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PROSPECTUS Filed pursuant
to Rule 424(b)(5)
Registration No. 333-58045
353,537 SHARES
GENERAL GROWTH PROPERTIES, INC.
COMMON STOCK
(PAR VALUE $.10 PER SHARE)
This Prospectus relates to the issuance by General Growth Properties, Inc.,
a Delaware corporation (the "Company"), of up to 353,537 shares (the "Redemption
Shares") of common stock, par value $.10 per share (the "Common Stock"), of the
Company if and to the extent that the holders of up to 353,537 limited
partnership units (the "Units") in GGP Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), of which the Company is the sole
general partner, tender such Units for redemption and the Company elects to
deliver Redemption Shares. Such Units were issued in connection with the June
19, 1997 transaction in which CA Southlake Investors, Ltd., a Georgia limited
partnership (the "Contributor"), conveyed (or caused to be conveyed) to the
Operating Partnership all of the partnership interests in Southlake Retail
Venture, a Georgia general partnership, which owned Southlake Mall in Morrow
(Atlanta), Georgia (the "Mall"), in exchange for Units and other consideration
(the "Southlake Acquisition"). In connection with the Southlake Acquisition,
the Company, the Operating Partnership and the Contributor entered into the
Redemption Rights Agreement, dated June 19, 1997 (the "Redemption Rights
Agreement"), which sets forth the terms and conditions under which the Units
received by the Contributor may be redeemed for cash, or, at the election of the
Company, in its sole and absolute discretion, Redemption Shares or cash. The
Company has registered the Redemption Shares under the Securities Act of 1933,
as amended (the "Securities Act"), as required under the terms of the Redemption
Rights Agreement, to provide the holders of the Redemption Shares with freely
tradeable securities, but such registration does not provide any assurance that
any of the Redemption Shares will be issued by the Company upon redemption of
the Units or thereafter offered or sold by the holders thereof.
The Company will not receive any cash proceeds from the issuance of the
Redemption Shares to holders of Units tendered for redemption; however, it will
acquire Units in the Operating Partnership in exchange for Redemption Shares
that the Company may issue to holders of Units pursuant to this Prospectus. With
each such acquisition, the Company's interest in the Operating Partnership will
increase.
The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "GGP". The last reported sale price of the Common
Stock on the NYSE on August 17, 1998, was $36.875 per share.
The Redemption Shares are subject to certain restrictions on ownership
designed to preserve the Company's status as a real estate investment trust
("REIT") for Federal income tax purposes. See "Description of Common Stock."
SEE "REDEMPTION OF UNITS -- TAX CONSEQUENCES OF REDEMPTION" AND
"-- POTENTIAL CHANGE IN INVESTMENT UPON REDEMPTION OF UNITS"
FOR A DISCUSSION OF CERTAIN POTENTIALLY
MATERIAL CONSEQUENCES ASSOCIATED WITH A REDEMPTION OF UNITS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE 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 18, 1998.
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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 ("Commission"). Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Room of the Commission, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the Commission's regional offices at Seven World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be
obtained from the Public Reference Room of the Commission, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. Such materials
also may be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov. The Company's Common Stock is listed on the
NYSE and such reports, proxy statements and other information also can be
inspected at the offices of the NYSE, 20 Broad Street, 17th Floor, New York, New
York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act, with respect to the
shares of Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, certain items of which are contained in
schedules and exhibits to the Registration Statement as permitted by the rules
and regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are in summary
form and therefore are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. Items and information omitted from this Prospectus
but contained in the Registration Statement may be inspected and copied at the
Public Reference Room of the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated in this Prospectus by reference and are
made a part hereof:
1. Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, dated March 31, 1998 (the "Company 10-K");
2. Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, as amended by Form 10-Q/A dated May 21, 1998;
3. Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, dated August 14, 1998;
4. Current Report on Form 8-K dated May 26, 1998, as amended by Form
8-K/A dated June 2, 1998;
5. Current Report on Form 8-K dated June 4, 1998;
6. Current Report on Form 8-K dated June 17, 1998;
7. Current Report on Form 8-K dated August 5, 1998;
8. Current Report on Form 8-K dated August 7, 1998;
9. The portions of the Company's Proxy Statement for its 1998 Annual
Meeting of Stockholders that have been incorporated by reference into the
Company 10-K; and
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10. The description of the Company's Common Stock which is contained
in the Registration Statement on Form 8-A filed by the Company with the
Commission on January 12, 1993, pursuant to Section 12(b) of the Exchange
Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act from the date of this Prospectus and prior to the
termination of the offering made by this Prospectus shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such documents. Any statement contained herein or in any document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for the purposes of this Prospectus to the extent that
a statement contained herein 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 to constitute a part of this Prospectus, except as so modified or
superseded. The Company will provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus is delivered, upon
written or oral request of such person, a copy of any or all of the information
that has been incorporated by reference in this Prospectus (excluding exhibits
to such information which are not specifically incorporated by reference into
such information). Requests for such information should be directed to General
Growth Properties, Inc., 110 North Wacker, Chicago, IL 60606, Attention:
Director of Investor Relations, Telephone (312) 960-5000.
FORWARD LOOKING STATEMENTS
This Prospectus and those documents incorporated by reference herein
contain statements that constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. The words "expect," "estimate," "anticipate," "predict," "believe" and
similar expressions and variations thereof are intended to identify
forward-looking statements. Such statements include those statements regarding
the intent, belief or current expectations of the Company, its directors or its
officers with respect to, among other things: (a) changes in the general
economic climate, (b) local conditions, (c) conditions of tenants, (d)
competition, (e) increased operating costs and interest expense, (f) changes in
taxation or zoning laws, (g) governmental regulations, (h) failure of the
Company to continue to qualify as a REIT, (i) availability of financing in the
amounts or on acceptable terms and (j) potential liability under environmental
or other laws or regulations.
THE COMPANY
The Company is a self-administered and self-managed real estate investment
trust ("REIT") that owns, operates, acquires, develops, expands, finances and
manages enclosed mall shopping centers in major and middle markets throughout
the United States. The Company was organized in 1986 to continue and expand the
business of the Bucksbaum family, which has been engaged in the shopping center
business since 1954.
As of August 17, 1998, the Company owned or had an ownership interest in 79
enclosed mall shopping centers with approximately 60.8 million square feet of
gross retail space, including anchor stores, freestanding stores and mall tenant
areas ("GLA"), located in 35 states. Specifically, the Company owned: (i) 100%
of 46 enclosed mall shopping centers; (ii) 51% of the outstanding common stock
of GGP/Ivanhoe, Inc., a Delaware corporation that has qualified as a REIT for
federal income tax purposes ("GGP/Ivanhoe") which owned 100% of two enclosed
mall shopping centers; (iii) 50% of each of two enclosed mall shopping centers;
(iv) approximately 38% of the outstanding common stock of GGP/Homart, Inc., a
Delaware corporation that has qualified as a REIT for federal income tax
purposes ("GGP/Homart") which owned interests in 23 enclosed mall shopping
centers; (v) 51% of the common stock of GGP Ivanhoe III, Inc., a Delaware
corporation that will elect to be taxed as a REIT ("GGP Ivanhoe III") which
owned 100% of six enclosed mall shopping centers; and (vi) a 100% non-voting
preferred stock interest (representing 95% of the equity interest) in General
Growth Management, Inc. ("GGMI") (the voting common stock of GGMI (representing
5% of the equity interest in GGMI) is held by certain employees of GGMI (who are
also officers of the Company)). As
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of the same date, the Company owned 100% of the Preferred Units (as defined
below) and an approximate 61% general partnership interest in the Operating
Partnership. The approximate 39% remaining partnership interest in the
Operating Partnership which remains is held by limited partners (the "Limited
Partners") in the form of Units. See "Summary of the Partnership Agreement."
Such Limited Partners include a partnership comprised of trusts for the benefit
of the Bucksbaums (as defined below) and subsequent contributors of properties
to the Company.
The Company has qualified as a REIT for federal income tax purposes. In
order to maintain such qualification, the Company is required to distribute at
least 95% of its REIT taxable income (as computed without regard to net capital
gains or the dividends-paid deduction) and its net income (after tax) from
foreclosure property each year. Dividends on any Preferred Stock including,
without limitation, the PIERS (as defined below), would be included as
distributions for this purpose.
The Company is incorporated under the laws of the State of Delaware. Its
principal executive offices are located at 110 North Wacker, Chicago, IL 60606,
its telephone number is (312) 960-5000 and its website address is
http://www.generalgrowth.com.
All references to the "Company" in this Prospectus include the Company and
those entities owned or controlled by the Company (including the Operating
Partnership), unless the context indicates otherwise.
RECENT DEVELOPMENTS
Since January 1, 1998, the Company, in five separate transactions, has
acquired or entered into definitive agreements to acquire a total of 17 enclosed
mall shopping centers located throughout the United States for aggregate
consideration in excess of $1.7 billion. These transactions include the
following:
Northbrook Court and Southwest Plaza Transactions. On May 8, 1998, two
Delaware limited liability companies, the sole members of which are the
Operating Partnership and the Company, acquired from Grosvenor International
(Westcoast Estates) Limited, a California corporation, and P.I.C. Investments, a
Nevada corporation, in a negotiated arms-length transaction, 100% of the
partnership interests in the partnership which owned Northbrook Court, an
enclosed mall shopping center located in Northbrook (Chicago), Illinois. The
purchase price for the partnership interests was paid in cash from borrowings
under the Company's line of credit.
Northbrook Court opened in 1976 and was renovated and expanded in 1995 and
1996. It is a two-level mall containing approximately one million square feet
of GLA. The center is anchored by Neiman Marcus, Lord & Taylor, Marshall
Field's and a General Cinema theater. The center, which has an additional
362,000 square feet of mall shop space, was 88% occupied at closing.
On April 2, 1998, two Delaware limited liability companies, the sole
members of which are the Operating Partnership and the Company, acquired from
Southwest Properties Venture, a Colorado joint venture, in a negotiated
arms-length transaction, 100% of Southwest Plaza, an enclosed mall shopping
center located outside of Denver, Colorado. The purchase price consisted of
cash from borrowings under the Company's line of credit, redeemable units of
limited partnership interest in the Operating Partnership and the assumption of
certain indebtedness.
Southwest Plaza opened in 1983 and was renovated in 1994 and 1995. It is a
two-level mall with approximately 1.3 million square feet of GLA. The center is
anchored by Joslin's, Foley's Sears, JC Penney and Montgomery Ward. The mall
has an additional 438,000 square feet of mall shop space, a 100,000 square foot
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freestanding Target store and two office buildings totaling approximately 92,000
square feet. The center was 83% occupied at closing.
