<PAGE>
Pursuant to Rule 424B3
(Registration No. 333-32597)
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED AUGUST 5, 1997)
73,455 COMMON SHARES
KRANZCO REALTY TRUST
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Kranzco Realty Trust ("Kranzco" or the "Company") is a self-
administered and self-managed equity real estate investment trust (a "REIT")
engaged in the business of owning, managing, operating, leasing, acquiring
and expanding neighborhood and community shopping centers and, to a lesser
extent, free-standing retail properties. Kranzco owns and operates 48
neighborhood and community shopping centers and 11 free-standing properties
(collectively, the "Properties"), aggregating approximately 7.6 million
square feet of gross leasable area ("GLA") located primarily in the
Northeast, Mid-Atlantic and Southern regions of the United States with a
diverse base of approximately 550 tenants.
All of the Company's common shares of beneficial interest, par value
$.01 per share (the "Common Shares"), offered hereby are being issued and
sold by the Company (the "Offering") to an institutional investor at a
negotiated purchase price equal to the value weighted average price per share
(the "Average Trading Price") of the Common Shares on the New York Stock
Exchange (the "NYSE") less a discount of 2.0% (the "Purchase Price") on
certain trading days during the period from July 13, 1998 to August 5, 1998
(the "Investment Period"), resulting in the purchase of a total of 73,455
Common Shares at an average purchase price per share of $18.1572 and net
offering proceeds to the Company, after the deduction of estimated offering
expenses of $20,000, of approximately $1,313,333. See "Plan of Distribution."
The Common Shares are listed on the NYSE under the symbol "KRT." On August 5,
1998, the last reported sales price of the Common Shares on the NYSE was
$17.06 per share.
The Common Shares are subject to certain restrictions on ownership and
transfer. See "Description of Common Shares-Restrictions on Ownership" in
the accompanying Prospectus.
SEE "RISK FACTORS" BEGINNING ON PAGE S-4 OF THIS PROSPECTUS SUPPLEMENT
FOR A DISCUSSION OF MATERIAL RISKS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON SHARES OFFERED HEREBY.
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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.
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The date of this Prospectus Supplement is August 5, 1998.
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial information, including the financial statements and
notes thereto, appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus, or incorporated herein or therein by reference.
Unless otherwise indicated, all calculations and information contained in
this Prospectus Supplement: (i) are based upon the price for the Common
Shares set forth on the cover of this Prospectus Supplement; and (ii) give
pro forma effect to the Southeast Acquisition (defined below) and the NAI
Transaction (defined below). Unless the context otherwise requires, (i) the
"Company" shall mean Kranzco Realty Trust, a Maryland corporation, and its
subsidiaries. Additional capitalized terms shall have the meanings set forth
herein.
The Company
Kranzco Realty Trust is a self-administered and self-managed equity real
estate investment trust engaged in the business of owning, managing,
operating, leasing, acquiring and expanding neighborhood and community
shopping centers and, to a lesser extent, free-standing retail properties.
Kranzco owns and operates 48 neighborhood and community shopping centers and
11 free-standing properties, aggregating approximately 7.6 million square
feet of GLA located primarily in the Northeast, Mid-Atlantic and Southern
regions of the United States with a diverse base of approximately 550
tenants.
Kranzco's primary business objective is to achieve growth in its funds
from operations by enhancing the operating performance of the Properties and,
through selective acquisitions, the value of its portfolio. Kranzco's
operating strategies are to: (i) focus on the neighborhood and community
shopping center business; (ii) actively manage its properties for long-term
growth in funds from operations and capital appreciation; (iii) increase
portfolio occupancy by capitalizing on management's reputation and long-
standing relationships with national and regional tenants and extensive
experience in marketing to local tenants, as well as the negotiating leverage
inherent in a large portfolio of properties; (iv) maintain, renovate, expand
and reconfigure its properties; (v) optimize the tenant mix in each shopping
center; (vi) develop or ground lease outparcels or expansion areas existing
from time to time at its properties for use as restaurants, banks, auto
centers, cinemas or other facilities; and (vii) benefit from economies of
scale by spreading overhead expenses over a larger asset base. As of June
30, 1998, the Properties were 92% leased. Additionally, Kranzco has no
single tenant which accounted for greater than 5.2% of Kranzco's 1997
minimum rent.
Kranzco's acquisition strategy is to opportunistically acquire
properties which have been over-leveraged, which need replacement anchor
tenants or where Kranzco's management and leasing expertise can enhance
value. That strategy includes acquiring and rehabilitating properties in new
markets with strong demographic characteristics in order to reduce Kranzco's
sensitivity to regional economic cycles.
Kranzco was formed on June 17, 1992 as a Maryland real estate investment
trust. Kranzco's executive offices are located at 128 Fayette Street,
Conshohocken, Pennsylvania 19428, and its telephone number is (610) 941-9292.
Recent Developments
Southeast Acquisition
On June 26, 1998 the Company entered into an agreement to acquire nine
community shopping centers in five midwestern and southern states for
approximately $85 million (the "Southeast Acquisition"). The purchase price
initially will be financed through a first mortgage financing and borrowings
under Kranzco's $50 million secured first mortgage loan facility with Salomon
Brothers Realty Corp. Five of the centers are in Georgia and the others are
in Ohio, Tennessee, Florida and Virginia. The centers have a total of 1.4
million square feet of GLA and an overall leased rate of approximately 99%.
Wal-Mart is a tenant in nine of the centers and has vacated its space at two
of the centers but continues to pay rent in accordance with its leases. Wal-
Mart has subleased space at one of these two centers to a third party.
Besides Wal-Mart, other well-known anchor retailers are Eckerd Drug, Food
Lion, Radio Shack and CVS. After the purchase, Kranzco will own 68
properties in 19 states with a total of nine million square feet of GLA, an
approximate 15 percent increase in GLA. The purchase is subject to customary
due diligence and is expected to close by the end of September, 1998.
NAI Transaction
Kranzco has filed a Registration Statement with the Securities and
Exchange Commission pursuant to which the Company intends to offer to
exchange (the "Exchange Offer") an aggregate of $8,000,000 of Callable
Convertible Subordinated Notes Due 2008 (the "Notes"), for an aggregate of
10,379,531 shares of common stock, par value $.01 per share (the "NAI
Shares") of New America Network, Inc., a Delaware corporation which conducts
business under the name New America International ("NAI"), or approximately
80% of the outstanding NAI Shares. Upon consummation of the Exchange Offer,
NAI intends to effect a merger in order to reincorporate NAI as a Maryland
corporation (the "Reincorporation Merger"). Immediately following the
consummation of the Exchange Offer and the Reincorporation Merger, NAI and
Kranzco will, among other things, enter into an Intercompany Agreement which
will provide for the companies to grant each other certain rights of first
opportunity and first notification with respect to certain business
opportunities and will also provide for the provision of certain consulting
services by Kranzco to NAI.
Immediately following the consummation of the Exchange Offer and the
Reincorporation Merger, Kranzco intends to distribute (the "Distribution")
approximately 70.2% of the outstanding NAI Shares to holders of Common Shares
and holders of the outstanding Series B-1 Preferred Shares and Series B-2
Preferred Shares of Beneficial Interest, each par value $.01 per share,
(together, the "Series B Preferred Shares") of Kranzco, on the basis of one
NAI Share for each Common Share and one NAI Share for each Common Share into
which the Series B Preferred Shares are convertible. Upon the consummation of
the Distribution, Kranzco will own approximately 9.8% of the outstanding NAI
Shares, Kranzco shareholders will own approximately 70.2% of the outstanding
NAI Shares, and the persons who owned NAI Shares prior to the Exchange Offer
will own an aggregate of approximately 20% of the NAI Shares. NAI has filed
a Registration Statement with the Securities and Exchange Commission with
respect to the Distribution and the below referenced Rights Offering.
Immediately following the consummation of the Exchange Offer and the
Reincorporation Merger, and simultaneously with the Distribution, NAI will
distribute to each holder of NAI Shares rights (the "Rights") to purchase
NAI Shares at a subscription price of $2 per NAI Share on the basis of one
Right to purchase one NAI Share for each NAI Share held by NAI Stockholders.
Kranzco has advised NAI that it intends to exercise such number of Rights to
purchase NAI Shares that would result in Kranzco owning approximately 9.8% of
the issued and outstanding NAI Shares.
The Registration Statements referred to above have not yet become
effective. The securities covered by such Registration Statements may not be
sold nor may offers to buy be accepted prior to the time the applicable
Registration Statement becomes effective.
<PAGE>
RISK FACTORS
An investment in the Common Shares offered hereby involves various
material risks. Prospective investors should carefully consider the risk
factors below and in the accompanying Prospectus in addition to the other
information set forth herein and therein, in connection with an investment in
the Common Shares. When used in this Prospectus, the words "may," "will,"
"expect," "anticipate," "continue," "estimate," "project," "intend" and
similar expressions are intended to identify forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 21E of the Securities Exchange Act of
1934, as amended. All statements, other than statements of historical facts,
included in this Prospectus that address activities, events or developments
that Kranzco expects, believes or anticipates will or may occur in the
future, including, with respect to Kranzco, such matters as future capital
expenditures, distributions and acquisitions (including the amount and nature
thereof), expansion and other development trends of the real estate industry,
business strategies, expansion and growth of Kranzco's operations and other
similar matters. Such statements are forward-looking statements and are
based on assumptions and expectations which may not be realized and are
inherently subject to risks and uncertainties, many of which cannot be
predicted with accuracy and some of which might not even be anticipated.
Prospective investors are cautioned that any such statements are not
guarantees of future performance and that actual results or developments may
differ materially from those anticipated in the forward-looking statements.
Risks and other factors that might cause differences from Kranzco's
expectations, some of which could be material, include, but are not limited
to: the burden of Kranzco's substantial debt obligations; the necessity of
future financings to repay the "balloon" payments required at the maturity of
certain of Kranzco's debt obligations; the highly competitive nature of the
real estate leasing market; adverse changes in the real estate markets
including, among other things, competition with other companies; general
economic and business conditions, which will, among other things, affect
demand for retail space or retail goods, availability and creditworthiness of
prospective tenants and lease rents; financial condition and bankruptcy of
tenants, including disaffirmance of leases by bankrupt tenants; the
availability and terms of debt and equity financing; risks of real estate
acquisition, expansion and renovation; governmental actions and initiatives;
environmental/safety requirements.
Substantial Debt Obligations
The pro forma debt of Kranzco at March 31, 1998, after giving effect to
the consummation of the Exchange Offer and the Southeast Acquisition, would
be $353,201,000, of which approximately $352,355,000 would be long-term debt.
The pro forma ratio of Kranzco's debt to estimated value of Kranzco's real
estate assets (as estimated by Kranzco's Board of Trustees (the "Kranzco
Board") (the "Debt Ratio") at March 31, 1998, after giving effect to the
consummation of the Exchange Offer and the Southeast Acquisition, would be
approximately 57%. The incurrence of additional debt could increase the debt
service charges and the risk of default under instruments or agreements
creating Kranzco's debt, which would have an adverse effect on Kranzco's net
income and cash available for distributions to shareholders. There is no
limitation on the amount of debt that Kranzco may incur. The $353,201,000 of
pro forma debt of Kranzco referred to above will be due as follows: $846,000
in 1998; $7,637,000 in 1999; $43,440,000 in 2000; $4,576,000 in 2001;
$3,600,000 in 2002; and $293,102,000 thereafter. In addition, 52 of the
Properties are security for mortgage indebtedness of Kranzco and all of the
properties to be acquired in the Southeast Acquisition will, upon
consummation of such acquisition be subject to mortgage indebtedness.
Balloon Payments on Debt
All of Kranzco's outstanding debt instruments require "balloon" payments
for the outstanding principal balance at maturity. Kranzco's $50,000,000
secured first mortgage loan facility with Salomon Brothers Realty Corp. (the
"Salomon Facility") is secured by 14 Properties and is due February 2000;
Kranzco's seven-year real estate loan (the "Mortgage Loan") in the principal
amount of $181,700,000, is secured by 27 Properties and is due in June 2003.
The remainder of Kranzco's eleven mortgages have balloon indebtedness with
due dates ranging from August 1999 to February 2009. In addition, Kranzco
may finance future acquisitions with debt which may require a "balloon"
payment for the outstanding principal balance at maturity. Kranzco's ability
to pay the outstanding principal balance of its debt at maturity may depend
upon its ability to refinance such debt, or to sell Properties. Kranzco has
no commitments with respect to refinancing its debt. There can be no
assurance that refinancing will be available on reasonable terms and
conditions, that such sales are possible or that the amounts received from
such refinancing or sales will be sufficient to make the required balloon
payment on its debt. In fact, there are substantial restrictions on the
ability to remove 27 Properties from the lien under the Mortgage Loan and
similar restrictions may exist with respect to future indebtedness. If
Kranzco cannot make a balloon payment when due, the lenders under its other
debt may foreclose on the Properties securing the debt, which foreclosure
would have a material adverse effect on Kranzco's business, assets and
results of operations.
Floating Rate Debt
The Salomon Facility, which as of March 31, 1998 had an outstanding
principal balance of $14,000,000, and indebtedness of Kranzco with respect to
Kranzco's East Main Centre in Spartanburg, South Carolina and Park Centre in
Columbia, South Carolina, which currently have outstanding principal balances
of approximately $2,800,000 and $4,480,000, respectively, currently bear
interest at variable rates. As a result of variable interest rates on such
debt and other debt Kranzco may incur in the future, an increase in interest
rates could have an adverse effect on Kranzco's net income and cash available
for distributions.
Competition
The leasing of real estate is highly competitive. All of the Properties
are located in developed retail and commercial areas and there are generally
numerous other neighborhood or community shopping centers within a five-mile
radius of any given Property. In addition, there are generally one or more
regional malls within a ten-mile radius of certain Properties.
There are numerous developers and real estate companies which compete
with Kranzco in seeking acquisition opportunities and locating tenants to
lease vacant space, some of which may have greater financial resources than
Kranzco. In addition, such developers or real estate companies may develop
or acquire new shopping centers or regional malls, or renovate, refurbish or
expand existing shopping centers or regional malls, in the vicinity of one or
more of the Properties. Competition from such developers and real estate
companies could have a material adverse effect on Kranzco's acquisition
opportunities and ability to locate tenants to lease vacant space.
Real Estate Investment Risks
General
Various factors, many of which are beyond the control of and cannot be
predicted by Kranzco, may affect the economic viability of the Properties.
The Properties may be affected by risks generally associated with real estate
investments, including, without limitation, adverse changes in general or
local economic conditions, adverse changes in consumer spending patterns,
local competitive conditions such as the supply of retail or commercial space
or the existence or construction of new shopping centers, regional malls or
other retail or commercial space, increased operating costs (including
maintenance, insurance, debt service, lease payments and tenant improvement
costs and real estate and other taxes), the attractiveness of the Properties
to tenants and their customers, the need to comply with various federal,
state and local laws, ordinances and regulations (including zoning and other
regulatory restrictions on the use of the Properties), and the loss,
bankruptcy or financial distress of tenants. In addition, certain
significant operating expenses associated with the Properties (including
maintenance, insurance, debt service, lease payment and tenant improvement
costs and real estate and other taxes) generally are not reduced when
circumstances cause a reduction in gross income from the Properties. If the
Properties do not generate gross income sufficient to meet operating
expenses, Kranzco's net income and ability to make cash distributions would
be adversely affected.
Dependence on Retail Industry
Kranzco's performance is significantly affected by the market for retail
space and, indirectly, the retail sector of the general or local economy.
The market for retail space has been adversely affected in recent years by
consolidation in the retail sector, the financial distress of certain large
retailers and the excess amount of retail space in certain markets. To the
extent that these conditions persist, they would have an adverse effect on
Kranzco's net income and cash available for distributions to shareholders and
Kranzco may not be able to obtain debt or equity financing on reasonable
terms and conditions.
Leasing Risks
The ability of Kranzco to rent or relet unleased space is affected by
many factors, which may include certain covenants typically found in leases
with tenants in shopping centers, such as covenants which restrict the use of
other space at such shopping center to those which are not competitive with
such tenant. Changes in the abilities of tenants of the Properties to pay and
perform their rental and other obligations under their respective leases and
in Kranzco's ability to lease or relet Properties may cause fluctuations in
Kranzco's cash flow, which, in turn, may affect the cash available for
distributions to shareholders.
Changes in Laws
The Properties are subject to various federal, state and local
regulatory requirements, including, without limitation, the Americans with
Disabilities Act, which requires that buildings be made accessible to people
with disabilities. Failure to comply with these requirements could result in
the imposition of fines by governmental authorities or the award of damages
to private litigants. Kranzco believes the Properties to be in substantial
compliance with all material federal, state and local regulatory
requirements. There can be no assurance, however, that these regulatory
requirements will not be changed or that new regulatory requirements will not
be imposed that would require significant unanticipated expenditures by
Kranzco or the tenants, which would adversely affect Kranzco's net income and
cash available for distributions to shareholders.
Illiquidity of Real Estate
The illiquidity of real estate investments, the possibility of taxes
imposed on a REIT such as Kranzco by the Internal Revenue Code of 1986, as
amended (the "Code"), upon the sale of properties held for fewer than four
years and restrictions placed on Kranzco on the removal of 27 of the
Properties from the lien of the Mortgage Loan, will each serve to limit
Kranzco's ability to vary its real estate holdings promptly in response to
changes in economic or other conditions.
Casualty; Sufficiency of Insurance
Kranzco carries comprehensive liability, fire, flood, extended coverage
and rental loss insurance for the Properties with policy specifications,
limits and deductibles customarily carried for similar properties. Kranzco
currently believes it is adequately insured for all material risks of loss.
However, there is no assurance that all such insurance will be available in
the future or will be available at commercially reasonable rates. In
addition, there can be no assurance that every loss affecting the Properties
will be covered by insurance or that any such loss incurred by Kranzco will
not exceed the limits of policies obtained. Should an uninsured loss occur,
Kranzco's net income and cash available for distributions would be adversely
affected.
Default by Tenants; Financial Distress and Bankruptcy of Tenants
Substantially all of Kranzco's income will be derived from rental
payments from tenants of the Properties under their respective leases. In
the event of a default by a tenant in its payment or performance of its
rental or other obligations under its lease, Kranzco may experience delays
and substantial cost in enforcing its rights and protecting its investment,
including costs incurred in making substantial improvements or repairs to a
property and re-leasing the property. In the event that a substantial number
of tenants become financially distressed and so default, Kranzco's net income
and cash available for distributions to shareholders would be adversely
affected.
During 1997, three of Kranzco's anchor tenants, Bradlees, Caldor and
Rickels, were in bankruptcy under Chapter 11 of the United States Bankruptcy
Code. In general, in a Chapter 11 proceeding, the tenant is required to pay
the full rental to the landlord for the store on a current basis unless the
lease is disaffirmed.
The Bradlees stores are located in Bethlehem, Pennsylvania, Whitehall,
Pennsylvania and Groton, Connecticut and are approximately 85,899, 85,120 and
85,120 square feet, respectively. The Bradlees stores represent
approximately $2.2 million or 3.6% of Kranzco's annualized revenues; however,
Stop & Shop Companies, Inc. is primarily liable for all payments and other
obligations set forth in the three leases. Kranzco believes that these three
leases are at or below market rental rates and, therefore, Kranzco would not
have significant difficulty in leasing these stores if the leases were
disaffirmed. The average annual rent paid by Bradlees for these locations is
approximately $6.50 per square foot. Bradlees has closed its stores in
Groton, Connecticut and Whitehall, Pennsylvania and has disaffirmed the
leases. The Stop & Shop Companies, Inc. has commenced paying rent under the
Groton, Connecticut and Whitehall, Pennsylvania leases.
The Caldor stores are located in Towson, Maryland, Bristol, Pennsylvania
and Hamilton Township, New Jersey and are approximately 94,600, 113,160 and
119,935 square feet, respectively. The Caldor stores represent approximately
$2.5 million or 4.1% of Kranzco's annualized revenues. The Towson lease is
guaranteed by The May Company. Effective November 1, 1996, Kranzco entered
into an agreement to reduce the common area maintenance and real estate tax
reimbursements at one of the Caldor locations by approximately $230,000 for
each year in a five year period. Kranzco believes that these three leases
are at or below market rental rates and, therefore, Kranzco would not have
significant difficulty in leasing these stores if the leases were
disaffirmed. The average annual rent paid by Caldor for these locations is
approximately $6.15 per square foot.
The Rickels stores are located in Phillipsburg, New Jersey and Yonkers,
New York and both are approximately 50,000 square feet. Rickels disaffirmed
the lease for the store located at Phillipsburg in November 1996. The rental
for this store amounted to approximately $300,000 per year including
reimbursements for operating expenses. Kranzco is actively pursuing a
replacement tenant for the vacant Phillipsburg location. Rickels affirmed
the lease at the Yonkers location. Rental for this store is approximately
$1.1 million per year including reimbursements for operating expenses.
Effective May 5, 1998, this lease was assigned to National Wholesale
Liquidators Inc.
Other tenants in Kranzco's portfolio that continue to pay current rent
and operate their stores under Chapter 11 constitute individually and in the
aggregate less than 1% of Kranzco's annualized 1997 revenues. Kranzco
believes that it has adequately reserved for these tenants.
