<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS SUPPLEMENT DATED SEPTEMBER 11, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 11, 1997)
4,000,000 SHARES
[LOGO OF
KIMCO KIMCO REALTY CORPORATION
REALTY
CORP.] COMMON STOCK
------------------------
Kimco Realty Corporation (the 'Company') began operations through a
predecessor in 1966, and today is the nation's largest publicly-traded owner and
operator of neighborhood and community shopping centers. As of September 1,
1997, the Company's portfolio was comprised of interests in approximately 39.0
million square feet of gross leasable area ('GLA') in 254 neighborhood and
community shopping center properties, two regional malls and 62 retail store
leases, located in 37 states. The Company is a self-administered and
self-managed equity real estate investment trust.
The 4,000,000 shares of common stock of the Company, par value $.01 per
share (the 'Common Stock'), offered hereby (the 'Offering') are being sold by
the Company. After giving effect to the Offering, management of the Company and
members of their immediate families would own approximately 24% of the
outstanding Common Stock. The Common Stock is listed on the New York Stock
Exchange (the 'NYSE') under the symbol 'KIM.' The last reported sale price of
the shares of Common Stock on the NYSE on September 9, 1997 was $33 7/8 per
share. See 'Price Range of Common Stock and Dividends.'
The shares of Common Stock are subject to certain restrictions on ownership
designed to preserve the Company's status as a real estate investment trust (a
'REIT') for federal income tax purposes. See 'Description of Common Stock--
Restrictions on Ownership' in the accompanying Prospectus.
------------------------
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 SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
-------- ------------ -----------
Per Share........ $ $ $
Total(3)......... $ $ $
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See 'Underwriting.'
(2) Before deducting expenses payable by the Company estimated at $250,000.
(3) The Company has granted to the several Underwriters an option for 30 days to
purchase up to an additional 600,000 shares of Common Stock, solely to cover
over-allotments, if any. If all of such shares are purchased, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See 'Underwriting.'
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued by the Company and delivered to and
accepted by the Underwriters, to approval of certain legal matters by counsel
for the Underwriters and to certain other conditions. The Underwriters reserve
the right to withdraw, cancel or modify such offer and to reject orders in whole
or in part. It is expected that delivery of the shares of Common Stock will be
made in New York, New York on or about September , 1997.
------------------------
MERRILL LYNCH & CO.
BT ALEX. BROWN
MORGAN STANLEY DEAN WITTER
SMITH BARNEY INC.
------------------------
The date of this Prospectus Supplement is September , 1997.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE 'UNDERWRITING.'
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial information appearing elsewhere in this Prospectus
Supplement or incorporated herein by reference. Unless otherwise indicated, the
information contained in this Prospectus Supplement assumes that the
Underwriters' over-allotment option has not been exercised. Certain statements
contained or incorporated by reference in this Prospectus Supplement and the
accompanying Prospectus, including, without limitation, statements containing
the words 'believes,' 'anticipates,' 'expects,' and words of similar import, and
discussions of the Company's strategic initiatives, constitute 'forward-looking
statements' within the meaning of the Private Securities Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the actual results, performance or achievements
of the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements.
THE COMPANY
Kimco Realty Corporation (the 'Company') began operations through a
predecessor in 1966, and today is the nation's largest publicly-traded owner and
operator of neighborhood and community shopping centers. As of September 1,
1997, the Company's portfolio was comprised of interests in approximately 39.0
million square feet of gross leasable area ('GLA') in 254 neighborhood and
community shopping center properties, two regional malls and 62 retail store
leases, located in 37 states.
As of September 1, 1997, the Company's portfolio included approximately
33.4 million square feet of gross leasable area ('Total Shopping Center GLA') in
254 neighborhood and community shopping center properties and two regional
malls, located in 30 states. Neighborhood and community shopping centers
comprise the primary focus of the Company's current portfolio, representing
approximately 97% of the Company's Total Shopping Center GLA. At September 1,
1997, approximately 89% of the Company's neighborhood and community shopping
center space was leased, and the average annualized base rent per leased square
foot of the neighborhood and community shopping center portfolio was $6.06
($6.40 as adjusted to eliminate the effect of the Venture Properties Acquisition
(as defined herein)).
In addition to its neighborhood and community shopping center portfolio, as
of September 1, 1997, the Company had interests in retail store leases totaling
approximately 5.6 million square feet of anchor store premises in 62
neighborhood and community shopping centers located in 24 states. As of
September 1, 1997, approximately 98% of these premises had been sublet to
retailers which lease the stores pursuant to net lease agreements providing for
average annualized base rental payments to the Company of $3.58 per square foot.
The Company's strategy for growth in its core portfolio is (i) to increase
cash flow and property values in its existing shopping centers by strategic
re-tenanting, renovation and expansion and (ii) to make selective acquisitions
of established income producing real estate properties which have below
market-rate leases or other cash flow growth potential in geographic regions
where the Company presently operates.
In an effort to further maximize stockholder value, the Company is pursuing
a number of strategic initiatives within its core business, as well as in other
real estate sectors and geographic markets where it presently does not operate.
The Company is self-administered and self-managed through present
management, which has owned and managed neighborhood and community shopping
centers for more than 30 years. The executive officers are engaged in the
day-to-day management and operation of real estate exclusively with the Company,
with nearly all operating functions, including leasing, legal, construction,
data processing, maintenance, finance and accounting administered by the
Company.
THE OFFERING
Shares Offered.......... 4,000,000 shares of Common Stock
Shares to be Outstanding
After the Offering.... 40,309,380 shares of Common Stock(1)
Use of Proceeds......... To acquire neighborhood and community shopping centers,
to make capital improvements and for general corporate
purposes.
New York Stock Exchange
Symbol................ 'KIM'
- ------------------
(1) Pro forma based upon the 36,309,380 shares outstanding on June 30, 1997 and
the 4,000,000 shares sold in this Offering.
S-3
<PAGE>
THE COMPANY
The Company began operations through a predecessor in 1996, and today is
the nation's largest publicly-traded owner and operator of neighborhood and
community shopping centers. As of September 1, 1997, the Company's portfolio was
comprised of interests in approximately 39.0 million square feet of GLA in 254
neighborhood and community shopping center properties, two regional malls and 62
retail store leases, located in 37 states.
As of September 1, 1997, the Company's portfolio included approximately
33.4 million square feet of Total Shopping Center GLA in 254 neighborhood and
community shopping center properties and two regional malls, located in 30
states. Neighborhood and community shopping centers comprise the primary focus
of the Company's current portfolio, representing approximately 97% of the
Company's Total Shopping Center GLA. At September 1, 1997, approximately 89% of
the Company's neighborhood and community shopping center space was leased, and
the average annualized base rent per leased square foot of the neighborhood and
community shopping center portfolio was $6.06 ($6.40 as adjusted to eliminate
the effect of the Venture Properties Acquisition).
The Company has been able to capitalize on the below market-rate leases in
its existing shopping center portfolio to obtain increases in rental revenues
through the renewal of leases or strategic re-tenanting of space. During the six
months ended June 30, 1997, the Company increased the average annualized base
rent per leased square foot of its neighborhood and community shopping center
portfolio from $6.21 to $6.40, an increase of $.19 per square foot, of which
$.14 is attributable to leasing activity within the existing portfolio and $.05
is attributable to acquisitions. The average annualized base rent per leased
square foot of its neighborhood and community shopping center portfolio for new
leases executed during the six-month period ended June 30, 1997 was $9.11. The
Venture Properties Acquisition subsequent to June 30, 1997 has reduced to $6.06
the average annualized base rent per leased square foot of the Company's
neighborhood and community shopping center portfolio. See 'Recent Developments--
Venture Properties Acquisition.'
In addition to its neighborhood and community shopping center portfolio, as
of September 1, 1997, the Company had interests in retail store leases totaling
approximately 5.6 million square feet of anchor store premises in 62
neighborhood and community shopping centers located in 24 states. As of
September 1, 1997, approximately 98% of these premises had been sublet to
retailers which lease the stores pursuant to net lease agreements providing for
average annualized base rental payments to the Company of $3.58 per square foot.
The Company believes that it has operated, and the Company intends to
continue to operate, in such a manner as to qualify as a real estate investment
trust ('REIT') under the Internal Revenue Code of 1986, as amended (the 'Code').
The Company is self-administered and self-managed through present management,
which has owned and managed neighborhood and community shopping centers for more
than 30 years. The executive officers are engaged in the day-to-day management
and operation of real estate exclusively with the Company, with nearly all
operating functions, including leasing, legal, construction, data processing,
maintenance, finance and accounting administered by the Company. After giving
effect to the Offering, the management of the Company and members of their
immediate families would own approximately 24% of the outstanding Common Stock
of the Company.
The Company's strategy for growth in its core portfolio is (i) to increase
cash flows and property values in its existing shopping centers by strategic
re-tenanting, renovation and expansion and (ii) to make selective acquisitions
of established income producing real estate properties which have below
market-rate leases or other cash flow growth potential in geographic regions
where the Company presently operates.
In an effort to further maximize stockholder value, the Company is pursuing
a number of strategic initiatives within its core business, as well as in other
real estate sectors and geographic markets where it presently does not operate.
See 'Recent Developments--Strategic Initiatives.'
The Company intends to maintain a conservative debt capitalization with a
ratio of debt to total market capitalization of approximately 50% or less. On a
pro forma basis, as of June 30, 1997, after giving effect to (i) the Offering,
(ii) the July 1997 MTN Issuances (as defined herein) and (iii) the Venture
Properties Acquisition, the Company would have had a debt to total market
capitalization ratio of approximately 25% (assuming a per share price of $33 7/8
for its Common Stock, the last reported sales price on the New York Stock
S-4
<PAGE>
Exchange (the 'NYSE') on September 9, 1997). See 'Recent Developments--Venture
Properties Acquisition' and 'Recent Developments--Financings.'
The principal executive offices of the Company are located at 3333 New Hyde
Park Road, New Hyde Park, New York 11042, and its telephone number is (516)
869-9000.
RECENT DEVELOPMENTS
VENTURE PROPERTIES ACQUISITION
In August 1997, the Company acquired certain real estate assets from
Venture Stores, Inc. ('Venture'). This acquisition consisted of interests in 49
fee and leasehold properties totaling approximately 5.9 million square feet of
leasable area located in Illinois, Missouri, Texas, Oklahoma, Kansas, Indiana
and Iowa (collectively, the 'Venture Properties Acquisition'). The transaction
included approximately 573,000 square feet of non-Venture retail space. In
addition, the Company was granted (i) an option to acquire two other properties
for $4.5 million, (ii) an option to acquire up to 11 additional properties
should certain conditions be satisfied and (iii) rights of first refusal, for a
period of five years, to acquire 31 additional properties containing 4.2 million
square feet of leasable area. Simultaneously with this transaction, the Company
entered into a long-term unitary net lease with Venture covering all premises
occupied by Venture on these properties. As a result of this transaction,
Venture represented approximately 12.4% of the annualized base rents of the
Company as of September 1, 1997.
The aggregate price was approximately $130 million, consisting of $70.5
million in cash and the assumption of approximately $59.5 million of existing
mortgage debt on certain of these properties. The mortgage debt bears interest
at 10.54% per annum and cannot be repaid, without penalty, until its maturity on
July 1, 2000.
In an effort to increase its financial flexibility in light of recent
credit rating downgrades (currently CCC for its senior debt) and substantial
operating losses, Venture decided to liquefy its real estate assets.
Irrespective of Venture's current financial status, management believes that the
Venture Properties Acquisition represents a unique strategic opportunity for the
Company, based on the significant intrinsic value in the underlying real estate
assets as a result of (i) attractive geographic locations, (ii) current below
market-rate leases and (iii) the opportunity to lease-up the remaining 165,000
square feet of vacant non-Venture retail space. In addition to its intrinsic
real estate value, the Venture Properties Acquisition also provides the Company
with (i) strong initial yields, (ii) increased geographic diversification and
(iii) options to acquire additional properties.
In a separate transaction with Venture during July 1997, the Company
consented to the modification of its unitary net lease agreements with Venture
covering 16 properties acquired in January 1996. Simultaneously, the Company
entered into two unitary net lease agreements with Kmart Corporation on nine of
these retail properties and entered into a new unitary net lease with Venture on
the remaining seven locations, in each case, on substantially the same terms set
forth in the initial Venture unitary net lease agreements.
SHOPPING CENTER ACQUISITIONS AND DISPOSITIONS
In January 1997, the Company purchased the Target Shopping Center located
on Sagamore Parkway North in Lafayette, Indiana. This 177,000 square foot center
is anchored by Target Stores and was acquired for approximately $4.1 million.
In April 1997, the Company acquired the Carrollwood Commons Shopping Center
located at Ehrlich Road and North Dale Mabry Highway, in Tampa, FL for
approximately $14.1 million. This shopping center has 110,000 square feet of GLA
and is anchored by Staples and Ross Stores.
In June 1997, the Company purchased Shady Oaks Shopping Center, Woodforest
Shopping Center and Hammond Aire Plaza, located in Ocala, FL, Houston, TX, and
Baton Rouge, LA, respectively. These properties were acquired in separate
transactions for an aggregate purchase price of approximately $34.6 million.
Shady Oaks Shopping Center, located at the intersection of S.R. 200 and Shady
Oaks Road comprises 251,000 square feet of GLA and is anchored by Kmart
Corporation, Service Merchandise and Kash N' Karry. Woodforest Shopping Center,
which comprises 113,000 square feet of GLA at the intersection of Wood Forest
Boulevard and
S-5
<PAGE>
Uvalde Road, is anchored by HEB Pantry Food and Palais Royal. Tenants at Hammond
Aire Plaza, which comprises 264,000 square feet of GLA at the intersection of
Old Hammond Highway and Airline Highway, include Marshalls, Steinmart and Taylor
Office Supply.
Management believes that the current annualized net cash flow generated by
these recently acquired properties provide an annualized yield of more than 10%
on the Company's investment in such properties.
In March 1997, the Company disposed of a shopping center property in
Easton, PA for $1.75 million in cash.
In June 1997, the Company disposed of a shopping center property in Troy,
OH. Cash proceeds from the disposition totaled approximately $1.6 million,
which, together with an additional $8.3 million cash investment, was used to
acquire an exchange shopping center property in Ocala, FL.
STRATEGIC INITIATIVES
In an effort to further maximize stockholder value, the Company is pursuing
a number of strategic initiatives within its core neighborhood and community
shopping center business, as well as in other real estate sectors and geographic
markets where it presently does not operate. These strategic initiatives include
the formation of Kimco Select Investments and the consideration of a new REIT
vehicle.
Kimco Select Investments
Kimco Select Investments, a New York general partnership ('Kimco Select'),
was formed in 1997 to provide the Company, through its 90% ownership interest in
this new entity, the opportunity to make investments outside of its core
neighborhood and community shopping center business. Although potential
investments may be largely retail-focused, Kimco Select may invest in other
asset categories. Kimco Select will focus on investments where the intrinsic
value in the underlying assets may provide potentially superior returns relative
to the inherent risk. These investments may be in the form of real estate
mortgage loans, public and private debt and equity securities that Kimco Select
believes are undervalued, unoccupied properties, properties leased to weak or
bankrupt tenants and other assets.
Kimco Select is managed by David M. Samber, formerly President and Chief
Operating Officer of the Company, who owns the remaining 10% ownership interest
in Kimco Select. The Company has made an initial commitment of $35 million
toward investments by Kimco Select and may increase its commitment as management
deems appropriate.
In March 1997, Kimco Select acquired a health care facility located on
Island Avenue in Philadelphia, PA for approximately $4.4 million. This 39,000
square foot property is anchored by Mercy Health Corporation, a leading regional
health care system, and contains complementary retail space.
New REIT Vehicle
In July 1997, the Company announced that it is considering the creation of
a new REIT to take advantage of certain investment opportunities that currently
do not meet its traditional investment criteria. These certain investments
generally relate to neighborhood and community shopping center properties that
are anchored by credit tenants that generate fixed, market-rate rents under
long-term leases. Properties with these characteristics have generally not been
considered by the Company in its ongoing acquisition program as the growth
potential through re-tenanting or redevelopment is limited, and the initial
returns on these investments are usually less than the Company's minimum return
criteria. However, the Company believes that such investments, through
utilization of higher levels of nonrecourse financing, may provide a
risk-adjusted return suitable for certain investors.
The Company has not finalized its plans regarding the structure of this new
entity; however, the Company intends to own a significant minority share of the
entity and manage the properties for customary arms-length fees. This entity may
be newly-formed or an existing company in which the Company acquires an
interest. In either case, the Company may contribute certain properties to the
entity. However, management believes that any such contribution would not be
material to the financial position or results of operations of the Company.
