<PAGE>
Information contained in this prospectus supplement is subject to completion
pursuant to Rule 424 under the Securities Act of 1933. A registration statement
relating to these securities has been declared effective by the Securities and
Exchange Commission pursuant to Rule 415 under the Securities Act of 1933. A
final prospectus supplement and prospectus will be delivered to the purchasers
of these securities. This prospectus supplement and the accompanying prospectus
shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
<PAGE>
Subject to Completion dated May 8, 1996
Prospectus Supplement
(To Prospectus dated January 24, 1996)
[LOGO]
TriNet Corporate Realty Trust, Inc.
$100,000,000
% NOTES DUE
INTEREST PAYABLE AND
Issue price: %
Interest on the % Notes due (the "Notes") of TriNet Corporate Realty
Trust, Inc. ("TriNet" or the "Company") offered hereby is payable semi-annually
on and , commencing , 1996. See "Description of
Notes-Principal and Interest." The Notes will mature on . The
Notes may be redeemed at any time after at the option of the Company, in
whole or in part, at a redemption price equal to the sum of (i) the principal
amount of the Notes being redeemed plus accrued interest thereon to the
redemption date and (ii) the Make-Whole Amount (as hereinafter defined), if any.
See "Description of Notes-Optional Redemption."
The Notes will be represented by one or more Global Securities (as hereinafter
defined) registered in the name of The Depository Trust Company ("DTC") or its
nominee. Interests in the Global Securities will be shown on, and transfers
thereof will be effected only through, records maintained by DTC and its
participants. Except as provided herein, Notes in definitive form will not be
issued. See "Description of Notes."
See "Risk Factors" commencing on page S-11 for a discussion of certain factors
relevant to an investment in the Notes.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting
Price to discounts and Proceeds to
public (1) commissions (2) Company (1)(3)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Per Note % % %
- -------------------------------------------------------------------------------------------------------------
Total $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from , 1996.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $650,000.
The Notes are offered, subject to prior sale, when, as and if accepted by the
Underwriters and subject to approval of certain legal matters by Skadden, Arps,
Slate, Meagher & Flom, counsel for the Underwriters. It is expected that
delivery of the Notes will be made on or about , 1996 through the
facilities of DTC, against payment therefor in immediately available funds.
J.P. Morgan & Co.
Goldman, Sachs & Co.
Merrill Lynch & Co.
, 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus Supplement or the accompanying Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus Supplement and the
accompanying Prospectus do not constitute an offer to sell or the solicitation
of an offer to buy any securities other than the securities to which they relate
or any offer to sell or the solicitation of any offer to buy such securities in
any jurisdiction in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus Supplement nor the accompanying Prospectus nor any
sale made hereunder or thereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained or incorporated by reference
herein or therein is correct as of any time subsequent to the date of such
information.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Summary.................................................................................................... S-3
Risk Factors............................................................................................... S-11
The Company................................................................................................ S-15
Use of Proceeds............................................................................................ S-15
Ratios of Earnings to Fixed Charges........................................................................ S-15
Capitalization............................................................................................. S-16
Business................................................................................................... S-17
Properties................................................................................................. S-20
Selected Financial Data.................................................................................... S-24
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... S-25
The 1995 Acquisition Facility and Mortgage Loans........................................................... S-28
Management................................................................................................. S-30
Description of Notes....................................................................................... S-33
Underwriting............................................................................................... S-40
Legal Matters.............................................................................................. S-40
PROSPECTUS
Available Information...................................................................................... 2
Incorporation of Certain Documents by Reference............................................................ 2
The Company................................................................................................ 3
Use of Proceeds............................................................................................ 3
Ratios of Earnings to Fixed Charges........................................................................ 3
Description of Debt Securities............................................................................. 3
Description of Preferred Stock............................................................................. 18
Description of Common Stock................................................................................ 23
Restrictions on Transfers of Capital Stock................................................................. 24
Federal Income Tax Considerations.......................................................................... 25
Plan of Distribution....................................................................................... 25
Legal Matters.............................................................................................. 26
Experts.................................................................................................... 26
</TABLE>
S-2
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS OR INCORPORATED HEREIN AND THEREIN BY REFERENCE. UNLESS
THE CONTEXT REQUIRES OTHERWISE, ALL REFERENCES IN THIS PROSPECTUS SUPPLEMENT TO
"TRINET" OR THE "COMPANY" REFER TO TRINET CORPORATE REALTY TRUST, INC. AND ITS
SUBSIDIARIES ON A CONSOLIDATED BASIS. UNLESS OTHERWISE INDICATED, INFORMATION
CONTAINED HEREIN IS GIVEN AS OF MARCH 31, 1996.
THE COMPANY
TriNet is a real estate investment trust ("REIT") which acquires, owns and
manages predominantly office and industrial properties net leased to
corporations nationwide, including strategically important distribution
facilities and corporate headquarters. TriNet's triple net leases typically
provide that its tenants pay for most or all property operating expenses while
contractual rental income escalates. TriNet is a self-administered and
self-managed REIT.
As of March 31, 1996, TriNet's portfolio consisted of 100 properties (the
"Properties") located in 25 states, all of which were 100% leased pursuant to
leases with an average remaining term (excluding extension options) of
approximately 10.5 years when lease terms are weighted according to contractual
rent revenues. Of the Company's 100 Properties, 61 were acquired concurrently
with the consummation of the Company's initial public offering in June 1993 (the
"Initial Offering"). At March 31, 1996, the Company had 39 tenants, and no
single tenant accounted for more than 10% of the Company's annualized rental
income.
Since the Initial Offering, TriNet has:
- completed the acquisition of 39 additional Properties for an aggregate
purchase price of approximately $434 million;
- more than tripled its aggregate annualized rental income from
approximately $18.5 million to approximately $68 million;
- raised in excess of $215 million of additional equity and obtained a $200
million unsecured revolving credit facility (the "1995 Acquisition
Facility") and approximately $168 million of mortgage loans; and
- diversified and improved the credit quality of its tenant base by adding
29 new tenants through the acquisition of additional Properties.
There can be no assurance that the foregoing trends will continue. See
"Business-Recent Developments" and "Risk Factors."
The Company grows its portfolio of net leased properties by either
purchasing and leasing properties back to the sellers under net leases
structured by the Company or acquiring properties subject to existing net
leases. In a typical purchase/leaseback transaction, TriNet purchases the land
and building from an operating company and simultaneously leases them back to
the operating company under a long-term operating lease. These transactions are
structured to provide TriNet with a consistent stream of income which typically
increases periodically pursuant to the lease. In addition, TriNet may realize a
capital gain if the property appreciates in value. A purchase/leaseback
transaction enables an operating company (the seller/tenant) to realize the
value of its owned real estate while continuing occupancy on a long-term basis.
A purchase/ leaseback transaction also may provide the seller with specific
accounting, earnings and market value benefits. For example, the lease on the
property may be structured by the operating company as an off-balance sheet
operating lease, consistent with the rules of the Financial Accounting Standards
Board, which may increase the seller's earnings, net worth and borrowing
capacity.
TriNet generally seeks to include provisions in its leases which place on
its tenants, to the greatest extent possible, the economic costs of ownership of
its properties (such as real property taxes and assessments, insurance,
operating expenses, responsibility for structural repairs and maintenance and
the duty to restore, or relinquish to TriNet any insurance proceeds or
condemnation awards, in case of casualty or condemnation), although under some
of its leases, TriNet has agreed to retain responsibility for some of these
obligations. As used herein, the terms "triple net lease" and "net lease" refer
to leases in which the tenant is responsible for all or most of such
obligations.
S-3
<PAGE>
BUSINESS OBJECTIVE AND STRATEGIES
The Company seeks to increase its income primarily by acquiring additional
net leased properties, structuring additional purchase/leaseback transactions
and negotiating leases containing contractual rent increases. Its primary
investment focus is on the acquisition, in either single property or multiple
property transactions, of single-tenant, strategically important office and
industrial properties subject to net leases.
In structuring purchase/leaseback transactions, TriNet seeks types of
transactions and seller circumstances that will allow it to obtain favorable
terms. For example, the Company focuses its purchase/leaseback activities on
businesses that are trying to achieve corporate financial and strategic goals
and objectives, including repayment of high-cost debt and obtaining infusions of
working capital for growth, rather than on businesses that are simply solving
specific real estate financing problems. In addition, the Company concentrates
on businesses that possess strong or improving credit quality characteristics,
successful operating histories, potential for growth, recognized business
franchises and market presence. The Company also believes that significantly
less competition exists for purchase/leaseback transactions and net leased
property acquisitions involving portfolios containing a number of properties
located in more than one geographic region and that its national presence,
acquisition experience and access to capital allow it to compete effectively for
such transactions.
The Company seeks to include in its leases provisions such as periodic rent
increases, operating and financial covenants, indemnities against environmental
and other claims, guaranties from additional entities, security such as letters
of credit and cross default provisions in multiple property transactions. Its
tenants generally are responsible for most operating and capital expenses
relating to the properties they occupy, including real estate taxes, utilities,
insurance, maintenance and capital improvements. As a result, the Company's
operating costs are lower than would be the case if it invested in properties
that were not net leased.
When underwriting a potential transaction, the Company undertakes analyses
in each of the following areas: (1) real estate factors such as the current
value of the property, present and anticipated local market conditions and the
prospects for selling or re-tenanting the property on favorable terms in the
event of a vacancy, (2) the creditworthiness of the tenant and the need to
obtain additional protections such as letters of credit and guarantees from
other entities and (3) strategic factors such as the position of the prospective
tenant in its industry, the strength of the prospective tenant's business
franchise and the importance of the property to the prospective tenant's
business.
Consistent with its investment policies, the Company employs leverage, when
available on favorable terms, in connection with funding purchase/leaseback
transactions and acquiring net leased properties to enable it to acquire more
properties than it otherwise could. At March 31, 1996, the Company's ratio of
debt to total capitalization (I.E., total consolidated debt of the Company as a
percentage of the market value of all outstanding shares of capital stock of the
Company plus total consolidated debt) was 43.3%.
The Company employs experienced individuals with backgrounds in credit and
real estate analysis, finance and asset management, who use established
procedures and systems to identify, acquire and manage commercial net leased
real estate assets. TriNet's senior management team has developed an extensive
network of contacts with bankers, brokers and senior corporate managers which it
uses to identify new investment opportunities.
See "Business-Business Objective and Strategies."
RECENT DEVELOPMENTS
During the first three months of 1996, the Company acquired three Properties
(the "1996 Acquired Properties") for an aggregate purchase price of
approximately $61.2 million. The 1996 Acquired Properties consist of: (1) a
402,192 square foot warehouse/distribution facility leased to Lever Brothers
Company in St. Louis, Missouri, (2) the 241,927 square foot headquarters of
Federal Express Corporation in Memphis, Tennessee and (3) a combined 56,000
square foot headquarters facility and 454,654 square foot warehouse/
distribution facility leased to MJD Investments, Inc. (d/b/a "MJDesigns") in the
Dallas/Fort Worth, Texas area. Subsequent to March 31, 1996, the Company
acquired two headquarters properties in Walnut Creek, California containing an
aggregate of 145,000 square feet leased to Teradyne, Inc. and Fresenius USA,
Inc. for an aggregate purchase price of approximately $11.5 million. In
addition, on April 24, 1996, the Company sold its property in Denham Springs,
Louisiana to Schwegmann Giant Super Markets ("Schwegmann"), the former tenant,
for approximately $1.3 million, which resulted in an immaterial gain. On March
21, 1996, the Property leased to MacFrugal's Bargains-Closeouts, Inc.
("MacFrugal's") was destroyed by fire. The lease for this Property requires
MacFrugal's to continue paying rent and to rebuild the structure to original
specifications. MacFrugal's maintains insurance to cover the replacement cost of
the building and the ongoing rent payments.
S-4
<PAGE>
THE PROPERTIES
As of March 31, 1996, the Company's portfolio consisted of 100 Properties,
all of which were 100% leased pursuant to leases with an average remaining term
(excluding extension options) of approximately 10.5 years when lease terms are
weighted according to contractual rent revenues. The Properties include office,
industrial (E.G., warehouse and distribution) and retail facilities, which are
located in 25 states and are leased to tenants in a variety of industries. Set
forth below are summary descriptions of the Properties.
<TABLE>
<CAPTION>
GROSS ANNUAL PERCENT PRIMARY
LEASABLE RENT AT OF TOTAL LEASE
NO. OF LOCATION AREA IN MARCH 31, ANNUAL TERM
TENANT OR GUARANTOR FACILITY TYPE PROPERTIES (STATE) SQ. FT. 1996(1) RENT EXPIRATION
- ----------------------- ---------------------- ---------- -------------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
AT&T Resource
Management (2)........ Office 2 FL, NJ 466,002 $6,754,069 9.9% 2000
Unisys................. Office 3 IL, PA 755,157 6,171,000 9.1% (3)
Schwegmann (4)......... Retail 5 LA 413,933 4,276,350 6.3% 2015
Caterair............... Ware./Dist. 12 7 states 493,617 4,124,375 6.1% 2018
Federal Express (5).... Office 1 TN 241,927 3,991,796 5.9% 2008
Rex Stores............. Retail/Ware./Dist./Office 35 11 states 753,911 3,493,243 5.1% 2004
Volkswagen of America.. Ware./Dist. 3 CA, FL, IL 628,716 2,864,000 4.2% 2008
GATX Logistics......... Ware./Dist. 6 NY 1,135,500 2,824,610 4.2% 2001
MacFrugal's (6)........ Ware./Dist. 1 LA 1,216,676 2,428,382 3.6% 2009
Nike................... Ware./Dist. 1 TN 812,697 2,247,405 3.3% 2004
MJDesigns.............. Ware./Dist./Office 1 TX 510,654 2,173,000 3.2% 2011
Ralphs Grocery Co...... Ware./Dist. 1 CA 272,236 2,068,290 3.0% 2010
SPX.................... Office 2 MI 214,454 1,937,500 2.9% 2004
Lever Brothers......... Ware./Dist. 1 MO 402,192 1,579,603 2.3% 2000
Unison................. Office 1 FL 135,000 1,554,243 2.3% 2003
Primerica Life
Insurance............. Office 1 GA 190,000 1,425,000 2.1% 2003
Certified Grocers...... Office 1 CA 108,000 1,293,750 1.9% 2014
First Health........... Office 1 UT 173,107 1,245,046 1.8% 2009
PNC Mortgage........... Office 1 IL 102,208 1,228,540 1.8% 2002
Cirrus Logic........... Office 2 CA 121,582 1,207,104 1.8% 2008
Sears Logistics (7).... Ware./Dist. 1 OH 398,471 1,173,596 1.7% 2000
Microsoft (8).......... Office 1 TX 87,635 1,051,620 1.5% 2001
Linvatec............... Ware./Office 1 FL 124,950 1,045,798 1.5% 2005
TRW.................... Office 1 CA 124,400 1,030,524 1.5% 2004
Loral.................. Office 1 CA 174,600 987,694 1.5% 1999
Tech Data.............. Ware./Dist. 1 IN 225,000 783,750 1.2% 2002
Universal Technical
Institute............. Office 1 AZ 106,763 729,157 1.1% 2001
Deluxe................. Office 1 MN 73,150 694,560 1.0% 1999
Dunham's Athleisure.... Ware./Dist. 1 IN 249,920 647,500 1.0% 2004
Nissan Motor Acceptance
Corp.................. Office 1 TX 174,421 618,472 0.9% 2003
Kelley-Clarke.......... Office 1 CA 44,000 534,864 0.8% 2005
Compaq................. Ware./Dist. 1 TX 251,850 513,774 0.8% 1999
Northern States
Power................. Office 1 MN 41,574 509,281 0.7% 2004
Arrow Electronics...... Office 1 CO 119,200 500,482 0.7% 2000
BancBoston Mortgage.... Office 1 FL 49,344 479,047 0.7% 1999
Artline................ Ware./Dist. 1 IL 172,846 475,326 0.7% 2004
Fluid Systems.......... Office/R&D 1 CA 90,500 470,000 0.7% 2005
Uarco.................. Ware./Office 1 IL 140,000 467,600 0.7% 2002
PepsiCo (9)............ Ware./Dist. 1 KS 105,600 353,040 0.5% 2010
---------- --------- ---------- -----------
Total.............. 100 11,901,793 $67,953,391 100.0%
---------- --------- ---------- -----------
---------- --------- ---------- -----------
</TABLE>
- ------------------------------
(1) Contractual rent payments on a cash basis not taking into account a
straight-line method of accounting. Annual rent is calculated by multiplying
monthly rent in effect at March 31, 1996 by 12.
(2) AT&T Resource Management Corporation is the tenant under one lease and the
guarantor under the other lease, for which the tenant is one of its
affiliates, AT&T Credit Holdings, Inc. The annual rent at March 31, 1996 for
one of the Properties includes
S-5
<PAGE>
$481,212 during the initial term of the lease for tenant improvements made
by the previous landlord. The annual rent at March 31, 1996 for the other
Property has been calculated before deducting an annual management incentive
fee payable to a third-party property manager, which the Company estimates
is currently $750,000.
(3) The Unisys tenancy consists of three separate Properties with primary lease
terms that expire in 1997, 2002 and 2004, and with current annual rents of
$525,000, $2,496,000 and $3,150,000, respectively.
(4) In the event that Schwegmann determines to permanently vacate any of these
Properties, it must offer to repurchase such Property at the greater of
TriNet's original purchase price or fair market value (subject to the lease,
including extension options), and if TriNet elects not to sell the Property
to Schwegmann, the lease for such Property will terminate. In addition,
Schwegmann has an option to purchase all of these Properties during a
two-year period commencing in July 2003 at TriNet's original purchase price
plus a fixed return and also has an option to purchase all of these
Properties at the end of the initial lease term at a purchase price equal to
the greater of TriNet's original purchase price plus a fixed return or fair
market value (subject to the lease, including extension options). On April
24, 1996, Schwegmann repurchased one of these Properties, with an annual
rent at March 31, 1996 of $138,554, for approximately $1.3 million.
(5) The Company has a maximum annual obligation under the lease for operating
expenses of $1,451,562.
(6) The Company has a leasehold interest in this Property. The fee interest in
this Property is subject to certain liens associated with industrial revenue
bonds issued in connection with the development of the Property. On March
21, 1996, the building was destroyed by fire. The lease for this Property
requires the tenant to continue paying rent in the specified amount, which
the tenant has continued to do. See "Business--Recent Developments."
(7) The Company has a maximum annual obligation under the lease for taxes and
insurance of $134,518.
(8) The Company has a maximum annual obligation under the lease for operating
expenses of $526,634.
(9) The Company holds fee title to the land and a leasehold interest in the
building for this Property.
S-6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED.......................... $100,000,000 aggregate principal amount of the
% Notes due .
MATURITY....................................
INTEREST PAYMENT DATES...................... Semi-annually on and ,
commencing , 1996.
RANKING..................................... The Notes will be senior unsecured obligations
of the Company and will rank equally with the
Company's other unsecured and unsubordinated
indebtedness. The Notes will be effectively
subordinated to mortgages and other secured
indebtedness of the Company and to
indebtedness and other liabilities of the
Company's subsidiaries. See "Risk
Factors-Other Indebtedness."
USE OF PROCEEDS............................. The net proceeds from the sale of the Notes
will be used to repay indebtedness under the
1995 Acquisition Facility. See "Use of
Proceeds" and "Underwriting."
OPTIONAL REDEMPTION......................... The Notes are redeemable at any time after
at the option of the Company, in
whole or in part, at a redemption price equal
to the sum of (i) the principal amount of the
Notes being redeemed plus accrued interest to
the redemption date and (ii) the Make-Whole
Amount, if any. See "Description of
Notes-Optional Redemption."
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS... The Notes contain various covenants including
the following:
- Neither the Company nor any Subsidiary (as
hereinafter defined) may incur any
Indebtedness (as hereinafter defined) if,
after giving effect thereto, the aggregate
principal amount of all outstanding
Indebtedness of the Company and its
Subsidiaries on a consolidated basis is
greater than 55% of the sum of (i) the Total
Assets (as hereinafter defined) of the
Company and its Subsidiaries as of the end
of the most recent calendar quarter and (ii)
the purchase price of any real estate assets
or mortgages receivable acquired, and the
amount of any securities offering proceeds
received (to the extent that such proceeds
were not used to acquire real estate assets
or mortgages receivable or used to reduce
Indebtedness), by the Company or any
Subsidiary since the end of such calendar
quarter, including those proceeds obtained
in connection with the incurrence of such
additional Indebtedness.
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
- Neither the Company nor any Subsidiary may
incur any Indebtedness secured by any mortgage
or other lien upon any of the property of
the Company or any Subsidiary if, after
giving effect thereto, the aggregate
principal amount of all outstanding
Indebtedness of the Company and its
Subsidiaries on a consolidated basis which
is secured by any mortgage or other lien on
the property of the Company or any
Subsidiary is greater than 40% of the sum of
(i) the Total Assets of the Company and its
Subsidiaries as of the end of the most
recent calendar quarter and (ii) the
purchase price of any real estate assets or
mortgages receivable acquired, and the
amount of any securities offering proceeds
received (to the extent that such proceeds
were not used to acquire real estate assets
or mortgages receivable or used to reduce
Indebtedness), by the Company or any
Subsidiary since the end of such calendar
quarter, including those proceeds obtained
in connection with the incurrence of such
additional Indebtedness.
- The Company and its Subsidiaries may not at
any time own Total Unencumbered Assets (as
hereinafter defined) equal to or less than
185% of the aggregate outstanding principal
amount of the Unsecured Indebtedness (as
hereinafter defined) of the Company and its
Subsidiaries on a consolidated basis.
- Neither the Company nor any Subsidiary may
incur any Indebtedness if, after giving effect
thereto, the ratio of Consolidated Income
Available for Debt Service (as hereinafter
defined) to the Annual Service Charge (as
hereinafter defined) for the four
consecutive fiscal quarters most recently
ended prior to the date on which such
additional Indebtedness is to be incurred
shall have been less than 2.0:1 on a pro
forma basis after giving effect to certain
assumptions.
For a more complete description of the terms
and definitions used in the foregoing
limitations, see "Description of Notes-Certain
Covenants."