The aggregate purchase price paid by the Company for Southwest Plaza and
Northbrook Court was approximately $261 million.
The MEPC Transaction. On June 2, 1998, the Company acquired, in a
negotiated arms-length transaction, the U.S. retail property portfolio (the
"MEPC Portfolio") of MEPC plc, a United Kingdom based real estate company
("MEPC"), through the purchase of the stock of the three U.S. subsidiaries of
MEPC that directly or indirectly owned the MEPC Portfolio (the "MEPC U.S.
Subsidiaries"). The stock of the MEPC U.S. Subsidiaries was acquired by a newly
formed corporate subsidiary of the Company that will elect to be taxed as a
REIT. The Company acquired the MEPC Portfolio for approximately $871 million
(less certain adjustments for tenant allowances, construction costs, MEPC U.S.
Subsidiary liabilities and other items). The Company borrowed approximately
$830 million from Lehman Brothers Holdings Inc. d/b/a Lehman Capital, a division
of Lehman Brothers Holdings Inc. ("Lehman Capital") to finance the purchase
price for the stock, which was paid in cash at closing. The Company repaid
approximately $217 million of the Lehman Capital loan on June 10, 1998 with a
portion of the net proceeds of the Company's recent public offering of
Depositary Shares (as defined below). The Lehman Capital loan initially bears
interest at the rate of 6.56% per annum, which rate will be adjusted monthly to
equal LIBOR plus 0.9%. The Lehman Capital loan is secured by the MEPC Portfolio
and will mature on June 1, 1999. The MEPC Portfolio consists of eight enclosed
mall shopping centers: the Apache Mall in Rochester, Minnesota, the Boulevard
Mall in Las Vegas, Nevada, the Cumberland Mall in Atlanta, Georgia, the
McCreless Mall in San Antonio, Texas, the Northridge Fashion Center in
Northridge (Los Angeles) California, the Regency Square Mall in Jacksonville,
Florida, the Riverlands Shopping Center in LaPlace, Louisiana and the Valley
Plaza Mall in Bakersfield, California. The MEPC Portfolio is comprised of
approximately 7.7 million square feet of GLA. The mall store and freestanding
store portions of the MEPC Portfolio were 87% leased on June 2, 1998.
The USPPI Transaction. On July 23, 1998, GGP Ivanhoe III acquired U.S.
Prime Property Inc. ("USPPI"), a private real estate investment trust controlled
by institutional investors, effective as of June 30, 1998, through a merger of a
wholly-owned subsidiary of Ivanhoe III (the "Transitory Subsidiary") with and
into USPPI. The merger was effected pursuant to the terms of a Merger
Agreement, dated May 14, 1998 (the "Merger Agreement"), among USPPI, the
Operating Partnership and the Transitory Subsidiary. The Operating Partnership
subsequently assigned its rights and obligations under the Merger Agreement and
its interest in the Transitory Subsidiary to Ivanhoe III. Effective upon the
consummation of the merger, the name of USPPI was changed to GGP Ivanhoe II,
Inc. The common stock of Ivanhoe III, which will elect to be taxed as a REIT,
is owned 51% by the Operating Partnership and 49% by an affiliate of Ivanhoe,
Inc. of Montreal, Quebec, Canada ("Ivanhoe"). The Ivanhoe affiliate is also a
49% joint venture partner in GGP Ivanhoe, Inc., another joint venture with the
Operating Partnership formed in 1997, which owns two shopping centers. It is
currently contemplated that the assets indirectly acquired through the merger
will continue to be used in the shopping mall business.
USPPI directly or indirectly owns (i) Landmark Mall (Alexandria, Virginia),
(ii) Mayfair Mall and adjacent office buildings (Wauwatosa, Wisconsin), (iii)
Meadows Mall (Las Vegas, Nevada), (iv) Northgate Mall (Chattanooga, Tennessee),
(v) Oglethorpe Mall (Savannah, Georgia), and (vi) Park City Center (Lancaster,
Pennsylvania) (collectively, the "USPPI Portfolio").
The aggregate consideration paid pursuant to the Merger Agreement was $625
million less certain adjustments (including a credit of approximately $64
million for outstanding mortgage indebtedness on the Meadows Mall and accrued
interest thereon as well as credits for tenant allowances, construction costs,
commissions, due diligence items and certain miscellaneous expenses). The
acquisition was financed with (i) a $392 million loan from Lehman Capital
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which bears interest at a fluctuating rate equal to the per annum rate of LIBOR
plus 90 basis points (adjusted monthly), and (ii) capital contributions by the
Operating Partnership and Ivanhoe, in proportion to their common stock ownership
in Ivanhoe III. The Lehman Capital loan will mature on July 1, 1999. The
Operating Partnership and Ivanhoe made initial capital contributions,
aggregating $179 million, to Ivanhoe III. Such contributions include
approximately $10 million which is intended to be used to fund working capital
and costs relating to the acquisition and financing. The Operating
Partnership's capital contribution was financed through its line of credit with
Union Bank of Switzerland, with the $18.75 million deposit made by the Operating
Partnership concurrently with the execution of the Merger Agreement being
credited against the Operating Partnership's capital contribution.
The enclosed mall shopping centers included in the USPPI Portfolio contain
approximately 5.9 million square feet of retail GLA. The mall store and
freestanding store portions of the USPPI Portfolio were 88% leased at closing.
The Altamonte Transaction. On July 21, 1998, each of Nashland Associates,
a Tennessee general partnership ("Nashland"), and HRE Altamonte, Inc., a
Delaware corporation ("HRE Altamonte"), contributed its 50% general partnership
interest in Altamonte Mall, a Florida joint venture (the "Joint Venture") to the
Operating Partnership (which received 99.99999% of the joint venture interests)
and to Altamonte Springs Mall, L.P., a Delaware limited partnership and an
affiliate of the Operating Partnership (which received .00001% of the joint
venture interests) ("Altamonte Springs"). The aggregate consideration paid by
the Operating Partnership and Altamonte Springs for the contribution of the
interests in the Joint Venture and the resulting ownership of a regional
shopping center ("Altamonte Mall") located in Altamonte Springs, Florida was
approximately $169 million (subject to prorations and to certain adjustments and
payments to be made by the Operating Partnership). The consideration was paid
by the assumption of approximately $24 million of indebtedness encumbering the
general partnership interest of Nashland in the Joint Venture, which was
immediately paid off in cash, and the balance was paid by the Operating
Partnership's issuance of Units. The cash used to pay off the above described
indebtedness was financed through the Operating Partnership's line of credit
with Union Bank of Switzerland. Immediately after the closing, the joint
venture interests acquired by the Operating Partnership were contributed to
Altamonte Springs and to Altamonte Springs Mall II, L.P. ("ASMLP II"), a
Delaware limited partnership and an affiliate of the Operating Partnership, so
that the joint venture is currently owned 50% by Altamonte Springs and 50% by
ASMLP II. As a result of the transactions described above, the Operating
Partnership indirectly owns approximately 99.999% of the Joint Venture, with the
Company owning the remaining .001% of the Joint Venture through a wholly owned
subsidiary.
Altamonte Mall opened in 1974 and was renovated in 1989. It is a two-level
mall containing approximately 1.1 million square feet of retail GLA. Burdine's,
Gayfers, Sears and JC Penney anchor the center. The mall includes approximately
392,000 square feet of mall shop space, which was approximately 86% occupied at
closing.
CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 210,000,000 shares
of Common Stock and 5,000,000 shares of preferred stock, par value $100 per
share (the "Preferred Stock", and together with the Common Stock, the "Capital
Stock"). The following summary description of the Capital Stock of the Company
does not purport to be complete and is qualified in its entirety by reference to
the Company's Amended and Restated Certificate of Incorporation, as amended (the
"Certificate"), the Certificate of Designations, Preferences and Rights relating
to the PIERS (the "Certificate of Designations"), which was filed in final form
by the Company on August 7, 1998 as an exhibit to Form 8-K and any other
certificate of designation which may subsequently be filed with the Commission
in connection with any other offering of preferred stock.
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As of August 14, 1998, 35,896,572 shares of Common Stock were issued and
outstanding. As of the same date, 13,500,000 depositary shares (the "Depositary
Shares"), each representing 1/40 of a share of 7.25% Preferred Income Equity
Redeemable Stock, Series A, par value $100 per share ("PIERS"), of the Company
were issued and outstanding. In addition, as of such date, there were
22,818,573 Units outstanding, 353,537 of which were issued in connection with
the Southlake Acquisition. The Company's Common Stock is listed on the NYSE
under the symbol "GGP" and the Depositary Shares are listed on the NYSE under
the symbol "GGPPrA."
DESCRIPTION OF COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders, including elections of directors,
and, except as otherwise required by law or provided in the Certificate of
Designations and any resolution adopted by the Board of Directors with respect
to any series of Preferred Stock subsequently established, exclusively possess
all voting power. The Certificate does not provide for cumulative voting in the
election of directors. Subject to any preferential rights of any outstanding
series of Preferred Stock (including the PIERS), the holders of Common Stock are
entitled to such distributions as may be declared from time to time by the Board
of Directors from funds available therefor and upon liquidation are entitled to
receive pro rata all assets of the REIT available for distribution to such
holders. All shares of Common Stock offered hereby, upon issuance to holders of
Units tendered for redemption, will be fully paid and nonassessable and the
holders thereof will not have preemptive rights.
DESCRIPTION OF PIERS AND DEPOSITARY SHARES
Each owner of a Depositary Share is entitled to its pro rata share of all
the rights and preferences of the PIERS represented thereby. The following is a
brief description of the dividend, voting, conversion, redemption and
liquidation rights, preferences and privileges applicable to the PIERS.
Dividends. Dividends on the PIERS are cumulative from the date of original
issue and are payable in arrears quarterly on or about the fifteenth day of
January, April, July and October of each year, commencing on October 15, 1998,
in an amount per PIERS equal to the greater of (i) 7.25% of the liquidation
preference per annum (equivalent to $1.8125 per annum per Depositary Share) and
(ii) the cash dividends paid or payable (determined on each of the dividend
payment dates for the PIERS) on that number of shares of Common Stock equal to
the number of shares of Common Stock (or portion thereof) into which a PIERS is
convertible. Dividends will accumulate whether or not the Company has
sufficient earnings, whether or not there are funds legally available for the
payment of such dividends and whether or not such dividends are declared.
Liquidation Preference and Conversion Rights. The PIERS have a liquidation
preference of $1,000.00 per PIERS (equivalent to $25.00 per Depositary Share),
plus a proportionate amount equal to accrued and unpaid dividends on the PIERS
(whether or not earned or declared).