There can be no assurance that any tenant of the Properties that has
filed for bankruptcy protection will continue to pay or perform its rental or
other obligations under its lease or that other tenants of the Properties
will not file for bankruptcy protection in the future. If certain other
tenants were to file for bankruptcy protection, a delay or substantial
reduction in rental payments may occur which would adversely affect Kranzco's
net income and cash available for distributions to shareholders.
Possible Environmental Liabilities
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real property may
be liable for the costs of removal or remediation of certain hazardous or
toxic substances on, under or in such property. Such laws often impose such
liability whether or not the owner or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances, and the liability
under certain such laws may be strict, joint and several unless the harm is
divisible and there is a reasonable basis for allocating responsibility. The
costs of any required remediation or removal of such substances may be
substantial and the owner's or operator's liability therefor as to any
property is generally not limited under such laws, ordinances and regulations
and could exceed the value of the property and/or the aggregate assets of the
owner or operator. The presence of hazardous or toxic substances, or the
failure to properly remediate property affected by such substances, may
adversely affect the market value of the affected property, as well as the
owner's ability to sell or lease such property or to obtain financing using
such property as collateral.
None of the Properties is currently subject to an environmental claim,
nor is Kranzco aware of any threatened environmental claim with respect to
any of the Properties. Kranzco obtains Phase I environmental reports with
respect to all properties prior to acquisition. In addition, Kranzco
believes it is in substantial compliance with the state and federal
environmental laws. However, there can be no assurance that the Properties
will not be subject to environmental claims in the future.
Consequences of Failure to Maintain Status as a REIT
Kranzco has qualified to be taxed as a REIT commencing with its taxable
year ended December 31, 1992 and intends to continue to qualify to be taxed
as a REIT under the Code. There can be no assurance that Kranzco will be
able to continue to operate in a manner so as to maintain its qualification
as a REIT. Qualification as a REIT involves the application of highly
technical and complex Code provisions for which there are only limited
judicial or administrative interpretations and the determination of various
factual matters and circumstances not entirely within Kranzco's control may
impact its ability to qualify as a REIT under the Code. In addition, no
assurance can be given that new legislation, new regulations, administrative
interpretations or court decisions will not change the tax laws with respect
to qualification as a REIT or the federal income tax consequences of such
qualification. Kranzco, however, is not aware of any currently pending tax
legislation or regulations that would adversely affect its ability to
maintain its qualification as a REIT.
If Kranzco fails to maintain its qualification as a REIT, Kranzco will
be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at corporate rates, and distributions, if
any, to shareholders will no longer be deductible by Kranzco. In addition,
unless entitled to relief under certain statutory provisions, Kranzco will
also be disqualified from treatment as a REIT for the four taxable years
following the year in which qualification was so lost. This treatment would
reduce the net earnings of Kranzco available for investment or distribution
to shareholders because of the additional tax liability to Kranzco for the
year or years involved. In addition, during the period of disqualification,
Kranzco would no longer be required by the Code to make any distributions as
a condition to REIT qualification. To the extent that distributions to
shareholders would have been made in anticipation of Kranzco's continuing to
qualify as a REIT, Kranzco might be required to borrow funds or to liquidate
certain of its investments on adverse terms to pay the applicable tax.
The President's fiscal year 1999 budget proposal contains certain
provisions that would affect the rules pertaining to the qualification and
taxation of a REIT. None of these proposals, if enacted, is anticipated to
have any material adverse tax consequences for Kranzco.
Reliance on Major Tenants
As of March 31, 1998 Kranzco's four largest tenants were Pathmark
Supermarkets, Caldor, Bradlees and Kmart, which represented approximately 5%,
4%, 4% and 3%, respectively, of Kranzco's annualized minimum rents. Both
Caldor and Bradlees filed for bankruptcy under Chapter 11 of the United
States Bankruptcy Code. See "-Real Estate Investment Risks" and "- Default
by Tenants; Financial Distress and Bankruptcy of Tenants." No other tenant
represented more than 2% of the aggregate annualized minimum rents of the
Properties as of such date. However, upon consummation of the Southeast
Acquisition, Wal-mart will become Kranzco's largest tenant. After giving
effect to the consummation of the Southeast Acquisition, as of March 31,
1998, Wal-mart would represent approximately 7% of Kranzco's annualized
minimum rents. The financial position of Kranzco and its ability to make
distributions may be adversely affected by financial difficulties experienced
by any such tenants, or any other major tenant of Kranzco, including a
bankruptcy, insolvency or general downturn in the business of any such
tenant, or in the event any such tenant does not renew its leases as they
expire.
Geographic Considerations
All of the Properties are located in 16 states (Arizona, Connecticut,
Georgia, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, Mississippi,
New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South
Carolina and Virginia). In addition, the Commonwealth of Pennsylvania and
the states of New York, Connecticut and Maryland generated 36% or $21,700,000
of revenues, 14% or $8,400,000 of revenues, 12% or $7,400,000 of revenues and
11% or $6,900,000 of revenues, respectively of Kranzco's revenues in fiscal
year 1997, without giving effect to the Georgia Acquisition and the Southeast
Acquisition. To the extent that general economic or other relevant
conditions in the states in which the properties are located decline and
result in a decrease in consumer demand in these areas, the income from, and
value of, these Properties may be adversely affected. The impact of any such
general decline would affect Kranzco more significantly if it affected the
states of Pennsylvania, New York, Connecticut and Maryland, or the Eastern
United States as a whole.
Effect of Distribution Requirements
In order to maintain its qualification as a REIT, Kranzco must make
distributions to shareholders aggregating annually at least 95% of its REIT
taxable income (which does not include net capital gains). Kranzco currently
distributes to shareholders approximately 100% of its funds from operations
(exclusive of nonrecurring items), which is in excess of 95% of Kranzco's
REIT taxable income. The actual amount of Kranzco's future distributions to
its shareholders will be based on the cash flows from operations from the
Properties, Kranzco's other business activities, from any future investments
and on Kranzco's net income.
Under certain circumstances, Kranzco may be required to accrue as income
for tax purposes interest and rent earned but not yet received. In such
event, Kranzco could have taxable income without sufficient cash to enable
Kranzco to meet the distribution requirements of a REIT. Accordingly,
Kranzco could be required to borrow funds or to sell certain of its
investments on adverse terms to meet such distribution requirements.
Kranzco expects to continue to make acquisitions and sign leases that
may require tenant improvements. As Kranzco must distribute 95% of its REIT
taxable income to continue to qualify as a REIT, there may not be sufficient
available cash in excess of distributions to fund future acquisitions or
required tenant improvements. In such an event, the necessary funds for
future acquisitions or required tenant improvements would have to be
obtained, to the extent available, from net proceeds from the issuance of
equity securities, the sale of existing investments and, to the extent
consistent with Kranzco's strategy to maintain a conservative capital
structure, bank and other institutional borrowings and the issuance of debt
securities.
Anti-Takeover Effects of Ownership Limit, Maryland Law and a Staggered Board
Under Kranzco's Declaration of Trust, not more than 50% in value of its
outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). The Declaration of Trust of Kranzco authorizes the
Kranzco Board to take such action as may be required to preserve its
qualification as a REIT and to limit any person, other than (i) Messrs.
Norman M. Kranzdorf and Marvin Williams and (ii) any person approved by the
Board, to direct or indirect ownership of 9.8% of the lesser of the number or
value of the outstanding shares of beneficial interest of Kranzco; provided,
however, in no event may the Kranzco Board grant an exemption from the
foregoing ownership limitation to any person whose ownership, direct or
indirect, of in excess of 9.8% of the lesser of the number or value of the
outstanding shares of beneficial interest of Kranzco would result in the
termination of Kranzco's status as a REIT. In connection with the
acquisition of certain properties from Union Property Investors, Inc.
("UPI"), pursuant to the terms of the Series B Preferred Shares, the Kranzco
Board granted an exemption from such ownership limitations to Leonard Mandor,
the Chairman of the UPI Board and the Chief Executive Officer of UPI; Robert
Mandor, the President and a director of UPI; and certain of their affiliates.
In addition to the foregoing, the Articles Supplementary with respect to the
Series D Preferred Shares, par value $.01 per share, of the Company (the
"Series D Preferred Shares") authorize the Kranzco Board to take such action
as may be required to preserve its qualification as a REIT for federal income
tax purposes and to limit any person, other than persons who may be excepted
by the Board, to direct or indirect ownership of 10% of the lesser of the
number or the value of the total Series D Preferred Shares outstanding.
Based on the foregoing, there can be no assurance that there will not be five
or fewer individuals who will own more than 50% in value of the outstanding
shares of beneficial interest of Kranzco, thereby causing Kranzco to fail to
qualify as a REIT.
Under the Maryland General Corporation Law, as amended (the "MGCL"), as
applicable to a Maryland REIT, certain "business combinations" (including a
merger, consolidation, share exchange or, in certain circumstances, an asset
transfer or issuance or reclassification of equity securities) between a
Maryland REIT and any person who beneficially owns 10% or more of the voting
power of the trust's shares or an affiliate of the trust who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting
shares (an "Interested Shareholder") or an affiliate thereof are prohibited
for five years after the most recent date on which the Interested Shareholder
becomes an Interested Shareholder. Thereafter, any such business combination
must be recommended by the board of trustees of such trust and approved by
the affirmative vote of at least (a) 80% of the votes entitled to be cast by
holders of outstanding voting shares of the trust and (b) two-thirds of the
votes entitled to be cast by holders of voting shares of the trust other than
shares held by the Interested Shareholder with whom (or with whose affiliate)
the business combination is to be effected, unless, among other conditions,
the trust's common shareholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the
same form as previously paid by the Interested Shareholder for its shares.
These provisions of the MGCL do not apply, however, to business combinations
that are approved or exempted by the board of trustees prior to the time that
the Interested Shareholder becomes an Interested Shareholder.
The ownership limits, as well as the ability of Kranzco to issue other
classes of common and preferred shares of beneficial interest and certain
other provisions of Maryland law, may delay, defer or prevent a change in
control of Kranzco or other transaction that may be in the best interests of
the shareholders and also may (i) deter tender offers for the Series D
Preferred Shares, which offers may be attractive to the shareholders, or (ii)
limit the opportunity for shareholders to receive a premium for their Series
D Preferred Shares that might otherwise exist if an investor attempted to
assemble a block of shares of beneficial interest of Kranzco in excess of
9.8% of the lesser of the number or value of the outstanding shares of
beneficial interest of Kranzco or 10% of the lesser of the number or the
value of the total Series D Preferred Shares outstanding or otherwise to
effect a change in control of Kranzco.
The Kranzco Board is divided into three classes of trustees. The terms
of the first, second and third classes expire in 2001, 1999 and 2000,
respectively. Each year one class of the Kranzco Board is elected by the
shareholders. The staggered terms prevent the shareholders from voting on
the election of more than one class of trustees at each annual meeting and
thus, may delay a change in control of Kranzco or deter a bid for control of
Kranzco even in a case where the holders of a majority of the outstanding
Common Shares believe a change in control would be in their interest.
Dependence on Key Personnel
Kranzco is dependent on the efforts of its executive officers and
trustees, particularly Norman M. Kranzdorf, the President and Chief Executive
Officer and a member of the Board. The loss of his services could have an
adverse effect on Kranzco's business, assets or results of operations.
Control by Trustees and Executive Officers
Trustees and executive officers of Kranzco currently own beneficially
approximately 3.26% of the outstanding Common Shares (approximately 8.41% if
they exercise all options granted to them under Kranzco share option plans
and assuming all restricted Common Shares are fully vested). Based on such
share ownership and their positions with Kranzco, trustees and executive
officers of Kranzco may have substantial influence on Kranzco and on the
outcome of any matters submitted to Kranzco's shareholders for approval.
Changes in Investment and Financing Policies
The investment and financing policies of Kranzco and its policies with
respect to certain other activities, including growth, capitalization, debt
levels, distributions, REIT status and operating policies, are determined by
the Board. The Kranzco Board may amend or revise these policies from time to
time at its discretion without a vote of the shareholders of Kranzco.
Shares Available for Future Sale
No prediction can be made as to the effect, if any, that future sales of
shares of beneficial interest, or the availability of shares for future sale,
will have on the market price of the Common Shares. Sales of substantial
amounts of Common Shares in the public market or the perception that such
sales might occur could adversely affect the market price of the Common
Shares. As of July 2, 1998, there were 12,005,185 Common Shares and Common
Share equivalents outstanding and options outstanding to purchase an
aggregate of 932,850 Common Shares.
The conversion of Series B Preferred Shares into Common Shares, the
exercise of currently outstanding options of Kranzco and the issuance and
exercise of additional options and warrants under Kranzco's 1992 Employee
Share Option Plan, 1992 Trustee Share Option Plan and 1995 Management
Incentive Plan, could adversely affect the market prices of the Common Shares
and the terms upon which Kranzco may obtain additional equity financing in
the future.
In addition, Kranzco has, and may in the future issue, Common Shares or
options or other securities convertible or exercisable into Common Shares
pursuant to share option, share purchase, performance or other remuneration
plans adopted by the Kranzco Board from time to time. Kranzco may also issue
Common Shares or such options or securities to its employees in lieu of
bonuses or to its trustees in lieu of trustee's fees. The issuance of a
substantial number of Common Shares, or options or other securities
convertible or exercisable into a substantial number of Common Shares, could
adversely affect the market price of the Common Shares.
Risk that the Southeast Acquisition will not be Consummated
The Southeast Acquisition is subject to the satisfaction of a number of
conditions, certain of which are material and beyond the control of Kranzco,
and, unless satisfied, could result in the transaction not being consummated.
Should the Southeast Acquisition not occur, for whatever reason, the net
proceeds of this Offering may be used to repay additional indebtedness of the
Company.
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Shares in the
Offering, after the deduction of estimated offering expenses of approximately
$20,000, are approximately $1,313,333 million. The Company intends to use
the proceeds to finance the Southeast Acquisition, or, in the event the
Southeast Acquisition is not consummated, to repay indebtedness of the
Company or for general working capital or trust purposes.
PRICE RANGE OF COMMON SHARES AND DISTRIBUTIONS
The Common Shares have been listed on the New York Stock Exchange
("NYSE") since November 19, 1992 under the symbol "KRT." On August 5, 1998,
the last reported sale price of the Common Shares on the NYSE was $17.06.
The approximate number of holders of record of the Common Shares was 915 as
of August 3, 1998. The following table shows the high and low closing price
for the Common Shares for the fiscal periods indicated as reported by the New
York Stock Exchange Composite Tape and the cash distributions per Common
Share paid by the Company with respect to each such period.
Year High Low Distributions
- ---- ---- --- -------------
1998
First Quarter . . . . . . . . . . . . $19.75 $17.38 $.48
Second Quarter . . . . . . . . . . . . $18.69 $17.50 $.48
Third Quarter (through August 5th) . . $19.00 $17.06 $.48
1997 . . . . . . . . . . . . . . . . .
First Quarter . . . . . . . . . . . . $17.63 $15.38 $.48
Second Quarter . . . . . . . . . . . . $17.38 $15.75 $.48
Third Quarter. . . . . . . . . . . . . $19.75 $16.88 $.48
Fourth Quarter . . . . . . . . . . . . $20.00 $18.50 $.48
1996 . . . . . . . . . . . . . . . . .
First Quarter. . . . . . . . . . . . . $16.25 $14.75 $.48
Second Quarter . . . . . . . . . . . . $16.00 $14.13 $.48
Third Quarter. . . . . . . . . . . . . $16.13 $14.13 $.48
Fourth Quarter . . . . . . . . . . . . $17.13 $14.88 $.48
The Company declared distributions to common shareholders aggregating
$1.92 per Common Share during the fiscal year ended December 31, 1997. Of
these distributions, it was determined that $0.85 per Common Share is a
return of capital and $1.07 per share is ordinary income.
The Company has paid regular quarterly cash distributions on the Common
Shares since it commenced operations as a REIT in November 1992.
Future distributions paid by the Company will be at the discretion of
the Trustees and will depend on the actual cash flow 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 Trustees deem relevant.
The Company has adopted a dividend reinvestment plan pursuant to which
shareholders may elect to automatically reinvest their distributions in
Common Shares. To fulfill its obligations under this dividend reinvestment
plan, the Company will, from time to time, repurchase Common Shares in the
open market or issue new Common Shares.
CERTAIN U.S. FEDERAL INCOME TAX
CONSIDERATIONS TO HOLDERS OF COMMON SHARES
The federal income tax treatment of the Company and its shareholders is
set forth in the accompanying prospectus under the heading "Federal Income
Tax Considerations."
Legislation has been recently enacted into law that reduces the holding
period for the 20% capital gains tax rate applicable to individuals from 18
months to 12 months, effective January 1, 1998. In addition, other
provisions affecting the taxation of REITs have been proposed. Each investor
should consult with its own tax advisor concerning the status and
consequences of new and proposed legislation.
EACH INVESTOR CONSIDERING THE ACQUISITION OF COMMON SHARES IS STRONGLY
URGED TO CONSULT ITS OWN TAX ADVISOR CONCERNING THE APPLICATION OF FEDERAL
INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION, TO ITS PARTICULAR SITUATION. THE CONTENTS OF THIS PROSPECTUS
ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS OR TAX ADVICE. EACH HOLDER SHOULD
CONSULT ITS OWN ATTORNEY, BUSINESS ADVISOR AND/OR TAX ADVISOR AS TO LEGAL,
BUSINESS OR TAX ADVICE.
OTHER TAX CONSIDERATIONS
The Company's shareholders 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 shareholders may not conform to the federal income tax
consequences discussed above. Consequently, prospective shareholders should
consult their tax advisors regarding the effect of state and local tax laws
on an investment in the Company.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under
ERISA and the prohibited transaction provisions of Section 4975 of the Code
that may be relevant to a prospective purchaser (including, to a prospective
purchaser that is not an employee benefit plan, another tax-qualified
retirement plan or an individual retirement account ("IRA")). This
discussion does not propose to deal with all aspects of ERISA or Section 4975
of the Code or, to the extent not preempted, state law that may be relevant
to particular employee benefit plan shareholders (including plans subject to
Title I of ERISA, other employee benefit plans and IRAs subject to the
prohibited transaction provisions of Section 4975 of the Code, and
governmental plans and church plans that are exempt from ERISA and Section
4975 of the Code but that may be subject to state law requirements) in light
of their particular circumstances.
A FIDUCIARY MAKING THE DECISION TO INVEST IN COMMON SHARES ON BEHALF OF
A PROSPECTIVE PURCHASER WHICH IS AN ERISA PLAN, A TAX-QUALIFIED RETIREMENT
PLAN, AN IRA OR OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO CONSULT ITS OWN
LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA,
SECTION 4975 OF THE CODE, AND (TO THE EXTENT NOT PRE-EMPTED) STATE LAW WITH
RESPECT TO THE PURCHASE, OWNERSHIP OR SALE OF COMMON SHARES BY SUCH PLAN OR
IRA. Plans should also consider the entire discussion under the heading
"Federal Income Tax Considerations," as material contained therein is
relevant to any decision by an employee benefit plan, tax-qualified
retirement plan or IRA to purchase the Common Shares.
Employee Benefit Plans, Tax-qualified Retirement Plans and IRAs
Each fiduciary of an employee benefit plan subject to Title I of ERISA
(an "ERISA Plan") should carefully consider whether an investment in Common
Shares is consistent with its fiduciary responsibilities under ERISA. In
particular, the fiduciary requirements of Part 4 of Title I of ERISA require
(i) an ERISA Plan's investments to be prudent and in the best interests of
the ERISA Plan, its participants and beneficiaries, (ii) an ERISA Plan's
investments to be diversified in order to reduce the risk of large losses,
unless under the circumstances, it is clearly prudent not to do so, (iii) an
ERISA Plan's investments to be authorized under the terms of the governing
documents of the ERISA Plan insofar as those documents are consistent with
ERISA and (iv) that the fiduciary not cause the ERISA Plan to enter into
transactions prohibited under Section 406 of ERISA. In determining whether
an investment in Common Shares is prudent for purposes of ERISA, the
appropriate fiduciary of an ERISA Plan should consider all of the facts and
circumstances, including whether the investment is reasonably designed, as a
part of the ERISA Plan's portfolio for which the fiduciary has investment
responsibility, to meet the objectives of the ERISA Plan, taking into
consideration the risk of loss and opportunity for gain (or other return)
from the investment, the diversification, cash flow and funding requirements
of the ERISA Plan, and the liquidity and current return of the ERISA Plan's
portfolio. A fiduciary should also take into account the nature of the
Company's business, the length of the Company's operating history and other
matters described under "Risk Factors."
The fiduciary of an IRA or of an employee benefit plan not subject to
Title I of ERISA because it is a governmental or church plan or because it
does not cover common law employees (a "Non-ERISA Plan") should consider that
such an IRA or Non-ERISA Plan may only make investments that are authorized
by the appropriate governing documents, not prohibited under Section 4975 of
the Code and permitted under applicable state law.