</TABLE>
S-8
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following sets forth summary financial, operating and other data on an
historical basis for the Company and, for periods prior to the Initial Offering,
the properties (the "Predecessor Partnerships Properties") that were owned by
seven predecessor partnerships (the "Predecessor Partnerships"). Also set forth
below are summary pro forma financial, operating and other data for the Company
at and for the three months ended March 31, 1996 and for the year ended December
31, 1995. The pro forma balance sheet data at March 31, 1996 have been prepared
as if this offering (the "Offering") had occurred on March 31, 1996. The pro
forma operating and other data for the three months ended March 31, 1996 and the
year ended December 31, 1995 have been prepared as if the Offering, the
acquisition of the 1996 Acquired Properties, the acquisition of all Properties
acquired by the Company in 1995, the Company's public common stock offerings in
February 1995 (the "February 1995 Equity Offering") and October 1995 (the
"October 1995 Equity Offering"), $37.5 million of borrowings under the 1995
Acquisition Facility, the refinancing of the 1993 Mortgage Loan and the 1993
Acquisition Facility and entering into the Interest Rate Swap (each as
hereinafter defined) had occurred on January 1, 1995. The pro forma financial
and operating data are not necessarily indicative of what the actual financial
position or results of operations of the Company would have been as of the date
or for the periods indicated, nor do they purport to represent the results of
operations or financial position for future periods. This data should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included elsewhere in this Prospectus
Supplement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------------ ----------------------------------------------------------
HISTORICAL HISTORICAL
PRO FORMA ------------------ PRO FORMA ----------------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
--------- -------- -------- --------- -------- -------- -------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rent......... $ 18,250 $ 16,733 $ 11,737 $73,000 $ 56,199 $ 35,020 $ 17,511 $11,222 $11,009
Other........ 81 81 178 693 693 452 211 104 138
--------- -------- -------- --------- -------- -------- -------- ------- -------
Total
revenue...... 18,331 16,814 11,915 73,693 56,892 35,472 17,722 11,326 11,147
Expenses:
General and
administrative
and property
operating
costs....... 1,748 1,385 1,285 6,619 5,167 3,362 1,324 753 800
Financing
expenses
(related
parties).... - - - - - - 433 933 568
Financing
expenses
(other)..... - - - - - - - 207 291
Interest
(related
parties).... - - - - - - 1,326 2,793 3,772
Interest
(other)
(1)......... 5,608 4,863 3,319 22,783 17,329 6,726 2,883 2,082 2,770
Depreciation
and
amortization.. 4,185 3,876 3,171 16,791 14,162 9,472 4,989 3,729 3,478
--------- -------- -------- --------- -------- -------- -------- ------- -------
Income before
extraordinary
charge........ 6,790 6,690 4,140 27,500 20,234 15,912 6,767 829 (532)
Extraordinary
charge from
early
extinguishment
of debt (2)... - - - 11,215 9,561 - - - -
--------- -------- -------- --------- -------- -------- -------- ------- -------
Net income
(loss)........ $ 6,790 $ 6,690 $ 4,140 $16,285 $ 10,673 $ 15,912 $ 6,767 $ 829 $ (532)
--------- -------- -------- --------- -------- -------- -------- ------- -------
--------- -------- -------- --------- -------- -------- -------- ------- -------
OTHER DATA:
Funds From
Operations
(3)........... $ 10,124 $ 9,790 $ 6,330 $40,856 $ 30,642 $ 22,380 $ 10,440 $ 3,845 $ 2,250
Ratio of
earnings to
debt service
(4)........... 2.21x 2.38x 2.25x 2.21x 2.17x 3.37x 2.61x 1.17x 0.92x
Total
Properties (at
end of peri-
od)........... 100 100 84 100 97 82 67 42 42
Total gross
leasable area
in sq. ft. (at
end of period,
in
thousands).... 11,902 11,902 8,964 11,902 10,747 8,590 5,851 1,834 1,834
BALANCE SHEET
DATA (AT END
OF PERIOD):
Real estate,
before
accumulated
depreciation... $598,826 $598,826 $394,454 $538,717 $377,522 $221,477 $91,066 $89,480
Total assets... 620,806 619,431 417,199 559,727 401,241 229,099 86,277 86,268
Total unsecured
debt.......... 137,475 136,100 - 77,000 - - - -
Total secured
debt.......... 167,750 167,750 181,271 167,750 204,415 114,912 88,302 88,052
Total
liabilities... 333,358 331,983 192,263 270,387 214,554 120,151 92,326 90,996
Stockholders'
equity (net
deficit)...... 287,448 287,448 224,936 289,340 186,687 108,948 (6,049) (4,728)
</TABLE>
- ------------------------------
(1) Pro forma interest expense on the Company's floating rate debt for the three
months ended March 31, 1996 and the year ended December 31, 1995 was based
on the average 30-day LIBOR (as hereinafter defined) in effect for those
periods of 5.437% and 5.96%, respectively, and is net of amounts received by
the Company under interest rate protection agreements. Pro forma interest
expense for such periods was computed assuming an annual interest rate on
the Notes of 7 1/4%.
S-9
<PAGE>
(2) In connection with the refinancing of the 1993 Mortgage Loan and the 1993
Acquisition Facility, the Company recognized certain unamortized loan costs
previously paid by the Company and incurred certain fees and expenses
totaling $9,561 ($11,215 on a pro forma basis).
(3) Funds From Operations has been calculated in accordance with the definition
of "funds from operations" recently clarified by the National Association of
Real Estate Investment Trusts, Inc. ("NAREIT") generally as net income,
computed in accordance with generally accepted accounting principles,
excluding gains or losses from debt restructuring and sales of property,
plus depreciation and amortization (in each case only on real estate related
assets) and after adjustments for unconsolidated partnerships and joint
ventures. Straight-line rent adjustments for the pro forma three months
ended March 31, 1996 and for the historical three months ended March 31,
1996 and 1995 were $1,264, $1,132 and $871, respectively. Straight-line rent
adjustments for the pro forma year ended December 31, 1995 and for the
historical years ended December 31, 1995, 1994, 1993, 1992 and 1991 were
$6,464, $4,226, $2,917, $1,301, $408 and $1,271, respectively. Funds From
Operations should not be considered as a substitute for net income as an
indication of the Company's performance or as a substitute for cash flow as
a measure of its liquidity.
(4) For purposes of these computations, earnings consist of net income (loss)
before extraordinary charges, if any, plus debt service. Debt service
consists of interest and recurring principal amortization (excluding
maturities) and excludes amortization of debt expense and discount related
to indebtedness.
S-10
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE NOTES INVOLVES VARIOUS RISKS. IN ADDITION TO GENERAL
INVESTMENT RISKS AND THOSE FACTORS SET FORTH ELSEWHERE HEREIN, PROSPECTIVE
INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE FOLLOWING RISK FACTORS:
OTHER INDEBTEDNESS
The Notes will be direct, senior unsecured obligations of the Company and
will rank equally with all other unsecured and unsubordinated indebtedness of
the Company from time to time outstanding. The Notes will be effectively
subordinated to mortgages and other secured indebtedness of the Company and to
indebtedness and other liabilities of the Company's subsidiaries. Claims of the
holders of the Notes will be effectively subordinated to the prior claims of the
Company's secured lenders to the properties securing such indebtedness and of
the subsidiaries' creditors to the subsidiaries' assets. Accordingly, such prior
claims will have to be satisfied in full before holders of the Notes will be
able to realize any value from the secured or indirectly held properties or
other assets of subsidiaries. At March 31, 1996, on a pro forma basis after
giving effect to the Offering and the application of the net proceeds therefrom,
the Company would have had outstanding approximately $305 million of
indebtedness, of which approximately $168 million, all of which is indebtedness
of subsidiaries of the Company, would be secured by 25 of the Properties. Also
at such date, all of the Properties were owned by subsidiaries of the Company. A
default under the obligations referred to above, which include the obligations
described under "-Risks Associated with Borrowing-Balloon Payments," could
result in the Company losing its interest in a substantial number of the
Properties, including those securing the obligation as to which the default
relates, and would also most likely adversely affect cash available to satisfy
the Company's obligations under the Notes.
RISKS ASSOCIATED WITH BORROWING
GENERAL. The Company currently uses and intends to continue using leverage
to increase the Company's rate of return on its investments and allow the
Company to make more investments than it otherwise could. Such use of leverage
presents an additional element of risk in the event that the cash flow from
lease payments on its properties is insufficient to meet both debt payment
obligations and the distribution requirements of the REIT provisions of the
Internal Revenue Code of 1986, as amended (the "Code").
BALLOON PAYMENTS. The Company has financed the acquisition of the
Properties in part, and may finance future investments, with debt obligations
that provide for the repayment of principal in a lump-sum or "balloon" payment
at maturity. Borrowings under the 1995 Acquisition Facility, a $110 million term
loan entered into in 1994 (the "1994 Mortgage Loan"), a $28.5 million mortgage
loan from Connecticut General Life Insurance Company (the "CIGNA Mortgage Loan")
and a $29.25 million mortgage loan from NationsBank of Texas, N.A. (the
"NationsBank Mortgage Loan") (of which $28.3 million was outstanding as of April
30, 1996) require payments of interest only until maturity on October 3, 1997
(October 3, 1998, if extended), December 1, 2004, May 1, 2000 and December 8,
1996 (December 8, 1997, if extended), respectively. The ability to repay such
indebtedness at maturity or otherwise may depend on the ability of the Company
or its subsidiaries either to refinance such indebtedness or to sell properties.
The Company has no commitments with respect to refinancing any such balloon
payments, and there can be no assurance that such refinancing will be available,
that such a sale will occur or that such refinancing or sale will be available
on reasonable terms and conditions. See "-Other Indebtedness" and "The 1995
Acquisition Facility and Mortgage Loans."
RISING INTEREST RATES. The 1994 Mortgage Loan, the 1995 Acquisition
Facility and the NationsBank Mortgage Loan bear interest at a floating rate tied
to the London Interbank Offered Rate ("LIBOR"). Increases in the interest rates
under the 1994 Mortgage Loan, the 1995 Acquisition Facility and the NationsBank
Mortgage Loan, to the extent not mitigated by interest rate protection
agreements, could adversely affect the amount of cash available to make payments
on the Notes. See "The 1995 Acquisition Facility and Mortgage Loans."
REAL ESTATE INVESTMENT RISKS
Real property investments are subject to a number of risks. For example,
under certain leases the Company is responsible for certain capital improvements
such as roof replacement and major structural
S-11
<PAGE>
improvements. In addition, to the extent that the Company's lease for a property
is not a triple net lease, the Company will have greater expenses associated
with that property and will bear some or all of the risk of any increase in such
expenses, unless the lease provides for a rent adjustment based on escalations
in operating expenses. Similarly, adverse economic conditions could affect the
ability of a tenant to make its lease payments, resulting in a reduction in the
cash flow of the Company and a decrease in the value of the property leased to
such tenant in the event the lease is terminated and the Company is unable to
lease the property to another tenant on similar or better terms, or at all. In
addition, demand for rental space in a particular market may be weak at the end
of a lease term, which could prevent the Company from leasing the property to
another tenant on favorable terms, or at all. In any such case, the Company
could not only lose the cash flow from such property, but in order to prevent a
foreclosure, also might divert cash flow generated by other properties to meet
mortgage payments, if any, and pay other expenses associated with owning the
property with respect to which the default or expiration occurred. Furthermore,
the Company may enter into or acquire net leases with corporate tenants for
properties that are specially suited to the needs of a particular tenant, and
this may be the case with certain of the Properties. Such a property may require
renovations or lease payment concessions in order to lease it to another tenant
if the initial lease is terminated or not renewed.
Although the Company seeks to acquire properties which it believes are
strategically important to the ongoing operations of the tenants, the changing
operational circumstances of the Company's tenants may alter the importance of
the leased properties to their businesses. The level of ongoing strategic
importance of any given property to a tenant may affect the probability of lease
renewal by such tenant and, as such, could have an adverse impact on the
Company's financial performance.
The financial failure of a tenant could cause the tenant to become the
subject of bankruptcy proceedings. Under bankruptcy law, a tenant has the option
of assuming (continuing) or rejecting (terminating) an unexpired lease. If the
tenant assumes its lease with the Company, the tenant must cure all defaults
under the lease and provide the Company with adequate assurance of its future
performance under the lease. If the tenant rejects the lease, the Company's
claim for breach of the lease would (absent collateral securing the claim) be
treated as a general unsecured claim. The amount of the claim would be capped at
the amount owed for unpaid pre-petition lease payments unrelated to the
rejection, plus the greater of one year's lease payments or 15% of the remaining
lease payments payable under the lease (but not to exceed the amount of three
years' lease payments). In a purchase/leaseback transaction it is also possible,
depending on the terms of the transaction, that a bankruptcy court could
recharacterize a purchase/leaseback transaction as a secured lending
transaction. If a transaction were recharacterized as a secured lending
transaction, the Company would not be treated as the owner of the property, but
might have certain additional rights as a secured creditor.
TENANT CONCENTRATION
To the extent TriNet is dependent on lease payments from a limited number of
tenants, the inability of any single tenant to make its lease payments could
have a material adverse effect on the Company. At March 31, 1996, TriNet had
leases with a total of 39 tenants. At such date, two of the Properties,
representing in the aggregate approximately 10% of annualized rental income,
were leased to wholly owned subsidiaries of AT&T Corporation, and five of the
Company's tenants collectively accounted for approximately 37% of the Company's
annualized rental income. For a list of the Company's tenants, see "Properties."
REIT QUALIFICATION REQUIREMENTS
The Company intends at all times to qualify as a REIT under the relevant
provisions of the Code. To obtain the favorable tax treatment associated with
the REIT provisions of the Code, the Company generally is required each year to
distribute to its stockholders at least 95% of its REIT taxable income. In
addition, the Company is subject to a 4% nondeductible excise tax on any amount
by which certain distributions paid by it with respect to any calendar year are
less than the sum of 85% of its ordinary income for the calendar year, 95% of
its capital gains net income for the calendar year and any undistributed
ordinary income or capital gain net income from the preceding calendar year.
S-12
<PAGE>
To comply with the 95% distribution requirement and to avoid the 4%
nondeductible excise tax, the Company intends to make distributions to
stockholders of substantially all of its taxable income at least annually. The
Company anticipates that the cash flow available from operations will be
sufficient to enable it to pay its operating expenses, including its obligations
with respect to the Notes, and meet this distribution requirement, but no
assurance can be given in this regard. In addition, differences in timing
between the actual receipt of income and payment of expenses in calculating
taxable income could require the Company to borrow funds to meet the stockholder
distribution requirements that are necessary to achieve the tax benefits
associated with a qualifying REIT.
Failure of the Company in any taxable year to qualify as a REIT will render
the Company subject to tax on its taxable income at regular corporate rates, and
distributions to stockholders in any nonqualifying years will not be deductible
by the Company. If the Company's status as a REIT is terminated, the Company
generally would not be eligible to elect REIT status again prior to the fifth
taxable year following the year in which its REIT status is terminated. An
exception to this general five-year rule exists if, among other things, the
Company can satisfy the Internal Revenue Service that its failure to qualify as
a REIT was due to reasonable cause and not to willful neglect of the
qualification provisions of the Code. The additional tax liability of the
Company for the year or years involved would reduce the net earnings of the
Company and could adversely affect its ability to make payments on the Notes.
The Company might be required to borrow funds or to liquidate certain of its
investments to pay the applicable taxes.
POTENTIAL ENVIRONMENTAL LIABILITIES
Under various federal, state and local environmental laws, regulations and
ordinances, current or former owners of real estate, as well as certain other
categories of parties, may be required to investigate and clean up hazardous or
toxic chemicals, substances or waste or petroleum product or waste
(collectively, "Hazardous Materials") releases on, under, in or from such
property, and may be held liable to governmental entities or to third parties
for certain damage and for investigation and cleanup costs incurred by such
parties in connection with the release or threatened release of Hazardous
Materials. Such laws typically impose responsibility and liability without
regard to whether the owner knew of or was responsible for the presence of
Hazardous Materials, and the liability under such laws has been interpreted to
be joint and several under certain circumstances. The Company's leases generally
provide that the tenant is responsible for all environmental liabilities and for
compliance with environmental regulations relating to the tenant's operations.
Such a contractual arrangement does not eliminate the Company's statutory
liability or preclude claims against the Company by governmental authorities or
persons who are not parties to such an arrangement. Contractual arrangements in
the Company's leases may provide a basis for the Company to recover from the
tenant damages or costs for which the Company has been found liable.
The costs of investigation and cleanup of Hazardous Materials on, under, in
or from property can be substantial, and the fact that the property has had a
release of Hazardous Materials, even if remediated, may adversely affect the
value of the property and the owner's ability to sell or lease the property or
to borrow using the property as collateral. In addition, some environmental laws
create a lien on a property in favor of the government for damages and costs it
incurs in connection with the release or threatened release of Hazardous
Materials, and certain state environmental laws provide that such a lien has
priority over all other encumbrances on the property or that a lien can be
imposed on other property owned by the responsible party. Finally, the presence
of Hazardous Materials on a property could result in a claim by a private party
for personal injury or a claim by a neighboring property owner for property
damage.
Other federal, state and local laws and regulations govern the removal or
encapsulation of asbestos-containing material when such material is in poor
condition or in the event of building remodeling, renovation or demolition.
Still other federal, state and local statutes, regulations and ordinances may
require the removal or upgrading of underground storage tanks that are out of
service or out of compliance. In addition, federal, state and local laws,
regulations and ordinances may impose prohibitions, limitations and operational
standards on, or require permits, approvals and notifications in connection
with, the discharge of wastewater and other water pollutants, the emission of
air pollutants and operation of air polluting equipment, the generation and
management of Hazardous Materials, and workplace health and safety. Non-
S-13
<PAGE>
compliance with environmental or health and safety requirements may also result
in the need to cease or alter operations at a property, which could affect the
financial health of a tenant and its ability to make lease payments.
Furthermore, if there is a violation of such a requirement in connection with a
tenant's operations, it is possible that the Company, as the owner of the
property, could be held accountable by governmental authorities for such
violation and could be required to correct the violation.
The Company typically undertakes an investigation of potential environmental
risks when evaluating an acquisition. Where warranted, Phase I and/or Phase II
assessments are performed by third-party environmental consulting and
engineering firms. The Company may acquire a property with Hazardous Materials,
subject to a determination of the level of risk and potential cost of
remediation. The Company normally requires property sellers to fully indemnify
it against any environmental problem existing as of the date of purchase.
Additionally, the Company normally structures its leases to require the tenant
to assume all responsibility for environmental compliance or environmental
remediation and to provide that non-compliance with environmental laws is deemed
a lease default. In certain instances, the Company may also require a cash
reserve, a letter of credit or a guarantee from the tenant, the parent company
or a third party to assure lease compliance and funding of remediation. The
value of any of these protections depends on the amount of the collateral and/or
financial strength of the company providing the protection.
Some of the Properties are located in urban and industrial areas where fill
or current or historic industrial uses of the areas may have caused site
contamination at the Properties. In addition, the Company is aware of
environmental conditions at certain of the Properties that require remediation.
All such environmental conditions are primarily the responsibility of the
respective tenants under their leases. The Company and its consultants estimate
that the aggregate cost of addressing environmental conditions known to require
remediation at the Properties is approximately $4 million, the majority of which
is covered by existing letters of credit and corporate guarantees. The Company
believes that any material environmental conditions at the Properties are
currently being or will soon be addressed by its tenants. However, the Company
could be responsible for some or all of these costs if one or more of the
tenants fails to perform its obligations or to indemnify the Company.
Furthermore, no assurance can be given that the environmental studies that were
performed at the Properties disclosed all environmental liabilities, that any
prior owner did not create a material environmental condition not known to the
Company, or that a material condition does not otherwise exist as to any of the
Properties.
S-14
<PAGE>
THE COMPANY
TriNet is a REIT which acquires, owns and manages predominantly office and
industrial properties net leased to corporations nationwide, including
strategically important distribution facilities and corporate headquarters.
TriNet's triple net leases typically provide that its tenants pay for most or
all property operating expenses while contractual rental income escalates.
TriNet is a self-administered and self-managed REIT.
As of March 31, 1996, TriNet's portfolio consisted of 100 Properties located
in 25 states, all of which were 100% leased pursuant to leases with an average
remaining term (excluding extension options) of approximately 10.5 years when
lease terms are weighted according to contractual rent revenues. Sixty-one of
the Properties were acquired concurrently with the consummation of the Initial
Offering from the Predecessor Partnerships and from unaffiliated third parties.
Since the Initial Offering in June 1993, the Company has acquired the fee title
interest in 37 additional Properties and, to preserve favorable local property
tax abatements, the leasehold interest (with an option to acquire the fee title
interest) in two additional Properties. See "Properties."
The Company employs experienced individuals with backgrounds in credit and
real estate analysis, finance and asset management, who use established
procedures and systems to identify, acquire and manage commercial net leased
real estate assets. TriNet's senior management team has developed an extensive
network of contacts with bankers, brokers and senior corporate managers which it
uses to identify new investment opportunities. Prior to purchasing and leasing
back a corporate property or acquiring a net lease, TriNet: (i) appraises the
market value and evaluates the structural integrity of the buildings and the
environmental condition of the land and improvements; (ii) underwrites the
credit quality and financial ability of the tenant to pay rent; and (iii)
evaluates the current and future usefulness of the property to the tenant's
business operations. Based on management's assessment of current market
conditions, the Company believes that opportunities exist for it to structure
additional purchase/leaseback transactions and to acquire additional net leased
properties on advantageous terms.
The Company was incorporated under the laws of the State of Maryland on
March 4, 1993. The Company's principal executive offices are located at Four
Embarcadero Center, Suite 3150, San Francisco, California 94111, and its
telephone number is (415) 391-4300. The Company also maintains regional offices
in Florida and Pennsylvania.
USE OF PROCEEDS
The $ estimated net proceeds to the Company from the Offering will be
used to repay indebtedness outstanding under the 1995 Acquisition Facility. As
of April 30, 1996, approximately $147 million was outstanding under the 1995
Acquisition Facility and such borrowings bore interest at a weighted average
interest rate of 7.0% per annum. As of such date, approximately $18 million of
such borrowings were owed to Morgan Guaranty Trust Company of New York, an
affiliate of J.P. Morgan Securities Inc., one of the Underwriters of the
Offering. See "Underwriting."
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges for the three months ended
March 31, 1996 and 1995 were 2.20x and 1.97x, respectively, and for the years
ended December 31, 1995, 1994, 1993 and 1992 were 1.97x, 2.65x, 2.17x and 1.12x,
respectively. For the year ended December 31, 1991, earnings were insufficient
to cover fixed charges by $532,000.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of pre-tax income from
continuing operations plus fixed charges. Fixed charges consist of interest
expense and the amortization of debt issuance costs. For the periods presented,
the Company had no capitalized interest.
S-15
<PAGE>
CAPITALIZATION
CAPITAL STRUCTURE
The following table sets forth the capitalization of the Company as of March
31, 1996, and as adjusted to give effect to the Offering and the application of
the net proceeds therefrom to reduce the amount outstanding under the 1995
Acquisition Facility. This information should be read in conjunction with the
summary and selected financial information presented elsewhere in this
Prospectus Supplement and the consolidated financial statements and notes
thereto incorporated by reference into the accompanying Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(in thousands)
<S> <C> <C>
DEBT:
Mortgage loans.................................................................. $ 167,750 $ 167,750
1995 Acquisition Facility....................................................... 136,100 37,475
% Notes due .......................................................... -- 100,000
---------- -----------
Total debt.................................................................... 303,850 305,225
---------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized, no shares issued
or outstanding................................................................. -- --
Common stock, $.01 par value, 40,000,000 shares authorized, 13,841,667 shares
issued and outstanding......................................................... 138 138
Paid-in capital................................................................. 312,904 312,904
Distributions in excess of net income........................................... (25,594) (25,594)
---------- -----------
Total stockholders' equity.................................................... 287,448 287,448
---------- -----------
Total capitalization.......................................................... $ 591,298 $ 592,673
---------- -----------
---------- -----------
</TABLE>
SUMMARY OF INDEBTEDNESS
The following table sets forth the indebtedness of the Company as of March
31, 1996, as adjusted to give effect to the Offering and the application of the
net proceeds thereof to reduce outstanding borrowings under the 1995 Acquisition
Facility:
<TABLE>
<CAPTION>
BALANCE
(in
LOAN thousands) INTEREST RATE MATURITY DATE
- ------------------------------------------------- ------------- -------------------------- --------------
<S> <C> <C> <C>
1994 Mortgage Loan............................... $110,000 LIBOR + 1.25%(1) 12/1/2004
NationsBank Mortgage Loan........................ 29,250 LIBOR + 1.75%(1) 12/8/1996 (2)
CIGNA Mortgage Loan.............................. 28,500 8%(3) 5/1/2000
-------------
Total mortgage loans........................... 167,750
1995 Acquisition Facility........................ 37,475 LIBOR + 1.75%(1)(4) 10/3/1997 (5)
% Notes due ........................... 100,000
-------------
Total debt..................................... $305,225
-------------
-------------
</TABLE>
- ------------------------
(1) The Company has entered into interest rate protection agreements with
respect to varying notional amounts of indebtedness to eliminate the
Company's exposure to increases in LIBOR with respect to such notional
amounts. See "The 1995 Acquisition Facility and Mortgage Loans."
(2) The Company has an option to extend to a maturity date of December 8, 1997,
subject to certain conditions.
(3) The annual interest rate is 8% through December 31, 1996 and 8.5%
thereafter.
(4) Effective April 1, 1996, the interest rate changed to LIBOR + 1.5%.
(5) The Company has an option to extend to a maturity date of October 3, 1998,
subject to certain conditions.
S-16
<PAGE>
BUSINESS
GENERAL
The Company is a REIT which acquires, owns and manages predominantly office
and industrial properties net leased to corporations nationwide, including
strategically important distribution facilities and corporate headquarters.
TriNet's triple net leases typically provide that its tenants pay for most or
all property operating expenses while contractual rental income escalates.
TriNet is a self-administered and self-managed REIT.
