Liquidation Preference, as the case may
be, to receive Common Stock on conversion of Series A Convertible Preferred
Stock, without regard to the time restriction on conversion established in the
first sentence of Section 5(a) of this Certificate of Designation, in the manner
and as provided in Section 5 of this Certificate of Designation.
(d) If, upon any liquidation, dissolution or winding-up of the
Corporation, the assets of the Corporation, or proceeds of those assets,
available for distribution to the holders of Series A Convertible Preferred
Stock and of shares of all other classes or series which are on a parity as to
distributions on liquidation with the Series A Convertible Preferred Stock are
not sufficient to pay in full the Change of Control Preference or the
Liquidation Preference, as the case may be, to the holders of the Series A
Convertible Preferred Stock who have not elected to convert such stock pursuant
to Section 4(c) and any liquidation preference of all other classes or series
which are on a parity as to distributions on liquidation with the Series A
Convertible Preferred Stock, then the assets, or the proceeds of those assets,
which are available for distribution to such holders of shares of Series A
Convertible Preferred Stock and of the shares of all other classes or series
which are on a parity as to distributions on liquidation with such Series A
Convertible Preferred Stock will be distributed to the holders of the Series A
Convertible Preferred Stock and of the shares of all other classes or series
which are on a parity as to distributions on liquidation with the Series A
Convertible Preferred Stock ratably in accordance with the respective amounts of
the liquidation preferences of the shares held by each of them. After payment of
the full amount of the Change of Control Preference or the Liquidation
Preference, as the case may be, such holders of shares of Series A Convertible
Preferred Stock will not be entitled to any further distribution of assets of
the Corporation.
As used herein, a "Change of Control" of the Corporation or
the Operating Partnership shall be deemed to have occurred if any of the
following occur (or, in the case of any proposal, if any of the following could
occur as a result thereof): (i) the Corporation takes or fails to take any
action such that it ceases to be required to file reports under Section 13 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor to that Section; (ii) any "person" (as defined in Sections 13(d) and
14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of either (A) 20% or more
of the outstanding shares of Common Stock, or (B) 20% (by right to vote or grant
or withhold any approval) of the outstanding securities of any other class or
classes which individually or together have the power to elect a majority of the
members of the Board; (iii) the Board determines to recommend, or fails to
determine to recommend, the acceptance of any proposal set forth in a tender
offer statement or proxy statement filed by any person with the Securities and
Exchange Commission which indicates the intention on the part of that person to
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acquire, or acceptance of which would otherwise have the effect of that person
acquiring, either (A) 20% or more of the outstanding shares of the Common Stock,
or (B) 20% (by right to vote or grant or withhold any approval) of the
outstanding securities of any other class or classes which individually or
together have the power to elect a majority of the members of the Board; (iv)
other than as a result of the death or disability of one or more of the
directors within a three-month period, and other than by reason of the holders
of Series A Convertible Preferred Stock exercising voting rights as set forth in
Section 3(d) of the Certificate of Designation, a majority of the members of the
Board for any period of three consecutive months are not persons who (A) had
been directors of the Corporation for at least the preceding 24 consecutive
months or (B) when they initially were elected to the Board, (x) were nominated
(if they were elected by the stockholders) or elected (if they were elected by
the directors) with the affirmative concurrence of 66-2/3% of the directors who
were Continuing Directors at the time of the nomination or election by the Board
and (y) were not elected as a result of an actual or threatened solicitation of
proxies or consents by a person other than the Board or an agreement intended to
avoid or settle such a proxy solicitation (the directors described in clauses
(A) and (B) of this subsection (iv) being "Continuing Directors"); (v) the
Corporation or a Subsidiary of the Corporation ceases to be the sole General
Partner of the Operating Partnership or grants or sells to any person, or
consents to any amendment to the agreement of limited partnership of the
Operating Partnership, or the organizational documents of the other
Subsidiaries, which has the effect of transferring, the power to control or
direct the actions of the Operating Partnership or such other Subsidiaries as if
such person (A) is a general partner of the Operating Partnership or (B) is a
limited partner of the Operating Partnership with consent or approval rights
greater than the consent or approval rights held by the limited partners of the
Operating Partnership on the date hereof; or (vi) the Operating Partnership is a
party to any entity conversion or any merger or consolidation in which the
Operating Partnership is not surviving entity in such merger or consolidation or
in which the effect is of the nature set forth in the next preceding clause (v).
Section 5. Conversion Into Common Stock.
(a) Optional Conversion. (i) On and after September 19, 1998,
or earlier than September 19, 1998 as provided in Section 4(c), each holder of
shares of Series A Convertible Preferred Stock will have the right, at the
holder's option, exercised by notice to such effect (the "Notice of Election to
Convert"), to convert all or any of the shares of Series A Convertible Preferred
Stock held of record by the holder into shares of Common Stock, such that each
share of Series A Convertible Preferred Stock will be entitled to be converted
into (A) a number of fully paid and non-assessable shares of Common Stock
(calculated as to each conversion to the nearest 1/100th of a share) equal to
Stated Value plus the amount, if any, of the per share amount of Accrued
Dividends as of the effective time of the conversion, divided by the Conversion
Price, as defined below, then in effect, or (B) such other securities or assets
as the holder is entitled to receive in accordance with Section 5(e).
(ii) The holder of each share of Series A Convertible
Preferred Stock to be converted must surrender the certificate representing that
share to the conversion agent for the Series A Convertible Preferred Stock
appointed by the Corporation (which may be the Corporation itself), with the
Notice of Election to Convert on the back of that certificate duly completed and
signed, at the principal office of the conversion agent. If the shares issuable
on conversion are to be issued in a name other than the name in which the Series
A Convertible Preferred Stock is registered, each share surrendered for
conversion must be accompanied by an instrument of transfer, in form reasonably
satisfactory to the Corporation, duly executed by the holder or the holder's
duly authorized attorney and by funds in an amount sufficient to pay any
transfer or similar tax which is required to be paid in connection with the
transfer or evidence that such tax has been paid or is not payable.
