SCHEDULE 14A
(Rule 14a-101)
AMENDMENT NO. 1
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the registrant X
Filed by a party other than the registrant
Check the appropriate box:
Preliminary proxy statement X
Definitive proxy statement
Definitive additional materials
Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Bedford Property Investors, Inc.
(Name of Registrant as Specified in Its Charter)
Donald A. Lorenz
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
$125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
$500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:*
(4) Proposed maximum aggregate value of transaction:
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
_________________________
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
Dear Shareholder:
The directors and officers join me in extending to you a cordial invitation to
attend our Annual Meeting of Stockholders. This meeting will be on _________
___________ at __________ __.m., at the _________________________ in _______
__________________, California.
Enclosed please find the Proxy Statement, notice of meeting and proxy card. We
apologize for the length of the Proxy Statement, but it reflects the proposed
sale of $50 million of Series A Convertible Preferred Stock, a transaction
your management recommends FOR approval. In addition, the Proxy includes the
customary election of directors and three proposals amending the Charter of
the Company. One proposal creates a new class of stock to be known as Series
A Convertible Preferred Stock. Another proposal limits the transferability
of shares of Common Stock which is intended to protect the Company from
failing to meet one of the conditions to qualify as a REIT. The third
amendment to the Charter deletes Article VIII of the Charter relating to
certain business combinations.
The sale of $50 million of Series A Convertible Preferred Stock will enable the
Company to grow in the near term. Your careful review of this transaction
and your support will be greatly appreciated.
Your management and Board of Directors unanimously recommend that you vote FOR
all of the proposals, and FOR all nominees for directors.
Please take time to review and vote on each proposal. Your vote is important.
Please remember to return your Proxy cards.
Hope to see you at the Annual Meeting.
Very truly yours,
Peter B. Bedford
Chairman of the Board and
Chief Executive Officer
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
270 Lafayette Circle
Lafayette, California 94549
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held _____________________, 1995
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Bedford Property Investors, Inc., a
Maryland corporation (the "Company"), will be held at
on _______________, 1995, at _______________________,
local time, to consider the following proposals:
1. To consider for approval the sale and issuance of 8,333,334 shares
of Series A Convertible Preferred Stock of the Company to AEW Partners, L.P. for
an aggregate purchase price of $50 million;
2. To amend the charter of the Company (the "Charter") to create a new
class of stock of the Company to be known as "Series A Convertible Preferred
Stock", and to state the terms of such class;
3. To amend the Charter to substitute a new Article VII, containing
provisions limiting the transferability of shares of Common Stock intended to
reduce the risk that the Company would fail to satisfy one of the requirements
for qualifying as a real estate investment trust for federal income tax
purposes;
4. To amend the Charter to delete in its entirety Article VIII, relating
to certain business combinations;
5. To elect five Directors to serve until the next annual meeting of the
stockholders and until their successors are duly elected and qualify; and
6. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on _______________,
1995 are entitled to notice of and to vote at the meeting and any adjournment
thereof.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. THE
PRESENCE AT THE MEETING, IN PERSON OR BY PROXY, OF STOCKHOLDERS HOLDING SHARES
ENTITLED TO CAST A MAJORITY OF ALL VOTES ENTITLED TO BE CAST AT THE MEETING
SHALL CONSTITUTE A QUORUM. IF YOU CANNOT ATTEND THE MEETING, PLEASE COMPLETE,
DATE, SIGN AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE AS
PROMPTLY AS POSSIBLE.
By Order of the Board of Directors
JENNIFER I. MORI
Secretary
___________________, 1995
Lafayette, California
<PAGE>
PROXY STATEMENT
TABLE OF CONTENTS
Page
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Stock Purchase Agreement. . . . . . . . . . . . . . . . . . 6
Terms of the Series A Convertible Preferred Stock . . . . . . . 9
Limitations on Transferability of the Company's Stock . . . . . 12
Removal of Article VIII from the Company's Charter Regarding
Business Combinations. . . . . . . . . . . . . . . . . . . . 13
Certain Considerations Concerning the Investment Proposals. . . 14
Potential Conflicts of Interest . . . . . . . . . . . . . . . . 17
PROPOSAL 1 APPROVAL OF THE SALE AND ISSUANCE OF 8,333,334 SHARES OF
SERIES A CONVERTIBLE PREFERRED STOCK . . . . . . . . . . . . 20
General. .. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Stock Purchase Agreement . . . . . . . . . . . . . . . . 20
Background and Reasons for AEW Stock Sale. . . . . . . . . . 22
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 23
Certain Rights Under the Stock Purchase Agreement. . . . . . 24
Certain Ancillary Agreements . . . . . . . . . . . . . . . . 30
Fees and Expenses Payable in Connection with the Offering. . 33
Conditions to Closing. . . . . . . . . . . . . . . . . . . . 33
Listing of the Common Stock Issuable Upon Conversion of
the AEW Preferred Stock. . . . . . . . . . . . . . . . . . 34
Certain Considerations. . . . . . . . . . . . . . . . . . . . . 34
Potential Conflicts of Interest. . . . . . . . . . . . . . . 40
Certain Income Tax Considerations . . . . . . . . . . . . . . . 41
Vote Required; Recommendation of the Board of Directors . . . . 41
PROPOSAL 2 AMENDMENT OF CHARTER TO CREATE A NEW CLASS OF STOCK OF
THE COMPANY TO BE KNOWN AS "SERIES A CONVERTIBLE
PREFERRED STOCK", TO STATE THE TERMS OF SUCH STOCK . . . . . 43
Terms of the Series A Convertible Preferred Stock . . . . . . . 43
General. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Ranking. . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . 44
Liquidation Preference . . . . . . . . . . . . . . . . . . . 45
Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 46
Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . 48
Conversion Rights. . . . . . . . . . . . . . . . . . . . . . 50
Protective Provisions. . . . . . . . . . . . . . . . . . . . 52
Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . 54
Vote Required; Recommendation of the Board of Directors . . . . 54
PROPOSAL 3 AMENDMENT OF CHARTER TO SUBSTITUTE A NEW ARTICLE VII
LIMITING TRANSFERABILITY OF THE COMPANY'S COMMON STOCK . . . 55
Limitations on Transferability of the Company's Stock . . . . . 55
The Current Charter Provision. . . . . . . . . . . . . . . . 55
The Articles of Amendment. . . . . . . . . . . . . . . . . . 55
Antitakeover Effect. . . . . . . . . . . . . . . . . . . . . 59
Effect on AEW and Mr. Bedford. . . . . . . . . . . . . . . . 60
Vote Required; Recommendation of the Board of Directors . . . . 60
PROPOSAL 4 AMENDMENT OF CHARTER TO DELETE ARTICLE VIII REGARDING
CERTAIN BUSINESS COMBINATIONS. . . . . . . . . . . . . . . . 61
Vote Required; Recommendation of the Board of Directors . . . . 64
PROPOSAL 5 ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . 66
Executive Officers of the Company . . . . . . . . . . . . . . . 68
Compensation of Executive Officers. . . . . . . . . . . . . . . 69
Compensation of Directors . . . . . . . . . . . . . . . . . . . 72
Committees and Meetings of the Board of Directors . . . . . . . 73
Compensation Committee Interlocks and Insider Participation . . 74
Certain Other Matters . . . . . . . . . . . . . . . . . . . . . 75
Option Grants . . . . . . . . . . . . . . . . . . . . . . . . . 75
Aggregate Option Values at Year-End 1994. . . . . . . . . . . . 76
Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . 76
Certain Relationship and Related Transactions . . . . . . . . . 78
Cost of Acquisitions . . . . . . . . . . . . . . . . . . . . 78
Other Transactions . . . . . . . . . . . . . . . . . . . . . 79
Vote Required; Recommendation of the Board of Directors . . . . 80
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . 81
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE. . . . . . . . . . . . 81
STOCKHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . 82
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
<PAGE>
EXHIBITS
EXHIBIT A Articles of Amendment Defining the Terms of the Series A
Convertible Preferred Stock and Amending the Limitations
on the Transferability of the Company's Stock
EXHIBIT B Articles of Amendment Deleting Article VIII (relating to
Certain Business Combinations) from the Charter
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
270 Lafayette Circle
Lafayette, CA 94549
_____________________
PROXY STATEMENT
_____________________
__________________, 1995
Annual Meeting of Stockholders
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board of Directors" or the "Board") of Bedford Property
Investors, Inc., a Maryland corporation (the "Company"), of proxies from the
holders (the "Stockholders") of the Company's issued and outstanding shares of
Common Stock, par value $.01 per share (the "Common Stock"), to be exercised at
the Annual Meeting of Stockholders to be held on _______________, 1995, at
, at ____________, local time,
and at any adjournment(s) or postponement(s) of such meeting (the "Annual
Meeting"), for the purposes set forth in the accompanying Notice of Annual
Meeting of Stockholders.
This Proxy Statement and the enclosed Proxy Card are being mailed to the
Stockholders on or about _______________, 1995.
Only the holders of record of the shares of Common Stock at the close of
business on _______________, 1995 (the "Record Date") are entitled to notice of
and to vote at the Annual Meeting. As of the Record Date, ______________ shares
of Common Stock were outstanding, each of which is entitled to cast one vote.
The presence at the Annual Meeting, in person or by proxy, of Stockholders
holding shares entitled to cast a majority of all the votes entitled to be cast
at the Annual Meeting shall constitute a quorum for the transaction of business
at the Annual Meeting. Abstentions and broker non-votes (i.e., votes not cast
by a broker or other record holder in "street" or nominee name solely because
such record holder does not have discretionary authority to vote on the matter)
will be counted toward the presence of a quorum. With respect to the approval
of the sale of Series A Convertible Preferred Stock (Proposal 1), abstentions
and broker non-votes will have no effect on the result of the vote, assuming
that the number of votes cast represents over 50% of all outstanding shares of
Common Stock. With respect to the amendments to the Charter of the Company (the
"Charter") (Proposals 2, 3 and 4), abstentions and broker non-votes will have
the same effect as votes against those Proposals. With respect to the election
of directors, abstentions and broker non-votes will not be counted as votes cast
(Proposal 5).
The approval of Proposals 1 and 2 are each contingent on the approval
of the other. Unless both of such proposals are approved by the Stockholders,
neither will be permitted to become effective by the Company. In addition,
the approval of Proposal 3 is contingent on the Approval of both Proposals
1 and 2. Unless both Proposals 1 and 2 are approved, Proposal 3 will not be
permitted to become affective by the Company.
Under the Maryland General Corporation ("MGCL"), holders of shares of Common
Stock will not be entitled to appraisal rights with respect to such shares with
respect to any of the Proposals.
All expenses in connection with the solicitation of proxies will be borne by
the Company. In addition to solicitation by mail, officers and directors of the
Company may also solicit proxies by mail, telephone, facsimile or in person.
Additionally, the Company may retain the services of a professional proxy
solicitation firm to assist in the solicitation of proxies, at a cost of
approximately $_______________ plus expenses, which would be borne by the
Company.
The shares of Common Stock represented by all properly executed Proxy Cards
will be voted at the Annual Meeting as indicated or, if no instruction is given,
in favor of all of the Proposals. As to any other business which may properly
come before the Annual Meeting, all properly executed Proxy Cards will be voted
by the persons named therein in accordance with their best judgment. The
Company does not presently know of any other business which may come before
the Annual Meeting. Any person giving a proxy has the right to revoke it at
any time before it is exercised (a) by filing with the Secretary of the
Company a duly signed revocation or Proxy Card bearing a later date or (b) by
voting in person at the Annual Meeting.
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement (the "Proxy Statement"). This summary is not intended
to be a complete description of the matters covered in this Proxy Statement and
is subject to and qualified in its entirety by reference to the more detailed
information contained elsewhere in this Proxy Statement, including the Exhibits
hereto and the documents incorporated herein by reference. Stockholders are
urged to read carefully the entire Proxy Statement, including the Exhibits. All
capitalized terms are defined in the Glossary.
Matters Submitted for Stockholder Vote. The following matters are submitted
for Stockholder approval pursuant to this Proxy Statement:
(i) The Investment Proposals. The investment proposals (the "Investment
Proposals") relate to the transaction and acts contemplated by the Company in
connection with the Series A Convertible Preferred Stock Purchase Agreement
between the Company and AEW Partners, L.P. dated May 18, 1995 (the "Stock
Purchase Agreement"), and consist of:
(a) a proposal to approve the sale and issuance of 8,333,334 shares
of Series A Convertible Preferred Stock to AEW Partners, L.P., for an aggregate
purchase price of $50 million (Proposal 1);
(b) a proposal to amend the Company's Charter (the "Charter") to
create the Series A Convertible Preferred Stock and to set forth the terms of
such stock (Proposal 2);
(c) a proposal to amend the Charter to substitute a new Article VII
limiting the transferability of the Company's Common Stock by imposing
limitations on the amount of the Company stock a stockholder may own which is
intended to reduce the risk that the Company would fail to satisfy one of the
requirements for qualifying as a real estate investment trust for federal income
tax purposes (Proposal 3); and
(d) a proposal to amend the Charter to delete the provisions of
Article VIII regarding business combinations (Proposal 4).
(ii) The Election of Directors. All of the five directors of the
Company have been nominated for reelection to the Board of Directors (Proposal
5).
Required Vote. Approval of the sale of the Series A Convertible Preferred
Stock (Proposal 1) requires the affirmative vote of a majority of the votes cast
on that Proposal, provided that the number of votes cast represents over 50% of
the outstanding shares of Common Stock. Approval of the amendment to the
Charter to create the Series A Convertible Preferred Stock (Proposal 2)
requires the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock, as does the approval of the amendment to the Charter
to substitute a new Article VII regarding the transferability of the Common
Stock (Proposal 3). The affirmative vote of holders of 80% of the outstanding
shares of Common Stock is required to approve the proposal to delete the
provisions of Article VIII of the Charter regarding business combinations
(Proposal 4). The approval of holders of a plurality of the outstanding
shares of Common Stock will be required for the election of directors
(Proposal 5). The approval of the Stock Purchase Agreement (Proposal 1) and
the amendment to the Charter to create the Series A Convertible Preferred Stock
(Proposal 2) are each contingent upon the approval of the other. In addition,
the amendment to the Charter to limit the transferability of the Company's
stock (Proposal 3) is contingent upon the approval of Proposals 1 and 2.
The Stock Purchase Agreement
Pursuant to the Stock Purchase Agreement, the Company has agreed to sell and
issue on the date of closing of the sale (the "Closing Date"), and AEW has
agreed to purchase, subject to Stockholder approval of the transaction and
certain other conditions set forth in the Stock Purchase Agreement, 8,333,334
shares of Series A Convertible Preferred Stock for $6.00 per share, or in the
aggregate, $50 million (the "AEW Stock Sale"). Each share of AEW Preferred
Stock will be convertible after two years from the date of issuance into one
share of Common Stock. Based on that conversion ratio, the purchase price of
the AEW Preferred Stock represents a 5% premium over the average closing
price of the Common Stock for the 60 trading days prior to May 18, 1995, and
the AEW Preferred Stock would represent approximately 58% of the outstanding
shares of Common Stock following conversion.