TriNet grows its portfolio of net leased properties by either purchasing and
leasing properties back to the sellers under net leases structured by the
Company or acquiring properties subject to existing net leases. In a typical
purchase/leaseback transaction, TriNet purchases the land and building from an
operating company and simultaneously leases them back to the operating company
under a long-term operating lease. These transactions are structured to provide
TriNet with a consistent stream of income which typically increases periodically
pursuant to the lease. In addition, TriNet may realize a capital gain if the
property appreciates in value. A purchase/leaseback transaction enables an
operating company (the seller/tenant) to realize the value of its owned real
estate while continuing occupancy on a long-term basis. A purchase/ leaseback
transaction also may provide the seller with specific accounting, earnings and
market value benefits. For example, the lease on the property may be structured
by the operating company as an off-balance sheet operating lease, consistent
with the rules of the Financial Accounting Standards Board, which may increase
the seller's earnings, net worth and borrowing capacity.
TriNet generally seeks to include provisions in its leases which place on
its tenants, to the greatest extent possible, the economic costs of ownership of
its properties (such as real property taxes and assessments, insurance,
operating expenses, responsibility for structural repairs and maintenance and
the duty to restore, or relinquish to TriNet any insurance proceeds or
condemnation awards, in case of casualty or condemnation), although under some
of its leases, TriNet has agreed to retain responsibility for some of these
obligations. As used herein, the terms "triple net lease" and "net lease" refer
to leases in which the tenant is responsible for all or most of such
obligations.
The Company believes that opportunities exist to structure additional
purchase/leaseback transactions and acquire additional net leased properties on
advantageous terms. Since the Initial Offering, the Company has experienced an
increase in investment opportunities as more businesses with significant equity
in their real estate assets turn to TriNet as a source of capital that can allow
them to realize the value of those assets to improve their balance sheets and
fund their operating needs.
BUSINESS OBJECTIVE AND STRATEGIES
BUSINESS OBJECTIVE. TriNet seeks to increase its income primarily by
acquiring additional net leased properties, structuring additional
purchase/leaseback transactions and negotiating leases containing contractual
rent increases. The Company generally intends to hold its net leased properties
for long-term investment. However, the Company may dispose of a property if it
deems such a disposition to be in its best interest, and may either reinvest the
proceeds of such a disposition or distribute the proceeds to stockholders.
GROWTH STRATEGIES. The Company intends to expand its portfolio of
properties by acquiring additional net leased office and industrial properties
and engaging in purchase/leaseback transactions with operating companies. Since
the Initial Offering, TriNet has completed over $434 million (including
acquisition costs) in acquisitions. The Company believes the experience of its
management in structuring purchase/leaseback transactions to meet the often
complex needs of prospective tenants while providing adequate security to the
Company allows the Company to obtain a higher yield for a given level of risk
than would typically be available by purchasing a property subject to an
existing net lease. However, the Company will also seek to acquire properties
subject to existing net leases if the Company believes the terms are favorable.
To the extent additional investment opportunities are available on advantageous
terms, TriNet intends to continue to grow by expanding its portfolio of
properties.
S-17
<PAGE>
The Company generally seeks to negotiate or acquire triple net leases. The
Company also seeks to include in its leases (i) clauses providing for periodic
rent increases, either automatically or based on an index, such as the All Urban
Consumer Price Index, (ii) change of control and restrictive operating and
financial covenants, (iii) covenants providing that the tenant must indemnify
the Company against environmental and other contingent liabilities (although
such lease provisions may not entirely protect the Company as an owner in the
event of a tenant's inability to satisfy an adverse judgment), (iv) guarantees
from parent companies or other parties, (v) additional security through recourse
to other assets or letters of credit and (vi) cross-default provisions in leases
in multiple property transactions.
The Company's primary focus is on the acquisition of single-tenant, net
leased office and industrial properties. The Company does not intend to acquire
hotels, health care facilities, restaurants or land unrelated to a corporate
facility or the future operating requirements of a corporate tenant. The Company
also does not intend to develop properties, but it may finance build-to-suit
projects with identified tenants when it can do so by taking minimal risk of
construction completion. The Company also may permit its tenants, under certain
circumstances, to develop or further expand properties they lease from the
Company.
INVESTMENT FOCUS. In structuring purchase/leaseback transactions, the
Company seeks types of transactions and seller circumstances that will allow it
to obtain favorable terms, including the following:
CORPORATE FINANCE SOLUTIONS. The Company focuses its purchase/leaseback
activities on businesses that are trying to achieve corporate financial and
strategic goals and objectives, including repayment of high-cost debt and
obtaining infusions of working capital for growth, rather than on businesses
that are simply solving specific real estate financing problems.
TENANT CREDIT CHARACTERISTICS. The Company concentrates on businesses
that possess strong or improving credit quality characteristics, successful
operating histories, potential for growth, recognized business franchises
and market presence. The Company will consider purchase/leaseback and net
lease transactions with prospective tenants of diverse credit quality
provided the real estate meets the Company's standards and the Company
believes that the property is strategically important to the prospective
corporate tenant. The Company's tenants may include public and private
companies which may be unrated or rated investment grade or below investment
grade.
MULTIPLE PROPERTY TRANSACTIONS. The Company believes that there is
significantly less competition for purchase/leaseback transactions and net
leased property acquisitions involving portfolios containing a number of
properties located in more than one geographic region. The Company believes
that its national presence, acquisition experience and access to capital
allow it to compete effectively for such transactions.
UNDERWRITING EXPERTISE. In underwriting a purchase/leaseback transaction or
the purchase of a property subject to an existing net lease, the Company
undertakes the following analyses, each of which the Company believes is
critical to the long-term profitability of the investment:
REAL ESTATE ANALYSIS. The Company evaluates the value of the property,
present and anticipated conditions in the local real estate market and the
prospects for selling or re-tenanting the property on favorable terms in the
event of a vacancy. The Company seeks to acquire general purpose commercial
properties that may be easily re-leased to new tenants without significant
new investment by TriNet.
TENANT CREDIT ANALYSIS. The Company evaluates the prospective tenant's
business and financial outlook to determine the prospective tenant's ability
to meet its ongoing obligations under the lease and the need to obtain
additional security for these obligations, such as letters of credit and
guarantees from parent companies or other parties.
STRATEGIC FACTORS. The Company evaluates a number of strategic factors,
including the position of the prospective tenant in its industry, the
strength of the prospective tenant's business franchise and the importance
of the property to the prospective tenant's business.
S-18
<PAGE>
OPERATING AND FINANCING STRATEGIES
The Company monitors, on an ongoing basis, compliance by its tenants with
their lease obligations and the factors that could affect the financial
performance of each of its properties. The Company reviews periodic financial
statements with respect to each of its tenants and undertakes regular physical
inspections of the condition and maintenance of its properties. The Company also
monitors real estate market conditions, including market rents and occupancy
trends in the areas where its properties are located. The Company will respond
to changes in such market conditions as appropriate, including by negotiating to
extend the lease terms or by selling the property subject to the existing lease.
The Company's tenants generally are responsible for most operating and
capital expenses relating to the properties they occupy, including real estate
taxes, utilities, insurance, maintenance and capital improvements. As a result,
the Company's operating costs are lower than would be the case if it invested in
properties that were not net leased.
Consistent with its investment policies, the Company employs leverage, when
available on favorable terms, in connection with funding purchase/leaseback
transactions and acquiring net leased properties to enable it to acquire more
properties than it otherwise could. The Company seeks to maintain its operating
flexibility and reduce its financing costs through unsecured borrowings, such as
the 1995 Acquisition Facility and the Notes, and by reducing its Funds From
Operations payout ratio over time as Funds From Operations increase.
RECENT DEVELOPMENTS
During the first three months of 1996, the Company acquired three Properties
for an aggregate purchase price of approximately $61.2 million. The 1996
Acquired Properties consist of:
- a 402,192 square foot warehouse/distribution facility leased to Lever
Brothers Company in St. Louis, Missouri with a lease expiring in September
2000 and providing for a current annual rent of $1.6 million;
- the 241,927 square foot headquarters of Federal Express Corporation in
Memphis, Tennessee with a lease providing for an initial term expiring in
May 2008 and a current annual rent of $4.0 million; and
- a combined 56,000 square foot headquarters facility and 454,654 square
foot warehouse/distribution facility leased to MJD Investments, Inc.
(d/b/a "MJDesigns") in the Dallas/Fort Worth, Texas area with a lease
expiring in March 2011 and providing for a current annual rent of $2.2
million.
Subsequent to March 31, 1996, the Company acquired two headquarters properties
in Walnut Creek, California containing an aggregate of 145,000 square feet
leased to Teradyne, Inc. and Fresenius USA, Inc. for an aggregate purchase price
of approximately $11.5 million. In addition, on April 24, 1996, the Company sold
its property in Denham Springs, Louisiana to Schwegmann, the former tenant, for
approximately $1.3 million, which resulted in an immaterial gain. On March 21,
1996, the Property leased to MacFrugal's was destroyed by fire. The lease for
this Property requires MacFrugal's to continue paying rent and to rebuild the
structure to original specifications. MacFrugal's maintains insurance to cover
the replacement cost of the building and the ongoing rent payments.
S-19
<PAGE>
PROPERTIES
The Company, through its subsidiaries, holds fee simple title to 98 of the
Properties and a leasehold interest in two remaining Properties. The Properties
are 100% leased and have leases with an average remaining term (excluding
extension options) of approximately 10.5 years when lease terms are weighted
according to contractual rent revenues. The weighted average remaining term of
the Company's leases is calculated by adding together the products of each
remaining lease term (excluding extension options) multiplied by its respective
contractual annual rental income, and then dividing this sum by the sum of the
contractual annual rental income for all of the Company's leases. For example,
the weighted average remaining term of two leases, one with a term of 20 years
and contractual annual rental income of $800,000 and a second lease with a term
of 10 years and contractual annual rental income of $600,000, is 15.71 years.
The first mortgage liens securing the repayment of the 1994 Mortgage Loan,
the CIGNA Mortgage Loan and the NationsBank Mortgage Loan are the only mortgage
liens encumbering the Properties. See "The 1995 Acquisition Facility and
Mortgage Loans." The following table provides certain information with respect
to the Properties as of March 31, 1996.
<TABLE>
<CAPTION>
GROSS
LEASABLE AVERAGE PRIMARY MAXIMUM
TENANT OR GUARANTOR AND AREA IN ANNUAL RENT PER PERCENT LEASE TERM LEASE TERM
LOCATION OF PROPERTY SQ. FT. RENT(1) SQ. FT.(1) LEASED EXPIRATION EXPIRATION(2)
- -------------------------------------------- --------- ---------- ----------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
AT&T RESOURCE
MANAGEMENT CORPORATION
Jacksonville, FL (3)(4)................... 46,002 $ 874,069 $ 19.00 100% 2000 2015
Parsippany, NJ (4)(5)..................... 420,000 5,880,000 14.00 100% 2000 2010
--------- ---------- -----------
Subtotal or Average..................... 466,002 $6,754,069 $ 14.49
UNISYS CORPORATION
Lisle, IL (3) 236,000 $3,150,000 $ 13.35 100% 2004 2019
Malvern, PA (Center Tract)................ 370,562 2,496,000 6.74 100% 2002 2002
Malvern, PA (West Tract).................. 148,595 525,000 3.53 100% 1997 2002
--------- ---------- -----------
Subtotal or Average..................... 755,157 $6,171,000 $ 8.17
SCHWEGMANN GIANT SUPER MARKETS
Baton Rouge, LA (6)....................... 69,272 $ 533,261 $ 7.70 100% 2015 2035
Denham Springs, LA (6).................... 32,000 138,554 4.33 100% 2015 2035
Harvey, LA (6)............................ 124,348 1,205,075 9.69 100% 2015 2035
Metairie, LA (6).......................... 108,308 1,279,912 11.82 100% 2015 2035
New Orleans, LA (6)....................... 80,005 1,119,548 13.99 100% 2015 2035
--------- ---------- -----------
Subtotal or Average..................... 413,933 $4,276,350 $ 10.33
CATERAIR INTERNATIONAL CORPORATION
San Francisco, CA......................... 35,375 $ 350,000 $ 9.89 100% 2018 2038
San Francisco, CA......................... 20,019 212,500 10.61 100% 2018 2038
Miami, FL................................. 108,534 875,000 8.06 100% 2018 2038
Miami, FL................................. 55,610 462,500 8.32 100% 2018 2038
Miami, FL................................. 46,749 400,000 8.56 100% 2018 2038
Orlando, FL............................... 49,148 431,250 8.77 100% 2018 2038
Minneapolis, MN........................... 22,536 115,625 5.13 100% 2018 2038
Reno, NV.................................. 20,066 71,250 3.55 100% 2018 2038
New York, NY.............................. 48,673 525,000 10.79 100% 2018 2038
New York, NY.............................. 24,939 262,500 10.53 100% 2018 2038
Philadelphia, PA.......................... 31,218 181,250 5.81 100% 2018 2038
Seattle, WA............................... 30,750 237,500 7.72 100% 2018 2038
--------- ---------- -----------
Subtotal or Average..................... 493,617 $4,124,375 $ 8.36
FEDERAL EXPRESS CORPORATION
Memphis, TN (7)........................... 241,927 $3,991,796 $ 16.50 100% 2008 2018
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
GROSS
LEASABLE AVERAGE PRIMARY MAXIMUM
TENANT OR GUARANTOR AND AREA IN ANNUAL RENT PER PERCENT LEASE TERM LEASE TERM
LOCATION OF PROPERTY SQ. FT. RENT(1) SQ. FT.(1) LEASED EXPIRATION EXPIRATION(2)
- -------------------------------------------- --------- ---------- ----------- --------- ------------ ------------
REX STORES CORPORATION
<S> <C> <C> <C> <C> <C> <C>
Oxford, AL................................ 10,000 $ 76,197 $ 7.62 100% 2004 2024
Tuscaloosa, AL............................ 12,000 82,546 6.88 100% 2004 2024
Bradenton, FL............................. 6,321 43,178 6.83 100% 2004 2024
Mary Esther, FL........................... 8,182 53,338 6.52 100% 2004 2024
Melbourne, FL............................. 8,000 82,546 10.32 100% 2004 2024
Merritt Island, FL........................ 10,000 82,546 8.25 100% 2004 2024
Ocala, FL................................. 10,000 92,071 9.21 100% 2004 2024
Pensacola, FL............................. 64,544 242,318 3.75 100% 2004 2024
Tallahassee, FL........................... 10,609 85,721 8.08 100% 2004 2024
Titusville, FL............................ 12,010 82,546 6.87 100% 2004 2024
Venice, FL................................ 8,227 64,768 7.87 100% 2004 2024
Rome, GA.................................. 10,250 77,434 7.55 100% 2004 2024
Peoria, IL................................ 8,850 63,498 7.17 100% 2004 2024
Rockford, IL.............................. 10,100 81,276 8.05 100% 2004 2024
Springfield, IL........................... 10,292 88,896 8.64 100% 2004 2024
Anderson, IN.............................. 15,429 90,804 5.89 100% 2004 2024
Muncie, IN................................ 12,479 82,546 6.61 100% 2004 2024
Richmond, IN.............................. 6,449 31,117 4.83 100% 2004 2024
Council Bluffs, IA........................ 9,023 40,638 4.50 100% 2004 2024
Des Moines, IA............................ 10,000 63,498 6.35 100% 2004 2024
Columbus, MS.............................. 10,016 63,498 6.34 100% 2004 2024
Greenville, MS............................ 9,115 60,323 6.62 100% 2004 2024
Gulfport, MS.............................. 12,008 83,816 6.98 100% 2004 2024
Hattiesburg, MS........................... 12,000 71,752 5.98 100% 2004 2024
Jackson, MS............................... 15,050 111,120 7.38 100% 2004 2024
Meridian, MS.............................. 9,000 76,197 8.47 100% 2004 2024
Tupelo, MS................................ 12,000 79,372 6.61 100% 2004 2024
Vicksburg, MS............................. 10,000 69,847 6.98 100% 2004 2024
Jamestown, NY............................. 14,025 69,847 4.98 100% 2004 2024
Dayton, OH (3)............................ 345,325 799,248 2.31 100% 2004 2024
Defiance, OH.............................. 7,195 73,022 10.15 100% 2004 2024
Kettering, OH............................. 10,720 74,927 6.99 100% 2004 2024
Bristol, TN............................... 12,430 88,896 7.15 100% 2004 2024
Clarksville, TN........................... 10,004 75,000 7.50 100% 2004 2024
Vienna, WV................................ 12,258 88,896 7.25 100% 2004 2024
--------- ---------- -----------
Subtotal or Average..................... 753,911 $3,493,243 $ 4.63
VOLKSWAGEN OF AMERICA, INC.
Los Angeles, CA (3)....................... 286,822 $1,224,360 $ 4.27 100% 2008 2018
Jacksonville, FL (3)...................... 180,054 685,157 3.81 100% 2008 2018
Lincoln, IL (3)........................... 161,840 954,483 5.90 100% 2008 2018
--------- ---------- -----------
Subtotal or Average..................... 628,716 $2,864,000 $ 4.56
GATX LOGISTICS, INC.
Clay, NY.................................. 372,500 $ 881,435 $ 2.37 100% 2001 2001
Clay, NY.................................. 123,000 278,173 2.26 100% 2001 2001
Clay, NY.................................. 64,000 151,440 2.37 100% 2001 2001
Clay, NY.................................. 96,000 227,162 2.37 100% 2001 2001
Lyons, NY (3)............................. 240,000 643,200 2.68 100% 2001 2001
Lysander, NY (3).......................... 240,000 643,200 2.68 100% 2001 2001
--------- ---------- -----------
Subtotal or Average..................... 1,135,500 $2,824,610 $ 2.43
MacFRUGAL'S BARGAINS-CLOSEOUTS, INC.
New Orleans, LA (3)(8).................... 1,216,676 $2,428,382 $ 2.00 100% 2009 2021
NIKE, INC.
Memphis, TN (3)........................... 812,697 $2,247,405 $ 2.77 100% 2004 2014
MJDESIGNS
Coppell, TX............................... 510,654 $2,173,000 $ 4.26 100% 2011 2023
</TABLE>
S-21
<PAGE>
<TABLE>
<CAPTION>
GROSS
LEASABLE AVERAGE PRIMARY MAXIMUM
TENANT OR GUARANTOR AND AREA IN ANNUAL RENT PER PERCENT LEASE TERM LEASE TERM
LOCATION OF PROPERTY SQ. FT. RENT(1) SQ. FT.(1) LEASED EXPIRATION EXPIRATION(2)
- -------------------------------------------- --------- ---------- ----------- --------- ------------ ------------
RALPH'S GROCERY COMPANY
<S> <C> <C> <C> <C> <C> <C>
Los Angeles, CA........................... 272,236 $2,068,290 $ 7.60 100% 2010 2030
SPX CORPORATION
Muskegon, MI (Terrace Plaza).............. 143,754 $ 875,000 $ 6.09 100% 2004 2019
Muskegon, MI (Terrace Point).............. 70,700 1,062,500 15.03 100% 2004 2019
--------- ---------- -----------
Subtotal or Average..................... 214,454 $1,937,500 $ 9.03
LEVER BROTHERS COMPANY
St. Louis, MO............................. 402,192 $1,579,603 $ 3.93 100% 2000 2000
UNISON INDUSTRIES, L.P.
Jacksonville, FL (3)...................... 135,000 $1,554,243 $ 11.51 100% 2003 2013
PRIMERICA LIFE INSURANCE COMPANY
Duluth, GA................................ 190,000 $1,425,000 $ 7.50 100% 2003 2013
CERTIFIED GROCERS OF CALIFORNIA LTD.
City of Commerce, CA (3).................. 108,000 $1,293,750 $ 11.98 100% 2014 2034
FIRST HEALTH STRATEGIES, INC.
Salt Lake City, UT........................ 173,107 $1,245,046 $ 7.19 100% 2009 2024
PNC MORTGAGE CORPORATION OF AMERICA, INC.
Vernon Hills, IL (9)...................... 102,208 $1,228,540 $ 12.02 100% 2002 2012
CIRRUS LOGIC, INC.
Fremont, CA............................... 76,641 $ 760,920 $ 9.93 100% 2008 2018
Fremont, CA (3)........................... 44,941 446,184 9.93 100% 2008 2018
--------- ---------- -----------
Subtotal or Average..................... 121,582 $1,207,104 $ 9.93
SEARS LOGISTICS SERVICES
Columbus, OH (3)(10)...................... 398,471 $1,173,596 $ 2.95 100% 2000 2010
MICROSOFT CORPORATION
Irving, TX (3)(11)........................ 87,635 $1,051,620 $ 12.00 100% 2001 2011
LINVATEC CORPORATION
Largo, FL................................. 124,950 $1,045,798 $ 8.37 100% 2005 2015
TRW, INC.
Redondo Beach, CA......................... 124,400 $1,030,524 $ 8.28 100% 2004 2009
LORAL CORPORATION
Sunnyvale, CA (3)......................... 174,600 $ 987,694 $ 5.66 100% 1999 2024
TECH DATA CORPORATION
South Bend, IN............................ 225,000 $ 783,750 $ 3.48 100% 2002 2012
UNIVERSAL TECHNICAL INSTITUTE
Phoenix, AZ............................... 106,763 $ 729,157 $ 6.83 100% 2001 2013
DELUXE CORPORATION
Arden Hills, MN (3)....................... 73,150 $ 694,560 $ 9.50 100% 1999 1999
DUNHAM'S ATHLEISURE CORPORATION
Marion, IN................................ 249,920 $ 647,500 $ 2.59 100% 2004 2024
NISSAN MOTOR ACCEPTANCE CORP.
Irving, TX................................ 174,421 $ 618,472 $ 3.55 100% 2003 2003
KELLEY-CLARKE, INC.
Fremont, CA............................... 44,000 $ 534,864 $ 12.16 100% 2005 2010
COMPAQ COMPUTER CORPORATION
Houston, TX............................... 251,850 $ 513,774 $ 2.04 100% 1999 2009
NORTHERN STATES POWER COMPANY
Roseville, MN (3)......................... 41,574 $ 509,281 $ 12.25 100% 2004 2004
ARROW ELECTRONICS
Aurora, CO................................ 119,200 $ 500,482 $ 4.20 100% 2000 2005
BANCBOSTON MORTGAGE CORPORATION
Jacksonville, FL (3)...................... 49,344 $ 479,047 $ 9.71 100% 1999 2002
ARTLINE, INC.
Chicago, IL............................... 172,846 $ 475,326 $ 2.75 100% 2004 2004
FLUID SYSTEMS CORP.
San Diego, CA............................. 90,500 $ 470,000 $ 5.19 100% 2005 2010
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
GROSS
LEASABLE AVERAGE PRIMARY MAXIMUM
TENANT OR GUARANTOR AND AREA IN ANNUAL RENT PER PERCENT LEASE TERM LEASE TERM
LOCATION OF PROPERTY SQ. FT. RENT(1) SQ. FT.(1) LEASED EXPIRATION EXPIRATION(2)
- -------------------------------------------- --------- ---------- ----------- --------- ------------ ------------
UARCO INCORPORATED
<S> <C> <C> <C> <C> <C> <C>
Chicago, IL............................... 140,000 $ 467,600 $ 3.34 100% 2002 2007
PEPSICO, INC. (12)
Wichita, KS............................... 105,600 $ 353,040 $ 3.34 100% 2010 2025
--------- ---------- -----------
Total/Average........................... 11,901,793 $67,953,391 $ 5.70 100%
--------- ---------- -----------
--------- ---------- -----------
</TABLE>
- ------------------------------
(1) Contractual rent payments on a cash basis not taking into account a
straight-line method of accounting. Annual rent is calculated by multiplying
monthly rent in effect at March 31, 1996 by 12.
(2) The expiration date of the lease assuming the tenant exercises all
contractual lease extensions and that a longer extension period is not
negotiated in the future.
(3) Property is encumbered by a first mortgage lien securing borrowings under
the 1994 Mortgage Loan.
(4) AT&T Resource Management Corporation is the tenant under one lease and the
guarantor under the other lease, for which the tenant is one of its
affiliates, AT&T Credit Holdings, Inc. The annual rent at March 31, 1996 for
one of the Properties includes $481,212 during the initial term of the lease
for tenant improvements made by the previous landlord. The annual rent at
March 31, 1996 for the other Property has been calculated before deducting
an annual management incentive fee payable to a third-party property
manager, which the Company estimates is currently $750,000.
(5) The Property is encumbered by a first mortgage lien securing borrowings
under the CIGNA Mortgage Loan.