S-6
<PAGE>
MANAGEMENT
In January 1997, Michael J. Flynn assumed the role of President and Chief
Operating Officer of the Company, in addition to his existing position of Vice
Chairman of the Board of Directors. David M. Samber, formerly the President and
Chief Operating Officer of the Company, is currently the Chief Executive Officer
of Kimco Select. Also, in May 1997, Michael V. Pappagallo was appointed Vice
President--Chief Financial Officer of the Company. See 'Management.'
PROPERTY REDEVELOPMENTS
The Company has an ongoing program to reformat and re-tenant its properties
to maintain or enhance its competitive position in the marketplace. During 1997,
the Company has substantially completed the redevelopment of three shopping
centers in its portfolio, located in Charles Town, WV, Philadelphia, PA and
Plainview, NY, at a total cost of approximately $17 million. The Company is
currently involved in redeveloping several other shopping centers, most notably
its properties in Norriton, PA, North Miami, FL, Winston-Salem, NC, Richboro,
PA, Westmont, NJ and Lexington, KY. Each redevelopment represents an opportunity
for the Company to capitalize on its leasing, site planning, design and
construction expertise. The Company anticipates its capital commitment toward
these redevelopments will be approximately $20 million. These projects, which
are currently proceeding on schedule and in line with the Company's budgeted
costs, are expected to contribute to growth in the Company's funds from
operations in the future.
FINANCINGS
In April 1995, the Company implemented a medium-term note ('MTN') program.
The Company believes that this MTN program will continue to enable it (i) to
issue on an ongoing basis discrete amounts of low-cost unsecured debt that will
closely match, both as to timing and amount, the Company's specific liquidity
requirements, including property acquisition and redevelopment costs, and (ii)
to better manage the Company's debt maturities, including its mortgage debt
maturities.
During May 1997, the Company issued (i) a $30 million ten-year note which
bears interest at an annual rate of 7.46% and matures in May 2007 and (ii) a $20
million twelve-year note which bears interest at an annual rate of 7.56% and
matures in May 2009.
During July 1997, the Company issued (i) a $30 million twelve-year note
which bears interest at an annual rate of 7.06% and matures in July 2009 and
(ii) a $20 million ten-year note which bears interest at an annual rate of 6.96%
and matures in July 2007 (collectively, the 'July 1997 MTN Issuances'). As of
September 1, 1997, a total principal amount of $210.25 million of unsecured
notes had been issued under the MTN program.
Also during June 1997, the Company amended its $100 million, unsecured
revolving credit facility with a group of banks to provide for a reduction (i)
by .25% (25 basis points) in the spread above LIBOR paid on borrowings under the
facility to a rate of LIBOR plus .50% (50 basis points), (ii) by .02% (2 basis
points) in the annual fee payable on that portion of the facility which remains
unused from time to time and (iii) a reduction of certain annual extension and
administrative fees. The facility term was also extended one year and is
scheduled to expire on June 30, 2000.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated at approximately $ million (or $ million if the
Underwriters' over-allotment option to purchase an additional 600,000 shares of
Common Stock from the Company is exercised in full). The net proceeds will be
used (i) to acquire neighborhood and community shopping centers as suitable
opportunities arise, including certain properties currently under consideration,
(ii) to redevelop, expand and improve certain properties in the Company's
portfolio and (iii) for general corporate purposes.
Pending such use, the Company may (i) temporarily repay borrowings under
the Company's revolving credit facility, or (ii) invest in short-term income
producing investments such as investments in commercial paper, government
securities or money market funds that invest in government securities. Interest
on the current balance under the Company's revolving credit facility accrues at
.50% (50 basis points) per annum above the applicable LIBOR term. The revolving
credit facility matures in June 2000.
S-7
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS
Since the initial public offering of the Company's Common Stock on November
22, 1991 (the 'IPO' or the 'Company's IPO'), the Company's Common Stock has been
listed on the NYSE under the symbol 'KIM.' The following sets forth the high and
low closing sale prices for the Common Stock for the fiscal periods indicated as
reported by the NYSE Composite Tape and the dividends paid by the Company with
respect to each such period.
HIGH LOW DIVIDENDS
------ ------ ---------
1992..................................... $20.75 $14.08 $1.19
1993..................................... $26.17 $20.33 $1.27
1994..................................... $25.92 $22.17 $1.35
1995
First Quarter.......................... $26.00 $23.75 $ .36
Second Quarter......................... $26.67 $24.83 $ .36
Third Quarter.......................... $27.50 $25.25 $ .36
Fourth Quarter......................... $28.17 $23.92 $ .39
1996
First Quarter.......................... $27.88 $25.50 $ .39
Second Quarter......................... $28.50 $25.75 $ .39
Third Quarter.......................... $30.25 $26.63 $ .39
Fourth Quarter......................... $34.88 $28.38 $ .43
1997
First Quarter.......................... $34.25 $32.00 $ .43
Second Quarter......................... $33.38 $30.50 $ .43
Third Quarter (through September 9).... $35.13 $31.75 (1)
- ------------------
(1) Not yet declared.
On September 9, 1997, the last reported sale price of the Common Stock on
the NYSE was $33 7/8 per share. Dividends will be paid on or about the 15th day
of each January, April, July and October to its common stockholders at the
discretion of the Board of Directors and will depend on the funds from
operations of the Company, its financial condition, capital requirements, the
annual distribution requirements under the REIT provisions of the Code and such
other factors as the Board of Directors deems relevant. Certain of the Company's
preferred stock and debt instruments and agreements limit the payment of
dividends. See 'Description of Debt Securities--Certain Covenants--Restrictions
on Dividends and Other Distributions' and 'Description of Preferred Stock--
Dividends' in the accompanying Prospectus.
The Company has implemented a dividend reinvestment program under which
stockholders may elect to automatically reinvest their dividends in shares of
Common Stock. The Company may, from time to time, repurchase shares of Common
Stock in the open market for purposes of fulfilling its obligations under this
dividend reinvestment program or may elect to issue additional shares of Common
Stock.
Distributions by the Company to the extent of its current earnings and
profits for federal income tax purposes are taxable to stockholders as ordinary
dividend income. Distributions in excess of earnings and profits generally are
treated as a non-taxable return of capital to the extent of a stockholder's
basis in the Common Stock. A return of capital distribution has the effect of
deferring taxation until a stockholder's sale of the Common Stock. The Company
has determined that 100% of the dividends paid during 1996, 1995, 1994 and 1993
represented ordinary dividend income to its stockholders. Dividends paid during
1992 have been determined to be comprised of 88% ordinary dividend income and
12% return of capital.
HISTORICAL TOTAL RETURN
An investor who purchased Common Stock in the Company's IPO on November 22,
1991, who reinvested all dividends paid in additional shares of Common Stock,
and who held such shares through the close of business on September 9, 1997,
would have had a cumulative pretax total return of 249% or an average annual
compounded pretax return of 24% based upon the closing price of the Common Stock
on September 9, 1997. Past performance, however, is not necessarily indicative
of the results that will be obtained in the future from an investment in the
Common Stock, and no assurance can be given that an investor in this Offering
will achieve similar returns.
S-8
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997, and as adjusted to give effect on such date to (i) the sale by the
Company of the Common Stock offered in this Offering, (ii) the July 1997 MTN
Issuances (see 'Recent Developments--Financings') and (iii) the Venture
Properties Acquisition (see 'Recent Developments--Venture Properties
Acquisition').
HISTORICAL AS ADJUSTED
----------- -----------
(IN THOUSANDS)
Debt(1):
Notes payable.............................. $ 370,250 $ 420,250(2)
Mortgages payable.......................... 49,244 108,500(3)
----------- -----------
419,494 528,750
----------- -----------
Stockholders' equity:
Preferred Stock, $1.00 par value per share,
authorized 5,000,000 shares
Class A Preferred Stock, $1.00 par value
per share, authorized 345,000 shares,
300,000 shares issued and outstanding... 300 300(4)
Class B Preferred Stock, $1.00 par value
per share, authorized 230,000 shares,
200,000 shares issued and outstanding... 200 200(4)
Class C Preferred Stock, $1.00 par value
per share, authorized 460,000 shares,
400,000 shares issued and outstanding... 400 400(4)
Common Stock, $.01 par value per share,
authorized 100,000,000 shares,
36,309,380 and 40,309,380 shares issued
and outstanding, respectively........... 363 403(5)
Paid-in capital............................ 721,456 849,485(5)(6)
Accumulated deficit........................ (113,854) (113,854)
----------- -----------
608,865 736,934
----------- -----------
Total capitalization............... $ 1,028,359 $ 1,265,684
----------- -----------
----------- -----------
- ------------------
(1) See Notes 7 and 8 of the Notes to Consolidated Financial Statements
(contained in the Company's 1996 Annual Report on Form 10-K incorporated by
reference herein) for information pertaining to the Notes payable and
Mortgages payable.
(2) Includes July 1997 MTN Issuances. See 'Recent Developments--Financings.'
(3) Includes certain mortgages assumed in connection with the Venture Properties
Acquisition in August 1997. See 'Recent Developments--Venture Properties
Acquisition.'
(4) See Note 12 of the Notes to Consolidated Financial Statements (contained in
the Company's 1996 Annual Report on Form 10-K incorporated by reference
herein) for information pertaining to this preferred stock issue.
(5) Assumes that the Underwriters do not exercise the over-allotment option to
purchase up to an additional 600,000 shares of Common Stock from the
Company.
(6) Increase reflects the excess of net proceeds from this Offering over the par
value of the shares of Common Stock issued, assuming a price per share of
$33 7/8, the last reported sales price of the Common Stock on the NYSE on
September 9, 1997.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company and should be read in conjunction with the Consolidated Financial
Statements of the Company and Notes thereto included in the Company's 1996
Annual Report on Form 10-K and the Condensed Consolidated Financial Statements
of the Company and Notes thereto included in the Company's Quarterly Report on
Form 10-Q for the six months ended June 30, 1997 (the 'June 1997 10-Q'), each
incorporated by reference herein. Operating results for the six months ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for the year ended December 31, 1997.
S-9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------------- ----------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ---------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHOPPING CENTERS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues from rental
property(1)........ $ 90,472 $ 84,106 $ 168,144 $143,132 $125,272 $ 98,854 $ 78,769
Income before
extraordinary
items.............. $ 41,649 $ 34,366 $ 73,827 $ 51,922 $ 41,071 $ 35,159(5) $ 18,964
Income before
extraordinary
items, per common
share.............. $ .89 $ .77 $ 1.61 $ 1.33 $ 1.17 $ 1.17(5) $ .83
Net operating
income(2).......... $ 69,231 $ 62,781 $ 128,884 $107,836 $ 88,670 $ 72,508 $ 57,140
Funds from
operations(3)...... $ 46,697 $ 41,264 $ 85,106 $ 72,128 $ 59,638 $ 50,869 $ 36,625
Dividends paid on
common shares(4)... $ 31,145 $ 27,202 $ 55,385 $ 47,140 $ 40,092 $ 35,282 $ 22,699
Dividends per common
share(4)........... $ .86 $ .78 $ 1.56 $ 1.44 $ 1.33 $ 1.25 $ .99
Weighted average
number of shares of
common stock
outstanding........ 36,244 35,642 35,906 33,388 30,072 28,657 22,709
Shopping center gross
leasable area
(square feet at end
of period)......... 28,128(6) 25,631(6) 27,360(6) 23,465(6) 21,125 19,609 16,202
Shopping center
properties (at end
of period)......... 213(6) 195(6) 210(6) 174(6) 157 148 129
BALANCE SHEET DATA (at
end of period):
Real estate, before
accumulated
depreciation....... $1,150,541(6) $1,012,019(6) $1,072,056(6) $932,390(6) $796,611 $662,874 $490,367
Total assets......... $1,083,422 $1,030,813 $1,022,566 $884,242 $736,709 $652,823 $453,330
Total debt........... $ 419,494 $ 373,469 $ 364,655 $389,223 $372,999 $290,886 $278,026
Stockholders'
equity............. $ 608,866 $ 601,746 $ 605,305 $447,150 $320,712 $336,212 $154,800
</TABLE>
- ------------------
(1) Does not include revenues from rental property related to unconsolidated
joint ventures.
(2) Net operating income is defined as revenues from rental property less rental
property expenses (excluding depreciation and amortization and interest
expense), plus income from investment in retail store leases.
(3) Industry analysts generally consider funds from operations to be an
appropriate measure of the performance of an equity REIT. Funds from
operations is defined as net income before depreciation and amortization,
gains or losses on sales of real estate, plus funds from operations of
unconsolidated joint ventures, determined on a consistent basis, less
preferred stock dividends. Funds from operations does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and therefore should not be considered a substitute
for net income as a measure of results of operations, or for cash flow from
operations calculated in accordance with generally accepted accounting
principles as a measure of liquidity.
(4) Dividends paid during the period indicated.
(5) Income before extraordinary items and Income before extraordinary items, per
common share for the year ended December 31, 1993 include $3.4 million or
$.12 per share, respectively, in non-recurring gains related to the
disposition of a shopping center and a casualty claim related to a joint
venture property.
(6) Shopping center gross leasable area, Shopping center properties and Real
estate, before accumulated depreciation do not include the Company's
investment in retail store leases.
S-10
<PAGE>
BUSINESS AND PROPERTIES
SHOPPING CENTERS
The Company is the nation's largest publicly-traded owner and operator of
neighborhood and community shopping centers. The Company's shopping center
portfolio at September 1, 1997 comprised approximately 33.4 million square feet
of Total Shopping Center GLA in 254 neighborhood and community shopping centers
and two regional malls.
NEIGHBORHOOD AND COMMUNITY SHOPPING CENTER PORTFOLIO(1)
(AS OF SEPTEMBER 1, 1997)
<TABLE>
<CAPTION>
TOTAL GROSS PERCENT OF
NUMBER OF LEASABLE AREA GROSS LEASABLE AREA
STATE PROPERTIES (SQ. FEET IN THOUSANDS) LEASED(2)
- ------------------ --------- ----------------------- -----------------------
<S> <C> <C> <C>
Arizona........... 1 187 93%
California........ 1 15 100
Connecticut....... 1 136 100
Delaware.......... 1 112 100
Florida........... 43 4,981 88
Georgia........... 7 931 93
Illinois.......... 26 3,177 97
Indiana........... 11 1,352 89
Iowa.............. 5 457 100
Kansas............ 3 348 100
Kentucky.......... 2 314 99
Louisiana......... 2 454 95
Maryland.......... 3 273 99
Massachusetts..... 1 135 84
Michigan.......... 8 1,040 96
Missouri.......... 16 2,282 88
New Hampshire..... 1 333 95
New Jersey........ 7 1,127 71
New York.......... 13 1,896 77
North Carolina.... 7 1,338 90
Ohio.............. 31 4,458 87
Oklahoma.......... 3 272 100
Pennsylvania...... 33 3,384 86
South Carolina.... 3 488 89
Tennessee......... 2 227 93
Texas............. 17 1,740 100
Utah.............. 1 121 100
Virginia.......... 2 308 86
West Virginia..... 2 245 87
Wisconsin......... 1 154 85
--- ------- ---
Total............. 254 32,285 89%(3)
--- ------- ---
--- ------- ---
</TABLE>
- ------------------
(1) Excludes two regional malls.
(2) Includes space leased for which rent is being paid but which is not
presently occupied.
(3) Percent of shopping center GLA leased.
The Company's neighborhood and community shopping center properties are
designed to attract local area customers and are typically anchored by a
supermarket, discount department store or drugstore. The Company's tenants
usually offer day-to-day necessities rather than high-priced luxury items. These
shopping centers are usually smaller than regional malls, which are typically
anchored by full-service department stores. As one of the
S-11
<PAGE>
original participants in the growth of the shopping center industry and one of
the nation's largest owners and operators of shopping centers, the Company has
established close relationships with a large number of major national and
regional retailers. The five largest tenants of the Company include Venture,
Kohls Department Stores, Kmart Corporation, WalMart and Toys/Kids/Babies 'R Us,
which represent approximately 12.4%, 3.6%, 3.4%, 2.8% and 1.9%, respectively, of
the annualized base rental revenues of the Company at September 1, 1997. For a
discussion of the Venture Properties Acquisition, see 'Recent
Developments--Venture Properties Acquisition.'
Minimum base rental revenues and operating expense reimbursements accounted
for approximately 98% of the Company's total rental revenues during the six
months ended June 30, 1997. As of September 1, 1997, the average annualized base
rent per leased square foot for its neighborhood and community shopping centers
was $6.06 ($6.40 as adjusted to eliminate the effect of the Venture Properties
Acquisition). The average annual base rent per leased square foot of its
neighborhood and community shopping center portfolio for new leases executed
during the six months ended June 30, 1997 was $9.11. The Company's management
believes that the average annualized base rent per square foot for the Company's
existing leases is generally lower than the prevailing market-rate base rents
for new leases in the geographic regions where the Company operates, reflecting
the potential for future cash flow growth.