(b) Mandatory Conversion. Subject to Section 7 of this
Certificate of Designation, if, after the fifth anniversary of the date of the
first issuance of shares of Series A Convertible Preferred Stock, the closing
price of the Common Stock on each of at least 20 Trading Days (as defined
herein) (including the Trading Day immediately before both the Notice of
Mandatory Conversion and the Mandatory Conversion Date referred to below) of the
preceding period of 30 consecutive Trading Days immediately prior to the Notice
of Mandatory Conversion and the Mandatory Conversion Date shall be greater than
the Conversion Price in effect on each of such 20 Trading Days, the Corporation
shall have the right, subject to the rights of the holders under Section 3(d), 4
and 7 of this Certificate of Designation, to convert at any time and from time
to time not less than 500,000 of the outstanding shares of Series A Convertible
Preferred Stock into a number of shares of Common Stock (calculated
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as to each conversion to the nearest 1/100th of a share) equal to the product of
(i) the number of shares of Series A Convertible Preferred Stock to be converted
multiplied by (ii) the Stated Value plus the amount, if any, of the per share
amount of Accrued Dividends, with regard to the Series A Convertible Preferred
Stock to the date of conversion (whether or not declared), divided by the
Conversion Price then in effect, such that each share of Series A Convertible
Preferred Stock is valued as set forth in clause (ii) in consideration for
Common Stock issued in conversion priced at the Conversion Price calculated in
accordance with Section 5(e) of this Certificate of Designation. In order to
elect to effect the mandatory conversion of Series A Convertible Preferred
Stock, subject to the requirement as to closing price preceding the Mandatory
Conversion Date, set forth above, the Corporation shall issue a notice as to the
date of the intended conversion and number of shares of Series A Convertible
Preferred Stock which are to be converted into shares of Common Stock (the
"Notice of Mandatory Conversion") to all holders of outstanding shares of Series
A Convertible Preferred Stock on a date (the "Mandatory Conversion Notice Date")
at least 90 but not more than 120 days prior to the conversion date specified in
the Notice of Mandatory Conversion (the "Mandatory Conversion Date"), which
Notice of Mandatory Conversion specifies a record date (the "Mandatory
Conversion Record Date") selected by the Board of Directors which is not less
than 20 more than 45 days before the Mandatory Conversion Date on which the
conversion is to occur. If the number of shares of Series A Convertible
Preferred Stock to be converted into shares of Common Stock on a Mandatory
Conversion Date is less than all of the outstanding shares of Series A
Convertible Preferred Stock, then the number of shares of each holder of Series
A Convertible Preferred Stock, as held of record by each such holder on the
Mandatory Conversion Record Date, which will be converted into shares of Common
Stock will be that number of shares of Series A Convertible Preferred Stock
rounded to the nearest ten shares, which is equal to the proportion of all
outstanding shares of Series A Convertible Preferred Stock on such Mandatory
Conversion Record Date held of record by such holder of Series A Convertible
Preferred Stock to the total number of such shares outstanding. Such number of
shares of each holder of Series A Convertible Preferred Stock which are to be
converted, if less than all outstanding shares of Series A Convertible Preferred
Stock are included in the Notice of Mandatory Conversion, will be set forth
(with the computation used in making such determination as to each holder of
Series A Convertible Preferred Stock) in the Notice of Mandatory Conversion. If
the Corporation gives a Notice of Mandatory Conversion, then, provided that the
computation set forth in the Notice of Mandatory Conversion is not clearly
erroneous, the number of the outstanding shares of Series A Convertible
Preferred Stock which are the subject of such Notice of Mandatory Conversion
will be automatically converted into shares of Common Stock at the close of
business on the Mandatory Conversion Date regardless of whether the holders of
such shares of Series A Convertible Preferred Stock actually surrender the
certificates representing their shares of Series A Convertible Preferred Stock
for conversion. At the close of business on the Mandatory Conversion Date, (i)
the certificates representing the shares of Series A Convertible Preferred Stock
will cease to represent anything other than the shares of Common Stock into
which the shares of the Series A Convertible Preferred Stock were automatically
converted and the shares of Series A Convertible Preferred Stock which were not
automatically converted and (ii) the Corporation shall, at its option (the
exercise of which will be described in the Notice of Mandatory Conversion),
either (A) deliver certificates representing the shares of Common Stock to which
the holders of the Series A Convertible Preferred Stock are entitled without
requiring the surrender of the certificates which formerly represented shares of
Series A Convertible Preferred Stock, or (B) deliver certificates representing
(1) the shares of Common Stock to which the holders of Series A Convertible
Preferred Stock are entitled and (2) the shares of Series A Convertible
Preferred Stock continued to be held by the holders of Series A after giving
effect to such conversion, when the holder surrenders the certificates
representing Series A Convertible Preferred Stock issued before the Mandatory
Conversion Date and complies with the other requirements of subparagraph
5(a)(ii) (excluding the completion of the Notice of Election to Convert).
(c) Conversion Procedures. (i) The effective time of the
conversion under Section 5(a) shall be immediately prior to the close of
business on the day when all the conditions in Section 5(a)(ii) have been
satisfied. The effective time of the conversion under Section 5(b) shall,
subject to the rights of holders under Sections 3(d), 4 and 7, be the close of
business on the Mandatory Conversion Date.
(ii) If shares are surrendered between the close of
business on a dividend payment Record Date and the opening of business on the
corresponding Dividend Payment Date ("Ex Record Date Shares"), the dividend with
respect to those shares will be payable on the Dividend Payment Date to the
holder of record of the Ex Record Date Shares on the dividend payment Record
Date notwithstanding the surrender of the Ex Record
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Date Shares for conversion after the dividend payment Record Date and prior to
the Dividend Payment Date. The Corporation will make no payment or adjustment
for Accrued Dividends on Ex Record Date Shares, whether or not in arrears, or
for dividends on the shares of Common Stock issued upon conversion of the Ex
Record Date Shares, other than to make payment to the holder of record thereof
on the Record Date. The provisions of this Section 5(c)(ii) shall not limit the
obligation of the Corporation to issue shares of Common Stock in conversion of
shares of Series A Convertible Preferred Stock, including Ex Record Date Shares,
at Stated Value plus Accrued Dividends (whether or not declared), as elsewhere
provided in this Certificate of Designation.
(iii) Except as otherwise permitted in clause (ii)(B) of
the last sentence of Section 5(b), as promptly as practicable after the
effective time for conversion of shares of Series A Convertible Preferred Stock,
the Corporation will issue and will deliver to the holder at the office of the
holder set forth in the Notice of Election to Convert, or on the holder's
written order, a certificate or certificates representing the number of full
shares of Common Stock issued upon the conversion of the shares of Series A
Convertible Preferred Stock. Any fractional interest in respect of a share of
Common Stock arising upon a conversion will be settled as provided in Section
5(d).
(iv) Each conversion will be deemed to have been
effected at the effective time provided in Section 5(c)(i), and the person in
whose name a certificate for shares of Common Stock is (or, in the case of a
conversion of less than all shares of Series A Convertible Preferred Stock
pursuant to Section 5(b), in whose name certificates for shares of Common Stock
and Series A Convertible Preferred Stock are) to be issued upon a conversion
will be deemed to have become the holder of record of the shares of Common Stock
represented by that certificate at such effective time. All shares of Common
Stock delivered upon conversion of Series A Convertible Preferred Stock will
upon delivery be duly and validly issued and fully paid and nonassessable, free
of all liens and charges and not subject to any preemptive rights except such
preemptive rights as may exist pursuant to the Stock Purchase Agreement dated as
of September 19, 1997, among the Company and Westbrook Berkshire Holdings,
L.L.C., and its affiliates. The shares of Series A Convertible Preferred Stock
so converted will no longer be deemed to be outstanding and all rights of the
holder with respect to those shares will immediately terminate, except the right
to receive the shares of Common Stock, the shares of Series A Convertible
Preferred Stock not converted on a Mandatory Conversion Date, and, if
applicable, other securities, cash or other assets to be issued or distributed
as a result of the conversion.