(6) The Property is encumbered by a first mortgage lien securing borrowings
under the NationsBank Mortgage Loan. In the event that Schwegmann determines
to permanently vacate any of these Properties, it must offer to repurchase
such Property at the greater of TriNet's original purchase price or fair
market value (subject to the lease, including extension options), and if
TriNet elects not to sell the Property to Schwegmann, the lease for such
Property will terminate. In addition, Schwegmann has an option to purchase
all of these Properties during a two-year period commencing in July 2003 at
TriNet's original purchase price plus a fixed return and also has an option
to purchase all of these Properties at the end of the initial lease term at
a purchase price equal to the greater of TriNet's original purchase price
plus a fixed return or fair market value (subject to the lease, including
extension options). On April 24, 1996, Schwegmann repurchased the Denham
Springs, Louisiana Property for approximately $1.3 million.
(7) The Company has a maximum annual obligation under the lease for operating
expenses of $1,451,562.
(8) The Company has a leasehold interest in this Property. The fee interest in
this Property is subject to certain liens associated with industrial revenue
bonds issued in connection with the development of the Property. On March
21, 1996, the building was destroyed by a fire. Under such circumstances,
the lease for this Property requires the tenant to continue paying rent in
the specified amount, which the tenant has continued to do. In addition, the
lease requires the tenant to rebuild the structure to original
specifications. As specified in the lease, the tenant maintains insurance to
cover the replacement cost of the building and ongoing rent payments.
(9) On March 15, 1996, this Property was subleased to Komatsu America
International Company ("Komatsu") effective July 29, 1996. Komatsu has
executed a direct lease with the Company for the period between July 2002
and July 2006, which may be extended at Komatsu's option through July 2011.
(10) The Company has a maximum annual obligation under the lease for taxes and
insurance of $134,518.
(11) The Company has a maximum annual obligation under the lease for operating
expenses of $526,634.
(12) The Company holds fee title to the land and a leasehold interest in the
building for this Property.
S-23
<PAGE>
SELECTED FINANCIAL DATA
The following sets forth selected financial, operating and other data on an
historical basis for the Company and, for periods prior to the Initial Offering,
the Predecessor Partnerships Properties. Also set forth below are selected pro
forma financial, operating and other data for the Company at and for the three
months ended March 31, 1996 and for the year ended December 31, 1995. The pro
forma balance sheet data at March 31, 1996 have been prepared as if the Offering
had occurred on March 31, 1996. The pro forma operating and other data for the
three months ended March 31, 1996 and the year ended December 31, 1995 have been
prepared as if the Offering, the acquisition of the 1996 Acquired Properties,
the acquisition of all Properties acquired by the Company in 1995, the February
1995 Equity Offering, the October 1995 Equity Offering, $37.5 million of
borrowings under the 1995 Acquisition Facility, the refinancing of the 1993
Mortgage Loan and the 1993 Acquisition Facility and entering into the Interest
Rate Swap had occurred on January 1, 1995. The pro forma financial and operating
data are not necessarily indicative of what the actual financial position or
results of operations of the Company would have been as of the date or for the
periods indicated, nor do they purport to represent the results of operations or
financial position for future periods. This data should be read in conjunction
with the "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included elsewhere in this Prospectus Supplement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEAR ENDED DECEMBER 31,
--------------------------------- --------------------------------------------
HISTORICAL HISTORICAL
PRO FORMA -------------------- PRO FORMA -------------------------------
1996 1996 1995 1995 1995 1994 1993
----------- --------- --------- ----------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Rent....................................... $ 18,250 $ 16,733 $ 11,737 $ 73,000 $ 56,199 $ 35,020 $ 17,511
Other...................................... 81 81 178 693 693 452 211
----------- --------- --------- ----------- --------- --------- ---------
Total revenue.............................. 18,331 16,814 11,915 73,693 56,892 35,472 17,722
Expenses:
General and administrative and property
operating costs........................... 1,748 1,385 1,285 6,619 5,167 3,362 1,324
Financing expenses (related parties)....... - - - - - - 433
Financing expenses (other)................. - - - - - - -
Interest (related parties)................. - - - - - - 1,326
Interest (other) (1)....................... 5,608 4,863 3,319 22,783 17,329 6,726 2,883
Depreciation and amortization.............. 4,185 3,876 3,171 16,791 14,162 9,472 4,989
----------- --------- --------- ----------- --------- --------- ---------
Income before extraordinary charge........... 6,790 6,690 4,140 27,500 20,234 15,912 6,767
Extraordinary charge from early
extinguishment of debt (2).................. - - - 11,215 9,561 - -
----------- --------- --------- ----------- --------- --------- ---------
Net income (loss)............................ $ 6,790 $ 6,690 $ 4,140 $ 16,285 $ 10,673 $ 15,912 $ 6,767
----------- --------- --------- ----------- --------- --------- ---------
----------- --------- --------- ----------- --------- --------- ---------
OTHER DATA:
Funds From Operations (3).................... $ 10,124 $ 9,790 $ 6,330 $ 40,856 $ 30,642 $ 22,380 $ 10,440
Ratio of earnings to debt service (4)........ 2.21x 2.38x 2.25x 2.21x 2.17x 3.37x 2.61x
Total Properties (at end of period).......... 100 100 84 100 97 82 67
Total gross leasable area in sq. ft. (at end
of period, in thousands).................... 11,902 11,902 8,964 11,902 10,747 8,590 5,851
BALANCE SHEET DATA (AT END OF PERIOD):
Real estate, before accumulated
depreciation................................ $ 598,826 $ 598,926 $ 394,454 $ 538,717 $ 377,522 $ 221,477
Total assets................................. 620,806 619,431 417,199 559,727 401,241 229,099
Total unsecured debt......................... 137,475 136,100 - 77,000 - -
Total secured debt........................... 167,750 167,750 181,271 167,750 204,415 114,912
Total liabilities............................ 333,358 331,983 192,263 270,387 214,554 120,151
Stockholders' equity (net deficit)........... 287,448 287,448 224,936 289,340 186,687 108,948
<CAPTION>
1992 1991
--------- ---------
<S> <C> <C>
OPERATING DATA:
Revenue:
Rent....................................... $ 11,222 $ 11,009
Other...................................... 104 138
--------- ---------
Total revenue.............................. 11,326 11,147
Expenses:
General and administrative and property
operating costs........................... 753 800
Financing expenses (related parties)....... 933 568
Financing expenses (other)................. 207 291
Interest (related parties)................. 2,793 3,772
Interest (other) (1)....................... 2,082 2,770
Depreciation and amortization.............. 3,729 3,478
--------- ---------
Income before extraordinary charge........... 829 (532)
Extraordinary charge from early
extinguishment of debt (2).................. - -
--------- ---------
Net income (loss)............................ $ 829 $ (532)
--------- ---------
--------- ---------
OTHER DATA:
Funds From Operations (3).................... $ 3,845 $ 2,250
Ratio of earnings to debt service (4)........ 1.17x 0.92x
Total Properties (at end of period).......... 42 42
Total gross leasable area in sq. ft. (at end
of period, in thousands).................... 1,834 1,834
BALANCE SHEET DATA (AT END OF PERIOD):
Real estate, before accumulated
depreciation................................ $ 91,066 $ 89,480
Total assets................................. 86,277 86,268
Total unsecured debt......................... - -
Total secured debt........................... 88,302 88,052
Total liabilities............................ 92,326 90,996
Stockholders' equity (net deficit)........... (6,049) (4,728)
</TABLE>
- ------------------------------
(1) Pro forma interest expense on the Company's floating rate debt for the three
months ended March 31, 1996 and the year ended December 31, 1995 was based
on the average 30-day LIBOR in effect for those periods of 5.437% and 5.96%,
respectively, and is net of amounts received by the Company under interest
rate protection agreements. Pro forma interest expense for such periods was
computed assuming an annual interest rate on the Notes of 7 1/4%.
(2) In connection with the refinancing of the 1993 Mortgage Loan and the 1993
Acquisition Facility, the Company recognized certain unamortized loan costs
previously paid by the Company and incurred certain fees and expenses
totaling $9,561 ($11,215 on a pro forma basis).
(3) Funds From Operations has been calculated in accordance with the definition
of "funds from operations" recently clarified by NAREIT generally as net
income, computed in accordance with generally accepted accounting
principles, excluding gains or losses from debt restructuring and sales of
property, plus depreciation and amortization (in each case only on real
estate related assets) and after adjustments for unconsolidated partnerships
and joint ventures. Straight-line rent adjustments for the pro forma three
months ended March 31, 1996 and for the historical three months ended March
31, 1996 and 1995 were $1,264, $1,132 and $871, respectively. Straight-line
rent adjustments for the pro forma year ended December 31, 1995 and for the
historical years ended December 31, 1995, 1994, 1993, 1992 and 1991 were
$6,464, $4,226, $2,917, $1,301, $408 and $1,271, respectively. Funds From
Operations should not be considered as a substitute for net income as an
indication of the Company's performance or as a substitute for cash flow as
a measure of its liquidity.
(4) For purposes of these computations, earnings consist of net income (loss)
before extraordinary charges, if any, plus debt service. Debt service
consists of interest and recurring principal amortization (excluding
maturities) and excludes amortization of debt expense and discount related
to indebtedness.
S-24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto incorporated by reference into the
accompanying Prospectus. The operating data for the Company for the year ended
December 31, 1993 have been derived from the audited consolidated financial
statements of the Company since June 3, 1993 and the audited financial
statements of the Predecessor Partnerships Properties for the period ended June
2, 1993. The historical financial data include certain general and
administrative, financing and interest expenses incurred by the Predecessor
Partnerships Properties which were not incurred by the Company, primarily due to
historically greater leverage.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Rent revenues for the first quarter of 1996 increased by $5.0 million, or
43%, compared to the first quarter of 1995. The 1995 revenues were received from
84 Properties, whereas the 1996 revenues were received from 100 Properties,
reflecting the Company's continued growth through the acquisition of 16
Properties. The Company completed two additional property acquisitions
subsequent to the quarter end for $11.5 million in April 1996.
Interest expense increased $1.5 million for the first quarter of 1996
compared to the first quarter of 1995. This resulted from an increase in
borrowings from $181.3 million at March 31, 1995 to $303.9 million at March 31,
1996 due to property acquisitions, partially offset by a decrease in 30-day
LIBOR from 6.125% at March 31, 1995 to 5.4375% at March 29, 1996. Depreciation
expense increased by $0.93 million when compared to the same period in 1995 as a
result of the Company's larger asset base. Amortization expense decreased by 24%
to $0.7 million in the first quarter of 1996 compared to $0.96 million in the
first quarter of 1995 due to the debt refinancing that occurred in the fourth
quarter of 1995.
RESULTS OF OPERATIONS-1995 TO 1994
For the year ended December 31, 1995, rent revenue increased by 60% to $56.2
million, compared to $35.0 million for the same period in 1994. During 1995, the
Company acquired 15 additional properties (the "1995 Acquired Properties"). The
1995 Acquired Properties contributed $8.8 million to 1995 rental revenue. The
remaining $12.4 million increase was a result of a full year's operations on the
15 properties acquired in 1994 (the "1994 Acquired Properties"). Compared to
1994, other revenue increased by 40% to $0.7 million. The increase is primarily
due to larger cash balances which increased interest income.
The $0.5 million increase in property operating expenses is primarily due to
a full year of operations on the Microsoft property, which was acquired in
August 1994 and whose lease provides for certain landlord obligations, and
operating expenses relating to the 1995 Acquired Properties and 1994 Acquired
Properties.
Although general and administrative expenses increased 53% to $3.9 million
for the year ended December 31, 1995, when compared to the same period in 1994,
these expenses actually decreased as a percentage of total revenue. For the year
ended December 31, 1995, general and administrative expenses were 6.8% of total
revenue compared to 7.2% for 1994.
Interest expense increased $10.6 million to $17.3 million for the year ended
December 31, 1995, when compared to the same period in 1994. The increase is
attributable to higher average LIBOR rates and the increased borrowings in 1995
to fund the $160.4 million in 1995 real estate acquisitions. The amount of
outstanding debt for 1995 on a weighted average basis was approximately $235.8
million compared to approximately $102.2 million in 1994, with a significantly
higher asset base in 1995. The weighted average interest rate for 1995 was 7.35%
compared to 6.59% in 1994. Depreciation expense increased by $4.0 million as a
result of the Company's larger asset base. Amortization expense increased $0.7
million in 1995 when compared to the year ended December 31, 1994. However,
amortization expense decreased by 25% to $0.7 million in the fourth quarter of
1995 compared to $1.0 million in the third quarter of 1995 due to the debt
repayments discussed below.
S-25
<PAGE>
In the fourth quarter of 1995, the Company recognized a $9.6 million
extraordinary charge due to the early extinguishment of a $50 million mortgage
loan (the "1993 Mortgage Loan") and early termination of the $150 million
revolving acquisition facility (the "1993 Acquisition Facility"). In connection
with entering into the 1995 Acquisition Facility, the Company repaid in full all
outstanding borrowings under the 1993 Acquisition Facility and purchased U.S.
Treasury securities that are held as substitute collateral in connection with
the refinancing of the 1993 Mortgage Loan. In connection with these
transactions, the Company incurred certain fees and recognized certain
unamortized loan costs previously paid by the Company, which resulted in a cash
charge of $3.7 million and non-cash charge of $5.9 million.
RESULTS OF OPERATIONS-1994 TO 1993
For the year ended December 31, 1994, rent revenue increased by 100% to
$35.0 million, compared to $17.5 million for the same period in 1993. During
1994, the Company acquired 15 additional properties. The 1994 Acquired
Properties increased 1994 rent revenue by $6.9 million. Additionally, 1994
reflects a full year of revenue on the IPO Acquisition Properties and the six
properties the Company acquired in 1993 subsequent to the Initial Offering,
which represents a $10.6 million increase over 1993 revenue for these
properties. Compared to 1993, other revenue also more than doubled to $0.5
million. The increase is primarily due to larger cash balances which increased
interest income.
The $0.6 million increase in property operating expenses is attributable to
the 1994 acquisition of the Microsoft property whose lease provides for certain
landlord obligations, which totaled $0.2 million in 1994 and recognition of the
landlord's obligations on the Sears property of $0.15 million, an increase of
$0.05 million over 1993. The Sears property was acquired in June of 1993;
therefore, 1993 reflected only seven months of operations for the Sears
property. Additionally, asset management and other property costs increased due
to the increase in the number of properties owned.
General and administrative expenses increased by $1.4 million for the year
ended December 31, 1994, when compared to the same period in 1993. This increase
is primarily due to the Company's larger size, costs related to being a public
company and management incentive compensation expenses which were recognized in
the first quarter.
Interest expense increased 45% to $6.7 million for the year ended December
31, 1994, when compared to the same period in 1993. The increase is attributable
to the increased borrowings in 1994 to fund the approximately $153 million in
acquisitions. The amount of outstanding debt for 1994 on a weighted average
basis was approximately $102.2 million compared to approximately $73.2 million
for 1993, with a significantly higher asset base in 1994. The weighted average
interest rate for 1994 was 6.59% compared to 6.34% in 1993. Depreciation and
amortization expense increased by $4.5 million as a result of the Company's
larger asset base and related borrowing costs.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities increased by $4.9 million from the
quarter ended March 31, 1995 to $11.5 million for the quarter ended March 31,
1996. The increase was primarily due to rent from 16 additional properties
partially offset by the increased expenses due to increased portfolio size. Net
cash used for investing activities was $62 million for the quarter ended March
31, 1996, which was used primarily to acquire the Lever Brothers property in
Missouri, the Federal Express property in Tennessee and the MJDesigns property
in Texas.
Net cash provided by operating activities increased by $14.3 million from
the year ended December 31, 1994 to $38.8 million for the year ended December
31, 1995. The increase was primarily due to rent from the additional property
acquisitions and the effects of the February 1995 Equity Offering and the
October 1995 Equity Offering.
S-26
<PAGE>
Following is an analysis of the Company's capital expenditures:
<TABLE>
<CAPTION>
THREE YEAR ENDED
MONTHS ENDED DECEMBER 31,
MARCH 31, ----------------------------------
1996 1995 1994 1993
------------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Real estate acquisitions..................................... $ 61,925 $ 160,389 $ 155,873 $ 130,411
Building improvements........................................ 5 806 172 --
Corporate furniture and equipment............................ 102 279 307 43
------------- ---------- ---------- ----------
$ 62,032 $ 161,474 $ 156,352 $ 130,454
------------- ---------- ---------- ----------
------------- ---------- ---------- ----------
</TABLE>
The Company did not incur any leasing costs or tenant improvement
expenditures in the three months ended March 31, 1996 or in the year ended
December 31, 1995, and it does not anticipate incurring either cost until at
least 1997, the first scheduled lease expiration date in the current portfolio.
The Company anticipates incurring capital expenditures of approximately $0.9
million for the remainder of 1996 and approximately $1.25 million in 1997.
Net cash provided by financing activities for the first quarter of 1996 was
$50.3 million, primarily as a result of $59.1 million of borrowings under the
1995 Acquisition Facility to fund acquisitions. This amount of net cash provided
by financing activities was offset by dividends paid of $8.6 million.
On February 2, 1995, the Company completed the 1.6 million share February
1995 Equity Offering. The net proceeds were approximately $40.7 million. The
Company used $39.4 million to repay borrowings under the 1993 Acquisition
Facility and the remaining net proceeds were used for subsequent property
acquisitions.
On October 3, 1995, the Company entered into the $200 million unsecured 1995
Acquisition Facility which replaced the $150 million secured 1993 Acquisition
Facility. In addition, the Company entered into the Interest Rate Swap to
effectively fix the interest rate on varying amounts of the Company's floating
rate borrowings. These transactions reflect the Company's ongoing efforts to
obtain financing that minimizes the Company's cost of capital, maximizes its
operating and financial flexibility and mitigates its exposure to increases in
interest rates. See "The 1995 Acquisition Facility and Mortgage Loans" for
descriptions of the 1995 Acquisition Facility and the Interest Rate Swap.
On October 24, 1995, the Company completed the three million share October
1995 Equity Offering. The net proceeds were approximately $79.7 million and were
used to repay borrowings under the 1995 Acquisition Facility.
The Company expects to meet certain long-term liquidity requirements, such
as property acquisitions and scheduled debt maturities, by long-term unsecured
and secured borrowings and the issuance of debt securities or preferred and
common stock of the Company. As of March 31, 1996, the Company had on file with
the Securities and Exchange Commission (the "Commission") two Form S-3
Registration Statements with a combined remaining availability of $371 million.
The exact amount of debt, preferred stock and common stock issued will depend on
acquisitions, asset sales and the Company's unsecured debt and preferred stock
ratings at the time of issuance. The Company anticipates, subject to market and
other conditions, a preferred stock offering in the second or third quarter of
1996 of approximately $75 million in addition to the Offering. The proceeds of
these offerings are anticipated to be used to repay existing indebtedness under
the 1995 Acquisition Facility and, to the extent not so used, will be used to
repay mortgage indebtedness of the Company. Additionally, the Company may
occasionally sell assets to satisfy liquidity requirements.
The debt outstanding as of March 31, 1996 consists of mortgage notes and
notes payable totaling $303.9 million. There are no scheduled principal
amortization payments in 1996. The NationsBank Mortgage Loan ($28.3 million
outstanding at April 30, 1996) matures on December 8, 1996 and the Company has
an option to extend to a maturity date of December 8, 1997, subject to certain
conditions.
S-27
<PAGE>
THE 1995 ACQUISITION FACILITY AND MORTGAGE LOANS
THE 1995 ACQUISITION FACILITY. In October 1995, the Company entered into
the 1995 Acquisition Facility. The 1995 Acquisition Facility has a term of two
years and, subject to certain conditions, may be extended by the Company for one
additional year. Under the 1995 Acquisition Facility, the Company may borrow up
to $200 million to acquire new properties, and up to $30 million of such amount
may be borrowed for working capital purposes. Borrowings under the 1995
Acquisition Facility as of the date of this Prospectus Supplement bear interest
at a variable interest rate equal to a LIBOR rate selected by the Company plus
1.50%. In addition, the 1995 Acquisition Facility requires an annual commitment
fee of 25 basis points on the average undrawn balance in any given quarter,
payable quarterly in arrears. The 1995 Acquisition Facility permits additional
borrowings only if, after giving effect thereto, borrowings thereunder are not
more than 50% of the value of certain of TriNet's unencumbered properties and
the Company would have a debt service ratio of at least 1.75:1 with respect to
such unencumbered properties. The 1995 Acquisition Facility requires payment of
interest only until the end of its term, at which time all unpaid principal and
interest become due and payable. The 1995 Acquisition Facility is subject to
debt service coverage ratio covenants, a fixed charges coverage ratio covenant,
a debt to tangible fair market value net worth covenant and a minimum net worth
covenant. The Company initially borrowed $60.3 million under the 1995
Acquisition Facility which was used to purchase U.S. Treasury securities that
are held as substitute collateral in connection with the refinancing of the 1993
Mortgage Loan which will occur in June 1996. At that time, approximately $8.2
million of such U.S. Treasury securities will be released and returned to the
Company. Additionally, $62.6 million was borrowed under the 1995 Acquisition
Facility to repay in full all outstanding borrowings under the 1993 Acquisition
Facility and $5.9 million was borrowed to pay expenses associated with the above
transactions and for general corporate purposes. In connection with these
transactions, the Company recognized certain unamortized loan costs previously
paid by the Company and incurred certain fees, which resulted in a cash charge
of approximately $3.7 million and a non-cash charge of approximately $5.9
million in the quarter ended December 31, 1995.
THE 1994 MORTGAGE LOAN. On December 6, 1994, a subsidiary of the Company
entered into the $110 million 1994 Mortgage Loan. The net proceeds from the 1994
Mortgage Loan were used to reduce the outstanding balance under the 1993
Acquisition Facility and to acquire one additional Property. The 1994 Mortgage
Loan bears interest at a variable rate equal to 30-day LIBOR plus 1.25%,
requires monthly installments of interest only and is due and payable in full on
December 1, 2004. The Company entered into interest rate protection agreements
with respect to the entire principal amount of the 1994 Mortgage Loan for the
entire term, such that the Company's maximum cash interest exposure under the
1994 Mortgage Loan, prior to giving effect to the Interest Rate Swap, will not
exceed 8.25% per annum for the first four years or 9.00% per annum during the
remaining six years of such term. The 1994 Mortgage Loan allows prepayment of up
to $35 million at any time; if the entire $35 million is prepaid, the margin
over LIBOR on the remaining balance will decrease to 1.00%.
INTEREST RATE SWAP. Effective October 1, 1995, the Company entered into an
interest rate swap agreement (the "Interest Rate Swap") with Dresdner Bank AG
which, together with certain existing interest rate cap agreements, effectively
fixes the interest rate on varying amounts of the Company's LIBOR-based
borrowings at 5.58% plus the applicable margin. The notional amount of
indebtedness covered by the Interest Rate Swap is $110 million through May 1996,
$160 million from June 1996 through December 1997, $125 million from January
1998 through May 1998 and $75 million from June 1998 through November 2004. The
actual borrowing cost to the Company with respect to indebtedness covered by the
Interest Rate Swap will depend upon the applicable margin over LIBOR for such
indebtedness, which will be determined by the terms of the relevant debt
instruments. Currently, it is expected that the margin will range from 1.0% to
1.75%, which will provide for an all-in annual interest rate ranging from 6.58%
to 7.33%.
OTHER MORTGAGE LOANS. On April 18, 1995, a subsidiary of the Company
assumed the $28.5 million CIGNA Mortgage Loan in connection with the acquisition
of the AT&T Resource Management Corporation property located in Parsippany, New
Jersey. The CIGNA Mortgage Loan bears interest at an annual rate of 8.0% through
December 31, 1996 and 8.5% thereafter and is payable interest only until
maturity in
S-28
<PAGE>
May 2000. The CIGNA Mortgage Loan is secured by a first mortgage lien on the
AT&T Resource Management Corporation property located in Parsippany, New Jersey.
On June 12, 1995, a subsidiary of the Company entered into the $29.25 million
NationsBank Mortgage Loan in connection with the acquisition of five properties
leased to Schwegmann. The NationsBank Mortgage Loan is guaranteed by the Company
and is subject to interest at a variable rate equal to LIBOR plus 1.75% or the
NationsBank prime rate, at the Company's option. The NationsBank Mortgage Loan
requires monthly installments of interest only and is due and payable in full on
December 8, 1996, with an option to extend, subject to certain conditions, to a
maturity date of December 8, 1997. The NationsBank Mortgage Loan is secured in
part by a first mortgage lien on the Schwegmann properties. On April 24, 1996,
the Company used $950,000 of the proceeds from the sale of the Schwegmann
property in Denham Springs, Louisiana to reduce the outstanding balance under
the NationsBank Mortgage Loan to $28.3 million.