The PIERS are convertible at any time, in whole or in part at the option of
the holder, unless previously redeemed, into shares of Common Stock, at an
conversion price of $39.70 per share of Common Stock (equivalent to a conversion
rate of .6297 shares of Common Stock per Depositary Share) (the "Conversion
Price"), subject to adjustment in certain circumstances.
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Redemption. Except in certain circumstances relating to the preservation
of the Company's status as a REIT for federal income tax purposes, the PIERS and
the Depositary Shares representing such PIERS are not redeemable prior to July
15, 2003. Under certain circumstances, on and after July 15, 2003, the PIERS
and the Depositary Shares representing such PIERS may be redeemed by the
Company, in whole or in part, at the option of the Company, for such number of
shares of Common Stock as are issuable at the Conversion Price (the "Stock
Redemption Right") (equivalent initially to a conversion rate of .6297 shares of
Common Stock per Depositary Share). In addition, on or after July 15, 2003, the
PIERS and the Depositary Shares may be redeemed at the option of the Company, in
whole or in part, initially at $1,032.22 per PIERS (equivalent to $25.8055 per
Depositary Share) and thereafter at prices declining to $1,000.00 per PIERS
(equivalent to a price of $25.00 per Depositary Share) on and after July 15,
2007, plus in each case accrued and unpaid dividends, if any, to the redemption
date.
The PIERS and the Depositary Shares are subject to mandatory redemption on
July 15, 2008, at a price of $1,000.00 per PIERS (equivalent to a price of
$25.00 per Depositary Share), plus accrued and unpaid dividends, if any, to the
redemption date.
Ranking and Voting Rights. The PIERS will rank senior to the Common Stock
as to priority for receiving dividends and amounts upon liquidation, dissolution
or winding-up of the Company. Holders of PIERS do not generally have any voting
rights, except as provided by applicable law. If dividends on the PIERS are in
arrears for six or more quarterly periods, holders of the PIERS (voting
separately as a class with all other series of Preferred Stock upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional directors to serve on the Board of Directors
until all dividend arrearages are eliminated.
RESTRICTIONS ON TRANSFER OF CAPITAL STOCK
For the Company to remain qualified as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"): (a) not more than 50% in value of its
outstanding Capital Stock may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) at any time
during the last half of a taxable year; (b) the Capital Stock must be
beneficially owned (without regard to any rules of attribution of ownership) 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; and (c) certain
percentages of the REIT's gross income must be from particular activities.
Accordingly, the Certificate contains provisions, subject to certain exceptions,
which limit the number of shares of Capital Stock that may be owned by any
stockholder (the "Ownership Limit").
The Ownership Limit provides that, subject to certain exceptions specified
in the Certificate, no stockholder (other than Martin Bucksbaum, Matthew
Bucksbaum, their families and related trusts (collectively, the "Bucksbaums")
and the International Business Machines Retirement Plan (the "IBM Retirement
Plan")) may own, or be deemed to own by virtue of the applicable attribution
provisions of the Code, more than the Ownership Limit. The Ownership Limit was
originally set at 6.5% of the outstanding Capital Stock, and was increased to
7.5% of the value of the outstanding Capital Stock as a result of legislation
passed in 1993. The Board of Directors is authorized to further increase the
Ownership Limit to not more than 9.8%. The Bucksbaums and the IBM Retirement
Plan are each permitted by the Certificate to exceed the Ownership Limit and
currently the Bucksbaums exceed such limit. The Ownership Limit provides that
the Bucksbaums may acquire additional shares pursuant to certain rights granted
to them in connection with the Company's initial public offering, which rights
are described more fully below, or from other sources so long as the acquisition
does not result in the five largest beneficial owners of Capital Stock holding
more than 50% of the outstanding Capital Stock. The Ownership Limit restricts
the IBM Retirement Plan from acquiring additional shares of Capital Stock so
long as it exceeds the Ownership Limit, except through stock splits or other pro
rata transactions that do not increase its percentage interest in the Company.
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The Board of Directors may waive the Ownership Limit if presented with
satisfactory evidence that such ownership will not jeopardize the Company's
status as a REIT. As a condition of such waiver, the Board of Directors may
require opinions of counsel satisfactory to it and/or an undertaking from the
applicant with respect to preserving the REIT status of the Company. The
Ownership Limit will not apply if the Board of Directors and the holders of
Capital Stock determine that it is no longer in the best interests of the
Company to attempt to qualify, or to continue to qualify, as a Company. If
shares of Common Stock in excess of the Ownership Limit, or shares which would
cause the Company to be beneficially owned by fewer than 100 persons, are issued
or transferred to any person, such issuance or transfer shall be null and void
and the intended transferee will acquire no rights to such shares.
The Certificate further provides that upon a transfer or other event that
results in a person owning (either directly or by virtue of the applicable
attribution rules) Capital Stock in excess of the applicable Ownership Limit
("Excess Shares"), such person (a "Prohibited Owner") will not acquire or retain
any rights or beneficial economic interest in such Excess Shares. Rather, the
Excess Shares will be automatically transferred to a person or entity
unaffiliated with and designated by the Company to serve as trustee (the
"Trustee") of a trust for the exclusive benefit of a charitable beneficiary (the
"Beneficiary") to be designated by the Company within five (5) days after the
discovery of the transaction which created the Excess Shares. The Trustee shall
have the exclusive right to designate a person who may acquire the Excess Shares
without violating the applicable ownership restrictions (a "Permitted
Transferee") to acquire all of the shares held by the Trust. The Permitted
Transferee must pay the Trustee an amount equal to the fair market value
(determined at the time of transfer to the Permitted Transferee) for the Excess
Shares. The Trustee shall pay to the Prohibited Owner the lesser of: a) the
value of the shares at the time they became Excess Shares and b) the price
received by the Trustee from the sale of the Excess Shares to the Permitted
Transferee. The excess of: a) the sale proceeds from the transfer to the
Permitted Transferee over b) the amount paid to the Prohibited Owner, if any, in
addition to any dividends paid with respect to the Excess Shares will be
distributed to the Beneficiary.
The Ownership Limit will not be automatically removed even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration limitation is
increased. Except as otherwise described above, any change in the Ownership
Limit would require an amendment to the Certificate. Amendments to the
Certificate require the affirmative vote of holders owning a majority of the
outstanding Capital Stock. In addition to preserving the Company's status as a
REIT, the Ownership Limit may have the effect of precluding an acquisition of
control of the Company without the approval of the Board of Directors.
All certificates representing Capital Stock will bear a legend referring
to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 7.5% of the outstanding Capital Stock must file an affidavit
with the Company containing the information specified in the Certificate within
30 days after January 1 of each year. In addition, each stockholder shall upon
demand be required to disclose to the Company in writing such information with
respect to the direct, indirect and constructive ownership of shares as the
Board of Directors deems necessary to comply with the provisions of the Code
applicable to a REIT or to comply with the requirements of any taxing authority
or governmental agency. United States Treasury Regulations (the "Regulations")
currently require that the Company annually send written statements requesting
information as to the actual ownership of the Capital Stock from each record
holder of more than 1% of the Company's outstanding Capital Stock. Depending
upon the number of record holders of the Capital Stock, the reporting threshold
required by the Regulations can fall as low as .5%. Record holders that fail to
submit a written statement in response to the request required by the
Regulations are required to attach to their federal income tax returns specified
information regarding the actual ownership of shares of Capital Stock of which
they are the record holder.
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LIMITATION OF LIABILITY OF DIRECTORS
The Certificate provides that a director will not be personally liable for
monetary damages to the Company or its stockholders for breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for paying a dividend or approving a stock repurchase in violation of
Section 174 of the Delaware General Corporation Law ("DGCL") or (iv) for any
transaction from which the director derived an improper personal benefit.
While the Certificate provides directors with protection from awards for
monetary damages for breaches of their duty of care, it does not eliminate such
duty. Accordingly, the Certificate will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions of the Certificate described
above apply to an officer of the Company only if he or she is a director of the
Company and is acting in his or her capacity as director, and do not apply to
officers of the Company who are not directors.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of its
officers and directors. The indemnification agreements require, among other
things, that the Company indemnify its officers and directors to the fullest
extent permitted by law, and advance to the officers and directors all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The Company must also indemnify and advance
all expenses incurred by officers and directors seeking to enforce their rights
under the indemnification agreements, and cover officers and directors under the
Company's directors' and officers' liability insurance. Although the form of
the indemnification agreement offers substantially the same scope of coverage
afforded by provisions in the Company's Certificate and Bylaws, it provides
greater assurance to directors and officers that indemnification will be
available, because, as a contract, it cannot be modified unilaterally in the
future by the Board of Directors or by stockholders to eliminate the rights it
provides.
DELAWARE ANTI-TAKEOVER STATUTE
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of the Company's outstanding voting
stock) from engaging in a "business combination" (as defined in Section 203)
with the Company for three years following the date that person becomes an
interested stockholder unless (a) before that person became an interested
stockholder, the Company's Board of Directors approved the transaction in which
the interested stockholder became an interested stockholder or approved the
business combination, (b) upon completion of the transaction that resulted in
the interested stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the Company's voting stock outstanding at the
time the transaction commenced (excluding stock held by directors who are also
officers of the Company and by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer), or (c) following
the transaction in which that person became an interested stockholder, the
business combination is approved by the Company's Board of Directors and
authorized at a meeting of stockholders by the affirmative vote of the holders
of at least two-thirds of the Company's outstanding voting stock not owned by
the interested stockholder.
Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving the Company
and a person who was not an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the Company's directors, if that extraordinary transaction is approved or not
opposed by a majority of the directors who were directors before any
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person became an interested stockholder in the previous three years or who were
recommended for election or elected to succeed such directors by a majority of
such directors then in office.
SUMMARY OF PARTNERSHIP AGREEMENT
The following summary of the partnership agreement of the Operating
Partnership is qualified by reference to the Second Amended and Restated
Agreement of Limited Partnership of the Operating Partnership, as amended (the
"Partnership Agreement"), which has been previously filed with the Commission,
and the foregoing is incorporated herein by reference.
MANAGEMENT AND OPERATIONS
The Operating Partnership is a Delaware limited partnership which is,
pursuant to the Partnership Agreement, required to be operated in a manner that
will enable the Company to continue to satisfy the requirements for being
classified as a REIT and to avoid any Federal income tax liability. The
Partnership Agreement provides that the net operating cash revenues of the
Operating Partnership, as well as net sales and refinancing proceeds, will be
distributed from time to time as determined by the Company, in its capacity as
the sole general partner of the Operating Partnership (but not less frequently
than quarterly), pro rata in accordance with the partners' percentage interests.