Pursuant to the terms of the Stock Purchase Agreement, among other rights,
AEW (i) will have the right to cause the Company to register certain shares
of Common Stock issuable upon conversion of the AEW Preferred Stock, (ii)
will have the right to purchase shares offered in future offerings by the
Company in order to maintain its proportionate ownership interest in the
Company, and (iii) will be exempt, by irrevocable resolutions of the Board,
from certain antitakeover provisions of Maryland General Corporate Law and of
the Charter which would otherwise limit the ability of AEW to enter into
transactions with the Company following the closing of the AEW Stock Sale.
In addition, pursuant to AEW's request, and as a condition to Closing of the
AEW Stock Sale, the Company has agreed to terminate its Stockholder Rights
Plan, which was originally implemented to protect the Company from hostile
takeovers. See Proposal 1 - "Certain Rights Under the Stock Purchase
Agreement".
Background and Reasons for AEW Stock Sale. The Board of Directors believes
that the AEW Stock Sale is in the best interest of the Company because it will
enable the Company to (i) increase its equity market capitalization which may,
in the future, enable the Company to raise additional equity capital, (ii)
increase the amount available under its Credit Facility from $23 million to $60
million pursuant to an amendment to its Credit Facility with Bank of America,
N.T. & S.A. ("BofA") (the "Amended Credit Facility") and (iii) increase its
asset base by using a portion of the proceeds of the AEW Stock Sale to finance
real estate acquisitions. See Proposal 1 - "Use of Proceeds". Moreover, the
Board believes that the consummation of the AEW Stock Sale would be
advantageous to the Company because the price of the AEW Preferred Stock,
based on the conversion ratio, represents a premium over the trading price of
the Common Stock as of May 18, 1995.
In recommending the AEW Stock Sale for approval, the Board considered
the following factors: (i) the aggregate purchase price, (ii) the
dividend rate, (iii) the liquidation preference, and (iv) the ability of the
holders of the AEW Preferred Stock to force a redemption of the AEW Preferred
Stock at a time when the Company may not be able to finance a redemption. In
considering the dividend rate payable on the AEW Preferred Stock, the Board
reviewed the terms of several other preferred stock issuances by other REITs.
Although those transactions were not directly comparable to the AEW Stock Sale
in that the particular terms varied from the terms of the AEW Stock Sale, the
Board believes that the dividend rate is within the range of those paid in
connection with those other transactions. The Board weighed the negative
effects of the liquidation preference and the dividends payable on the AEW
Preferred Stock, as well as the redemption rights of the holders of the AEW
Preferred Stock against the benefits of potential future growth of the
Company, and concluded that the AEW Stock Sale would be in the best interests
of the Company. See Proposal 1 - "Background and Reasons for the AEW Stock
Sale".
Use of Proceeds. After payment of offering expenses (including a placement
fee) estimated to be approximately $3.75 million, the Company expects that the
proceeds of the AEW Stock Sale (the "Transaction Proceeds") will be used (i) to
repay in full outstanding borrowings under the Company's current revolving
credit facility with BofA (see Proposal 1 - "Certain Ancillary Agreements -
Amended Credit Facility") estimated to be approximately $19 million, which
will, in turn, enable the Company to close on the Amended Credit Facility
with BofA, (ii) to finance acquisitions of additional suburban office and
industrial properties, and (iii) for general corporate purposes, including
working capital. As part of the offering expenses payable, the Company will
pay to Bedford Acquisitions, Inc. d/b/a/ BPI Acquisitions ("BPIA") $750,000
pursuant to an agreement between the Company and BPIA. BPIA is a corporation
wholly owned by Mr. Bedford. Such amount does not exceed the aggregate amount
of costs incurred by BPIA to date in connection with acquisition services.
See "Certain Considerations Concerning the Investment Proposals - Potential
Conflicts of Interest".
Conditions to Closing. Each of the Company's and AEW's obligations to effect
the closing of the AEW Stock Sale is subject to various conditions, including
that the AEW Stock Sale shall have been approved by the Stockholders.
AEW's obligation to consummate the AEW Stock Sale is subject to certain
additional conditions, including the following: (i) the closing, simultaneously
with the Closing of the AEW Stock Sale, of the Amended Credit Facility with
BofA, in a form reasonably satisfactory to AEW; (ii) that the average closing
sale price of the Common Stock for the seven business days immediately
preceding the Closing Date be at least $5.25; (iii) AEW's due diligence
review of the Company and its assets; (iv) the termination of the Company's
Rights Plan; and (v) that either (A) the approval of the amendment to the
Charter to remove Article VIII by the Stockholders, or (B) the execution of
an agreement between AEW and Mr. Bedford pursuant to which he will agree to
vote his shares in favor of the proposal to delete Article VIII of the
Charter and will agree not to assert against AEW or its affiliate the
provisions of Article VIII of the Charter. See Proposal 1 - "Conditions to
Closing".
Terms of the Series A Convertible Preferred Stock
The AEW Preferred Stock will rank senior to the Common Stock with respect to
the payment of dividends and amounts upon liquidation, dissolution or winding up
of the Company. See "Terms of the Series A Convertible Preferred Stock".
Dividends. Holders of shares of AEW Preferred Stock will be entitled to
receive in each calendar quarter cumulative dividends in cash in an amount equal
to the greater of (i) an amount per share of $0.135 or (ii) the dividends
payable with respect to such quarter on the Common Stock into which the AEW
Preferred Stock is convertible plus, in both cases, any accumulated but unpaid
dividends on the AEW Preferred Stock. If the holders of the AEW Preferred Stock
exercise their redemption rights and such redemption is not made, the dividend
rate will increase to $0.165 per share. Dividends may be paid on shares of
Common Stock in any fiscal quarter only if full cumulative dividends have been
paid on all shares of AEW Preferred Stock.
Liquidation Preference. The holders of shares of AEW Preferred Stock will be
entitled to receive in the event of a Liquidation Event (which includes
liquidations, mergers, consolidations, and certain other transactions involving
a substantial change in ownership of the Company) $6.30 per share of AEW
Preferred Stock plus all accrued and unpaid dividends thereon. Until the
holders of the AEW Preferred Stock have been paid the Liquidation Preference
in full, no payment will be made to any holder of Common Stock upon the
liquidation, dissolution or winding up of the Company.
Redemption. At any time after the second anniversary of the Closing Date, the
AEW Preferred Stock may be redeemed in whole (but not in part) at the option of
the Company. If redemption is made at the option of the Company, the redemption
price will be equal to a price calculated by determining an internal rate of
return on the AEW Preferred Stock of 25% per annum for the first two years
commencing with the Closing Date until the date of redemption, and an internal
rate of return on the AEW Preferred Stock of 20% per annum from and after the
second anniversary of the Closing Date until the date of redemption, but not
beyond the fifth anniversary of the Closing Date. At any time after the fifth
anniversary of the Closing Date, or at any time prior thereto if there are less
than 400,000 shares of AEW Preferred Stock outstanding, the AEW Preferred Stock
may be redeemed in whole or in part at the option of the Company for $6.30 per
share.
After the first anniversary of the Closing, the Company will be required, at
the option of the holders of the AEW Preferred Stock, to redeem the AEW
Preferred Stock on demand of the holder thereof at a price of $6.00 per share
plus all accrued and unpaid dividends on the occurrence of any one or more of
the following: (a) the failure to pay dividends on the AEW Preferred Stock
for two consecutive quarters (including all dividends accumulated but unpaid
for all prior quarters); (b) a default in the payment on certain institutional
debt; (c) the failure of the Company to obtain any consent of AEW or other
holder of AEW Preferred Stock as provided under the section "Protective
Provisions"; and (d) the failure to meet certain financial targets. (See
Proposal 2 - "Terms of the Series A Convertible Stock - Redemption -
Redemption at Preferred Stockholders' Option").
Voting Rights. The holders of the AEW Preferred Stock as a class initially
will have the right to elect two directors. The holders of AEW Preferred Stock
will have the right to elect a majority of the Board if (i) the Company has
failed in two consecutive quarters to pay quarterly dividends payable on the AEW
Preferred Stock (including all dividends accumulated but unpaid for all prior
quarters), (ii) Mr. Bedford ceases to serve substantially full-time as Chief
Executive Officer of the Company, (iii) Mr. Bedford and his affiliates sell a
substantial portion of their shares of Common Stock, or (iv) the Company fails
to pay the full redemption price payable on demand for redemption by the holders
of the AEW Preferred Stock under circumstances in which the holders of the AEW
Preferred Stock may demand redemption.
The approval of holders of a majority of the outstanding shares of AEW
Preferred Stock will be required to amend the Charter in a way that would
materially and adversely affect the rights or preferences of the holders of AEW
Preferred Stock or to authorize any class or series of stock having rights equal
or senior to the AEW Preferred Stock. In addition, if the Stockholders do not
approve the deletion of Article VIII of the Charter pursuant to Proposal 4 of
the Proxy Statement, the holders of the AEW Preferred Stock will have the right
to vote on a subsequent proposal to delete Article VIII of the Charter.
Conversion Rights. Each share of AEW Preferred Stock will be convertible
after the second anniversary of the Closing into one share of Common Stock. The
Conversion Price, which dictates the number of shares into which each share of
AEW Preferred Stock is convertible, is subject to adjustment upon any subsequent
issuance of shares of the Company's stock for consideration which is less than
the Conversion Price. Prior to the second anniversary of the Closing, if the
Company issues additional stock for a consideration per share less than the
Conversion Price, then the Conversion Price will be reduced to a price equal to
the consideration per share received by the Company for such additional stock.
On or after the second anniversary of the Closing, if the Company issues
Additional Stock for consideration in an amount per share which is less than the
Conversion Price, then the Conversion Price will be reduced proportionate to the
amount by which the Conversion Price exceeds the per share consideration of the
additional stock, taking into account the amount of additional stock issued
relative to the number of outstanding shares of Common Stock. See the Articles
of Amendment and Proposal 2 - "Conversion Rights" for a more detailed
description of the adjustments to the Conversion Price.
Protective Provisions. The consent of AEW or any transferee of AEW holding
more than 50% of the outstanding shares of AEW Preferred Stock will be required
for the Company to effect any of the following transactions (each a "Major
Transaction"): (i) the consolidation or merger of the Company; (ii) the
issuance or modification of any debt in a principal amount which exceeds $10
million; (iii) the making of new investments with a purchase price equal to
or greater than $10 million, or any series of purchases within any 90-day
period with aggregate purchase prices exceeding $25 million; (iv) the
issuance of any equity securities, except with respect to the exercise of stock
options issued to employees and directors of the Company; (v) the sale of any
assets with a sale price in excess of $10 million, or any series of sales
within any 90-day period with aggregate sales prices exceeding $25 million;
(vi) the modification of any executive employment agreement; (vii) the
modification of any agreement between the Company and Mr. Bedford or any of
his affiliates; (viii) the termination of the Company's status as a REIT; (ix)
any substantial change in the Company's current business strategies; (x)
permitting Mr. Bedford to cease serving as the chief executive officer of the
Company (which event may be outside of the Company's control) or permitting Mr.
Bedford and his affiliates to dispose of a substantial percentage of their
shares of Common Stock (Mr. Bedford will execute a Standstill Agreement with
the Company pursuant to which he will agree not to sell shares of Common
Stock where such sale would cause this provision to be violated. See
Proposal 1 - "Certain Ancilliary Agreements - Standstill Agreement"); (xi)
any amendment to the resolution of the Board of Directors exempting AEW and
any affiliate of AEW from the business combination provisions set forth in
Section 3-602 of the MGCL; and (xii) the filing or assenting to or in any
other way participating in the filing of an involuntary petition in
bankruptcy or seeking similar protection from creditors under federal or
state bankruptcy or insolvency laws.
Limitations on Transferability of the Company's Stock
The Current Charter Provision. Because the Company has qualified as a REIT
under the Code, it is subject to certain limitations on the ownership of its
stock. One of the limitations imposed by the Internal Revenue Code prohibits
ownership by five or fewer individuals of more than 50% of the value of the
outstanding stock of a real estate investment trust (the "Five or Fewer
Requirement"). In order to meet such requirements and maintain its
qualification as a REIT, the Company's Charter currently provides that the
Company may refuse to accept for transfer or to issue a new certificate for
any shares of stock delivered for transfer if the Board concludes that such
sale or transfer will or could result in the loss of the Company's REIT
status.
The Board has proposed for Stockholder approval an amendment to the Charter
to change the transferability restrictions. Under the proposed amendment and
subject to certain exceptions, no holder (other than Mr. Bedford and AEW) would
be permitted to own more than 5% (in value) of the aggregate outstanding shares
of stock of the Company, and more than 5% (in number or value) of the
outstanding shares of Common Stock. Any purported transfer in violation of
that limitation would result in an automatic transfer of such stock to a
trust for the benefit of a charitable beneficiary, which trust would enjoy
the economic benefits of, and voting rights associated with, the stock until
such time as the trustee of the trust transfers such shares to a person who
may own such shares without violating the ownership restrictions. Under the
proposed amendment, Mr. Bedford and AEW would be subject to higher ownership
limitations than the Stockholders.
Specifically, Mr. Bedford would not be permitted to own more than 15% of the
lesser of the number or value of the outstanding shares of Common Stock
(including shares of Common Stock into which the AEW Preferred Stock will be
convertible). AEW would be permitted to own 100% of the outstanding shares of
AEW Preferred Stock, but would not be permitted to own more than 58% of the
lesser of the number or value of the outstanding shares of Common Stock. See
Proposal 3.
The purpose of the proposed amendment is to protect the Company from
inadvertently failing to meet the Five or Fewer Requirement, and therefore
failing to qualify as a REIT. The adoption of the proposed amendment could have
certain antitakeover effects on the Company. See "Certain Considerations
Concerning the Investment Proposals - Antitakeover Effects of the Investment
Proposals", below.
Removal of Article VIII from the Company's Charter Regarding Business
Combinations
Proposal 4 sets forth an amendment to the Company's Charter removing
therefrom Article VIII, which includes certain antitakeover provisions. As
currently in effect, the Charter provides that a "business combination" as
defined in the Charter, between the Company and an "interested stockholder"
must be approved by 80% of the outstanding shares of Common Stock. A "business
combination" includes, among other transactions, (i) a merger or consolidation
of the Company, (ii) any sale of greater than $5 million of the Company's
assets, and (iii) the adoption of a plan of liquidation or dissolution
proposed by the interested stockholder. For purposes of this Charter
provision, an "interested stockholder" is defined as an entity owning more than
10% of the Company's outstanding stock. These provisions are intended to protect
the Company from unsolicited or hostile takeover attempts which could be
detrimental to the Company and its stockholders.
Pursuant to the request of AEW, the Board of Directors has recommended for
Stockholder approval the deletion of Article VIII from the Charter. Management
believes that the investment community views charter provisions such as Article
VIII unfavorably and, thus, that the continued presence of Article VIII in the
Charter may tend to discourage investment in the Company. Moreover, management
believes that the potential detriment to the Company of the loss of the takeover
protections provided by Article VIII is outweighed by the overall benefit to the
Company resulting from the AEW Stock Sale. See "Certain Considerations
Concerning the Investment Proposals - Loss of Protection From Unsolicited
Takeovers".