S-29
<PAGE>
MANAGEMENT
The following table sets forth certain information with respect to the
Directors and senior executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ---------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Robert W. Holman, Jr. 52 Co-Chairman of the Board of Directors and Chief Executive Officer
Jay H. Shidler 50 Co-Chairman of the Board of Directors
Mark S. Whiting 39 President, Chief Operating Officer and Director
Willis Andersen, Jr. 64 Director
John G. McDonald 58 Director
Robert S. Morris 41 Director
Stephen B. Oresman 63 Director
A. William Stein 42 Executive Vice President and Chief Financial Officer
Gary P. Lyon 35 Executive Vice President and Chief Acquisition Officer
Jo Ann Chitty 35 Senior Vice President, Asset Management
</TABLE>
ROBERT W. HOLMAN, JR. Mr. Holman has been Co-Chairman of the Board of
Directors and Chief Executive Officer of the Company since its formation. He was
a co-founder and Chairman and the Chief Executive Officer of Holman/Shidler
Capital Corporation ("HSCC") and, since 1986, has overseen the evaluation,
structuring and closing of acquisitions of over 250 purchase/leaseback corporate
properties in 40 states and Canada. Prior to founding HSCC, Mr. Holman acquired
and managed an investment portfolio of real estate and corporate assets in
Hawaii. For over 14 years, he managed the U.S. real estate portfolio of
Australia's largest merchant bank, Partnership Pacific Bank, owned by Bank of
Tokyo, Bank of America and Westpac, and was corporate treasurer and a director
of Watkins Pacific, Inc., a public company. He also directed the State of
Hawaii's revitalization of the Honolulu waterfront. An Economics graduate of the
University of California at Berkeley, Mr. Holman received his M.A. degree in
Economics and Planning from Lancaster University in England and was a Loeb
Fellow at Harvard University.
JAY H. SHIDLER. Mr. Shidler has been Co-Chairman of the Board of Directors
since the formation of the Company in March 1993. He is the founder and Managing
Partner of The Shidler Group and was a co-founder of HSCC and in these
capacities has been responsible for the overall investment strategies and
policies of these entities. A nationally acknowledged innovator in the field of
real estate investment, Mr. Shidler has over 20 years of experience in real
estate investment and has acquired and managed properties involving over $2
billion in aggregate value. Since 1970, Mr. Shidler has been directly involved
in the acquisition and management of over 500 properties in 40 states and
Canada. Mr. Shidler holds a Bachelor's degree in Business Administration from
the University of Hawaii. Mr. Shidler is co-founder and Chairman of the Board of
First Industrial Realty Trust, Inc., a New York Stock Exchange ("NYSE")-listed
REIT. He also serves on the boards of directors of several private companies and
is active as a trustee of several charitable and cultural organizations.
MARK S. WHITING. Mr. Whiting has been President and Chief Operating Officer
of the Company since its formation and has been a Director since May 1993. He
joined The Shidler Group in 1987 where he directed its purchase/leaseback
activities and managed the operation of over 250 purchase/leaseback corporate
properties in 40 states and Canada. Prior to joining The Shidler Group and HSCC,
Mr. Whiting was Manager/Resort Development for Wailea Development Company, Inc.
in Hawaii. Prior to that, Mr. Whiting served as a Corporate Financial and
Operations Analyst for Alexander & Baldwin, Inc., in Hawaii. Before that, he was
a Vice President of Trans-Pacific Realty, Inc., a real estate brokerage and
investment firm located in Hawaii. Mr. Whiting holds a Bachelor of Arts degree
from Stanford University and an M.B.A. from the Stanford University Graduate
School of Business.
S-30
<PAGE>
WILLIS ANDERSEN, JR., CRE. Mr. Andersen became a Director of the Company in
June 1993. He is a real estate and REIT industry consultant with over 35 years
of experience as an advisor, financial consultant and principal in the real
estate industry. Mr. Andersen currently specializes in advisory work for
publicly traded real estate companies, focusing specifically on REITs. Mr.
Andersen's real estate career has involved work with Allied Properties Inc. of
San Francisco; Bankoh Advisory Corp. of Honolulu; RAMPAC and ICM Property
Investors, Inc., NYSE-listed REITs; and Bedford Properties, Inc., a commercial
property investment and development firm. He is an active member of the American
Society of Real Estate Counselors and NAREIT, and is a former Governor and Past
President (1980-81) of NAREIT.
JOHN G. MCDONALD. Professor McDonald became a Director of the Company in
June 1993. He is a Professor of Finance in the Graduate School of Business at
Stanford University, where he has taught since 1968. Professor McDonald has
taught M.B.A. courses and executive programs in two broad subject areas,
investment management and corporate financial management, both with a global
perspective. He currently serves on the Board of Directors of Scholastic
Corporation, Varian Associates, Inc., Investment Company of America, Income Fund
of America, Growth Fund of America, New Perspective Fund, EuroPacific Growth
Fund, Emerging Markets Growth Fund, Inc. and American Balanced Fund.
ROBERT S. MORRIS. Mr. Morris became a Director of the Company in June 1993.
He is the founder and managing partner of Olympus Private Placement Fund, L.P.
and Olympus Growth Fund, L.P. Mr. Morris is currently a director of Master
Protection Holdings, Inc. and Tempest Reinsurance Co. Ltd., Garden Botanika,
Inc. and Sfuzzi, Inc. Prior to founding Olympus Private Placement Fund, L.P. in
1988, Mr. Morris was Senior Vice President of General Electric Investment
Corporation where he established that company's Private Placements division in
1983 and subsequently managed and enlarged the portfolio to over $1.8 billion.
From 1977 to 1982, Mr. Morris held management positions in various General
Electric manufacturing and financial services businesses.
STEPHEN B. ORESMAN. Mr. Oresman became a Director of the Company in June
1993. He has been the owner and President of Saltash, Ltd., a management
consulting firm, since 1991. He was a partner and Vice President of The Canaan
Group consulting firm from 1988 to 1991. Mr. Oresman's early career included ten
years in the manufacturing sector, first with Bausch & Lomb, Inc. in Rochester,
New York, and later with Interlake Steel Corp. in Chicago. Subsequently, Mr.
Oresman joined Booz-Allen Hamilton, Inc., where he spent 19 years, including ten
years as managing officer of the firm's Eastern Region and five years as
Chairman of Booz-Allen Hamilton International, guiding the firm's activities
outside of the U.S. Mr. Oresman later joined the advertising agency BBDO
International, as President of the firm's independent marketing companies. Mr.
Oresman is a member of the Boards of Directors of Cleveland Cliffs, Inc.,
Grossman's, Inc. and Technology Solutions Company. Mr. Oresman is a graduate of
Amherst College and the Harvard Business School.
A. WILLIAM STEIN. Mr. Stein has been Executive Vice President and Chief
Financial Officer since April 1996. He is responsible for the Company's
corporate finance (including banking and capital markets), financial management,
compliance and reporting. Between October 1995 and April 1996, Mr. Stein was
Senior Vice President, Capital Markets of the Company. Prior to joining TriNet,
Mr. Stein held a number of positions with Westinghouse Electric Corporation in
Pittsburgh, Pennsylvania, including Assistant Treasurer and Director-Banking. In
addition, Mr. Stein was a Vice President at Westinghouse Financial Services,
with responsibilities for structured finance, capital markets and real estate
sale/leaseback investments. Previously, he was Treasurer of Duquesne Light
Company in Pittsburgh and practiced law both as a securities and finance lawyer
and as a trial lawyer. Mr. Stein holds a Bachelor of Arts degree in Classics
from Princeton University, a J.D. from the University of Pittsburgh and an M.S.
in Industrial Administration from Carnegie Mellon University. Mr. Stein is a
member of the Pennsylvania Bar and the Florida Bar.
GARY P. LYON. Mr. Lyon has been Executive Vice President and Chief
Acquisition Officer since April 1996. Mr. Lyon's responsibilities include
directing all of the Company's purchase/leaseback and net leased real estate
business functions. Between June 1993 and April 1996, Mr. Lyon served as a
Senior Vice President of the Company with responsibility for acquisitions within
the Midwest and the Northeast. Prior to
S-31
<PAGE>
joining The Shidler Group and HSCC in 1987, Mr. Lyon worked for J.P. Morgan &
Co., Inc. and Goldman, Sachs & Co. Mr. Lyon received his Bachelor of Arts degree
in Economics from Duke University and his M.B.A. in International Business from
The Wharton School.
JO ANN CHITTY. Ms. Chitty has been a Senior Vice President of the Company
since its formation. From February 1990 until her employment with the Company,
Ms. Chitty was the Vice President, Asset Management for HSCC. From September
1987 to February 1990, she served as Director of Sales-East for The Shidler
Group. From January 1987 through September 1987, she served as Property
Manager/Escrow Coordinator for HSCC. Prior to that time, she served as Escrow
Coordinator with IU Terminal Properties, Inc., a property holding and management
company.
S-32
<PAGE>
DESCRIPTION OF NOTES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES OFFERED
HEREBY SUPPLEMENTS, AND TO THE EXTENT INCONSISTENT THEREWITH REPLACES, THE
DESCRIPTION OF THE GENERAL TERMS AND PROVISIONS OF THE "SENIOR DEBT SECURITIES"
SET FORTH IN THE ACCOMPANYING PROSPECTUS UNDER "DESCRIPTION OF DEBT SECURITIES,"
TO WHICH REFERENCE IS HEREBY MADE.
GENERAL
The Notes constitute a separate series of Senior Debt Securities (which are
more fully described in the accompanying Prospectus) to be issued under an
Indenture, to be dated as of , 1996 (the "Original Indenture"), as
supplemented by Supplemental Indenture No. 1, to be dated as of ,
1996 (the "Supplemental Indenture" and together with the Original Indenture, the
"Indenture") between the Company and Harris Trust and Savings Bank (the
"Trustee"). The form of the Indenture has been filed as an exhibit to (or
incorporated by reference into) the Registration Statement of which this
Prospectus Supplement is a part and is available for inspection at the offices
of the Company. The Indenture is subject to, and governed by, the Trust
Indenture Act of 1939, as amended (the "TIA"). The statements made hereunder
relating to the Indenture and the Notes are summaries of certain provisions
thereof, do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all provisions of the Indenture and the Notes.
All capitalized terms used but not defined herein shall have the respective
meanings set forth in the Indenture.
The Notes will be limited to an aggregate principal amount of $100,000,000,
will be direct, senior unsecured obligations of the Company and will rank
equally with all other unsecured and unsubordinated indebtedness of the Company
from time to time outstanding. The Notes will be effectively subordinated to
mortgages and other secured indebtedness of the Company and to indebtedness and
other liabilities of Subsidiaries. Accordingly, such prior indebtedness will
have to be satisfied in full before holders of the Notes will be able to realize
any value from encumbered or indirectly-held properties.
As of March 31, 1996, on a pro forma basis after giving effect to the
Offering and the application of the net proceeds therefrom as described under
"Use of Proceeds," the Company would have had approximately $305 million of
indebtedness, of which approximately $168 million, all of which is indebtedness
of the Subsidiaries, would have been secured by 25 of the Properties. Also at
such date, all of the Properties were owned by Subsidiaries. The Company may
incur additional indebtedness, including secured indebtedness, subject to the
provisions described below under "-Certain Covenants-Limitations on Incurrence
of Indebtedness."
The Notes will only be issued in fully registered form in denominations of
$1,000 and integral multiples thereof.
PRINCIPAL AND INTEREST
The Notes will bear interest at % per annum and will mature on
. The Notes will bear interest from , 1996 or from
the immediately preceding Interest Payment Date (as defined below) to which
interest has been paid, payable semi-annually in arrears on and
of each year, commencing (each, an "Interest Payment
Date"), to the Persons in whose name the Notes are registered in the Security
Register on the preceding or (whether or not a Business
Day, as defined below), as the case may be (each, a "Regular Record Date").
Interest on the Notes will be computed on the basis of a 360-day year of twelve
30-day months.
If any Interest Payment Date or Stated Maturity falls on a day that is not a
Business Day, the required payment shall be made on the next Business Day as if
it were made on the date such payment was due and no interest shall accrue on
the amount so payable for the period from and after such Interest Payment Date
or the Maturity Date, as the case may be. "Business Day" means any day, other
than a Saturday or Sunday, on which banks in the City of New York are not
required or authorized by law or executive order to close.
S-33
<PAGE>
The principal of and interest on the Notes will be payable at the corporate
trust office of the agent of Harris Trust and Savings Bank (the "Paying Agent")
in the City of New York, initially located at 77 Water Street, PROVIDED that, at
the option of the Company, payment of interest may be made by check mailed to
the address of the Person entitled thereto as it appears in the Security
Register or by wire transfer of funds to such Person at an account maintained
within the United States.
OPTIONAL REDEMPTION
The Notes may be redeemed at any time after , at the option of the
Company, in whole or in part, at a redemption price equal to the sum of (i) the
principal amount of the Notes being redeemed plus accrued interest thereon to
the redemption date and (ii) the Make-Whole Amount, if any, with respect to such
Notes (the "Redemption Price").
If notice has been given as provided in the Indenture and funds for the
redemption of any Notes called for redemption shall have been made available on
the redemption date referred to in such notice, such Notes will cease to bear
interest on the date fixed for such redemption specified in such notice and the
only right of the Holders of the Notes will be to receive payment of the
Redemption Price.
Notice of any optional redemption of any Notes will be given to Holders at
their addresses, as shown in the Security Register, not more than 60 nor less
than 30 days prior to the date fixed for redemption. The notice of redemption
will specify, among other items, the Redemption Price and the principal amount
of the Notes held by such Holder to be redeemed.
If less than all the Notes are to be redeemed at the option of the Company,
the Company will notify the Trustee at least 45 days prior to the redemption
date (or such shorter period as is satisfactory to the Trustee) of the aggregate
principal amount of Notes to be redeemed and their redemption date. The Trustee
shall select, in such manner as it shall deem fair and appropriate, Notes to be
redeemed in whole or in part. Notes may be redeemed in part in the minimum
authorized denomination for Notes or in any integral multiple thereof.
"Make-Whole Amount" means, in connection with any optional redemption or
accelerated payment of any Note, the excess, if any, of (i) the aggregate
present value as of the date of such redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest (exclusive
of interest accrued to the date of redemption or accelerated payment) that would
have been payable in respect of such dollar if such redemption or accelerated
payment had not been made, determined by discounting, on a semi-annual basis,
such principal and interest at the Reinvestment Rate (determined on the third
Business Day preceding the date such notice of Redemption is given or
declaration of acceleration is made) from the respective dates on which such
principal and interest would have been payable if such redemption or accelerated
payment had not been made, over (ii) the aggregate principal amount of the Notes
being redeemed or paid.
"Reinvestment Rate" means .25% (twenty-five one hundredths of one percent)
plus the arithmetic mean of the yields under the respective headings "This Week"
and "Last Week" published in the Statistical Release under the caption "Treasury
Constant Maturities" for the maturity (rounded to the nearest month)
corresponding to the remaining life to maturity, as of the payment date of the
principal being redeemed or paid. If no maturity exactly corresponds to such
maturity, yields for the two published maturities most closely corresponding to
such maturity shall be calculated pursuant to the immediately preceding sentence
and the Reinvestment Rate shall be interpolated or extrapolated from such yields
on a straight-line basis, rounding in each of such relevant periods to the
nearest month. For such purposes of calculating the Reinvestment Rate, the most
recent Statistical Release published prior to the date of determination of the
Make-Whole Amount shall be used.
"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which establishes yields on actively traded United States government
securities adjusted to constant maturities or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by the Company.
S-34
<PAGE>
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS. The Company will not, and will
not permit any Subsidiary to, incur any Indebtedness (as defined below) if,
immediately after giving effect to the incurrence of such additional
Indebtedness and the application of the proceeds thereof, the aggregate
principal amount of all outstanding Indebtedness of the Company and its
Subsidiaries on a consolidated basis determined in accordance with GAAP is
greater than 55% of the sum of (without duplication) (i) the Total Assets (as
defined below) of the Company and its Subsidiaries as of the end of the calendar
quarter covered in the Company's Annual Report on Form 10-K or Quarterly Report
on Form 10-Q, as the case may be, most recently filed with the Commission (or,
if such filing is not permitted under the Exchange Act, with the Trustee) prior
to the incurrence of such additional Indebtedness and (ii) the purchase price of
any real estate assets or mortgages receivable acquired, and the amount of any
securities offering proceeds received (to the extent that such proceeds were not
used to acquire real estate assets or mortgages receivable or used to reduce
Indebtedness), by the Company or any Subsidiary since the end of such calendar
quarter, including those proceeds obtained in connection with the incurrence of
such additional Indebtedness.
In addition to the foregoing limitation on the incurrence of Indebtedness,
the Company will not, and will not permit any Subsidiary to, incur any
Indebtedness secured by any Encumbrance (as defined below) upon any of the
property of the Company or any Subsidiary if, immediately after giving effect to
the incurrence of such additional Indebtedness and the application of the
proceeds thereof, the aggregate principal amount of all outstanding Indebtedness
of the Company and its Subsidiaries on a consolidated basis which is secured by
any Encumbrance on property of the Company or any Subsidiary is greater than 40%
of the sum of (without duplication) (i) the Total Assets of the Company and its
Subsidiaries as of the end of the calendar quarter covered in the Company's
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be,
most recently filed with the Commission (or, if such filing is not permitted
under the Exchange Act, with the Trustee) prior to the incurrence of such
additional Indebtedness and (ii) the purchase price of any real estate assets or
mortgages receivable acquired, and the amount of any securities offering
proceeds received (to the extent that such proceeds were not used to acquire
real estate assets or mortgages receivable or used to reduce Indebtedness), by
the Company or any Subsidiary since the end of such calendar quarter, including
those proceeds obtained in connection with the incurrence of such additional
Indebtedness.
The Company and its Subsidiaries may not at any time own Total Unencumbered
Assets (as defined below) equal to or less than 185% of the aggregate
outstanding principal amount of the Unsecured Indebtedness (as defined below) of
the Company and its Subsidiaries on a consolidated basis.
In addition to the foregoing limitations on the incurrence of Indebtedness,
the Company will not, and will not permit any Subsidiary to, incur any
Indebtedness if the ratio of Consolidated Income Available for Debt Service (as
defined below) to the Annual Service Charge (as defined below) for the four
consecutive fiscal quarters most recently ended prior to the date on which such
additional Indebtedness is to be incurred shall have been less than 2.0:1 on a
pro forma basis after giving effect thereto and to the application of the
proceeds therefrom, and calculated on the assumption that (i) such Indebtedness
and any other Indebtedness incurred by the Company and its Subsidiaries since
the first day of such four-quarter period and the application of the proceeds
therefrom, including to refinance other Indebtedness, had occurred at the
beginning of such period; (ii) the repayment or retirement of any other
Indebtedness by the Company and its Subsidiaries since the first day of such
four-quarter period had been repaid or retired at the beginning of such period
(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based upon the average daily balance
of such Indebtedness during such period); (iii) in the case of Acquired
Indebtedness (as defined below) or Indebtedness incurred in connection with any
acquisition since the first day of such four-quarter period, the related
acquisition had occurred as of the first day of such period with the appropriate
adjustments with respect to such acquisition being included in such pro forma
calculation; and (iv) in the case of any acquisition or disposition by the
Company or its Subsidiaries of any asset or group of assets since the first day
of such four-quarter period, whether by
S-35
<PAGE>
merger, stock purchase or sale, or asset purchase or sale, such acquisition or
disposition or any related repayment of Indebtedness had occurred as of the
first day of such period with the appropriate adjustments with respect to such
acquisition or disposition being included in such pro forma calculation.
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13 and 15(d) if the Company
were so subject, such documents to be filed with the Commission on or prior to
the respective dates (the "Required Filing Dates") by which the Company would
have been required so to file such documents if the Company were so subject. The
Company will also in any event (x) within 15 days of each Required Filing Date
(i) if the Company is not then subject to such Section 13 or 15(d), transmit by
mail to all Holders of Notes, as their names and addresses appear in the
Security Register, without cost to such Holders, copies of the annual reports
and quarterly reports that the Company would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Company
were subject to such Sections, (ii) file with the Trustee copies of the annual
reports, quarterly reports and other documents that the Company would have been
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act if the Company were subject to such Sections and (y) if filing such
documents by the Company with the Commission is not permitted under the Exchange
Act, promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any prospective
Holder.
WAIVER OF CERTAIN COVENANTS. The Company may omit to comply with any term,
provision or condition of the foregoing covenants, and with any other term,
provision or condition with respect to the Notes (except any such term,
provision or condition which could not be amended without the consent of all
Holders of Notes), if before or after the time for such compliance the Holders
of at least a majority in principal amount of all outstanding Notes, by Act of
such Holders, either waive such compliance in such instance or generally waive
compliance with such covenant or condition. Except to the extent so expressly
waived, and until such waiver shall become effective, the obligations of the
Company and the duties of the Trustee in respect of any such term, provision or
condition shall remain in full force and effect.
As used herein, and in the Indenture:
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such
Person becoming a Subsidiary or such acquisition. Acquired Indebtedness
shall be deemed to be incurred on the date of the related acquisition of
assets from any Person or the date the acquired Person becomes a Subsidiary.
"ANNUAL SERVICE CHARGE" for any period means the aggregate interest
expense for such period in respect of, and the amortization during such
period of any original issue discount of, Indebtedness of the Company and
its Subsidiaries and the amount of dividends which are payable during such
period in respect of any Disqualified Stock.
"CAPITAL STOCK" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participations or other
ownership interests (however designated) of such Person and any rights
(other than debt securities convertible into or exchangeable for corporate
stock), warrants or options to purchase any thereof.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Earnings from Operations (as defined below) of the Company and its
Subsidiaries plus amounts which have been deducted, and minus amounts which
have been added, for the following (without duplication): (i) interest on
Indebtedness of the Company and its Subsidiaries, (ii) provision for taxes
of the Company and its Subsidiaries based on income, (iii) amortization of
debt discount, (iv) provisions for gains and losses on properties and
property depreciation and amortization, (v) the effect of any noncash charge
resulting from a change in accounting principles in determining Earnings
from Operations for such period and (vi) amortization of deferred charges.
S-36
<PAGE>
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock
of such Person which by the terms of such Capital Stock (or by the terms of
any security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise
(other than Capital Stock which is redeemable solely in exchange for common
stock), (ii) is convertible into or exchangeable or exercisable for
Indebtedness or Disqualified Stock or (iii) is redeemable at the option of
the holder thereof, in whole or in part (other than Capital Stock which is
redeemable solely in exchange for Capital Stock which is not Disqualified
Stock or the redemption price of which may, at the option of such Person, be
paid in Capital Stock which is not Disqualified Stock), in each case on or
prior to the Stated Maturity of the Notes.
"EARNINGS FROM OPERATIONS" for any period means net earnings excluding
gains and losses on sales of investments, extraordinary items and property
valuation losses, net as reflected in the financial statements of the
Company and its Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP.
"ENCUMBRANCE" means any mortgage, lien, charge, pledge or security
interest of any kind.