(d) Fractional Shares. No fractional shares of Common Stock
will be issued upon conversion of shares of Series A Convertible Preferred
Stock. Any fractional interest in a share of Common Stock resulting from
conversion of shares of Series A Convertible Preferred Stock will be paid in
cash (computed to the nearest cent) based on the Current Market Price (as herein
defined) of the Common Stock on the Trading Date next preceding the date of
conversion. If more than one share of Series A Convertible Preferred Stock is
surrendered for conversion at substantially the same time by the same holder,
the number of full shares of Common Stock issuable upon the conversion will be
computed on the basis of all the shares of Series A Convertible Preferred Stock
surrendered at that time by that holder.
(e) Conversion Price. The "Conversion Price" per share of
Series A Convertible Preferred Stock will initially be a price (the "Initial
Conversion Price") equal to $12.125, unless adjusted pursuant to Section
5(e)(xi), and will be further adjusted as follows from time to time, subject to
Section 5(e)(ix), if any of the events described below occurs:
(i) If the Corporation (A) pays a dividend or makes a
distribution on its Common Stock in shares of its Common Stock or (B)
subdivides, splits or reclassifies its outstanding Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to that event
will be reduced so that the holder of a share of Series A Convertible Preferred
Stock surrendered for conversion after that event will receive the number of
shares of Common Stock which the holder would have received if the share of
Series A Convertible Preferred Stock had been converted immediately before the
happening of the event (or, if there is more than one such event, if the share
of Series A Convertible Preferred Stock had been converted immediately before
the first of those events and the holder had retained all the Common Stock or
other securities or assets received after the conversion). If the Corporation
combines its outstanding Common Stock into a smaller number of shares, the
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Conversion Price in effect immediately prior to that event will be increased so
that the holder of a share of Series A Convertible Preferred Stock surrendered
for conversion after that event will receive the number of shares of Common
Stock which the holder would have received if the shares of Series A Convertible
Preferred Stock had been converted immediately before the happening of the event
(or, if there is more than one such event, if the share of Series A Convertible
Preferred Stock had been converted immediately before the first of those events
and the holder had retained all the Common Stock or other securities or assets
received after the conversion). An adjustment made pursuant to this Section
5(e)(i) will become effective immediately after the Record Date in the case of a
dividend or distribution, and will become effective immediately after the
effective date in the case of a subdivision, split, reclassification or
combination. If such dividend or distribution is declared but is not paid or
made, the Conversion Price then in effect will be appropriately readjusted.
However, a readjustment of the Conversion Price will not affect any conversion
which takes place before the readjustment.
(ii) If the Corporation issues rights or warrants to
the holders of its Common Stock as a class entitling them to subscribe for or
purchase Common Stock at a price per share less than the Conversion Price then
in effect at the Record Date for the determination of stockholders entitled to
receive the rights or warrants minus $0.125, the Conversion Price in effect
immediately before the issuance of the rights or warrants will be reduced in
accordance with the equation set forth on Exhibit A hereto, which is hereby
incorporated by reference herein. The adjustment provided for in this Section
5(e)(ii) will be made successively whenever any rights or warrants are issued,
and will become effective immediately after each Record Date. In determining
whether any rights or warrants entitle the holders of the Common Stock to
subscribe for or purchase shares of Common Stock at less than the Conversion
Price then in effect minus $0.125 and in determining the aggregate sale price of
the shares of Common Stock issuable on the exercise of rights or warrants and
any consideration to be received by the Corporation for the exercise of such
rights or warrants, there will be taken into account any consideration received
by the Corporation for the rights or warrants, with the value of that
consideration, if other than cash, to be determined by the Board of Directors of
the Corporation (whose determination, if made in good faith, will be
conclusive). If any rights or warrants which lead to an adjustment of the
Conversion Price expire or terminate without having been exercised, the
Conversion Price then in effect will be appropriately readjusted. However, a
readjustment of the Conversion Price will not affect any conversion which takes
place before the readjustment.
(iii) If the Corporation distributes to the holders of
its Common Stock as a class any shares of stock of the Corporation (other than
Common Stock) or evidences of indebtedness or assets (other than cash dividends
or distributions) or rights or warrants (other than those referred to in Section
5(e)(ii)) to subscribe for or purchase any of its securities, then, in each such
case, the Conversion Price will be reduced so that it will equal the price
determined by multiplying the Conversion Price in effect immediately prior to
the Record Date for the distribution by a fraction of which the numerator is the
Current Market Price of the Common Stock on the Record Date for the distribution
less the then fair market value (as determined by the Board of Directors, whose
determination, if made in good faith, will be conclusive) of the stock,
evidences of indebtedness, assets, rights or warrants which are distributed with
respect to one share of Common Stock, and of which the denominator is the
Current Market Price of the Common Stock on that Record Date. Each adjustment
will become effective immediately after the Record Date for the determination of
the stockholders entitled to receive the distribution. If any distribution is
declared but not made, or if any rights or warrants expire or terminate without
having been exercised, effective immediately after the decision is made not to
make the distribution or the rights or warrants expire or terminate, the
Conversion Price then in effect will be appropriately readjusted. However, a
readjustment will not affect any conversion which takes place before the
readjustment.
(iv) If the Corporation issues or sells (or the
Operating Partnership issues or sells) any equity or debt securities which are
convertible, directly or indirectly, into or exchangeable for shares of Common
Stock ("Convertible Securities") or any rights, options (other than the issuance
or exercise after the date hereof of stock options covering no more than
1,100,000 shares of Common Stock, subject to appropriate adjustment to the
extent that the Corporation (A) pays a dividend or makes a distribution on its
Common Stock in shares of its Common Stock, (B) subdivides its outstanding
Common Stock into a greater number of shares or (C) combines its outstanding
Common Stock into a smaller number of shares, issued to employees or directors
of the Corporation or its Subsidiaries under the Corporation's existing employee
stock incentive plans) or warrants (except the issuance after the date hereof of
shares of Common Stock pursuant to the warrants to purchase not more than
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2,664,629 shares of Common Stock at a price per share of $11.79 outstanding on
the date hereof issued by the Corporation pursuant to that certain settlement
effective September 6, 1994) to purchase Common Stock at conversion, exchange or
exercise price per share which is less than the Conversion Price then in effect
minus $0.125, unless the provisions of Section 5(e)(ii) or (iii) are applicable,
the Corporation will be deemed to have issued or sold, on the date on which the
Convertible Securities, rights, options or warrants are issued, the maximum
number of shares of Common Stock into or for which the Convertible Securities
may then be converted or exchanged or which are then issuable upon the exercise
of the rights, options or warrants immediately prior to the close of business on
the date on which the Convertible Securities, rights, options or warrants are
issued, and the Conversion Price shall be adjusted downward as if it were an
event covered by Section 5(e)(v). However, no further adjustment of the
Conversion Price will be made as a result of the actual issuance of shares of
Common Stock upon conversion, exchange or exercise of the Convertible
Securities, rights, options or warrants. If any Convertible Securities, rights,
options or warrants to which this Section applies are redeemed, retired or
otherwise extinguished or expire without any shares of Common Stock having been
issued upon conversion, exchange or exercise thereof, effective immediately
after the Convertible Securities, rights, options or warrants expire, the
Conversion Price then in effect will be readjusted to what it would have been if
those Convertible Securities, rights, options or warrants had not been issued.