AVERAGE ANNUALIZED BASE RENTAL RATE OF THE COMPANY'S NEIGHBORHOOD
AND COMMUNITY SHOPPING CENTERS
AVERAGE ANNUALIZED
NUMBER OF BASE RENT PER
SHOPPING CENTERS(1) LEASED SQUARE FOOT(2)
------------------- ---------------------
September 1, 1997... 254 $6.06(3)
June 30, 1997....... 211 6.40
December 31, 1996... 208 6.21
December 31, 1995... 172 6.19
December 31, 1994... 155 5.89
December 31, 1993... 146 5.53
December 31, 1992... 127 4.94
April 30, 1991...... 127 4.45
April 30, 1990...... 128 4.21
April 30, 1989...... 123 3.87
April 30, 1988...... 111 3.79
- ------------------
(1) Excludes two regional malls.
(2) Average annualized base rent per leased square foot is calculated as total
annualized base rents as of the date indicated, excluding ground lease
income, divided by shopping center GLA actually leased as of the date
indicated.
(3) The Venture Properties Acquisition subsequent to June 30, 1997 has reduced
the average annualized base rent by $.34 per leased square foot in the
Company's neighborhood and community shopping center portfolio.
No single neighborhood or community shopping center accounted for more than
1.3% of the Company's shopping center GLA or more than 2.0% of total annualized
base rental revenues as of September 1, 1997. The percent of the total
annualized base rents for leases expiring during the next five years on the
Company's neighborhood and community shopping center portfolio are as follows
(assuming exercise of renewal options): 1998: 2.4%; 1999: 3.9%; 2000: 2.5%;
2001: 2.8%; and 2002: 2.8%.
The Company maintains an active leasing and capital improvement program
that the Company believes has, combined with the high quality of the locations,
made its properties attractive to tenants. The Company's management believes its
experience in the industry and its relationships with numerous national and
regional tenants gives it an advantage in the shopping center industry, in which
ownership is fragmented among a large number of property owners. The Company
believes that its shopping centers are adequately insured against
S-12
<PAGE>
casualty loss and liability arising in connection with the operation of the
properties in accordance with industry practice.
In recent years, the retail industry has experienced many changes, with the
introduction of new retail concepts and formats reshaping the industry. There
has been a proliferation of new retailers and a growing consumer preference for
value-oriented shopping alternatives that have, among other factors, heightened
competitive pressures. In certain areas of the country, there may also be an
oversupply of retail space. As a consequence, many companies in all sectors of
the retailing industry have encountered significant financial difficulties.
Notwithstanding efforts by retailers to adjust their business strategies and
restructure their operations to retain their competitive position, these
difficulties may result in their inability to meet contractual obligations or
induce them to seek concessions in order to continue operations. These
circumstances and changes in retailing may also result in downward pressure on
rental rates in general. Substantially all of the Company's income is derived
from rental revenues from retailers in neighborhood and community shopping
centers. Accordingly, no assurance can be given that the Company's financial
results will not be adversely affected by these circumstances and developments
in the retail industry as they may affect neighborhood and community shopping
centers. However, management believes that rents in the Company's portfolio
(which in many cases are below market), the Company's geographic
diversification, the Company's diversified tenant base and the Company's strong
financial position will mitigate any such adverse effects and allow the Company
to take advantage of opportunities that may arise in a changing environment.
The Company also owns regional malls in Leominster, MA and Dallas, TX.
Given its intention to concentrate and focus its portfolio on neighborhood and
community shopping centers, if suitable opportunities arise, the Company may
sell its regional malls or exchange them for a portfolio of neighborhood and
community shopping centers.
In addition to its neighborhood and community shopping center portfolio,
the Company holds interests in retail store leases totaling approximately 5.6
million square feet of anchor store premises in 62 neighborhood and community
shopping centers located in 24 states. As of September 1, 1997, approximately
98% of these premises had been sublet to retailers which lease the stores
pursuant to net lease agreements providing for average annualized base rental
payments to the Company of $3.58 per square foot. The Company's average
annualized base rental obligation pursuant to its retail store leases with the
fee owners of such subleased premises is approximately $2.75 per square foot.
The average remaining primary term of the Company's retail store leases (and
similarly the remaining primary terms of its sublease agreements with the
tenants currently leasing such space) is approximately 4.8 years, excluding
options to renew such leases for terms which generally range from 10 to 30
years.
S-13
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
NAME AGE PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
- ------------------------- --- ------------------------------------------------
Martin S. Kimmel......... 81 Chairman (Emeritus) of the Board of Directors of
the Company since November 22, 1991; Chairman
of the Board of Directors of the Company for
more than five years prior to such date.
Founding member of the Company's predecessor
in 1966.
Milton Cooper............ 68 Chairman of the Board of Directors of the
Company since November 22, 1991; Director and
President of the Company for more than five
years prior to such date. Founding member of
the Company's predecessor in 1966.
Richard G. Dooley........ 68 Director of the Company since December 1, 1991.
Consultant to, and from 1978 to 1993,
Executive Vice President and Chief Investment
Officer of, Massachusetts Mutual Life
Insurance Company.
Michael J. Flynn......... 62 Vice Chairman of the Board of Directors of the
Company since January 2, 1996 and President
and Chief Operating Officer since January 2,
1997; Director of the Company since December
1, 1991. Chairman of the Board and President
of Slattery Associates, Inc. for more than
five years prior to joining the Company in
1996.
Joseph Grills............ 62 Director of the Company since January 1997.
Chief Investment Officer for the IBM
Retirement Funds from 1986 to 1993.
Frank Lourenso........... 57 Director of the Company since December 1, 1991.
Executive Vice President of The Chase
Manhattan Bank ('Chase Bank' and successor by
merger to Chemical Bank N.A.) since 1990.
Senior Vice President of Chase Bank prior to
that time.
Joseph V. Denis.......... 46 Vice President--Construction since 1993.
President and Chief Operating Officer of
Konover Construction Company for more than
five years prior to joining the Company.
Bruce M. Kauderer........ 51 Vice President--Legal since June 1995. Founder
of and Partner with Kauderer & Pack P.C. from
1992 to June 1995. Partner with Fink
Weinberger P.C. for more than five years prior
to 1992.
S-14
<PAGE>
NAME AGE PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
- ------------------------- --- ------------------------------------------------
Michael V. Pappagallo.... 38 Vice President--Chief Financial Officer of the
Company since May 27, 1997. Chief Financial
Officer of GE Capital's Commercial Real Estate
Financing and Services business (September
1994-May 1997) and various other positions
within GE Capital for more than five years
prior to joining the Company.
Robert P. Schulman....... 69 Senior Vice President, General Counsel and
Secretary of the Company since 1978.
Alex Weiss............... 39 Vice President--Management Information Systems
since 1988.
Mr. Cooper is also a director of Getty Realty Corp. and Blue Ridge Real
Estate/Big Boulder Corporation and a trustee of MassMutual Corporate Investors
and MassMutual Participation Investors. He also serves as Chairman of the Board
of Governors of the National Association of Real Estate Investment Trusts and is
a former chairman of the Shopping Center Committee of the Real Estate Board of
New York, Inc.
Mr. Dooley is also a director of Advest Group, Inc., Hartford Steam Boiler
Inspection and Insurance Co. and Jeffries Group, Inc., and a trustee of
MassMutual Corporate Investors and MassMutual Participation Investors.
Mr. Flynn is also Chairman of the Board of Directors of Blue Ridge Real
Estate/Big Boulder Corporation and a director of Slattery Associates, Inc.
Mr. Grills is also a director of certain Merrill Lynch and Hotchkis and
Wyley mutual funds, Duke Management Company and the LaSalle Street Fund. He also
serves as a member of the Investment Advisory Committees of the State of New
York Common Retirement Fund and the Howard Hughes Medical Institute. Mr. Grills
is a member of the Financial Executives Institute Committee on Investment of
Employee Benefit Assets and its executive committee and is a former chairman of
that Committee.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TO HOLDERS OF COMMON STOCK
The following summary of certain federal income tax considerations to
holders of Common Stock is based on current law, is for general information
only, and is not tax advice. The tax treatment of a holder of Common Stock will
vary depending upon his particular situation, and this discussion does not
purport to deal with all aspects of taxation that may be relevant to particular
stockholders in light of their personal investment or tax circumstances, or to
certain types of stockholders (including insurance companies, financial
institutions or broker-dealers, tax-exempt organizations, foreign corporations,
and persons who are not citizens or residents of the United States, except to
the extent discussed under the heading 'Taxation of Tax-Exempt Stockholders' and
'Taxation of Non-U.S. Stockholders') subject to special treatment under the
Federal income tax laws.
This discussion does not address any aspects of federal income taxation to
the Company relating to its election to be taxed as a real estate investment
trust. A summary of certain federal income tax considerations to the Company is
provided in the Prospectus.
The discussion set forth below assumes that the Company qualifies as a REIT
under the Code. If in any taxable year the Company were to fail to qualify as a
REIT, the Company would not be allowed a deduction for dividends paid to
stockholders in computing taxable income and would be subject to federal income
tax on its taxable income at regular corporate rates. As a result, the funds
available for distribution to the Company's stockholders would be reduced. See
'Certain Federal Income Taxes to the Company of its REIT Election--Failure to
Qualify' in the Prospectus.
EACH INVESTOR SHOULD REFER TO THE PROSPECTUS FOR A SUMMARY OF THE FEDERAL
INCOME TAX CONSIDERATIONS TO THE COMPANY OF ITS REIT ELECTION. EACH INVESTOR IS
ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO
HIM OF THE ACQUISITION, OWNERSHIP AND SALE OF COMMON STOCK, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
S-15
<PAGE>
TAXATION OF TAXABLE U.S. STOCKHOLDERS GENERALLY
As used herein, the term 'U.S. Stockholder' means a holder of shares of
Common Stock who (for United States Federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership, or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, or (iii) is an estate the income of which
is subject to United States Federal income taxation regardless of its source, or
(iv) is a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States fiduciaries who have
the authority to control all substantial decisions of the trust.
As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Stockholders as ordinary income. Such distributions will not be
eligible for the dividends-received deduction in the case of U.S. Stockholders
that are corporations. Distributions made by the Company that are properly
designated by the Company as capital gain dividends will be taxable to taxable
U.S. Stockholders as gains from the sale or exchange of a capital asset held for
more than one year (to the extent that they do not exceed the Company's actual
net capital gain for the taxable year) without regard to the period for which a
U.S. Stockholder has held his shares of stock. It is not clear whether such
amounts will be taxable at the rates applicable to mid-term capital gains
(applicable to gains from the sale of assets held for more than one year but
less than or equal to 18 months) or whether long-term capital gains rates
(applicable to gains from the sale of capital assets held for more than 18
months) will apply. This uncertainty may be clarified by future legislation or
regulations. U.S. Stockholders that are corporations may be required to treat up
to 20% of certain capital gain dividends as ordinary income.
To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Stockholder, reducing the adjusted basis which such U.S.
Stockholder has in his shares of stock for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Stockholder's adjusted basis in his shares taxable as capital gains (provided
that the shares have been held as a capital asset). Dividends declared by the
Company in October, November, or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the Company on or before
January 31 of the following calendar year. Stockholders may not include in their
own income tax returns any net operating losses or capital losses of the
Company.
Distributions made by the Company and gain arising from the sale or
exchange by a U.S. Stockholder of shares of Common Stock will not be treated as
passive activity income, and, as a result, U.S. Stockholders generally will not
be able to apply any 'passive losses' against such income or gain. Distributions
made by the Company (to the extent they do not constitute a return of capital)
generally will be treated as investment income for purposes of computing the
investment income limitation. Gain arising from the sale or other disposition of
Common Stock, however, will not be treated as investment income unless the U.S.
Stockholder elects to reduce the amount of such U.S. Stockholder's total net
capital gain eligible for capital gains rates by the amount of such gain with
respect to the shares.
Upon any sale or other disposition of shares of Common Stock, a U.S.
Stockholder will recognize gain or loss for Federal income tax purposes in an
amount equal to the difference between (i) the amount of cash and the fair
market value of any property received on such sale or other disposition, and
(ii) the holder's adjusted basis in the shares for tax purposes. Such gain or
loss will be capital gain or loss if the shares have been held by the U.S.
Stockholders as a capital asset, and in the case of a U.S. Stockholder who is an
individual, will be mid-term or long-term gain or loss if such shares have been
held for more than one year or 18 months, respectively. In general, any loss
recognized by a U.S. Stockholder upon the sale or other disposition of shares of
the Company that have been held 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 received by such U.S. Stockholder from the Company which were
required to be treated as long-term capital gains.
BACKUP WITHHOLDING
Information concerning the amount of dividends paid during each calendar
year, and the amount of tax withheld, if any, will be reported to the Company's
U.S. Stockholders and the IRS (unless an exemption from such reporting applies,
as in the case of a corporate holder). Under the backup withholding rules, a
stockholder
S-16
<PAGE>
may be subject to backup withholding at the rate of 31% with respect to
dividends paid unless such holder (a) is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact, or (b)
provides a taxpayer identification number, certifies as to no loss of exemption
from backup withholding, and otherwise complies with applicable requirements of
the backup withholding rules. A U.S. Stockholder that does not provide the
Company with his correct taxpayer identification number may also be subject to
penalties imposed by the IRS. Any amount paid as backup withholding will be
creditable against the stockholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions to
any stockholders who fail to certify their non-foreign status to the Company.
See '--Taxation of Non-U.S. Stockholders.'
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Generally, a tax-exempt investor that is exempt from tax on its investment
income, such as an individual retirement account (IRA) or a 401(k) plan, that
holds the Common Stock as an investment will not be subject to tax on dividends
paid by the Company. However, if such tax-exempt investor is treated as having
purchased its Common Stock with borrowed funds, some or all of its dividends
will be subject to tax. In addition, after 1993, under some circumstances
certain pension plans (including 401(k) plans but not including IRAs and
government pension plans) that own more than 10% (by value) of the Company's
outstanding stock, including preferred stock, could be subject to tax on a
portion of their dividends even if their stock is held for investment and is not
treated as acquired with borrowed funds. The ownership limit provisions (see the
discussion in the Prospectus under the heading 'Description of Common Stock--
Restrictions on Ownership' and 'Description of Preferred Stock--Restrictions on
Ownership'), however, should prevent this result in most cases.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing United States Federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, 'Non-U.S. Stockholders') are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
Federal income tax and does not address state, local or foreign tax consequences
that may be relevant to a Non-U.S. Stockholder in light of its particular
circumstances. In addition, this discussion is based on current law, which is
subject to change, and assumes that the Company qualifies for taxation as a
REIT. Prospective Non-U.S. Stockholders should consult with their own tax
advisers to determine the impact of Federal, state, local and foreign income tax
laws with regard to an investment in Common Stock, including any reporting
requirements.
Distributions. Distributions by the Company to a Non-U.S. Stockholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor 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 withholding of United
States Federal income tax on a gross basis (that is, without allowance of
deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the Non-U.S. Stockholder of a United States trade
or business. Dividends that are effectively connected with such a trade or
business will be subject to tax on a net basis (that is, after allowance of
deductions) at graduated rates, in the same manner as domestic stockholders are
taxed with respect to such dividends and are generally not subject to
withholding. Any such dividends received by a Non-U.S. Stockholder that is a
corporation may also be subject to an additional branch profits tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
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 applicability of a tax treaty rate. Under
proposed Treasury regulations, not currently in effect, however, a Non-U.S.
Stockholder who wished to claim the benefit of an applicable treaty rate would
be required to satisfy certain certification and other requirements. Under
certain treaties, lower withholding rates generally applicable to dividends do
not apply to dividends from a REIT, such as the Company. Certain certification
and disclosure requirements must be satisfied to be exempt from withholding
under the effectively connected income exemption discussed above.
S-17
<PAGE>
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Stockholder to the extent that
they do not exceed the adjusted basis of the stockholder's stock, but rather
will reduce the adjusted basis of such stock. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Stockholder's stock, they
will give rise to gain from the sale or exchange of his stock, the tax treatment
of which is described below. For withholding purposes, the Company is required
to treat all distributions as if made out of current or accumulated earnings and
profits. However, amounts thus withheld are generally refundable if it is
subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Company.
Distributions to a Non-U.S. Stockholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those arising
from the disposition of a United States real property interest) generally will
not be subject to United States Federal income taxation, unless (i) investment
in the stock is effectively connected with the Non-U.S. Stockholder's United
States trade or business, in which case the Non-U.S. Stockholder will be subject
to the same treatment as domestic stockholders with respect to such gain (except
that a stockholder that is a foreign corporation may also be subject to the 30%
branch profits tax, as discussed above), or (ii) 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 which
case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains.
Distributions to a Non-U.S. Stockholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
cause the Non-U.S. Stockholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. Non-U.S.