Certain Considerations Concerning the Investment Proposals
Although the Board of Directors believes that all of the Investment
Proposals are in the best interest of the Stockholders of the Company,
Stockholders should consider the following:
Antitakeover Effects of the Investment Proposals. The adoption of the
Investment Proposals may discourage a change of control of the Company. As more
fully described in the Proxy Statement, the consent of the holders of a majority
of the outstanding shares of AEW Preferred Stock will be required in order to
effect, among other transactions, a merger, consolidation or the sale of assets
with a purchase price of more than $10 million. This consent requirement
remains in effect until the outstanding shares of AEW Preferred Stock represents
less than 15% of the outstanding shares of Common Stock, assuming conversion of
all outstanding shares of AEW Preferred Stock (the "Outstanding Shares"). The
consent requirement may deter a change of control by means of a tender offer or
otherwise, as a potential acquiror would be unable to effect many transactions
incidental or subsequent to any acquisition with the Company without the consent
of the holders of the AEW Preferred Stock. In addition, the ownership
limitations which are proposed to be included in the Company's Charter will
limit the amount of stock of the Company which a potential acquiror may
beneficially own. Such ownership limitations, if approved, will discourage
any tender offer which may be attractive to the Stockholders and will limit
the opportunity for Stockholders to receive a premium for their Common Stock
that might otherwise exist if an investor were attempting to assemble a block of
shares in excess of 5% in number or value of the Company's stock, or to
otherwise effect a change in control of the Company.
Change of Control. In the event that the AEW Stock Sale is consummated, AEW
will hold Series A Convertible Preferred Stock convertible (after two years)
into 58% of the Company's currently outstanding Common Stock. Upon Closing, the
holders of the AEW Preferred Stock will be entitled to elect two directors to
the Board. Upon the occurrence of certain events (including, among others, the
failure to make two consecutive dividend payments on the AEW Preferred Stock,
and the failure to redeem the AEW Preferred Stock on demand of the holders
thereof in those circumstances in which the holders of the AEW Preferred
Stock have a right to such a demand) the holders of the AEW Preferred Stock
will be entitled to elect a majority of the Board. In addition, following
the Closing, the holders of the AEW Preferred Stock will have the right to
veto any substantial transaction entered into by the Company. As a result,
in the event that the Investment Proposals are adopted, the holders of the AEW
Preferred Stock will have the right to exercise substantial control over the
Company. In addition, the Board could become controlled by the holders of
AEW Preferred Stock, which could, in turn, result in a change in the
management, as well as investment policies and strategies of the Company.
Loss of Protection from Unsolicited Takeovers. As a result of the removal
of Article VIII and the removal of the protection of the Rights Plan, the
Company could become more vulnerable to coercive two-tiered, front-end loaded or
partial offers which may not offer full value to all Stockholders, and to
purchasers seeking to accumulate blocks of stock in order to exercise a
controlling influence over the policies of the Company, whose interests may
conflict with those of the Stockholders. The removal of the antitakeover
provisions from the Charter would, if AEW then controlled the Board of
Directors, permit AEW to cause the Company to liquidate, dissolve, or redeem
the outstanding shares of AEW Preferred Stock, or enter into certain
transactions with the Company. Any liquidation, however, would be subject to
approval by the Stockholders. Any of such transactions could result in
a greater return to the holders of the AEW Preferred Stock than to holders of
Common Stock.
Business Combination Provisions and Article VIII. As noted above, the Board
has recommended for Stockholder approval an amendment to the Charter to delete
Article VIII, thereby removing certain antitakeover provisions. The Board has
also adopted a resolution exempting AEW from the provisions of Article VIII, so
that even if the Stockholders fail to approve this amendment to the Charter, AEW
will nonetheless be exempt from the current antitakeover provisions of the
Charter. Therefore, if a Stockholder does not favor the elimination of the
antitakeover provisions of Article VIII, they should vote against the creation
of the AEW Preferred Stock (Proposal 2) and against the approval of the AEW
Stock Sale (Proposal 1).
Redemption Rights of the AEW Preferred Stock. Under the terms of the AEW
Preferred Stock, the holders thereof will have the right to demand redemption on
the occurrence of certain events, including on (i) the failure of the Company to
pay two consecutive dividends on the AEW Preferred Stock, (ii) the failure to
meet certain financial performance targets and (iii) the failure to obtain the
consent of AEW to enter into any of the Major Transactions. Significantly, the
failure to make two consecutive dividends on the AEW Preferred Stock will
constitute an event of default under the Amended Credit Facility. As a result,
the Company could (i) experience difficulty in financing the redemption of the
AEW Preferred Stock, (ii) be subject to foreclosure under the Amended Credit
Facility, and (iii) experience difficulty in carrying on its day-to-day
operations.
Certain Other Considerations. Stockholders should also consider the
following: (i) the potential adverse effect of the registration rights pursuant
to the Stock Purchase Agreement on the market price of the Common Stock and on
the ability of the Company to raise additional equity capital; (ii) the
potential dilutive effect of the conversion of the AEW Preferred Stock to
Common Stock; (iii) the preferential dividends and liquidation preference of
the AEW Preferred Stock; (iv) the potential impairment of the Company's use of
approximately $31 million of net operating loss carryforwards (See Proposal 1
- - "Certain Considerations - Limitations on Use of Net Operating Loss
Carryforward"); and (v) the risk of Mr. Bedford's death or disability, which
event is outside of the Company's control and would trigger the right of the
holders of the AEW Preferred Stock to redeem their shares. See Proposal 1 -
"Certain Considerations".
Potential Conflicts of Interest
Amounts Payable to Corporation Wholly-Owned by Mr. Bedford. Upon Closing of
the Stock Purchase Agreement, the Company will pay to BPIA, a corporation
wholly-owned by Mr. Bedford, $750,000 pursuant to an agreement between the
parties whereby BPIA performs acquisition services for the Company. In
addition, on closing of the Amended Credit Facility, the Company will pay to
BPIA $550,000 in consideration of services provided by BPIA in connection with
the Amended Credit Facility. Such amounts, in the aggregate, do not exceed the
aggregate amount of costs incurred by BPIA to date in connection with such
acquisition services. See Proposal 1 - "Certain Ancillary Agreements - BPIA
Agreement", and Proposal 5 - "Certain Relationships and Related Transactions".
Stock Ownership Limitations. In the event that the Company's Charter is
amended to substitute a new Article VII, Mr. Bedford and AEW will be subject to
limitations on the ownership of the Company's stock which are higher than those
applicable to other holders of the Company's stock. Without such higher
limitations, however, both Mr. Bedford and AEW (assuming consummation of the AEW
Stock Sale) would violate the provisions of the proposed amendment to the
Charter. See Proposal 3 - "Effect on AEW and Mr. Bedford".
Continued Employment of Mr. Bedford. Under the terms of the Stock Purchase
Agreement and the terms of the AEW Preferred Stock, the termination of Mr.
Bedford as chief executive officer would result in material adverse consequences
to the Company. Specifically, the holders of the AEW Preferred Stock would be
entitled to demand the redemption of their shares at a time when the Company may
experience difficulty in financing such a redemption, and the holders of the AEW
Preferred Stock would be entitled to elect a majority of the Board. As a result
of these provisions, the Board of Directors will be less likely to replace Mr.
Bedford as Chief Executive Officer. It should be noted, however, that such
provisions were required by AEW as a basis for their agreement to make an
investment in the Company.
Certain Detriments to Mr. Bedford. Pursuant to the Investment Proposals, Mr.
Bedford has agreed to refrain from selling a substantial portion of his shares
of Common Stock. As a result, he will be precluded from liquidating a large
part of his substantial investment in the Company. In addition, Mr. Bedford has
agreed to permit AEW to participate in any sale of Common Stock made by Mr.
Bedford in transactions other than on the public market, thereby further
limiting his ability to sell shares of Common Stock.
Acquisition of Property Owned by an Affiliate of AEW. Aldrich Eastman Waltch,
L.P., an affilaite of AEW (see Proposal 1 - "Background and Research for the
AEW Stock Sale") is a national real estate investment advisor. As such, it
is affiliated with and/or controls entities which in turn, have extensive
real estate holdings. As a result, the Company may, from time to time,
enter into negotiations to purchase properties which are owned by entities
affiliated with AEW.
For example, the Company has entered into preliminary negotiations with an
affiliate of AEW concerning the purchase of an office building owned by that
affiliate. The Company has not yet commenced its due diligence review of the
property, but expects to enter into a letter of intent regarding such
property. If the sale is consummated, it is expected that the purchase price
will be approximately $6,375,000. There can be no assurance, however, that
at the conclusion of its due diligence review the Company will decide to
proceed with the acquisition, or that if such a decision is made, the parties
will be able to reach agreement on the terms of any contract. In order to
address the potential conflict of interest, only those directors who are not
affiliates of AEW will act upon those matters concerning properties owned by
AEW affiliates.
<PAGE>
PROPOSAL 1
APPROVAL OF THE SALE AND ISSUANCE OF 8,333,334 SHARES
OF SERIES A CONVERTIBLE PREFERRED STOCK
THE APPROVAL OF THE SALE OF THE SERIES A CONVERTIBLE PREFERRED STOCK PURSUANT TO
THIS PROPOSAL 1 IS CONTINGENT UPON THE APPROVAL OF THE PROPOSED CHARTER
AMENDMENT SET FORTH IN PROPOSAL 2. UNLESS PROPOSALS 1 AND 2 ARE APPROVED,
NEITHER OF SUCH PROPOSALS WILL BE PERMITTED TO BECOME EFFECTIVE BY
THE COMPANY.
General
As required by the rules of the New York Stock Exchange (the "NYSE"), the
Stockholders are being asked to approve the sale and issuance of Series A
Convertible Preferred Stock (the "AEW Preferred Stock") to AEW Partners, L.P.,
a Delaware limited partnership, or to a single affiliate of AEW to be identified
prior to Closing (either of which is referred to hereafter as "AEW").
The Board of Directors of the Company (the "Board") reserves its right to
amend the provisions of the Series A Convertible Stock Purchase Agreement
without Stockholder approval, either before or after the approval of the
Stock Purchase Agreement (defined below), by the Stockholders. In this regard,
the Board will not solicit further Stockholder approval of any such amendment.
The Board does not, however, currently anticipate that any of the terms of
such agreement will be amended. In addition, it should be noted that any
amendment would require the consent of AEW. The Board also reserves the right
to terminate the Stock Purchase Agreement without obtaining further Stockholder
approval. Should the Board wish to amend the terms of the AEW Preferred Stock
following Stockholder approval of the amendment to the Charter creating the AEW
Preferred Stock, the Board would be required to resubmit for Stockholder
approval any such additional amendments.
The Stock Purchase Agreement
The Company has entered into a Series A Convertible Preferred Stock Purchase
Agreement with AEW dated as of May 18, 1995 (the "Stock Purchase Agreement")
pursuant to which the Company has agreed to sell and issue on the date of
closing of the sale (the "Closing Date"), and AEW has agreed to purchase,
each subject to the conditions set forth in the Stock Purchase Agreement,
8,333,334 shares of Series A Convertible Preferred Stock (the "AEW Preferred
Stock") for $6.00 per share, or in the aggregate, $50 million (the "AEW Stock
Sale"). Each share of AEW Preferred Stock will be convertible, at the option
of holder, after two years from the date of issuance into one share of Common
Stock. The initial Conversion Price (as hereinafter defined) represents a 5%
premium over the average closing
price of the Common Stock for the 60 trading days prior to May 18, 1995. The
conversion price is subject to adjustment on certain events as more fully
described below. Based on the initial conversion ratio, the AEW Preferred Stock
would represent approximately 58% of the outstanding shares of Common Stock
following conversion.
Pursuant to the terms of the Stock Purchase Agreement, AEW will (i) have the
right to cause the Company to register certain shares of Common Stock issuable
upon conversion of the AEW Preferred Stock, (ii) have the right to purchase
shares offered in future offerings by the Company in order to maintain its
proportionate ownership interest in the Company, (iii) be exempt, by irrevocable
resolutions of the Board, from certain antitakeover provisions of Maryland
General Corporation Law and of the Charter which would otherwise limit the
ability of AEW to enter into transactions with the Company following the
execution of the Stock Purchase Agreement. See "Certain Rights Under the Stock
Purchase Agreement".
To summarize the terms of the AEW Preferred Stock, each share thereof will be
entitled to cumulative dividends equal to at least $.135 per share each quarter,
and will be entitled to receive, in the event of liquidation or merger of the
Company, $6.30 per share. In addition, the holders of the AEW Preferred Stock
will be entitled to cause the redemption of the stock in the event that the
Company fails to make two consecutive dividend payments on the AEW Preferred
Stock, and in certain other circumstances. The holders of AEW Preferred Stock
may, in certain circumstances, including in the event that the Company fails to
make two consecutive dividend payments, elect a majority of the Board of
Directors. For a more complete description of the AEW Preferred Stock, see
"Terms of the AEW Preferred Stock" below.
Background and Reasons for AEW Stock Sale
AEW is limited partnership. The General Partner is AEW/L.P., a Delaware
limited partnership, the general partner of which is AEW, Inc., a Delaware
corporation, each of which is an affiliate of Aldrich Eastman Waltch, L.P.
Aldrich Eastman Waltch is a national real estate investment adviser whose
clients primarily include institutional investors.
The Company engaged Merrill Lynch & Co., Merrill Lynch Pierce Fenner & Smith
Incorporated ("Merrill") as its Placement Agent to identify and contact
potential purchasers of the Company's equity. Merrill's targeted investors
generally fell into three categories: (i) investors in the business of
purchasing real property, (ii) traditional equity investors, such as money
managers, and (iii) non-traditional equity investors, such as venture
capitalists. In total, Merrill approached 27 candidates, highlighting that
participation in the private placement would provide an investor with the
opportunity to diversify geographically at a time when there are limited
opportunities to invest in publicly-traded industrial/suburban office REITs
dedicated to the western United
States. Of the potential investors solicited, several candidates were
interested; however, due to capital and timing constraints, AEW emerged as the
most likely candidate to purchase the Company's equity. Based on consultation
with Merrill, the Board believes that the terms of the Stock Purchase Agreement
are not unreasonable in light of AEW's proposed $50 million investment as
compared to the Company's current equity market capitalization of approximately
$33 million.
The Board of Directors believes that the AEW Stock Sale is in the best
interest of the Company because it will enable the Company to (i) increase its
market capitalization which may, in the future, enable the Company to raise
additional equity capital, (ii) increase the amount available under its Credit
Facility from $23 million to $60 million and (iii) increase its asset base by
using a portion of the proceeds of the AEW Stock Sale to finance real estate
acquisitions. See "Use of Proceeds". Moreover, the Board believes that the
consummation of the AEW Stock Sale would be advantageous to the Company because
the price of the AEW Preferred Stock, based on the initial Conversion Price,
represents a 5% premium over the average closing price of the Common Stock for
the 60 trading days prior to May 18, 1995 and a 12% premium over the closing
price of the Common Stock on May 18, 1995.