However, a readjustment will not affect any conversion which takes place before
the readjustment. For the purposes of this Section 5(e)(iv), (x) the price of
shares of Common Stock issued or sold upon conversion or exchange of Convertible
Securities or upon exercise of rights, options or warrants will be (A) the
consideration paid to the Corporation for the Convertible Securities, rights,
options or warrants, plus (B) the consideration paid to the Corporation upon
conversion, exchange or exercise of the Convertible Securities, rights, options
or warrants, with the value of the consideration, if other than cash, to be
determined by the Board of Directors of the Corporation (whose determination, if
made in good faith, will be conclusive) and (y) any change in the conversion or
exchange price of Convertible Securities or the exercise price of rights,
options or warrants will be treated as an extinguishment, when the change
becomes effective, of the Convertible Securities, rights, options or warrants
which had the old conversion, exchange or exercise price and an immediate
issuance of new Convertible Securities, rights, options or warrants with the new
conversion, exchange or exercise price.
(v) If the Corporation issues or sells any Common Stock
(other than (X) on conversion or exchange of Convertible Securities, (Y)
exercise of rights, options or warrants to which Section 5(e)(ii), (iii) or (iv)
applies, or (Z) not more than $150,000,000 in gross offering proceeds of Common
Stock in an underwritten, widely distributed offering at a price per share to
the public of not less than $11.3125 on or before November 30, 1997) for a
consideration per share less than the Conversion Price then in effect minus
$0.125, (or for a consideration per share of less than $11.3125 in the case of
an issuance referred to in clause (Z) of the parenthetical in this paragraph
(e)(v)) on the date of the issuance or sale (or on exercise of options or
warrants, for less than the Conversion Price then in effect minus $0.125 on the
date the options or warrants are issued), upon consummation of the issuance or
sale, the Conversion Price in effect immediately prior to the issuance or sale
will be reduced in accordance with the equation set forth on Exhibit A hereto,
which is hereby incorporated by reference herein.
(vi) If there is a reclassification or change of
outstanding shares of Common Stock (other than a change in par value, or as a
result of a subdivision or combination or as a result of the Corporation's
open-market purchases of Common Stock pursuant to its Dividend Reinvestment
Plan), or a merger or consolidation of the Corporation with any other entity
that results in a reclassification, change, conversion, exchange or cancellation
of outstanding shares of Common Stock, or a sale or transfer of all or
substantially all of the assets of the Corporation, upon any subsequent
conversion of Series A Convertible Preferred Stock, each holder of the Series A
Convertible Preferred Stock will be entitled to receive the kind and amount of
securities, cash and other property which the holder would have received if the
holder had converted the shares of Series A Convertible Preferred Stock into
Common Stock immediately before the first of those events and had retained all
the securities, cash and other assets received as a result of all those events.
In the event that a transaction may be viewed as causing this Section 5(e)(vi)
to be applicable and 5(e)(iii) is also applicable, then Section 5(e)(iii) will
be applied and this Section 5(e)(vi) will not be applied.
(vii) From and after a Charter Breach (as defined below),
the Conversion Price from time to time in effect as provided elsewhere in this
Section 5(e) shall at all times be 50% of the amount elsewhere so determined
such that holders of shares of Series A Convertible Preferred Stock shall
receive, on conversion, two
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times the number of shares of Common Stock to which they would be entitled in
the absence of the occurrence of a Charter Breach and the application of this
Section 5(e)(vii). A "Charter Breach" shall mean a failure by the Corporation to
observe and comply with Sections 3, 4 and 7 of this Certificate of Designation
or any successor provisions contained in any amendment to or restatement of the
Charter.
(viii) For the purpose of any computation under this
Section 5(e), the "Current Market Price" of the Common Stock on any date will be
the average of the last reported sale prices per share of the Common Stock on
each of the twenty consecutive Trading Days (as defined below) preceding the
date of the computation. The last reported sale price of the Common Stock on
each day will be (A) the last reported sale price of the Common Stock on the
principal stock exchange on which the Common Stock is listed, or (B) if the
Common Stock is not listed on a stock exchange, the last reported sale price of
the Common Stock on the principal automated securities price quotation system on
which sale prices of the Common Stock are reported, or (C) if the Common Stock
is not listed on a stock exchange and sale prices of the Common Stock are not
reported on an automated quotation system, the mean of the high bid and low
asked price quotations for the Common Stock as reported by National Quotation
Bureau Incorporated if at least two securities dealers have inserted both bid
and asked quotations for the Common Stock on at least five of the ten preceding
Trading Days. If the Common Stock is not traded or quoted as described in any of
clause (A), (B) or (C), the Current Market Price of the Common Stock on a day
will be the fair market value of the Common Stock on that day as determined by a
member firm of The New York Stock Exchange, Inc., selected by the Board of
Directors. As used with regard to the Series A Convertible Preferred Stock, the
term "Trading Day" means (A) if the Common Stock is listed on at least one stock
exchange, a day on which there is trading on the principal stock exchange on
which the Common Stock is listed, (B) if the Common Stock is not listed on a
stock exchange, but sale prices of the Common Stock are reported on an automated
quotation system, a day on which trading is reported on the principal automated
quotation system on which sales of the Common Stock are reported, or (C) if the
Common Stock is not listed on a stock exchange and sale prices of the Common
Stock are not reported on an automated quotation system, a day on which
quotations are reported by National Quotation Bureau Incorporated.
(ix) No adjustment in the Conversion Price will be
required unless the adjustment would require a change of at least 1% in the
Conversion Price; provided, however, that any adjustments which are not made
because of this Section 5(e)(ix) will be carried forward and taken into account
in any subsequent adjustment. All calculations under this Section 5 will be made
to the nearest cent or to the nearest one hundredth of a share, as the case may
be.