Stockholders would thus generally be taxed at the same rates applicable to
domestic stockholders (subject to a special alternative minimum tax in the case
of nonresident alien individuals). Also, such gain may be subject to a 30%
branch profits tax in the hands of a Non-U.S. Stockholder that is a corporation,
as discussed above. The Company is required to withhold 35% of any such
distribution. That amount is creditable against the Non-U.S. Stockholder's
United States Federal income tax liability.
Sale of Stock. Gain recognized by a Non-U.S. Stockholder upon the sale or
exchange of shares of stock generally will not be subject to United States
taxation unless the stock constitutes a 'United States real property interest'
within the meaning of FIRPTA. The stock will not constitute a 'United States
real property interest' so long as the Company is a 'domestically controlled
REIT.' A 'domestically controlled REIT' is a REIT in which at all times during a
specified testing period less than 50% in value of its stock is held directly or
indirectly by Non-U.S. Stockholders. Notwithstanding the foregoing, gain from
the sale or exchange of shares of stock not otherwise subject to FIRPTA 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 is not 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 Stock would be subject to United States taxation under FIRPTA as a
sale of a 'United States real property interest' will depend on whether the
shares are 'regularly traded' (as defined by applicable Treasury Regulations, on
an established securities market (e.g., the New York Stock Exchange) and on the
size of the selling Non-U.S. Stockholder's interest in the Company. If gain on
the sale or exchange of shares of stock were subject to taxation under FIRPTA,
the Non-U.S. Stockholder would be subject to regular United States income tax
with respect to such gain in the same manner as a U.S. Stockholder (subject to
any applicable alternative minimum tax, a special alternative minimum tax in the
case of nonresident alien individuals and the possible application of the 30%
branch profits tax in the case of foreign corporations), and the purchaser of
the stock would be required to withhold and remit to the IRS 10% of the purchase
price.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Stockholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of stock by or through a foreign office of a foreign broker.
Information reporting (but not backup
S-18
<PAGE>
withholding) will apply, however, to a payment of the proceeds of a sale of
stock by a foreign office of a broker that (a) is a United States person, (b)
derives 50% or more of its gross income for certain periods from the conduct of
a trade or business in the United States or (c) is a 'controlled foreign
corporation' (generally, a foreign corporation controlled by United States
stockholders) for United States tax purposes, unless the broker has documentary
evidence in its records that the holder is a Non-U.S. Stockholder and certain
other conditions are met, or the stockholder otherwise establishes an exemption.
Payment to or through a United States office of a broker of the proceeds of sale
of stocks is subject to both backup withholding and information reporting unless
the stockholder certifies under penalties of perjury that the stockholder is a
Non-U.S. Stockholder, or otherwise establishes an exemption. A Non-U.S.
Stockholder may obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.
The United States Treasury issued proposed regulations on April 15, 1996
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 the current
form, the proposed regulations would generally be effective for payments made
after December 31, 1998, subject to certain transition rules.
OTHER TAX CONSEQUENCES
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 consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
UNDERWRITING
Subject to the terms and conditions contained in the terms agreement and
the related underwriting agreement (collectively, the 'Underwriting Agreement'),
the Company has agreed to sell to each of the Underwriters named below, and each
of the Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated, BT Alex. Brown Incorporated, Morgan Stanley & Co. Incorporated and
Smith Barney Inc. are acting as representatives (the 'Representatives'), has
severally agreed to purchase from the Company, the respective number of shares
of Common Stock set forth below opposite their names. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain
conditions precedent, and that the Underwriters are committed to purchase all of
the shares of Common Stock if any are purchased.
UNDERWRITER NUMBER OF SHARES
----------- ----------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................
BT Alex. Brown Incorporated.......................
Morgan Stanley & Co. Incorporated.................
Smith Barney Inc..................................
----------------
Total................................ 4,000,000
----------------
----------------
S-19
<PAGE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus Supplement, and to
certain dealers at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share on sales to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus Supplement to purchase up to 600,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price less the underwriting discount set forth on the cover page
of this Prospectus Supplement. If the Underwriters exercise this option, each of
the Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the foregoing table bears to the
shares of Common Stock initially offered hereby.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended.
Subject to certain exceptions, the Company has agreed not to offer, sell,
contract to sell or otherwise dispose of any Common Stock, or any security
convertible into or exchangeable for Common Stock, for a period of 90 days after
the date of this Prospectus Supplement without prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters to bid for and purchase
shares of Common Stock. As an exemption to these rules, the Representatives are
permitted to engage in certain transactions that stabilize the price of the
Common Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are referred to on the cover page of the Prospectus Supplement, the
Representatives may reduce that short position by purchasing shares of Common
Stock in the open market. The Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters who sold those shares as
part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
S-20
<PAGE>
PROSPECTUS
KIMCO REALTY CORPORATION
$200,000,000
DEBT SECURITIES, PREFERRED STOCK, DEPOSITARY SHARES,
COMMON STOCK AND COMMON STOCK WARRANTS
Kimco Realty Corporation ('Kimco' or the 'Company') may from time to time
offer in one or more classes or series (i) its unsecured senior debt securities
(the 'Debt Securities'), (ii) shares or fractional shares of its preferred
stock, par value $1.00 per share (the 'Preferred Stock'), (iii) shares of
Preferred Stock represented by depositary shares (the 'Depositary Shares'), (iv)
shares of its common stock, par value $.01 per share (the 'Common Stock'), or
(v) warrants to purchase Common Stock (the 'Common Stock Warrants'), with an
aggregate public offering price of up to $200,000,000 on terms to be determined
at the time of offering. The Debt Securities, Preferred Stock, Depositary
Shares, Common Stock, and Common Stock Warrants (collectively, the 'Offered
Securities') may be offered separately, together or as units, in separate
classes or series in amounts, at prices and on terms to be set forth in a
supplement to this Prospectus (each, a 'Prospectus Supplement').
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, currency of
denomination and payment, form (which may be registered or bearer, or
certificated or global), authorized denominations, maturity, rate (or manner of
calculation thereof) and time of payment of interest, terms for redemption at
the option of the Company or repayment at the option of the Holder, terms for
sinking fund payments, terms for conversion into Preferred Stock or Common
Stock, and any initial public offering price; (ii) in the case of Preferred
Stock, the specific title and stated value, any dividend, liquidation,
redemption, conversion, voting and other rights, and any initial public offering
price; (iii) in the case of Depositary Shares, the fractional share of Preferred
Stock represented by each such Depositary Share; (iv) in the case of Common
Stock, any initial public offering price; and (v) in the case of Common Stock
Warrants, the duration, offering price, exercise price and detachability. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Offered Securities, in each case
as may be appropriate to preserve the status of the Company as a real estate
investment trust ('REIT') for federal income tax purposes.
The applicable Prospectus Supplement will also contain information, where
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 offered directly, through agents designated
from time to time by the Company, or to or through underwriters or dealers. If
any agents or underwriters are involved in the sale of any of the Offered
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See 'Plan of Distribution.' No Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such series of Offered Securities.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
The date of this Prospectus is September 11, 1997.
<PAGE>
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'). The Registration
Statement, the exhibits and schedules forming a part thereof and the reports,
proxy statements and other information filed by the Company with the Commission
in accordance with the Exchange Act can be inspected and copied at the
Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. If available, such information also
may be accessed through the Commission's electronic data gathering, analysis and
retrieval system ('EDGAR') via electronic means, including the Commission's
home-page on the Internet (http://www.sec.gov). In addition, certain of the
Company's securities are listed on the New York Stock Exchange and similar
information concerning the Company can be inspected and copied at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement (the
'Registration Statement') (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the 'Securities Act'), with respect to the
Offered Securities. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Offered Securities, reference is hereby made to
the Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
a. Annual Report on Form 10-K for the year ended December 31, 1996;
and
b. Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Offered Securities shall be
deemed to be incorporated by reference in this Prospectus and the applicable
Prospectus Supplement and to be part hereof and thereof from the date of filing
such documents. Any statement contained herein or therein or in a document
incorporated or deemed to be incorporated by reference herein or therein shall
be deemed to be modified or superseded for purposes of this Prospectus and the
applicable Prospectus Supplement to the extent that a statement contained herein
or therein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein and therein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus or the applicable Prospectus Supplement.
Copies of all documents which are incorporated by reference in this
Prospectus and the applicable Prospectus Supplement (not including the exhibits
to such information, unless such exhibits are specifically incorporated by
reference in such information) will be provided without charge to each person,
including any beneficial owner of the Offered Securities, to whom this
Prospectus and the applicable Prospectus Supplement are delivered, upon written
or oral request. Requests should be directed to the Secretary of the Company,
3333 New Hyde Park Road, New Hyde Park, New York 11042-0020 (telephone number:
(516) 869-9000).
2
<PAGE>
THE COMPANY
The Company began operations through a predecessor in 1966, and today is
the nation's largest publicly-traded owner and operator of neighborhood and
community shopping centers. As of September 1, 1997, the Company's portfolio was
comprised of approximately 39.0 million square feet of gross leasable area
('GLA') in 254 neighborhood and community shopping center properties, two
regional malls and 62 retail stores, located in 37 states.
The Company is self-administered and self-managed through present
management which has owned and managed neighborhood and community shopping
centers for more than 30 years. The executive officers are engaged in the
day-to-day management and operation of real estate exclusively with the Company,
with nearly all operating functions, including leasing, legal, construction,
data processing, maintenance, finance and accounting administered by the
Company.
In order to maintain its qualification as a REIT for federal income tax
purposes, the Company is required to distribute at least 95% of its taxable
income each year. Dividends on any preferred stock issued by the Company are
included as distributions for this purpose. Historically, the Company's
distributions have exceeded, and the Company expects that its distributions will
continue to exceed, taxable income each year. A portion of such distributions
may constitute a return of capital. As a result of the foregoing, the
consolidated net worth of the Company may decline. The Company, however, does
not believe that consolidated stockholders' equity is a meaningful reflection of
net real estate values.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Offered Securities
for general corporate purposes, which may include the acquisition of
neighborhood and community shopping centers as suitable opportunities arise, the
expansion and improvement of certain properties in the Company's portfolio, and
the repayment of indebtedness outstanding at such time.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities are to be issued under an Indenture, dated as of
September 1, 1993, as amended by the First Supplemental Indenture dated as of
August 4, 1994, the Second Supplemental Indenture dated as of April 7, 1995 and
as further amended or supplemented from time to time (the 'Indenture'), between
the Company and IBJ Schroder Bank & Trust Company, as Trustee (the 'Trustee').
The Indenture has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part and is available for inspection at the corporate
trust office of the Trustee at One State Street, New York, New York 10004 or as
described above under 'Available Information.' 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.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company
and will rank equally with all other unsecured and unsubordinated 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
301).
3
<PAGE>
The Indenture provides that there may be more than one Trustee thereunder,
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 608). 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 609), 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;
(2) the aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) 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 Common Stock
or Preferred Stock, or the method by which any such portion shall be
determined;
(4) 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 or Preferred Stock into which such
Debt Securities are convertible;
(5) the date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(6) the rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) the date or dates, or the method for determining such date or dates,
from which any 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 any such Date
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;
(8) 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 demands to or upon the Company in
respect of such Debt Securities and the Indenture may be served;
(9) 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;
(10) the obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or
periods within which, the price or prices at which and the terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(11) if other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be units of two
or more foreign currencies or a composite currency or currencies, and
the terms and conditions relating thereto;
(12) whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula
or method may, but need not be, based on a currency, currencies,
currency unit or units or composite currency or currencies) and the
manner in which such amounts shall be determined;
4
<PAGE>
(13) 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;
(14) whether such Debt Securities will be issued in certificated and/or
book-entry form;
(15) 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;
(16) the applicability, if any, of the defeasance and covenant defeasance
provisions of Article XIV of the Indenture;
(17) if such Debt Securities are to be issued upon the exercise of debt
warrants, the time, manner and place for such Debt Securities to be
authenticated and delivered;
(18) the terms, if any, upon which such Debt Securities may be convertible
into Common Stock or Preferred Stock 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;
(19) 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; and
(20) any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
('Original Issue Discount Securities'). If material or applicable, special U.S.
federal income tax, accounting and other considerations applicable to Original
Issue Discount Securities will be described in the applicable Prospectus
Supplement.
Except as described under 'Certain Covenants--Limitations on Incurrence of
Debt' and under 'Merger, Consolidation or Sale,' the Indenture does not contain
any other provisions that would limit the ability of the Company to incur
indebtedness or to substantially reduce or eliminate the Company's assets, which
may have an adverse effect on the Company's ability to service its indebtedness
(including the Debt Securities) or that would afford Holders of the Debt
Securities protection in the event of (i) a highly leveraged or similar
transaction involving the Company, the management of the Company, or any
Affiliate of either such party, (ii) a change of control, or (iii) a
reorganization, restructuring, merger or similar transaction involving the
Company that may adversely affect the Holders of the Debt Securities.
Furthermore, subject to the limitations set forth under 'Merger, Consolidation
or Sale,' the Company may, in the future, enter into certain transactions, such
as the sale of all or substantially all of its assets or the merger or
consolidation of the Company, that would increase the amount of the Company's
indebtedness or substantially reduce or eliminate the Company's assets, which
may have an adverse effect on the Company's ability to service its indebtedness,
including the Debt Securities. In addition, restrictions on ownership and
transfers of the Company's common stock and preferred 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 Common Stock' and 'Description of
Preferred Stock.' 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.
A significant number of the Company's properties are owned through its
subsidiaries. Therefore, the rights of the Company and its creditors, including
Holders of Debt Securities, to participate in the assets of such subsidiaries
upon the liquidation or recapitalization of such subsidiaries or otherwise will
be subject to the prior claims of such subsidiaries' respective creditors
(except to the extent that claims of the Company itself as a creditor may be
recognized).
5
<PAGE>
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 302).
Unless otherwise specified 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, initially located
at One State Street, New York, New York 10004, 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 or by wire
transfer of funds to such Person at an account maintained within the United
States (Sections 301, 305, 306, 307 and 1002).
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 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner, all as more completely described in the 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 referred to above.
In addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
conversion or registration of transfer or exchange thereof at the corporate
trust office of the Trustee referred to above. 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 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 305). 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 1002).
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 305).
MERGER, CONSOLIDATION OR SALE
The Company 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
under the Indenture, and no event which, after notice or the lapse of time, or
both, would become such an Event of Default, shall have occurred and be
continuing; and (c) an officer's certificate and legal opinion covering such
conditions shall be delivered to the Trustee (Sections 801 and 803).
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CERTAIN COVENANTS
Limitations on Incurrence of Debt. The Company will not, and will not
permit any Subsidiary to, incur any Debt (as defined below) if, immediately
after giving effect to the incurrence of such additional Debt, the aggregate
principal amount of all outstanding Debt of the Company and its Subsidiaries on
a consolidated basis determined in accordance with generally accepted accounting
principles is greater than 65% of the sum of (i) the Company's Undepreciated
Real Estate Assets (as defined below) as of the end of the calendar quarter
covered in the Company's Annual Report on Form 10-K or Quarterly Report on Form
10-Q, as the case may be, most recently filed with the Commission (or, if such
filing is not permitted under the Exchange Act, with the Trustee) prior to the
incurrence of such additional Debt and (ii) the purchase price of any real
estate assets acquired by the Company or any Subsidiary since the end of such
calendar quarter, including those obtained in connection with the incurrence of
such additional Debt (Section 1004).
In addition to the foregoing limitation on the incurrence of Debt, the
Company will not, and will not permit any Subsidiary to, incur any Debt secured
by any mortgage, lien, charge, pledge, encumbrance or security interest of any
kind upon any of the property of the Company or any Subsidiary if, immediately
after giving effect to the incurrence of such additional Debt, the aggregate
principal amount of all outstanding Debt of the Company and its Subsidiaries on
a consolidated basis which is secured by any mortgage, lien, charge, pledge,
encumbrance or security interest on property of the Company or any Subsidiary is
greater than 40% of the sum of (i) the Company's Undepreciated Real Estate
Assets as of the end of the calendar quarter covered in the Company's Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most
recently filed with the Commission (or, if such filing is not permitted under
the Exchange Act, with the Trustee) prior to the incurrence of such additional
Debt and (ii) the purchase price of any real estate assets acquired by the
Company or any Subsidiary since the end of such calendar quarter, including
those obtained in connection with the incurrence of such additional Debt
(Section 1004).
In addition to the foregoing limitations on the incurrence of Debt, the
Company will not, and will not permit any Subsidiary to, incur any Debt if
Consolidated Income Available for Debt Service (as defined below) for any 12
consecutive calendar months within the 15 calendar months immediately preceding
the date on which such additional Debt is to be incurred shall have been less
than 1.5 times the Maximum Annual Service Charge (as defined below) on the Debt
of the Company and all Subsidiaries to be outstanding immediately after the
incurring of such additional Debt (Section 1004).