Status of the Company's Common Shares
A prohibited transaction may occur if the assets of the Company are
deemed to be assets of the investing Plans a "disqualified person" or "party
in interest" with respect to one or more such Plans participates in a
transaction involving the Company's assets. In certain circumstances where a
Plan holds an interest in an entity, the assets of the entity are deemed to
be Plan assets (the "look-through rule"). Under such circumstances, any
person that exercises authority or control with respect to the management or
disposition of such assets is a Plan fiduciary. Plan assets are not defined
in ERISA or the Code, but the United States Department of Labor has issued
regulations, effective March 13, 1987 (the "Regulations"), that outline the
circumstances under which a Plan's interest in an entity will be subject to
the look-through rule.
The Regulations apply only to the purchase by a Plan of an "equity
interest" in an entity, such as common shares of a REIT. However, the
Regulations provide an exception to the look-through rule for equity
interests that are "publicly- offered securities."
Under the Regulations, a "publicly-offered security" is a security that
is (i) freely transferable, (ii) part of a class of securities that is widely-
held and (iii) either (a) part of a class of securities that is registered
under section 12(b) or 12(g) of the Exchange Act or (b) sold to a Plan as
part of an offering of securities to the public pursuant to an effective
registration statement under the Securities Act and the class of securities
of which such security is a part is registered under the Exchange Act within
120 days (or such longer period allowed by the Securities and Exchange
Commission) after the end of the fiscal year of the issuer during which the
offering of such securities to the public occurred. Whether a security is
considered "freely transferable" depends on the facts and circumstances of
each case. Generally, if the security is part of an offering in which the
minimum investment is $10,000 or less, any restriction on or prohibition
against any transfer or assignment of such security for the purposes of
preventing a termination or reclassification of the entity for federal or
state tax purposes will not of itself prevent the security from being
considered freely transferable. A class of securities is considered "widely-
held" if it is a class of securities that is owned by 100 or more investors
independent of the issuer and of one another.
The Common Shares of the Company meet the criteria of the publicly-
offered securities exception to the look-through rule. First, the Common
Shares are considered to be freely transferable, as the minimum investment
will be less than $10,000 and the only restrictions upon its transfer are
those required under federal tax laws to maintain the Company's status as a
REIT. Second, the Common Shares are held by 100 or more investors and at
least 100 or more of these investors are independent of the Company and of
one another. Third, the Common Shares are part of an offering of securities
to the public pursuant to an effective registration statement under the
Securities Act and is registered under the Exchange Act within 120 days after
the end of the fiscal year of the Company during which the offering of such
securities to the public occurs. Accordingly, the Company believes that if a
Plan purchases the Common Shares, the Company's assets should not be deemed
to be Plan assets and, therefore, (i) that any person who exercises authority
or control with respect to the Company's assets should not be a Plan
fiduciary, and (ii) transaction involving the Company's assets will not
constitute prohibited transactions under Section 406 of ERISA or Section 4975
of the Code.
DESCRIPTION OF SERIES D PREFERRED SHARES
On December 10, 1998, the Company issued 1,800,000 Series D Preferred
Shares. On November 19, 1997, the Board adopted resolutions establishing the
terms of a series of Preferred Shares consisting of up to 2,070,000 shares,
designated 9 1/2% Series D Cumulative Redeemable Preferred Shares. The
following summary of the terms and provisions of the Series D Preferred
Shares does not purport to be complete and is qualified in its entirety by
reference to the pertinent sections of the Declaration of Trust and the
articles supplementary amending the Declaration of Trust (the "Articles
Supplementary") establishing the Series D Preferred Shares, each of which is
available from the Company.
Rank
The Series D Preferred Shares will, with respect to distribution rights
and rights upon liquidation, dissolution or winding up of the Company, rank
(a) senior to all classes or series of Common Shares and all equity
securities ranking junior to such Series D Preferred Shares; (b) on a parity
(i) with the Series A-1 Preferred Shares, the Series B Preferred Shares and
the Series C Preferred Shares and (ii) all equity securities issued by the
Company the terms of which specifically provide that such equity securities
rank on a parity with the Series D Preferred Shares (the "Parity Preferred
Shares"); and (c) junior to all equity securities issued by the Company the
terms of which specifically provide that such equity securities rank senior
to the Series D Preferred Shares. The term "equity securities" does not
include convertible debt securities for this purpose.
Distributions
Holders of Series D Preferred Shares shall be entitled to receive, when,
as and if authorized and declared by the Board, out of assets of the Company
legally available for payment, cash distributions payable quarterly at the
rate of 9 1/2% per annum of the $25 liquidation preference (equivalent to
$2.375 per annum per share). Such distributions shall be cumulative from the
date of original issue and shall be payable quarterly on the 20th of each
January, April, July and October of each year or, if not a business day, the
next succeeding business day (each a "Distribution Payment Date"). The first
distribution, which will be paid on January 20, 1998, will be for less than a
full quarter. Such distribution and any distribution payable on the Series D
Preferred Shares for any partial distribution period will be computed on the
basis of a 360-day year consisting of twelve 30-day months. Distributions
will be payable to holders of record as they appear on the stock transfer
books of the Company at the close of business on the applicable record date,
which shall be fixed by the Board and which shall be not more than 60 nor
less than 10 days prior to such Distribution Payment Date (each a
"Distribution Record Date"). After full distributions on the Series D
Preferred Shares have been paid or declared and funds set aside for payment
for all past distribution periods and for the then current quarter, the
holders of Series D Preferred Shares will not be entitled to any further
distributions with respect to that quarter.
When distributions are not paid in full upon the Series D Preferred
Shares and any other series of Parity Preferred Shares, all distributions
declared upon the Series D Preferred Shares and any other Parity Preferred
Shares shall be declared pro rata so that the amount of distributions
declared per share on such Series D Preferred Shares and such other Parity
Preferred Shares shall in all cases bear to each other the same ratio that
the accrued distributions per share on the Series D Preferred Shares and such
other Parity Preferred Shares bear to each other. Except as set forth in the
preceding sentence, unless full distributions on the Series D Preferred
Shares have been or contemporaneously are authorized and paid or authorized
and a sum sufficient for the payment thereof set apart for payment for all
past distribution periods and the then current distribution period, no
distributions (other than in Common Shares or other shares of equity
securities of the Company ranking junior to the Series D Preferred Shares as
to distributions and upon liquidation) shall be authorized or paid or set
aside for payment on the Common Shares or on any other shares of equity
securities of the Company ranking junior to or on a parity with the Series D
Preferred Shares as to distributions or upon liquidation. Unless full
distributions on the Series D Preferred Shares have been or contemporaneously
are authorized and paid or authorized and a sum sufficient for the payment
thereof set apart for payment for all past distribution periods and the then
current distribution period, no Common Shares or any other shares of equity
securities of the Company ranking junior to or on a parity with the Series D
Preferred Shares as to distributions or upon liquidation (including less than
all of Series D Preferred Shares) shall be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid or made available for a
sinking fund for the redemption of any such shares) by the Company except by
conversion into or exchange for shares of equity securities of the Company
ranking junior to the Series D Preferred Shares as to distributions and upon
liquidation. See "Description of Series D Preferred Shares-Redemption" for
similar restrictions on the redemption, purchase or other acquisition of the
Series D Preferred Shares.
No distributions on the Series D Preferred Shares shall be authorized by
the Board or paid or set apart for payment by the Company at such time as the
terms and provisions of any agreement of the Company, including any agreement
relating to its indebtedness, prohibits such authorization, payment or
setting apart for payment or provides that such authorization, payment or
setting apart for payment would constitute a breach thereof or a default
thereunder, or if such authorization or payment shall be restricted or
prohibited by law.
Notwithstanding the foregoing, distributions on the Series D Preferred
Shares will accrue whether or not the Company has earnings, whether or not
there are funds legally available for the payment of such distributions,
whether or not any agreement of the Company prohibits payment of such
distributions, and whether or not such distributions are authorized. Accrued
but unpaid distributions on the Series D Preferred Shares will not bear
interest and holders of Series D Preferred Shares shall not be entitled to
any distribution, whether payable in cash, property or shares of beneficial
interest, in excess of full cumulative distributions on the Series D
Preferred Shares as provided above. See "Description of Preferred Shares-
Distributions" in the accompanying Prospectus.
Any distribution payment made on the Series D Preferred Shares shall
first be credited against the earliest accrued but unpaid distribution due
with respect to such shares which remains payable.
If, for any taxable year, the Company elects to designate as "capital
gain dividends" (as defined in Section 857 of the Code) any portion (the
"Capital Gains Amount") of the dividends (within the meaning of the Code)
paid for the year to holders of all classes of shares of beneficial interest
in the Company (the "Total Distributions"), then the portion of the Capital
Gains Amount that will be allocable to the holders of the Series D Preferred
Shares will be the Capital Gains Amount multiplied by a fraction, the
numerator of which will be the total dividends (within the meaning of the
Code) paid to the holders of the Series D Preferred Shares for the year and
the denominator of which shall be the Total Distributions.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company, then, subject to the prior preferences and
other rights of any shares ranking senior as to liquidation preference but
before any distribution or payment shall be made to the holders of any Common
Shares or any other class or series of shares of beneficial interest of the
Company ranking junior to the Series D Preferred Shares in the distribution
of assets upon any liquidation, dissolution or winding up of the Company, the
holders of Series D Preferred Shares shall be entitled to receive, after
payment or provision for payment of the Company's debts and other
liabilities, out of assets of the Company legally available for distribution
to shareholders, a liquidation preference of $25 per share, plus an amount
equal to any accrued and unpaid distributions to the date of such
liquidation, dissolution or winding up (whether or not declared). After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of Series D Preferred Shares will have no right or
claim to any of the remaining assets of the Company.
In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the legally available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding Series D Preferred Shares and the corresponding amounts payable
on all shares of other classes or series of equity security of the Company
ranking on a parity with the Series D Preferred Shares in the distribution of
assets upon liquidation, dissolution or winding up, then the holders of the
Series D Preferred Shares and all other such classes or series of equity
security 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 Series D Preferred Shares, the remaining assets of the
Company shall be distributed among the holders of any other classes or series
of equity security ranking junior to the Series D Preferred Shares upon
liquidation, dissolution or winding up, according to their respective rights
and preferences and in each case according to their respective number of
shares.
For purposes of this section, a distribution of assets in any
dissolution, winding up or liquidation will not include (i) any consolidation
or merger of the Company with or into any other entity, (ii) any dissolution,
liquidation, winding up, or reorganization of the Company immediately
followed by incorporation of another entity to which such assets are
distributed or (iii) a sale or other disposition of all or substantially all
of the Company's assets to another entity; provided that, in each case,
effective provision is made in the charter of the resulting and surviving
entity or otherwise for the recognition, preservation and protection of the
rights of the holders of Series D Preferred Shares.
Redemption
Except in certain circumstances relating to the Company's maintenance of
its ability to qualify as a REIT under the Code as described under
"Description of Common Shares-Restrictions on Ownership" in the accompanying
Prospectus, the Series D Preferred Shares are not redeemable prior to
December 11, 2002. On any date as fixed by the Board on or after December
11, 2002, the Company, upon not less than 30 nor more than 60 days' written
notice, may redeem the Series D Preferred Shares, in whole or in part, at any
time or from time to time, for cash at a redemption price of $25 per share,
plus all accrued and unpaid distributions thereon, if any (whether or not
declared), to the date fixed for redemption (except as provided below),
without interest, to the extent the Company will have funds legally available
therefore. The redemption price of the Series D Preferred Shares (other than
any portion thereof consisting of accrued and unpaid dividends) is payable
solely out of the sale proceeds of other capital shares of the Company and
not from any other source. For purposes of the preceding sentence, "capital
shares" means any common shares of beneficial interest, preferred shares,
depositary shares, interests, participation or other ownership interests
(however designated) and any rights (other than debt securities convertible
into or exchangeable for equity securities) or options to purchase any of the
foregoing of or in the Company. Holders of Series D Preferred Shares to be
redeemed shall surrender such Series D Preferred Shares at the place
designated in such notice and shall be entitled to the redemption price and
any accrued and unpaid distributions payable upon such redemption following
such surrender. If notice of redemption of any Series D Preferred Shares has
been given and if the funds necessary for such redemption have been set aside
by the Company in trust for the benefit of the holders of any Series D
Preferred Shares so called for redemption, then from and after the redemption
date distributions will cease to accrue on such Series D Preferred Shares,
such shares of Series D Preferred Shares 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 plus any accrued and unpaid
distributions payable upon such redemption. If fewer than all of the
outstanding Series D Preferred Shares are to be redeemed, the number of
shares to be redeemed will be determined by the Board and such shares shall
be redeemed pro rata from the holders of record thereof in proportion to the
number of such shares held by such holders (with adjustments to avoid
redemption of fractional shares) or by any other equitable method determined
by the Company.
Notwithstanding the foregoing, unless full cumulative distributions on
all Series D Preferred Shares shall have been or contemporaneously are
authorized and paid or authorized and a sum sufficient for the payment
thereof set apart for payment for all past distribution periods, no Series D
Preferred Shares shall be redeemed unless all outstanding Series D Preferred
Shares are simultaneously redeemed and the Company shall not purchase or
otherwise acquire directly or indirectly any Series D Preferred Shares
(except by exchange for shares of beneficial interest of the Company ranking
junior to the Series D Preferred Shares as to distributions and upon
liquidation); provided, however, that the foregoing shall not prevent the
purchase by the Company of Excess Shares (as defined in "Description of
Common Shares-Restrictions on Ownership" in the accompanying Prospectus) in
order to ensure that the Company remains qualified as a REIT for federal
income tax purposes, or the purchase or acquisition of Series D Preferred
Shares pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding Series D Preferred Shares.
Notice of redemption will be given by publication in a newspaper of
general circulation in the City of New York, such publication to be made once
a week for two successive weeks commencing not less than 30 nor more than 60
days' prior to the redemption date. A similar notice will be mailed by the
Company, postage prepaid, not less than 30 nor more than 60 days prior to the
redemption date, addressed to the respective holders of record of Series D
Preferred Shares to be redeemed at their respective addresses as shown on the
stock transfer books of the Company. No failure to give such notice or any
defect thereto or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any Series D Preferred Shares except as to
the holder to whom notice was defective or not given. Each notice shall
state: (i) the redemption date; (ii) the redemption price; (iii) the number
of Series D Preferred Shares to be redeemed; (iv) the place or places where
the Series D Preferred Shares are to be surrendered for payment of the
redemption price; and (v) that distributions on the Series D Preferred Shares
to be redeemed will cease to accrue on such redemption date. If fewer than
all the Series D Preferred Shares held by any holder are to be redeemed, the
notice mailed to such holder shall also specify the number of Series D
Preferred Shares to be redeemed from such holder.
In order to facilitate the redemption of the Series D Preferred Shares,
the Board may fix a record date for the determination of Series D Preferred
Shares to be redeemed, such record date to be not less than 30 nor more than
60 days prior to the date fixed for such redemption. Except as provided
above, the Company will make no payment or allowance for unpaid
distributions, whether or not in arrears, on Series D Preferred Shares for
which a notice of redemption has been given.
The Series D Preferred Shares have no stated maturity and will not be
subject to any sinking fund or mandatory redemption provisions (except as
provided under "-Restrictions on Ownership and Transfer").
Subject to applicable law and the limitation on purchases when
distributions on the Series D Preferred Shares are in arrears, the Company
may, at any time and from time to time, purchase any Series D Preferred
Shares in the open market, by tender or by private agreement.
Voting Rights
Holders of the Series D Preferred Shares will not have any voting
rights, except as set forth below.
Whenever distributions on any Series D Preferred Shares shall be in
arrears for six or more quarterly periods (whether or not consecutive), the
holders of such Series D Preferred Shares (voting separately as a class with
all other series of Preferred Shares upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of
two additional trustees of the Company at a special meeting called by the
holders of record of at least 20% of the outstanding Series D Preferred
Shares or the holders of shares of any series of Preferred Shares so in
arrears (unless such request is received less than 90 days before the date
fixed for the next annual or special meeting of the shareholders) or at the
next annual meeting of shareholders and at each subsequent meeting until all
distributions accumulated on such Series D Preferred Shares for the past
distribution periods and the then current distribution period shall have been
fully paid or authorized and declared and a sum sufficient for the payment
thereof set aside for payment in full. In such case, the entire Board will
be increased by two trustees.
The affirmative vote or consent of the holders of at least two-thirds of
the outstanding Series D Preferred Shares and of any series of Parity
Preferred Shares, voting as a single class, will be required to authorize
another class or series or rights to subscribe to or acquire, any security
convertible into, any class or series of shares of beneficial interest
ranking senior to the Series D Preferred Shares with respect to the payment
of distributions or the distribution of assets on liquidation. The
affirmative vote or consent of the holders of at least two-thirds of the
outstanding Series D Preferred Shares will be required to amend, alter or
repeal any provision of, or add any provision to, the Declaration of Trust,
including the Articles Supplementary, if such action would materially and
adversely alter or change the rights, preferences or privileges of the Series
D Preferred Shares. No such vote or consent is required in connection with
(i) any increase in the total number of authorized Common Shares; (ii) the
authorization or increase of any class or series of shares of beneficial
interest ranking, as to distribution rights and liquidation preference, on a
parity with or junior to the Series D Preferred Shares; (iii) any merger or
consolidation in which the Company is the surviving entity if, immediately
after the merger or consolidation, there are outstanding no shares of
beneficial interest and no securities convertible into shares of beneficial
interest ranking as to distribution rights or liquidation preference senior
to the Series D Preferred Shares other than the securities of the Company
outstanding prior to such merger or consolidation; (iv) any merger or
consolidation in which the Company is not the surviving entity if, as result
of the merger or consolidation, the holders of Series D Preferred Shares
receive shares of stock or beneficial interest or other equity securities
with preferences, rights and privileges substantially identical with the
preferences, rights and privileges of the Series D Preferred Shares and there
are outstanding no shares of stock or beneficial interest or other equity
securities of the surviving entity ranking as to distribution rights or
liquidation preference senior to the Series D Preferred Shares other than the
securities of the Company outstanding prior to such merger or consolidation;
or (v) if, at or prior to the time when the issuance of any such shares
ranking senior to the Series D Preferred Shares is to be made or any such
change is to take effect, as the case may be, proper notice has been given
and sufficient funds have been irrevocably deposited in trust for the
redemption of all the then outstanding Series D Preferred Shares.
Conversion
The Series D Preferred Shares are not convertible into or exchangeable
for any other property or securities of the Company.
Transfer Agent
The registrar, transfer agent and distribution disbursing agent for the
Series D Preferred Shares will be First Union National Bank.
Restrictions on Ownership and Transfer
Ownership of Series D Preferred Shares by any person is limited, with
certain exceptions, to 9.8% of the lesser of the number or value of the
Company's total outstanding shares of beneficial interest. For information
regarding additional restrictions on ownership and transfer of the Series D
Preferred Shares, see "Description of Common Shares-Restrictions on
Ownership" in the accompanying Prospectus.
In addition to the restrictions on ownership and transfer set forth in
the Declaration of Trust, the Articles Supplementary provide, subject to
certain exceptions, that no person may own, or be deemed to own by virtue of
the attribution provisions of the Code, more than 10% (the "Series D
Preferred Share Ownership Limit") of the number or value of the outstanding
Series D Preferred Shares.
The Board, in its sole discretion, may exempt a proposed transferee from
the Series D Preferred Share Ownership Limit (an "Excepted Holder").
However, the Board may not grant such an exemption to any person if such
exemption would result in the Company being "closely held" within the meaning
of Section 856(h) of the Code or otherwise would result in the Company
failing to qualify as a REIT. In order to be considered by the Board of
Trustees as an Excepted Holder, a person also must not own, directly or
indirectly, an interest in a tenant of the Company (or a tenant of any entity
owned or controlled by the Company) that would cause the Company to own,
directly or indirectly, more than a 10% interest in such a tenant. The
person seeking an exemption must represent to the satisfaction of the Board
of Trustees that it will not violate the two aforementioned restrictions.
The person also must agree that any violation or attempted violation of any
of the foregoing restrictions will result in the automatic transfer of the
shares of stock causing such violation to the Trust (as defined below).
Any person who acquires or attempts or intends to acquire beneficial or
constructive ownership of Series D Preferred Shares that will or may violate
any of the foregoing restrictions on transferability and ownership, or any
person who would have owned Series D Preferred Shares that resulted in a
transfer of shares to the Trust, is required to give notice immediately to
the Company and provide the Company with such other information as the
Company may request in order to determine the effect of such transfer on the
Company's status as a REIT.
If any transfer of Series D Preferred Shares occurs which, if effective,
would result in any person beneficially or constructively owning Series D
Preferred Shares in excess or in violation of the Series D Preferred Share
Ownership Limit (a "Prohibited Owner"), then that number of Series D
Preferred Shares the beneficial or constructive ownership of which otherwise
would cause such person to violate such limitations (rounded to the nearest
whole share) shall be automatically transferred to a trust (the "Trust") for
the exclusive benefit of one or more charitable beneficiaries (the
"Charitable Beneficiary"), and the Prohibited Owner shall not acquire any
rights in such shares. Such automatic transfer shall be deemed to be
effective as of the close of business on the Business Day (as defined in the
Articles Supplementary) prior to the date of such violative transfer. Series
D Preferred Shares held in the Trust shall be issued and outstanding shares.