(x) If any one of the events in Sections 5(e)(i)
through 5(e)(vii) occurs, then the Corporation will mail to the holders of
record of the Series A Convertible Preferred Stock, at least 15 days before the
applicable date specified below, a notice stating the applicable one of (i) the
date on which a record is to be taken for the purpose of the dividend,
distribution or grant of rights or warrants, or, if no record is to be taken,
the date as of which the holders of Common Stock of record who will be entitled
to the dividend, distribution or rights or warrants will be determined, (ii) the
date on which it is expected the Convertible Securities will be issued or the
date on which the change in the conversion, exchange or exercise price of the
Convertible Securities, rights, options or warrants will be effective, (iii) the
date on which the Corporation anticipates selling Common Stock for less than the
Conversion Price on the date of the sale (except that no notice need be given of
the anticipated date of sale of Common Stock upon exercise of options or
warrants which have been described in a notice to the holders of record of
Series A Convertible Preferred Stock given at least 15 days before the options
or warrants are exercised), or (iv) the date on which the reclassification,
consolidation, merger, share exchange, sale, transfer, dissolution, liquidation
or winding-up is expected to become effective, and the date as of which it is
expected that holders of record of Common Stock will be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
the reclassification, consolidation, merger, share exchange, sale, transfer,
dissolution, liquidation or winding-up. Failure to give any such notice or any
defect in the notice will not affect the legality or validity of the
reclassification, consolidation, merger, share exchange, sale, transfer,
dissolution, liquidation or winding-up. Whenever the Conversion Price is
adjusted, the Corporation will promptly send each holder of record of shares of
Series A Convertible Preferred Stock a notice of the adjustment of the
Conversion Price setting forth the adjusted Conversion Price and the date on
which the adjustment becomes effective and containing a brief description of the
events which caused the adjustment.
13
<PAGE>
(xi) In the event (i) the last reported sale price per
share of Common Stock is less than $11.3125 on any day during the three full
Trading Day period (the "First Measurement Period) after the Corporation is
required or elects to restate, amend or alter or to issue a public announcement
restating, amending or altering any of its financial statements (or parts
thereof) and (ii) during the 30 full Trading Day period (the "Second Measurement
Period") after the end of the First Measurement Period, the last reported sale
price per share of Common Stock is not equal to or greater than $11.3125 for any
two full Trading Days within the Second Measurement Period, then the Initial
Conversion Price per share of Series A Convertible Preferred Stock will be equal
to the product of (i) the average of the last reported sale price per share of
Common Stock for each of the last 10 full Trading Days of the Second Measurement
Period and (ii) 107%, but in no event shall such Initial Conversion Price exceed
$12.125. If the Initial Conversion Price is to be adjusted as set forth herein
and, during the time from the initial issuance of Series A Convertible Preferred
Stock to the last day of the Second Measurement Period there shall have occurred
an adjustment to the Conversion Price as otherwise set forth in this Section
5(e), such other adjustment or adjustments shall be redetermined as if the
Initial Conversion Price determined in accordance with this Section 5(e)(xi) had
been in effect on the date of the initial issuance of Series A Convertible
Preferred Stock.
(f) (i) The Corporation will at all times reserve and keep
available, free from preemptive rights, out of the authorized but unissued
shares of Common Stock, for the purpose of effecting conversion of the Series A
Convertible Preferred Stock, the maximum number of shares of Common Stock which
the Corporation would be required to deliver upon the conversion of all the
outstanding shares of Series A Convertible Preferred Stock. For the purposes of
this Section 5(f)(i), the number of shares of Common Stock which the Corporation
would be required to deliver upon the conversion of all the outstanding shares
of Series A Convertible Preferred Stock will be computed as if at the time of
the computation all the outstanding shares of Series A Convertible Preferred
Stock were held by a single holder.
(ii) Before taking any action would cause an adjustment
reducing the Conversion Price below the then par value (if any) of the shares of
Common Stock deliverable upon conversion of the Series A Convertible Preferred
Stock, the Corporation will take all corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and non-assessable shares of Common Stock at the
adjusted Conversion Price.
(iii) The Corporation will seek to list the shares of
Common Stock required to be delivered upon conversion of the Series A
Convertible Preferred Stock, prior to the delivery, upon each national
securities exchange, if any, upon which the outstanding shares of Common Stock
are listed at the time of delivery.
(g) The Corporation will pay any documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock on conversion of Series A Convertible Preferred Stock; provided,
however, that the Corporation will not be required to pay any tax which may be
payable in respect of any transfer involved in the issue or delivery of shares
of Common Stock in a name other than that of the holder of record of Series A
Convertible Preferred Stock to be converted and no such issue or delivery will
be made unless and until the person requesting the issue or delivery has paid to
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that the tax has been paid or is not payable.
Section 6. Status.
Shares of Series A Convertible Preferred Stock converted
pursuant to the terms hereof or otherwise acquired by the Corporation shall
automatically be retired upon such conversion or other acquisition, as the case
may be, shall not be reissued as shares of Series A Convertible Preferred Stock
and shall be restored to the status of authorized but unissued shares of
Preferred Stock, undesignated as to series.
Section 7. Redemption after Notice of Mandatory Conversion.
(a) Notwithstanding anything to the contrary contained in
Section 5, each holder of Series A Convertible Preferred Stock will have the
right, exercised at any time after the Mandatory Conversion Notice
14
<PAGE>
Date but prior to the Mandatory Conversion Date, to require the Corporation to
redeem any or all of the number of shares of Series A Convertible Preferred
Stock specified in the Notice of Mandatory Conversion that are owned of record
by the holder (the number of shares as to which each holder elects redemption
under this clause (a) being referred to as the "Identified Redemption Shares"),
at a redemption price per share (the "Redemption Price") equal to 110%
multiplied by the sum of (i) Stated Value plus (ii) the per share amount of the
sum of all Accrued Dividends with regard to the Series A Convertible Preferred
Stock (whether or not declared) through the Redemption Date, as herein defined.
(b) In order to exercise a right to require the Corporation to
redeem a holder's Series A Convertible Preferred Stock, the holder must deliver
a request for redemption with respect to the Identified Redemption Shares,
accompanied by the certificates representing the shares to be redeemed, to the
Corporation at any time prior to the Mandatory Conversion Date. If a request for
redemption is given with regard to shares of Series A Convertible Preferred
Stock, promptly (but in no event more than five Business Days) after the request
for redemption is given to the Corporation, the Corporation will pay the holder
cash equal to the Redemption Price of the shares. The date of such payment is
referred to herein as the "Redemption Date."