Restrictions on Dividends and Other Distributions. The Company will not, in
respect of any shares of any class of its capital stock, (a) declare or pay any
dividends (other than dividends payable in capital stock of the Company)
thereon, (b) apply any of its property or assets to the purchase, redemption or
other acquisition or retirement thereof, (c) set apart any sum for the purchase,
redemption or other acquisition or retirement thereof, or (d) make any other
distribution, by reduction of capital or otherwise if, immediately after such
declaration or other action referred to above, the aggregate of all such
declarations and other actions since the date on which the Indenture was
originally executed shall exceed the sum of (i) Funds from Operations (as
defined below) from June 30, 1993 until the end of the calendar quarter covered
in the Company's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as
the case may be, most recently filed with the Commission (or, if such filing is
not permitted under the Exchange Act, with the Trustee) prior to such
declaration or other action and (ii) $26,000,000; provided, however, that the
foregoing limitation shall not apply to any declaration or other action referred
to above which is necessary to maintain the Company's status as a REIT under the
Internal Revenue Code of 1986, as amended (the 'Code'), if the aggregate
principal amount of all outstanding Debt of the Company and its Subsidiaries at
such time is less than 65% of the Company's Undepreciated Real Estate Assets as
of the end of the calendar quarter covered in the Company's Annual Report on
Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently
filed with the Commission (or, if such filing is not permitted under the
Exchange Act, with the Trustee) prior to such declaration or other action
(Section 1005).
Notwithstanding the foregoing, the Company will not be prohibited from
making the payment of any dividend within 30 days of the declaration thereof if
at such date of declaration such payment would have complied with the provisions
of the immediately preceding paragraph (Section 1005).
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
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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 1006).
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, betterments and improvements thereof, all as in
the judgment of the Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that the Company and its Subsidiaries shall not be prevented
from selling or otherwise disposing for value its properties in the ordinary
course of business (Section 1007).
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 and having a rating of at least A:VIII in Best's Key Rating Guide
(Section 1008).
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 1009).
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 so to file such documents if the
Company were so subject. The Company will also in any event (x) within 15 days
of each Required Filing Date (i) transmit by mail to all Holders of Debt
Securities, as their names and addresses appear in the Security Register,
without cost to such Holders copies of the annual reports and quarterly reports
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
Sections and (ii) 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 Sections 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 prospective Holder (Section
1010).
Maintenance of Unencumbered Total Asset Value. The Company will at all
times maintain an Unencumbered Total Asset Value in an amount of not less than
one hundred percent (100%) of the aggregate principal amount of all outstanding
Debt of the Company and its Subsidiaries that is unsecured (Section 1014).
As used herein,
'Consolidated Income Available for Debt Service' for any period means
Consolidated Net Income (as defined below) of the Company and its Subsidiaries
plus amounts which have been deducted for (a) interest on Debt of the Company
and its Subsidiaries, (b) provision for taxes of the Company and its
Subsidiaries based on income, (c) amortization of debt discount, (d) property
depreciation and amortization and (e) the effect of any noncash charge resulting
from a change in accounting principles in determining Consolidated Net Income
for such period.
'Consolidated Net Income' for any period means the amount of consolidated
net income (or loss) of the Company and its Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles.
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'Debt' of the Company or any Subsidiary means any indebtedness of the
Company or any Subsidiary, whether or not contingent, in respect of (i) borrowed
money or evidenced by bonds, notes, debentures or similar instruments, (ii)
indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or any
security interest existing on property owned by the Company or any Subsidiary,
(iii) letters of credit or amounts representing the balance deferred and unpaid
of the purchase price of any property except any such balance that constitutes
an accrued expense or trade payable or (iv) any lease of property by the Company
or any Subsidiary as lessee which is reflected on the Company's Consolidated
Balance Sheet as a capitalized lease in accordance with generally accepted
accounting principles, in the case of items of indebtedness under (i) through
(iii) above to the extent that any such items (other than letters of credit)
would appear as a liability on the Company's Consolidated Balance Sheet in
accordance with generally accepted accounting principles, and also includes, to
the extent not otherwise included, any obligation by the Company or any
Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise
(other than for purposes of collection in the ordinary course of business),
indebtedness of another person (other than the Company or any Subsidiary) (it
being understood that Debt shall be deemed to be incurred by the Company or any
Subsidiary whenever the Company or such Subsidiary shall create, assume,
guarantee or otherwise become liable in respect thereof).
'Funds from Operations' for any period means the Consolidated Net Income of
the Company and its Subsidiaries for such period without giving effect to
depreciation and amortization, gains or losses from extraordinary items, gains
or losses on sales of real estate, gains or losses on investments in marketable
securities and any provision/benefit for income taxes for such period, plus
Funds from Operations of unconsolidated joint ventures, all determined on a
consistent basis for such period.
'Maximum Annual Service Charge' as of any date means the maximum amount
which may become payable in any period of 12 consecutive calendar months from
such date for interest on, and required amortization of, Debt. The amount
payable for amortization shall include the amount of any sinking fund or other
analogous fund for the retirement of Debt and the amount payable on account of
principal on any such Debt which matures serially other than at the final
maturity date of such Debt.
'Total Assets' as of any date means the sum of (i) the Company's
Undepreciated Real Estate Assets and (ii) all other assets of the Company
determined in accordance with generally accepted accounting principles (but
excluding goodwill and amortized debt costs).
'Undepreciated Real Estate Assets' as of any date means the amount of real
estate assets of the Company and its Subsidiaries on such date, before
depreciation and amortization determined on a consolidated basis in accordance
with generally accepted accounting principles.
'Unencumbered Total Asset Value' as of any date means the sum of the
Company's Total Assets which are unencumbered by any mortgage, lien, charge,
pledge or security interest that secures the payment of any obligations under
any Debt.
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; (c) default in making any
sinking fund payment as required for any Debt Security of such series; (d)
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; (e)
default in the payment of an aggregate principal amount exceeding $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; (f) certain events of bankruptcy,
insolvency or reorganization, or court appointment of a receiver, liquidator or
trustee of the Company or any Significant Subsidiary or either of its property;
and (g) any other Event of Default provided with
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respect to a particular series of Debt Securities (Section 501). The term
'Significant Subsidiary' means each significant subsidiary (as defined in
Regulation S-X promulgated under the Securities Act) of the Company.
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 that series are Original Issue Discount
Securities or Indexed Securities, such portion of the principal amount as may be
specified in the terms thereof) of 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 (or
of all Debt Securities then Outstanding under the Indenture, as the case may be)
has been made, but before a judgment or decree for payment of the money due has
been obtained by the Trustee, the Holders of not less than a majority in
principal amount of Outstanding Debt Securities of such series (or of all Debt
Securities then Outstanding under the Indenture, as the case may be) may rescind
and annul such declaration and its consequences 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 (or of all
Debt Securities then Outstanding under the Indenture, as the case may be), 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 (or
of all Debt Securities then Outstanding under the Indenture, as the case may be)
have been cured or waived as provided in the Indenture (Section 502). The
Indenture also provides that the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of any series (or of all
Debt Securities then Outstanding under the Indenture, as the case may be) 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
provision contained in the Indenture that cannot be modified or amended without
the consent of the Holder of each Outstanding Debt Security affected thereby
(Section 513).
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 601).
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 indemnity reasonably satisfactory to it (Section 507). 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 508).
Subject to 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 602). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under the Indenture, as the case may be) shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the 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 512).
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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 1011).
MODIFICATION
Modifications and amendments of the Indenture and Debt Securities 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 payable on redemption of, any such Debt Security, or reduce the amount
of principal of an Original Issue Discount Security that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the Holder
of any such Debt Security; (c) change the Place of Payment, or the coin or
currency, for payment of principal of (or premium, if any) or interest on 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 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities have the right to waive compliance by the Company with certain
covenants in the Indenture (Section 1013).
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 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
interests 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 provision; (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, defect or inconsistency in 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 901).
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
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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 301 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 of
such other obligor shall be disregarded (Section 101).
The Indenture contains provisions for convening meetings of the Holders of
Debt Securities of a series (Section 1501). 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 series,
in any such case upon notice given as provided in the Indenture (Section 1502).
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 1504).
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
1504).
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 401).
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
301 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
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or agency in respect of such Debt Securities and to hold moneys for payment in
trust) ('defeasance') (Section 1402) or (b) to be released from its obligations
with respect to such Debt Securities under Sections 1004 to 1010, inclusive, and
Section 1014 of the Indenture (being the restrictions described under 'Certain
Covenants') or, if provided pursuant to Section 301 of the Indenture, its
obligations with respect to any other covenant, and any omission to comply with
such obligations shall not constitute a default or an Event of Default with
respect to such Debt Securities ('covenant defeasance') (Section 1403), 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 currency or currencies in which such Debt Securities are payable at
Stated Maturity, or Government Obligations (as defined below), or both,
applicable to such Debt Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, 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 1404).
'Government 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 of 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 a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a 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 101).
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 301 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 1405).
'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
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is payable in a Foreign Currency that ceases to be used by its government of
issuance shall be made in U.S. dollars (Section 101).
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (d) under 'Events of Default, Notice and Waiver' with respect to
Sections 1004 to 1010, inclusive, and Section 1014 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 provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into other Debt Securities, Common Stock or Preferred Stock will be
set forth in the applicable Prospectus Supplement relating thereto. Such terms
will include whether such Debt Securities are convertible into other Debt
Securities, Common Stock or Preferred Stock, 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.
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 depositary (the 'Depositary') identified in
the applicable Prospectus Supplement relating to such series. Global Securities
may be issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement with respect to
a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
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DESCRIPTION OF COMMON STOCK
The Company has the authority to issue 100,000,000 shares of common stock,
par value $.01 per share, and 51,000,000 shares of excess stock, par value $.01
per share. At June 30, 1997, the Company had outstanding 36,309,380 shares of
common stock and no shares of excess stock. On August 4, 1994, the Company,
previously a Delaware corporation, reincorporated as a Maryland corporation
pursuant to an Agreement and Plan of Merger approved by the Company's
stockholders.
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of Debt Securities or Preferred Stock of the Company or
upon the exercise of the Common Stock Warrants issued by the Company. The
statements below describing the Common Stock are in all respects subject to and
qualified in their entirety by reference to the applicable provisions of the
Company's charter and Bylaws.
Holders of the Company's Common Stock will be entitled to receive dividends
when, as and if declared by the Board of Directors of the Company, out of assets
legally available therefor. Payment and declaration of dividends on the Common
Stock and purchases of shares thereof by the Company will be subject to certain
restrictions if the Company fails to pay dividends on the preferred stock. See
'Description of Preferred Stock.' Upon any liquidation, dissolution or winding
up of the Company, holders of Common Stock will be entitled to share equally and
ratably in any assets available for distribution to them, after payment or
provision for payment of the debts and other liabilities of the Company and the
preferential amounts owing with respect to any outstanding preferred stock. The
Common Stock will possess ordinary voting rights for the election of directors
and in respect of other corporate matters, with each share entitling the holder
thereof to one vote. Holders of Common Stock will not have cumulative voting
rights in the election of directors, which means that holders of more than 50%
of all of the shares of the Company's common stock voting for the election of
directors will be able to elect all of the directors if they choose to do so
and, accordingly, the holders of the remaining shares will be unable to elect
any directors. Holders of shares of Common Stock will not have preemptive
rights, which means they have no right to acquire any additional shares of
Common Stock that may be issued by the Company at a subsequent date. The Common
Stock will, when issued, be fully paid and nonassessable and will not be subject
to preemptive or similar rights.
Under Maryland law and the Company's charter, a distribution (whether by
dividend, redemption or other acquisition of shares) to holders of shares of
common stock may be made only if, after giving effect to the distribution, the
Company's total assets are greater than the Company's total liabilities plus the
amount necessary to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights on dissolution are superior to the
holders of common stock. The Company has complied with this requirement in all
of its prior distributions to holders of Common Stock.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding stock may be owned, actually or constructively, by five
or fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year, and its stock must be beneficially 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. In addition, rent from
Related Party Tenants (as defined below) is not qualifying income for purposes
of the income tests under the Code.
Subject to certain exceptions specified in the Company's charter, no holder
may own, or be deemed to own by virtue of the constructive ownership provisions
of the Code, more than 2% (the 'Ownership Limit') in value of the outstanding
shares of the Company's common stock. The constructive ownership rules are
complex and may cause common stock owned actually or constructively by a group
of related individuals and/or entities to be deemed constructively owned by one
individual or entity. As a result, the acquisition of less than 2% in value of
the common stock (or the acquisition of an interest in an entity which owns
common stock) by an individual or entity could cause that individual or entity
(or another individual or entity) to own constructively in excess of 2% in value
of the common stock, and thus subject such common stock to the Ownership Limit.
Existing stockholders who exceeded the Ownership Limit immediately after
the completion of the Company's initial public offering of its common stock (the
'IPO') in November 1991, may continue to do so
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and may acquire additional shares through the stock option plan, or from other
existing stockholders who exceed the Ownership Limit, but may not acquire
additional shares from such sources such that the five largest beneficial owners
of common stock could own, actually or constructively, more than 49.6% of the
outstanding common stock, and in any event may not acquire additional shares
from any other sources. In addition, because rent from Related Party Tenants
(generally, a tenant owned, actually or constructively, 10% or more by a REIT,
or a 10% owner of a REIT) is not qualifying rent for purposes of the gross
income tests under the Code, the Company's charter provides that no individual
or entity may own, or be deemed to own by virtue of the attribution provisions
of the Code (which differ from the attribution provisions applied to the
Ownership Limit), in excess of 9.8% in value of the outstanding common stock
(the 'Related Party Limit'). The Board of Directors may waive the Ownership
Limit and the Related Party Limit with respect to a particular stockholder (such
Related Party Limit has been waived with respect to the existing stockholders
who exceeded the Related Party Limit immediately after the IPO) if evidence
satisfactory to the Board of Directors and the Company's tax counsel is
presented that such ownership will not then or in the future jeopardize the
Company's status as a REIT. As a condition of such waiver, the Board of
Directors may require opinions of counsel satisfactory to it and/or an
undertaking from the applicant with respect to preserving the REIT status of the
Company. The foregoing restrictions on transferability and ownership will not
apply if the Board of Directors determines that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as a
REIT. If shares of common stock in excess of the Ownership Limit or the Related
Party Limit, or shares which would cause the REIT to be beneficially owned by
less than 100 persons or which would cause the Company to be 'closely held'
within the meaning of the Code or would otherwise result in failure to qualify
as a REIT, are issued or transferred to any person, such issuance or transfer
shall be null and void to the intended transferee, and the intended transferee
would acquire no rights to the stock. Shares transferred in excess of the
Ownership Limit or the Related Party Limit, or shares which would otherwise
cause the Company to be 'closely held' within the meaning of the Code or would
otherwise result in failure to qualify as a REIT, will automatically be
exchanged for shares of a separate class of stock ('Excess Stock') that will be
transferred by operation of law to the Company as trustee for the exclusive
benefit of the person or persons to whom the shares are ultimately transferred,
until such time as the intended transferee retransfers the shares. While these
shares are held in trust, they will not be entitled to vote or to share in any
dividends or other distributions (except upon liquidation). The shares may be
retransferred by the intended transferee to any person who may hold such shares
at a price not to exceed (i) the price paid by the intended transferee, or (ii)
if the intended transferee did not give value for such shares, a price per share
equal to the market value of the shares on the date of the purported transfer to
the intended transferee, at which point the shares will automatically be
exchanged for ordinary common stock. In addition, such shares of Excess Stock
held in trust are purchasable by the Company for a 90-day period at a price
equal to the lesser of the price paid for the stock by the intended transferee
and the market price for the stock on the date the Company determines to
purchase the stock. This period commences on the date of the violative transfer
if the intended transferee gives notice to the Company of the transfer, or the
date the Board of Directors determines that a violative transfer has occurred if
no notice is provided.
All certificates representing shares of common stock will bear a legend
referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than a specified percentage of the outstanding shares of common
stock must file an affidavit with the Company containing the information
specified in the Company's charter within 30 days after January 1 of each year.
In addition, each common stockholder shall upon demand be required to disclose
to the Company in writing such information with respect to the actual and
constructive ownership of shares as the Board of Directors deems necessary to
comply with the provisions of the Code applicable to a REIT or to comply with
the requirements of any taxing authority or governmental agency.
The Registrar and Transfer Agent for the Company's common stock is The
First National Bank of Boston.
DESCRIPTION OF COMMON STOCK WARRANTS
The Company may issue Common Stock Warrants for the purchase of Common
Stock. Common Stock 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 Common
Stock
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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 Common Stock
Warrants of such series and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of Common Stock
Warrants.