Generally, pursuant to the Partnership Agreement, the Company, as the sole
general partner of the Operating Partnership, has exclusive and complete
responsibility and discretion in the management and control of the Operating
Partnership, and the Limited Partners have no authority to transact business
for, or participate in the management activities or decisions of, the Operating
Partnership. However, certain decisions, including those to amend the
Partnership Agreement (other than in connection with the admission of additional
Limited Partners) or terminate the Partnership Agreement, to make a general
assignment for the benefit of creditors, to take title to any property other
than in the name of the Operating Partnership or a subsidiary partnership, to
institute any proceeding for bankruptcy or to be dissolved would require the
consent of a majority in interest of the Limited Partners. In addition, without
the written consent of a Limited Partner, the Partnership Agreement may not be
amended to materially adversely affect such Limited Partner's rights to
distributions or allocations except in connection with the admission of
additional Limited Partners or unless such amendment affects the existing
Limited Partners who are Bucksbaums in the same manner on a Unit-for-Unit basis.
The Partnership Agreement does not contemplate holding partnership meetings
but limited partners are given notice of and are welcome to attend annual and
special meetings of the Company's stockholders.
See "- Preferred Units."
TRANSFERABILITY OF INTERESTS
The Partnership Agreement provides that the Company may not voluntarily
withdraw from the Operating Partnership, or transfer or assign its interest in
the Operating Partnership, without the consent of a majority in interest of the
Limited Partners. The Operating Partnership and the Contributor entered into a
Pledge Agreement, dated June 19, 1997 (the "Pledge Agreement") in connection
with the consummation of the Southlake Acquisition, which prohibits the sale,
assignment or other transfer of certain of Units received by Contributors unless
collateral is substituted in place of the secured Units. Subject to the terms
of the Pledge Agreement, the Contributor, as a Limited Partner, may transfer its
interest in the Operating Partnership at any time to a transferee; provided that
such transferee assumes all obligations of the transferor Limited Partner and
provided further that such transfer does not cause a termination of the
Operating Partnership for Federal income tax purposes, does not cause the
Company to cease to comply with requirements under the Code for qualification as
a REIT and satisfies certain other general requirements specified in the
Partnership Agreement.
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BUCKSBAUM RIGHTS
Pursuant to the terms of the Rights Agreement, dated as of July 27, 1993
(the "Rights Agreement"), the Bucksbaums currently hold certain rights (the
"Bucksbaum Rights") granted to them in connection with the Company's initial
public offering, which enable them to convert a portion of their interest in the
Operating Partnership into shares of Common Stock (the "Exchange Component") and
to sell their remaining partnership interest to the Company (the "Sale
Component"). The Exchange Component enables the Bucksbaums to exchange a
portion of their interest in the Operating Partnership for shares of Common
Stock until they own up to 25% of the outstanding Common Stock. The Sale
Component enables the Bucksbaums to sell all or a portion of their remaining
interest in the Operating Partnership to the Company for cash or Common Stock,
or a combination thereof, at the Company's election. The Sale Component can
only be exercised if the Bucksbaums already own 25% or more of the outstanding
Common Stock.
The Bucksbaum Rights may be exercised by the Bucksbaums from time to time
(although only once during any calendar year), in whole or in part, subject to
the limitations that in any calendar year the Sale Component may be exercised
only with respect to one-fourth of the percentage interest in the Partnership
held by the Bucksbaums immediately after the Exchange Component is fully
exercised.
The Bucksbaum Rights expire on April 16, 2023 if not exercised prior to
that date.
CAPITAL CONTRIBUTIONS
The Partnership Agreement provides that if the Operating Partnership
requires additional funds at any time or from time to time in excess of funds
available to the Operating Partnership from borrowings or capital contributions,
the Company may borrow such funds from a financial institution or other lender
and lend such funds to the Operating Partnership on the same terms and
conditions as are applicable to the Company's borrowing of such funds. As an
alternative to borrowing funds required by the Operating Partnership, the REIT
may raise such funds through the sale of shares of Common Stock and contribute
the amount of such required funds as an additional capital contribution to the
Operating Partnership. In such event, the Company generally will receive
additional Units equal to the number of shares of Common Stock that are sold by
the Company. Conversely, the partnership interests of the Limited Partners will
be decreased on a proportionate basis in the event of additional capital
contributions by the Company. See "- Preferred Units."
TAX MATTERS
Pursuant to the Partnership Agreement, the Company is the tax matters
partner of the Operating Partnership and, as such, has authority to make tax
elections under the Code on behalf of the Operating Partnership.
The net income or net loss of the Operating Partnership will generally be
allocated to the Company and the Limited Partners in accordance with their
percentage interests, subject to compliance with the provisions of Sections
704(b) and 704(c) of the Code and the regulations promulgated thereunder and the
terms of the Preferred Units.
DUTIES AND CONFLICTS
The Partnership Agreement provides that all business activities of the
Company, including all activities pertaining to the acquisition and operation of
shopping center properties, must be conducted through the Operating Partnership
(excluding direct interests of up to 1% in subsidiaries of the Operating
Partnership that are owned by the Company or subsidiaries thereof). The
Partnership Agreement prohibits the Company from borrowing for
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the purpose of making a distribution to stockholders except if it arranges such
borrowing through the Operating Partnership.
Pursuant to the Partnership Agreement, the Bucksbaums cannot acquire
interests in shopping center properties or vacant land suitable for development
as a shopping center for a specified period of time. The Partnership Agreement
permits the Bucksbaums to own less than 5% of any publicly traded entity (or any
subsidiary thereof) which invests in retail malls, provided that neither Matthew
Bucksbaum nor John Bucksbaum is actively involved in the management of such
entity by virtue of any such investment.
TERM
The Operating Partnership will continue in full force and effect until
December 31, 2050, or until sooner dissolved upon the withdrawal, bankruptcy,
dissolution or termination of the Company (unless a majority in interest of the
Limited Partners elect to continue the Operating Partnership), the election of
the Company and a majority in interest of the Limited Partners, or the sale or
other disposition of all or substantially all the assets of the Operating
Partnership.
PREFERRED UNITS
In connection with the issuance of the Depositary Shares and in order to
enable the Company to comply with its obligations in respect of the PIERS, the
Partnership Agreement was amended to issue to the Company preferred units of
partnership interest (the "Preferred Units") which have rights, preferences and
other privileges, including distribution, liquidation, conversion and redemption
rights, that mirror those of the PIERS. Accordingly, the Partnership will be
required to make all required distributions on the Preferred Units prior to any
distribution of cash or assets to the holders of other partnership interests in
the Partnership, including the holders of Units.
REDEMPTION OF UNITS
GENERAL
Each Limited Partner who is a party to the Redemption Rights Agreement or a
permitted assignee thereunder may, subject to certain limitations, require that
the Operating Partnership redeem such Limited Partner's Units, by delivering a
notice to the Operating Partnership. Such rights are described in the
Redemption Rights Agreement which was executed and delivered in connection with
the Southlake Acquisition. The summary of the terms of the Redemption Rights
Agreement set forth below does not purport to be complete and is subject to and
qualified by reference to the Redemption Rights Agreement. Subject to the
rights of the Company described in the next paragraph, upon redemption, such
Limited Partner will receive, with respect to each Unit tendered, cash in an
amount equal to the market value of one share of Common Stock of the Company
(subject to certain anti-dilution adjustments). The market value of the Common
Stock for this purpose will be equal to the average of the closing trading price
of the Company's Common Stock on the NYSE (or substitute information, if no such
closing price is available) for the five consecutive trading days ending on the
date on which a redemption notice is received by the Operating Partnership (or,
if such date is not a business day, the first business day thereafter).
In lieu of the Operating Partnership redeeming Units tendered for
redemption, the Company, as the sole general partner of the Operating
Partnership, has the right, in its sole and absolute discretion, to elect to
assume directly and satisfy the redemption right of a Limited Partner by paying
to the redeeming Limited Partner, with respect to each Unit tendered, either (a)
the cash amount described in the preceding paragraph or (b) one share of Common
Stock of the Company (subject to certain anti-dilution adjustments). The Company
anticipates that it generally will elect to directly assume and satisfy any
redemption right exercised by such a Limited Partner
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through the issuance of shares of Common Stock (the Redemption Shares) pursuant
to this Prospectus, whereupon the Company will acquire the Units being redeemed
and will become the owner of such Units. However, there can be no assurance
that the Company will make such election in any particular case. With each
exchange of Units for shares of Common Stock or cash, the Company's ownership
interest in the Operating Partnership will increase. Such an acquisition by the
Company will be treated as a sale by the redeeming Limited Partner of such Units
to the Company for Federal income tax purposes. See "--Tax Consequences of
Redemption" below. Upon redemption, such Limited Partner's right to receive
distributions with respect to the Units redeemed will cease (but if such right
is exchanged for Redemption Shares, the Limited Partner will have rights as a
stockholder of the Company from the time of its acquisition of the Redemption
Shares), and if all of its Units are redeemed, such Limited Partner will have
withdrawn as a partner of the Operating Partnership and will no longer be a
party to the Partnership Agreement.
Each redeeming Limited Partner must notify the Operating Partnership of
such Limited Partner's desire to require the Operating Partnership to redeem
Units by sending a notice in accordance with the terms of the Redemption Rights
Agreement. A Limited Partner must request the redemption of at least 1000 Units
(or all of the Units held by such holder, if such Limited Partner owns fewer
than 1000 Units). The redemption will occur within 30 days following the
Operating Partnership's receipt of the notice and related documentation required
by the Redemption Rights Agreement, except that no redemption can occur if the
delivery of Redemption Shares would be prohibited under the provisions of the
Certificate designed to protect the Company's qualification as a REIT.
TAX CONSEQUENCES OF REDEMPTION
See "Certain Federal Income Tax Considerations" which summarizes certain
federal income tax considerations that may be relevant to a Limited Partner who
exercises such Limited Partner's right to require the redemption of such Limited
Partner's Units in accordance with the terms of the Redemption Rights Agreement.
Because the specific tax consequences to a redeeming Limited Partner will depend
upon the specific circumstances of that Limited Partner, each Limited Partner
considering exercising its redemption right is strongly urged to consult such
Limited Partner's own tax advisor regarding the specific federal, state, and
local tax consequences to such Limited Partner of the exercise of his or her
redemption rights.
POTENTIAL CHANGE IN INVESTMENT UPON REDEMPTION OF UNITS
If a Limited Partner exercises the right to require the redemption of such
Limited Partner's Units pursuant to the Redemption Rights Agreement, such
Limited Partner may receive cash or Redemption Shares in exchange for such
Units. If a Limited Partner receives cash, the Limited Partner will no longer
have any interest in the Operating Partnership or the Company and will not
benefit from any subsequent increases in the share price of the Common Stock and
will not receive any future distributions from the Operating Partnership or the
Company (unless the Limited Partner currently owns or acquires in the future
additional Units or shares of Common Stock). If a Limited Partner receives
Redemption Shares, the Limited Partner will become a stockholder of the Company
rather than a holder of Units in the Operating Partnership. See "Comparison of
Ownership of Units and Shares of Common Stock."