(c) (i) If a request for redemption accompanied by the
certificates representing the shares to be redeemed is delivered to the
Corporation, on the Redemption Date dividends will cease to accrue with
regard to the shares of Series A Convertible Preferred Stock to be
redeemed, and at the close of business on that date the holders of
those shares will cease to be stockholders with respect to those
shares, will have no interest in or claims against the Corporation by
virtue of such shares (other than as described in clause (ii) below)
and will have no voting or other rights with respect to such shares.
(ii) The dividend with respect to a share of Series A
Convertible Preferred Stock which is the subject of a request for
redemption delivered on a day which falls between the close of business
on a dividend payment Record Date and the opening of business on the
corresponding Dividend Payment Date will be payable on the Dividend
Payment Date to the holder of record of the share of Series A
Convertible Preferred Stock on the dividend payment Record Date
notwithstanding the redemption of the share of Series A Convertible
Preferred Stock after the dividend payment Record Date and prior to the
Dividend Payment Date.
(d) Notwithstanding the foregoing provisions of this Section
7, the Corporation may, on notice provided to each holder of Series A
Convertible Preferred Stock which has delivered to the Corporation a request for
redemption, not more than two Business Days after the delivery to the
Corporation of such request for redemption, elect as to all but not less than
all the Identified Redemption Shares of such holder so noticed for redemption
pursuant to this Section 7, to deliver such number of shares of Common Stock on
the Mandatory Conversion Date as shall equal the quotient of (i) the product of
(A) 104%, (B) the Redemption Price, and (C) the number of the Identified
Redemption Shares, divided by (ii) the Current Market Price computed two Trading
Days prior to the Redemption Date.
Section 8. REIT Declassification.
(a) In the event that the Corporation should not qualify as a
real estate investment trust within the meaning of Section 856 of the Internal
Revenue Code of 1986, as amended (a "REIT Declassification"), each holder of
Series A Convertible Preferred Stock shall, subject to the requirements of this
Section 8, have the right to require the Corporation to redeem any or all of the
shares of Series A Convertible Preferred Stock owned of record by such holder,
at a redemption price (the "Declassification Redemption Price") per share equal
to the product of (i) 115% and (ii) the sum of (A) Stated Value plus (B) the per
share amount of Accrued Dividends with regard to the Series A Convertible
Preferred Stock to the date of final distribution (whether or not distributed).
The Corporation shall immediately notify (the "Declassification Notice") each
holder of Series A Convertible Preferred Stock in writing of any REIT
Declassification or any proposed REIT Declassification, and each holder of
Series A Convertible Preferred Stock shall within ninety (90) days after receipt
from the Corporation of the Declassification Notice notify the Corporation of
its election pursuant to this Section 8(a).
15
<PAGE>
(b) Each holder of Series A Convertible Preferred Stock may
exercise its rights under Section 8(a) hereof by notifying the Corporation in
writing of its election and surrendering the Series A Convertible Preferred
Stock. If a request for redemption is given with respect to a REIT
Declassification, promptly (but in no event more than five Business Days) after
the request for redemption is given to the Corporation, the Corporation will pay
the holder cash equal to the Declassification Redemption Price of the shares.
The date of such payment is referred to herein as the "Declassification
Redemption Date."
(c) (i) If a request for redemption accompanied by the
certificates representing the shares to be redeemed under this Section 8 is
delivered to the Corporation, on the Declassification Redemption Date dividends
will cease to accrue with regard to the shares of Series A Convertible Preferred
Stock to be redeemed, and at the close of business on that date the holders of
those shares will cease to be stockholders with respect to those shares, will
have no interest in or claims against the Corporation by virtue of such shares
(other than as described in clause (ii) below) and will have no voting or other
rights with respect to such shares.
(ii) The dividend with respect to a share of Series A
Convertible Preferred Stock which is the subject of a request for redemption
under this Section 8 delivered on a day which falls between the close of
business on a dividend payment Record Date and the opening of business on the
corresponding Dividend Payment Date will be payable on the Dividend Payment Date
to the holder of record of the share of Series A Convertible Preferred Stock on
the dividend payment Record Date notwithstanding the redemption of the share of
Series A Convertible Preferred Stock under this Section 8 after the dividend
payment Record Date and prior to the Dividend Payment Date.
Section 9. Ranking. The shares of Series A Convertible Preferred Stock
will, with respect to the payment of dividends, the right to redemption in
accordance with Section 7, the right to receive the Change of Control
Preference, the right to receive the Liquidation Preference, and any other
distribution of assets on liquidation, dissolution or winding-up of the
Corporation, rank prior to any other series of Preferred Stock, prior to Common
Stock and prior to any other class or series of capital stock of the
Corporation.
Section 10. Miscellaneous.
(a) Except as otherwise expressly provided to this Certificate
of Designation, whenever a notice or other communication is required or
permitted to be given to holders of shares of Series A Convertible Preferred
Stock, the notice or other communication will be deemed properly given if
deposited in the United States mail, postage prepaid, addressed to the persons
shown on the books of the Corporation as the holders of the shares of Series A
Convertible Preferred Stock at the addresses as they appear on the books of the
Corporation, as of the Record Date or dates determined in accordance with
applicable law and with the Charter and Bylaws, as in effect from time to time,
with a copy sent to Westbrook Berkshire Holdings, L.L.C., c/o Westbrook
Partners, L.L.C., at 599 Lexington Avenue, Suite 3800, New York, New York 10022
and at 13155 Noel Road, LB 54, Suite 2300, Dallas, Texas 75240, in each case by
documented overnight delivery service or, to the extent receipt is confirmed,
telecopy, telefax or other electronic transmission service.
(b) Shares of Series A Convertible Preferred Stock will not
have any designations, preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends and other distributions,
qualifications or terms and conditions of redemption, other than those
specifically set forth herein, in the Charter, and as may be provided under
applicable law insofar as any such provision does not conflict with the terms
hereof.
(c) The headings of the various subdivisions herein are for
convenience only and will not affect the meaning or interpretation of any of the
provisions herein.
(d) Notwithstanding Section 3 hereof, the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications and terms and conditions of
redemption of the Series A Convertible Preferred Stock may be waived, and any of
such provisions of the Series
16
<PAGE>
A Convertible Preferred Stock may be amended, only with the approval of holders
of at least a majority of the outstanding shares of Series A Convertible
Preferred Stock, voting separately as a class.