The Prohibited Owner shall not benefit economically from ownership of any
Series D Preferred Shares held in the Trust, shall have no rights to
dividends and shall not possess any rights to vote or other rights
attributable to the Series D Preferred Shares held in the Trust. The trustee
of the Trust (the "Trustee") shall have all voting rights and rights to
dividends or other distributions with respect to Series D Preferred Shares
held in the Trust, which rights shall be exercised for the exclusive benefit
of the Charitable Beneficiary. Any dividend or other distribution paid prior
to the discovery by the Company that Series D Preferred Shares have been
transferred to the Trustee shall be paid by the recipient of such dividend or
distribution to the Trustee upon demand, and any dividend or other
distribution authorized but unpaid shall be paid when due to the Trustee.
Any dividend or distribution so paid to the Trustee shall be held in trust
for the Charitable Beneficiary. The Prohibited Owner shall have no voting
rights with respect to shares of beneficial interest held in the Trust and,
subject to Maryland law, effective as of the date that such Series D
Preferred Shares have been transferred to the Trust, the Trustee shall have
the authority (at the Trustee's sole discretion) (i) to rescind as void any
vote cast by a Prohibited Owner prior to the discovery by the Company that
such Series D Preferred Shares have been transferred to the Trust and (ii) to
recast such vote in accordance with the desires of the Trustee acting for the
benefit of the Charitable Beneficiary. However, if the Company has already
taken irreversible trust action, then the Trustee shall not have the
authority to rescind and recast such vote.
Within 20 days of receiving notice from the Company that Series D
Preferred Shares have been transferred to the Trust, the Trustee shall sell
the Series D Preferred Shares held in the Trust to a person, designated by
the Trustee, whose ownership of the Series D Preferred Shares will not
violate the ownership limitations set forth in the Articles Supplementary.
Upon such sale, the interest of the Charitable Beneficiary in the shares sold
shall terminate and the Trustee shall distribute the net proceeds of the sale
to the Prohibited Owner and to the Charitable Beneficiary as follows. The
Prohibited Owner shall receive the lesser of (i) the price paid by the
Prohibited Owner for the shares or, if the Prohibited Owner did not give
value for the shares in connection with the event causing the shares to be
held in the Trust (e.g., a gift, devise or other such transaction), the
Market Price (as defined in the Articles Supplementary) of such shares on the
day of the event causing the shares to be held in the Trust and (ii) the
price per share received by the Trustee from the sale or other disposition of
the shares held in the Trust. Any net sale proceeds in excess of the amount
payable to the Prohibited Owner shall be paid immediately to the Charitable
Beneficiary. If, prior to the discovery by the Company that Series D
Preferred Shares have been transferred to the Trust, such shares are sold by
a Prohibited Owner, then (i) such shares shall be deemed to have been sold on
behalf of the Trust and (ii) to the extent that the Prohibited Owner received
an amount for such shares that exceeds the amount that such Prohibited Owner
was entitled to receive pursuant to the aforementioned requirement, such
excess shall be paid to the Trustee upon demand.
In addition, Series D Preferred Shares held in the Trust shall be deemed
to have been offered for sale to the Company, or its designee, at a price per
share equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Trust (or, in the case of a devise or gift,
the Market Price at the time of such devise or gift) and (ii) the Market
Price on the date the Company, or its designee, accepts such offer. The
Company shall have the right to accept such offer until the Trustee has sold
the Series D Preferred Shares held in the Trust. Upon such a sale to the
Company, the interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the sale to
the Prohibited Owner.
All certificates representing Series D Preferred Shares will bear a
legend referring to the restrictions described above.
Every owner of more than 5% of Series D Preferred Shares, within 30 days
after the end of each taxable year, is required to give written notice to the
Company stating the name and address of such owner, the number of shares of
each class and series of shares of beneficial interest of the Company which
the owner beneficially owns and a description of the manner in which such
shares are held. Each such owner shall provide to the Company such
additional information as the Company may request in order to determine the
effect, if any, of such beneficial ownership on the Company's status as a
REIT and to ensure compliance with the Series D Preferred Share Ownership
Limit. In addition, each shareholder shall upon demand be required to
provide to the Company such information as the Company may request, in good
faith, in order to determine the Company's status as a REIT and to comply
with the requirements of any taxing authority or governmental authority or to
determine such compliance.
These ownership limitations could delay, defer or prevent a transaction
or a change in control of the Company that might involve a premium price for
the Series D Preferred Shares or otherwise be in the best interest of the
shareholders. See "Risk Factors-Anti-Takeover Effects of Ownership Limit,
Maryland Law and a Staggered Board."
PLAN OF DISTRIBUTION
All of the Common Shares offered hereby are being sold to an
institutional investor at the negotiated Purchase Price. The total number of
Common Shares offered hereby equals the aggregate number of Common Shares
resulting from the allocation of the purchaser's proposed aggregate
investment of $1.5 million on a pro rata basis over the 18 days during the
Investment Period and purchasing on each day during the Investment Period on
which the Average Trading Price exceeds $17.75 the maximum number of whole
Common Shares which could have been purchased at the Purchase Price,
resulting in the purchase of a total of 73,455 Common Shares at an average
purchase price per Common Share of $18.1572 and net offering proceeds to the
Company, after the deduction of estimated offering expenses of $20,000, of
approximately $1,313,333.
<PAGE>
PROSPECTUS
KRANZCO REALTY TRUST
$55,000,000
Debt Securities, Preferred Shares,
Common Shares, Warrants and Rights
____________
Kranzco Realty Trust (the "Company") may from time to time offer in one
or more series its (i) unsecured debt securities, which may be either senior
debt securities ("Senior Securities") or subordinated debt securities
("Subordinated Securities," and together with Senior Securities, the "Debt
Securities"), (ii) preferred shares of beneficial interest, par value $.01
per share ("Preferred Shares"), (iii) common shares of beneficial interest,
par value $.01 per share ("Common Shares"), (iv) warrants to purchase Debt
Securities, Preferred Shares or Common Shares (collectively, "Warrants"), or
(v) rights to purchase Common Shares ("Rights"), with an aggregate initial
public offering price of up to $55,000,000 on terms to be determined at the
time of offering. Debt Securities, Preferred Shares, Common Shares, Warrants
and Rights (collectively, the "Offered Securities") may be offered,
separately or together, in separate series in amounts, at prices and on terms
to be set forth in a supplement to this Prospectus (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, ranking,
currency, form (which may be registered or bearer, or certificated or
global), authorized denominations, maturity, rate (or manner of calculation
thereof) and time of payment of interest, terms for redemption at the option
of the Company or repayment at the option of the holder, terms for sinking
fund payments, terms for conversion into Preferred Shares or Common Shares,
certain covenants, other terms and conditions, and the initial public
offering price; (ii) in the case of Preferred Shares, the number, specific
title and par value, any distribution or liquidation preference, any
redemption, conversion or voting rights and other terms and conditions, and
the initial public offering price; (iii) in the case of Common Shares, any
initial public offering price; (iv) in the case of Warrants, the number and
terms thereof, the designation and the number of securities issuable upon
their exercise, the exercise price, the terms of the offering and sale
thereof and, where applicable, the duration and detachability thereof; and
(v) in the case of Rights, the duration, exercise price and transferability
thereof. In addition, such specific terms may include limitations on direct
or beneficial ownership and restrictions on transfer of certain types of
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 August 5, 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 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. In addition, the Company's Common Shares, 9.75% Series B-1 Cumulative
Convertible Preferred Shares of Beneficial Interest and 9.5% Series D
Cumulative Redeemable Preferred Shares of Beneficial Interest 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 or to previous filings made
by the Company with the Commission, 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, the previous filings
made by the Company with the Commission and the exhibits and schedules
thereto, which may be obtained from the Commission (i) at its principal
office in Washington, D.C., upon payment of the fees prescribed by the
Commission or (ii) by consulting the Commission's Web site at the address of
http://www.sec.gov.
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:
1. The Company's Annual Report on Form 10-K (File No. 1-11478)
for the fiscal year ended December 31, 1997.
2. The Company's Quarterly Report on Form 10-Q (File No. 1-11478) for
the quarter ended March 31, 1998.
3. The Company's Current Report on Form 8-K (File No. 1-11478) dated
February 27, 1997, filed March 14, 1997, as amended by Form 8-K/A (File No.
1-11478) dated May 6, 1997, filed May 8, 1997.
4. The Company's Current Report on Form 8-K (File No. 1-11478) dated
November 25, 1997, filed November 25, 1997.
5. The Company's Current Report on Form 8-K (File No. 1-11478) dated
March 23, 1998, filed on March 23, 1998.
6. The Company's Current Report on Form 8-K (File No. 1-11478) dated
July 16, 1998, filed on July 16, 1998.
7. The description of the Common Shares contained in the Registration
Statement on Form S-11 (File No. 33-49434), and the documents incorporated
therein by reference, as amended by Amendment No. 1, filed with the
Commission on October 16, 1992, Amendment No. 2, filed with the Commission on
November 4, 1992 and Amendment No. 3, filed with the Commission on November
10, 1992, dated November 10, 1992.
8. The description of the Company's Series A-1 Preferred Shares of
Beneficial Interest, par value $.01 per share (the "Series A-1 Preferred
Shares"), contained in the Registration Statement on Form S-4 (File No. 333-
18249), and the documents incorporated therein by reference, as amended by
Amendment No. 1, filed with the Commission on January 29, 1997.
9. The description of the Company's Series B-1 Preferred Shares of
Beneficial Interest, par value $.01 per share (the "Series B-1 Preferred
Shares") contained in the Registration Statement on Form 8-A (File No. 1-
11478), and the documents incorporated therein by reference, as amended by
Amendment No. 1, filed with the Commission on June 2, 1997.
10. The description of the Company's Series B-2 Preferred Shares
of Beneficial Interest, par value $.01 per share (the "Series B-2 Preferred
Shares;" together with the Series B-1 Preferred Shares, the "Series B
Preferred Shares") and the Company's Series C Preferred Shares of Beneficial
Interest, par value $.01 per share (the "Series C Preferred Shares"),
contained in the Company's Current Report on Form 8-K (File No. 1-11478)
dated February 27, 1997.
11. The description of the Company's Series D Preferred Shares (as
defined below) contained in the Registration Statement on Form 8-A (File No.
1-11478), and the documents incorporated therein by reference, filed with the
Commission on December 10, 1997.
12. All other reports filed by the Company pursuant to Section 13(a) or
15(d) of the Exchange Act since December 31, 1996.
All reports and other 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 to be a part hereof from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein (or in the applicable Prospectus Supplement) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
Copies of all documents which are incorporated herein by reference (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 to whom this Prospectus is delivered, upon
written or oral request. Requests should be directed to Kranzco Realty
Trust, Attention: Robert H. Dennis, 128 Fayette Street, Conshohocken,
Pennsylvania 19428 (Telephone Number: (610) 941-9292).
THE COMPANY
Kranzco Realty Trust is a self-administered and self-managed equity real
estate investment trust (a "REIT") engaged in the business of owning,
managing, operating, leasing, acquiring and expanding neighborhood and
community shopping centers and, to a lesser extent, free-standing retail
properties. The Company owns and operates 48 neighborhood and community
shopping centers and 11 free-standing properties (collectively, the
"Properties"), aggregating approximately 7.6 million square feet of gross
leasable area ("GLA") located primarily in the Northeast, Mid-Atlantic and
Southern regions of the United States with a diverse base of approximately
550 tenants.
The Company's primary business objective is to achieve growth in its
funds from operations by enhancing the operating performance of the
Properties and, through selective acquisitions, the value of its portfolio.
The Company's operating strategies are to: (i) focus on the neighborhood and
community shopping center business; (ii) actively manage its properties for
long-term growth in funds from operations and capital appreciation; (iii)
increase portfolio occupancy by capitalizing on management's reputation and
long-standing relationships with national and regional tenants and extensive
experience in marketing to local tenants, as well as the negotiating leverage
inherent in a large portfolio of properties; (iv) maintain, renovate, expand
and reconfigure its properties; (v) optimize the tenant mix in each shopping
center; (vi) develop or ground lease outparcels or expansion areas existing
from time to time at its properties for use as restaurants, banks, auto
centers, cinemas or other facilities; and (vii) benefit from economies of
scale by spreading overhead expenses over a larger asset base. As of June
30, 1998, the Properties were approximately 92% leased. Additionally, the
Company has no single tenant which accounted for greater than 5.2% of the
Company's 1997 minimum rent.
The Company's acquisition strategy is to opportunistically acquire
properties which have been over-leveraged, which need replacement anchor
tenants or where the Company's management and leasing expertise can enhance
value. That strategy includes acquiring and rehabilitating properties in new
markets with strong demographic characteristics in order to reduce the
Company's sensitivity to regional economic cycles.
The Company was formed on June 17, 1992 as a Maryland real estate
investment trust. The Company's executive offices are located at 128 Fayette
Street, Conshohocken, Pennsylvania 19428, and its telephone number is (610)
941-9292.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to
fixed charges for the Company for the periods indicated:
KRANZCO REALTY TRUST
Three Months
Ended For the 12 Months Ended Dec. 31,
March 31, ----------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
Ratio of
Earnings to
Fixed Charges 1.19 1.27(1) 1.41(2) 1.50 1.72 1.99
==== ==== ==== ==== ==== ====
(1) Excludes a $467,000 extraordinary loss on early extinguishment of debt.
(2) Excludes $11,052,000 extraordinary loss on refinancing.
(3) After giving effect to the Company's proposed acquisition of nine
community shopping centers in five midwestern and southern states for
approximately $85 million, the ratio of earnings to fixed charges would
have been 1.10 for the three months ended March 31, 1998 and 1.13 for
the 12 months ended December 31, 1997.
For purposes of computing the ratio of earnings to fixed charges: (a)
earnings have been based on income (loss) from continuing operations before
fixed charges (exclusive of interest capitalized) and (b) fixed charges
consist of interest and amortization of deferred financing costs (including
amounts capitalized) and distributions on the Series A-1 Preferred Shares of
Beneficial Interest of the Company, the Series B Preferred Shares, the Series
C Preferred Shares of Beneficial Interest of the Company and the Series D
Preferred Shares of Beneficial Interest of the Company.
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 working capital purposes, which may include the
acquisition of shopping centers as suitable opportunities arise, the
expansion and improvement of certain properties owned or to be owned by the
Company, the repayment of certain indebtedness outstanding at such time, and
working capital.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and
provisions of the Debt Securities to which any Prospectus Supplement may
relate. The particular terms of the Debt Securities being offered and the
extent to which such general provisions may apply will be described in a
Prospectus Supplement relating to such Debt Securities.
The Senior Securities are to be issued under an Indenture, as amended or
supplemented from time to time (the "Senior Securities Indenture"), between
the Company and a trustee to be selected by the Company (the "Senior
Securities Trustee") and the Subordinated Securities are to be issued under
an Indenture, as amended or supplemented from time to time (the "Subordinated
Securities Indenture"), between the Company and a trustee to be selected by
the Company (the "Subordinated Securities Trustee"). The Senior Securities
Indenture and the Subordinated Securities Indenture are referred to herein
individually as the "Indenture" and collectively as the "Indentures," and the
Senior Securities Trustee and the Subordinated Securities Trustee are
referred to herein individually as the "Trustee" and collectively as the
"Trustees." A form of the Senior Securities Indenture and a form of the
Subordinated Securities Indenture will be filed as exhibits to the
Registration Statement of which this Prospectus is a part and will be
available for inspection at the corporate trust offices of the respective
Trustees or as described above under "Available Information." The Indentures
will be subject to and governed by the Trust Indenture Act of 1939, as
amended (the "TIA"). The description of the Indentures set forth below
assumes that the Company has entered into the Indentures. The Company will
execute the applicable Indenture when and if the Company issues Debt
Securities. The statements made hereunder relating to the Indentures 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 Indentures
and such Debt Securities.
Unless otherwise specified, all capitalized terms used but not defined
herein shall have the meanings set forth in the Indentures.
General
The Debt Securities will be direct, unsecured obligations of the
Company. Senior Securities will rank pari passu with certain other senior
debt of the Company that may be outstanding from time to time, and will rank
senior to all Subordinated Securities that may be outstanding from time to
time. Subordinated Securities will be subordinated in right of payment to
the prior payment in full of the Senior Debt of the Company, as described
under "Subordination."
Each 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 Trustees 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.
Each 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 either Indenture may resign or be removed with respect to one
or more series of Debt Securities, and a successor Trustee shall be appointed
by the Company, by or pursuant to a resolution adopted by the Board of
Trustees, to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the
applicable Indenture separate and apart from the trust administered by any
other Trustee thereunder, and, except as otherwise indicated herein or
therein, any action described herein or therein 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
applicable 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 classification of such Debt Securities as Senior Securities
or Subordinated Securities;
(3) the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(4) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount
thereof, the portion of the principal amount thereof payable upon
declaration of acceleration of the maturity thereof, or (if applicable)
the portion of the principal amount of such Debt Securities which is
convertible into Common Shares or Preferred Shares, or the method by
which any such portion shall be determined;
(5) 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 Shares or Preferred Shares into which
such Debt Securities are convertible;
(6) the date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(7) 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;
(8) the date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the Interest Payment
Dates on which any such interest will be payable, the Regular Record
Dates for such Interest Payment Dates, or the method by which such dates
shall be determined, the Person to whom such interest shall be payable,
and the basis upon which interest shall be calculated if other than that
of a 360-day year of twelve 30-day months;
(9) the place or places where the principal of (and premium or
Make-Whole Amount, if any) and interest and Additional Amounts, 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 applicable Indenture may be served;
(10) the period or periods within which, the price or prices
(including premium or Make-Whole Amount, if any) at which and the terms
and conditions upon which such Debt Securities may be redeemed, in whole
or in part, at the option of the Company, if the Company is to have such
an option;
(11) 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, in whole or in part, pursuant to such obligation;
(12) if other than U.S. dollars, the currency or currencies in
which such Debt Securities are denominated and payable, which may be a
foreign currency or units of two or more foreign currencies or a
composite currency or currencies, and the terms and conditions relating
thereto;
(13) whether the amount of payments of principal of (and premium or
Make-Whole Amount, 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 other 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;
(14) whether such Debt Securities will be issued in the form of one
or more global securities and whether such global securities are to be
issuable in a temporary global form or permanent global form;
(15) 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 applicable Indenture;
(16) whether the principal of (and premium or Make-Whole Amount, if
any) or interest or Additional Amounts, if any, on such Debt Securities
are to be payable, at the election of the Company or a Holder, in one or
more currencies other than that in which such Debt Securities are
denominated or stated to be payable, the period or periods within which,
and the terms and conditions upon which, such election may be made, and
the time and manner of, and identity of the exchange rate agent with
responsibility for, determining the exchange rate between the currency
or currencies in which such Debt Securities are denominated or stated to
be payable and the currency or currencies in which such Debt Securities
are to be so payable;
(17) whether such Debt Securities will be issued in certificated or
book-entry form;
(18) 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 the terms and conditions relating thereto;
(19) the applicability, if any, of the defeasance and covenant
defeasance provisions of the applicable Indenture;
(20) if such Debt Securities are to be issued upon the exercise of
Warrants, the time, manner and place for such Debt Securities to be
authenticated and delivered;
(21) the terms, if any, upon which such Debt Securities may be
convertible into Common Shares or Preferred Shares 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;
(22) whether and under what circumstances the Company will pay
Additional Amounts as contemplated in the applicable 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;
(23) the name of the applicable Trustee and the address of its
corporate trust office; and
(24) any other terms of such Debt Securities not inconsistent with
the provisions of the applicable Indenture.
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") or that the principal amount
thereof payable at their stated maturity may be more or less than the
principal face amount thereof at original issuance ("Indexed Securities").
Special U.S. federal income tax, accounting and other considerations
applicable to Original Issue Discount Securities will be described in the
applicable Prospectus Supplement.
Except as set forth below under "Certain Covenants-Senior Securities
Indenture Limitations on Incurrence of Debt," neither Indenture contains any
other provisions that would limit the ability of the Company to incur
indebtedness or that would afford Holders of Debt Securities protection in
the event of a highly leveraged or similar transaction involving the Company
or in the event of a change of control. However, restrictions on ownership
and transfers of the Company's Common Shares and Preferred Shares may delay,
deter, or prevent a change of control of the Company or other transaction
that may be in the best interests of the shareholders. See "Description of
Preferred Shares" and "Description of Common Shares."
Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of or additions
to the Events of Default or covenants of the Company that are described
below, including any addition of a covenant or other provision providing
event risk or similar protection.
Denominations, Interest, Registration and Transfer
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof. Unless otherwise described in the applicable
Prospectus Supplement, the Debt Securities of any series issued in bearer
form will be issuable in denominations of $5,000.
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium or Make-Whole Amount, if any) and interest on any
series of Debt Securities will be payable at an office or agency established
by the Company in accordance with the Indenture, 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.
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
applicable 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 applicable Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
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 applicable Trustee or at
an office or agency established by the Company in accordance with the
Indenture. 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 exchange or registration of transfer thereof at the
corporate trust office of the applicable Trustee or at an office or agency
established by the Company in accordance with the Indenture. Every Debt
Security surrendered for 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. 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.
Neither the Company nor any Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before 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.