The Board, in recommending the AEW Stock Sale for approval, considered,among
others, the following factors: (i) the aggregate purchase price, (ii) the
dividend rate, (iii) the liquidation preference, and (iv) the ability of AEW to
force a redemption of the AEW Preferred Stock at a time when the Company may not
be able to finance such a redemption. In considering the dividend rate payable
on the AEW Preferred Stock, the Board reviewed the terms of several other
Preferred Stock issuances by other REITs. Although those transactions were not
directly comparable to the AEW Stock Sale in that the particular terms varied
from the terms of the AEW Stock Sale, the Board believes that the dividend rate
on the AEW Preferred Stock is within the range of those paid in connection with
those other transactions. The Board weighed the negative effects of the
liquidation preference and the dividends payable on the AEW Preferred Stock, as
well as the redemption rights of the holders of the AEW Preferred Stock against
the benefits which the Board believes will derive to Stockholders from future
growth of the Company. In light of the totality of the benefits to the Company
from the transaction, the Board concluded that it would be in the best interest
of the Stockholders to enter into the transaction.
Use of Proceeds
After payment of offering expenses (including a placement fee) estimated to
be approximately $3.75 million, the Company expects that the proceeds of the AEW
Stock Sale (the "Transaction Proceeds") will be used (i) to repay in full
outstanding borrowings under the Company's current revolving credit facility
with Bank of America, N.T. & S.A. ("BofA") (see "Certain Ancillary Agreements -
Amended Credit Facility") estimated to be approximately $19 million, (ii) to
finance acquisitions of additional suburban office and industrial properties,
and (iii) for general corporate purposes, including working capital. As part of
the offering expenses payable, the Company will pay to Bedford Acquisitions,
Inc. d/b/a/ BPI Acquisitions ("BPIA") $750,000 pursuant to an agreement
between the Company and BPIA Agreement. BPIA is a corporation wholly owned
by Mr. Bedford. Such amount does not exceed the aggregate amount of expenses
incurred by BPIA for acquisition services pursuant to the BPIA Agreement.
See "Certain Ancillary Agreements - BPIA Agreement", and "Certain Considerations
- Potential Conflicts of Interest". The Stock Purchase Agreement provides that
no more than $20 million of the Transaction Proceeds may be used to repay
amounts due under the current credit facility. Management estimates, however,
that the total amount outstanding under the current credit facility at the
Closing Date will be approximately $19 million.
As part of its ongoing acquisition process, management continually pursues
acquisitions of quality industrial and suburban office properties. Consistent
with its acquisition strategy and criteria, management continually reviews and
enters into negotiations concerning potential acquisitions. As a general
matter, such acquisitions are not disclosed until they are consummated. See
"Potential Conflicts of Interest - Acquisition of Property Owned by an Affiliate
of AEW".
Certain Rights Under the Stock Purchase Agreement
The following summarizes certain rights of AEW, its affiliates and its
transferees under the Stock Purchase Agreement. In addition to the rights set
forth below, AEW and other holders of the AEW Preferred Stock which will be
issued pursuant to the terms of the Stock Purchase Agreement will have certain
rights set forth in the proposed amendment to the Charter defining the terms of
the AEW Preferred Stock. See Proposal 2 - "Terms of the Series A Convertible
Preferred Stock".
Registration Rights. The AEW Preferred Stock will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), and accordingly may
not be re-offered or re-sold in the United States absent registration under the
Securities Act or an applicable exemption from the registration requirements
under the Securities Act. Under the Stock Purchase Agreement, Registrable
Securities ("Registrable Securities") are defined as the shares of Common Stock
issuable upon the conversion of the AEW Preferred Stock and any Common Stock
which may be issued or distributed in respect thereof by way of
recapitalization, reclassification, stock dividend, stock split or other
distribution. Any stockholder owning 40% or more of the Registrable
Securities (as defined hereafter) that have not been sold to the public will
have the right, after the second anniversary of the Closing, to require the
Company to use its best efforts to register under the Securities Act at least
one million shares of Registrable Securities for resale in up to five
registrations upon demand, but not more than one demand registration in any
12-month period. In addition, the Company has agreed to include in up to four
incidental ("piggyback") registrations shares of Common Stock held by AEW, its
affiliates or by any transferee of the registration rights as permitted under
the Stock Purchase Agreement (any of which is a "Holder"), provided that the
number of shares of Common Stock that such Holder requests to be included is
not less than 500,000. If the Company qualifies for the use of Form S-3 as
promulgated by the Securities and Exchange Commission (the "SEC"), then at
any time after the second anniversary and prior to the seventh
anniversary of the Closing, any Holder will have the right to cause the Company
to use its best efforts to effect a registration of at least one million shares
of the Registrable Securities on behalf of such Holder and other Holders. The
registration rights will be assignable by any Holder to any transferee acquiring
at least 500,000 Registrable Securities. The Company will pay all registration
expenses in connection with each registration of Registrable Securities pursuant
to the Stock Purchase Agreement.
Right to Participate in Future Offerings. So long as AEW owns shares of AEW
Preferred Stock which represent 15% or more of the Outstanding Shares
(as defined hereafter), AEW will have the right to purchase for cash its pro
rata share of each issuance by the Company of New Securities, as defined
hereafter, on the same terms and conditions as the New Securities are offered to
third parties. "Outstanding Shares" means the sum of all then outstanding
shares of Common Stock plus the shares of Common Stock that would be issued
upon the conversion of the then outstanding shares of AEW Preferred Stock.
"New Securities" means any voting securities sold and issued for cash or cash
equivalents other than (i) securities issuable upon conversion of any
convertible voting securities; (ii) securities issuable upon exercise of any
options or warrants; (iii) securities issuable pursuant to the Directors'
Stock Option Plan and the Employee Stock Option Plan of the Company (together,
the "Stock Option Plans"); (iv) securities issuable in consideration of the
acquisition of assets or shares of another entity; (v) securities issuable in a
firm commitment underwritten public offering; (vi) warrants (or the shares of
Common Stock issuable upon exercise thereof) issuable to an underwriter as
partial compensation for a firm commitment underwritten public offering; and
(vii) securities issuable in connection with
any stock split, stock dividend, or recapitalization of the Company.
Business Combination Provisions; Rights Plan. Among other conditions to
closing of the AEW Stock Sale (the "Closing"), the Company is required to
exclude AEW, any of its Affiliates, as defined in the Charter (the "AEW
Affiliates"), and any transferee of AEW from the terms of Article VIII of the
Charter which would otherwise limit the Company's ability to enter into
"business combinations" with AEW or an AEW Affiliate. Article VIII requires
that "business combinations" be
approved by the holders of at least 80% of the Voting Stock (as defined in
Article VIII), subject to certain exceptions. A "business combination," as it
would relate to AEW, is defined in Article VIII of the Charter as (i) a merger
or consolidation of the Company with or into AEW or an AEW Affiliate, (ii) a
transfer of any of the Company's assets with an aggregate fair market value
greater than $5,000,000 to AEW or an AEW Affiliate, (iii) a reclassification of
securities or a recapitalization of the Company which would have the effect of
increasing the proportionate share of outstanding shares of any class of equity
securities of the Company convertible into such class of equity securities owned
by AEW or an AEW Affiliate or (iv) the adoption of any plan of liquidation or
dissolution of the Company proposed by or on behalf of AEW or an AEW Affiliate.
After the AEW Stock Sale, if not exempted from the terms of Article VIII, AEW
would be subject to the provisions of Article VIII because it would be a
beneficial owner of ten percent or more of the outstanding Voting Stock (as
defined in the Charter) of the Company. Management believes that the Company
may not be able to obtain the super-majority approval of any future "business
combination" between the Company and AEW or an AEW Affiliate.
Another condition to the closing of the AEW Stock Sale requires the Company
to exempt from the provisions of Section 3-602 of the Maryland General
Corporation Law ("MGCL") any "business combination" (as defined in Section 3-601
of the MGCL) between the Company and AEW, any AEW Affiliate or any transferee.
See Proposal 4 for a description of the provisions of Section 3-602 of the MGCL.
Finally, the Company is required to redeem all Rights (as defined hereafter)
outstanding under, and terminate, the Stockholder Rights Plan between the
Company and Mellon Bank, N.A., originally dated as of July 18, 1989 (the
"Rights Plan") (the Rights Plan, Article VIII of the Charter, and Section 3-602
of the MGCL collectively are referred to as the "Antitakeover Provisions").
See "Certain Considerations - Antitakeover Provisions".
Pursuant to the above conditions to Closing, the Board has adopted a
resolution, subject to Stockholder approval, to amend the Company's Charter to
delete Article VIII in its entirety. See Proposal 4. In the event that
Proposal 4 is not approved by the Stockholders, it is expected that the Board
will submit for stockholder approval at a subsequent stockholder meeting an
amendment to the Charter to delete Article VIII. Pursuant to the terms of
the AEW Preferred Stock, the holders thereof have the right to vote on such a
subsequent proposal to amend the Charter to remove the current Article VIII
therefrom. In addition, Mr. Bedford will enter into an agreement with AEW
pursuant to which he will agree to vote his shares of Common Stock in favor
of such an amendment.
Also pursuant to the above conditions to Closing, the Board has adopted an
irrevocable resolution to exclude AEW, any AEW Affiliate, and any transferee of
AEW from the limitations on business combinations set forth in Article VIII of
the Charter, thereby enabling the Company to enter into the business
combinations set forth in Article VIII with AEW, subject to any other
applicable limitations imposed by law. Similarly, the Board has also adopted an
irrevocable resolution exempting any business combination (as defined in
Section 3-601 of the MGCL) with AEW, any AEW Affiliate or any transferee of
AEW from the application of the limitations set forth in Section 3-602 of the
MGCL which would otherwise apply to transactions between the Company and AEW,
any AEW Affiliate or any transferee of AEW. See Proposal 4. Therefore, even
if the proposed amendment to the Charter deleting Article VIII is not
approved by the Stockholders, the Board has irrevocably waived the application
of the business combination provisions set forth in the Charter and the MGCL
to AEW, AEW Affiliates and AEW's transferees.
The Board's actions described above and the Stockholder's approval of Proposal
4 set forth below would result in AEW and AEW Affiliates, or any other
beneficial owner of ten percent or more of the outstanding Voting Stock of
the Company, being able to enter into business combinations with the Company,
which may not be in the best interest of the Stockholders, without compliance
by the Company with the requirements set forth in Section 3-602 of the MGCL
and currently in Article VIII of the Charter.
On July 18, 1989, the Board of Directors of the Company declared a
distribution of one right (each, a "Right") for each then outstanding share of
Common Stock and for each share of Common Stock issued by the Company thereafter
and prior to a date specified pursuant to the terms of the related Rights
Agreement. Following certain business combinations, the Rights generally
entitle the holders thereof to acquire shares of the Company's authorized but
unissued Series A Preferred Stock (which is a completely different and
unrelated class of security from the AEW Preferred Stock) or, if the Company
was not the surviving corporation, capital stock of the surviving corporation.
The Company has agreed to redeem all outstanding Rights at a cost of
approximately $60,000, and to terminate the Rights Plan as a condition to
Closing.
Reporting Requirements. Pursuant to the Stock Purchase Agreement, the Company
will provide either AEW or certain transferees of the AEW Preferred Stock
certain monthly, quarterly, and annual reports, as well as a business plan for
each fiscal year.
Share Transfer Covenants. The proposed amendment to the Charter to be
submitted for Stockholder approval in Proposal 3 includes an amendment to the
Charter which would amend the limitations of the transferability of the Common
Stock. More specifically, it will provide certain limitations on the number of
shares of the Company's stock which any person may beneficially own (generally
5% of the value of the outstanding shares). These ownership limitations are
related to the maintenance of the Company's status as a real estate investment
trust (a "REIT") under the Code. This proposed amendment to the Charter, which
would replace existing Article VII of the Charter, provides that Mr. Bedford and
AEW will be subject to higher ownership limitations, provided that Mr. Bedford
and AEW furnish certain representations and undertakings set forth in the
proposed amendment to the satisfaction of the Board. In addition, under the
terms of this proposed amendment to the Charter, the Board may, in its absolute
discretion, withhold its consent to a transfer which would result in the
transferee holding an amount in excess of such limitation. Under the Stock
Purchase Agreement, however, the Company has agreed that its consent to such a
transfer by AEW of all or a portion of the AEW Preferred Stock held by it will
not be unreasonably withheld, provided that the proposed transferee supplies
such reasonable representations and undertakings as appropriate to ensure
that the transfer will not cause the Company to lose its status as a REIT.
Therefore, AEW would be subject to a standard different from that which would
be applicable to other holders of the Company's stock.
Bylaw Amendments. As a condition to the Closing, the Company will amend
Article II, Section 10 of its Bylaws, pursuant to which the Company has opted
out of the Control Share Acquisition Statute of the MGCL. The amended Bylaws
will provide that this "opt-out" will not be amended without the consent of a
majority of the holders of the AEW Preferred Stock. Generally, the Control
Share Acquisition provisions are antitakeover provisions which disenfranchise
"Control Shares" (as defined in the MGCL) of their voting rights. The
inclusion in the Bylaws of a provision requiring the consent of AEW to amend
the "opt-out" from the Control Share provisions of the MGCL is consistent
with the waiver by the Board of the application of the business combination
provisions of the MGCL to AEW. These actions have the effect of permitting
AEW to enter into transactions and to purchase additional shares of the
Company without being subject to antitakeover protections which would otherwise
be imposed by the MGCL. It should be noted, however, that any transaction
between AEW and the Company would require approval of the Board of Directors,
and that directors elected by holders of the
AEW Preferred Stock will have a fiduciary duty to the Company as a whole and not
strictly to the holders of the AEW Preferred Stock.
In addition, the Board will amend the Bylaws to include an acknowledgment
that AEW engages in business competitive with the Company, and that any
directors affiliated with AEW shall have no obligation to present to the
Company opportunities that may be pursued by AEW unless such opportunities
were presented to such directors in their capacity as directors of the Company.
The Bylaws, as amended, will provide that these provisions may not be amended
without the consent of a majority of the outstanding shares of AEW Preferred
Stock.
Certain Ancillary Agreements
In connection with the Stock Purchase Agreement, and in order to clarify the
terms of their relationships, the Company, Mr. Bedford and BPIA have agreed to
enter into the following agreements:
Voting Agreement. Mr. Bedford has executed a Voting Agreement (the "Voting
Agreement") with AEW pursuant to which Mr. Bedford has agreed to vote his shares
of Common Stock in favor of the AEW Stock Sale.
Standstill Agreement. Mr. Bedford will execute a Standstill Agreement with
the Company which will provide, among other things, that Mr. Bedford will not
sell or otherwise dispose of certain of his shares of Common Stock, or any
interest in any shares of Common Stock, without the consent of the Board of
Directors. The Board will give such consent only if the proposed transaction
will not cause Mr. Bedford and his Affiliates' ownership interest in the Company
to fall below the levels specified in the Stock Purchase Agreement and the
proposed amendment to the Charter describing the terms of the AEW Preferred
Stock. See Proposal 2 - "Terms of the Series A Convertible Preferred Stock -
Voting Rights" and "- Protective Provisions". In addition, the Standstill
Agreement will contain certain representations and undertakings concerning the
ownership limitations set forth in the proposed amendment to the Charter. See
Proposal 3 - "Limitations on the Transferability of the Company's Stock".