(e) Notwithstanding anything to the contrary contained in
Section 2, 3, 4, 5 7, 8 or 10(d) hereof, each holder of record of Series A
Convertible Preferred Stock hereby agrees (subject to relinquishment by
Westbrook Real Estate Fund II, L.P. as permitted below) that, in determining
whether any holder of Series A Convertible Preferred Stock has (i) voted to
remove or elect any director of the Corporation under Section 3, (ii) approved
any action by the Corporation under Section 3, (iii) elected the Change of
Control Preference, or the Liquidation Preference, as the case may be, or shares
of Common Stock in lieu of either thereof under Section 4, (iv) elected to cause
the conversion of such holder's Series A Convertible Preferred Stock into Common
Stock or other assets under Section 5, (v) elected to receive the Redemption
Price under Section 7 after receiving a Notice of Mandatory Conversion, (vi)
elected to receive the Declassification Redemption Price under Section 8 or (vi)
received any notice of the Corporation required or permitted by this Certificate
of Designation, Westbrook Real Estate Fund II, L.P. shall have the right to
grant or deny such approvals, make or decline any such elections or receive any
such notices with regard to all shares of the Series A Convertible Preferred
Stock held of record by such holder, and a notice received by Westbrook Real
Estate Fund II, L.P. and a document executed by Westbrook Real Estate Fund II,
L.P. calling a meeting of shareholders, exercising the right to take action by
written consent without a meeting, exercising voting rights either together with
holders of shares of Common Stock or separately as a class, including without
limitation the granting or denying of approval to any action by the Corporation,
or electing or removing any director, or electing or declining to the
Corporation to effect the conversion as to any shares of Series A Convertible
Preferred Stock, or electing or declining to the Corporation to effect the
redemption as to any shares of Series A Convertible Preferred Stock, shall
determine the matter for such holders as Westbrook Real Estate Fund II, L.P. may
indicate. Upon written notice by Westbrook Real Estate Fund II, L.P. to the
Corporation, Westbrook Real Estate Fund II, L.P. may relinquish such rights and
powers over any or all shares of Series A Convertible Preferred Stock. The
foregoing may, but need not, be evidenced by execution by each holder of Series
A Convertible Preferred Stock, other than Westbrook Real Estate Fund II, L.P.,
of a proxy in favor of Westbrook Real Estate Fund II, L.P.
Section 11. Severability of Provisions.
Whenever possible, each provision hereof shall be interpreted
in a manner as to be effective and valid under applicable law, but if any
provision hereof is held to be prohibited by or invalid under applicable law,
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating or otherwise adversely affecting the remaining
provisions hereof. If a court of competent jurisdiction should determine that a
provision hereof would be valid or enforceable if a period of time were extended
or shortened or a particular percentage were increased or decreased, then such
court may make such change as shall be necessary to render the provision in
question effective and valid under applicable law.
17
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation by its President and attested by its Secretary this
25th day of September, 1997.
BERKSHIRE REALTY COMPANY, INC.
By: David F. Marshall
---------------------------------------
David F. Marshall
President
Attest:
Scott D. Spelfogel
- ---------------------------------
Name: Scott D. Spelfogel
---------------------------
Title: Secretary
18
<PAGE>
Exhibit A
---------
OBJECTIVE: To keep the Preferred Stockholders' relative ownership of shares
constant (as compared to transaction consummated at the Effective
Conversion Price), upon issuance of a "New Dilutive Security" (see
definition below), the then-applicable Conversion Price of the
Preferred Stock will be adjusted as follows:
PRIOR ANTI-DILUTION ADJUSTED
CONVERSION PRICE ADJUSTMENT FORMULA CONVERSION PRICE
- ---------------- ------------------- ----------------
(A+B+C)+EX
X x ------------------- = X^
(A+B+C^)+EX^
[ARROW UP] ...must be solved for per
calculation included in example
below.
DEFINITIONS:
- ------------
<TABLE>
<S> <C> <C>
"New Dilutive Security" - A Common stock or common stock equivalent issuance at a price below FX
X - Conversion Price of Preferred Stock prior to issuance of "New Dilutive Security."
X^ - Conversion Price of Preferred Stock adjusted for issuance of "New Dilutive Security."
FX - Effective Conversion Price of Preferred Stock prior to issuance of "New Dilutive Security."
FX^ - Effective Conversion Price of Preferred Stock adjusted for issuance of "New Dilutive Security"
A - The number of fully diluted common shares outstanding
B - Shares of Common Stock issuable upon conversion of all convertible Operating Partnership Units
outstanding prior to issuance of New Dilutive Security.
C - Shares of Common Stock issuable upon conversion of all Preferred Stock, assuming the prior
Conversion Price, (or X).
C^ - Shares of Common Stock issuable upon conversion of all outstanding Preferred Stock, assuming the
adjusted Conversion Price for the New Dilutive Security issuance (or X^).
EX - "New Dilutive Security" equivalent common shares, assuming prior Effective Conversion price, (FX)
EX^ - "New Dilutive Security" equivalent common shares, based on actual conversion of security.
</TABLE>
<PAGE>
Exhibit A (continued)
---------------------
Example
- -------
Assume a 10,000,000 share common stock issuance of $10/share (the "New Dilutive
Security") following an investment of $70,000,000 of Preferred Stock at a
$12.125 Conversion Price ($11.995 Effective Conversion Price):
Assumptions
- -----------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding Common Stock 25,480,851 Gross Proceeds - New Issue 100,000,000
OP Units Outstanding 6,527,022 New Shares Issued 10,000,000
Pref. Stock Equivalent Common Stock 5,773,196 New Share Issue Price $10.00
Preferred Conversion Price $12.125 Effective Pref. Conversion Price $11.995
- -------------------------------------------------------------------------------------------------
</TABLE>
Prior to solving for C^, the following table must be created:
<TABLE>
<CAPTION>
Post-New Dilutive Post-New Dilutive
Security Issuance Security Issuance
Pre-New Dilutive Issued at $10 per Issued at Effective
Security Issuance Share and Unadjusted Conversion Price
---------------------- ------------------------- ------------------------
Share Capitalization of Corporation # of Shares % # of Shares % # of Shares %
- --------------------------------------- ----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Common Stock Equivalent Shares (A) 25,480,851 67.44% 25,480,851 53.33% 25,480,851 55.25%
Convertible OP Units Outstanding (B) 6,527,022 17.28% 6,527,022 13.66% 6,527,022 14.15%
-------
Pref. Stock Equivalent Common Stock (C) 5,773,196 15.28% 5,773,196 12.08% 5,773,196 12.52%
-------
New Dilutive Security Shares (EX^/EX) - 0.00% 10,000,000 20.93% 8,336,745 18.08%
---------- ------- ---------- ------- ---------- -------
Total 37,781,069 100.00% 47,781,069 100.00% 46,117,814 100.00%
</TABLE>
C^ is the number of shares of Common stock into which the shares of Preferred
stock must convert in order to maintain the Preferred Stockholder's ownership
percentage at 12.5% (i.e. as if the issuance were done at the effective
conversion price prior to the issuances)
<TABLE>
<S> <C>
Share Capitalization, post New Dilutive Security Issuance as issued
at $10 per share and unadjusted 47,781,069
Less Preferred Stock Equivalent Common Stock (5,773,196)
----------
Non-Preferred Share Capitalization 42,007,873
Ownership of Preferred Shareholders if New Security Issued at Effective Conversion Price 12.52%
Remaining Shareholders Ownership Interest 87.48%
Total Shares Grossed up to Maintain Preferred Ownership Percentage at 12.52% 48,019,076
Preferred Stock Ownership Percentage 12.52%
----------
Number of Shares Preferred must convert into in order to keep Ownersip Percentage at 12.52% 6,011,203
==========
</TABLE>
<PAGE>
Exhibit A (continued)
---------------------
<TABLE>
<CAPTION>
Prior Conversion Adjusted Conversion
Price Price
- ---------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
$12.125 X ((A+B+C) + (dilutive issue proceeds / $12.125)) = X^
----------------------------------------------
((A+B+C^) + (dilutive issue proceeds / $10.00))
$12.125 X (37,781,069 + 8,336,745) = X^
-------------------------
(38,019,076 + 10,000,000)
$12.125 X 46,117,814 = 96.04% = $11.6449
----------
48,019,076
Preferred Equivalent Common Stock at New Conversion Price = 70,000,000 = 6,011,203
----------
11.645
</TABLE>
Checking the Calculation
- ------------------------
<TABLE>
<CAPTION>
Share Capitalization of Corporation Shares %
- ----------------------------------- ---------- -------
<S> <C> <C>
Common Stock Equivalent Shares (A) 25,480,851 53.06%
Convertible OP Units Outstanding (B) 6,527,022 13.59%
--------
Preferred Stock Equivalent Common Stock (C^/C) 6,011,203 12.52%
--------
New Dilutive Security Shares (EX^/EX) 10,000,000 20.83%
---------- -------
TOTAL 48,019,076 100.00%
</TABLE>
AMENDMENTS TO THE BY-LAWS OF BERKSHIRE REALTY COMPANY, INC.