Certain Covenants
Senior Securities Indenture 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 and the application of the proceeds thereof, 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 75% of the sum of (without duplication)
(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 or mortgages
receivable acquired, and the amount of any securities offering proceeds
received (to the extent that such proceeds were not used to acquire real
estate assets or mortgages receivable or used to reduce Debt), by the Company
or any Subsidiary since the end of such calendar quarter, including those
proceeds obtained in connection with the incurrence of such additional Debt.
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 and the application of the proceeds thereof, 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 60% of the sum of (without duplication) (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 or mortgages receivable acquired,
and the amount of any securities offering proceeds received (to the extent
that such proceeds were not used to acquire real estate assets or mortgages
receivable or used to reduce Debt), by the Company or any Subsidiary since
the end of such calendar quarter, including those proceeds obtained in
connection with the incurrence of such additional Debt.
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
the ratio of Consolidated Income Available for Debt Service (as defined
below) to the Annual Service Charge (as defined below) for the four
consecutive fiscal quarters most recently ended prior to the date on which
such additional Debt is to be incurred shall have been less than 1.5:1, on a
pro forma basis after giving effect thereto and to the application of the
proceeds therefrom, and calculated on the assumption that (i) such Debt and
any other Debt incurred by the Company and its Subsidiaries since the first
day of such four-quarter period and the application of the proceeds
therefrom, including to refinance other Debt, had occurred at the beginning
of such period; (ii) the repayment or retirement of any other Debt by the
Company and its Subsidiaries since the first day of such four-quarter period
had been repaid or retired at the beginning of such period (except that, in
making such computation, the amount of Debt under any revolving credit
facility shall be computed based upon the average daily balance of such Debt
during such period); (iii) in the case of Acquired Debt (as defined below) or
Debt incurred in connection with any acquisition since the first day of such
four-quarter period, the related acquisition had occurred as of the first day
of such period with the appropriate adjustments with respect to such
acquisition being included in such pro forma calculation; and (iv) in the
case of any acquisition or disposition by the Company or its Subsidiaries of
any asset or group of assets since the first day of such four-quarter period,
whether by merger, stock purchase or sale, or asset purchase or sale, such
acquisition or disposition or any related repayment of Debt had occurred as
of the first day of such period with the appropriate adjustments with respect
to such acquisition or disposition being included in such pro forma
calculation.
As used herein,
"Acquired Debt" means Debt of a Person (i) existing at the time
such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Debt
incurred in connection with, or in contemplation of, such Person
becoming a Subsidiary or such acquisition. Acquired Debt shall be
deemed to be incurred on the date of the related acquisition of assets
from any Person or the date the acquired Person becomes a Subsidiary.
"Annual Service Charge" as of any date means the maximum amount
which is payable in any period for interest on, and original issue
discount of, Debt of the Company and its Subsidiaries.
"Capital Stock" means, with respect to any Person, any capital
stock (including preferred stock), shares, interests, participants or
other ownership interests (however designated) of such Person and any
rights (other than debt securities convertible into or exchangeable for
corporate stock), warrants or options to purchase any thereof.
"Consolidated Income Available for Debt Service" for any period
means Earnings from Operations (as defined below) of the Company and its
Subsidiaries plus amounts which have been deducted, and minus amounts
which have been added, for the following (without duplication): (i)
interest on Debt of the Company and its Subsidiaries, (ii) provision for
taxes of the Company and its Subsidiaries based on income, (iii)
amortization of debt discount, (iv) provisions for gains and losses on
properties and property depreciation and amortization, (v) the effect of
any noncash charge resulting from a change in accounting principles in
determining Earnings from Operations for such period and (vi)
amortization of deferred charges.
"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 for borrowed money secured by any
mortgage, pledge, lien, charge, encumbrance or any security interest
existing on property owned by the Company or any Subsidiary (each
securing such debt, an "Encumbrance"), (iii) the reimbursement
obligations, contingent or otherwise, in connection with any letters of
credit actually issued or amounts representing the balance deferred and
unpaid of the purchase price of any property or services, 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 to the extent, in the case of items of indebtedness under (i)
through (iii) above, 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), Debt 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).
"Earnings from Operations" for any period means net earnings
excluding gains and losses on sales of investments, net as reflected in
the financial statements of the Company and its Subsidiaries for such
period determined on a consolidated basis in accordance with generally
accepted accounting principles.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of (i) the voting power of the voting
equity securities or (ii) the outstanding equity interests are owned,
directly or indirectly, by such Person. For the purposes of this
definition, "voting equity securities" means equity securities having
voting power for the election of directors, whether at all times or only
so long as no senior class of security has such voting power by reason
of any contingency.
"Total Unencumbered Assets" means the sum of (i) those
Undepreciated Real Estate Assets not subject to an Encumbrance and (ii)
all other assets of the Company and its Subsidiaries not subject to an
Encumbrance determined in accordance with generally accepted accounting
principles (but excluding accounts receivable and intangibles).
"Undepreciated Real Estate Assets" as of any date means the cost
(original cost plus capital improvements) 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.
"Unsecured Debt" means Debt which is not secured by any mortgage,
lien, charge, pledge or security interest of any kind upon any of the
properties of the Company or any Subsidiary.
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 existence, rights (charter and statutory)
and franchises; provided, however, that the Company will 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.
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.
Insurance. The Company will, and will cause each of its Subsidiaries
to, keep all of its insurable properties adequately insured against loss or
damage with financially sound and reputable insurance companies.
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, unless such lien would not have a material adverse effect
upon such property; provided, however, that the Company will 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 or for which the Company
has set apart and maintains an adequate reserve.
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"), or which the Company would have been so
required 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 is or would have been so required to file such documents
if the Company is or 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 is required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act, or which the
Company would have been so required if the Company were subject to such
Sections and (ii) file with the Trustees copies of annual reports, quarterly
reports and other documents which the Company is required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act, or which the
Company would have been so required 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.
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 entity,
provided that (a) either the Company shall be the continuing entity, or the
successor entity (if other than the Company) formed by or resulting from any
such consolidation or merger or which shall have received the transfer of
such assets shall expressly assume payment of the principal of (and premium
or Make-Whole Amount, if any) and interest (including Additional Amounts, if
any) on all of the Debt Securities and the due and punctual performance and
observance of all of the covenants and conditions contained in the
Indentures; (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
Indentures, 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 Trustees.
Events of Default, Notice and Waiver
Each Indenture will provide 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 or
Additional Amounts on any Debt Security of such series; (b) default in the
payment of the principal of (or premium or Make-Whole Amount, if any, on) any
Debt Security of such series when due; (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 applicable
Indenture (other than a covenant added to such 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 such
Indenture; (e) default in the payment of an aggregate principal amount
exceeding $10,000,000 of any evidence of indebtedness for borrowed money 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, any Significant Subsidiary or the property of the Company or any
Significant Subsidiary or all or substantially all of either of its property;
and (g) any other Event of Default provided with respect to a particular
series of Debt Securities. 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 either 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) and the Make-Whole
Amount, if any, of the Outstanding Debt Securities of that series to be due
and payable immediately by written notice thereof to the Company (and to the
applicable Trustee if given by the Holders). However, at any time after such
a declaration of acceleration with respect to Debt Securities of such series
(or of all Debt Securities then Outstanding under the applicable 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 applicable Trustee, the
Holders of not less than a majority in principal amount of Debt Securities
then outstanding of such series (or of all Debt Securities then Outstanding
under the applicable Indenture, as the case may be) may rescind and annul
such declaration and its consequences if (a) the Company shall have deposited
with the applicable Trustee all required payments of the principal of (and
premium or Make-Whole Amount, if any) and interest, and any Additional
Amounts, on the Debt Securities of such series (or of all Debt Securities
then outstanding under the applicable 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 and the premium or Make-Whole Amount, if any, or
interest), with respect to Debt Securities of such series (or of all Debt
Securities then Outstanding under the applicable Indenture, as the case may
be) have been cured or waived as provided in the applicable Indenture.
Each 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 applicable 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
(premium or Make-Whole Amount, if any) or interest or Additional Amounts on
any Debt Security of such series or (y) in respect of a covenant or provision
contained in the applicable Indenture that cannot be modified or amended
without the consent of the Holder of each Outstanding Debt Security affected
thereby.
Each Trustee is required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable 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 or Make-Whole
Amount, if any) or interest payable on or any Additional Amounts with respect
to 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.
Each Indenture provides that no Holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to the
applicable Indenture or for any remedy thereunder, except in the case of
failure of the Trustee thereunder for 60 days, to act after it has received a
written request to institute proceedings in respect of an Event of Default
from the Holders of not less than 25% in principal amount of the Outstanding
Debt Securities of such series, as well as an offer of reasonable indemnity.
This provision will not prevent, however, any Holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium or Make-Whole Amount, if any) and interest on, and Additional Amounts
payable with respect to, such Debt Securities at the respective due dates
thereof.
Subject to provisions in each Indenture relating to its duties in case
of default, each Trustee is under no obligation to exercise any of its rights
or powers under the applicable Indenture at the request or direction of any
Holders of any series of Debt Securities then Outstanding under such
Indenture, unless such Holders shall have offered to the Trustee reasonable
security or indemnity. The Holders of not less than a majority in principal
amount of the applicable Outstanding Debt Securities of any series (or of all
Debt Securities then Outstanding under the applicable 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 applicable 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.
Within 120 days after the close of each fiscal year, the Company must
deliver to each Trustee a certificate, signed by one of several specified
officers, stating whether or not such officer has knowledge of any default
under the applicable Indenture and, if so, specifying each such default and
the nature and status thereof.
Modification of the Indentures
Except as described below, modifications and amendments of each
Indenture may be made with the consent of the Holders of not less than a
majority in principal amount of all Outstanding Debt Securities issued under
such Indenture 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
Additional Amounts payable on (or premium or Make-Whole Amount, if any) any
such Debt Security; (b) reduce the principal amount of, or the rate or amount
of interest on, or any premium or Make-Whole Amount payable on redemption of,
or change any obligation of the Company to pay any Additional Amounts set
forth in the Indenture relating to, or reduce any Additional Amounts payable
with respect to, any such Debt Security, or reduce the amount of principal of
an Original Issue Discount Security or premium or Make-Whole Amount, if any,
that would be due and payable upon declaration of acceleration of the
maturity thereof or would be payable 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 (and
premium or Make-Whole Amount, if any), or interest on, or any Additional
Amounts payable with respect to, 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 percentage of Outstanding Debt
Securities of any series necessary to modify or amend the applicable
Indenture, to waive compliance with certain provisions thereof or certain
defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in such 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.
The Holders of not less than a majority in principal amount of
Outstanding Debt Securities issued under either Indenture have the right to
waive compliance by the Company with certain covenants in the applicable
Indenture.
Modifications and amendments of each Indenture may be made by the
Company and the applicable Trustee without the consent of any Holder of Debt
Securities issued thereunder for any of the following purposes: (i) to
evidence the succession of another Person to the Company as obligor under the
applicable 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 applicable
Indenture; (iii) to add Events of Default for the benefit of the Holders of
all or any series of Debt Securities; (iv) to add or change any provisions of
the applicable 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 provision of the applicable Indenture, provided that any such change or
elimination shall become effective only when there are no Debt Securities
Outstanding of any series issued thereunder 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 Preferred Shares or Common Shares;
(viii) to provide for the acceptance of appointment by a successor Trustee or
facilitate the administration of the trusts under the applicable Indenture by
more than one Trustee; (ix) to cure any ambiguity, defect or inconsistency in
the applicable Indenture, provided that such action will not adversely affect
the interests of Holders of Debt Securities of any series in any material
respect; (x) to close the applicable Indenture with respect to the
authentication and delivery of additional series of Debt Securities or to
qualify or maintain qualification of, the applicable Indenture under the TIA;
or (xi) to supplement any of the provisions of the applicable Indenture to
the extent necessary to permit or facilitate defeasance and discharge of any
series of such Debt Securities, provided that such action will not adversely
affect the interests of the Holders of the Debt Securities of any series in
any material respect.
Each 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 will 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 will be the U.S. dollar equivalent,
determined on the issue date for such Debt Security, of the principal amount
(or, in the case of an Original Issue Discount Security, the U.S. dollar
equivalent on the issue date of such Debt Security of the amount determined
as provided in (i) above), (iii) the principal amount of an Indexed Security
that will be deemed outstanding will be the principal face amount of such
Indexed Security at original issuance, unless otherwise provided with respect
to such Indexed Security pursuant to the
applicable 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 will be disregarded.
Each Indenture contains provisions for convening meetings of the Holders
of Debt Securities of a series. A meeting may be called at any time by the
applicable Trustee, and also, upon request, by the Company, pursuant to a
resolution adopted by the Board of Trustees, 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 applicable Indenture. Except
for any consent that must be given by the Holder of each Debt Security
affected by certain modifications and amendments of the applicable 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 applicable
Indenture will be binding on all Holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be Persons holding or representing a majority in principal
amount of the Outstanding Debt Securities of a series; provided, however,
that, if any action is to be taken at such meeting with respect to a consent
or waiver which may be given by the Holders of not less than a specified
percentage in principal amount of the Outstanding Debt Securities of a
series, the Persons holding or representing such specified percentage in
principal amount of the Outstanding Debt Securities of such series will
constitute a quorum.
Notwithstanding the foregoing provisions, 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 applicable 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 applicable Indenture.
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 applicable Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient
to pay the entire indebtedness on such Debt Securities in respect of
principal (and premium or Make-Whole Amount, if any) and interest and
Additional Amounts payable 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.
Each Indenture provides that, under certain circumstances, the Company
may elect to (a) defease and be discharged from any and all obligations with
respect to such Debt Securities (except for the obligation to pay Additional
Amounts, if any, upon the occurrence of certain events of tax, assessment or
governmental charge with respect to payments on such Debt Securities and the
obligations to register the transfer or exchange of such Debt Securities, to
replace temporary or mutilated, destroyed, lost or stolen Debt Securities, to
maintain an office or agency in respect of such Debt Securities and to hold
moneys for payment in trust) ("defeasance") and/or (b) be released from its
obligations with respect to such Debt Securities under the applicable
Indenture (being the restrictions described under "Certain Covenants") or,
under certain circumstances, its obligations with respect to any other
covenant, and any omission to comply with such obligations will not
constitute a default or an Event of Default with respect to such Debt
Securities ("covenant defeasance"), in either case upon the irrevocable
deposit by the Company with the applicable Trustee, in trust, of an amount,
in such currency or currencies, currency unit or units or composite currency
or currencies in which such Debt Securities are payable at Stated Maturity,
or Government Obligations (as defined below), or both, applicable to such
Debt Securities which through the scheduled payment of principal and interest
in accordance with their terms will provide money in an amount sufficient to
pay the principal of (and premium or Make-Whole Amount, if any) and interest
on such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Company
has delivered to the applicable Trustee an Opinion of Counsel (as specified
in the applicable Indenture) to the effect that the Holders of such Debt
Securities will not recognize income, gain or loss for U.S. federal income
tax purposes as a result of such defeasance or covenant defeasance and will
be subject to U.S. federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such defeasance or
covenant defeasance had not occurred, and such Opinion of Counsel, in the
case of defeasance, must refer to and be based upon a ruling of the Internal
Revenue Service (the "IRS") or a change in applicable United States federal
income tax law occurring after the date of the Indenture.
"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 will 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.
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 the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite
currency other than that in which such deposit has been made in respect of
such Debt Security, or (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 or Make-Whole Amount, if
any) and interest on such Debt Security as they become due out of the
proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (i) a Foreign Currency (other than the
ECU or other currency unit), 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 or Make-Whole Amount, if any) and interest on any Debt Security that
is payable in a Foreign Currency that ceases to be used by its government of
issuance will be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because
of the occurrence of any Event of Default other than the Event of Default
described in clause (d) under "Events of Default, Notice and Waiver" under
certain circumstances or described in clause (g) under "Events of Default,
Notice and Waiver" under certain circumstances, the amount in such currency,
currency unit or composite currency in which such Debt Securities are
payable, and Government Obligations on deposit with the applicable Trustee,
will be sufficient to pay amounts due on such Debt Securities at the time of
their Stated Maturity but may not be sufficient to pay amounts due on such
Debt Securities at the time of the acceleration resulting from such Event of
Default. However, the Company would remain liable to make payment of such
amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the
provisions, if any, permitting such defeasance or covenant defeasance,
including any modifications to the provisions described above, with respect
to the Debt Securities of or within a particular series.
Conversion Rights
The terms and conditions, if any, upon which the Debt Securities are
convertible into Preferred Shares or Common Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Preferred Shares or Common
Shares, 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 fully registered 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 are expected to be deposited with The
Depository Trust Company, as Depositary. Global Securities may be issued in
either registered or bearer form and in either temporary or permanent form.
Unless and until it is exchanged in whole or in part for the individual
Debt Securities represented thereby, a Global Security may not be transferred
except as a whole by the Depositary for such Global Security to a nominee of
such Depositary or by a nominee of such Depositary to such Depositary or
another nominee of such Depositary or by the Depositary or any nominee of
such Depositary to a successor Depositary or any nominee of such successor.
The specific terms of the depositary arrangement with respect to a
series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series. Unless otherwise indicated in the
applicable Prospectus Supplement, the Company anticipates that the following
provisions will apply to depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security or its nominee will credit on its book-entry registration and
transfer system the respective principal amounts of the individual Debt
Securities represented by such Global Security to the accounts of persons
that have accounts with such Depositary ("Participants"). Such accounts
shall be designated by the underwriters, dealers or agents with respect to
such Debt Securities or by the Company if such Debt Securities are offered
and sold directly by the Company. Ownership of beneficial interests in a
Global Security will be limited to Participants or persons that may hold
interests through Participants. Ownership of beneficial interests in such
Global Security will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the applicable Depositary or its
nominee (with respect to beneficial interests of Participants) and records of
Participants (with respect to beneficial interests of persons who hold
through Participants). The laws of some states require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to own, pledge
or transfer beneficial interest in a Global Security.
So long as the Depositary for a Global Security or its nominee is the
registered owner of such Global Security, such Depositary or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as provided below or in the applicable
Prospectus Supplement, owners of a beneficial interest in a Global Security
will not be entitled to have any of the individual Debt Securities of the
series represented by such Global Security registered in their names, will
not receive or be entitled to receive physical delivery of any such Debt
Securities of such series in definitive form and will not be considered the
owners or holders thereof under the applicable Indenture.
Payments of principal of, any premium or Make-Whole Amount on, and any
interest on, or any Additional Amounts payable with respect to, individual
Debt Securities represented by a Global Security registered in the name of a
Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the registered owner of the Global Security representing
such Debt Securities. None of the Company, the Trustees, any Paying Agent or
the Security Registrar for such Debt Securities will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global Security for such
Debt Securities or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
The Company expects that the Depositary for a series of Debt Securities
or its nominee, upon receipt of any payment of principal, premium or interest
in respect of a permanent Global Security representing any of such Debt
Securities, will immediately credit Participants" accounts with payments in
amounts proportionate to their respective beneficial interests in the
principal amount of such Global Security for such Debt Securities as shown on
the records of such Depositary or its nominee. The Company also expects that
payments by Participants to owners of beneficial interests in such Global
Security held through such Participants will be governed by standing
instructions and customary practices, as is the case with securities held for
the account of customers in bearer form or registered in "street name." Such
payments will be the responsibility of such Participants.
If a Depositary for a series of Debt Securities is at any time
unwilling, unable or ineligible to continue as depositary and a successor
depositary is not appointed by the Company within 90 days, the Company will
issue individual Debt Securities of such series in exchange for the Global
Security representing such series of Debt Securities. In addition, the
Company may, at any time and in its sole discretion, subject to any
limitations described in the applicable Prospectus Supplement relating to
such Debt Securities, determine not to have any Debt Securities of such
series represented by one or more Global Securities and, in such event, will
issue individual Debt Securities of such series in exchange for the Global
Security or Securities representing such series of Debt Securities.
Individual Debt Securities of such series so issued will be issued in
denominations, unless otherwise specified by the Company, of $1,000 and
integral multiples thereof.
No Personal Liability
No past, present or future trustee, officer, employee or shareholder, as
such, of the Company or any successor thereof shall have any liability for
any obligations of the Company under the Debt Securities or the applicable
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Debt Securities by accepting
such Debt Securities waives and releases all such liability. The waiver and
release are part of the consideration for the issue of Debt Securities. Each
Holder of Debt Securities shall look solely to the assets of the Company for
satisfaction of any liability of the Company in respect of the applicable
Indenture or the Debt Securities and will not seek recourse or commence any
action against any of the trustees, officers or shareholders of the Company
or any of their personal assets for the performance or payment of any
obligation thereunder.
Subordination
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest
on the Subordinated Securities will be subordinated to the extent provided in
the Subordinated Securities Indenture in right of payment to the prior
payment in full of all Senior Debt, but the obligation of the Company to make
payment of the principal and interest on the Subordinated Securities will not
otherwise be affected. No payment of principal or interest may be made on
the Subordinated Securities at any time if a default on Senior Debt exists
that permits the holders of such Senior Debt to accelerate its maturity and
the default is the subject of judicial proceedings or the Company receives
notice of the default. After all Senior Debt is paid in full and until the
Subordinated Securities are paid in full, holders will be subrogated to the
rights of holders of Senior Debt to receive distributions applicable to
Senior Debt to the extent that distributions otherwise payable to holders
have been applied to the payment of Senior Debt. By reason of such
subordination, in the event of a distribution of assets upon insolvency,
certain general creditors of the Company may recover more, ratably, than
holders of the Subordinated Securities.