BPIA Agreement. BPIA, a corporation wholly-owned by Mr. Bedford, provides
certain services relating to acquisitions and financings by the Company. As a
condition to Closing, the Company and BPIA will enter into a written contract
(the "BPIA Agreement") memorializing the terms of that unwritten arrangement
between the parties. Pursuant to the terms of the BPIA Agreement, upon the
completion of a financing or acquisition, the Company will pay BPIA a fee equal
to the lesser of (a) 1-1/2% of the gross proceeds of a financing or of the
purchase price of the property, as the case may be, and (b) an amount equal to
the costs funded by Mr. Bedford through the time of such financing or
acquisition minus the aggregate amount of fees previously paid. Under the
BPIA Agreement, the Company will pay a fee to BPIA in connection with the
closing of the AEW Stock Sale and the Amended Credit Facility. In no event
would the aggregate amount of fees paid to BPIA exceed the aggregate amount
of costs funded by BPIA. See Proposal 5 - "Certain Relationships and Related
Transactions".
The Amended Credit Facility. Simultaneously with, and as a condition to,
Closing, the Company will enter into an amended credit facility with BofA (the
"Amended Credit Facility"). As a condition to closing on the Amended Credit
Facility, the Company will be required to have closed the AEW Stock Sale. The
Amended Credit Facility will, for the first two years of its three-year term,
permit borrowings in an aggregate principal amount of up to $60 million at any
one time outstanding, subject to limitations as described below. Thereafter, the
amount available will be reduced monthly based on a 20-year amortization
formula. No borrowing will be permitted after the expiration of the first two
years of the term. Outstanding loans under the Amended Credit Facility will
bear interest at a floating rate equal to either BofA's published "reference"
rate plus .50% or the Inter Bank Offering Rate plus 2.25% per annum.
The Company's ability to borrow under the Amended Credit Facility is limited
to an amount (the "Borrowing Base") equal to the lesser of (i) a specified
percentage of the appraised value of the properties which have been pledged as
collateral under the facility and (ii) an amount calculated quarterly by
reference to net operating income (as such will be defined in the Amended Credit
Facility) from properties pledged as collateral under the Amended Credit
Facility. The Amended Credit Facility will be secured by mortgages on certain
of the properties acquired with the proceeds of the Amended Credit Facility.
Before a new property can be pledged as collateral under the Amended Credit
Facility and, therefore, added to the Company's Borrowing Base, the property
must be approved by BofA. The Amended Credit Facility will be a full recourse
obligation.
The Amended Credit Facility contains various restrictive covenants which
include, among other things, limitations on quarterly dividends, a minimum ratio
of cash flow to scheduled maturities of long-term debt, a maximum ratio of debt
to tangible net worth, and limitations on liens, mortgages, certain additional
indebtedness and a restriction on making loans.
Under the Amended Credit Facility, the following, among others, will
represent events of default: (i) the failure of Mr. Bedford to remain as
Chief Executive Officer and Chairman of the Board (unless he is replaced by
someone satisfactory to BofA) and (ii) the Company's failure to pay two
consecutive dividends owing to the holders of the AEW Preferred Stock and the
exercise by such holders of any of their rights arising therefrom.
Fees and Expenses Payable in Connection with the Offering
Pursuant to an agreement between the Company and Merrill, the Company has
agreed to pay at Closing to Merrill five percent of the gross offering proceeds,
or $2.5 million. The Company has agreed to pay all reasonable due diligence and
legal expenses incurred by AEW, but not more than $500,000, if the transaction
closes or if the transaction fails to close for any reason other than breach by
AEW. In addition, pursuant to the BPIA Agreement, the Company will pay a fee of
$750,000 to BPIA for the services and expenses incurred in connection with the
AEW Stock Sale.
Conditions to Closing
Each of the Company's and AEW's obligations to effect the closing of the AEW
Stock Sale is subject to various conditions, including that the AEW Stock Sale
shall have been approved by the Stockholders.
AEW's obligation to consummate the Closing is subject to certain additional
conditions, including the following: (i) that the Company shall have closed,
simultaneously with the closing of the AEW Stock Sale, on the Amended Credit
Facility with BofA, the material terms of which shall be reasonably satisfactory
to AEW, (ii) that the average closing sale price of the Common Stock as reported
by the NYSE for the seven business days immediately preceding the Closing Date
shall be at least $5.25, (iii) AEW's review, inspection and approval, within the
due diligence period as set forth in the Stock Purchase Agreement of all
economic, legal, physical and environmental matters relating to the Company and
the assets of the Company, (iv) that the Company shall have terminated its
Rights Plan and redeemed all outstanding rights for an aggregate consideration
of no more than $60,000, and (v) that either (a) the amendment to the Charter to
remove Article VIII shall have been approved by the Stockholders, or (b) Mr.
Bedford shall have entered into an agreement reasonably satisfactory to AEW
pursuant to which he will vote his shares in favor of the proposal to delete
Article VIII and will not assert, directly or indirectly, against AEW or its
affiliate the provisions of Article VIII. AEW has completed its due
diligence review of the Company, and subject to the applicable title company
agreeing to certain deletions and modifications to certain title policies which
it intends to issue has determined that it will proceed with the
transaction. The Company believes that such modifications will be obtained.
Listing of the Common Stock Issuable Upon Conversion of the AEW Preferred
Stock
The AEW Preferred Stock will not be listed for trading on any exchange.
Effective upon Closing, the Common Stock issuable upon conversion of the AEW
Preferred Stock will be listed on the New York Stock Exchange and the Pacific
Stock Exchange.
Certain Considerations
While the Board is of the opinion that the AEW Stock Sale is in the best
interest of the Company and its Stockholders, Stockholders should consider the
following possible effects when evaluating the transaction.
Antitakeover Effect. The consent of AEW or of any transferee holding 50% or
more of the outstanding AEW Preferred Stock, will be required to effect any
Major Transactions (as defined hereafter), including, among others, any merger
or consolidation of the Company, and the sale of assets with a purchase price of
more than $10 million. See Proposal 2 - "Terms of the Series A Convertible
Preferred Stock - Protective Provisions". Such veto right remains in effect for
so long as the outstanding AEW Preferred Stock represents 15% or more of the
Outstanding Shares. In addition, in connection with the agreement, the Board of
Directors has submitted for Stockholder approval additions to the Charter which
would amend the limitations on the transferability of the Company's stock in
certain circumstances. See Proposal 3 - "Limitations on Transferability of the
Company's Stock". Such provisions will reduce the amount of shares of Common
Stock which a potential purchaser may acquire. This ownership limitation and/or
the veto right could delay, defer or prevent a transaction or a change in
control of the Company that might involve a premium price for the Company's
stock or otherwise be in the best interest of the Stockholders.
Change of Control; Approval Rights. Subject to certain limitations, the
consent of AEW, and of any transferee holding 50% or more of the outstanding AEW
Preferred Stock, will be required for the Company to make substantial
investments, issue substantial amounts of debt, to modify the executive
compensation or employment contracts, or to change the Company's business plan.
As a result, although the Board of Directors and the Company's management will
continue to manage the ordinary business affairs of the Company, AEW will have
the power to exercise a controlling influence over most substantial
transactions. Moreover, absent any redemption of the AEW Preferred Stock by the
Company, AEW will have the right to maintain its percentage ownership interest
in the Company, and therefore to preserve its ability to exercise a controlling
influence over the Company's affairs. Although the Board of Directors generally
owes a fiduciary duty to the Company, there can be no assurance that the
interests of AEW, and indirectly the directors elected by the holders of the
AEW Preferred Stock, will not differ from or conflict with the interests of
the holders of Common Stock. See "- Certain Rights Under the Stock Purchase
Agreement - Right to Participate in Future Offerings" and Proposal 2 - "Terms of
the Series A Convertible Preferred Stock - Approval of Major Transactions"
and - "Terms of the Series A Convertible Preferred Stock - Redemption".
Right to Cause Redemption. In the event that the Company (i) fails to pay
dividends on the AEW Preferred Stock for two consecutive quarters following the
first anniversary of the Closing, (ii) defaults in the payment of any
institutional debt, (iii) fails to obtain the consent of AEW prior to taking
certain actions, or (iv) fails to reach certain financial performance levels,
then the holders of the AEW Preferred Stock will have the right, subject to
applicable laws regarding legal distributions, to cause the Company to redeem
all of the then outstanding shares of AEW Preferred Stock at a price of $6.00
per share plus all accrued dividends payable thereon. In that case, the Company
could experience substantial difficulty in financing such redemption and may be
required to liquidate a substantial portion of its properties to that end. In
addition, it is likely that the resultant financial strain on the Company's
capital resources would adversely affect the market price of the Common Stock.
Amended Credit Facility; Event of Default. Under the terms of the Amended
Credit Facility, the failure of the Company to pay two consecutive dividends
payable to the holders of the AEW Preferred Stock and the exercise by such
holders of their rights arising therefrom will constitute an event of default.
Therefore, the Credit Facility will not provide a source of funds to finance any
redemption of the AEW Preferred Stock. In addition, the Company expects to rely
on the Amended Credit Facility as a primary source of capital to finance both
acquisitions as well as its day-to-day operations. The absence of the
availability of the Credit Facility would have a material adverse effect on the
operations of the Company, and, ultimately, on an investment in the Company's
Stock.
Removal of Certain Antitakeover Provisions. As a condition to Closing, the
Board of Directors has agreed (i) to waive the application of the provisions
of the Company's Charter and the MGCL which would otherwise limit the Company's
ability to enter into transactions with AEW, and (ii) to terminate the Rights
Plan. See "Certain Rights Under the Stock Purchase Agreement - Business
Combination Provisions; Rights Plan". In addition, in the event that the
Stockholders do not approve the proposed amendment to the Charter which would
remove the business combination provisions in the Charter (Proposal 4), the
holders of the AEW Preferred Stock will thereafter be entitled to vote on
proposals to delete such provisions. Because of the number of shares of AEW
Preferred Stock which likely will be outstanding at the time of such a vote,
it is likely that such a subsequent proposal would be adopted. Moreover, Mr.
Bedford will enter into an agreement pursuant to which he will agree to vote
his shares in favor of any such proposed amendment. The removal of all of
these Antitakeover Provisions would, absent the right of AEW and certain of
its transferees to veto most substantial transactions, meaningfully increase
the Company's vulnerability to (i) coercive two-tiered, front-end loaded or
partial offers which may not offer full value to all Stockholders; and (ii)
market accumulators who through open market or private purchases would be able
to exercise a controlling influence over the policies of the Company without
paying to selling or remaining Stockholders a fair and
adequate price, including a sufficient premium for such controlling interest, or
who are simply interested in putting the Company into "play". The Board
believes that the Company will not be subject to any such unsolicited
takeovers until such time as AEW's right to veto any Major Transaction lapses,
although there can be no assurance in this regard. See Proposal 2 - "Terms of
the Series A Convertible Preferred Stock - Voting Rights - Approval of Major
Transactions".
In addition, the removal of the Antitakeover Provisions would permit AEW, if
it then controlled a majority of the Board (and subject, in certain cases, to
stockholder approval), to cause the Company to liquidate, dissolve, redeem the
outstanding shares of AEW Preferred Stock, or enter into transactions with the
Company, including, without limitation, mergers, consolidations, and sales of
assets. Any of such transactions could result in a greater return to holders of
AEW Preferred Stock than to the other Stockholders. In certain of such events,
the holders of AEW Preferred Stock would be entitled to preferential amounts
prior to any distribution to the Stockholders. See Proposal 2 - "Terms of the
Series A Convertible Preferred Stock - Liquidation Preference" and " -
Redemption".
Registration Rights. AEW and certain of its transferees will have the right
to cause the Company to register certain shares of Common Stock for sale to the
public. The right of the holders of the shares of Common Stock issuable upon
conversion of the AEW Preferred Stock to register such shares and sell them in
the public market could have a material adverse effect on both the market price
for the Common Stock and the Company's ability to raise additional equity
capital in the future. See "Certain Rights Under the Stock Purchase Agreement
- Registration Rights".
Preferential Dividends; Liquidation Preferences. The holders of the AEW
Preferred Stock will be entitled to receive, prior to any distribution to the
holders of Common Stock, dividends in an amount equal to $0.135 per quarter.
Such amounts will reduce the amount otherwise distributable to holders of
Common Stock as dividends. In addition, upon liquidation, the holders of the
AEW Preferred Stock will be entitled to receive $6.30 per share plus accrued
dividends payable thereon. Such amounts would likewise reduce amounts
distributable to the Stockholders on liquidation. See Proposal 2 - "Terms of
the Series A Convertible Preferred Stock - Dividends" and "- Liquidation
Preference".
Dilution. The issuance of 8,333,334 shares or more of Common Stock on
conversion of the AEW Preferred Stock will substantially dilute the voting
rights and the percentage ownership interest of then existing Stockholders.
In addition, conversion of the AEW Preferred Stock to Common Stock could have
the effect of diluting the economic interests of the existing Stockholders,
depending on the market price of the Common Stock on the date of conversion.
The dilutive effect on per-share earnings of the issuance of the AEW Preferred
Stock will depend, in part, on the actual earnings generated by the Transaction
Proceeds.
Board Representation; Veto Rights. The holders of the AEW Preferred Stock
will vote separately as a class for directors and initially will elect a number
of Directors (two) that is less than the number of Directors that such holders
could elect assuming conversion of the shares of AEW Preferred Stock. Upon the
occurrence of certain events, the holders of the AEW Preferred Stock would be
entitled to elect a majority of the Board, which is roughly proportionate to the
voting power that the Common Stock issuable upon conversion of the AEW Preferred
Stock would be entitled to exercise. Under certain circumstances, even if a
substantial portion of the shares of AEW Preferred Stock originally sold have
been converted into shares of Common Stock, the holders of AEW Preferred Stock
will nonetheless be entitled to elect a specified number of directors, despite
the fact that the number of shares of Common Stock into which the remaining
outstanding shares of AEW Preferred Stock are convertible may have declined to
a level at which such shares would no longer have the votes necessary to elect
that number of directors. See Proposal 2 - "Terms of the Series A Convertible
Preferred Stock - Voting Rights".
So long as the outstanding shares of AEW Preferred Stock represent at least
15% of the Outstanding Shares, AEW or any transferee holding more than 50% of
the outstanding shares of AEW Preferred Stock will be entitled to a veto
right in respect of most substantial transactions proposed by the Company,
including the merger, sale or consolidation of the Company and acquisitions,
investments, and dispositions in excess of specified amounts. Such rights
exceed the rights which the holders of the AEW Preferred Stock would otherwise
have as holders of Common Stock upon conversion of the outstanding shares of
AEW Preferred Stock to Common Stock.