REGISTRATION OF SHARES
The Company has registered the Redemption Shares under the Securities Act
to satisfy its registration obligations under the Redemption Rights Agreement.
Under the Redemption Rights Agreement, the Company is required to prepare and
file with the Commission such amendments and supplements to the Registration
Statement (of which this Prospectus is a part) and to this Prospectus, as may be
necessary to keep the Registration
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Statement effective, generally during the term in which the Registration Rights
exist for the Redemption Shares, as discussed below, and to comply with the
provisions of the Securities Act. See "Plan of Distribution."
Pursuant to the Redemption Rights Agreement, the Company has agreed to pay
all expenses of effecting the above-described registration of the Redemption
Shares under the Securities Act prior to June 19, 2003. The Limited Partners
who are parties to the Redemption Rights Agreement have agreed severally, in
proportion to the number of Units held by them at such time in relation to the
total number of shares of Common Stock covered by the Registration Statement, to
reimburse the Company for registration expenses which are incurred thereafter.
If the Company does not maintain the above-described registration statement
in accordance with the terms of the Redemption Rights Agreement, the Company
generally shall not have the right to deliver shares of Common Stock (i.e.,
Redemption Shares) in consideration for tendered Units during the time when such
registration statement is not so effective.
COMPARISON OF OWNERSHIP OF UNITS AND SHARES OF COMMON STOCK
Although the nature of an investment in shares of Common Stock of the
Company is substantially equivalent economically to an investment in Units in
the Operating Partnership, there are certain differences between ownership of
Units and ownership of shares of Common Stock, some of which may be material to
investors.
The information below highlights a number of the significant differences
between the Operating Partnership and the Company and compares certain legal
rights associated with the ownership of Units and Common Stock. These
comparisons are intended to assist Limited Partners of the Operating Partnership
in understanding how their investment will be changed if their Units are
redeemed for Common Stock. THIS DISCUSSION IS SUMMARY IN NATURE AND DOES NOT
CONSTITUTE A COMPLETE DISCUSSION OF THESE MATTERS. HOLDERS OF UNITS SHOULD
CAREFULLY REVIEW THE BALANCE OF THIS PROSPECTUS AND THE REGISTRATION STATEMENT
OF WHICH THIS PROSPECTUS IS A PART FOR ADDITIONAL IMPORTANT INFORMATION ABOUT
THE COMPANY.
FORM OF ORGANIZATION AND ASSETS OWNED
The Operating Partnership is organized as a Delaware limited partnership.
The Company is a Delaware corporation. The Company has elected to be taxed as a
REIT under the Code, and intends to maintain its qualification as a REIT.
LENGTH OF INVESTMENT
The Operating Partnership has a stated termination date of December 31,
2050, although it may be terminated earlier under certain circumstances. The
Company has a perpetual term and intends to continue its operations for an
indefinite time period.
ADDITIONAL EQUITY
The Operating Partnership is authorized to issue additional Units from time
to time, as determined by the Company as its general partner, in exchange for
contributions of cash or property to the Operating Partnership. The Operating
Partnership may issue additional Units to the Company, generally as long as such
Units are issued in connection with a comparable issuance of shares of capital
stock of the Company and proceeds raised in connection with the issuance of such
shares are contributed by the Company to the Operating Partnership.
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The Board of Directors of the Company may authorize the issuance, in its
discretion, of additional equity securities consisting of Common Stock or
Preferred Stock; provided that the total number of shares issued does not exceed
the number of authorized shares of Capital Stock set forth in the Certificate.
As long as the Operating Partnership is in existence, the proceeds of all equity
capital raised by the Company generally will be contributed to the Operating
Partnership in exchange for Units in the Operating Partnership.
MANAGEMENT AND CONTROL
Generally, pursuant to the Partnership Agreement, the Company, as the sole
general partner of the Operating Partnership, has exclusive and complete
responsibility and discretion in the management and control of the Operating
Partnership, and the Limited Partners have no authority to transact business
for, or participate in the management activities or decisions of, the Operating
Partnership. However, certain decisions, including those to amend the
Partnership Agreement (other than in connection with the admission of additional
Limited Partners) or terminate the Partnership Agreement, to make a general
assignment for the benefit of creditors, to take title to any property other
than in the name of the Operating Partnership or a subsidiary thereof, to
institute any proceeding for bankruptcy or to be dissolved would require the
consent of a majority in interest of the Limited Partners. In addition, without
the written consent of a Limited Partner, the Partnership Agreement may not be
amended to materially adversely affect such Limited Partner's rights to
distributions or allocations except in connection with the admission of
additional Limited Partners or unless such amendment affects the existing
Limited Partners who are Bucksbaums in the same manner on a Unit-for-Unit basis.
The Board of Directors of the Company has exclusive control over the
Company's business and affairs subject only to the restrictions in the
Certificate and Bylaws and the Partnership Agreement. At each annual meeting of
the stockholders, the successors of the class of directors whose terms expire at
that meeting will be elected. The policies adopted by the Board of Directors
may be altered or eliminated without a vote of the stockholders. Accordingly,
except for their vote in the elections of directors, stockholders have no
control over the ordinary business policies of the Company. The Board of
Directors cannot change the Company's policy of maintaining its status as a
REIT, however, without the approval of holders of a majority of the outstanding
shares of capital stock entitled to vote on such matter.
FIDUCIARY DUTIES
Under Delaware law, the general partner of the Operating Partnership is
accountable to the Operating Partnership as a fiduciary and, consequently, is
required to exercise good faith in all of its dealings with respect to
partnership affairs. The Partnership Agreement provides, however, that the
general partner is not liable for monetary damages for losses sustained or
liabilities incurred as a result of the general partner's acts or omissions,
provided that the general partner has acted in good faith and in the belief that
any such act or omission was in the best interests of the Operating Partnership
and, provided further, that the general partner was not guilty of fraud,
misconduct or gross negligence.
Under Delaware law, the Company's directors must perform their duties in
good faith, in a manner that they reasonably believe to be in the best interests
of the Company and with the care of an ordinarily prudent person in a like
position. Directors of the Company who act in such a manner generally will not
be liable to the Company or its stockholders for monetary damages arising from
their activities.
MANAGEMENT LIABILITY AND INDEMNIFICATION
As a matter of Delaware law, the general partner has liability for the
payment of the obligations and debts of the Operating Partnership unless
limitations upon such liability are stated in the document or instrument
evidencing the obligation. Under the Partnership Agreement, the Operating
Partnership has agreed to indemnify the general partner and its "affiliates," as
defined in the Partnership Agreement, and any individual acting on their
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behalf, from and against all losses, damages, claims or liabilities, including,
but not limited to, reasonable attorneys' fees and expenses, incurred in
connection with any actions relating to the operations of the Operating
Partnership in which the general partner, its affiliates, or any individual
acting on their behalf is involved, to the fullest extent permitted by Delaware
law (including any procedures set forth therein regarding advancement of
expenses to such indemnified party).
The Certificate provides that a director of the Company will not be
personally liable for monetary damages to the Company or its stockholders for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for paying a dividend or approving a stock
repurchase in violation of Section 174 of the DGCL or (iv) for any transaction
from which the director derived an improper personal benefit.
The Company has entered into indemnification agreements with each of its
officers and directors. The indemnification agreements require, among other
things, that the Company indemnify its officers and directors to the fullest
extent permitted by law, and advance to the officers and directors all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The Company must also indemnify and advance
all expenses incurred by officers and directors seeking to enforce their rights
under the indemnification agreements, and cover officers and directors under the
Company's directors' and officers' liability insurance. Although the form of
the indemnification agreement offers substantially the same scope of coverage
afforded by provisions in the Company's Certificate and Bylaws, it provides
greater assurance to directors and officers that indemnification will be
available, because, as a contract, it cannot be modified unilaterally in the
future by the Board of Directors or by stockholders to eliminate the rights it
provides.
ANTITAKEOVER PROVISIONS
Except in limited circumstances, the general partner of the Operating
Partnership has exclusive management power over the business and affairs of the
Operating Partnership. The general partner may not voluntarily withdraw from
the Operating Partnership, or transfer or assign its interest in the Operating
Partnership, without the consent of a majority in interest of the Limited
Partners, and other than as expressly provided in the Partnership Agreement, no
Limited Partner may withdraw from the Operating Partnership without the prior
written consent of the general partner.
The Certificate and Bylaws of the Company contain a number of provisions
that may have the effect of delaying or discouraging an unsolicited proposal for
the acquisition of the Company or the removal of incumbent management. These
provisions include, among others: (1) a staggered Board of Directors; (2)
authorized capital stock that may be issued as Preferred Stock in the discretion
of the Board of Directors, with superior voting rights to the Common Stock; (3)
a requirement that directors may be removed only for cause and only by a vote of
holders of at least 75% of the outstanding Common Stock; and (4) provisions
designed to avoid concentration of share ownership in a manner that would
jeopardize the Company's status as a REIT under the Code. In addition, the
Company is subject to Section 203 of the DGCL which provides that, subject to
certain exceptions, no Delaware corporation may engage in any "business
combination" with an "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder unless
prior to such date, the board of directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder.
VOTING RIGHTS
Under the Partnership Agreement, the Limited Partners have voting rights
only with respect to certain limited matters, including dissolution of the
Operating Partnership, amendments to the Partnership Agreement (other than to
reflect the admission of additional Limited Partners), making a general
assignment for the benefit
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of creditors, taking title to any personal or real property other than in the
name of the Operating Partnership or a subsidiary thereof, and instituting any
proceeding for bankruptcy on behalf of the Operating Partnership. All matters
submitted to a vote of Limited Partners require the affirmative vote of a
majority in interest of the Limited Partners. Otherwise, all decisions relating
to the operation and management of the Operating Partnership are made by the
Company, as general partner.
The Company is managed and controlled by a Board of Directors consisting of
three classes having staggered terms of office. One class of directors is
elected by the stockholders at each annual meeting of the Company. Delaware law
requires that certain major corporate transactions, including most amendments to
a corporation's certificate of incorporation, may not be consummated without the
approval of stockholders. All shares of Common Stock have one vote, and the
Company's Certificate permits the Board of Directors to classify and issue
Preferred Stock in one or more series having voting power which may differ from
that of the Common Stock. The PIERS have voting rights under certain
circumstances. See "Capital Stock - Description of PIERS and Depositary Shares"
above.