Senior Debt is defined in the Subordinated Securities Indenture as the
principal of and interest on, or substantially similar payments to be made by
the Company in respect of, the following, whether outstanding at the date of
execution of the Subordinated Securities Indenture or thereafter incurred,
created or assumed: (a) indebtedness of the Company for money borrowed or
represented by purchase-money obligations, (b) indebtedness of the Company
evidenced by notes, debentures, or bonds, or other securities issued under
the provisions of an indenture, fiscal agency agreement or other instrument,
(c) obligations of the Company as lessee under leases of property either made
as part of any sale and leaseback transaction to which the Company is a party
or otherwise, (d) indebtedness of partnerships and joint ventures that is
included in the consolidated financial statements of the Company, (e)
indebtedness, obligations and liabilities of others in respect of which the
Company is liable contingently or otherwise to pay or advance money or
property or as guarantor, endorser or otherwise or which the Company has
agreed to purchase or otherwise acquire, and (f) any binding commitment of
the Company to fund any real estate investment or to fund any investment in
any entity making such real estate investment, in each case other than (1)
any such indebtedness, obligation or liability referred to in clauses (a)
through (f) above as to which, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is provided that such
indebtedness, obligation or liability is not superior in right of payment to
the Subordinated Securities or ranks pari passu with the Subordinated
Securities, (2) any such indebtedness, obligation or liability which is
subordinated to indebtedness of the Company to substantially the same extent
as or to a greater extent than the Subordinated Securities are subordinated,
(3) any trade accounts payable and (4) the Subordinated Securities. There
are no restrictions in the Subordinated Securities Indenture upon the
creation of additional Senior Debt. However, the Senior Securities Indenture
contains limitations on incurrence of indebtedness by the Company. See
"Certain Covenants-Senior Securities Indenture Limitations on Incurrence of
Debt."
If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Debt outstanding as of the end of the Company's most recent
fiscal quarter.
DESCRIPTION OF PREFERRED SHARES
The Company's Amended and Restated Declaration of Trust, as amended (the
"Declaration of Trust"), authorizes the Company to issue up to 100,000,000
shares of beneficial interest of the Company, consisting of Common Shares and
such other types or classes of shares of beneficial interest as the Board of
Trustees may create and authorize from time to time and designate as
representing a beneficial interest in the Company. The Board of Trustees is
granted the power to authorize the issuance of one or more series of
preferred shares of beneficial interest. As of June 30, 1998, the Company
had issued and outstanding 11,155 Series A-1 Preferred Shares, 1,183,277
Series B Preferred Shares , 133,700 Series C Preferred Shares and 1,800,000
Series D Preferred Shares.
The holders of the Series A-1 Preferred Shares (the "Series A-1
Preferred Holders") are entitled to cumulative cash distributions at the
current rate of 5.5% increasing annually to 6.5% in 2001 as set forth in the
Company's Articles Supplementary Classifying 11,155 Shares of Beneficial
Interest as Series A-1 Preferred Shares, payable quarterly. In the event of
any liquidation, dissolution or winding-up of the affairs of the Company, the
Series A-1 Preferred Holders are entitled to receive, out of the assets of
the Company legally available therefor, the amount of $1,000 in cash for each
Series A-1 Preferred Share, plus an amount in cash equal to all accrued and
unpaid distributions on each such share. The Series A-1 Preferred Shares
rank pari passu with the Series B Preferred Shares and Series C Preferred
Shares as to priority for receiving distributions, including liquidating
distributions. The Series A-1 Preferred Holders have the right, exercisable
at any time and from time to time after April 18, 1999 and prior to April 18,
2009, to convert all or any of their respective Series A-1 Preferred Shares
into such number of Common Shares as would then receive aggregate annual cash
distributions equal to the then aggregate annual cash distributions such
holders of the Series A-1 Preferred Shares are entitled to receive on the
number of Series A-1 Preferred Shares which such holders elect to convert
into Common Shares, subject to certain limitations on the number of Series A-
1 Preferred Shares which may be converted in any one year. The Series A-1
Preferred Shares may be redeemed at the option of the Company, in whole or
from time to time in part, at the redemption price per share of $1,000, plus
in each case all accrued and unpaid distributions, if any, to the redemption
date. The Series A-1 Preferred Holders are not entitled to vote, except as
required by law and in certain other limited situations.
The Series B-1 Preferred Shares and Series B-2 Preferred Shares are
identical in all respects, and have the same rights, privileges and
preferences in all circumstances, except with respect to the conversion
rights. The holders of the Series B Preferred Shares (the "Series B
Preferred Holders") are entitled to cumulative cash distributions at the rate
of 9.75% per annum of the $25.00 per share liquidation preference of the
Series B Preferred Shares, payable quarterly. In the event of any
liquidation, dissolution or winding-up of the affairs of the Company, the
Series B Preferred Holders are entitled to receive, out of the assets of the
Company legally available therefor, a liquidation preference in the amount of
$25.00 per share, plus an amount equal to all accrued and unpaid
distributions on each such share. The Series B Preferred Shares rank pari
passu with the Series A-1 Preferred Shares and Series C Preferred Shares as
to priority for receiving distributions, including liquidating distributions.
The Series B Preferred Shares are not redeemable prior to February 27, 2002.
On and after February 27, 2002, if the aggregate liquidation preferences of
all of the outstanding Series B Preferred Shares is less than $3,000,000, the
Series B Preferred Shares may be redeemed at the option of the Company, in
whole, at a redemption price equal to $25.00 per share, plus accrued and
unpaid distributions, if any, to the redemption date.
The holders of the Series B-1 Preferred Shares shall have the right,
exercisable after February 27, 1998 (unless exercisable earlier in the event
of a Special Conversion Event as described below), to convert each of their
respective Series B-1 Preferred Shares into such number of Common Shares as
is obtained by dividing the $25.00 per share liquidation preference by (i)
$19.1750 if the date of conversion is February 28, 1998 to February 27, 1999,
(ii) $18.6875 if the date of conversion is February 28, 1999 to February 27,
2000, (iii) $18.2000 if the date of conversion is February 28, 2000 to
February 27, 2001, (iv) $17.7125 if the date of conversion is February 28,
2001 and thereafter and at any time after a Special Conversion Event shall
have occurred. A "Special Conversion Event" shall mean, among other events,
(i) Norman M. Kranzdorf ceasing to be a senior executive officer of the
Company, (ii) certain mergers or sales of assets where there is a change of
control or (iii) the Company failing to pay a distribution on the Series B
Preferred Shares for any quarterly distribution period within five days of
the distribution payment date therefor. The Series B-2 Preferred Shares
will, after February 27, 2000 (unless converted earlier upon the occurrence
of a Special Conversion Event), automatically convert into an equal number of
Series B-1 Preferred Shares which will then be convertible into Common Shares
at the same conversion rate as set forth above. The conversion rate for the
Series B Preferred Shares in effect at any time shall be subject to
adjustment from time to time to protect against certain dilutive events.
The Series B Preferred Holders are generally not entitled to vote,
except as required by law and except in certain other limited situations
summarized below. If the Company fails to pay the distributions on the
outstanding Series B Preferred Shares for any two distribution periods or a
Special Conversion Event shall have occurred, the Series B Preferred Holders
shall at all times thereafter vote together with the holders of the Common
Shares as a single class on all actions. If the Company fails to authorize
and pay or declare and set apart for payment the distributions accumulated on
the outstanding Series B Preferred Shares (i) for any four distribution
periods the Series B Preferred Holders shall have the right to elect one
additional trustee to the Company's Board of Trustees and (ii) for any six
distribution periods the Series B Preferred Holders shall have the right to
elect a second additional trustee, in each case, until the full distributions
accumulated on all outstanding Series B Preferred Shares shall have been
authorized and paid or declared and set apart for payment.
The holders of the Series C Preferred Shares (the "Series C Preferred
Holders") are entitled to cumulative cash distributions at the rate of 8% per
annum of the $10.00 per share liquidation preference of the Series C
Preferred Shares, payable quarterly. In the event of any liquidation,
dissolution or winding-up of the affairs of the Company, the Series B
Preferred Holders are entitled to receive, out of the assets of the Company
legally available therefor, a liquidation preference in the amount of $10.00
per share, plus an amount equal to all accrued and unpaid distributions on
each such share. The Series C Preferred Shares rank pari passu with the
Series A-1 Preferred Shares and Series B Preferred Shares as to priority for
receiving distributions, including liquidating distributions. The Company is
required to redeem all of the Series C Preferred Shares in eight equal
quarterly on the last day of January, April, July and October of each
calendar year, beginning April 30, 1997, at a redemption price equal to
$10.00 per share, plus accrued and unpaid distributions (the "Series C
Redemption Price"), if any, to the redemption date. The Company shall also
be required to redeem all outstanding Series C Preferred Shares at the Series
C Redemption Price if the Company fails to discharge any mandatory redemption
obligation or fails to pay a distribution on the outstanding Series C
Preferred Shares for any quarter within five days of any distribution payment
date therefor. The Series C Preferred Shares may be redeemed at the option
of the Company at any time, and from time to time, at the Series C Redemption
Price. The Series C Preferred Holders are not entitled to vote, except as
required by law and in certain other limited situations.
The following description of the Preferred Shares which may be offered
pursuant to a Prospectus Supplement sets forth certain general terms and
provisions of the Preferred Shares to which any Prospectus Supplement may
relate. The particular terms of the Preferred Shares being offered and the
extent to which such general provisions may or may not apply will be
described in a Prospectus Supplement relating to such Preferred Shares. The
statements below describing the Preferred Shares are in all respects subject
to and qualified in their entirety by reference to the applicable provisions
of the Declaration of Trust (including the applicable Articles Supplementary)
and the Company's Bylaws, as in effect.
General
Subject to limitations prescribed by Maryland law and the Declaration of
Trust, the Board of Trustees is authorized to fix the number of shares
constituting each series of Preferred Shares and the designations,
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends and other distributions and qualifications, and
terms and conditions of redemption. The Preferred Shares will, when issued,
be fully paid and nonassessable and will have no preemptive rights.
Both Maryland statutory law governing real estate investment trusts
formed under the laws of that state and the Declaration of Trust provide that
no shareholder of the Company will be personally liable for any obligation of
the Company solely as a result of his status as a shareholder. The Company's
Bylaws further provide that the Company shall indemnify each shareholder or
former shareholder against any claim or liability to which the shareholder
may become subject by reason of his being or having been a shareholder or a
former shareholder and that the Company shall reimburse each shareholder for
all legal and other expenses reasonably incurred by him in connection with
any such claim or liability. In addition, it is the Company's policy to
include a clause in its contracts which provides that shareholders assume no
personal liability for obligations entered into on behalf of the Company.
However, with respect to tort claims, contractual claims where shareholder
liability is not so negated, claims for taxes and certain statutory and other
liabilities, a shareholder may, in some jurisdictions, be personally liable
to the extent that such claims are not satisfied by the Company. Inasmuch as
the Company carries public liability insurance which it considers adequate,
any risk of personal liability to shareholders is limited to situations in
which the Company's assets plus its insurance coverage would be insufficient
to satisfy the claims against the Company and its shareholders.
The Register and Transfer Agent for any Preferred Shares will be set
forth in the applicable Prospectus Supplement.
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for specific terms, including:
(1) the title and par value of such Preferred Shares;
(2) the number of shares of such Preferred Shares being offered, the
liquidation preference per share and the offering price of such
Preferred Shares;
(3) the distribution rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred
Shares;
(4) the date from which distributions on such Preferred Shares shall
accumulate, if applicable;
(5) the procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) the provision for a sinking fund, if any, for such Preferred
Shares;
(7) the provisions for redemption, if applicable, of such Preferred
Shares;
(8) any listing of such Preferred Shares on any securities exchange;
(9) the terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Common Shares, including the
conversion price (or manner of calculation thereof);
(10) a discussion of federal income tax considerations applicable
to such Preferred Shares;
(11) the relative ranking and preferences of such Preferred Shares as to
distribution rights (including whether any liquidation preference
as to the Preferred Shares will be treated as a liability for
purposes of determining the availability of assets of the Company
for distributions to holders of Shares remaining junior to the
Preferred Shares as to distribution rights) and rights upon
liquidation, dissolution or winding up of the affairs of the
Company;
(12) any limitations on issuance of any series of preferred shares
ranking senior to or on a parity with such series of Preferred
Shares as to distribution rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company;
(13) any limitations on direct or beneficial ownership and restrictions
on transfer of such Preferred Shares, in each case as may be
appropriate to preserve the status of the Company as a REIT; and
(14) any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares.
Rank
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Shares will, with respect to distribution rights and/or rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Shares, and to all equity securities ranking
junior to such Preferred Shares with respect to distribution rights and/or
rights upon liquidation, dissolution or winding up of the Company as the case
may be; (ii) on a parity with all equity securities issued by the Company the
terms of which specifically provide that such equity securities rank on a
parity with the Preferred Shares with respect to distribution rights and/or
rights upon liquidation, dissolution or winding up of the Company, as the
case may be; and (iii) junior to all equity securities issued by the Company
the terms of which specifically provide that such equity securities rank
senior to the Preferred Shares with respect to distribution rights and/or
rights upon liquidation, dissolution or winding up of the Company, as the
case may be. As used in the Declaration of Trust, for these purposes, the
term "equity securities" does not include convertible debt securities. The
Preferred Shares will rank on a parity with or junior to the Series A-1
Preferred Shares, Series B Preferred Shares and Series C Preferred Shares
unless the Series A-1 Preferred Holders, Series B Preferred Holders or Series
C Preferred Holders agree otherwise with respect to the Series A-1 Preferred
Shares, Series B Preferred Shares or Series C Preferred Shares, respectively.
Distributions
Holders of Preferred Shares shall be entitled to receive, when, as and
if authorized by the Board of Trustees of the Company, out of assets of the
Company legally available for payment, cash distributions at such rates (or
method of calculation thereof) and on such dates as will be set forth in the
applicable Prospectus Supplement. Each such distribution shall be payable to
holders of record as they appear on the share transfer books of the Company
on such record dates as shall be fixed by the Board of Trustees of the
Company.
Distributions on any series of the Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement.
Distributions, if cumulative, will be cumulative from and after the date set
forth in the applicable Prospectus Supplement. If the Board of Trustees of
the Company fails to authorize a distribution payable on a distribution
payment date on any series of the Preferred Shares for which distributions
are noncumulative, then the holders of such series of the Preferred Shares
will have no right to receive a distribution in respect of the distribution
period ending on such distribution payment date, and the Company will have no
obligation to pay the distribution accrued for such period, whether or not
distributions on such series are authorized for payment on any future
distribution payment date.
If any Preferred Shares of any series are outstanding, no full
distributions shall be authorized or paid or set apart for payment on the
preferred shares of the Company of any other series ranking, as to
distributions, on a parity with or junior to the Preferred Shares of such
series for any period unless (i) if such series of Preferred Shares has a
cumulative distribution, full cumulative distributions have been or
contemporaneously are authorized and paid or authorized and a sum sufficient
for the payment thereof set apart for such payment on the Preferred Shares of
such series for all past distribution periods and the then current
distribution period or (ii) if such series of Preferred Shares does not have
a cumulative distribution, full distributions for the then current
distribution period have been or contemporaneously are authorized and paid or
authorized and a sum sufficient for the payment thereof set apart for such
payment on the Preferred Shares of such series. When distributions are not
paid in full (or a sum sufficient for such full payment is not so set apart)
upon the Preferred Shares of any series and the shares of any other series of
preferred shares ranking on a parity as to distributions with the Preferred
Shares of such series, all distributions authorized upon the Preferred Shares
of such series and any other series of preferred shares ranking on a parity
as to distributions with such Preferred Shares shall be authorized pro rata
so that the amount of distributions authorized per share on the Preferred
Shares of such series and such other series of preferred shares shall in all
cases bear to each other the same ratio that accrued and unpaid distributions
per share on the Preferred Shares of such series (which shall not include any
accumulation in respect of unpaid distributions for prior distribution
periods if such Preferred Shares do not have a cumulative distribution) and
such other series of preferred shares bear to each other. No interest, or
sum of money in lieu of interest, shall be payable in respect of any
distribution payment or payments on Preferred Shares of such series which may
be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative distribution, full
cumulative distributions on the Preferred Shares of such series have been or
contemporaneously are authorized and paid or authorized and a sum sufficient
for the payment thereof set apart for payment for all past distribution
periods and the then current distribution period and (ii) if such series of
Preferred Shares does not have a cumulative distribution, full distributions
on the Preferred Shares of such series have been or contemporaneously are
authorized and paid or authorized and a sum sufficient for the payment
thereof set apart for payment for the then current distribution period, no
distributions (other than in common shares or other shares of beneficial
interest ranking junior to the Preferred Shares of such series as to
distributions and upon liquidation, dissolution or winding up of the affairs
of the Company) shall be authorized or paid or set aside for payment or other
distribution upon the Common Shares or any other shares of beneficial
interest of the Company ranking junior to or on a parity with the Preferred
Shares of such series as to distributions or upon liquidation, dissolution or
winding up of the affairs of the Company, nor shall any Common Shares or any
other shares of beneficial interest of the Company ranking junior to or on a
parity with the Preferred Shares of such series as to distributions or upon
liquidation, dissolution or winding up of the affairs 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 beneficial interest) by the Company (except by conversion into
or exchange for other shares of beneficial interest of the Company ranking
junior to the Preferred Shares of such series as to distributions and upon
liquidation, dissolution or winding up of the affairs of the Company).
Any distribution payment made on a series of Preferred Shares shall
first be credited against the earliest accrued but unpaid distribution due
with respect to shares of such series which remains payable.
Redemption
If so provided in the applicable Prospectus Supplement, the Preferred
Shares of any series 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 series of Preferred Shares that
is subject to mandatory redemption will specify the number of such Preferred
Shares 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 distributions thereon
(which shall not, if such Preferred Shares does not have a cumulative
distribution, include any accumulation in respect of unpaid distributions for
prior distribution 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 Shares of any
series is payable only from the net proceeds of the issuance of shares of
beneficial interest of the Company, the terms of such Preferred Shares may
provide that, if no such shares of beneficial interest 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 Shares shall
automatically and mandatorily be converted into shares of the applicable
shares of beneficial interest of the Company pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Shares has a cumulative distribution, full cumulative distributions on all
shares of such series have been or contemporaneously are authorized and paid
or authorized and a sum sufficient for the payment thereof set apart for
payment for all past distribution periods and the then current distribution
period and (ii) if such series of Preferred Shares does not have a cumulative
distribution, full distributions on all shares of such series have been or
contemporaneously are authorized and paid or authorized and a sum sufficient
for the payment thereof set apart for payment for the then current
distribution period, no shares of such series of Preferred Shares shall be
redeemed unless all outstanding Preferred Shares of such series are
simultaneously redeemed; provided, however, that the foregoing shall not
prevent the purchase or acquisition of Preferred Shares of such series
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding Preferred Shares of such series, and, unless (i) if such
series of Preferred Shares has a cumulative distribution, full cumulative
distributions on all outstanding shares of such series have been or
contemporaneously are authorized and paid or authorized and a sum sufficient
for the payment thereof set apart for payment for all past distribution
periods and the then current distribution period and (ii) if such series of
Preferred Shares does not have a cumulative distribution, full distributions
on all shares of such series have been or contemporaneously are authorized
and paid or authorized and a sum sufficient for the payment thereof set apart
for payment for the then current distribution period, the Company shall not
purchase or otherwise acquire directly or indirectly any Preferred Shares of
such series (except by conversion into or exchange for shares of beneficial
interest of the Company ranking junior to the Preferred Shares of such series
as to distributions and upon liquidation).
If fewer than all of the outstanding Preferred Shares of any series are
to be redeemed, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held by such
holders (with adjustments to avoid redemption of fractional shares) or any
other equitable method determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of Preferred
Shares of any 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 series of the Preferred Shares to be
redeemed; (iii) the redemption price; (iv) the place or places where
certificates for such Preferred Shares are to be surrendered for payment of
the redemption price; (v) that distributions 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 Preferred Shares of any series are to be redeemed, the
notice mailed to each such holder thereof shall also specify the number of
Preferred Shares to be redeemed from each such holder. If notice of
redemption of any Preferred Shares has been properly given and if the funds
necessary for such redemption have been irrevocably set aside by the Company
in trust for the benefit of the holders of any Preferred Shares so called for
redemption, then from and after the redemption date distributions will cease
to accrue on such Preferred Shares, such Preferred Shares 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. Any moneys so
deposited which remain unclaimed by the holders of such Preferred Shares at
the end of two years after the redemption date will be returned by the
applicable bank or trust company to the Company.