Effect on Market Price of the Common Stock. The issuance of the AEW Preferred
Stock could adversely affect the market price of the Common Stock, because the
AEW Preferred Stock may be perceived as detracting from the "upside" potential
of an investment in the Common Stock, without fully participating in the
potential "downside" attendant to an investment in the Common Stock.
Limitation on Use of Net Operating Loss Carryovers. Under the Code, the
acquisition of the AEW Preferred Stock by AEW will cause an "ownership change"
(as defined in the Code) with respect to the Company. As a result, use of the
Company's net operating loss carry forward will generally be restricted to an
amount per year equal to the long term tax exempt rate for the month in which
the change occurs (5.96% for April 1995) times the value of all the Company's
Common Stock outstanding immediately prior to the change. As long as the
Company maintains its qualification as a REIT, the Section 382 limitation
will not have a material effect on the Company since, as a REIT, it is
entitled to deduct from its taxable income dividends paid to its shareholders.
Although no assurance can be given in this regard, the Company believes that
the amount of dividends it will pay in the foreseeable future will exceed its
taxable income from all sources. If, however, the Company were for any reason
to cease to be qualified as a REIT or elected to retain the proceeds
attributable to the sale of any asset which was sold at a gain for income tax
purposes, the limitation on its use of its net operating loss carryovers could
result in its owing substantially more federal income tax than it would have
otherwise owed.
Potential Conflicts of Interest
Amounts Payable to Corporation Wholly-Owned by Mr. Bedford. Upon Closing of
the Stock Purchase Agreement, the Company will pay to BPIA, a corporation
wholly-owned by Mr. Bedford, $750,000 pursuant to the BPIA Agreement. In
addition, on closing of the Amended Credit Facility, the Company will pay to
BPIA $550,000 in consideration of services provided in connection with the
Amended Credit Facility. Such amount does not exceed the aggregate amount of
costs incurred by BPIA to date in connection with such acquisition services.
Continued Employment of Mr. Bedford. Under the terms of the Stock Purchase
Agreement and the terms of the AEW Preferred Stock, the termination of Mr.
Bedford as chief executive officer would result in material adverse consequences
to the Company. Specifically, the holders of the AEW Preferred Stock would be
entitled to demand the redemption of their shares at a time when the Company
could experience difficulty in financing such a redemption, and the holders of
the AEW Preferred Stock would be entitled to elect a majority of the Board. As
a result of these provisions, the Board of Directors will be less likely to
replace Mr. Bedford as Chief Executive Officer. It should be noted, however,
that such provisions were required by AEW as a basis for their agreement to make
an investment in the Company.
Certain Detriments to Mr. Bedford. Pursuant to the Investment Proposals, Mr.
Bedford has agreed to refrain from selling a substantial portion of his shares
of Common Stock. As a result, he will be precluded from liquidating a large
part of his substantial investment in the Company. In addition, Mr. Bedford has
agreed to permit AEW to participate in any sale of Common Stock made by Mr.
Bedford in transactions other than on the public market, thereby further
limiting his ability to sell shares of Common Stock.
Acquisition of Property Owned by an Affiliate of AEW. Aldrich Eastman Waltch,
L.P., an affiliate of AEW (see Proposal 1 - "Background and Research for the
AEW Stock Sale") is a national real estate investment advisor. As such, it is
affiliated with and/or controls entities which, in turn, have extensive real
estate holdings. As a result, the Company may, from time to time, enter into
negotiations to purchase properties which are owned by entities affiliated
with AEW.
For exmaple, the Company has entered into preliminary negotiations with an
affiliate of AEW concerning the purchase of an office building owned by that
affiliate. The Company has not yet commenced its due diligence review of the
property, but expects to enter into a letter of intent regarding such
property. If the sale is consummated, it is expected that the purchase price
will be approximately $6,375,000. There can be no assurance, however, that
at the conclusion of its due diligence review the Company will decide to
proceed with the acquisition, or that if such a decision is made, the parties
will be able to reach agreement on the terms of any contract. In order to
address the potential conflicts of interest, only those directors who are not
affiliates of AEW will act upon those matters concerning properties owned by
AEW affiliates.
Certain Income Tax Considerations
In connection with the Closing of the AEW Stock Sale, the Company will obtain
an opinion of Shearman & Sterling, special tax counsel to the Company, that (i)
the Company was organized in conformity with the requirements for qualification
as a REIT, and (ii) the Company has operated in a manner so as to qualify as a
REIT at all times since its organization, and, based on its current and
anticipated status and operations, and assuming completion of the transactions
contemplated by the Stock Purchase Agreement, the Company will be able to meet
the requirements for qualification and taxation as a REIT in the current and
subsequent taxable years. Such opinion will be given in reliance upon AEW's
representations that no individual who directly or indirectly owns an interest
in AEW will be treated as an owner of more than 8.2% of the value of the
outstanding shares of the Company.
If the Company were to fail to qualify as a REIT, it would be subject to tax
(including any applicable alternative minimum tax) on its income at the regular
corporate rates, with no deduction for distributions to shareholders. In
addition, unless certain limited relief provisions were applicable, the Company
would be precluded from REIT qualification for four years following the year
during which qualification was lost. This treatment would result in reduced
cash flow available for investment or distribution and inevitably would
result in a lower trading price for the Common Shares.
Vote Required; Recommendation of the Board of Directors
Approval of the AEW Stock Sale requires the affirmative vote of holders of a
majority of the votes cast on the matter, provided that the number of votes cast
represents over 50% of all outstanding shares of Common Stock. In addition, the
approval of this Proposal 1 is contingent on the approval of Proposal 2, which
requires approval by holders of a majority of the outstanding shares of Common
Stock. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE AEW STOCK
SALE. IN THE ABSENCE OF INSTRUCTIONS TO THE CONTRARY, PROXIES SOLICITED IN
CONNECTION WITH THIS PROXY STATEMENT WILL BE SO VOTED.
There can be no assurance that even if the AEW Stock Sale is approved hereby,
such sale will be consummated. This proxy statement does not constitute an
offer to sell or a solicitation of an offer to buy the shares of AEW
Preferred Stock.
<PAGE>
PROPOSAL 2
AMENDMENT OF CHARTER TO CREATE A NEW CLASS OF STOCK
OF THE COMPANY TO BE KNOWN AS "SERIES A CONVERTIBLE
PREFERRED STOCK", TO STATE THE TERMS OF SUCH STOCK
THE APPROVAL OF THE PROPOSED CHARTER AMENDMENT PURSUANT TO THIS PROPOSAL 2 IS
CONTINGENT UPON THE APPROVAL OF THE SALE OF THE SERIES A CONVERTIBLE PREFERRED
STOCK IN PROPOSAL 1. UNLESS PROPOSAL 1 IS APPROVED, NEITHER OF SUCH PROPOSALS
WILL BE PERMITTED TO BECOME EFFECTIVE BY THE COMPANY.
Terms of the Series A Convertible Preferred Stock
On May 11, 1995, the Board of Directors of the Company adopted a resolution
declaring that it was advisable and in the best interest of the Company for the
Charter of the Company to be amended as set forth in the Articles of Amendment
attached hereto as Exhibit A (the "Articles of Amendment") and directed that the
proposed amendment to the Charter as set forth in the Articles of Amendment be
submitted for consideration by the Stockholders at the Annual Meeting. The
following discussion of the proposed amendment which is contained in the
Articles of Amendment is not intended to be complete and is subject to, and
qualified in its entirety by, the full text of the Articles of Amendment.
General
The Board of Directors, subject to Stockholder approval, created a new class
of stock of the Company to be known as the "Series A Convertible Preferred
Stock". Other than AEW, the holders of the AEW Preferred Stock will have no
preemptive rights with respect to any shares of stock of the Company or any
other securities of the Company convertible into or carrying rights or options
to purchase any such shares. See Proposal 1 - "Certain Rights Under the Stock
Purchase Agreement - Right to Participate in Future Offerings".
Ranking
The AEW Preferred Stock will rank senior to the Common Stock with respect to
the payment of dividends and amounts upon liquidation, dissolution or winding up
of the Company. Until such time as the outstanding shares of AEW Preferred
Stock represent less than 15% of the Outstanding Shares, the Company may not
authorize, create or increase the authorized amount of any class or series of
stock that ranks equal or senior to the AEW Preferred Stock with respect to
the payments of dividends or amounts upon liquidation, dissolution or winding
up without the consent of the holders of a majority of the outstanding shares
of AEW Preferred Stock, voting together as a single class.
Dividends
Holders of shares of AEW Preferred Stock will be entitled to receive in each
calendar quarter, when and as authorized and declared by the Board of Directors,
out of assets of the Company legally available for payment, cumulative dividends
in cash in an amount equal to the greater of (i) an amount per share of $0.135
and (ii) the dividends payable with respect to such quarter in respect of the
Common Stock into which each share of the AEW Preferred Stock is convertible
plus, in both cases, the dividends accumulated but unpaid on the AEW Preferred
Stock. If the holders of the AEW Preferred Stock shall have exercised the right
to redeem such stock and the redemption payment has not been made, then the rate
at which dividends shall accrue will increase to $0.165 per share until either
the redemption price payable with respect to the AEW Preferred Stock is paid or
the size of the Board is increased to eleven directors. See "-Voting Rights",
hereafter. Dividends on the AEW Preferred Stock will be payable quarterly in
arrears, commencing with the calendar quarter ending September 30, 1995 on such
dates as the Board of Directors may determine, which shall not be later than the
45th day after the end of the calendar quarter. Dividends will begin to accrue
on the Closing Date and will be cumulative from such date, whether or not in any
dividend period or periods there shall be funds of the Company legally available
for the payment thereof.
Dividends may be authorized, declared and paid on shares of Common Stock in
any fiscal quarter only if full cumulative dividends shall have been paid on or
authorized and set apart on all shares of AEW Preferred Stock at such quarterly
rates for all prior dividend periods through and including the end of such
quarter. In the event that the Company authorizes a distribution payable other
than in cash, then the holders of the AEW Preferred Stock will be entitled to a
proportionate share of such distribution as though the holders of AEW Preferred
Stock were holders of the number of shares of Common Stock into which the AEW
Preferred Stock is convertible.
In determining whether a distribution (other than upon voluntary or invol-
untary liquidation), by dividend (but not by redemption or other acquisition
of shares or otherwise), is permitted under the MGCL, amounts that would be
needed, if the Company were to be dissolved at the time of the distribution, to
satisfy the preferential rights upon dissolution of holders of Preferred Stock
whose preferential rights upon dissolution are superior to those receiving the
distribution shall not be added to the Company's total liabilities.
Liquidation Preference
The holders of shares of AEW Preferred Stock will be entitled to receive in
the event of a Liquidation Event, as defined below, $6.30 per share of AEW
Preferred Stock plus an amount per share of AEW Preferred Stock equal to all
dividends (whether or not earned or declared) accrued and unpaid thereon to the
date of final distribution to such holders (the "Liquidation Preference"), and
no more.
Until the holders of the AEW Preferred Stock have been paid the Liquidation
Preference in full, no payment will be made to any Stockholder upon the
liquidation, dissolution or winding up of the Company. If, upon the Liquidating
Event (as defined hereafter), the assets of the Company, or proceeds thereof,
distributable among the holders of the shares of AEW Preferred Stock are
insufficient to pay in full the Liquidation Preference, then such assets, or the
proceeds thereof, will be distributed pro rata to the holders of shares of AEW
Preferred Stock in accordance with their respective holdings thereof.
A Liquidating Event is (a) any transaction, including without limitation, a
consolidation or merger of the Company, or other corporate reorganization if,
immediately after such transaction, the stockholders of the Company (determined
prior to such event) hold fifty percent or less in interest of the outstanding
voting securities of the surviving corporation, (b) a sale of all or
substantially all of the assets of the Company to any person, or the acquisition
of a majority of the outstanding shares of Common Stock of the Company by any
person, other than (i) AEW and its affiliates (as defined in the Stock Purchase
Agreement), (ii) Mr. Bedford, members of his immediate family, or his affiliates
(as defined in the Stock Purchase Agreement), (iii) as a result of the
conversion of shares of AEW Preferred Stock, and (iv) any underwriter in either
a public or private offering.
Redemption
All redemption payments shall be made in cash, unless the holders of the AEW
Preferred Stock agree, at their sole discretion, to accept some alternative
payment. If redemption is prohibited under the MGCL or similar statute,
redemption shall be pro rata to the extent of funds legally available therefor.
Redemption at the Option of the Company. Except as provided below under
"Automatic Redemption Cancellable at the Option of the Non-Series A Directors",
shares of AEW Preferred Stock will not be redeemable by the Company prior to the
second anniversary of the Closing Date. At any time thereafter, the AEW
Preferred Stock may be redeemed in whole (but not in part) at the option of the
Company. The redemption price will be equal to a price calculated by
determining an internal rate of return on the AEW Preferred Stock of 25% per
annum (treating the purchase price paid by AEW as investment "out-flows", and
all dividends and other distributions paid on the AEW Preferred Stock from the
date of issuance as "in-flows") for the first two years commencing with the
Closing Date until the date of redemption and an internal rate of return on the
AEW Preferred Stock of 20% per annum from and after the second anniversary of
the Closing Date until the date of redemption, but not beyond the fifth
anniversary of the Closing Date.
At any time after the fifth anniversary of the Closing Date, or at any time
prior thereto if there are less than 400,000 shares of AEW Preferred Stock
outstanding, the AEW Preferred Stock may be redeemed in whole or in part at the
option of the Company. The redemption price at such time will be $6.30 per
share (declining $0.06 in each of the first five full years commencing on the
fifth anniversary of the Closing) plus all accrued and unpaid dividends.
Prior to any redemption by the Company, the holders of AEW Preferred Stock
will have the right to convert the AEW Preferred Stock into Common Stock of the
Company provided that the holder of AEW Preferred Stock shall have surrendered
his or her certificates for conversion and given written notice of the election
to convert not later than the close of business on the fifth business day prior
to the redemption date.
Redemption at Preferred Stockholders' Option. After the first anniversary of
the Closing, the Company will be required, at the option of the holders of the
AEW Preferred Stock, to redeem the AEW Preferred Stock of any holder demanding
redemption at a price of $6.00 per share plus all accrued and unpaid dividends
on the occurrence of any one or more of the following: (a) failure to pay
required dividends on the AEW Preferred Stock for two consecutive quarters,
including all dividends accumulated but unpaid for all prior quarters; (b) a
default in the payment of principal or interest on any institutional debt (or
debts) having an outstanding balance (or balances aggregating) greater than (i)
$5 million for non-recourse debt, and (ii) $2 million for recourse debt (which
default, in either case, shall not have been cured by the Company within 30
business days from the time the Company receives written notification of the
default); (c) the failure of the Company to obtain any consent of AEW or other
holder of AEW Preferred Stock prior to completing any Major Transaction, as and
if required pursuant to the terms of the proposed amendment to the Charter; (d)
for calendar year 1996, the Company's Funds Available for Distribution, as
defined in the proposed amendment to the Charter ("FAD"), fails to reach at
least a break-even dividend coverage equal to the full dividend payable on the
AEW Preferred Stock; (e) for calendar year 1997, the Company's FAD fails to
reach at least a break-even dividend coverage equal to the full dividend
payable on the AEW Preferred Stock and annual dividends on the Common Stock
equal to a seven percent (7%) yield on $5.72 (rounded to the nearest whole
cent); and (f) for calendar year 1998 and subsequent years, the Company's FAD
fails to reach at least a break-even dividend coverage equal to the full
dividend payable on the Preferred Stock and dividends on the Common Stock
equal to an eight percent (8%) yield on $5.72 (rounded to the nearest whole
cent). Because the AEW Preferred Stock is redeemable at the option of the
holder, the AEW Preferred Stock will be reported separately from the
stockholders' equity (i.e., classified as temporary equity) in the Company's
financial statements.