AMENDMENT OF THE PARTNERSHIP AGREEMENT OR THE CERTIFICATE OF INCORPORATION
The general partner of the Operating Partnership may not, without the
written consent of a majority in interest of the Limited Partners, amend or
modify the Partnership Agreement other than to reflect the admission of
additional Limited Partners.
Amendments to the Company's Certificate must be approved by a majority of
the Board of Directors and by the vote of at least majority of the votes
entitled to be cast at a meeting of stockholders.
VOTE REQUIRED TO DISSOLVE THE OPERATING PARTNERSHIP OR THE COMPANY
The general partner of the Operating Partnership may elect to dissolve the
Partnership upon making a written election to that effect with the written
consent of a majority in interest of the Limited Partners.
Under Delaware law, the Board of Directors must obtain approval of holders
of at least a majority of the outstanding capital stock in order to dissolve the
Company.
COMPENSATION, FEES AND DISTRIBUTIONS
The general partner does not receive any compensation for its services as
general partner of the Operating Partnership. As a partner in the Operating
Partnership, however, the general partner has the right to receive allocations
and distributions from the Operating Partnership, in respect of the Preferred
Units and otherwise pro rata in accordance with its percentage interest in the
Operating Partnership. In addition, the Operating Partnership reimburses the
general partner for all expenses incurred relating to the ongoing operation of
the Operating Partnership.
The directors and officers of the Company receive compensation for their
services.
LIABILITY OF INVESTORS
Under the Partnership Agreement and applicable state law, the liability of
the Limited Partners for the Operating Partnership's debts and obligations is
generally limited to the amount of their investment the Operating Partnership.
Under Delaware law, stockholders are not personally liable for the debts or
obligations of the Company.
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POTENTIAL DILUTION OF RIGHTS
The general partner of the Operating Partnership is authorized to cause the
Operating Partnership to issue additional Units from time to time in exchange
for contributions of cash or property to the Operating Partnership. The issuance
of additional Units may result in the dilution of the interests of the Limited
Partners.
The Company's Board of Directors may issue, in its discretion, additional
shares of Common Stock and has the authority to issue from the authorized
Capital Stock a variety of other equity securities of the Company with such
powers, preferences and rights as the Board of Directors may designate at the
time of issuance. The issuance of additional shares of either Common Stock or
other similar equity securities may result in the dilution of the interests of
the stockholders. See "Summary of Partnership Agreement _ Preferred Units."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TAX TREATMENT OF REDEMPTION OF UNITS
THE EXERCISE BY A LIMITED PARTNER OF SUCH LIMITED PARTNER'S RIGHT TO
REQUIRE THE REDEMPTION OF ALL OR A PORTION OF SUCH LIMITED PARTNER'S UNITS
PURSUANT TO THE REDEMPTION RIGHTS AGREEMENT WILL BE TREATED AS A TAXABLE
TRANSACTION FOR FEDERAL INCOME TAX PURPOSES. It is possible that the amount of
gain recognized (or even the tax liability resulting from such gain) could
exceed the amount of cash or the value of other property (i.e., Redemption
Shares) received upon such exercise. In addition, the ability of a Limited
Partner to sell a substantial number of Redemption Shares in order to raise cash
to pay tax liabilities associated with redemption of Units may be adversely
affected by fluctuations in the market price for the Common Stock, and the price
the Limited Partner receives for such shares may not equal the value of such
Limited Partner's Units at the time of redemption.
If the Company assumes and performs the redemption obligation, the
Redemption Rights Agreement provides that the redemption will be treated by the
Company, the Operating Partnership and the redeeming Limited Partner as a sale
of Units by such Limited Partner to the Company at the time of such redemption.
In that event, such sale will be fully taxable to the redeeming Limited Partner
and such redeeming Limited Partner will be treated as realizing for tax purposes
an amount equal to the sum of the cash or the value of the Common Stock received
in the exchange plus the amount of Operating Partnership nonrecourse liabilities
allocable to the redeemed Units at the time of the redemption. The
determination of the amount of gain or loss is discussed more fully below.
Although the matter is not free from doubt, if the Company does not elect
to assume the obligation to redeem a Limited Partner's Units, the Operating
Partnership will be treated as redeeming such Units for cash. If the Operating
Partnership redeems Units for cash that the Company contributes to the Operating
Partnership to effect such redemption, the redemption likely would be treated
for tax purposes as a sale of such Units to the Company in a fully taxable
transaction. In that event, the redeeming Limited Partner would be treated as
realizing an amount equal to the sum of the cash received in the exchange plus
the amount of Operating Partnership nonrecourse liabilities allocable to the
redeemed Units at the time of the redemption. The determination of the amount
of gain or loss in the event of sale treatment is discussed more fully below.
If, instead, the Operating Partnership chooses to redeem a Limited
Partner's Units for cash that is not contributed by the Company to effect the
redemption, the tax consequences would be the same as described in the previous
paragraph, except that if the Operating Partnership redeems less than all of a
Limited Partner's Units, the Limited Partner would not be permitted to recognize
any loss occurring on the transaction and would recognize taxable gain only to
the extent that the cash, plus the share of Operating Partnership nonrecourse
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liabilities allocable to the redeemed Units, exceeded the Limited Partner's
adjusted basis in all of such Limited Partner's Units immediately before the
redemption.
TAX TREATMENT OF DISPOSITION OF UNITS BY LIMITED PARTNERS GENERALLY
If a Unit is redeemed in a manner that is treated as a sale of the Unit,
the determination of gain or loss from the sale will be based on the difference
between the amount considered realized for tax purposes and the tax basis in
such Unit. See "Basis of Units" below. Upon the sale of a Unit, the "amount
realized" will be measured by the sum of the cash and fair market value of other
property (i.e., Redemption Shares) received plus the portion of the Operating
Partnership's nonrecourse liabilities allocable to the Unit sold. To the extent
that the amount of cash or property received plus the allocable share of the
Operating Partnership's nonrecourse liabilities exceeds the Limited Partner's
basis for the Unit sold, such Limited Partner will recognize gain. It is
possible that the amount of gain recognized or even the tax liability resulting
from such gain could exceed the amount of cash and the value of any other
property (i.e., Redemption Shares) received upon such sale.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount
realized upon the sale of a Unit attributable to a Limited Partner's share of
"unrealized receivables" of the Operating Partnership (as defined in Section 751
of the Code) exceeds the basis attributable to those assets, such excess will be
treated as ordinary income. Unrealized receivables include, to the extent not
previously included in Operating Partnership income, any rights to payment for
services rendered or to be rendered. Unrealized receivables also include
amounts that would be subject to recapture as ordinary income if the Operating
Partnership had sold its assets at their fair market value at the time of the
transfer of a Unit.
BASIS OF UNITS
In general, a Limited Partner who was deemed at the time of the Southlake
Acquisition to have received its Units upon liquidation of a partnership had an
initial tax basis in its Units ("Initial Basis") equal to its basis in its
partnership interest at the time of such liquidation. Similarly, in general, a
Limited Partner who at the time of the Southlake Acquisition contributed a
partnership interest in exchange for its Units had an Initial Basis in the Units
equal to its basis in the contributed partnership interest. A Limited Partner's
Initial Basis in its Units generally is increased by (a) such Limited Partner's
share of Operating Partnership taxable income and (b) increases in its share of
liabilities of the Operating Partnership (including any increase in its share of
liabilities occurring in connection with the Southlake Acquisition). Generally,
such Limited Partner's basis in its Units is decreased (but not below zero) by
(i) its share of Operating Partnership distributions, (ii) decreases in its
share of liabilities of the Operating Partnership (including any decrease in its
share of liabilities occurring in connection with the Southlake Acquisition),
(iii) its share of losses of the Operating Partnership, and (iv) its share of
nondeductible expenditures of the Operating Partnership that are not chargeable
to capital.
POTENTIAL APPLICATION OF THE DISGUISED SALE REGULATIONS TO A REDEMPTION OF
UNITS
There is a possibility that a redemption of Units issued in the Southlake
Acquisition might cause the original transfer of property to the Operating
Partnership in exchange for Units to be treated as a "disguised sale" of
property. The Code and the Treasury Regulations thereunder (the "Disguised Sale
Regulations") generally provide that, unless one of the prescribed exceptions is
applicable, a partner's contribution of property to a partnership and a
simultaneous or subsequent transfer of money or other consideration (including
the assumption of or taking subject to a liability) from the partnership to the
partner will be presumed to be a sale, in whole or in part, of such property by
the partner to the partnership. The Disguised Sale Regulations also provide,
however, that if two years have passed between the transfer of money or other
consideration and the contribution of property, the transactions will not be
presumed to be a sale unless the facts and circumstances clearly establish that
the transfers constitute a sale. There can be no assurance that the Internal
Revenue Service ("IRS") might
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not seek to contend that the Disguised Sale Regulations apply here. The IRS
could contend that the Southlake Acquisition itself was taxable as a disguised
sale under the Disguised Sale Regulations. Any gain recognized thereby may be
eligible for installment sale reporting under Section 453 of the Code, subject
to certain limitations.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS TO HOLDERS OF CAPITAL STOCK
This section is a summary of certain Federal income tax matters of general
application pertaining to REITs and their stockholders under the Code. The
discussion is based on current law and does not purport to deal with all aspects
of Federal income taxation that may be relevant to investors subject to special
treatment under Federal income tax laws, such as investors subject to the
Employee Retirement Income Security Act of 1974, as amended, other tax exempt
investors, dealers in securities or foreign persons. The provisions of the Code
pertaining to REITs are highly technical and complex and sometimes involve mixed
questions of fact and law. In addition, this section does not discuss foreign,
state or local taxation. Limited Partners who are considering exercising their
redemption rights should consult, and must depend on, their own tax advisors
regarding the Federal, state, local, foreign and other tax consequences of
holding and disposing of the Redemption Shares.
In the opinion of Neal, Gerber & Eisenberg, tax counsel to the Company, the
Company has been organized and operated in a manner that has enabled it to
qualify as a REIT under Sections 856 through 859 of the Code, and its proposed
method of operation will enable it to continue to so qualify. No assurance can
be given, however, that the Company will so qualify or continue to so qualify.
The Company's ability to qualify as a REIT under the requirements of the Code
and the regulations promulgated thereunder is dependent upon actual operating
results.