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company, then, before any distribution or payment shall
be made to the holders of any Common Shares or any other class or series of
shares of beneficial interest of the Company ranking junior to any series of
Preferred Shares in the distribution of assets upon any liquidation,
dissolution or winding up of the Company, the holders of such series of
Preferred Shares shall be entitled to receive, after payment or provision for
payment of the Company's debts and other liabilities, out of assets of the
Company legally available for distribution to shareholders, liquidating
distributions in the amount of the liquidation preference per share (set
forth in the applicable Prospectus Supplement), plus an amount equal to all
distributions accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid distributions for prior distribution
periods if such Preferred Shares do not have a cumulative distribution).
After payment of the full amount of the liquidating distributions to which
they are entitled, the holders of such series of Preferred Shares will have
no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution
or winding up, the legally available assets of the Company are insufficient
to pay the amount of the liquidating distributions on all such outstanding
Preferred Shares and the corresponding amounts payable on all shares of other
classes or series of shares of beneficial interest of the Company ranking on
a parity with such series of Preferred Shares in the distribution of assets
upon liquidation, dissolution or winding up, then the holders of such series
of Preferred Shares and all other such classes or series of shares of
beneficial interest 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 the liquidating distributions shall have been made in full to all
holders of a series of Preferred Shares, the remaining assets of the Company
shall be distributed among the holders of any other classes or series of
shares of beneficial interest ranking junior to such series of Preferred
Shares upon liquidation, dissolution or winding up, according to their
respective rights and preferences and in each case according to their
respective number of shares. For purposes of this section, a distribution of
assets in any dissolution, winding up or liquidation will not include (i) any
consolidation or merger of the Company with or into any other corporation,
(ii) any dissolution, liquidation, winding up, or reorganization of the
Company immediately followed by organization of another entity to which such
assets are distributed or (iii) a sale or other disposition of all or
substantially all of the Company's assets to another entity; provided that,
in each case, effective provision is made in the charter of the resulting and
surviving entity or otherwise for the recognition, preservation and
protection of the rights of the holders of Preferred Shares.
Voting Rights
Holders of any series of Preferred Shares 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.
Unless provided otherwise for any series of Preferred Shares, so long as
any Preferred Shares remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of a majority of the shares of
each series of Preferred Shares outstanding at the time, given in person or
by proxy, either in writing or at a meeting (such series voting separately as
a class), (i) authorize, create or issue, or increase the authorized or
issued amount of, any class or series of shares of beneficial interest
ranking prior to such series of Preferred Shares with respect to payment of
distributions or the distribution of assets upon liquidation, dissolution or
winding up, or reclassify any authorized shares of beneficial interest 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 Declaration of
Trust, including the applicable Articles Supplementary for such series of
Preferred Shares, whether by merger, consolidation or otherwise, so as to
materially and adversely affect any right, preference, privilege or voting
power of such series of Preferred Shares or the holders thereof; provided,
however, that any increase in the amount of the authorized preferred shares
or the creation or issuance of any other series of preferred shares, or any
increase in the amount of authorized shares of such series or any other
series of Preferred Shares, in each case ranking on a parity with or junior
to the Preferred Shares of such series with respect to payment of
distributions or the distribution of assets upon liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be affected, all outstanding shares of such series of Preferred Shares
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.
Whenever distributions on any Preferred Shares shall be in arrears for
six or more consecutive quarterly periods, the holders of such Preferred
Shares (voting together as a class with all other series of Preferred Shares
upon which like voting rights have been conferred and are exercisable) will
be entitled to vote for the election of two additional trustees of the
Company until, (i) if such series of Preferred Shares has a cumulative
distribution, all distributions accumulated on such Preferred Shares for the
past distribution periods and the then current distribution period shall have
been fully paid or authorized and a sum sufficient for the payment thereof
set aside for payment or (ii) if such series of Preferred Shares does not
have a cumulative distribution, four consecutive quarterly distributions
shall have been fully paid or authorized and a sum sufficient for the payment
thereof set aside for payment. In such case, the entire Board of Trustees of
the Company will be increased by two trustees.
Conversion Rights
The terms and conditions, if any, upon which any series of Preferred
Shares are convertible into Common Shares will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number
of Common Shares into which the Preferred Shares are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of
the Preferred Shares or the Company, the events requiring an adjustment of
the conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Shares.
Restrictions on Transfer
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
shares of beneficial interest may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code) during the last half of a
taxable year, and the shares of beneficial interest 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). The
Declaration of Trust imposes certain restrictions on the ownership and
transferability of Preferred Shares. For a general description of such
restrictions, see "Description of Common Shares-Restrictions on Ownership."
The Prospectus Supplement relating to a series of Preferred Shares will
contain a description of any additional restrictions on transfer and
ownership of such series of Preferred Shares.
DESCRIPTION OF COMMON SHARES
As of June 30, 1998, the Company had outstanding 10,448,762 Common
Shares. The following description of the Common Shares sets forth certain
general terms and provisions of the Common Shares to which any Prospectus
Supplement may relate, including a Prospectus Supplement providing that
Common Shares will be issuable upon conversion of Debt Securities or
Preferred Shares or upon the exercise of Warrants. The statements below
describing the Common Shares are in all respects subject to and qualified in
their entirety by reference to the applicable provisions of the Declaration
of Trust and the Company's Bylaws.
Holders of Common Shares will be entitled to receive distributions when,
as and if authorized and declared by the Board of Trustees of the Company,
out of funds legally available therefor. Payment and authorization of
distributions on the Common Shares and purchases of Common Shares by the
Company will be subject to certain restrictions if the Company fails to pay
distributions on the Series A-1 Preferred Shares, Series B Preferred Shares,
Series C Preferred Shares or Preferred Shares. See "Description of Preferred
Shares." Upon any liquidation, dissolution or winding up of the Company,
holders of Common Shares 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 Series A-1
Preferred Shares, Series B Preferred Shares, Series C Preferred Shares or
Preferred Shares. The Common Shares will possess ordinary voting rights for
the election of trustees and in respect of other trust matters, each share
entitling the holder thereof to one vote. Holders of Common Shares will not
have cumulative voting rights in the election of trustees, which means that
holders of more than 50% of all of the outstanding Common Shares voting for
the election of trustees can elect all of the trustees (subject to the rights
of holders of Preferred Shares to elect trustees) if they choose to do so and
the holders of the remaining shares cannot elect any trustees. Approval of
the following matters requires the affirmative vote of the holders of at
least 66 2/3% of all outstanding Common Shares: certain amendments to the
Declaration of Trust, termination of the Company, removal of a trustee,
certain mergers, reorganizations or consolidations of the Company or the
sale, conveyance, exchange or other disposition of all or substantially all
of the Company's property. Holders of Common Shares do not have preemptive
rights, which means they have no right to acquire any additional Common
Shares that may be issued by the Company at a subsequent date. The Common
Shares will, when issued, be fully paid and nonassessable.
The description of the limitations on the liability of shareholders of
the Company set forth under "Description of Preferred Shares-General" is
applicable to holders of Common Shares.
The Registrar and Transfer Agent for the Company's Common Shares is
First Union National Bank of NC.
Restrictions on Ownership
For the Company to continue to qualify as a REIT under the Code, among
other requirements, not more than 50% in value of its outstanding shares of
beneficial interest may be owned, directly or indirectly, by five or fewer
individuals (after applying certain attribution rules of the Code) during the
last half of a taxable year, and the shares 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 (see "Federal Income
Tax Considerations"). The Declaration of Trust, subject to certain
exceptions, provides that no holder (other than (i) Norman M. Kranzdorf,
President and Chief Executive Officer of the Company, and Marvin Williams,
former Chairman of the Board of the Company, and (ii) any other person
approved by the trustees, at their option and in their discretion, provided
that such approval will not result in the termination of the status of the
Company as a REIT) may own, or be deemed to own by virtue of the attribution
provisions of the Code, more than 9.8% (the "Ownership Limit") of the lesser
of the number or value (in either case as determined in good faith by the
trustees) of the total outstanding Common Shares. All certificates
representing Common Shares will bear a legend referring to these
restrictions.
The trustees may waive the Ownership Limit if evidence satisfactory to
the trustees 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 intended transferee must give written notice
to the Company of the proposed transfer and must furnish such opinions of
counsel, affidavits, undertakings, agreements and information as may be
required by the trustees no later than the 15th day prior to any transfer
which, if consummated, would result in the intended transferee owning shares
in excess of the Ownership Limit. The foregoing restrictions on
transferability and ownership will not apply if the trustees determine that
it is no longer in the best interests of the Company to attempt to qualify,
or to continue to qualify, as a REIT. Any transfer of shares that would (i)
create a direct or indirect ownership of shares in excess of the Ownership
Limit, (ii) result in the shares being owned by fewer than 100 persons or
(iii) result in the Company being "closely held" within the meaning of
Section 856(h) of the Code, shall be null and void, and the intended
transferee will acquire no rights to the shares. The Declaration of Trust
provides that the Company, by notice to the holder thereof, may purchase any
or all shares of beneficial interest of the Company (the "Excess Shares")
that are proposed to be transferred pursuant to a transfer which, if
consummated, would result in the intended transferee owning shares in excess
of the Ownership Limit or would otherwise jeopardize the REIT status of the
Company. The purchase price of any Excess Shares shall be equal to the fair
market value of such shares reflected in the closing sales price for the
shares, if then listed on a national securities exchange, or such price for
the shares on the principal exchange if then listed on more than one national
securities exchange, or, if the shares are not then listed on a national
securities exchange, the latest bid quotation for the shares if then traded
over-the-counter, or, if such quotation is not available, the fair market
value as determined by the trustees in good faith, on the last trading day
immediately preceding the day on which notice of such proposed purchase is
sent by the Company. From and after the date fixed for purchase by the
trustees, the holder of such shares to be purchased by the Company shall
cease to be entitled to distribution, voting rights and other benefits with
respect to such shares except the right to payment of the purchase price for
the shares. Any distribution paid to a proposed transferee on Excess Shares
prior to the discovery by the Company that such shares have been transferred
in violation of the provisions of the Declaration of Trust shall be repaid to
the Company upon demand. If the foregoing transfer restrictions are
determined to be void or invalid by virtue of any legal decision, statute,
rule or regulation, then the intended transferee of any Excess Shares, at the
option of the Company, to have acted as an agent on behalf of the Company in
acquiring such Excess Shares and to hold such Excess Shares on behalf of the
Company.
All persons who own, directly or by virtue of the attribution provisions
of the Code, more than 5% in number or value of the outstanding Common Shares
must give a written notice to the Company containing the information
specified in the Declaration of Trust or Articles Supplementary by January 30
of each year. In addition, each shareholder shall upon demand be required to
disclose to the Company in writing such information with respect to the
direct, indirect and constructive ownership of beneficial interests as the
trustees deem necessary to comply with the provisions of the Code applicable
to a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
These ownership limitations may delay, deter, or prevent a change of
control of the Company or other transaction that may be in the best interests
of the shareholders unless the trustees determine that maintenance of REIT
status is no longer in the best interests of the Company.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Debt Securities,
Preferred Shares or Common Shares. Warrants may be issued independently or
together with any Offered Securities and may be attached to or separate from
such securities. Each series of Warrants will be issued under a separate
warrant agreement (each, a "Warrant Agreement") to be entered into between
the Company and a warrant agent ("Warrant Agent"). The Warrant Agent will
act solely as an agent of the Company in connection with the Warrants of such
series and will not assume any obligation or relationship of agency or trust
for or with any holders or beneficial owners of Warrants. The following sets
forth certain general terms and provisions of the Warrants offered hereby.
Further terms of the Warrants and the applicable Warrant Agreement will be
set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the following terms,
where applicable, of the Warrants in respect of which this Prospectus is
being delivered: (1) the title of such Warrants; (2) the aggregate number of
such Warrants; (3) the price or prices at which such Warrants will be issued;
(4) the currencies in which the price of such Warrants may be payable; (5)
the designation, aggregate principal amount and terms of the securities
purchasable upon exercise of such Warrants; (6) the designation and terms of
the Offered Securities with which such Warrants are issued and the number of
such Warrants issued with each such security; (7) the currency or currencies,
including composite currencies, in which the principal of or any premium or
interest on the securities purchasable upon exercise of such Warrants will be
payable; (8) if applicable, the date on and after which such Warrants and the
related securities will be separately transferable; (9) the price at which
and currency or currencies, including composite currencies, in which the
securities purchasable upon exercise of such Warrants may be purchased; (10)
the date on which the right to exercise such Warrants shall commence and the
date on which such right shall expire; (11) the minimum or maximum amount of
such Warrants which may be exercised at any one time; (12) information with
respect to book-entry procedures, if any; (13) a discussion of certain
Federal income tax considerations; and (14) any other terms of such Warrants,
including terms, procedures and limitations relating to the exchange and
exercise of such Warrants.
DESCRIPTION OF RIGHTS
The Company may issue Rights to its shareholders for the purchase of
Common Shares. Each series of Rights will be issued under a separate rights
agreement (a "Rights Agreement") to be entered into between the Company and a
bank or trust company, as Rights agent, all as set forth in the Prospectus
Supplement relating to the particular issue of Rights. The Rights agent will
act solely as an agent of the Company in connection with the certificates
relating to the Rights and will not assume any obligation or relationship of
agency or trust for or with any holders of Rights certificates or beneficial
owners of Rights. The Rights Agreement and the Rights certificates relating
to each series of Rights will be filed with the Commission and incorporated
by reference as an exhibit to the Registration Statement of which this
Prospectus is a part at or prior to the time of the issuance of such series
of Rights.
The applicable Prospectus Supplement will describe the terms of the
Rights to be issued, including the following where applicable: (i) the date
for determining the shareholders entitled to the Rights distribution; (ii)
the aggregate number of Common Shares purchasable upon exercise of such
Rights and the exercise price; (iii) the aggregate number of Rights being
issued; (iv) the date, if any, on and after which such Rights may be
transferable separately; (v) the date on which the right to exercise such
Rights shall commence and the date on which such right shall expire; (vi) any
special United States federal income tax consequences; and (vii) any other
terms of such Rights, including terms, procedures and limitations relating to
the distribution, exchange and exercise of such Rights.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of the Code provisions
governing the United States federal income tax treatment of a REIT 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.
The information in this section is based on the Code, current, temporary
and proposed Treasury Regulations thereunder, the legislative history of the
Code, current administrative interpretations and practices of the IRS
(including its practices and policies as endorsed in private letter rulings,
which are not binding on the IRS except with respect to a taxpayer that
receives such a ruling), and court decisions, all as of the date hereof. The
Taxpayer Relief Act of 1997 (the "1997 Act") was enacted on August 5, 1997.
The 1997 Act contains many provisions which generally make it easier to
operate and to continue to qualify as a REIT for taxable years beginning
after the date of enactment (which, for the Company, would be applicable
commencing with its taxable year beginning January 1, 1998). The Internal
Revenue Service Restructuring and Reform Bill of 1998 was enacted on July 22,
1998 (the "1998 Act"). Under the 1998 Act, among other things, the holding
period for capital gains to be taxed at a maximum rate of 20% was reduced
from more than 18 months to more than 12 months. No assurance can be given
that future legislation, Treasury Regulations, administrative interpretations
and court decisions will not significantly change the current law or
adversely affect existing interpretations of current law. Any such change
could apply retroactively to transactions preceding the date of the change.
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES 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.
Federal Income Taxation of the Company
General
The Company has elected to be taxed as a REIT under Sections 856 through
860 of the Code, commencing with its taxable year ended December 31, 1992.
In the opinion of Robinson Silverman Pearce Aronsohn & Berman LLP, commencing
with the Company's taxable year ended December 31, 1992, the Company was
organized in conformity with the requirements for qualification as a REIT,
and its method of operation enabled it to meet the
requirements for qualification and taxation as a REIT under the Code. The
Company intends to continue to operate in such a manner, but no assurance can
be given that it will operate in a manner so as to qualify or remain
qualified.
It must be emphasized that this opinion is based on various assumptions
and is conditioned upon certain representations made by the Company as to
factual matters. Such factual assumptions and representations are set forth
below in this discussion of "Federal Income Tax Considerations." In addition,
this opinion is based upon the factual representations of the Company
concerning its business and properties as set forth in this Prospectus.
Moreover, such qualification and taxation as a REIT depends upon the
Company's ability to meet, through actual annual operating results,
distribution levels, diversity of share ownership, and the various other
qualification tests imposed under the Code discussed below, the results of
which have not been and will not be reviewed by Robinson Silverman Pearce
Aronsohn & Berman LLP. Accordingly, no assurance can be given that the actual
results of the Company's operation for any one taxable year will satisfy such
requirements. See "-Failure to Qualify as a Real Estate Investment Trust."
If the Company qualifies for tax treatment as a REIT, it will generally
not be subject to Federal corporate taxation on its net income to the extent
currently distributed to its shareholders. This substantially eliminates the
"double taxation" (at both the corporate and stockholder levels) that
typically results from the use of corporate investment vehicles.
The Company will be subject to Federal income tax, however, as follows:
First, the Company will be taxed at regular corporate rates on its
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" to the extent that tax exceeds its regular tax.
Third, if the Company has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or other nonqualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, any net income that the Company has from prohibited
transactions (which are, in general, certain sales or other dispositions of
property other than foreclosure property held primarily for sale to customers
in the ordinary course of business and, effective for the Company's taxable
years beginning January 1, 1998 and thereafter, other than dispositions of
property that occur due to an involuntary conversion) will be subject to a
100% tax. Fifth, if the Company should fail to satisfy either the 75% or 95%
gross income tests (as discussed below), and has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on 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 fails to distribute during each year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95%
of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from preceding periods, the Company will be
subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. Seventh, 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 10-year
period (the "Recognition Period") beginning on the date on which such asset
was acquired by the Company, then, to the extent of the excess, if any, of
the fair market value over the adjusted basis of any such asset as of the
beginning of the Recognition Period, such gain will be subject to tax at the
highest regular corporate rate.
Requirements for Qualification
A REIT is defined in the Code 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 860 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) not more than 50% in value of the outstanding stock of
which is owned during the last half of each taxable year, directly or
indirectly, by or for five or fewer individuals (as defined in the Code to
include certain entities) (the "Five or Fewer Requirement"); and (7) which
meets certain income and asset tests described below. Conditions (1) to (4),
inclusive, must be met during the entire taxable year and 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. For purposes of
conditions (5) and (6), pension funds and certain other tax-exempt entities
are treated as individuals, subject to a "look-through" exception in the case
of condition (6).
The Company has represented that it has satisfied the share ownership
requirements set forth in (5) and (6) above. In addition, the Company's
Declaration of Trust provides restrictions regarding the transfer of its
Shares which are intended to assist the Company in continuing to satisfy the
shares ownership requirements described in (5) and (6) above. Such transfer
restrictions are described in "Description of Common Shares-Restrictions on
Ownership."
Pursuant to the 1997 Act, for the Company's taxable years commencing on
and after January 1, 1998, if the Company complies with regulatory rules
pursuant to which it is required to send annual letters to certain of its
shareholders requesting information regarding the actual ownership of its
stock, but does not know, or exercising reasonable diligence would not have
known, whether it failed to meet the Five or Fewer Requirement, the Company
will be treated as having met the requirement described in (6) above. If the
Company were to fail to comply with these regulatory rules for any year, it
would be subject to a $25,000 penalty. If the Company's failure to comply
was due to intentional disregard of the requirements, the penalty is
increased to $50,000. However, if the Company's failure to comply was due to
reasonable cause and not willful neglect, no penalty would be imposed.
The Company owns and operates a number of properties through wholly
owned 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.
Income Tests
There are three percentage tests relating to the sources of the
Company's gross income. First, at least 75% of the Company's gross income
(excluding gross income from certain sales of property held primarily for
sale and from discharge of indebtedness) must be directly or indirectly
derived each taxable year from investments relating to real property or
mortgages on real property or certain temporary investments. Second, at
least 95% of the Company's gross income (excluding gross income from certain
sales of property held primarily for sale and from discharge of indebtedness)
must be directly or indirectly derived each taxable year from any of the
sources qualifying for the 75% test and from dividends, interest, and gain
from the sale or disposition of stock or securities. Third, in each taxable
year short-term gains from sales of stock or securities, gains from sales of
property (other than foreclosure property) held primarily for sale and gains
from the sale or other taxable disposition of real property held for less
than four years (other than from involuntary conversions and foreclosure
property) must represent less than 30% of the Company's gross income.
However, the 1997 Act repeals the 30% gross income test effective for the
Company's taxable years beginning on and after January 1, 1998. In applying
these tests, if the Company invests in a partnership, the Company will be
treated as realizing its share of the income and bearing its share of the
loss of the partnership, and the character of such income or loss, as well as
other partnership items, will be determined at the partnership level.
Rents received by the Company will qualify as "rents from real property"
for purposes of satisfying the gross income tests for a REIT 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, although rents generally will
not be excluded merely because they are based on a fixed percentage of
receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" if the REIT, or an owner of 10% or more of the
REIT, also directly or constructively owns 10% or more of such 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 to qualify
as "rents from real property," the REIT 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 REIT derives no
income; provided, however, the Company may directly perform certain services
customarily furnished or rendered in connection with the rental of real
property in the geographic area in which the property is located other than
services which are considered rendered to the occupant of the property. The
Company will, in a timely manner, hire independent contractors from whom it
derives no revenue to perform such services, except that the Company will
directly perform services under certain of its leases with respect to which
it will receive an opinion of counsel or otherwise satisfy itself that its
performance of such services will not cause the rents received with respect
to such leases to fail to qualify as "rents from real property." The Company
has represented that each of the above requirements has been satisfied. In
addition, for its 1998 taxable year and thereafter, the Company is permitted
to receive up to 1% of the gross income from each property from the provision
of non-customary services and still treat all other amounts received from
such property as "rents from real property."