Automatic Redemption Cancellable at the Option of the Non-Series A
Directors. In the event that the size of the Board of Directors has been
increased to eleven pursuant to the terms of the proposed amendment to the
Charter (See "-Voting Rights") and the holders of AEW Preferred Stock have
elected four directors to fill the newly created vacancies, then the
Corporation shall be deemed to have approved a redemption at the option of
the Company, unless a majority of the directors who are not elected by the
holders of AEW Preferred Stock cancel such redemption. This Automatic
Redemption provision, however, will have no effect on the ability of a
majority of the Board of Directors to effect a redemption at
any time following the second anniversary of the Closing. See "- Redemption at
the Option of the Company", above.
Voting Rights
Except as indicated below, the holders of shares of AEW Preferred Stock will
have no voting rights. On those matters for which the holders of the AEW
Preferred Stock have the right to vote, each share will be entitled to one vote.
Election of Directors. The holders of the AEW Preferred Stock as a class
initially will have the right to elect two directors. If (i) the Company has
failed in two consecutive quarters to pay in full and in a timely manner the
quarterly dividends (including all dividends accumulated but unpaid for all
prior quarters), (ii) Mr. Bedford ceases to serve substantially full-time as
Chief Executive Officer of the Company, (iii) Mr. Bedford, his affiliates and
members of his immediate family beneficially own fewer than 1,198,278 shares of
Common Stock of the Company, as adjusted for any stock splits or similar
transactions, or (iv) the Company fails to pay the full redemption price
payable to the holders of a majority of the AEW Preferred Stock pursuant to a
demand for redemption made by the holders of a majority of the AEW Preferred
Stock under circumstances in which the holders of the AEW Preferred Stock
have the right to demand redemption (See "Redemption"), then immediately
thereafter, and regardless of any subsequent
cure, the holders of the AEW Preferred Stock shall be entitled to elect the
smallest number of directors constituting a majority of the Board of Directors.
The number of members of the Board is currently seven. In order to facilitate
the effective control of the Board by the holders of the AEW Preferred Stock,
upon the occurrence of any such event, the number of directors then constituting
the Board of Directors of the Company will be increased to eleven members, and
the holders of the AEW Preferred Stock will have the exclusive right to elect
four persons to fill such newly created vacancies on the Board.
In the event that the number of outstanding shares of AEW Preferred Stock
represents less than 15% but at least 7% of the Outstanding Shares, then the
holders of AEW Preferred Stock will be entitled to elect only one member of the
Board; should such number represent less than 7% of the Outstanding Shares of
Common Stock, such right to elect directors will terminate altogether.
Senior Securities; Amendments to the Charter. The approval of holders of a
majority of the outstanding shares of AEW Preferred Stock, voting as a single
class, will be required in order to amend the Charter in a way that would
materially and adversely affect the rights or preferences of the holders of AEW
Preferred Stock or to authorize any class or series of stock having rights equal
or senior to the AEW Preferred Stock with respect to the payment of dividends or
amounts upon liquidation, dissolution or winding up of the Company. The right
of the holders of the AEW Preferred Stock to vote on the foregoing matters will
terminate if the holders of AEW Preferred Stock hold less than 15% of the
Outstanding Shares.
Business Combination Provisions. If the Stockholders do not approve the
deletion of Article VIII of the Charter, containing provisions relating to
certain business combinations, the holders of the AEW Preferred Stock will have
the right to vote on a subsequent proposal to delete Article VIII of the
Charter.
Conversion Rights
Shares of AEW Preferred Stock will be convertible at the option of the holder
at any time after the second anniversary of the Closing into such number of
shares of Common Stock as is determined by dividing $6.00 by the then conversion
price in respect of the AEW Preferred Stock (the "Conversion Price"). The
initial Conversion Price will be $6.00 per share and, therefore, each share of
AEW Preferred Stock initially will be convertible into one share of Common
Stock. The Conversion Price is subject to adjustment as described below. The
right to convert shares of AEW Preferred Stock called for redemption will
terminate at the close of business on the fifth business day prior to any
redemption date. See "- Redemption" above.
Fractional shares of Common Stock will not be issued upon conversion but, in
lieu thereof, the Company will pay a cash amount equal to the fair market value
of such fractional interests as determined in good faith by the Board.
Conversion Price Adjustments. The Conversion Price is subject to adjustments
in the event that the Company issues Additional Stock (as defined hereafter) for
consideration which, on a per share basis, is less than the Conversion Price as
then in effect. Prior to the second anniversary of the Closing, if the Company
issues Additional Stock for a consideration per share less than the Conversion
Price, then the Conversion Price shall be reduced, concurrently with such issue,
to a price equal to the consideration per share received by the Company for
such Additional Stock.
On or after the second anniversary of the Closing, if the Company issues
Additional Stock for consideration in an amount per share which is less than the
Conversion Price, then the Conversion Price will be reduced concurrently with
such issue to a price determined by multiplying the Prior Conversion Price by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance, assuming conversion of all
outstanding shares of AEW Preferred Stock at the Prior Conversion Price plus the
number of shares of Common Stock which the aggregate consideration received by
the Company for the total number of shares of Additional Stock so issued would
purchase at the Prior Conversion Price; and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
issue, assuming conversion of the outstanding shares of AEW Preferred Stock
at the Prior Conversion Price plus the number of shares of such Additional
Stock so issued. The effect of the foregoing formula is to reduce the
Conversion Price in an amount proportionate to the amount by which the
Conversion Price exceeds the per share consideration for the Additional Stock,
taking into account the amount of Additional Stock issued relative to the total
outstanding shares of Common Stock.
For purposes hereof, "Additional Stock" means all Common Stock issued by the
Company after the Closing Date, other than Common Stock issued or issuable at
any time: (a) upon conversion of the AEW Preferred Stock; (b) upon exercise
of options outstanding on the Closing Date; (c) upon issue of options granted
pursuant to the Stock Option Plans with respect to employees, directors, and
consultants of the Company in amounts not exceeding the aggregate reserved for
issuance under such plans on the Closing Date, as increased from time to time
upon approval by a majority of the Directors elected by the holders of the AEW
Preferred Stock; (d) upon issue of warrants to underwriters in any firm
commitment public offering of securities by the Company; (e) as a dividend or
distribution on AEW Preferred Stock or any subdivision, combination, or
consolidation of the Common Stock; or (f) by way of dividend or other
distribution on shares of Common Stock the issuance of which was excluded from
the definition of Additional Stock by clauses (a) through (e) of this paragraph,
or on shares of Common Stock so excluded.
The Conversion Price is also subject to adjustment upon certain events,
including subdivisions, combinations and consolidation of Common Stock. In
addition, in the event that the Company makes a distribution of securities of
the Company other than Common Stock, then provision shall be made such that
holders of the AEW Preferred Stock will receive, upon conversion thereof, in
addition to Common Stock, that amount of securities which they would have
received had their shares of AEW Preferred Stock been converted as of the
date of such distribution.
If the Common Stock issuable upon conversion of the AEW Preferred Stock is
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for
above), the Conversion Price then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted such that the shares of AEW Preferred Stock shall be convertible into,
a number of shares of such other class or classes of stock equivalent to the
number of shares of Common Stock that would have been subject to receipt by
holders upon conversion of the AEW Preferred Stock immediately before that
change.
Protective Provisions
Pursuant to the terms of the Articles of Amendment, the consent of AEW or any
transferee of AEW holding more than 50% of the outstanding shares of AEW
Preferred Stock will be required in order for the Company to effect any of the
following transactions (the "Major Transactions"): (i) the consolidation or
merger of the Company; (ii) the issuance or modification of any debt in a
principal amount which exceeds $10 million; (iii) the making of new investments,
including a purchase of real estate operating companies or real estate
investment trusts, with a purchase price equal to or greater than $10 million,
or any series of purchases within any 90-day period with aggregate purchase
prices exceeding $25 million; (iv) the issuance of any equity securities, other
than pursuant to the Company's stock option plans with respect to compensation
of employees, directors and consultants (the "Stock Option Plans"), and the
issuance of equity securities the proceeds of which will be used to redeem the
AEW Preferred Stock; (v) the sale of any asset or assets with a sale price in
excess of $10 million, or any series of sales within any 90-day period with
aggregate sales prices exceeding $25 million; (vi) the modification of any
executive employment agreement; (vii) the modification of the BPIA Agreement
or any other agreement between the Company and Mr. Bedford or any of his
Affiliates (as defined in the Charter) which would make any of the agreements
less favorable to the Company; (viii) the termination of the Company's status
as a REIT; (ix) any substantial change in the Company's current business
strategies or annual operating plan (as approved by the Board of Directors);
(x) permitting Mr. Bedford to cease serving
as the substantially full-time chief executive officer of the Company or
permitting Mr. Bedford to dispose of his shares of Common Stock so that Mr.
Bedford, his affiliates (as defined in the Articles of Amendment) and members of
his immediate family beneficially own fewer than 1,198,278 shares of Common
Stock (as adjusted for stock splits or similar transactions; (xi) the issuance
of awards of any shares or options other than those permitted in paragraph (iv);
and (xii) any amendment to the resolution of the Board of Directors exempting
AEW and any affiliate of AEW from the provisions of the business combination
provisions set forth in Section 3-602 of the MGCL, and exempting therefrom
any transaction resulting from the exercise of a redemption right of the AEW
Preferred Stock which may constitute a business combination. See Proposal 1 -
"Certain Rights Under the Stock Purchase Agreement - Business Combination
Provisions" and "Certain Considerations - Antitakeover Effect".
In order to protect the Company from violating one of the foregoing
provisions, Mr. Bedford will enter into an agreement with the Company pursuant
to which he will agree not to sell certain of his shares of Common Stock without
prior approval from the Company. See Proposal 1 - "Certain Ancillary Agreements
- - Standstill Agreement".
The foregoing right to approve the Major Transactions shall remain effective
until such time as the total outstanding shares of AEW Preferred Stock
represents less than 15% of the Outstanding Shares.
In addition, for so long as the outstanding shares of AEW Preferred Stock
represent at least 15% of the Outstanding Shares, the Company must obtain the
approval of holders of a majority of the outstanding shares of AEW Preferred
Stock prior to filing or assenting to or in any other way participating in the
filing of an involuntary petition in bankruptcy or seeking similar protection
from creditors under federal or state bankruptcy or insolvency laws.
Transfer Agent
The transfer agent for the Common Stock and the AEW Preferred Stock is
Chemical Mellon Shareholder Services LLC.
Vote Required; Recommendation of the Board of Directors
Approval of the Articles of Amendment requires the affirmative vote of a
majority of the outstanding shares of Common Stock. In addition, the approval
of this Proposal 2 is contingent on the approval of Proposals 1 and 2. Proposal
1 requires approval by holders of a majority of votes cast on the matter,
provided that the number of votes cast represents over 50% of all outstanding
shares of Common Stock. If approved, the Articles of Amendment will become
effective upon the filing thereof with the State Department of Assessments and
Taxation of Maryland. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
ARTICLES OF AMENDMENT. IN THE ABSENCE OF INSTRUCTIONS TO THE CONTRARY, PROXIES
SOLICITED IN CONNECTION WITH THIS PROXY STATEMENT WILL BE SO VOTED.
<PAGE>
PROPOSAL 3
AMENDMENT OF CHARTER TO SUBSTITUTE A NEW
ARTICLE VII LIMITING TRANSFERABILITY
OF THE COMPANY'S COMMON STOCK
THE APPROVAL OF THE PROPOSED CHARTER AMENDMENT PURSUANT TO THIS PROPOSAL 3 IS
CONTINGENT UPON THE APPROVAL OF THE SALE OF THE SERIES A CONVERTIBLE PREFERRED
STOCK IN PROPOSAL 1 AND THE PROPOSED CHARTER AMENDMENT SET FORTH IN PROPOSAL 2.
UNLESS ALL OF PROPOSALS 1, 2, AND 3 ARE APPROVED, PROPOSAL 3 WILL NOT BE
PERMITTED TO BECOME EFFECTIVE BY THE COMPANY.
Limitations on Transferability of the Company's Stock
The Current Charter Provision
For the Company to qualify as a REIT under the Code, among other conditions,
not more than 50% in value of the outstanding stock of the Company may be owned,
actually or constructively, by five or fewer individuals (defined in the Code to
include certain entities) during the last half of a taxable year and the stock
of the Company must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of twelve months (or during a proportionate part of
a shorter taxable year). To reduce the risk that the Company would fail to meet
these conditions, the Charter currently authorizes the Company to refuse to
accept for transfer or to issue a new certificate for any shares of stock
delivered for transfer if the Board of Directors in good faith concludes that
such sale, transfer or issuance will or could result in the loss of the
Company's REIT status.
The Articles of Amendment
The proposed amendment set forth in the Articles of Amendment would change the
transferability restrictions in the Charter. The transferability provisions in
the proposed amendment relative to the current Charter provisions are intended
to provide the Company with greater flexibility in reducing the risk that the
Company would inadvertently fail to qualify as a REIT.
Under the proposed amendment and subject to certain exceptions, no holder
would be permitted to own, either actually or constructively under the
applicable attribution rules of the Code, more than five percent (in value) of
the aggregate of the outstanding shares of stock of the Company (the "Aggregate
Stock Ownership Limit") and more than five percent (in number or value,
whichever is more restrictive) of the outstanding shares of Common Stock (the
"Common Ownership Limit").
In addition to any of the foregoing ownership limits, under the proposed
amendment no holder would be permitted to own, either actually or constructively
under the applicable attribution rules of the Code, any shares of any class of
the Company's stock if such ownership or acquisition (i) would cause more than
50% in value of the Company's outstanding stock to be owned, either actually or
constructively under the applicable attribution rules of the Code, by five or
fewer individuals (as defined in the Code to include certain entities) or (ii)
would result in the Company's stock being beneficially owned by less than 100
persons (determined without reference to any rules of attribution). Acquisition
or ownership (actual or constructive) of the Company's stock in violation of
these restrictions would result in automatic transfer of such stock to a trust
for the benefit of a charitable beneficiary, automatic repurchase of the
violative shares by the Company or the violative transfer would be deemed void
ab initio.