To qualify as a REIT under the Code for a taxable year, the Company must
meet certain organizational and operational requirements, which generally
require it to be a passive investor in operating real estate and to avoid
excessive concentration of ownership of its stock. First, its principal
activities must be real estate related. Generally, at least 75% of the value of
the total assets of the Company at the end of each calendar quarter must consist
of real estate assets, cash or governmental securities. The Company may not own
more than 10% of the outstanding voting securities of any corporation; shares of
qualified REITs and of certain wholly owned subsidiaries are exempt from this
prohibition. For each taxable year, at least 75% of a REIT's gross income must
be derived from specified real estate sources and 95% must be derived from such
real estate sources plus certain other permitted sources. Real estate income
for purposes of these requirements includes gains from the sale of real property
not held primarily for sale to customers in the ordinary course of business,
dividends on REIT shares, interest on loans secured by mortgages on real
property, certain rents from real property and income from foreclosure property.
For rents to qualify, they may not be based on the income or profits of any
person, except that they may be based on a percentage or percentages of gross
income or receipts, and, subject to certain limited exceptions, the REIT may not
manage the property or furnish services to residents except through an
independent contractor which is paid an arms'-length fee and from which the REIT
derives no income.
For the Company to remain qualified as a REIT, no more than 50% in value of
the outstanding Capital Stock, including in some circumstances stock into which
outstanding securities might be converted, may be owned actually or
constructively by five or fewer individuals (as defined in the Code to include
certain entities) at any time during the last half of the Company's taxable
year. Accordingly, the Certificate of Incorporation of the Company, as amended,
contains provisions restricting the acquisition of shares of Capital Stock. See
"Description of Common Stock -- Restrictions on Transfer."
So long as the Company qualifies for taxation as a REIT and distributes at
least 95% of the sum of (a) its REIT taxable income (as computed without regard
to net capital gains or the dividends-paid deduction) and (b) its net income
(after tax) from foreclosure property for its taxable year to its stockholders
annually, the
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Company itself will not be subject to Federal income tax on that portion of such
income distributed to stockholders. The Company will be taxed at regular
corporate rates on all income not distributed to stockholders. The Company's
policy is to distribute at least 95% of the sum of its REIT taxable income and
net income from foreclosure property. REITs may also incur taxes for certain
other activities or to the extent distributions do not satisfy certain other
requirements.
In the case of a REIT which is a partner in a partnership, such as the
Company, Treasury Regulations provide that the REIT will be deemed to own its
proportionate share of the assets of the partnership and will be deemed to earn
the income of the partnership attributable to such share. In addition, for
purposes of satisfying the asset and income tests described above, the character
of the gross income and assets in the hands of the partnership remains the same
when allocated to the REIT. Accordingly, the Company's proportionate share of
the assets, liabilities and items of income of the Operating Partnership will be
treated as assets, liabilities, and items of income of the Company for purposes
of qualifying as a REIT.
Failure of the Company to qualify during any taxable year as a REIT could,
unless certain relief provisions were available, have a material adverse effect
upon investors. If disqualified for taxation as a REIT for a taxable year, the
Company would also be disqualified for taxation as a REIT for the next four
taxable years, unless the failure was due to reasonable cause rather than
willful neglect and certain other conditions are met. The Company would be
subject to Federal income tax at corporate rates on all of its taxable income
and would not be able to deduct the dividends paid, which could result in a
discontinuation of or substantial reduction in dividends to stockholders.
Dividends would also be subject to the regular tax rules applicable to dividends
received by stockholders of corporations. Should the failure to qualify be
determined to have occurred retroactively in an earlier tax year of the Company,
the imposition of a substantial Federal income tax liability on the Company
attributable to such nonqualifying tax years may adversely affect the Company's
ability to pay dividends. In the event that the Company fails to meet certain
income tests of the tax law, it may, generally, nonetheless retain its
qualification as a REIT if it pays a 100% tax on the amount by which it failed
to meet the income tests so long as its failure was due to reasonable cause and
not willful neglect. Any such taxes would adversely affect the Company's
ability to pay dividends.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of the Company's
stock who, for United States federal income tax purposes is (i) a citizen or
resident of the United States, (ii) a corporation created or organized in or
under the laws of the United States or of any political subdivision thereof,
(iii) an estate the income of which is subject to United States federal income
taxation regardless of its source, or (iv) a trust if a court within the United
States is able to exercise primary supervision over the administration of such
trust and one or more United States persons as defined in section 7701(a)(30) of
the Code have the authority to control all the substantial decisions of such
trust.
As long as the Company qualifies as a REIT, distributions made to its U.S.
Stockholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taxable to such stockholders as
ordinary income. Corporate U.S. Stockholders will not be entitled to the
dividends-received deduction with respect to distributions by the Company.
Distributions that are designated as capital gain dividends will be taxable to
stockholders as mid-term or 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 stockholder has held its stock. Subject to
certain limitations, such capital gains dividends received by an individual U.S.
Stockholder may be eligible for the 20%, 25% or 28% capital gains rates of tax.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Distributions by the Company in
excess of its current and accumulated earnings and profits will not be taxable
to a stockholder to the extent that such distributions do not exceed the
adjusted basis of the stockholder's shares,
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but rather, will be a nontaxable reduction in a stockholder's adjusted basis in
such shares to the extent thereof and thereafter will be taxed as capital gain.
Any dividend declared by the Company in October, November or December of
any year payable to a stockholder of record on a specified date in any such
month will be treated as both paid by the Company and received by the
stockholder on December 31, of such year, provided that the dividend is actually
paid by the Company during January of the following calendar year.
U.S. Stockholders holding Capital Stock at the close of the Company's
taxable year will be required to include, in computing their long-term capital
gains for the taxable year in which the last day of the Company's taxable year
falls, such amount as the Company may designate in a written notice mailed to
its shareholders. The Company may not designate amounts in excess of the
Company's undistributed net capital gain for the taxable year. Each U.S.
Stockholder required to include such a designated amount in determining such
shareholder's long-term capital gains will be deemed to have paid, in the
taxable year of the inclusion, the tax paid by the Company in respect of such
undistributed net capital gains. U.S. Stockholders subject to these rules will
be allowed a credit or a refund, as the case may be, for the tax deemed to have
been paid by such shareholders. U.S. Stockholders will increase their basis in
their Capital Stock by the difference between the amount of such includible
gains and the tax deemed paid by the shareholder in respect of such gains.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would
be carried over by the Company for potential offset against its future income
(subject to certain limitations). Taxable distributions from the Company and
gain from the disposition of the Capital Stock will not be treated as passive
activity income and, therefore, stockholders generally will not be able to apply
any "passive activity losses" (such as losses from certain types of limited
partnerships in which the stockholder is a limited partner) against such income.
In addition, taxable distributions from the Company and gain from the
disposition of Capital Stock generally will be treated as investment income for
purposes of the investment interest limitations. The Company will notify the
stockholders after the close of the Company's taxable year as to the portions of
the distributions attributable to that year that constitute ordinary income,
return of capital, and capital gain. In general, any gain or loss realized upon
a taxable disposition of the Capital Stock by a stockholder who is not a dealer
in securities will be treated as mid-term capital gain or loss if the Capital
Stock has been held for more than one year but not more than 18 months, as
long-term capital gain if held for more than 18 months and otherwise as
short-term capital gain or loss. Long-term capital gain of an individual U.S.
Stockholder with respect to the sale of stock is generally subject to a maximum
tax rate of 20% in respect of property held in excess of 18 months and a maximum
tax rate of 28% in respect of property held for more than one year but not more
than 18 months. However, any loss upon a sale or exchange of Capital Stock by a
stockholder who has held such stock for six months or less (after applying
certain holding period rules) will be treated as a mid-term or long-term capital
loss to the extent of distributions from the Company required to be treated by
such stockholder as mid-term or long-term capital gain, as the case may be. All
or a portion of any loss realized upon a taxable disposition of the Capital
Stock may be disallowed if other shares of the Capital Stock are purchased
within 30 days before or after the disposition.
BACKUP WITHHOLDING
The Company will report to its U.S. Stockholders and to the IRS the amount
of dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a U.S. Stockholder may be subject to
backup withholding at the rate of 31% with respect to dividends paid unless such
holder: (a) is a corporation or comes within certain other exempt categories
and when required demonstrates this fact, or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A U.S. Stockholder that does not provide the Company with a
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against
the
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stockholder's income tax liability. In addition, the Company may be required to
withhold a portion of capital gain distributions to any U.S. Stockholders that
fail to certify their non-foreign status to the Company. See "--Taxation of
Foreign Stockholders."
TAXATION OF PENSION TRUSTS
One of the requirements for the Company to qualify as a REIT for Federal
income tax purposes is that, during the last half of each taxable year, not more
than 50% in value of the Company's Capital Stock can be owned by five or fewer
individuals (as defined in the Code to include certain entities). For purposes
of the "five or fewer" test described above, beneficiaries of a domestic pension
trust that owns shares in the Company generally will be treated as owning such
shares in proportion to their actuarial interests in the trust. In addition,
amounts distributed by the Company to a tax-exempt pension trust generally do
not constitute "unrelated business taxable income" ("UBTI") to such trust unless
the trust owns more than ten percent of the Capital Stock, in which case a
portion of such amounts distributed may be treated as UBTI.
TAXATION OF NON-U.S. SHAREHOLDERS OF THE COMPANY
The rules governing United States federal income taxation of the ownership
and disposition of Capital Stock by persons that are, for purposes of such
taxation, nonresident alien individuals, foreign corporations, foreign
partnerships or foreign estates or trusts (collectively, "Non-U.S.
Stockholders") are complex, and no attempt is made herein to provide more than a
brief summary of such rules. Accordingly, the discussion does not address all
aspects of United States federal income tax and does not address state, local or
foreign tax consequences that may be relevant to a Non-U.S. Stockholder in light
of its particular circumstances. In addition, this discussion is based on
current law, which is subject to change, and assumes that the Company qualifies
for taxation as a REIT. Prospective Non-U.S. Stockholders should consult with
their own tax advisers to determine the impact of federal, state, local and
foreign income tax laws with regard to an investment in Capital Stock, including
any reporting requirements.
Distributions by the Company. Distributions by the Company to a Non-U.S.
Stockholder that are neither attributable to gain from sales or exchanges by the
Company of United States real property interests nor designated by the Company
as capital gains dividends will be treated as dividends of ordinary income to
the extent that they are made out of current or accumulated earnings and profits
of the Company. Such distributions ordinarily will be subject to withholding of
United States federal income tax on a gross basis (that is, without allowance of
deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the Non-U.S. Stockholder of a United States trade
or business. Dividends that are effectively connected with such a trade or
business will be subject to tax on a net basis (that is, after allowance of
deductions) at graduated rates, in the same manner as domestic shareholders are
taxed with respect to such dividends, and are generally not subject to
withholding. Any such dividends received by a Non-U.S. Stockholder that is a
corporation may also be subject to an additional branch profits tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.