"INDEBTEDNESS" of the Company or any Subsidiary means any indebtedness of
the Company or any Subsidiary, whether or not contingent, in respect of (i)
borrowed money or evidenced by bonds, notes, debentures or similar
instruments whether or not such indebtedness is secured by any Encumbrance
existing on property owned by the Company or any Subsidiary, (ii)
indebtedness for borrowed money of a Person other than the Company or a
Subsidiary which is secured by any Encumbrance existing on property owned by
the Company or any Subsidiary, to the extent of the lesser of (x) the amount
of indebtedness so secured and (y) the fair market value of the property
subject to such Encumbrance, (iii) the reimbursement obligations, contingent
or otherwise, in connection with any letters of credit actually issued or
amounts representing the balance deferred and unpaid of the purchase price
of any property or services, except any such balance that constitutes an
accrued expense or trade payable, or all conditional sale obligations or
obligations under any title retention agreement, (iv) the principal amount
of all obligations of the Company or any Subsidiary with respect to
redemption, repayment or other repurchase of any Disqualified Stock, (v) any
lease of property by the Company or any Subsidiary as lessee which is
reflected on the Company's consolidated balance sheet as a capitalized lease
in accordance with GAAP, or (vi) interest rate swaps, caps or similar
agreements and foreign exchange contracts, currency swaps or similar
agreements, to the extent, in the case of items of indebtedness under (i)
through (iii) above, that any such items (other than letters of credit)
would appear as a liability on the Company's consolidated balance sheet in
accordance with GAAP, and also includes, to the extent not otherwise
included, any obligation by the Company or any Subsidiary to be liable for,
or to pay, as obligor, guarantor or otherwise (other than for purposes of
collection in the ordinary course of business), Indebtedness of another
Person (other than the Company or any Subsidiary) (it being understood that
Indebtedness shall be deemed to be incurred by the Company or any Subsidiary
whenever the Company or such Subsidiary shall create, assume, guarantee or
otherwise become liable in respect thereof).
"SUBSIDIARY" means, with respect to any Person, any corporation or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests of which are owned,
directly or indirectly, by such Person. For the purposes of this definition,
"voting equity securities" means equity securities having voting power for
the election of directors, whether at all times or only so long as no senior
class of security has such voting power by reason of any contingency.
"TOTAL ASSETS" as of any date means the sum of (i) the Undepreciated Real
Estate Assets and (ii) all other assets of the Company and its Subsidiaries
determined in accordance with GAAP (but excluding accounts receivable and
intangibles).
"TOTAL UNENCUMBERED ASSETS" means the sum of (i) those Undepreciated Real
Estate Assets not subject to an Encumbrance for borrowed money and (ii) all
other assets of the Company and its Subsidiaries not subject to an
Encumbrance for borrowed money, determined in accordance with GAAP (but
excluding accounts receivable and intangibles).
S-37
<PAGE>
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Company and its
Subsidiaries on such date, before depreciation and amortization, determined
on a consolidated basis in accordance with GAAP.
"UNSECURED INDEBTEDNESS" means Indebtedness which is not secured by any
Encumbrance upon any of the properties of the Company or any Subsidiary.
See "Description of Debt Securities-Certain Covenants" in the accompanying
Prospectus for a description of additional covenants applicable to the Company.
EVENTS OF DEFAULT
The Indenture provides that the following events are "Events of Default"
with respect to the Notes: (a) default in the payment of any interest on any
Notes when such interest becomes due and payable that continues for a period of
30 days; (b) default in the payment of the principal of (or Make-Whole Amount,
if any, on) any Notes when due and payable; (c) default in the performance, or
breach, of any other covenant or warranty of the Company in the Indenture with
respect to the Notes and continuance of such default or breach for a period of
60 days after written notice as provided in the Indenture; (d) default under any
bond, debenture, note, mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any indebtedness for
money borrowed by the Company (or by any Subsidiary, the repayment of which the
Company has guaranteed or for which the Company is directly responsible or
liable as obligor or guarantor), having an aggregate principal amount
outstanding of at least $10,000,000, whether such indebtedness now exists or
shall hereafter be created, which default shall have resulted in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such indebtedness
having been discharged, or such acceleration having been rescinded or annulled,
within a period of 10 days after written notice to the Company as provided in
the Indenture; (e) the entry by a court of competent jurisdiction of one or more
judgments, orders or decrees against the Company or any Subsidiary in an
aggregate amount (excluding amounts fully covered by insurance) in excess of
$10,000,000 and such judgments, orders or decrees remain undischarged, unstayed
and unsatisfied in an aggregate amount (excluding amounts fully covered by
insurance) in excess of $10,000,000 for a period of 30 consecutive days; and (f)
certain events of bankruptcy, insolvency or reorgani-
zation, or court appointment of a receiver, liquidator or trustee of the Company
or any Significant Subsidiary. The Term "Significant Subsidiary" has the meaning
ascribed to such term in Regulation S-X promulgated under the Securities Act of
1933, as amended.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The provisions of Article 14 of the Indenture relating to defeasance and
covenant defeasance, which are described under "Description of Debt
Securities-Discharge, Defeasance and Covenant Defeasance" in the accompanying
Prospectus, will apply to the Notes. Each of the covenants described under
"-Certain Covenants" herein and "Description of Debt Securities-Certain
Covenants" in the accompanying Prospectus will be subject to covenant
defeasance.
BOOK-ENTRY SYSTEM
The provisions described under "Description of Debt Securities-Book-Entry
System" in the accompanying Prospectus will apply to the Notes.
DTC has advised the Company of the following information regarding DTC: DTC
is a limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Securities Exchange Act of 1934, as
amended. DTC holds securities that its Participants (as defined in the
accompanying Prospectus) deposit with DTC. DTC also facilitates the settlement
among its Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in its Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants of DTC include
securities brokers and dealers (including the Underwriters), banks, trust
companies, clearing corporations and certain other organizations. DTC is owned
by a number of its direct Participants and by the NYSE, the
S-38
<PAGE>
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through or
maintain a custodial relationship with a direct Participant of DTC, either
directly or indirectly. The rules applicable to DTC and its participants are on
file with the Commission.
GOVERNING LAW
The Indenture will be governed by and shall be construed in accordance with
the laws of the State of New York.
NO PERSONAL LIABILITY
No past, present or future stockholder, employee, officer or director of the
Company or any successor thereof shall have any liability for any obligation,
covenant or agreement of the Company contained under the Notes or the Indenture.
Each Holder of Notes by accepting such Notes waives and releases all such
liability. The waiver and release are part of the consideration for the issue of
the Notes.
CONCERNING THE TRUSTEE
The Trustee is an affiliate of Bank of Montreal, which is one of the lenders
under the 1995 Acquisition Facility.
S-39
<PAGE>
UNDERWRITING
Subject to the terms and conditions in the Underwriting Agreement dated the
date hereof (the "Underwriting Agreement"), the Company has agreed to sell to
each of the Underwriters named below (the "Underwriters") severally, and each of
the Underwriters has severally agreed to purchase, the principal amount of Notes
set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
- ------------------------------------------------------------------------ ----------------
<S> <C>
J.P. Morgan Securities Inc.............................................. $
Goldman, Sachs & Co..................................................... $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................. $
----------------
Total............................................................... $ 100,000,000
----------------
----------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters will be obligated to purchase all of the Notes if any are
purchased.
The Underwriters have advised the Company that they propose initially to
offer the Notes directly to the public at the public offering price set forth on
the cover page of this Prospectus Supplement, and to certain dealers at such
price less a concession not in excess of % of the principal amount of the
Notes. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of % of the principal amount of the Notes to certain other
dealers. After the initial public offering, the public offering price and such
concession may be changed.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that the Underwriters intend to
make a market in the Notes but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.
In the ordinary course of their respective business, affiliates of the
Underwriters have engaged, or may in the future engage, in commercial banking
and investment banking transactions with the Company. Morgan Guaranty Trust
Company of New York, an affiliate of J.P. Morgan Securities Inc., expects to
receive approximately $ million of the proceeds of the Offering to repay
amounts outstanding under the 1995 Acquisition Facility. See "Use of Proceeds."
LEGAL MATTERS
Certain legal matters, including the legality of the Notes being offered
hereby, are being passed upon for the Company by Cahill Gordon & Reindel (a
partnership including a professional corporation), New York, New York, and
Goodwin, Procter & Hoar L.L.P., Boston, Massachusetts. Certain legal matters
related to the Offering are being passed upon for the Underwriters by Skadden,
Arps, Slate, Meagher & Flom, New York, New York. Cahill Gordon & Reindel and
Skadden, Arps, Slate, Meagher & Flom will each rely as to all matters of
Maryland law on the opinion of Goodwin, Procter & Hoar L.L.P., Boston,
Massachusetts.
S-40
<PAGE>
PROSPECTUS
$300,000,000
[LOGO]
TriNet Corporate Realty Trust, Inc.
Debt Securities
Preferred Stock
Common Stock
TriNet Corporate Realty Trust, Inc. ("TriNet" or the "Company") may offer
from time to time in one or more series (i) its unsecured debt securities ("Debt
Securities"), (ii) shares of its preferred stock, $.01 par value per share
("Preferred Stock"), and (iii) shares of its common stock, $.01 par value per
share ("Common Stock"), with an aggregate public offering price of up to
$300,000,000 (or its equivalent based on the exchange rate at the time of sale)
in amounts, at prices and on terms to be determined at the time of offering. The
Debt Securities, Preferred Stock and Common Stock (collectively, the
"Securities") may be offered separately or together, in separate series, in
amounts, at prices and on terms to be set forth in one or more supplements to
this Prospectus (each a "Prospectus Supplement").
The specific terms of the Securities for which this Prospectus is being
delivered will be set forth in the applicable Prospectus Supplement and will
include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, ranking, currency, form (which may be
registered or bearer, or certificated or global), authorized denominations,
maturity, rate (or manner of calculation thereof) and time of payment of
interest, terms for redemption at the option of the Company or repayment at the
option of the holder, terms for sinking fund payments, terms for conversion into
Common Stock or Preferred Stock, covenants and any initial public offering
price; (ii) in the case of Preferred Stock, the specific designation and stated
value per share, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price; and (iii) in the case of
Common Stock, any initial public offering price. In addition, such specific
terms may include limitations on direct or beneficial ownership and restrictions
on transfer of the Securities, in each case as may be consistent with the
Company's Amended and Restated Articles of Incorporation or otherwise
appropriate to preserve the status of the Company as a real estate investment
trust ("REIT") for federal income tax purposes. See "Restrictions on Transfers
of Capital Stock."
The applicable Prospectus Supplement will also contain information, where
appropriate, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered by the Company directly to one or more
purchasers, through agents designated from time to time by the Company or to or
through underwriters or dealers. If any agents or underwriters are involved in
the sale of any of the securities, their names, and any applicable purchase
price, fee, commission or discount arrangement between or among them will be set
forth, or will be calculable from the information set forth, in an accompanying
Prospectus Supplement. See "Plan of Distribution." No Securities may be sold
without delivery of a Prospectus Supplement describing the method and terms of
the offering of such Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Prospectus is January 24, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the "SEC"
or "Commission") a Registration Statement on Form S-3 under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the Securities. This
Prospectus, which constitutes part of the Registration Statement, omits certain
of the information contained in the Registration Statement and the exhibits
thereto on file with the Commission pursuant to the Securities Act and the rules
and regulations of the Commission thereunder. The Registration Statement,
including exhibits thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, 13th Floor, New York, New York 10048, and Northwestern Atrium
Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and
copies may be obtained at the prescribed rates from the Public Reference Section
of the Commission at its principal office in Washington, D.C. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
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 and proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the locations described above. Copies of such materials
can be obtained by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
In addition, the Common Stock is listed on the New York Stock Exchange (the
"NYSE"), and such materials can be inspected and copied at the NYSE, 20 Broad
Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus:
(i) Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as
amended by the Company's Form 10-K/A dated October 5, 1995, (ii) Quarterly
Reports on Form 10-Q for the fiscal quarters ended March 31, 1995, June 30, 1995
and September 30, 1995, (iii) the Company's Current Report on Form 8-K dated May
2, 1995, as amended by the Company's Form 8-K/A dated June 14, 1995, (iv) the
Company's Current Report on Form 8-K dated June 23, 1995, (v) the Company's
Current Report on Form 8-K dated October 5, 1995, (vi) the Company's Current
Report on Form 8-K dated November 4, 1995, and (vii) the description of the
Company's Common Stock contained in the Company's Registration Statement on Form
8-A dated April 1, 1993.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of all Securities shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. The Company will provide, without charge, to
each person, including any beneficial owner, to whom a copy of this Prospectus
is delivered, at the request of such person, a copy of any or all of the
documents incorporated herein by reference (other than exhibits thereto, unless
such exhibits are specifically incorporated by reference into such documents).
Written requests for such copies should be directed to James R. Reinhart, Chief
Financial Officer, TriNet Corporate Realty Trust, Inc., Four Embarcadero Center,
Suite 3150, San Francisco, California 94111, telephone (415) 391-4300.
Any statement contained herein or in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in an applicable Prospectus Supplement) or in any subsequently filed
document that is 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 or any Prospectus Supplement, except as so
modified or superseded.
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THE COMPANY
GENERAL
TriNet Corporate Realty Trust, Inc. is real estate investment trust (a
"REIT") which acquires, owns and manages properties that are net leased to
corporations in a variety of industries throughout the United States and that
the Company believes are essential or important to the ongoing operations of
those corporations. Under a net lease, the tenant is responsible for obligations
such as taxes, repairs and insurance, which would otherwise be the
responsibility of the landlord. Based on total market capitalization, the
Company is one of the largest publicly traded REITs in the United States engaged
exclusively in the corporate net leased real estate business. As of January 18,
1996, TriNet's portfolio consists of 97 properties (the "Properties"), which are
predominantly single-tenant industrial and office buildings located throughout
the United States. The Properties are 100% net leased pursuant to leases with an
average remaining term (excluding extension options) of approximately 11 years
when lease terms are weighted according to contractual rent revenues. TriNet is
a self-administered and self-managed REIT.
The Company was incorporated under the laws of the State of Maryland on
March 4, 1993. The Company's principal executive offices are located at Four
Embarcadero Center, Suite 3150, San Francisco, California 94111, and its
telephone number is (415) 391-4300. The Company also maintains regional offices
in Florida and Pennsylvania.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of Securities for general
corporate purposes, which may include the acquisition of additional properties,
the repayment of outstanding debt or the improvement of certain properties
already in the Company's portfolio.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratios of earnings
to fixed charges for the periods shown:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1995 DECEMBER 31, 1994
- ------------------ ------------------
<S> <C>
1.92x 2.65x
</TABLE>
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of pre-tax income from
continuing operations plus fixed charges. Fixed charges consist of interest
expense and the amortization of debt issuance costs. To date, the Company has
not issued any Preferred Stock; therefore, the ratios of earnings to combined
fixed charges and preferred stock dividend requirements are the same as the
ratios of earnings to fixed charges presented above.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be direct unsecured obligations of the Company and
may be either senior Debt Securities ("Senior Debt Securities") or subordinated
Debt Securities ("Subordinated Debt Securities"). The Debt Securities will be
issued under one or more indentures, each dated as of a date prior to the
issuance of the Debt Securities to which it relates. Senior Debt Securities and
Subordinated Debt Securities may be issued pursuant to separate indentures
(respectively, a "Senior Indenture" and a "Subordinated Indenture"), in each
case between the Company and a trustee (a "Trustee"), which may be the same
Trustee, and in the form that has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part, subject to such amendments or
supplements as may be adopted from time to time. The Senior Indenture and the
Subordinated Indenture, as amended or supplemented from time to time, are
sometimes hereinafter referred to collectively as the "Indentures." The
Indentures will be subject to and governed by the Trust Indenture Act of 1939,
as amended (the "TIA"). The statements made under this heading relating
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<PAGE>
to the Debt Securities and the Indentures are summaries of the anticipated
provisions thereof, do not purport to be complete and are qualified in their
entirety by reference to the Indentures and such Debt Securities.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable Indenture.
TERMS
GENERAL. The Debt Securities will be direct, unsecured obligations of the
Company. The indebtedness represented by the Senior Debt Securities will rank
equally with all other unsecured and unsubordinated indebtedness of the Company.
The indebtedness represented by Subordinated Debt Securities will be
subordinated in right of payment to the prior payment in full of Senior
Indebtedness of the Company as described under "--Subordination." The particular
terms of the Debt Securities offered by a Prospectus Supplement will be
described in the applicable Prospectus Supplement, along with any applicable
modifications of or additions to the general terms of the Debt Securities as
described herein and in the applicable Indenture and any applicable federal
income tax considerations. Accordingly, for a description of the terms of any
series of Debt Securities, reference must be made to both the Prospectus
Supplement relating thereto and the description of the Debt Securities set forth
in this Prospectus.
Except as set forth in any Prospectus Supplement, the Debt Securities may be
issued without limit as to aggregate principal amount, in one or more series, in
each case as established from time to time by the Company or as set forth in the
applicable Indenture or in one or more indentures supplemental to such
Indenture. All Debt Securities of one series need not be issued at the same time
and, unless otherwise provided, a series may be reopened, without the consent of
the holders of the Debt Securities of such series, for issuance of additional
Debt Securities of such series.
Each Indenture will provide that the Company may, but need not, designate
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the applicable
Indenture separate and apart from the trust administered by any other Trustee,
and, except as otherwise indicated herein, any action described herein to be
taken by each Trustee may be taken by each such Trustee with respect to, and
only with respect to, the one or more series of Debt Securities for which it is
Trustee under the applicable Indenture.
The following summaries set forth certain general terms and provisions of
the Indentures and the Debt Securities. The Prospectus Supplement relating to
the series of Debt Securities being offered will contain further terms of such
Debt Securities, including the following specific terms:
(1) The title of such Debt Securities and whether such Debt Securities are
Senior Debt Securities or Subordinated Debt Securities;
(2) The aggregate principal amount of such Debt Securities and any limit on
such aggregate principal amount;
(3) The price (expressed as a percentage of the principal amount thereof) at
which such Debt Securities will be issued and, if other than the
principal amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity thereof, or (if
applicable) the portion of the principal amount of such Debt Securities
that is convertible into Common Stock or Preferred Stock, or the method
by which any such portion shall be determined;
(4) If convertible, the terms on which such Debt Securities are convertible,
including the initial conversion price or rate and the conversion period
and any applicable limitations on the ownership or transferability of the
Common Stock or Preferred Stock receivable on conversion;
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<PAGE>
(5) The date or dates, or the method for determining such date or dates, on
which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) The date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the dates on which any such
interest will be payable, the record dates for such interest payment
dates, or the method by which such dates shall be determined, the persons
to whom such interest shall be payable, and the basis upon which interest
shall be calculated if other than that of a 360-day year of twelve 30-day
months;
(8) The place or places where the principal of (and premium or Make-Whole
Amount (as defined in the Indenture), if any) and interest, if any, on
such Debt Securities will be payable, where such Debt Securities may be
surrendered for registration of transfer or exchange and where notices or
demands to or upon the Company in respect of such Debt Securities and the
applicable Indenture may be served;
(9) The period or periods, if any, within which, the price or prices at
which and the other terms and conditions upon which such Debt Securities
may, pursuant to any optional or mandatory redemption provisions, be
redeemed, as a whole or in part, at the option of the Company;
(10) The obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision
or at the option of a holder thereof, and the period or periods within
which, the price or prices at which and the other terms and conditions
upon which such Debt Securities will be redeemed, repaid or purchased, as
a whole or in part, pursuant to such obligation;
(11) If other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium or
Make-Whole Amount, if any, including any amount due upon redemption, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on the yield on or trading price of
other securities, including United States Treasury securities, or on a
currency, currencies, currency unit or units, or composite currency or
currencies) and the manner in which such amounts shall be determined;
(13) Whether the principal of (and premium or Make-Whole Amount, if any) or
interest on the Debt Securities of the series are to be payable, at the
election of the Company or a holder thereof, in a currency or currencies,
currency unit or units or composite currency or currencies other than
that in which such Debt Securities are denominated or stated to be
payable, the period or periods within which, and the terms and conditions
upon which, such election may be made, and the time and manner of, and
identity of the exchange rate agent with responsibility for, determining
the exchange rate between the currency or currencies, currency unit or
units or composite currency or currencies in which such Debt Securities
are denominated or stated to be payable and the currency or currencies,
currency unit or units or composite currency or currencies in which such
Debt Securities are to be so payable;
(14) Provisions, if any, granting special rights to the holders of Debt
Securities of the series upon the occurrence of such events as may be
specified;
(15) Any deletions from, modifications of or additions to the Events of
Default (as defined in the Indenture) or covenants of the Company with
respect to Debt Securities of the series, whether or not such Events of
Default or covenants are consistent with the Events of Default or
covenants described herein;
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<PAGE>
(16) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will
have the option to redeem such Debt Securities in lieu of making such
payment;
(17) Whether Debt Securities of the series are to be issuable as Registered
Securities, Bearer Securities (with or without coupons) or both, any
restrictions applicable to the offer, sale or delivery of Bearer
Securities and the terms upon which Bearer Securities of the series may
be exchanged for Registered Securities of the series and vice versa (if
permitted by applicable laws and regulations), whether any Debt
Securities of the series are to be issuable initially in temporary global
form and whether any Debt Securities of the series are to be issuable in
permanent global form with or without coupons and, if so, whether
beneficial owners of interests in any such permanent global Security may
exchange such interests for Debt Securities of such series and of like
tenor of any authorized form and denomination and the circumstances under
which any such exchanges may occur, if other than in the manner provided
in the Indenture, and, if Registered Securities of the series are to be
issuable as a Global Security (as defined), the identity of the
depository for such series;
(18) The date as of which any Bearer Securities of the series and any
temporary Global Security representing outstanding Debt Securities of the
series shall be dated if other than the date of original issuance of the
first Security of the series to be issued;
(19) The Person to whom any interest on any Registered Security of the
series shall be payable, if other than the Person in whose name that
Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, the
manner in which, or the Person to whom, any interest on any Bearer
Security of the series shall be payable, if otherwise than upon
presentation and surrender of the coupons appertaining thereto as they
severally mature, and the extent to which, or the manner in which, any
interest payable on a temporary Global Security on an Interest Payment
Date will be paid if other than in the manner provided in the Indenture;
(20) The applicability, if any, of the defeasance and covenant defeasance
provisions of the Indenture to the Debt Securities of the series;
(21) If the Debt Securities of such series are to be issuable in definitive
form (whether upon original issue or upon exchange of a temporary
Security of such series) only upon receipt of certain certificates or
other documents or satisfaction of other conditions, then the form and/or
terms of such certificates, documents or conditions;
(22) The obligation, if any, of the Company to permit the conversion of the
Debt Securities of such series into Common Stock or Preferred Stock, as
the case may be, and the terms and conditions upon which such conversion
shall be effected (including, without limitation, the initial conversion
price or rate, the conversion period, any adjustment of the applicable
conversion price and any requirements relative to the reservation of such
shares for purposes of conversion); and
(23) Any other terms of the series (which terms shall not be inconsistent
with the provisions of the Indenture under which the Debt Securities are
issued).
If so provided in the applicable Prospectus Supplement, the Debt Securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities"). In
such cases, all material U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
Except as may be set forth in any Prospectus Supplement, the Debt Securities
will not contain any provisions that would limit the ability of the Company to
incur indebtedness or that would afford holders of Debt Securities protection in
the event of a highly leveraged or similar transaction involving the Company or
in the event of a change of control. Restrictions on ownership and transfers of
the Common Stock and Preferred Stock are designed to preserve its status as a
REIT and, therefore, may act to prevent or hinder a
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<PAGE>
change of control. See "Restrictions on Transfers of Capital Stock." Reference
is made to the applicable Prospectus Supplement for information with respect to
any deletions from, modifications of, or additions to, the events of default or
covenants of the Company that are described below, including any addition of a
covenant or other provision providing event risk or similar protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof. Where Debt Securities of any series are issued in
bearer form, the special restrictions and considerations, including special
offering restrictions and special federal income tax considerations, applicable
to any such Debt Securities and to payment on and transfer and exchange of such
Debt Securities will be described in the applicable Prospectus Supplement.
Bearer Debt Securities will be transferable by delivery.
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium or Make-Whole Amount, if any) and interest
on any series of Debt Securities will be payable at the corporate trust office
of the applicable Trustee, the address of which will be stated in the applicable
Prospectus Supplement; provided that, at the option of the Company, payment of
interest may be made by check mailed to the address of the person entitled
thereto as it appears in the applicable register for such Debt Securities or by
wire transfer of funds to such person at an account maintained within the United
States.