The applicable Prospectus Supplement will describe the terms of the Common
Stock Warrants in respect of which this Prospectus is being delivered,
including, where applicable, the following: (1) the title of such Common Stock
Warrants; (2) the aggregate number of such Common Stock Warrants; (3) the price
or prices at which such Common Stock Warrants will be issued; (4) the
designation, number and terms of the shares of Common Stock purchasable upon
exercise of such Common Stock Warrants; (5) the designation and terms of the
other Offered Securities with which such Common Stock Warrants are issued and
the number of such Common Stock Warrants issued with each such Offered Security;
(6) the date, if any, on and after which such Common Stock Warrants and the
related Common Stock will be separately transferable; (7) the price at which
each share of Common Stock purchasable upon exercise of such Common Stock
Warrants may be purchased; (8) the date on which the right to exercise such
Common Stock Warrants shall commence and the date on which such right shall
expire; (9) the minimum or maximum amount of such Common Stock Warrants which
may be exercised at any one time; (10) information with respect to book-entry
procedures, if any; (11) a discussion of certain federal income tax
considerations; and (12) any other material terms of such Common Stock Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Common Stock Warrants.
DESCRIPTION OF PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock, par
value $1.00 per share, 345,000 shares of 7 3/4% Class A Cumulative Redeemable
Preferred Stock, $1.00 par value per share ('Class A Preferred Stock'), 230,000
shares of 8 1/2% Class B Cumulative Redeemable Preferred Stock, $1.00 par value
per share ('Class B Preferred Stock') and 460,000 shares of 8 3/8% Class C
Cumulative Redeemable Preferred Stock, $1.00 par value per share ('Class C
Preferred Stock'). The Company is also authorized to issue 345,000 shares of
Class A Excess Preferred Stock, $1.00 par value per share ('Class A Excess
Preferred Stock'), 230,000 shares of Class B Excess Preferred Stock, $1.00 par
value per share ('Class B Excess Preferred Stock') and 460,000 shares of Class C
Excess Preferred Stock, $1.00 par value per share ('Class C Excess Preferred
Stock'), which are reserved for issuance upon conversion of certain outstanding
Class A Preferred Stock, Class B Preferred Stock or Class C Preferred Stock, as
the case may be, as necessary to preserve the Company's status as a REIT. At
June 30, 1997, 300,000 shares of Class A Preferred Stock, represented by
3,000,000 depositary shares, 200,000 shares of Class B Preferred Stock,
represented by 2,000,000 depositary shares, and 400,000 shares of Class C
Preferred Stock, represented by 4,000,000 depositary shares, were outstanding.
Under the Company's charter, the Board of Directors may from time to time
establish and issue one or more classes or series of preferred stock and fix the
designations, powers, preferences and rights of the shares of such classes or
series and the qualifications, limitations or restrictions thereon, including,
but not limited to, the fixing of the dividend rights, dividend rate or rates,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions) and the liquidation preferences.
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's charter (including the applicable
articles supplementary) and Bylaws.
GENERAL
Subject to limitations prescribed by Maryland law and the Company's
charter, the Board of Directors is authorized to fix the number of shares
constituting each class or series of Preferred Stock and the designations and
powers, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions thereof, including such
provisions as may be desired concerning voting, redemption, dividends,
dissolution or the distribution of assets, conversion or exchange, and such
other subjects or matters as may be fixed by resolution of the Board of
Directors or duly authorized committee thereof. The Preferred Stock will, when
issued, be fully paid and nonassessable and will not have, or be subject to, any
preemptive or similar rights.
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Reference is made to the Prospectus Supplement relating to the class or
series of Preferred Stock offered thereby for specific terms, including:
(1) The class or series, title and stated value of such Preferred
Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such
Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred
Stock;
(4) Whether dividends on such Preferred Stock shall be cumulative or
not and, if cumulative, the date from which dividends on such
Preferred Stock shall accumulate;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) Provisions for a sinking fund, if any, for such Preferred Stock;
(7) Provisions for redemption, if applicable, of such Preferred
Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such
Preferred Stock will be convertible into Common Stock of the
Company, including the conversion price (or manner of calculation
thereof);
(10) Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(11) A discussion of certain federal income tax considerations
applicable to such Preferred Stock;
(12) In addition to those limitations described below, any other
limitations on direct or beneficial ownership and restrictions on
transfer of such Preferred Stock and, if convertible, the related
Common Stock, in each case as may be appropriate to preserve the
status of the Company as a REIT; and
(13) Any other material terms, preferences, rights, limitations or
restrictions of such Preferred Stock.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to (as applicable) dividend rights and rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of common stock and excess stock of the Company and to all
equity securities of the Company the terms of which provide that such equity
securities are subordinated to the Preferred Stock; (ii) on a parity with all
equity securities of the Company other than those referred to in clauses (i) and
(iii) and (iii) junior to all equity securities of the Company which the terms
of such Preferred Stock provide will rank senior to it. As used in the Company's
charter for these purposes, the term 'equity securities' does not include
convertible debt securities.
DIVIDENDS
Holders of shares of the Preferred Stock of each class or series shall be
entitled to receive, when, as and if declared by the Board of Directors of the
Company, out of assets of the Company legally available for payment, cash
dividends at such rates and on such dates as will be set forth in the applicable
Prospectus Supplement. Each such dividend shall be payable to holders of record
as they appear on the stock transfer books of the Company on such record dates
as shall be fixed by the Board of Directors of the Company.
Dividends on any class or series of the Preferred Stock may be cumulative
or non-cumulative, as provided in the applicable Prospectus Supplement.
Dividends, if cumulative, will accumulate from and after the date set forth in
the applicable Prospectus Supplement. If the Board of Directors of the Company
fails to declare a dividend payable on a dividend payment date on any class or
series of the Preferred Stock for which dividends are noncumulative, then the
holders of such class or series of the Preferred Stock will have no right to
receive a dividend in respect of the dividend period ending on such dividend
payment date, and the Company will have no obligation to pay the dividend
accrued for such period, whether or not dividends on such class or series are
declared payable on any future dividend payment date.
If any shares of the Preferred Stock of any class or series are
outstanding, no full dividends shall be declared or paid or set apart for
payment on the preferred stock of the Company of any other class or series
ranking, as to
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dividends, on a parity with or junior to the Preferred Stock of such class or
series for any period unless (i) if such class or series of Preferred Stock has
a cumulative dividend, full cumulative dividends have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such class or series for
all past dividend periods and the then current dividend period or (ii) if such
class or series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Preferred Stock of such class or series. When
dividends are not paid in full (or a sum sufficient for such full payment is not
so set apart) upon the shares of Preferred Stock of any class or series and the
shares of any other class or series of preferred stock ranking on a parity as to
dividends with the Preferred Stock of such class or series, all dividends
declared upon shares of Preferred Stock of such class or series and any other
class or series of preferred stock ranking on a parity as to dividends with such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share on the Preferred Stock of such class or series and such other
class or series of preferred stock shall in all cases bear to each other the
same ratio that accrued and unpaid dividends per share on the shares of
Preferred Stock of such class or series (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if such
Preferred Stock does not have a cumulative dividend) and such other class or
series of preferred stock bear to each other. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such class or series of Preferred Stock has a cumulative dividend, full
cumulative dividends on the Preferred Stock of such class or series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period and (ii) if such class or series of Preferred Stock does
not have a cumulative dividend, full dividends on the Preferred Stock of such
class or series have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set aside for payment for the then
current dividend period, no dividends (other than in common stock or other stock
ranking junior to the Preferred Stock of such class or series as to dividends
and upon liquidation, dissolution or winding up of the Company) shall be
declared or paid or set aside for payment or other distribution shall be
declared or made upon the common stock, excess stock or any other stock of the
Company ranking junior to or on a parity with the Preferred Stock of such class
or series as to dividends or upon liquidation, nor shall any common stock,
excess stock or any other capital stock of the Company ranking junior to or on a
parity with the Preferred Stock of such class or series as to dividends or upon
liquidation, dissolution or winding up of the Company be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any such stock)
by the Company (except by conversion into or exchange for other stock of the
Company ranking junior to the Preferred Stock of such class or series as to
dividends and upon liquidation, dissolution or winding up of the Company).
Any dividend payment made on shares of a class or series of Preferred Stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of such class or series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the shares of
Preferred Stock will be subject to mandatory redemption or redemption at the
option of the Company, as a whole or in part, in each case upon the terms, at
the times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a class or series of Preferred Stock
that is subject to mandatory redemption will specify the number of shares of
such Preferred Stock that shall be redeemed by the Company in each year
commencing after a date to be specified, at a redemption price per share to be
specified, together with an amount equal to all accrued and unpaid dividends
thereon (which shall not, if such Preferred Stock does not have a cumulative
dividend, include any accumulation in respect of unpaid dividends for prior
dividend periods) to the date of redemption. The redemption price may be payable
in cash or other property, as specified in the applicable Prospectus Supplement.
If the redemption price for Preferred Stock of any series is payable only from
the net proceeds of the issuance of stock of the Company, the terms of such
Preferred Stock may provide that, if no such stock shall have been issued or to
the extent the net proceeds from any issuance are insufficient to pay in full
the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be
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converted into shares of the applicable stock of the Company pursuant to
conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such class or series of
Preferred Stock has a cumulative dividend, full cumulative dividends on all
shares of any class or series of Preferred Stock shall have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period and (ii) if such class or series of Preferred Stock does
not have a cumulative dividend, full dividends on the Preferred Stock of any
class or series have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for the then
current dividend period, no shares of any class or series of Preferred Stock
shall be redeemed unless all outstanding shares of Preferred Stock of such class
or series are simultaneously redeemed; provided, however, that the foregoing
shall not prevent the purchase or acquisition of shares of Preferred Stock of
such class or series pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding shares of Preferred Stock of such class or
series; and, unless (i) if such class or series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
class or series of Preferred Stock have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period and
(ii) if such class or series of Preferred Stock does not have a cumulative
dividend, full dividends on the Preferred Stock of any class or series have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend period,
the Company shall not purchase or otherwise acquire directly or indirectly any
shares of Preferred Stock of such class or series (except by conversion into or
exchange for stock of the Company ranking junior to the Preferred Stock of such
class or series as to dividends and upon liquidation, dissolution or winding up
of the Company).
If fewer than all of the outstanding shares of Preferred Stock of any class
or series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
by such holders (with adjustments to avoid redemption of fractional shares) or
any other equitable method determined by the Company that will not result in the
issuance of any Excess Preferred Stock (as hereinafter defined).
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of a share of Preferred
Stock of any class or series to be redeemed at the address shown on the stock
transfer books of the Company. Each notice shall state: (i) the redemption date;
(ii) the number of shares and class or series of the Preferred Stock to be
redeemed; (iii) the redemption price; (iv) the place or places where
certificates for such Preferred Stock are to be surrendered for payment of the
redemption price; (v) that dividends on the shares to be redeemed will cease to
accrue on such redemption date; and (vi) the date upon which the holder's
conversion rights, if any, as to such shares shall terminate. If fewer than all
the shares of Preferred Stock of any class or series are to be redeemed, the
notice mailed to each such holder thereof shall also specify the number of
shares of Preferred Stock to be redeemed from each such holder. If notice of
redemption of any shares of Preferred Stock has been given and if the funds
necessary for such redemption have been set apart by the Company in trust for
the benefit of the holders of any shares of Preferred Stock so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such shares of Preferred Stock, such shares of Preferred Stock shall
no longer be deemed outstanding and all rights of the holders of such shares
will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company, then, before any distribution or payment shall be made to the
holders of any common stock, excess stock or any other class or series of stock
of the Company ranking junior to such class or series of Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of the
Company, the holders of each class or series of Preferred Stock shall be
entitled to receive out of assets of the Company legally available for
distribution to stockholders liquidating distributions in the amount of the
liquidation preference per share (set forth in the applicable Prospectus
Supplement), plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if such class or series of Preferred Stock does not have
a cumulative dividend). After payment of the full amount of the liquidating
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distributions to which they are entitled, the holders of such class or series of
Preferred Stock will have no right or claim to any of the remaining assets of
the Company. In the event that, upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the legally available assets of the
Company are insufficient to pay the amount of the liquidating distributions on
all outstanding shares of such class or series of Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of stock
of the Company ranking on a parity with such class or series of Preferred Stock
in the distribution of assets upon any liquidation, dissolution or winding up of
the Company, then the holders of such class or series of Preferred Stock and all
other such classes or series of stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
shares of such class or series of Preferred Stock, the remaining assets of the
Company shall be distributed among the holders of any other classes or series of
stock ranking junior to such class or series of Preferred Stock upon any
liquidation, dissolution or winding up of the Company, according to their
respective rights and preferences and in each case according to their respective
number of shares. For such purposes, neither the consolidation or merger of the
Company with or into any other corporation nor the sale, lease, transfer or
conveyance of all or substantially all of the property or business of the
Company shall be deemed to constitute a liquidation, dissolution or winding up
of the Company.
VOTING RIGHTS
Holders of such class or series of Preferred Stock will not have any voting
rights, except as set forth below or as otherwise from time to time required by
law or as indicated in the applicable Prospectus Supplement.
Whenever dividends on any shares of such class or series of Preferred Stock
shall be in arrears for six or more quarterly periods, regardless of whether
such quarterly periods are consecutive, the holders of such shares of such class
or series of Preferred Stock (voting separately as a class with all other
classes or series of preferred stock upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of two
additional directors of the Company at a special meeting called by an officer of
the Company at the request of a holder of such class or series of Preferred
Stock or, if such special meeting is not called by an officer of the Company
within 30 days, at a special meeting called by a holder of such class or series
of Preferred Stock designated by the holders of record of at least 10% of the
shares of any such class or series of Preferred Stock (unless such request is
received less than 90 days before the date fixed for the next annual or special
meeting of the stockholders), or at the next annual meeting of stockholders, and
at each subsequent annual meeting until (i) if such class or series of Preferred
Stock has a cumulative dividend, all dividends accumulated on such shares of
Preferred Stock for the past dividend periods and the then current dividend
period shall have been fully paid or declared and a sum sufficient for the
payment thereof set apart for payment or (ii) if such class or series of
Preferred Stock does not have a cumulative dividend, four consecutive quarterly
dividends shall have been fully paid or declared and a sum sufficient for the
payment thereof set apart for payment. In such case, the entire Board of
Directors of the Company will be increased by two directors.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company shall not, without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of each class or series of Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such class or series
voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of stock ranking senior to
such class or series of Preferred Stock with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up of the
Company or reclassify any authorized stock of the Company into any such shares,
or create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such shares; or (ii) amend, alter or repeal
the provisions of the charter in respect of such class or series of Preferred
Stock, whether by merger, consolidation or otherwise, so as to materially and
adversely affect any right, preference, privilege or voting power of such class
or series of Preferred Stock or the holders thereof; provided, however, that any
increase in the amount of the authorized Preferred Stock or the creation or
issuance of any other class or series of Preferred Stock, or any increase in the
amount of authorized shares of such class or series, in each case ranking on a
parity with or junior to the Preferred Stock of such class or series with
respect to payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up, shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers.
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The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such class or series of Preferred Stock
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been irrevocably deposited in trust to effect such
redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any class or series
of Preferred Stock are convertible into Common Stock, Debt Securities or another
series of Preferred Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock or such other series of Preferred Stock or the principal amount of
Debt Securities into which the Preferred Stock is convertible, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the holders of such class or
series of Preferred Stock or the Company, the events requiring an adjustment of
the conversion price and provisions affecting conversion in the event of the
redemption of such class or series of Preferred Stock.
RESTRICTIONS ON OWNERSHIP
As discussed above under 'Description of Common Stock--Restrictions on
Ownership,' for the Company to qualify as a REIT under the Code, not more than
50% in value of its outstanding stock may be owned, actually or constructively,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year, and the stock must be
beneficially 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). In
addition, rent from Related Party Tenants (as defined above) is not qualifying
income for purposes of the gross income tests under the Code. Therefore, the
applicable articles supplementary for each class or series of Preferred Stock
will contain certain provisions restricting the ownership and transfer of such
class or series of Preferred Stock (the 'Preferred Stock Ownership Limit
Provision'). Except as otherwise described in the applicable Prospectus
Supplement relating thereto, the provisions of each applicable articles
supplementary relating to the applicable Preferred Stock Ownership Limit will
provide as follows:
The Preferred Stock Ownership Limit Provision will provide that, subject to
certain exceptions contained in the applicable articles supplementary, no holder
of such class or series of Preferred Stock may own, or be deemed to own by
virtue of the constructive ownership provisions of the Code, Preferred Stock in
excess of the Preferred Stock Ownership Limit, which will be equal to 9.8% of
the outstanding Preferred Stock of any class or series. The constructive
ownership rules are complex and may cause Preferred Stock owned actually or
constructively by a group of related individuals and/or entities to be deemed to
be constructively owned by one individual or entity. As a result, the
acquisition of less than 9.8% of any class or series of Preferred Stock (or the
acquisition of an interest in an entity which owns Preferred Stock) by an
individual or entity could cause that individual or entity (or another
individual or entity) to own constructively in excess of 9.8% of such class or
series of Preferred Stock, and thus subject such Preferred Stock to the
Preferred Stock Ownership Limit.