The Company expects to withhold United States income tax at the rate of 30% on
the gross amount of any such distributions made to a Non-U.S. Stockholder unless
(i) a lower treaty rate applies and any required form or certification
evidencing eligibility for that reduced rate is filed with the Company or (ii)
the Non-U.S. Stockholder files an IRS Form 4224 with the Company claiming that
the distribution is effectively connected income.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Stockholder to the extent that
they do not exceed the adjusted basis of the shareholder's Capital Stock, but
rather will reduce the adjusted basis of such Capital Stock. To the extent that
such distributions exceed the adjusted basis of a Non-U.S. Stockholder's Capital
Stock, they will give rise to gain from the sale or exchange of its Capital
Stock, the tax treatment of which is described below. As a result of a
legislative change made by
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the Small Business Job Protection Act of 1996, it appears that the Company will
be required to withhold 10% of any distribution in excess of the Company's
current and accumulated earnings and profits. Consequently, although the Company
intends to withhold at a rate of 30% on the entire amount of any distribution
(or a lower applicable treaty rate), to the extent that the Company does not do
so, any portion of a distribution not subject to withholding at a rate of 30%
(or a lower applicable treaty rate) will be subject to withholding at a rate of
10%. However, the Non-U.S. Stockholder may seek a refund of such amounts from
the IRS if it subsequently determined that such distribution was, in fact, in
excess of current or accumulated earnings and profits of the Company, and the
amount withheld exceeded the Non-U.S. Stockholder's United States tax liability,
if any, with respect to the distribution.
Distributions to a Non-U.S. Stockholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those arising
from the disposition of a United States real property interest) generally will
not be subject to United States federal income taxation, unless (i) the
investment in the Capital Stock is effectively connected with the Non-U.S.
Stockholder's United States trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as U.S. Stockholders with
respect to such gain (except that a shareholder that is a foreign corporation
may also be subject to the 30% branch profits tax, as discussed above), or (ii)
the Non-U.S. Stockholder is a nonresident alien individual who is present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the United States, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gains.
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"),
distributions to a Non-U.S. Stockholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests
(whether or not designated as a capital gain dividend) will cause the Non-U.S.
Stockholder to be treated as recognizing such gain as income effectively
connected with a United States trade or business. Non-U.S. Stockholders would
thus generally be taxed at the same rates applicable to U.S. Stockholders
(subject to a special alternative minimum tax in the case of nonresident alien
individuals). Also, such gain may be subject to a 30% branch profits tax in
the hands of a Non-U.S. Stockholder that is a corporation, as discussed above.
The Company is required to withhold 35% of any such distribution. That amount
is creditable against the Non-U.S. Stockholder's United States federal income
tax liability.
Although the law is not entirely clear on the matter, it appears that
amounts designated by the Company as undistributed capital gains in respect of
shareholders' shares would be treated with respect to Non-U.S. Stockholders in
the manner outlined in the preceding two paragraphs for actual distributions by
the Company of capital gain dividends. Under that approach, the Non-U.S.
Stockholders would be able to offset as a credit against their United States
federal income tax liability resulting therefrom their proportionate share of
the tax paid by the Company on such undistributed capital gains (and to receive
from the IRS a refund to the extent their proportionate share of such tax paid
by the Company were to exceed their actual United States federal income tax
liability).
Sale of Capital Stock. Gain recognized by a Non-U.S. Stockholder upon the
sale or exchange of Capital Stock generally will not be subject to United States
taxation unless such shares constitute a "United States real property interest"
within the meaning of FIRPTA. The Capital Stock will not constitute a "United
States real property interest" so long as the Company is a "domestically
controlled REIT." A "domestically controlled REIT" is a REIT in which at all
times during the specified testing period less than 50% in value of its stock is
held directly or indirectly by Non-U.S. Stockholders. Notwithstanding the
foregoing, gain from the sale or exchange of Capital Stock not otherwise subject
to FIRPTA will be taxable to a Non-U.S. Stockholder if the Non-U.S. Stockholder
is a nonresident alien individual who is present in the United States for 183
days or more during the taxable year and has a "tax home" in the United States.
In such case, the nonresident alien individual will be subject to a 30% United
States withholding tax on the amount of such individual's gain.
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The Company believes that it will continue to be a "domestically controlled
REIT," and therefore that the sale of Capital Stock will not be subject to
taxation under FIRPTA. However, because the Capital Stock is publicly traded,
no assurance can be given that the Company will continue to be a "domestically
controlled REIT." If the Company fails to qualify as a "domestically controlled
REIT," gain arising from the sale or exchange by a Non-U.S. Stockholder of
Capital Stock still would not be subject to United States taxation under FIRPTA
as a sale of a "United States real property interest," if (i) the Capital Stock
(as applicable) is "regularly traded" (as defined by applicable Treasury
Regulations) on an established securities market (e.g., the New York Stock
Exchange) and (ii) the selling Non-U.S. Stockholder held 5% or less of the value
of the outstanding class or series of shares being sold at all times during a
specified testing period. If gain on the sale or exchange of Capital Stock were
subject to taxation under FIRPTA, the Non-U.S. Stockholder would be subject to
regular United States income tax with respect to such gain in the same manner as
a U.S. Stockholder (subject to any applicable alternative minimum tax and a
special alterative minimum tax in the case of nonresident alien individuals),
and the purchaser of the Capital Stock would be required to withhold and remit
to the IRS 10% of the purchase price.
Backup Withholding Tax and Information Reporting. Backup withholding tax
and information reporting will generally not apply to distributions paid to
Non-U.S. Stockholders outside the United States that are treated as (i)
dividends subject to the 30% (or lower treaty rate) withholding tax discussed
above, (ii) capital gains dividends or (iii) distributions attributable to gain
from the sale or exchange by the Company of United States real property
interests. As a general matter, backup withholding and information reporting
will not apply to a payment of the proceeds of a sale of Capital Stock by or
through a foreign office of a foreign broker. Information reporting (but not
backup withholding) will apply, however, to a payment of the proceeds of sale of
Capital Stock by a foreign office of a broker that (a) is a United States
person, (b) derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States or (c) is a "controlled
foreign corporation" (generally, a foreign corporation controlled by United
States shareholders) for United States tax purposes, unless the broker has
documentary evidence in its records that the holder is a Non-U.S. Stockholder
and certain other conditions are met, or the shareholder otherwise establishes
an exemption. Payment to or through a United States office of a broker of the
proceeds of a sale of Capital Stock is subject to both backup withholding and
information reporting unless the shareholder certifies under penalty of perjury
that the shareholder is a Non-U.S. Stockholder, or otherwise establishes an
exemption. A Non-U.S. Stockholder may obtain a refund of any amounts withheld
under the backup withholding rules by filing the appropriate claim for refund
with the IRS.
The United States Treasury Department has recently finalized regulations
regarding the withholding and information reporting rules discussed above. In
general, these regulations do not alter the substantive withholding and
information reporting requirements but unify certification procedures and forms
and clarify and modify reliance standards. These regulations generally are
effective for payments made after December 31, 1999, subject to certain
transition rules. A Non-U.S. Stockholder should consult its own advisor
regarding the effect of the new Treasury Regulations.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Redemption Shares to holders of Units tendered for redemption; however, the
Company will acquire Units from such holders and thereby increase its interest
in the Operating Partnership.
26
<PAGE> 27
PLAN OF DISTRIBUTION
This Prospectus relates to the issuance by the Company of up to 353,537
Redemption Shares if and to the extent that holders of Units acquired pursuant
to the Southlake Acquisition tender such Units for redemption in accordance with
the terms of the Redemption Rights Agreement and the Company, in its sole and
absolute discretion, elects to issue Redemption Shares in consideration for such
Units. The Company has registered the Redemption Shares for sale to provide the
holders thereof with freely tradeable securities, but registration of such
shares does not necessarily mean that any of such shares will be issued by the
Company upon redemption of Units or offered or sold by the holders thereof.
The Company will not receive any cash proceeds from the issuance of the
Redemption Shares to holders of Units tendered for redemption; however, it will
acquire one Unit (subject to certain anti-dilution adjustments) in exchange for
each Redemption Share that the Company issues to holders of Units pursuant to
this Prospectus and will thereby increase its share in the Operating
Partnership. Consequently, with each redemption by the Company, the Company's
interest in the Operating Partnership will increase.
The Redemption Shares will be listed on the NYSE, subject to official
notice of issuance.
LEGAL MATTERS
The validity of the Redemption Shares offered hereby will be passed upon
for the Company by Neal, Gerber & Eisenberg.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 and the consolidated financial statement schedule as of December 31, 1997
have been incorporated by reference herein from the Company's Annual Report on
Form 10-K for the year ended December 31, 1997, and the Statement of Revenues
and Certain Expenses of Northbrook Court for the year ended December 31, 1997
has been incorporated by reference herein from the Company's Current Report on
Form 8-K/A dated June 2, 1998, all in reliance upon the reports of Coopers &
Lybrand L.L.P., independent certified public accountants, and upon the authority
of said firm as experts in accounting and auditing. The combined statement of
revenues and certain expenses of certain retail properties of MEPC American
Holdings Inc., U.K.-American Properties, Inc. and Caledonian Holding Company,
Inc. (wholly owned subsidiaries of MEPC plc) for the year ended September 30,
1997 has been incorporated by reference herein from the Company's Current Report
on Form 8-K/A dated June 2, 1998 in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, and upon the authority of
said firm as experts in accounting and auditing. The combined statement of
revenues and certain expenses of the Landmark Mall, Mayfair Complex, The
Meadows, Northgate Mall, Oglethorpe Mall and Park City Center for the year ended
December 31, 1997 has been incorporated by reference herein from the Company's
Current Report on Form 8-K/A dated June 2, 1998 in reliance upon the report of
Deloitte & Touche, LLP, independent certified public accountants, and upon the
authority of said firm as experts in accounting and auditing.
27
<PAGE> 28
=============================================== =============================
NO DEALER, SALESPERSON OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED OR INCORPORATED 353,537 Shares
BY REFERENCE IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
BROKER, DEALER OR AGENT. THIS PROSPECTUS GENERAL GROWTH
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION PROPERTIES, INC.
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY COMMON STOCK
OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
________________________
TABLE OF CONTENTS
---------------
PAGE PROSPECTUS
---- ---------------
Available Information.......................... 2
Incorporation of Certain Documents by
Reference.................................. 2
Forward Looking Statements..................... 3
The Company.................................... 3
Recent Developments............................ 4
Capital Stock.................................. 6
Summary of Partnership Agreement............... 11
Redemption of Units............................ 13
Comparison of Ownership of Units
and Shares of Common Stock................. 15
Certain Federal Income Tax Considerations...... 19 July 24, 1998
Use of Proceeds................................ 26
Plan of Distribution........................... 27
Legal Matters.................................. 27
Experts........................................ 27
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