1) Amendment to Article I: New Section 8 (other sections to be
renumbered)
SECTION 8. Rights of the Series A Convertible Preferred Shareholders -
(a) Voting - The holders of shares of Series A Convertible
Preferred Stock have the right to vote on all matters in which the holders of
Common Stock are entitled to vote, including but not limited to the ability to
notice special meetings and to determine the subject matter thereof, on an "as
converted" basis with holders of shares of Common Stock, as though part of the
same class as holders of Common Stock, with such number of shares of Common
Stock deemed held of record by holders of shares of Series A Convertible
Preferred Stock on any Record Date as would be the number of shares of Common
Stock into which the shares of Series A Convertible Preferred Stock held by such
holder would be entitled to be converted on such Record Date. Notwithstanding
the foregoing, as set forth in the Certificate of Designation with respect to
the Series A Convertible Preferred Stock, with respect to votes as to directors,
merger or consolidation, the issuance of any shares of Series A Convertible
Preferred Stock, the exchange or conversion of any shares of Series A
Convertible Preferred Stock or the amendment, alteration or repeal of any
provision of the Corporation Charter, the Certificate of Designation providing
for the preferences and rights of the holders of shares of Series A Convertible
Preferred Stock, the Agreement of Limited Partnership of the Operating
Partnership, or any organizational document of any Subsidiary, in such a manner
as would affect adversely the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption of the Series A
Convertible Preferred Stock, the holders of Series A Convertible Preferred Stock
must approve such action as a class by an affirmative vote of not less than a
majority of the outstanding shares of Series A Convertible Preferred Stock.
(b) Notices - The holders of shares of Series A Convertible
Preferred Stock will receive all notice of meetings of the holders of shares of
Common Stock, and all other notices and correspondence to the holders of shares
of Common Stock provided by the Corporation, and will be entitled to take such
actions, and have such rights, as are set forth in the Certificate of
Designation or are otherwise available to the holders of shares of Common Stock
in the Charter and in the By-laws of the Corporation as are in effect on the
execution date, in each case with the same effect as would be taken by holders
of Series A Convertible Preferred Stock if deemed to be holders of such number
of shares of Common Stock as determined as aforesaid.
(c) Resolutions - The Resolutions of the Board of Directors
relating to the issuance of the 2,737,000 shares of Series A Convertible
Preferred Stock are hereby adopted in the form attached.
<PAGE>
2) Amendment to Article II, Section 2(b)
add to the end of the current provision:
The holders of shares of Series A Convertible Preferred Stock, voting
as a separate class, shall be entitled at all times to elect one director (as
defined in the Certificate of Designation, the "Series A Preferred Director") to
the Board of Directors (the "Board") of the Company. In the event that the
Series A Preferred Director is unable to attend any meeting of the Board for any
reason, then such Series A Preferred Director may designate, in writing, one
person (the "Observer") who shall have the right to attend, but not vote at,
such meeting. The Observer shall not be deemed to be a member of the Board and
shall have none of the rights, duties, privileges or powers of a member of the
Board including, without limitation, the right to notice of or to vote at
meetings of the Board, and shall not be counted as a member of the Board for the
purpose of determining whether a quorum is present at any meeting of the Board.
3) Amendment to Article II, Section 15
add to end of current provision:
The Series A Preferred Director shall sit as he may request on each
committee of the Board or on any other group so acting, whether or not formally
constituted as a committee of the Board; provided, however, that the Series A
Preferred Director shall not have the right to request to sit on the Executive
Committee. The Executive Committee shall report to the full Board on any matters
exceeding $50,000,000.
4) Amendment to Article VI, Section 7
SECTION 7. Definitions - As used by these By-Laws, the terms
"Interested Shareholder" and "Continuing Director" shall have the same
respective meanings assigned to them in the Restated Certificate of
Incorporation. The term "Independent Director" shall have the meaning given in
Section 5 of Article VIII of the Restated Certificate of Incorporation. Any
determination of beneficial ownership of securities under these By-laws shall be
made in the manner specified in the Restated Certificate of Incorporation. For
purposes herein, the term "Interested Shareholder" shall not include holders of
shares of Series A Convertible Preferred Stock.
-2-
<PAGE>
5) Amendment to Article VI, Section 9
SECTION 9. Amendments - These By-laws may be altered, amended or
repealed or new By-laws may be adopted, by the Board of Directors or the
shareholders in the manner provided in the Restated Certificate of Incorporation
of the Corporation; provided, however, with respect to Article I, Section 8,
Article II, Section 2(b) and Section 15, Article VI, Section 7 or Section 9, or
any other provisions of these By-laws pertaining to the holders of shares of
Series A Convertible Preferred Stock, the rights of the holders of shares of
Series A Convertible Preferred Stock shall not be altered, amended or repealed,
and new By-laws that alter, amend or repeal the rights of the holders of Series
A Convertible Preferred Stock shall not be adopted without the affirmative vote
of the holders of not less than a majority of the outstanding shares of Series A
Convertible Preferred Stock.
-3-