The Board of Directors will be entitled to waive the Preferred Stock
Ownership Limit with respect to a particular stockholder if evidence
satisfactory to the Board of Directors, with advice of the Company's tax
counsel, is presented that such ownership will not then or in the future
jeopardize the Company's status as a REIT. As a condition of such waiver, the
Board of Directors may require opinions of counsel satisfactory to it and/or an
undertaking from the applicant with respect to preserving the REIT status of the
Company.
Such articles supplementary will provide that a transfer of the class or
series of Preferred Stock that results in a person actually or constructively
owning shares of Preferred Stock in excess of the Preferred Stock Ownership
Limit, or which would cause the Company to be 'closely held' within the meaning
of the Code or would otherwise result in failure to qualify as a REIT, will be
null and void as to the intended transferee, and the intended transferee will
acquire no rights or economic interest in those shares. In addition, shares
actually or constructively owned by a person in excess of the Preferred Stock
Ownership Limit, or which would otherwise cause the Company to be 'closely held'
within the meaning of the Code or would otherwise result in failure to qualify
as a REIT, will be automatically exchanged for shares of a separate class of
preferred stock that will be transferred, by operation of law to the Company as
trustee of a trust for the exclusive benefit of the transferee or transferees to
whom the shares are ultimately transferred (without violating the Preferred
Stock Ownership Limit) (the 'Excess Preferred Stock'). While held in trust, a
class of Excess Preferred Stock will not be entitled to vote, it will not be
considered for purposes of any stockholder vote or the determination of a quorum
for such vote, and
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it will not be entitled to participate in any distributions made by the Company
(except upon liquidation). The intended transferee or owner may, at any time a
class of Excess Preferred Stock is held by the Company in trust, transfer the
class of Excess Preferred Stock to any person whose ownership of such class or
series of Excess Preferred Stock would be permitted under the Preferred Stock
Ownership Limit, at a price not to exceed either (i) the price paid by the
intended transferee or owner in the purported transfer which resulted in the
issuance of such class of Excess Preferred Stock or (ii) if the intended
transferee did not give full value for such class of Excess Preferred Stock, a
price equal to the market price on the date of the purported transfer or the
other event that resulted in the issuance of such class of Excess Preferred
Stock, at which time such class of Excess Preferred Stock would automatically be
exchanged for the corresponding class or series of Preferred Stock. In addition,
the Company would have the right, for a period of 90 days during the time a
class of Excess Preferred Stock is held by the Company in trust, to purchase all
or any portion of such class of Excess Preferred Stock from the intended
transferee or owner at a price equal to the lesser of the price paid for the
stock by the intended transferee or owner (or, if the intended transferee did
not give full value for such class of Excess Preferred Stock, a price equal to
the market price on the date of the purported transfer or other event that
resulted in the issuance of such class of Excess Preferred Stock) and the
closing market price for the corresponding class of Preferred Stock on the date
the Company exercises its option to purchase the stock. This period commences on
the date of the violative transfer of ownership if the intended transferee or
owner gives notice of the transfer to the Company, or the date the Board of
Directors determines that a violative transfer or ownership has occurred if no
notice is provided.
All certificates representing shares of a class or series of Preferred
Stock will bear a legend referring to the restrictions described above.
The Preferred Stock Ownership Limit Provision is set as a percentage of the
number of outstanding shares of any class or series of Preferred Stock. As a
result, if the number of shares of any class or series of Preferred Stock is
reduced on a non-pro rata basis among all holders of such class or series,
Excess Preferred Stock may be created as a result of such reduction. In the
event that the Company's action causes such reduction of shares, the Company has
agreed to exercise its option to repurchase such shares of such class or series
of Excess Preferred Stock if the intended owner notifies the Company that it is
unable to sell its rights to such class or series of Excess Preferred Stock.
All persons who own a specified percentage (or more) of the outstanding
stock of the Company must file an affidavit with the Company containing
information regarding their ownership of stock as set forth in the Treasury
Regulations. Under current Treasury Regulations, the percentage is set between
one-half of one percent and five percent, depending on the number of record
holders of stock. In addition, each stockholder shall upon demand be required to
disclose to the Company in writing such information with respect to the actual
and constructive ownership of shares of stock of the Company as the Board of
Directors deems necessary to comply with the provisions of the Code applicable
to a REIT or to comply with the requirements of any taxing authority or
governmental agency.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue Depositary Shares, each of which will represent a
fractional interest of a share of a particular class or series of Preferred
Stock, as specified in the applicable Prospectus Supplement. Shares of a class
or series of Preferred Stock represented by Depositary Shares will be deposited
under a separate Deposit Agreement (each, a 'Deposit Agreement') among the
Company, the depositary named therein (the 'Preferred Stock Depositary') and the
holders from time to time of the depositary receipts issued by the Preferred
Stock Depositary which will evidence the Depositary Shares ('Depositary
Receipts'). Subject to the terms of the Deposit Agreement, each owner of a
Depositary Receipt will be entitled, in proportion to the fractional interest of
a share of a particular class or series of Preferred Stock represented by the
Depositary Shares evidenced by such Depositary Receipt, to all the rights and
preferences of the class or series of Preferred Stock represented by such
Depositary Shares (including dividend, voting, conversion, redemption and
liquidation rights).
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The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of a class or series of Preferred Stock by the Company to the
Preferred Stock Depositary, the Company will cause the Preferred Stock
Depositary to issue, on behalf of the Company, the Depositary Receipts. Copies
of the applicable form of Deposit Agreement and Depositary Receipt may be
obtained from the Company upon request, and the statements made hereunder
relating to the Deposit Agreement and the Depositary Receipts to be issued
thereunder are summaries of certain provisions thereof and do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all of the provisions of the applicable Deposit Agreement and related Depositary
Receipts.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions received in respect of a class or series of Preferred Stock
to the record holders of Depositary Receipts evidencing the related Depositary
Shares in proportion to the number of such Depositary Receipts owned by such
holders, subject to certain obligations of holders to file proofs, certificates
and other information and to pay certain charges and expenses to the Preferred
Stock Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless the Preferred Stock
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Stock Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any class or series of Preferred Stock converted into
Excess Preferred Stock or otherwise converted or exchanged.
WITHDRAWAL OF PREFERRED STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption or converted into Excess Preferred Stock
or otherwise), the holders thereof will be entitled to delivery at such office,
to or upon such holder's order, of the number of whole or fractional shares of
the class or series of Preferred Stock and any money or other property
represented by the Depositary Shares evidenced by such Depositary Receipts.
Holders of Depositary Receipts will be entitled to receive whole or fractional
shares of the related class or series of Preferred Stock on the basis of the
proportion of Preferred Stock represented by each Depositary Share as specified
in the applicable Prospectus Supplement, but holders of such shares of Preferred
Stock will not thereafter be entitled to receive Depositary Shares therefor. If
the Depositary Receipts delivered by the holder evidence a number of Depositary
Shares in excess of the number of Depositary Shares representing the number of
shares of Preferred Stock to be withdrawn, the Preferred Stock Depositary will
deliver to such holder at the same time a new Depositary Receipt evidencing such
excess number of Depositary Shares.
REDEMPTION
Whenever the Company redeems shares of a class or series of Preferred Stock
held by the Preferred Stock Depositary, the Preferred Stock Depositary will
redeem as of the same redemption date the number of Depositary Shares
representing shares of such class or series of Preferred Stock so redeemed,
provided the Company shall have paid in full to the Preferred Stock Depositary
the redemption price of the Preferred Stock to be redeemed plus an amount equal
to any accrued and unpaid dividends thereon to the date fixed for redemption.
The redemption price per Depositary Share will be equal to the corresponding
proportion of the redemption price and any other amounts per share payable with
respect to such class or series of Preferred Stock. If fewer than all the
Depositary Shares are to be redeemed, the Depositary Shares to be redeemed will
be selected pro rata (as nearly as may be practicable without creating
fractional Depositary Shares) or by any other equitable method determined by the
Company that will not result in the issuance of any Excess Preferred Stock.
From and after the date fixed for redemption, all dividends in respect of
the shares of a class or series of Preferred Stock so called for redemption will
cease to accrue, the Depositary Shares so called for redemption will
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no longer be deemed to be outstanding and all rights of the holders of the
Depositary Receipts evidencing the Depositary Shares so called for redemption
will cease, except the right to receive any moneys payable upon such redemption
and any money or other property to which the holders of such Depositary Receipts
were entitled upon such redemption and surrender thereof to the Preferred Stock
Depositary.
VOTING
Upon receipt of notice of any meeting at which the holders of a class or
series of Preferred Stock deposited with the Preferred Stock Depositary are
entitled to vote, the Preferred Stock Depositary will mail the information
contained in such notice of meeting to the record holders of the Depositary
Receipts evidencing the Depositary Shares which represent such class or series
of Preferred Stock. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for such class or series of Preferred Stock) will be entitled to instruct
the Preferred Stock Depositary as to the exercise of the voting rights
pertaining to the amount of Preferred Stock represented by such holder's
Depositary Shares. The Preferred Stock Depositary will vote the amount of such
class or series of Preferred Stock represented by such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the amount of such class or
series of Preferred Stock represented by such Depositary Shares to the extent it
does not receive specific instructions from the holders of Depositary Receipts
evidencing such Depositary Shares. The Preferred Stock Depositary shall not be
responsible for any failure to carry out any instruction to vote, or for the
manner or effect of any such vote made, as long as any such action or non-action
is in good faith and does not result from negligence or wilful misconduct of the
Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Shares evidenced by such
Depositary Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION
The Depositary Shares, as such, are not convertible into Common Stock or
any other securities or property of the Company, except in connection with
certain conversions in connection with the preservation of the Company's status
as a REIT. See 'Description of Preferred Stock--Restrictions on Ownership.'
Nevertheless, if so specified in the applicable Prospectus Supplement relating
to an offering of Depositary Shares, the Depositary Receipts may be surrendered
by holders thereof to the Preferred Stock Depositary with written instructions
to the Preferred Stock Depositary to instruct the Company to cause conversion of
a class or series of Preferred Stock represented by the Depositary Shares
evidenced by such Depositary Receipts into whole shares of Common Stock, other
shares of a class or series of Preferred Stock (including Excess Preferred
Stock) of the Company or other shares of stock, and the Company has agreed that
upon receipt of such instructions and any amounts payable in respect thereof, it
will cause the conversion thereof utilizing the same procedures as those
provided for delivery of Preferred Stock to effect such conversion. If the
Depositary Shares evidenced by a Depositary Receipt are to be converted in part
only, a new Depositary Receipt or Receipts will be issued for any Depositary
Shares not to be converted. No fractional shares of Common Stock will be issued
upon conversion, and if such conversion would result in a fractional share being
issued, an amount will be paid in cash by the Company equal to the value of the
fractional interest based upon the closing price of the Common Stock on the last
business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt evidencing the Depositary Shares which
represent the Preferred Stock and any provision of the Deposit Agreement may at
any time be amended by agreement between the Company and the Preferred Stock
Depositary. However, any amendment that materially and adversely alters the
rights of the holders of Depositary Receipts or that would be materially and
adversely inconsistent with the rights granted to
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the holders of the related class or series of Preferred Stock will not be
effective unless such amendment has been approved by the existing holders of at
least two thirds of the Depositary Shares evidenced by the Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
exceptions in the Deposit Agreement, of any holder of Depositary Receipts to
surrender any Depositary Receipt with instructions to deliver to the holder the
related class or series of Preferred Stock and all money and other property, if
any, represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Receipt, to consent and agree to
such amendment and to be bound by the Deposit Agreement as amended thereby.
The Deposit Agreement may be terminated by the Company upon not less than
30 days' prior written notice to the Preferred Stock Depositary if (i) such
termination is necessary to preserve the Company's status as a REIT or (ii) a
majority of each class or series of Preferred Stock subject to such Deposit
Agreement consents to such termination, whereupon the Preferred Stock Depositary
shall deliver or make available to each holder of Depositary Receipts, upon
surrender of the Depositary Receipts held by such holder, such number of whole
or fractional shares of each such class or series of Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by the Preferred Stock Depositary with
respect to such Depositary Receipts. The Company has agreed that if the Deposit
Agreement is terminated to preserve the Company's status as a REIT, then the
Company will use its best efforts to list each class or series of Preferred
Stock issued upon surrender of the related Depositary Shares on a national
securities exchange. In addition, the Deposit Agreement will automatically
terminate if (i) all outstanding Depositary Shares issued thereunder shall have
been redeemed, (ii) there shall have been a final distribution in respect of
each class or series of Preferred Stock subject to such Deposit Agreement in
connection with any liquidation, dissolution or winding up of the Company and
such distribution shall have been distributed to the holders of Depositary
Receipts evidencing the Depositary Shares representing such class or series of
Preferred Stock or (iii) each share of Preferred Stock subject to such Deposit
Agreement shall have been converted into stock of the Company not so represented
by Depositary Shares.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the Preferred Stock Depositary in
connection with the performance of its duties under the Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of the
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the Deposit
Agreement.
RESIGNATION AND REMOVAL OF PREFERRED STOCK DEPOSITARY
The Preferred Stock Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Stock Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Stock Depositary. A successor
Preferred Stock Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Stock Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of a class or
series of Preferred Stock represented by the Depositary Shares), gross
negligence or
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willful misconduct, and the Company and the Preferred Stock Depositary will not
be obligated to prosecute or defend any legal proceeding in respect of any
Depositary Receipts, Depositary Shares or shares of a class or series of
Preferred Stock represented thereby unless satisfactory indemnity is furnished.
The Company and the Preferred Stock Depositary may rely on written advice of
counsel or accountants, or information provided by persons presenting shares of
a class or series of Preferred Stock represented thereby for deposit, holders of
Depositary Receipts or other persons believed in good faith to be competent to
give such information, and on documents believed in good faith to be genuine and
signed by a proper party.
In the event the Preferred Stock Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, the Preferred Stock Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the six months ended
June 30, 1997 and for the years ended December 31, 1996, 1995, 1994, 1993 and
1992 was 3.9, 3.5, 2.8, 2.9, 2.7 and 1.9, respectively. The Company's ratio of
earnings to combined fixed charges and preferred stock dividend requirements for
the six months ended June 30, 1997 and for the years ended December 31, 1996,
1995, 1994 and 1993 was 2.4, 2.3, 2.2, 2.3 and 2.5, respectively. Prior to the
year ended December 31, 1993, the Company had not issued any preferred stock;
therefore the ratios of earnings to combined fixed charges and preferred stock
dividend requirements for prior periods are unchanged from the ratios of
earnings to fixed charges in the previous sentence.
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges (excluding capitalized interest) to income before income
taxes and extraordinary items. Fixed charges consist of interest costs, whether
expensed or capitalized, the interest component of rental expense, and
amortization of debt discounts and issue costs, whether expensed or capitalized.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TO THE COMPANY OF ITS REIT ELECTION
The following summary of certain federal income tax considerations to the
Company is based on current law, is for general information only, and is not tax
advice. The tax treatment of a holder of any of the Offered Securities will vary
depending upon the terms of the specific securities acquired by such holder, as
well as his particular situation, and this discussion does not attempt to
address any aspects of federal income taxation relating to holders of Offered
Securities. Certain federal income tax considerations relevant to holders of the
Offered Securities will be provided in the applicable Prospectus Supplement
relating thereto.
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT,
AS WELL AS HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO HIM OF THE
ACQUISITION, OWNERSHIP AND SALE OF THE OFFERED SECURITIES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY AS A REIT
General. The Company has elected to be taxed as a real estate investment
trust under Sections 856 through 860 of the Code, commencing with its taxable
year beginning January 1, 1992. The Company believes that, commencing with its
taxable year beginning January 1, 1992, it has been organized and is operating
in such a manner as to qualify for taxation as a REIT under the Code commencing
with such taxable year, and the Company intends to continue to operate in such a
manner, but no assurance can be given that it has operated or will operate in a
manner so as to qualify or remain qualified.
These sections of the Code are highly technical and complex. The following
sets forth the material aspects of the sections that govern the federal income
tax treatment of a REIT. This summary is qualified in its entirety by the
applicable Code provisions, rules and regulations promulgated thereunder, and
administrative and judicial
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interpretations thereof. Latham & Watkins has acted as tax counsel to the
Company in connection with the Offering and the Company's election to be taxed
as a REIT.