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security in registered form ("Defaulted
Interest") will forthwith cease to be payable to the holder on the applicable
Regular Record Date and may either be paid to the Person in whose name such Debt
Security is registered at the close of business on a special record date (the
"Special Record Date") for the payment of such Defaulted Interest to be fixed by
the Trustee, in which case notice thereof shall be given to the holder of such
Debt Security not less than 10 days prior to such Special Record Date, or may be
paid at any time in any other lawful manner, all as more completely described in
the applicable Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for any
authorized denomination of other Debt Securities of the same series and of a
like aggregate principal amount and tenor upon surrender of such Debt Securities
at the corporate trust office of the applicable Trustee or at the office of any
transfer agent designated by the Company for such purpose. In addition, subject
to certain limitations imposed upon Debt Securities issued in book-entry form,
the Debt Securities of any series may be surrendered for registration of
transfer or exchange thereof at the corporate trust office of the applicable
Trustee or at the office of any transfer agent designated by the Company for
such purpose. Every Debt Security in registered form surrendered for
registration of transfer or exchange must be duly endorsed or accompanied by a
written instrument of transfer, and the person requesting such action must
provide evidence of title and identity satisfactory to the applicable Trustee or
transfer agent. No service charge will be made for any registration of transfer
or exchange of any Debt Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. If the applicable Prospectus Supplement refers to any transfer agent
(in addition to the applicable Trustee) initially designated by the Company with
respect to any series of Debt Securities, the Company may at any time rescind
the designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that the Company will be
required to maintain a transfer agent in each place of payment for such series.
The Company may at any time designate additional transfer agents with respect to
any series of Debt Securities.
Neither the Company nor any Trustee shall be required to (a) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before the selection of any Debt
Securities for redemption and ending at the close of business on the day of
mailing of the notice of redemption; (b) register the transfer of or exchange
any Debt Security, or portion thereof, so selected for redemption, in whole or
in part, except the unredeemed portion of any Debt Security being
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redeemed in part; or (c) issue, register the transfer of or exchange any Debt
Security that has been surrendered for repayment at the option of the holder,
except the portion, if any, of such Debt Security not to be so repaid.
Payment in respect of Debt Securities in bearer form will be made in the
currency and in the manner designated in the applicable Prospectus Supplement,
subject to any applicable laws and regulations, at such paying agencies outside
the United States as the Company may appoint from time to time. The paying
agents outside the United States, if any, initially appointed by the Company for
a series of Debt Securities will be named in the Prospectus Supplement. Unless
otherwise provided in the applicable Prospectus Supplement, the Company may at
any time designate additional paying agents or rescind the designation of any
paying agents, except that, if Debt Securities of a series are issuable in
registered form, the Company will be required to maintain at least one paying
agent in each place of payment for such series and if Debt Securities of a
series are issuable in bearer form, the Company will be required to maintain at
least one paying agent in a place of payment outside the United States where
Debt Securities of such series and any coupons appertaining thereto may be
presented and surrendered for payment.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indentures will provide that the Company may, without the consent of the
holders of any outstanding Debt Securities, consolidate with, or sell, lease or
convey all or substantially all of its assets to, or merge with or into, any
other entity provided that (a) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets is organized under the laws of any domestic jurisdiction
and assumes the Company's obligations to pay principal of (and premium or
Make-Whole Amount, if any) and interest on all of the Debt Securities and the
due and punctual performance and observance of all of the covenants and
conditions contained in such Indenture; (b) immediately after giving effect to
such transaction and treating any indebtedness that becomes an obligation of the
Company or any subsidiary as a result thereof as having been incurred by the
Company or such subsidiary at the time of such transaction, no Event of Default
under such Indenture, and no event which, after notice or the lapse of time, or
both, would become such an Event of Default, shall have occurred and be
continuing; and (c) an officer's certificate and legal opinion covering such
conditions shall be delivered to each Trustee.
CERTAIN COVENANTS
The applicable Prospectus Supplement will describe any material covenants in
respect of a series of Debt Securities that are not described in this
Prospectus. Unless otherwise indicated in the applicable Prospectus Supplement,
Senior Debt Securities will include the following covenants of the Company:
EXISTENCE. Except as permitted under "-Merger, Consolidation or Sale of
Assets," the Indentures will require the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (by articles of incorporation, by-laws and statute) and
franchises; PROVIDED, HOWEVER, that the Company shall not be required to
preserve any right or franchise if its Board of Directors determines that the
preservation thereof is no longer desirable in the conduct of its business.
MAINTENANCE OF PROPERTIES. The Indentures will require the Company to cause
all of its material properties used or useful in the conduct of its business or
the business of any subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; PROVIDED, HOWEVER, that the Company and
its subsidiaries shall not be prevented from selling or otherwise disposing of
their properties for value in the ordinary course of business.
INSURANCE. The Indentures will require the Company to cause each of its and
its subsidiaries' insurable properties to be insured against loss or damage at
least equal to their then full insurable value with insurers of recognized
responsibility and, if described in the applicable Prospectus Supplement, having
a specified rating from a recognized insurance rating service.
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PAYMENT OF TAXES AND OTHER CLAIMS. The Indentures will require the Company
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any subsidiary or upon the income, profits or property of the
Company or any subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; PROVIDED, HOWEVER, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (a) default in the
payment of any interest on any Debt Security of such series when such interest
becomes due and payable that continues for a period of 30 days; (b) default in
the payment of the principal of (or premium or Make-Whole Amount, if any, on)
any Debt Security of such series when due and payable; (c) default in making any
sinking fund payment as required for any Debt Security of such series; (d)
default in the performance, or breach, of any other covenant or warranty of the
Company in the applicable Indenture with respect to the Debt Securities of such
series and continuance of such default or breach for a period of 60 days after
written notice as provided in the Indenture; (e) default under any bond,
debenture, note, mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company (or by any Subsidiary, the repayment of which the
Company has guaranteed or for which the Company is directly responsible or
liable as obligor or guarantor), having an aggregate principal amount
outstanding of at least $25,000,000, whether such indebtedness now exists or
shall hereafter be created, which default shall have resulted in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such indebtedness
having been discharged, or such acceleration having been rescinded or annulled,
within a period of 30 days after written notice to the Company as provided in
the Indenture; (f) certain events of bankruptcy, insolvency or reorganization,
or court appointment of a receiver, liquidator or trustee of the Company or any
Significant Subsidiary; and (g) any other event of default provided with respect
to a particular series of Debt Securities. The term "Significant Subsidiary" has
the meaning ascribed to such term in Regulation S-X promulgated under the
Securities Act.
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% in
principal amount of the Debt Securities of that series will have the right to
declare the principal amount (or, if the Debt Securities of that series are
Original Issue Discount Securities or indexed securities, such portion of the
principal amount as may be specified in the terms thereof) of, and premium or
Make-Whole Amount, if any, on, all the Debt Securities of that series to be due
and payable immediately by written notice thereof to the Company (and to the
applicable Trustee if given by the holders). However, at any time after such a
declaration of acceleration with respect to Debt Securities of such series has
been made, but before a judgment or decree for payment of the money due has been
obtained by the applicable Trustee, the holders of not less than a majority in
principal amount of outstanding Debt Securities of such series may rescind and
annul such declaration and its consequences if (a) the Company shall have
deposited with the applicable Trustee all required payments of the principal of
(and premium or Make-Whole Amount, if any) and interest on the Debt Securities
of such series, plus certain fees, expenses, disbursements and advances of the
applicable Trustee and (b) all Events of Default, other than the non-payment of
accelerated principal (or specified portion thereof and the premium or
Make-Whole Amount, if any), with respect to Debt Securities of such series have
been cured or waived as provided in such Indenture. The Indentures will also
provide that the holders of not less than a majority in principal amount of the
outstanding Debt Securities of any series may waive any past default with
respect to such series and its consequences, except a default (i) in the payment
of the principal of (or premium or Make-Whole Amount, if any) or interest on any
Debt Security of such series or (ii) in respect of a covenant or provision
contained in the applicable Indenture that cannot be modified or amended without
the consent of the holder of each outstanding Debt Security affected thereby.
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The Indentures will require each Trustee to give notice to the holders of
Debt Securities within 90 days of a default under the applicable Indenture
unless such default shall have been cured or waived; PROVIDED, HOWEVER, that
such Trustee may withhold notice to the holders of any series of Debt Securities
of any default with respect to such series (except a default in the payment of
the principal of (or premium or Make-Whole Amount, if any) or interest on any
Debt Security of such series or in the payment of any sinking fund installment
in respect of any Debt Security of such series) if specified responsible
officers of such Trustee consider such withholding to be in the interest of such
holders.
The Indentures will provide that no holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the case of failure of the
applicable Trustee, for 60 days, to act after it has received a written request
to institute proceedings in respect of an Event of Default from the holders of
not less than 25% in principal amount of the outstanding Debt Securities of such
series, as well as an offer of indemnity reasonably satisfactory to it. This
provision will not prevent, however, any holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and premium
or Make-Whole Amount, if any) and interest on such Debt Securities at the
respective due dates or redemption dates thereof.
The Indentures will provide that, subject to provisions in each Indenture
relating to its duties in case of default, a Trustee will be under no obligation
to exercise any of its rights or powers under an Indenture at the request or
direction of any holders of any series of Debt Securities then outstanding under
such Indenture, unless such holders shall have offered to the Trustee thereunder
reasonable security or indemnity. The holders of not less than a majority in
principal amount of the outstanding Debt Securities of any series (or of all
Debt Securities then outstanding under an Indenture, as the case may be) shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the applicable Trustee, or of exercising any trust
or power conferred upon such Trustee. However, a Trustee may refuse to follow
any direction which is in conflict with any law or the applicable Indenture,
which may involve such Trustee in personal liability or which may be unduly
prejudicial to the holders of Debt Securities of such series not joining
therein.
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such officer has
knowledge of any default under the applicable Indenture and, if so, specifying
each such default and the nature and status thereof.
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding Debt Securities issued under such Indenture affected
by such modification or amendment; PROVIDED, HOWEVER, that no such modification
or amendment may, without the consent of the holder of each such Debt Security
affected thereby, (a) change the stated maturity of the principal of, or any
installment of interest (or premium or Make-Whole Amount, if any) on, any such
Debt Security; (b) reduce the principal amount of, or the rate or amount of
interest on, or any premium or Make-Whole Amount payable on redemption of, any
such Debt Security, or reduce the amount of principal of an Original Issue
Discount Security that would be due and payable upon declaration of acceleration
of the maturity thereof or would be provable in bankruptcy, or adversely affect
any right of repayment of the holder of any such Debt Security; (c) change the
place of payment, or the coin or currency, for payment of principal of, premium
or Make-Whole Amount, if any, or interest on any such Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any such Debt Security; (e) reduce the above-stated percentage of
outstanding Debt Securities of any series necessary to modify or amend the
applicable Indenture, to waive compliance with certain provisions thereof or
certain defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the applicable Indenture; (f) change the currency or
currency unit in which any Debt Security or any premium or interest thereon is
payable; (g) in the case of the Subordinated Indenture, modify the subordination
provisions thereof in a manner adverse to the holders of Subordinated Debt
Securities of any series then outstanding; or (h) modify any of the foregoing
provisions or any of the provisions relating to the waiver of
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certain past defaults or certain covenants, except to increase the required
percentage to effect such action or to provide that certain other provisions may
not be modified or waived without the consent of the holder of such Debt
Security.
The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of each series may, on behalf of all holders of Debt Securities
of that series, waive, insofar as that series is concerned, compliance by the
Company with certain restrictive covenants of the applicable Indenture.
Modifications and amendments of an Indenture will be permitted to be made by
the Company and the respective Trustee thereunder without the consent of any
holder of Debt Securities for any of the following purposes: (a) to evidence the
succession of another person to the Company as obligor under such Indenture; (b)
to add to the covenants of the Company for the benefit of the holders of all or
any series of Debt Securities or to surrender any right or power conferred upon
the Company in such Indenture; (c) to add events of default for the benefit of
the holders of all or any series of Debt Securities; (d) to add or change any
provisions of an Indenture to facilitate the issuance of, or to liberalize
certain terms of, Debt Securities in bearer form, or to permit or facilitate the
issuance of Debt Securities in uncertificated form, PROVIDED that such action
shall not adversely affect the interests of the holders of the Debt Securities
of any series in any material respect; (e) to change or eliminate any provisions
of an Indenture, PROVIDED that any such change or elimination shall become
effective only when there are no Debt Securities outstanding of any series
created prior thereto which are entitled to the benefit of such provision; (f)
to secure the Debt Securities; (g) to establish the form or terms of Debt
Securities of any series; (h) to provide for the acceptance of appointment by a
successor Trustee or facilitate the administration of the trusts under an
Indenture by more than one Trustee; (i) to cure any ambiguity, defect or
inconsistency in an Indenture, PROVIDED that such action shall not adversely
affect the interests of holders of Debt Securities of any series issued under
such Indenture; or (j) to supplement any of the provisions of an Indenture to
the extent necessary to permit or facilitate defeasance and discharge of any
series of such Debt Securities, PROVIDED that such action shall not adversely
affect the interests of the holders of the outstanding Debt Securities of any
series.
The Indentures will provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (a) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (b) the principal amount of
any Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (a) above), (c) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security pursuant such
Indenture, and (d) Debt Securities owned by the Company or any other obligor
upon the Debt Securities or any affiliate of the Company or of such other
obligor shall be disregarded.
The Indentures will contain provisions for convening meetings of the holders
of Debt Securities of a series. A meeting will be permitted to be called at any
time by the applicable Trustee, and also, upon request, by the Company or the
holders of at least 25% in principal amount of the outstanding Debt Securities
of such series, in any such case upon notice given as provided in such
Indenture. Except for any consent that must be given by the holder of each Debt
Security affected by certain modifications and amendments of an Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present may be adopted by the affirmative vote of the holders of a
majority in principal amount of the outstanding Debt Securities of that series;
PROVIDED, HOWEVER, that, except as referred to above, any resolution with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the holders of a
specified percentage, which is less than a majority, in principal amount of the
outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the
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holders of such specified percentage in principal amount of the outstanding Debt
Securities of that series. Any resolution passed or decision taken at any
meeting of holders of Debt Securities of any series duly held in accordance with
an Indenture will be binding on all holders of Debt Securities of that series.
The quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons holding or representing a majority in principal amount
of the outstanding Debt Securities of a series; PROVIDED, HOWEVER, that if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the holders of not less than a specified percentage in principal
amount of the outstanding Debt Securities of a series, the persons holding or
representing such specified percentage in principal amount of the outstanding
Debt Securities of such series will constitute a quorum.
Notwithstanding the foregoing provisions, the Indentures will provide that
if any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or of the holders of
such series and one or more additional series: (a) there shall be no minimum
quorum requirement for such meeting, and (b) the principal amount of the
outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
CERTAIN DEFINITIONS
"Indebtedness" means, with respect to any person, (a) any obligation of such
person to pay the principal of, premium, if any, interest on (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to such person, whether or not a claim for such
post-petition interest is allowed in such proceeding), penalties, reimbursement
or indemnification amounts, fees, expenses or other amounts relating to any
indebtedness of such person (i) for borrowed money (whether or not the recourse
of the lender is to the whole of the assets of such person or only to a portion
thereof), (ii) evidenced by notes, debentures or similar instruments (including
purchase money obligations) given in connection with the acquisition of any
property or assets (other than trade accounts payable for inventory or similar
property acquired in the ordinary course of business), including securities, for
the payment of which such person is liable, directly or indirectly, or the
payment of which is secured by a lien, charge or encumbrance on property or
assets of such person, (iii) for goods, materials or services purchased in the
ordinary course of business (other than trade accounts payable arising in the
ordinary course of business), (iv) with respect to letters of credit or bankers
acceptances issued for the account of such person or performance bonds, (v) for
the payment of money relating to a Capitalized Lease Obligation (as defined in
the Indenture), or (vi) under interest rate swaps, caps or similar agreements
and foreign exchange contracts, currency swaps or similar agreements; (b) any
liability of others of the kind described in the preceding clause (a) which such
person has guaranteed or which is otherwise its legal liability; and (c) any and
all deferrals, renewals, extensions and refunding of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (a) or (b).
"Senior Indebtedness" means Indebtedness of the Company, whether outstanding
on the date of issue of any Subordinated Debt Securities or thereafter created,
incurred, assumed or guaranteed by the Company, other than the following: (a)
any Indebtedness as to which, in the instrument evidencing such Indebtedness or
pursuant to which such Indebtedness was issued, it is expressly provided that
such Indebtedness is subordinate in right of payment to all indebtedness of the
Company not expressly subordinated to such Indebtedness; (b) any Indebtedness
which by its terms refers explicitly to the Subordinated Debt Securities and
states that such Indebtedness shall not be senior, shall be PARI PASSU or shall
be subordinated in right of payment to the Subordinated Debt Securities; and (c)
with respect to any series of Subordinated Debt Securities, any Indebtedness of
the Company evidenced by Subordinated Debt Securities of the same or of another
series. Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness shall not include: (x) Indebtedness of or amounts owed by the
Company for compensation to employees, or for goods, materials and services
purchased in the ordinary course of business, or (y) Indebtedness of the Company
to a subsidiary of the Company.
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SUBORDINATION
Unless otherwise provided in the applicable Prospectus Supplement,
Subordinated Debt Securities will be subject to the following subordination
provisions.
The payment of the principal of, interest on, or any other amounts due on,
the Subordinated Debt Securities will be subordinated in right of payment to the
prior payment in cash in full of all Senior Indebtedness of the Company. No
payment on account of the principal of, redemption of, interest on or any other
amounts due on the Subordinated Debt Securities and no redemption, purchase or
other acquisition of the Subordinated Debt Securities may be made, unless (a)
full payment in cash of amounts then due for principal, sinking funds, interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company, whether or not a claim
for such post-petition interest is allowed in such proceeding), penalties,
reimbursement or indemnification amounts, fees and expenses, and of all other
amounts then due on all Senior Indebtedness shall have been made or duly
provided for pursuant to the terms of the instrument governing such Senior
Indebtedness, and (b) at the time of, or immediately after giving effect to, any
such payment, redemption, purchase or other acquisition, there shall not exist
under any Senior Indebtedness or any agreement pursuant to which any Senior
Indebtedness has been issued, any default which shall not have been cured or
waived and which shall have resulted in the full amount of such Senior
Indebtedness being declared due and payable and not rescinded. In addition, the
Subordinated Indenture provides that, if holders of any Senior Indebtedness
notify the Company and the Subordinated Trustee that a default has occurred
giving the holders of such Senior Indebtedness the right to accelerate the
maturity thereof, no payment on account of principal, sinking fund or other
redemption, interest or any other amounts due on the Subordinated Debt
Securities and no purchase, redemption or other acquisition of the Subordinated
Debt Securities will be made for the period (the "Payment Blockage Period")
commencing on the date such notice is received and ending on the earlier of (i)
the date on which such event of default shall have been cured or waived or (ii)
180 days from the date such notice is received. Notwithstanding the foregoing,
only one payment blockage notice with respect to the same event of default or
any other events of default existing and known to the person giving such notice
at the time of such notice on the same issue of Senior Indebtedness may be given
during any period of 360 consecutive days. No new Payment Blockage Period may be
commenced by the holders of Senior Indebtedness during any period of 360
consecutive days unless all events of default which triggered the preceding
Payment Blockage Period have been cured or waived. Upon any distribution of its
assets in connection with any dissolution, winding-up, liquidation or
reorganization of the Company, all Senior Indebtedness must be paid in full in
cash before the holders of the Subordinated Debt Securities are entitled to any
payments whatsoever.
The Subordinated Indenture does not restrict the amount of Senior
Indebtedness or other indebtedness of the Company or any Subsidiary. As a result
of these subordination provisions, in the event of the Company's insolvency,
holders of the Subordinated Debt Securities may recover ratably less than
general creditors of the Company.
If this Prospectus is being delivered in connection with a series of
Subordinated Debt Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Indebtedness outstanding as of the end of the Company's most
recent fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company will be permitted, at its option, to discharge certain obligations to
holders of any series of Debt Securities issued under any Indenture that have
not already been delivered to the applicable Trustee for cancellation and that
either have become due and payable or will become due and payable within one
year (or scheduled for redemption within one year) by irrevocably depositing
with the applicable Trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness on
such Debt Securities in respect of principal (and premium or Make-Whole Amount,
if any) and interest to the date of such deposit (if such Debt Securities have
become due and payable) or to the stated maturity or redemption date, as the
case may be.
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The Indentures will provide that, unless otherwise indicated in the
applicable Prospectus Supplement, the Company may elect either (a) to defease
and be discharged from any and all obligations with respect to such Debt
Securities (except for the obligations to register the transfer or exchange of
such Debt Securities, to replace temporary or mutilated, destroyed, lost or
stolen Debt Securities, to maintain an office or agency in respect of such Debt
Securities, and to hold moneys for payment in trust) ("defeasance") or (b) to be
released from certain obligations with respect to such Debt Securities under the
applicable Indenture (including the restrictions described under "-Certain
Covenants") or, if provided in the applicable Prospectus Supplement, its
obligations with respect to any other covenant, and any omission to comply with
such obligations shall not constitute an Event of Default with respect to such
Debt Securities ("covenant defeasance"), in either case upon the irrevocable
deposit by the Company with the applicable Trustee, in trust, of an amount, in
such currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable at stated maturity, or
Government Obligations (as defined below), or both, applicable to such Debt
Securities, which through the scheduled payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal of (and premium or Make-Whole Amount, if any) and interest on such
Debt Securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
holders of such Debt Securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such opinion of counsel,
in the case of defeasance, will be required to refer to and be based upon a
ruling received from or published by the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
Indenture. In the event of such defeasance, the holders of such Debt Securities
would thereafter be able to look only to such trust fund for payment of
principal (and premium or Make-Whole Amount, if any) and interest.
"Government Obligations" means securities that are (a) direct obligations of
the United States of America or the government which issued the foreign currency
in which the Debt Securities of a particular series are payable, for the payment
of which its full faith and credit is pledged or (b) obligations of a person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America or such government which issued the foreign currency in
which the Debt Securities of such series are payable, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America or such other government, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, PROVIDED that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(b) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium or Make-Whole Amount, if any) and interest on such Debt Security as
they become due out of the proceeds yielded by converting the amount so
deposited in respect of such Debt
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Security into the currency, currency unit or composite currency in which such
Debt Security becomes payable as a result of such election or such cessation of
usage based on the applicable market exchange rate. "Conversion Event" means the
cessation of use of (i) a currency, currency unit or composite currency both by
the government of the country which issued such currency and for the settlement
of transactions by a central bank or other public institutions of or within the
international banking community, (ii) the ECU both within the European Monetary
System and for the settlement of transactions by public institutions of or
within the European Communities or (iii) any currency unit or composite currency
other than the ECU for the purposes for which it was established. Unless
otherwise provided in the applicable Prospectus Supplement, all payments of
principal of (and premium or Make-Whole Amount, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any of Event of Default other than the Event of Default
described in clause (d) under "-Events of Default, Notice and Waiver" with
respect to specified sections of an Indenture (which sections would no longer be
applicable to such Debt Securities) or described in clause (g) under "-Events of
Default, Notice and Waiver" with respect to any other covenant as to which there
has been covenant defeasance, the amount in such currency, currency unit or
composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the applicable Trustee, will be sufficient to pay
amounts due on such Debt Securities at the time of their stated maturity but may
not be sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such of Event of Default. However, the Company would
remain liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into shares of Common Stock or
Preferred Stock, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of such
Debt Securities and any restrictions on conversion, including restrictions
directed at maintaining the Company's REIT status.
BOOK-ENTRY SYSTEM
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Securities") that will be
deposited with, or on behalf of, a depository (the "Depository") identified in
the Prospectus Supplement relating to such series. Global Securities, if any,
issued in the United States are expected to be deposited with The Depository
Trust Company ("DTC"), as Depository. Global Securities may be issued in fully
registered form and may be issued in either temporary or permanent form. Unless
and until it is exchanged in whole or in part for the individual Debt Securities
represented thereby, a Global Security may not be transferred except as a whole
by the Depository for such Global Security to a nominee of such Depository or by
a nominee of such Depository to such Depository or another nominee of such
Depository or by such Depository or any nominee of such Depositor to a successor
Depository or any nominee of such successor.
The specific terms of the depository arrangement with respect to a series of
Debt Securities will be described in the Prospectus Supplement relating to such
series. The Company expects that unless otherwise indicated in the applicable
Prospectus Supplement, the following provisions will apply to depository
arrangements.
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Upon the issuance of a Global Security, the Depository for such Global
Security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual Debt Securities
represented by such Global Security to the accounts of persons that have
accounts with such Depository ("Participants"). Such accounts shall be
designated by the underwriters, dealers or agents with respect to such Debt
Securities or by the Company if such Debt Securities are offered directly by the
Company. Ownership of beneficial interests in such Global Security will be
limited to Participants or persons that may hold interests through Participants.