The term "interest" generally does not include any amount if the
determination of such amount depends in whole or in part on the income or
profits of any person, although an amount generally will not be excluded from
the term "interest" solely by reason of being based on a fixed percentage 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 REIT for
such year if it is eligible for relief under certain provisions of the Code.
These relief provisions will be generally 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
return, and any incorrect information on the schedule was not due to fraud
with intent to evade tax. It is not now possible to determine the
circumstances under which the Company may be entitled to the benefit of these
relief provisions. If these relief provisions apply, a 100% tax is imposed
on the net income attributable to the greater of the amount by which the
Company failed the 75% test or the 95% test.
Asset Tests
At the close of each quarter of its taxable year, the Company must also
satisfy several tests relating to the nature and diversification of its
assets. First, at least 75% of the value of the Company's total assets must
be represented by real estate assets, cash, cash items (including receivables
arising in the ordinary course of the Company's operation) and government
securities. In addition, not more than 25% of the value of the Company's
total assets may be represented by securities other than those includible in
the 75% asset class. Moreover, of the investments included in the 25% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets. Finally, of the
investments included in the 25% asset class, the Company may not own more
than 10% of any one issuer's outstanding voting securities.
Annual Distribution Requirements
The Company, in order to avoid being taxed as a regular corporation, is
required to make distributions (other than capital gain distributions) to its
shareholders which qualify for the dividends paid deduction 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 after-tax net income, if any, from
foreclosure property, minus (B) a portion of certain items of non-cash
income. 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 distribution payment after such declaration. To the extent that the
Company does not distribute all of its net capital gain or distributes at
least 95%, but less than 100%, of its "REIT taxable income," as adjusted, it
will be subject to tax thereon at regular corporate tax rates. Finally, as
discussed above, the Company may be subject to an excise tax if it fails to
meet certain other distribution requirements. The Company intends to make
timely distributions sufficient to satisfy these annual distribution
requirements.
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, or to distribute such greater amount as may be necessary to
avoid income and excise taxation, due to, among other things, (a) timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company, or (b) the
payment of severance benefits that may not be deductible to the Company. In
the event that such timing differences occur, the Company may find it
necessary to arrange for borrowings or, if possible, pay taxable share
distributions in order to meet the distribution requirement.
Under certain circumstances, in the event of a deficiency determined by
the IRS, the Company may be able to rectify a resulting failure to meet the
distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in the Company's
deduction for distributions paid for the earlier year. Thus, although the
Company may be able to avoid being taxed on amounts distributed as deficiency
distributions, it will be required to pay interest based upon the amount of
any deduction taken for deficiency distributions.
Failure to Qualify as a Real Estate Investment Trust
The Company's election to be treated as a REIT will be automatically
terminated if the Company fails to meet the requirements described above. In
that event, the Company will be subject to tax (including any applicable
minimum tax) on its taxable income at regular corporate rates, and
distributions to shareholders will not be deductible by the Company. All
distributions to shareholders will be taxable as ordinary income to the
extent of current and accumulated earnings and profits allocable to such
distributions and will be eligible for the 70% dividends received deduction
for corporate shareholders (although special rules apply in the case of any
"extraordinary dividend" as defined in Code Section 1059). The Company will
not be eligible again to elect REIT status until the fifth taxable year which
begins after the year for which the Company's election was terminated unless
the Company did not willfully fail to file a timely return with respect to
the termination taxable year, inclusion of incorrect information in such
return was not due to fraud with intent to evade tax, and the Company
establishes that failure to meet the requirement was due to reasonable cause
and not willful neglect. Failure to qualify for even one year could result
in the Company incurring substantial indebtedness (to the extent borrowings
are feasible) or liquidating substantial investments in order to pay the
resulting taxes.
Federal Income Taxation of Shareholders
General
So long as the Company qualifies for taxation as a REIT, distributions
with respect to its Shares made out of current or accumulated earnings and
profits allocable thereto (and not designated as capital gain dividends) will
be includible by the shareholders as ordinary income for Federal income tax
purposes. For this purpose, the current and accumulated earnings and profits
of the Company will be allocated first to distributions with respect to
Series A-1 Preferred Shares, Series B Preferred Shares and Series C Preferred
Shares and then to distributions with respect to Common Shares. None of
these distributions will be eligible for the dividends received deduction for
corporate shareholders. Distributions that are designated as capital gain
dividends will be taxed as long-term capital gains (to the extent they do not
exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the shareholder has held his shares. The 1998
Act reduced the holding period for capital gains to be taxed at a maximum
rate of 20% from more than 18 months to more than 12 months. Based on that,
it is expected that for a U.S. shareholder who is an individual or an estate
or trust, such capital gain dividends generally will be taxable at the 20%
rate applicable to gains from the sale of capital assets held for more than
one year except to the extent the Company designates the capital gain
dividend as a 25% rate distribution, as the case may be, based on certain IRS
guidelines. Corporate shareholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income.
The 1997 Act provides that, for the Company's taxable years beginning on
and after January 1, 1998, if the Company elects to retain and pay income tax
on any net long term capital gain, domestic shareholders of the Company would
include in their income as long term capital gain their proportionate share
of such net long term capital gain. A domestic shareholder would also
receive a refundable tax credit for such shareholder's proportionate share of
the tax paid by the Company on such retained capital gains and an increase in
its basis in the shares of the Company in an amount equal to the
shareholder's includible capital gains less its share of the tax deemed paid.
Distributions in excess of current or accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed
the adjusted basis of the shareholder's Shares. Shareholders will be
required to reduce the tax basis of their Shares by the amount of such
distributions until such basis has been reduced to zero, after which such
distributions will be taxable as capital gain (ordinary income in the case of
a shareholder who holds his Shares as a dealer). The tax basis as so reduced
will be used in computing the capital gain or loss, if any, realized upon
sale of the Shares. Any loss upon a sale or exchange of Shares by a
shareholder who held such Shares for six months or less (after applying
certain holding period rules) will generally be treated as a long-term
capital loss to the extent such shareholder previously received capital gain
distributions with respect to such Shares.
Shareholders may not include in their individual Federal income tax
returns any net operating losses or capital losses of the Company. In
addition, any distribution declared by the Company in October, November or
December of any year payable to a shareholder of record on a specified date
in any such month shall be treated as both paid by the Company and received
by the shareholder on December 31 of such year, provided that the
distribution is actually paid by the Company no later than January 31 of the
following year. The Company may be required to withhold a portion of capital
gain distributions to any shareholders who fail to certify their non-foreign
status to the Company.
Upon the sale or exchange of Shares to or with a person other than the
Company or a sale or exchange of Shares with the Company to the extent not
taxable as a dividend, a holder will recognize capital gain or loss equal to
the difference between the amount realized on such sale or exchange and the
holder's adjusted tax basis in such shares. Any capital gain or loss
recognized by an individual will generally be treated as capital gain or loss
taxable at a maximum rate of 20% if the holder held such shares for more than
one year.
Redemption of Preferred Shares
If the redemption price of Preferred Shares that is subject to optional
redemption by the Company exceeds its issue price, and if such excess is not
considered "reasonable," the entire amount of the redemption premium will be
treated as being distributed to the holder of such shares, on an economic
accrual basis, over the period from issuance of such shares until the date
the shares are first redeemable. In this respect, the Treasury Regulations
provide as a safe harbor that a redemption premium not in excess of 10% of
the issue price of shares which are not redeemable for five years from the
date of issue is considered reasonable. Even if the precise tests of the
safe harbor cannot be met, however, a call premium will be regarded as
reasonable if such premium is in the nature of a penalty for a premature
redemption of the Preferred Shares and such premium does not exceed the
amount the issuer would be required to pay for the right to make such
premature redemption under the market conditions existing at the time of
issuance.
Gain or loss recognized by a holder on a redemption of Preferred Shares
will be treated as a gain or loss from the sale or exchange of the Preferred
Shares (see discussion above concerning a sale or exchange of Shares), if,
taking into account shares that are actually or constructively owned under
the rules of Code Section 318 by such holder, either (i) the holder's
interest in Common Shares and Preferred Shares is completely terminated as a
result of the redemption, (ii) the redemption is "substantially
disproportionate" with respect to the holder or (iii) the redemption is "not
essentially equivalent to a dividend." Whether a redemption is not
essentially equivalent to a dividend depends on each holder's facts and
circumstances, but in any event, requires a "meaningful reduction" in such
holder's interest in the Company.
If none of the above conditions is satisfied, the entire amount of the
cash received on a redemption of the Preferred Shares will be treated as a
distribution taxable as a dividend (to the extent of the Company's current
and accumulated earnings and profits allocable thereto). The holder's basis
in the redeemed Preferred Shares would, in such case, be transferred to the
holder's remaining shares of the Company (if any).
Backup Withholding and Information Reporting
A noncorporate holder of Shares who is not otherwise exempt from backup
withholding may be subject to backup withholding at the rate of 31% with
respect to distributions paid on, or the proceeds of a sale, exchange or
redemption of, the Shares. Generally, backup withholding applies only when
the taxpayer (i) fails to furnish or certify his correct taxpayer
identification number to the payor in the manner requested, (ii) is notified
by the IRS that he has failed to report payments of interest or dividends
properly, or (iii) under certain circumstances, fails to certify that he has
not been notified by the IRS that he is subject to backup withholding for
failure to report interest or dividend payments. Any amounts withheld under
the backup withholding rules from a payment to a holder will be allowed as a
credit against the holder's federal income tax liability or as a refund,
provided that the required information is furnished to the IRS. Holders
should consult their own tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining any
applicable exemption.
Foreign Shareholders
The rules governing United States Federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other
foreign shareholders (collectively, "Non-U.S. Shareholders") are complex and
no attempt will be made herein to provide more than a general summary of such
rules. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of Federal, state and local income tax laws
with regard to an investment in Shares, including any reporting requirements,
as well as the tax treatment of such an investment under their home country
laws.
Distributions that are not attributable to gain from sales or exchanges
by the Company of United States real property interests and not designated by
the Company as capital gain dividends will be treated as dividends of
ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Company. Such distributions
ordinarily will be subject to a withholding tax equal to 30% of the gross
amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. However, if income from the investment in the Shares is
treated as effectively connected with the Non-U.S. Shareholder's conduct of a
United States trade or business, the Non-U.S. Shareholder generally will be
subject to a tax at graduated rates, in the same manner as U.S. Shareholders
are taxed with respect to such dividends (and may also be subject to the 30%
branch profits tax in the case of a shareholder that is a foreign
corporation). The Company expects to withhold United States income tax at
the rate of 30% on the gross amount of any such dividends paid to a Non-U.S.
Shareholder unless (i) a lower treaty rate applies and the Non-U.S.
Shareholder files an IRS Form 1001 with the Company claiming a lower treaty
rate or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with the Company
claiming that the distribution is effectively connected income.
Distributions in excess of current and accumulated earnings and profits of
the Company will not be taxable to a shareholder to the extent that they do
not exceed the adjusted basis of the shareholder's Shares, but rather will
reduce the adjusted basis of such Shares. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Shareholder's Shares,
they will give rise to tax liability if the Non-U.S. Shareholder would
otherwise be subject to tax on any gain from the sale or disposition of his
Shares in the Company, as described below. If it cannot be determined at the
time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the distributions
will be subject to withholding at the same rate as dividends. However,
amounts thus withheld are refundable if it is subsequently determined that
such distribution was, in fact, in excess of current and accumulated earnings
and profits of the Company.
Recently adopted Treasury Regulations not yet in effect (the "Final
Regulations"), would alter the foregoing rules in certain respects. In
general, the Final Regulations are effective January 1, 2000. Under the
Final Regulations, a Non-U.S. Holder seeking an exemption from withholding or
reduced rate of withholding on account of a treaty or the effectively
connected income exemption would generally be required to provide a
beneficial owner certificate on Form W-8, which form may include, among other
things, the Non-U.S. Holder's taxpayer identification number and certain
other information and representations. The Final Regulations also provide
special rules to determine whether, for purposes of determining the
applicability of a tax treaty, distributions paid to a Non-U.S. Holder that
is an entity should be treated as paid to the entity or those holding an
interest in the entity. With respect to withholding the 30% tax on
distributions to Non-U.S. Shareholders, the Final Regulations would allow the
Company to make an election to estimate its earnings and profits and withhold
the tax only on that portion of the gross distribution that would constitute
a dividend. The Company may or may not make any such elections in the
future.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by the Company of
United States real property interests will be taxed to a Non-U.S. Shareholder
under the provisions of the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Shareholder as if such gain were effectively connected with a United States
business. Non-U.S. Shareholders would thus be taxed at the normal capital
gain rates applicable to U.S. shareholders (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). Also, distributions subject to FIRPTA may be subject to
a 30% branch profits tax in the hands of a foreign corporate shareholder not
entitled to treaty exemption. The Company is required to withhold 35% of any
distribution that could be designated by the Company as a capital gain
dividend. This amount is creditable against the Non-U.S. Shareholder's
FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of Shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held
directly or indirectly by foreign persons. It is currently anticipated that
the Company will be a "domestically controlled REIT," and that therefore the
sale of Shares will not be subject to taxation under FIRPTA. However, gain
not subject to FIRPTA will be taxable to a Non-U.S. Shareholder if (i)
investment in the Shares is effectively connected with the Non-U.S.
Shareholder's United States trade or business, in which case the Non-U.S.
Shareholder will be subject to the same treatment as U.S. shareholders with
respect to such gain, or (ii) the Non-U.S. Shareholder is a nonresident alien
individual who was 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. If the gain on the sale of Shares were to be subject to
taxation under FIRPTA, the Non-U.S. Shareholder will be subject to the same
treatment as U.S. shareholders with respect to such gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals).
Tax-Exempt Shareholders
Distributions from the Company to a tax-exempt employee pension trust or
other domestic exempt shareholder generally will not constitute "unrelated
business taxable income" ("UBTI") unless the shareholder has borrowed to
acquire or carry its Shares. Qualified trusts that hold more than 10% (by
value) of the shares of certain REITs, however, may be required to treat a
certain percentage of such a REIT's distributions as UBTI. This requirement
will apply only if (i) the REIT would not qualify as such for Federal income
tax purposes but for the application of a "look-through" exception to the
Five or Fewer Requirement applicable to shares held by qualified trusts and
(ii) the REIT is "predominantly held" by qualified trusts. A REIT is
predominantly held by qualified trusts if either (i) a single qualified trust
holds more than 25% by value of the interests in the REIT or (ii) one or more
qualified trusts, each owning more than 10% by value of the interests in the
REIT, hold in the aggregate more than 50% of the interests in the REIT. The
percentage of any REIT distribution treated as UBTI is equal to the ratio of
(a) the UBTI earned by the REIT (treating the REIT as it were a qualified
trust and therefore subject to tax on UBTI) to (b) the total gross income of
the REIT. A de minimis exception applies where the percentage is less than
5% for any year. For these purposes, a qualified trust is any trust
described in section 401(a) of the Code and exempt from tax under section
501(a) of the Code. The provisions requiring qualified trusts to treat a
portion of REIT distributions as UBTI will not apply if the REIT is able to
satisfy the Five or Fewer Requirement without relying upon the "look-through"
exception.
State, Local and Foreign Taxation
The Company and its shareholders may be subject to state, local or
foreign taxation in various state, local or foreign jurisdictions, including
those in which it or they transact business or reside. Such state, local or
foreign taxation may differ from the Federal income tax treatment described
above. Consequently, prospective holders of Offered Securities should
consult their own tax advisors regarding the effect of state, local and
foreign tax laws on an investment in the Company.
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 or through a combination of any such
methods of sale. 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
offer and sell the Offered Securities in exchange for one or more of its then
outstanding issues of debt or convertible debt securities. 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. In the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Unless otherwise specified in the applicable Prospectus Supplement, each
series of Offered Securities will be a new issue with no established trading
market, other than the Common Shares which are listed on the New York Stock
Exchange. Any shares of Common Shares sold pursuant to a Prospectus
Supplement will be listed on the New York Stock Exchange, subject to official
notice of issuance. The Company may elect to list any series of Offered
Securities on an exchange, but is not obligated to do so. It is possible
that one or more underwriters may make a market in a series of Offered
Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as
to the liquidity of, or the trading market for, the Offered Securities.
If so indicated in a Prospectus Supplement, the Company will authorize
agents, underwriters or dealers to solicit offers by certain institutional
investors to purchase Offered Securities of the series to which such
Prospectus Supplement relates providing for payment and delivery on a future
date specified in such Prospectus Supplement. There may be limitations on
the minimum amount which may be purchased by any such institutional investor
or on the portion of the aggregate principal amount of the particular Offered
Securities which may be sold pursuant to such arrangements. Institutional
investors to which such offers may be made, when authorized, include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and such other
institutions as may be approved by the Company. The obligations of any such
purchasers pursuant to such delayed delivery and payment arrangements will
not be subject to any conditions except that (i) the purchase by an
institution of the particular Offered Securities 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 particular
Offered Securities are being sold to underwriters, the Company shall have
sold to such underwriters the total principal amount of such Offered
Securities or number of Warrants less the principal amount or number thereof,
as the case may be, covered by such arrangements. Underwriters will not have
any responsibility in respect of the validity of such arrangements or the
performance of the Company or such institutional investors thereunder.
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.
In order to comply with the securities laws of certain states, if
applicable, the Offered Securities offered hereby will be sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states Offered Securities may not be sold unless they
have been registered or qualified for sale in the applicable state or an
exemption from the registration or qualification requirement is available and
is complied with.
ERISA MATTERS
The Company may be considered a "party in interest" within the meaning
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and a "disqualified person" under corresponding provisions of the Code with
respect to certain employee benefit plans. Certain transactions between an
employee benefit plan and a party in interest or disqualified person may
result in "prohibited transactions" within the meaning of ERISA and the Code,
unless such transactions are effected pursuant to an applicable exemption.
Any employee benefit plan or other entity subject to such provisions of ERISA
or the Code proposing to invest in the Offered Securities should consult with
its legal counsel.
LEGAL OPINIONS
Certain legal matters will be passed upon for the Company by Robinson
Silverman Pearce Aronsohn & Berman LLP, New York, New York. The legal
authorization and issuance of the Offered Securities, as well as certain
other legal matters concerning Maryland law, will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. In
addition, the description of Federal income tax consequences contained in
this Prospectus entitled "Federal Income Tax Considerations" is based upon
the opinion of Robinson Silverman Pearce Aronsohn & Berman LLP.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report (Form 10-K) for the year ended December 31, 1996,
have been audited by Arthur Andersen LLP, independent public accountants as
indicated in their report with respect thereto, and are incorporated by
reference herein, in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
<PAGE>
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No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in or
incorporated by reference in this prospectus supplement and the accompanying
prospectus in connection with the offer made by this prospectus supplement
and the accompanying prospectus, and, if given or made, such information or
representations must not be relied upon as having been authorized by the
company or any of the underwriters. Neither this prospectus supplement nor
the accompanying prospectus constitutes an offer to sell or a solicitation of
any offer to buy any security other than the securities offered hereby, nor
do they constitute an offer to sell or a solicitation of any offer to buy any
of the securities offered hereby by anyone in any jurisdiction in which such
offer or solicitation is not authorized, or in which the person making such
offer or solicitation is not qualified to do so, or to any person to whom it
is unlawful to make such offer or solicitation. Neither the delivery of this
prospectus supplement and the accompanying prospectus, nor any sale made
hereunder shall, under any circumstances, create any implication that any
information contained herein is correct as of any time subsequent to the date
hereof.
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SUMMARY TABLE OF CONTENTS
Prospectus Supplement Page
Prospectus Supplement Summary. . . . . . . . . . . . . . . . . . . . . . .S-2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-4
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-12
Price Range of Common Shares and Distributions . . . . . . . . . . . . . S-13
Certain U.S. Federal Income Tax Considerations
to Holders of Common Shares . . . . . . . . . . . . . . . . . . . . S-14
Other Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . S-14
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
Description of Series D Preferred Shares . . . . . . . . . . . . . . . . S-16
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Prospectus Page
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Incorporation of Certain Documents by Reference. . . . . . . . . . . . . . .2
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Ratios of Earnings to Fixed Charges. . . . . . . . . . . . . . . . . . . . .4
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Description of Debt Securities . . . . . . . . . . . . . . . . . . . . . . .4
Description of Preferred Shares. . . . . . . . . . . . . . . . . . . . . . 18
Description of Common Shares . . . . . . . . . . . . . . . . . . . . . . . 24
Description of Warrants. . . . . . . . . . . . . . . . . . . . . . . . . . 26
Description of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Federal Income Tax Considerations. . . . . . . . . . . . . . . . . . . . . 27
Plan of Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ERISA Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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73,445 Common Shares
KRANZCO REALTY TRUST
Common Stock
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PROSPECTUS SUPPLEMENT
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August 5, 1998
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