As a condition to the closing of each offering of Offered Securities, other
than offerings of medium term notes and as otherwise specified in the applicable
Prospectus Supplement, tax counsel to the Company will render an opinion to the
Company to the effect that, commencing with the Company's taxable year which
began January 1, 1992, the Company has been organized in conformity with the
requirements for qualification as a REIT, and its proposed method of operation
will enable it to continue to meet the requirements for qualification and
taxation as a REIT under the Code. It must be emphasized that this opinion will
be based on various assumptions and will be conditioned upon certain
representations to be made by the Company as to factual matters and that such
tax counsel to the Company undertakes no obligation hereby to update any such
opinion subsequent to its date. In addition, this opinion will be based upon the
factual representations of the Company as set forth in this Prospectus and
assumes that the actions described in this Prospectus are completed in a timely
fashion. Moreover, such qualification and taxation as a REIT depends upon the
Company's ability to meet, through actual annual operating results, distribution
levels and diversity of stock ownership, the various qualification tests imposed
under the Code discussed below, the results of which have not been and will not
be reviewed by such tax counsel to the Company. Accordingly, no assurance can be
given that the actual results of the Company's operation of any particular
taxable year will satisfy such requirements. See'--Failure to Qualify.'
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the 'double
taxation' (at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
federal income tax as follows: First, the Company will be taxed at regular
corporate rates on any undistributed real estate investment trust taxable
income, including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the 'alternative minimum tax' on
its items of tax preference. Third, if the Company has (i) net income from the
sale or other disposition of 'foreclosure property' which is held primarily for
sale to customers in the ordinary course of business or (ii) other
non-qualifying income from foreclosure property, it will be subject to tax at
the highest corporate rate on such income. Fourth, if the Company has net income
from prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business other than foreclosure property), such income will be subject
to a 100% tax. Fifth, if the Company should fail to satisfy the 75% gross income
test or the 95% gross income test (as discussed below), but has nonetheless
maintained its qualification as a real estate investment trust because certain
other requirements have been met, it will be subject to a 100% tax on an amount
equal to (a) the gross income attributable to the greater of the amount by which
the Company fails the 75% or 95% test, multiplied by (b) a fraction intended to
reflect the Company's profitability. Sixth, if the Company should fail to
distribute during each calendar year at least the sum of (i) 85% of its real
estate investment trust ordinary income for such year, (ii) 95% of its real
estate investment trust capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if during the 10-year period (the 'Recognition
Period') beginning on the first day of the first taxable year for which the
Company qualified as a REIT, the Company recognizes gain on the disposition of
any asset held by the Company as of the beginning of such Recognition Period,
then, to the extent of the excess of (a) the fair market value of such asset as
of the beginning of such Recognition Period over (b) the Company's adjusted
basis in such asset as of the beginning of such Recognition Period (the
'Built-in Gain'), such gain will be subject to tax at the highest regular
corporate rate pursuant to Internal Revenue Service ('IRS') regulations that
have not yet been promulgated. Eighth, if the Company acquires any asset from a
C Corporation (i.e., generally a corporation subject to full corporate-level
tax) in certain transactions in which the basis of the asset in the hands of the
Company is determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation, and the Company recognizes gain on
the disposition of such asset during the Recognition Period beginning on the
date on which such asset was acquired by the Company, then, to the extent of the
Built-in Gain, such gain will be subject to tax at the highest regular corporate
rate pursuant to IRS regulations that have not yet been promulgated. The results
described above with respect to the recognition of Built-In Gain assume that the
Company will make an election pursuant to IRS Notice 88-19.
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Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors,
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (3) which would be taxable as
a domestic corporation, but for Sections 856 through 859 of the Code, (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code, (5) the beneficial ownership of which is held by 100 or
more persons, (6) during the last half of each taxable year, not more than 50%
in value of the outstanding stock of which is owned, directly or constructively,
by five or fewer individuals (as defined in the Code to include certain
entities) and (7) which meets certain other tests, described below, regarding
the nature of its income and assets. The Code provides that conditions (1) to
(4) must be met during the entire taxable year and that condition (5) 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 (5) and
(6) will not apply until after the first taxable year for which an election is
made to be taxed as a real estate investment trust.
The Company has satisfied condition (5) and believes that it has issued
sufficient shares to allow it to satisfy condition (6). In addition, the
Company's charter provides (and the Articles Supplementary for any series of
Preferred Stock will provide) for restrictions regarding ownership and transfer
of the Company's capital stock, which restrictions are intended to assist the
Company in continuing to satisfy the share ownership requirements described in
(5) and (6) above. The ownership and transfer restrictions pertaining generally
to the Common Stock and the Preferred Stock are described in 'Description of
Common Stock--Restrictions on Ownership and Transfer' and 'Description of
Preferred Stock--Restrictions on Ownership and Transfer' or, to the extent such
restrictions differ from those described in this Prospectus, such restrictions
will be described in the applicable Prospectus Supplement. There can be no
assurance, however, that such transfer restrictions will in all cases prevent a
violation of the stock ownership provisions described in (5) and (6) above.
The Company owns and operates a number of properties through subsidiaries.
Code Section 856(i) provides that a corporation which is a 'qualified REIT
subsidiary' shall not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a 'qualified REIT
subsidiary' shall be treated as assets, liabilities and such items (as the case
may be) of the REIT. Thus, in applying the requirements described herein, the
Company's 'qualified REIT subsidiaries' will be ignored, and all assets,
liabilities and items of income, deduction, and credit of such subsidiaries will
be treated as assets, liabilities and items of the Company. The Company has
received a ruling from the IRS to the effect that all of the subsidiaries that
were held by the Company prior to January 1, 1992, the effective date of its
election to be taxed as a REIT, will be 'qualified REIT subsidiaries' upon such
effective date of the Company's REIT election. Moreover, with respect to each
subsidiary of the Company formed subsequent to January 1, 1992, the Company has
owned 100% of the stock of such subsidiary at all times during the period such
subsidiary has been in existence. Therefore, all of the Company's subsidiaries
are 'qualified REIT subsidiaries' within the meaning of the Code. See
'--Recently Enacted Legislation.'
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership will retain the same character in the
hands of the real estate investment trust for purposes of Section 856 of the
Code, including satisfying the gross income tests and the asset tests. Thus, the
Company's proportionate share of the assets, liabilities and items of income of
the partnerships in which the Company is a partner will be treated as assets,
liabilities and items of income of the Company for purposes of applying the
requirements described herein.
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including 'rents from
real property' and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, 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,
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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 Company's
gross income (including gross income from prohibited transactions) for each
taxable year. This 30% gross income test has been repealed for tax years
beginning on or after January 1, 1998. See '--Recently Enacted Legislation.'
Rents received by the Company will qualify as 'rents from real property' in
satisfying the gross income requirements for a real estate investment trust
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, the Code provides that
rents received from a tenant will not qualify as 'rents from real property' in
satisfying the gross income tests if the real estate investment trust, or an
owner of 10% or more of the real estate investment trust, 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, for rents received to qualify as
'rents from real property,' the real estate investment trust generally must not
operate or manage the property or furnish or render services to the tenants of
such property, other than through an independent contractor from whom the real
estate investment trust derives no revenue; provided, however, the Company may
directly perform certain services that are 'usually or customarily rendered' in
connection with the rental of space for occupancy only and are not otherwise
considered 'rendered to the occupant' of the property. The Company has not
charged and will not charge rent for any property that is based in whole or in
part on the income or profits of any person (except by reason of being based on
a percentage of receipts or sales, as described above), the Company has not and
will not rent any property to a Related Party Tenant, and the Company has not
and will not derive rental income attributable to personal property (other than
personal property leased in connection with the lease of real property, the
amount of which is less than 15% of the total rent received under the lease).
The Company directly performs services under certain of its leases. The Company
has received a ruling from the IRS providing that the performance of the types
of services provided by the Company will not cause the rents received with
respect to such leases to fail to qualify as 'rents from real property.' See
'--Recently Enacted Legislation' for modifications to certain of the rules
described in this paragraph.
The term 'interest' generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends 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 'interest'
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a real estate
investment trust for such year if it is entitled to relief under certain
provisions of the Code. These relief provisions will generally be available if
the Company's failure to meet 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 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 under '--General,' even if these
relief provisions apply, a tax would be imposed with respect to the 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. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) assets held by the Company's qualified REIT
subsidiaries and the Company's allocable share of real estate assets held by
partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company),
cash, cash items and government securities. Second, not more than 25% of the
Company's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities
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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.
The Company currently has numerous direct and indirect wholly-owned
subsidiaries. As set forth above, the ownership of more than 10% of the voting
securities of any one issuer by a REIT is prohibited by the asset tests.
However, if the Company's subsidiaries are 'qualified REIT subsidiaries' as
defined in the Code, such subsidiaries will not be treated as separate
corporations for federal income tax purposes. Thus, the Company's ownership of
stock of a 'qualified REIT subsidiary' will not cause the Company to fail the
asset tests.
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 (A) the sum of (i) 95% of the
Company's 'REIT taxable income' (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of non-cash income. In addition, if the Company disposes of any asset
during its Recognition Period, the Company will be required, pursuant to IRS
regulations which have not yet been promulgated, to distribute at least 95% of
the Built-in Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before the Company timely files its
tax return for such year and if paid on or before the first regular dividend
payment 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 'real estate investment trust taxable income,' as adjusted, it
will be subject to tax thereon at regular ordinary and capital gain corporate
tax rates. Furthermore, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its real estate investment trust
ordinary income for such year, (ii) 95% of its real estate investment trust
capital gain income for such year, and (iii) any undistributed taxable income
from prior periods, the Company would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed. The
Company intends to make timely distributions sufficient to satisfy this annual
distribution requirement.
It is possible 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 (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, in order to meet the 95% distribution
requirement, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable stock
dividends.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying 'deficiency dividends'
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the 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. Such a failure to qualify for taxation as a REIT could
have an adverse effect on the market value and marketability of the Offered
Securities. Distributions to stockholders in any year in which the Company fails
to qualify will not be deductible by the Company 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 of the Code, corporate distributees may be
eligible for the dividends received deduction. Unless entitled to relief under
specific statutory provisions, the Company will also 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.
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RECENTLY ENACTED LEGISLATION
On August 5, 1997, President Clinton signed into law the Taxpayer Relief
Act of 1997 (H.R. 2014), which will have the effect of modifying certain
REIT-related Code provisions for tax years of the Company beginning on or after
January 1, 1998. The following list sets forth the significant changes contained
in this legislation: (i) the rule disqualifying a REIT for any year in which it
fails to comply with certain regulations requiring the REIT to monitor its stock
ownership is replaced with an intermediate financial penalty; (ii) the rule
disqualifying a REIT that it is 'closely held' (i.e., during the last half of
each taxable year, 50% or more in value of a REIT's outstanding stock is owned
by five or fewer individuals) does not apply if during such year the REIT
complied with certain regulations which require the REIT to monitor its stock
ownership, and the REIT did not know or have reason to know that it was closely
held; (iii) a REIT is permitted to render a de minimis amount of impermissible
services to tenants in connection with the management of property and still
treat amounts received with respect to such property (other than certain amounts
relating to such services) as qualified rent; (iv) the rules regarding
attribution to partnerships for purposes of defining qualified rent and
independent contractors are modified so that attribution occurs only when a
partner owns a 25% or greater interest in the partnership; (v) the 30% gross
income test is repealed; (vi) any corporation wholly-owned by a REIT is
permitted to be treated as a qualified REIT subsidiary regardless of whether
such subsidiary has always been owned by the REIT; (vii) the class of excess
noncash items for purposes of the REIT distribution requirements is expanded;
(viii) property that is involuntarily converted is excluded from the prohibited
transaction rules; (ix) the rules relating to shared appreciation mortgages are
modified; (x) income from all hedges that reduce the interest rate risk of REIT
liabilities, including rate swap or cap agreements, options, futures and forward
rate contracts, is included in qualifying income for purposes of the 95% income
test; (xi) a REIT is able to elect to retain and pay income tax on its net
long-term capital gains, and if such election is made, the REIT's shareholders
include in income their proportionate share of the undistributed long-term
capital gain and are deemed to have paid their proportionate share of tax paid
by the REIT; (xii) the rules relating to the grace period for foreclosure
property are modified and (xiii) certain other Code provisions relating to REITS
are amended.
OTHER TAX MATTERS
Certain of the Company's investments are through partnerships which may
involve special tax risks. Such risks include possible challenge by the IRS of
(a) allocations of income and expense items, which could affect the computation
of income of the Company and (b) the status of the partnerships as partnerships
(as opposed to associations taxable as corporations) for income tax purposes.
Recently issued Treasury Regulations provide that a domestic partnership is
generally taxed as a partnership unless it elects to be taxed as an association
taxable as a corporation. None of the partnerships in which the Company is a
partner has made or intends to make such an election. These Treasury Regulations
are effective as of January 1, 1997. Such Regulations provide, however, that a
partnership's claimed classification will be respected for periods prior to such
date if the entity had a reasonable basis for its claimed classification, and
such partnership had not been notified in writing on or before May 8, 1996 that
the classification of such entity was under examination. If any of the
partnerships were treated as an association for a prior period, and (i) if the
Company's ownership in any such partnership exceeded 10% of the partnership's
voting interest or (ii) the value of such interest exceeded 5% of the value of
the Company's assets, the Company would cease to qualify as a REIT for such
period and possibly future periods. See '--Failure to Qualify.' Moreover, the
deemed change in classification of such a partnership from an association to a
partnership effective as of January 1, 1997 would be a taxable event. The
Company believes that each of the partnerships have been properly treated for
tax purposes as a partnership (and not as an association taxable as a
corporation). However, no assurance can be given that the IRS may not
successfully challenge the status of any of the partnerships.
The Company may be subject to state or local taxation in various state or
local jurisdictions, including those in which it transacts business. The state
or local tax treatment of the Company may not conform to the federal income tax
consequences described above. Consequently, prospective investors should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the Company.
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PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, at prices related to the prevailing market prices
at the time of sale or at negotiated prices. The Company also may, from time to
time, authorize underwriters acting as the Company's agents to offer and sell
the Offered Securities upon the terms and conditions as are set forth in the
applicable Prospectus Supplement. In connection with the sale of Offered
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of Offered Securities for whom they may act
as agent. Underwriters may sell Offered Securities to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Offered Securities may be
deemed to be underwriting discounts and commissions, under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers acting as the Company's agents to solicit offers by certain
institutions to purchase Offered Securities from the Company at the public
offering price set forth in such Prospectus Supplement pursuant to Delayed
Delivery Contracts ('Contracts') providing for payment and delivery on the date
or dates stated in such Prospectus Supplement.
Each Contract will be for an amount not less than, and the aggregate principal
amount of Offered Securities sold pursuant to Contracts shall be not less nor
more than, the respective amounts stated in the applicable Prospectus
Supplement. Institutions with whom Contracts, when authorized, may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions, and other
institutions but will in all cases be subject to the approval of the Company.
Contracts will not be subject to any conditions except (i) the purchase by an
institution of the Offered Securities covered by its Contracts shall not at the
time of delivery be prohibited under the laws of any jurisdiction in the United
States to which such institution is subject, and (ii) if the Offered Securities
are being sold to underwriters, the Company shall have sold to such underwriters
the total principal amount of the Offered Securities less the principal amount
thereof covered by Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
subsidiaries in the ordinary course of business.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1995 and the
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the period ended December 31, 1996 and the related financial
statement schedules incorporated by reference in this Prospectus have been
incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
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LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
by Latham & Watkins, New York, New York and for any underwriters, dealers or
agents by Brown & Wood LLP, New York, New York. Latham & Watkins and Brown &
Wood LLP will rely on Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland, as
to certain matters of Maryland law. Certain members of Latham & Watkins and
their families own beneficial interests in less than 1% of the common stock of
the Company.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN
THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
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PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary................................. S-3
The Company................................................... S-4
Recent Developments........................................... S-5
Use of Proceeds............................................... S-7
Price Range of Common Stock and Dividends..................... S-8
Capitalization................................................ S-9
Selected Consolidated Financial Data.......................... S-9
Business and Properties....................................... S-11
Management.................................................... S-14
Certain Federal Income Tax Considerations to Holders of
Common Stock................................................ S-15
Underwriting.................................................. S-19
PROSPECTUS
Available Information......................................... 2
Incorporation of Certain Documents by Reference............... 2
The Company................................................... 3
Use of Proceeds............................................... 3
Description of Debt Securities................................ 3
Description of Common Stock................................... 15
Description of Common Stock Warrants.......................... 16
Description of Preferred Stock................................ 17
Description of Depositary Shares.............................. 23
Ratios of Earnings to Fixed Charges........................... 27
Certain Federal Income Tax Considerations to the Company
of its REIT Election........................................ 27
Plan of Distribution.......................................... 33
Experts....................................................... 33
Legal Matters................................................. 34
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4,000,000 SHARES
[LOGO OF KIMCO REALTY CORP.]
COMMON STOCK
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
BT ALEX. BROWN
MORGAN STANLEY DEAN WITTER
SMITH BARNEY INC.
SEPTEMBER , 1997
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