The Company expects that, pursuant to procedures established by DTC,
ownership of beneficial interests in any Global Security with respect to which
DTC is the Depository will be shown on, and the transfer of that ownership will
be effected only through, records maintained by DTC or its nominee (with respect
to beneficial interests of Participants) and records of Participants (with
respect to beneficial interests of persons who hold through Participants).
Neither the Company nor the Trustee will have any responsibility or liability
for any aspect of the records of DTC or for maintaining, supervising or
reviewing any records of DTC or any of its Participants relating to beneficial
ownership interests in the Debt Securities. The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to own, pledge or
transfer beneficial interest in a Global Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
applicable Indenture. Except as described below or in the applicable Prospectus
Supplement, owners of beneficial interest in a Global Security will not be
entitled to have any of the individual Debt Securities represented by such
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of any such Debt Securities in definitive form and
will not be considered the owners or holders thereof under the applicable
Indenture. Beneficial owners of Debt Securities evidenced by a Global Security
will not be considered the owners or holders thereof under the applicable
Indenture for any purpose, including with respect to the giving of any
direction, instructions or approvals to the Trustee thereunder. Accordingly,
each person owning a beneficial interest in a Global Security with respect to
which DTC is the Depository must rely on the procedures of DTC and, if such
person is not a Participant, on the procedures of the Participant through which
such person owns its interests, to exercise any rights of a holder under the
applicable Indenture. The Company understands that, under existing industry
practice, if it requests any action of holders or if an owner of a beneficial
interest in a Global Security desires to give or take any action which a holder
is entitled to give or take under the applicable Indenture, DTC would authorize
the Participants holding the relevant beneficial interest to give or take such
action, and such Participants would authorize beneficial owners through such
Participants to give or take such actions or would otherwise act upon the
instructions of beneficial owners holding through them.
Payments of principal of, any premium or Make-Whole Amount and any interest
on individual Debt Securities represented by a Global Security registered in the
name of a Depository or its nominee will be made to or at the direction of the
Depository or its nominee, as the case may be, as the registered owner of the
Global Security under the applicable Indenture. Under the terms of the
applicable Indenture, the Company and the Trustee may treat the persons in whose
name Debt Securities, including a Global Security, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Debt Securities (including
principal, premium or Make-Whole Amount, if any, and interest). The Company
believes, however, that it is currently the policy of DTC to immediately credit
the accounts of relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant Global Security as shown on the records of DTC or its nominee. The
Company also expects that payments by Participants to owners of beneficial
interests in such Global Security held through such Participants will be
governed by standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered in
street name, and will be the responsibility of such Participants. Redemption
notices with respect to any Debt Securities represented
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by a Global Security will be sent to the Depository or its nominee. If less than
all of the Debt Securities of any series are to be redeemed, the Company expects
the Depository to determine the amount of the interest of each Participant in
such Debt Securities to be redeemed to be determined by lot. None of the
Company, the Trustee, any Paying Agent or the Security Registrar for such Debt
Securities will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Security for such Debt Securities or for maintaining any
records with respect thereto.
Neither the Company nor the Trustee will be liable for any delay by the
holders of a Global Security or the Depository in identifying the beneficial
owners of Debt Securities and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the holder of a
Global Security or the Depository for all purposes. The rules applicable to DTC
and its Participants are on file with the Securities and Exchange Commission.
If a Depository for any Debt Securities is at any time unwilling, unable or
ineligible to continue as depository and a successor depository is not appointed
by the Company within 90 days, the Company will issue individual Debt Securities
in exchange for the Global Security representing such Debt Securities. In
addition, the Company may at any time and in its sole discretion, subject to any
limitations described in the Prospectus Supplement relating to such Debt
Securities, determine not to have any of such Debt Securities represented by one
or more Global Securities and in such event will issue individual Debt
Securities in exchange for the Global Security or Securities representing such
Debt Securities. Individual Debt Securities so issued will be issued in
denominations of $1,000 and integral multiples thereof.
The Debt Securities of a series may also be issued in whole or in part in
the form of one or more bearer global securities (a "Bearer Global Security")
that will be deposited with a depository, or with a nominee for such depository,
identified in the applicable Prospectus Supplement. Any such Bearer Global
Securities may be issued in temporary or permanent form. The specific terms and
procedures, including the specific terms of the depository arrangement, with
respect to any portion of a series of Debt Securities to be represented by one
or more Bearer Global Securities will be described in the applicable Prospectus
Supplement.
PAYMENT AND PAYING AGENTS
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium or Make-Whole Amount, if any) and interest
on any series of Debt Securities will be payable at the corporate trust office
of the Trustee, the address of which will be stated in the applicable Prospectus
Supplement; provided that, at the option of the Company, payment of interest may
be made by check mailed to the address of the person entitled thereto as it
appears in the applicable register for such Debt Securities or by wire transfer
of funds to such person at an account maintained within the United States.
All moneys paid by the Company to a paying agent or a Trustee for the
payment of the principal of or any premium, Make-Whole Amount or interest on any
Debt Security which remain unclaimed at the end of two years after such
principal, premium, Make-Whole Amount or interest has become due and payable
will be repaid to the Company, and the holder of such Debt Security thereafter
may look only to the Company for payment thereof.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.
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DESCRIPTION OF PREFERRED STOCK
The description of the Company's preferred stock, par value $.01 per share
("Preferred Stock"), set forth below does not purport to be complete and is
qualified in its entirety by reference to the Company's Amended and Restated
Articles of Incorporation (the "Articles of Incorporation") and Amended and
Restated Bylaws (the "Bylaws").
GENERAL
Under the Articles of Incorporation, the Company has authority to issue 10
million shares of Preferred Stock, none of which was outstanding as of January
18, 1996. Shares of Preferred Stock may be issued from time to time, in one or
more series, as authorized by the Board of Directors of the Company. Prior to
issuance of shares of each series, the Board of Directors is required by the
Maryland General Corporation Law ("MGCL") and the Company's Articles of
Incorporation to fix for each series, subject to the provisions of the Company's
Articles of Incorporation regarding excess stock, $.01 par value per share
("Excess Stock"), the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption, as are permitted by
Maryland law. The Preferred Stock will, when issued, be fully paid and
nonassessable and will have no preemptive rights. The Board of Directors could
authorize the issuance of shares of Preferred Stock with terms and conditions
that could have the effect of discouraging a takeover or other transaction that
holders of Common Stock might believe to be in their best interests or in which
holders of some, or a majority, of the shares of Common Stock might receive a
premium for their shares over the then market price of such shares of Common
Stock.
TERMS
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation and Bylaws and
any applicable amendment to the Articles of Incorporation designating terms of a
series of Preferred Stock (a "Designating Amendment").
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall accumulate,
if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred Stock;
(7) The provision for redemption, if applicable, of such Preferred Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred Stock
will be convertible into Common Stock, including the conversion price (or
manner of calculation thereof);
(10) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(11) A discussion of federal income tax considerations applicable to such
Preferred Stock;
(12) The relative ranking and preference of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company;
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(13) Any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(14) Any limitations on direct or beneficial ownership and restrictions on
transfer, in each case as may be appropriate to preserve the status of
the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred Stock
will, with respect to dividend rights and rights upon liquidation, dissolution
or winding up of the Company, rank (i) senior to all classes or series of Common
Stock of the Company, and to all equity securities ranking junior to such
Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company; (ii) on a parity with all equity
securities issued by the Company the terms of which specifically provide that
such equity securities rank on a parity with the Preferred Stock with respect to
dividend rights or rights upon liquidation, dissolution or winding up of the
Company; and (iii) junior to all equity securities issued by the Company the
terms of which specifically provide that such equity securities rank senior to
the Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of the Company. The term "equity securities" does not
include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of assets
of the Company legally available for payment, cash dividends at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of the Company on such record dates as shall be fixed by the
Board of Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are non-cumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for such payment on the Preferred Stock of such series. When
dividends are not paid in full (or a sum sufficient for such full payment is not
so set apart) upon Preferred Stock of any series and the shares of any other
series of Preferred Stock ranking on a parity as to dividends with the Preferred
Stock of such series, all dividends declared upon Preferred Stock of such series
and any other series of Preferred Stock ranking on a parity as to dividends with
such Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) and such
other series of Preferred Stock bear to each other. No interest, or sum of money
in lieu of interest, shall be payable in respect of any dividend payment or
payments on Preferred Stock of such series which may be in arrears.
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Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other shares of
capital stock ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment nor shall any other distribution be declared or made upon the Common
Stock, or any other capital stock of the Company ranking junior to or on a
parity with the Preferred Stock of such series as to dividends or upon
liquidation, nor shall any shares of Common Stock, or any other shares of
capital stock of the Company ranking junior to or on a parity with the Preferred
Stock of such series as to dividends or upon liquidation be redeemed, purchased
or otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Company (except by conversion into or exchange for other capital stock of the
Company ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of shares of capital stock of the Company, the terms of
such Preferred Stock may provide that, if no such shares of capital stock shall
have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Stock shall automatically and mandatorily be converted into the
applicable shares of capital stock of the Company pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Stock has
a cumulative dividend, full cumulative dividends on all shares of such series of
Preferred Stock shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period, and (ii) if a
series of Preferred Stock does not have a cumulative dividend, full dividends on
all shares of the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, no shares of such
series of Preferred Stock shall be redeemed unless all outstanding shares of
Preferred Stock of such series are simultaneously redeemed; PROVIDED, HOWEVER,
that the foregoing shall not prevent the purchase or acquisition of Preferred
Stock of such series to preserve the REIT status of the Company or pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
shares of Preferred Stock of such series. In addition, unless (i) if such series
of Preferred Stock has a cumulative dividend, full cumulative dividends on all
outstanding shares of such series of Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period, and (ii) if such series of Preferred Stock does not
have a cumulative dividend, full
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dividends on the Preferred stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company shall
not purchase or otherwise acquire directly or indirectly any shares of Preferred
Stock of such series (except by conversion into or exchange for capital shares
of the Company ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation); PROVIDED, HOWEVER, that the foregoing shall not
prevent the purchase or acquisition of shares of Preferred Stock of such series
to preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of Preferred
Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption of
fractional shares) or by any other equitable manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Stock or any other class or series of capital
stock of the Company ranking junior to the Preferred Stock in the distribution
of assets upon any liquidation, dissolution or winding up of the Company, the
holders of each series of Preferred Stock shall be entitled to receive out of
assets of the Company legally available for distribution to stockholders
liquidating distributions in the amount of the liquidation preference per share,
if any, set forth in the applicable Prospectus Supplement, plus an amount equal
to all dividends accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid noncumulative dividends for prior dividend
periods). After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Preferred Stock will have no right or
claim to any of the remaining assets of the Company. In the event that, upon any
such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of the Company are insufficient to pay the amount of the
liquidating distributions on all outstanding shares of Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with the Preferred Stock in the
distribution of assets, then the holders of the Preferred Stock and all other
such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of capital stock ranking junior to
the Preferred Stock upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
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VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock of a series remain outstanding, the Company will not,
without the affirmative vote or consent of the holders of at least two-thirds of
the shares of such series of Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking prior to such
series of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized capital stock of the Company into such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (ii) amend, alter or repeal the provisions
of the Company's Articles of Incorporation or the Designating Amendment for such
series of Preferred Stock, whether by merger, consolidation or otherwise (an
"Event"), so as to materially and adversely affect any right, preference,
privilege or voting power of such series of Preferred Stock or the holders
thereof; PROVIDED, HOWEVER, with respect to the occurrence of any of the Events
set forth in (ii) above, so long as the Preferred Stock remains outstanding with
the terms thereof materially unchanged, taking into account that upon the
occurrence of an Event the Company may not be the surviving entity, the
occurrence of any such Event shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting power of holders of
Preferred Stock, and PROVIDED FURTHER that (x) any increase in the amount of the
authorized Preferred Stock or the creation or issuance of any other series of
Preferred Stock, or (y) any increase in the amount of authorized shares of such
series or any other series of Preferred Stock, in each case ranking on a parity
with or junior to the Preferred Stock of such series with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or winding
up, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the shares of Preferred Stock are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of its outstanding
capital stock may be owned, directly or indirectly, by five or fewer individuals
(as defined in the Code to include certain entities) during the last half of a
taxable year. To assist the Company in meeting this requirement, the Company may
take certain actions to limit the beneficial ownership, directly or indirectly,
by a single person of the Company's outstanding equity securities, including any
Preferred Stock of the Company. Therefore, the Designating Amendment for each
series of Preferred Stock may contain provisions restricting the ownership and
transfer of the Preferred Stock. The applicable Prospectus Supplement will
specify any additional ownership limitation relating to a series of Preferred
Stock. See "Restrictions on Transfers of Capital Stock."
TRANSFER AGENT
The transfer agent and registrar for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
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DESCRIPTION OF COMMON STOCK
The description of the Company's Common Stock set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Articles of Incorporation and Bylaws.
GENERAL
Under the Articles of Incorporation, the Company has authority to issue 40
million shares of Common Stock, par value $.01 per share. Under Maryland law,
stockholders generally are not responsible for the corporation's debts or
obligations. At January 18, 1996, the Company had outstanding 13,841,667 shares
of Common Stock.
TERMS
Subject to the preferential rights of any other shares or series of stock
and to the provisions of the Company's Articles of Incorporation regarding
Excess Stock, holders of shares of Common Stock will be entitled to receive
dividends on shares of Common Stock if, as and when authorized and declared by
the Board of Directors of the Company out of assets legally available therefor
and to share ratably in the assets of the Company legally available for
distribution to its stockholders in the event of its liquidation, dissolution or
winding-up after payment of, or adequate provision for, all known debts and
liabilities of the Company.
Subject to the provisions of the Company's Articles of Incorporation
regarding Excess Stock, each outstanding share of Common Stock entitles the
holder to one vote on all matters submitted to a vote of stockholders, including
the election of Directors and, except as otherwise required by law or except as
provided with respect to any other class or series of stock, the holders of
Common Stock will possess the exclusive voting power. There is no cumulative
voting in the election of Directors, which means that the holders of a majority
of the outstanding shares of Common Stock can elect all of the Directors then
standing for election, and the holders of the remaining shares of Common Stock
will not be able to elect any Directors.
Holders of Common Stock have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
information.
Subject to the provisions of the Company's Articles of Incorporation
regarding Excess Stock, all shares of Common Stock will have equal dividend,
distribution, liquidation and other rights, and will have no preference,
appraisal or exchange rights.
Pursuant to the MGCL, a corporation generally cannot dissolve, amend its
Articles of Incorporation, merge, sell all or substantially all of its assets,
engage in a share exchange or engage in similar transactions outside the
ordinary course of business unless approved by the affirmative vote of
stockholders holding at least two-thirds of the shares entitled to vote on the
matter unless a lesser percentage (but not less than a majority of all of the
votes to be cast on the matter) is set forth in the corporation's Articles of
Incorporation. The Company's Articles of Incorporation do not provide for a
lesser percentage in such situations.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, 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)
during the last half of a taxable year. To assist the Company in meeting this
requirement, the Company may take certain actions to limit the beneficial
ownership, directly or indirectly, by a single person of the Company's
outstanding equity securities. See "Restrictions on Transfers of Capital Stock."
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is KeyCorp Shareholder
Services, Inc. of Cleveland, Ohio.
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RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK
For the Company to qualify as a REIT under the Code, among other things, not
more than 50% in value of its outstanding capital stock may be owned, directly
or indirectly, by five or fewer individuals (defined in the Code to include
certain entities) during the last half of a taxable year, and such capital stock
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year (in each case, other than the first such year). To ensure that the Company
remains a qualified REIT, the Articles of Incorporation, subject to certain
exceptions, provide that no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.3% (the "Ownership Limit") of
the Company's capital stock. The Board of Directors may waive the Ownership
Limit if evidence satisfactory to the Board of Directors and the Company's tax
counsel is presented that the changes in ownership will not then or in the
future jeopardize the Company's status as a REIT. Any transfer of capital stock
or any security convertible into capital stock that would create a direct or
indirect ownership of capital stock in excess of the Ownership Limit or that
would result in the disqualification of the Company as a REIT, including any
transfer that results in the capital stock being owned by fewer than 100 persons
or results in the Company being "closely held" within the meaning of Section
856(h) of the Code, shall be null and void, and the intended transferee will
acquire no rights to the capital stock. The foregoing restrictions on
transferability and ownership will not apply if the Board of Directors
determines that it is no longer in the best interests of the Company to attempt
to qualify, or to continue to qualify, as a REIT.
Capital stock owned, or deemed to be owned, or transferred to a stockholder
in excess of the Ownership Limit will automatically be exchanged for shares of
Excess Stock that will be transferred, by operation of law, to the Company as
trustee of a trust for the exclusive benefit of the transferees to whom such
capital stock may be ultimately transferred without violating the Ownership
Limit. While the Excess Stock is held in trust, it will not be entitled to vote,
it will not be considered for purposes of any stockholder vote or the
determination of a quorum for such vote and, except upon liquidation, it will
not be entitled to participate in dividends or other distributions. Any dividend
or distribution paid to a proposed transferee of Excess Stock prior to the
discovery by the Company that capital stock has been transferred in violation of
the provisions of the Company's Articles of Incorporation shall be repaid to the
Company upon demand. The Excess Stock is not treasury stock, but rather
constitutes a separate class of issued and outstanding stock of the Company. The
original transferee-stockholder may, at any time the Excess Stock is held by the
Company in trust, transfer the interest in the trust representing the Excess
Stock to any individual whose ownership of the capital stock exchanged into such
Excess Stock would be permitted under the Ownership Limit, at a price not in
excess of the price paid by the original transferee-stockholder for the capital
stock that was exchanged in Excess Stock. Immediately upon the transfer to the
permitted transferee, the Excess Stock will automatically be exchanged for
capital stock of the class from which it was converted. If the foregoing
transfer restrictions are determined to be void or invalid by virtue of any
legal decision, statute, rule or regulation, then the intended transferee of any
Excess Stock may be deemed, at the option of the Company, to have acted as an
agent on behalf of the Company in acquiring the Excess Stock and to hold the
Excess Stock on behalf of the Company.
In addition to the foregoing transfer restrictions, the Company will have
the right, for a period of 90 days during the time any Excess Stock is held by
the Company in trust, to purchase all or any portion of the Excess Stock from
the original transferee-stockholder for the lesser of the price paid for the
capital stock by the original transferee-stockholder or the market price (as
determined in the manner set forth in the Articles of Incorporation) of the
capital stock on the date the Company exercises its option to purchase. The
90-day period begins on the date on which the Company receives written notice of
the transfer or other event resulting in the exchange of capital stock for
Excess Stock.
Each stockholder shall upon demand be required to disclose to the Company in
writing any information with respect to the direct, indirect and constructive
ownership of beneficial interests as the Board of Directors deems necessary to
comply with the provisions of the Code applicable to REITs, to comply with the
requirements of any taxing authority or governmental agency or to determine any
such compliance.
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This ownership limitation may have the effect of precluding acquisition of
control of the Company unless the Board of Directors determines that maintenance
of REIT status is no longer in the best interests of the Company.
FEDERAL INCOME TAX CONSIDERATIONS
The Company believes it has operated, and the Company intends to continue to
operate, in such manner as to qualify as a REIT under the Code, but no assurance
can be given that it will at all times so qualify.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of certain provisions that
currently govern the federal income tax treatment of the Company and its
stockholders. For the particular provisions that govern the federal income tax
treatment of the Company and its stockholders, reference is made to Sections 856
through 860 of the Code and the regulations thereunder. The following summary is
qualified in its entirety by such reference.
Under the Code, if certain requirements are met in a taxable year, a REIT
generally will not be subject to federal income tax with respect to income that
it distributes to its stockholders. If the Company fails to qualify during any
taxable year as a REIT, unless certain relief provisions are available, it will
be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates, which could have a material adverse
effect upon its stockholders.
In any year in which the Company qualifies to be taxed as a REIT,
distributions made to its stockholders out of current or accumulated earnings
and profits will be taxed to stockholders as ordinary income except that
distributions of net capital gains designated by the Company as capital gain
dividends will be taxed as long-term capital gain income to the stockholders. To
the extent that distributions exceed current or accumulated earnings and
profits, they will constitute a return of capital, rather than dividend or
capital gain income, and will reduce the basis for the stockholder's Securities
with respect to which the distribution is paid or, to the extent that they
exceed such basis, will be taxed in the same manner as gain from the sale of
those Securities.
Investors are urged to consult their own tax advisors with respect to the
appropriateness of an investment in the Securities offered hereby and with
respect to the tax consequences arising under federal law and the laws of any
state, municipality or other taxing jurisdiction, including tax consequences
resulting from such investor's own tax characteristics. In particular, foreign
investors should consult their own tax advisors concerning the tax consequences
of an investment in the Company, including the possibility of United States
income tax withholding on Company distributions.
PLAN OF DISTRIBUTION
The Company may sell Securities to or through one or more underwriters or
dealers for public offering and sale by or through them, and may also sell
Securities directly to one or more institutional or other purchasers, through
agents or through any combination of these methods of sale. Any such
underwriter, dealer or agent involved in the offer and sale of Securities will
be named in the applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, or from time to time at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Company also may, from time to time, authorize
underwriters acting as the Company's agents to offer and sell the Securities
upon the terms and conditions as shall be set forth in any Prospectus
Supplement. In connection with the sale of Securities, underwriters may be
deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of Securities for whom they may act as agent. Underwriters may sell
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions (which may be changed from time to time) from the purchasers for
whom they may act as agent.
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Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities, and any discounts, concessions or
commission allowed by underwriters to participating dealers, will be set forth
in an applicable Prospectus Supplement. Underwriters, dealers and agents
participating in the distribution of the Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the Securities may be deemed to be underwriting
discounts and commissions, under the Securities Act. Underwriters, dealers and
agents may be entitled, under agreements with the Company, to indemnification
against and contribution toward certain civil liabilities, including liabilities
under the Securities Act, and to reimbursement by the Company for certain
expenses.
Each series of Debt Securities or Preferred Stock will be a new issue with
no established trading market. The Company may elect to list any series of Debt
Securities or Preferred Stock on an exchange, but is not obligated to do so. It
is possible that one or more underwriters may make a market in a series of
Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of, or the trading market for, the Securities.
Underwriters, dealers and agents and their associates may engage in
transactions with, or perform services for, the Company in the ordinary course
of business.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize dealers or other persons acting as the Company's agents to solicit
offers by certain institutions to purchase Debt Securities from the Company at
the public offering price set forth in such Prospectus Supplement pursuant to
delayed delivery contracts ("Contracts") providing for payment and delivery on
the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount no less than, and the aggregate principal amounts of Debt
Securities sold pursuant to Contracts shall be not less nor more than, the
respective amounts stated in the applicable Prospectus Supplement. Institutions
with whom Contracts, when authorized, may be made include commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions and other institutions, but will in all cases be subject
to the approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Debt Securities covered by its
Contracts shall not at the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which such institution is subject, and (ii)
if Debt Securities are being sold to underwriters, the Company shall have sold
to such underwriters the total principal amount of the Debt Securities less the
principal amount thereof covered by the Contracts. If in conjunction with the
sale of Debt Securities to institutions under Contracts, Debt Securities are
also being sold to the public, the consummation of the sale under the Contracts
shall occur simultaneously with the consummation of the sale to the public. The
underwriters and such other agents will not have any responsibility in respect
of the validity or performance of such Contracts.
In order to comply with the securities laws of certain states and other
jurisdictions, if applicable, the Securities offered hereby will be sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states Securities may not be sold unless they have been
registered or qualified for sale in the applicable state or other jurisdiction
or an exemption from the registration or qualification requirement is available
and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Securities offered hereby may not
simultaneously engage in market making activities with respect to the Securities
for a period of two business days prior to the commencement of such
distribution.
LEGAL MATTERS
Certain legal matters, including the legality of the Securities, will be
passed upon for the Company by Goodwin, Procter & Hoar, Boston, Massachusetts.
EXPERTS
The financial statements and schedules thereto incorporated by reference in
this Prospectus or elsewhere in the Registration Statement, to the extent and
for the periods indicated in their reports, have been audited by Coopers &
Lybrand L.L.P., independent accountants, and are incorporated herein in reliance
upon the authority of said firm as experts in giving said reports.
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