As noted above, the Articles of Amendment provide that if any transfer of
stock occurs which, if effective, would result in any person (a "Prohibited
Owner") beneficially or constructively owning (under the applicable attribution
rules of the Code) shares of stock in excess of an applicable ownership
restriction, such shares would be automatically transferred to a trust for the
benefit of a charitable beneficiary, effective as of the close of business on
the business day prior to the date of the purported transfer to the Prohibited
Owner. While such shares of stock are held in trust, the trustee would have
all voting rights with respect to such shares, and all dividends or
distributions paid on such shares would be paid to the trustee of the trust
for the benefit of the charitable beneficiary (any dividend or distribution
paid on such stock prior to the discovery by the Company that such shares
have been automatically transferred to the trust would, upon demand, be paid
over to the trustee for the benefit of the charitable beneficiary). Within
20 days of receiving notice from the Company of the transfer of shares to the
trust, the trustee of the trust would be required to sell the shares held in
the trust to a person, designated by the trustee, who may own such shares
without violating the ownership restrictions (a "Permitted Holder"). Upon
such sale, the price paid for the shares by the Permitted Holder would be
distributed to the Prohibited Owner to the extent of the lesser of (i) the
price paid by the Prohibited Owner for the shares or, if the Prohibited Owner
did not give value for the above (e.g., in the case of a
gift, devise or other such transaction), the market price as defined in the
Articles of Amendment on the date of the event which caused the shares to be
held in the trust and (ii) the price received by the Trustee from the sale or
other disposition of the shares. Any net sales proceeds in excess of this
amount would be paid immediately to the charitable beneficiary.
The proposed amendment would exempt Mr. Bedford and AEW from the Aggregate
Stock Ownership Limit and the Common Stock Ownership Limit and would create
separate ownership limitations for each of these two parties. Mr. Bedford would
be limited to the ownership of no more than 15% of the lesser of the number or
value of the outstanding shares of Common Stock. Since AEW would own all of the
outstanding shares of AEW Preferred Stock immediately after the AEW Stock Sale,
it would be limited to the ownership of 100% of the outstanding shares of AEW
Preferred Stock and 58% of the lesser of the number or value of outstanding
shares of Common Stock. If shares of the AEW Preferred Stock are redeemed
pursuant to the redemption rights of the AEW Preferred Stock, the percentage
limit applicable to Mr. Bedford would increase automatically so as to permit his
continued ownership after the redemption of the number of shares of Common Stock
that he was permitted to own pursuant to his ownership limitation immediately
prior to the redemption, and AEW's ownership limitation percentage with respect
to shares of Common Stock would be decreased by the same amount of Mr. Bedford's
increase. Mr. Bedford and AEW's exemption from the Aggregate Stock Ownership
Limit and the Common Stock Ownership Limit and the imposition of the
aforementioned stock limitations for Mr. Bedford and AEW are subject to Mr.
Bedford and AEW providing certain representations and undertakings with respect
to the preservation of the REIT status of the Company. Mr. Bedford will make
such representations and undertakings in the Standstill Agreement, and AEW will
make them in the Stock Purchase Agreement. See Proposal 1 - "The Series A
Convertible Preferred Stock Purchase Agreement".
In addition, the proposed amendment would permit the Board of Directors to
waive, under certain conditions set forth in the Articles of Amendment, the
Aggregate Stock Ownership Limit and the Common Stock Ownership Limit for other
stockholders as to any class or series of the outstanding stock of the Company
and to establish an ownership limitation relating to such stockholders' stock
ownership. The Company has agreed in the Stock Purchase Agreement that it will
not unreasonably withhold its consent to any transfer by AEW, provided that the
proposed transferee supplies such reasonable representations and undertakings as
appropriate to ensure that the transfer will not cause the Company to lose its
status as a REIT.
If the Board of Directors at any time determines in good faith that a transfer
or other event has taken place that results in a violation of the above-
described ownership limits or that a person intends to acquire or has
attempted to acquire constructive or beneficial ownership of stock of the
Company in violation of the above described limits, the Board of Directors
would be required to take such action as it deems advisable to refuse to give
effect or to prevent such transfer or other event, including but not limited
to causing the Company to repurchase stock, refusing to give effect to such
ownership or acquisition on the books of the Company or instituting proceedings
to enjoin such transfer or event.
The constructive ownership rules are complex and may cause Common Stock or AEW
Preferred Stock owned beneficially or constructively by a group of related
individuals and/or entities to be constructively owned by one individual or
entity. As a result, the acquisition of less than five percent of the number or
value of outstanding Common Stock or of less than five percent of the value of
outstanding AEW Preferred Stock (or the acquisition of an interest in an entity
which owns Common Stock or AEW Preferred Stock) by an individual or entity could
cause that individual or entity (or another individual or entity) to
constructively own Common Stock or AEW Preferred Stock in excess of the limits
described above, and thus subject such stock to the Common Ownership Limit or
the Aggregate Stock Ownership Limit set forth in the proposed amendment to the
Charter set forth in the Articles of Amendment.
The proposed amendment to the Charter set forth in the Articles of Amendment
also would require all persons who own five percent (or such lower percentage as
required by the Code or the Treasury Regulations promulgated thereunder which,
in the case of the Company, is one percent) of the outstanding shares of the
stock of the Company to file each year a completed questionnaire with the
Company containing information regarding their ownership of such shares, as
set forth in the Treasury Regulations. In addition, upon demand, each
beneficial or constructive owner of stock of the Company would be required to
disclose to the Company in writing such information as the Company in good
faith deems necessary to determine the Company's status as a REIT or to
comply with the requirements of any taxing authority or governmental agency
or to determine such compliance.
Antitakeover Effect
These ownership provisions could have the effect of discouraging transactions
which may be beneficial to the holders of the Company's stock. The ownership
limits which are proposed to be included in the Company's Charter will limit the
amount of stock of the Company which a potential acquiror may beneficially own.
Specifically, any such potential acquiror will be precluded from purchasing more
than five percent in value of the Company's stock. Such ownership limitation,
if approved, will discourage any tender offer which may be attractive to the
Stockholders and will limit the opportunity for Stockholders to receive a
premium for their Common Stock that might otherwise exist if an investor were
attempting to assemble a block of shares in excess of 5% in number or value
of the Company's stock, or to otherwise effect a change in control of the
Company. See Summary - "Certain Considerations Concerning the Investment
Proposals".
Effect on AEW and Mr. Bedford
The proposed amendment to the Charter sets forth higher ownership limitations
for Mr. Bedford and AEW than those applicable to the other holders of the
Company's stock. If Mr. Bedford and AEW were subject to the Aggregate Stock
Ownership Limit and/or the Common Stock Ownership Limit, both Mr. Bedford and
AEW (assuming consummation of the AEW Stock Sale) would violate such limits. It
should be noted that the ownership limits applicable to Mr. Bedford and
AEW are higher than those applicable to other holders of the Company's stock.
Unless Board approval is obtained, (i) AEW will not be permitted to acquire
additional shares of the Company's stock, and (ii) Mr. Bedford will be permitted
to purchase additional shares which would bring his ownership total to 15% of
the outstanding shares assuming conversion of the AEW Preferred Stock.
Vote Required; Recommendation of the Board of Directors
Approval of the Articles of Amendment requires the affirmative vote of a
majority of the outstanding shares of Common Stock. In addition, the approval
of this Proposal 3 is contingent upon the approval of Proposals 1 and 2.
Proposal 1 requires approval by a majority of votes cast on the matter, provided
that the number of votes cast represents over 50% of all outstanding shares of
Common Stock. If approved, the Articles of Amendment will become effective upon
the filing thereof with the State Department of Assessments and Taxation of
Maryland. THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE ARTICLES OF
AMENDMENT. IN THE ABSENCE OF INSTRUCTIONS TO THE CONTRARY, PROXIES SOLICITED IN
CONNECTION WITH THIS PROXY STATEMENT WILL BE SO VOTED.
<PAGE>
PROPOSAL 4
AMENDMENT OF CHARTER TO DELETE
ARTICLE VIII REGARDING CERTAIN BUSINESS COMBINATIONS
Under the proposed Articles of Amendment, attached hereto as Exhibit B (the
"Business Combination Articles"), Article VIII of the Charter relating to
certain "business combinations" between the Company and any "interested
stockholder" (as
defined in the Charter) would be deleted in its entirety. The substance of
Article VIII was originally included in the Company's Certificate of
Incorporation when it was incorporated as a Delaware corporation in 1984.
Article VIII requires a "business combination" (as defined in Article VIII,
summarized in the discussion regarding Proposal 2) to be approved by the holders
of at least 80% of the Voting Stock (as defined in Article VIII), subject to
certain exceptions. Among these exceptions was the approval of a business
combination by a majority of disinterested members of the Board of Directors.
The principal purpose of charter provisions such as Article VIII is to deter
persons from acquiring more than ten percent of the voting power of a
corporation without approval by the corporation's board of directors.
At the time of Article VIII's inclusion in the Corporation's Certificate of
Incorporation, Delaware had not yet enacted statutory takeover positions. Since
that time, a number of states, including Delaware and Maryland, have enacted
statutes designed to deter hostile takeovers. Management believes that the
investment community views charter provisions such as Article VIII unfavorably
and, thus, management believes that the continued presence of Article VIII in
the Charter may tend to discourage investment in the Company. Significantly,
AEW also has expressed the desire to have the provisions removed from the
Charter. In this regard AEW has required, as a condition to Closing, that the
Board pass certain resolutions excluding AEW, any AEW affiliate and transferees
of AEW from the limitations set forth in Article VIII. As a result of the
deletion of Article VIII from the Charter, the Company will lose the
protection from hostile or unsolicited takeovers which Article VIII was
originally adopted to deter. See
"Loss of Protections from Unsolicited Takeover Attempts", below. Management
believes, however, that the detriment resulting from loss of such protection is
outweighed by the benefit of the large capital infusion which will result from
the AEW Stock Sale. See Proposal 1 - "The Series A Convertible Preferred Stock
Purchase Agreement - Conditions to Closing".
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or a reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding voting stock of the corporation (an "Interested Stockholder") or an
affiliate of such an Interested Stockholder are prohibited for five years after
the most recent date on which the Interested Stockholder becomes an Interested
Stockholder. Thereafter, any such business combination must be recommended by
the board of directors of such corporation and approved by the affirmative vote
of at least (a) 80% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation and (b) two-thirds of the votes
entitled to be cast by holders of the voting stock of the corporation other than
shares held by the Interested Stockholder with whom (or with whose affiliate)
the business combination is to be effected, unless, among other conditions, the
corporation's common stockholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the same
form as previously paid by the Interested Stockholder for its shares. The
minimum price is defined in the MGCL as the highest of: (i) the highest price
per share paid by an Interested Stockholder, plus a compounded interest factor,
based on U.S. Treasury obligations less dividends paid, (a) at any time within
five years prior to the announcement date of the business combination or (b)
within five years before a transaction in which it became an interested
stockholder, whichever is higher; (ii) the market value per share, plus a
compounded interest factor based on U.S. Treasury obligations less dividends
paid, on (a) the announcement date of the business combination (the
"announcement date price") or (b) the date on which an interested stockholder
first became an interested stockholder (the "determination date price"),
whichever is higher; or (iii) the higher of the announcement date price or
the determination date price (not including the interest factor or dividends)
multiplied by a faction in which the numerator is the price referred to in (i)
(a) above, and the denominator is the price paid by the bidder on the first
day that the bidder acquired any shares during the period referred to in (i)
(a). These provisions of the MGCL do not apply, however, to business
combinations that are approved by the board of
directors of the corporation prior to the time that the Interested Stockholder
becomes an Interested Stockholder. Pursuant to the statute, the Company has
exempted any business combinations with any person and, consequently, the five-
year prohibition and the super-majority vote requirements will not apply to any
such business combinations at this time. The statute allows the Board of
Directors to repeal the aforementioned exemption. However, as a condition to
AEW's purchase of the AEW Preferred Stock, the Board of Directors has adopted a
resolution which irrevocably exempts any business combination between the
Company and AEW, any AEW Affiliate or any transferee of AEW from the
provisions of the MGCL relating to business combinations described above.
As noted above in the discussion under Proposal 1, even if the Stockholders
do not approve the proposed amendment to the Charter, the Board of Directors has
adopted resolutions which, pursuant to Article VIII as currently set forth in
the Charter, irrevocably exempt any business combinations which may occur
between the Company and AEW, any AEW Affiliate or any transferee of AEW. The
Board of Directors has also adopted resolutions which similarly exempt any
transaction contemplated by or resulting from the exercise of any redemption
right of the AEW Preferred Stock from limitations which would otherwise apply.
The effect of these resolutions adopted by the Board is to cause the provisions
of Article VIII to no longer apply to any business combination which may occur
between the Company and AEW or an AEW Affiliate. These resolutions and the
approval of the deletion of Article VIII from the Charter would result in AEW
and AEW Affiliates, or any other beneficial owner of ten percent or more of the
outstanding Voting Stock (as defined in the Charter) of the Company, being able
to enter into business combinations with the Company which may not be in the
best interest of the Stockholders, without compliance by the Company with the
requirements currently set forth in Article VIII.
If the Stockholders do not approve Proposal 4, pursuant to the terms of the
AEW Preferred Stock, the holders of the AEW Preferred Stock will, in the future,
be entitled to vote on any subsequent proposal to amend the Charter to delete
Article VIII therefrom. In addition, as a condition to Closing, Mr. Bedford
will agree to vote his shares in favor of any such subsequent proposal.
Loss of Protection from Unsolicited Takeovers. As a result of the removal of
Article VIII and the removal of the protection of the Rights Plan, the Company
could become more vulnerable to coercive two-tiered, front-end loaded or partial
offers which may not offer full value to all Stockholders, and to purchasers
seeking to accumulate blocks of stock in order to exercise a controlling
influence over the policies of the Company, whose interests may conflict with
those of the Stockholders. The removal of the antitakeover provisions from the
Charter would permit AEW to cause the Company to liquidate, dissolve, or redeem
the outstanding shares of AEW Preferred Stock, or enter into certain
transactions with the Company. Any of such transactions could result in a
greater return to the holders of the AEW Preferred Stock than to the holders
of the Common Stock.
Vote Required; Recommendation of the Board of Directors
Approval of the Business Combination Articles requires the affirmative vote
of 80% of the outstanding shares of Common Stock. If approved, the Business
Combination Articles will become effective upon the filing thereof with the
State Department of Assessments and Taxation of Maryland. THE BOARD UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THE ARTICLES OF AMENDMENT. IN THE ABSENCE OF
INSTRUCTIONS TO THE CONTRARY, PROXIES SOLICITED IN CONNECTION WITH THIS PROXY
STATEMENT WILL BE SO VOTED.
<PAGE>
PROPOSAL 5
ELECTION OF DIRECTORS
Stockholders are not permitted to cumulate votes in the election of
directors. The nominees for election as directors of the Company and their
principal occupations for the past five years, their ages and the number of
shares of Common Stock beneficially owned by them on April 28, 1995 are set
forth below.
If any nominee is unable or unwilling to serve as director at the time of the
Annual Meeting, the proxies will be voted for another nominee designated by the
Nominating Committee. It is not expected that any nominee will be unable or
unwilling to serve as director. All directors are elected to serve until the
next annual meeting of Stockholders and their successors are duly elected and
qualify.
Dir-
Business Experience ector
Name Age During Past Five Years Since
Claude M. 65 Chairman (1992-1994) and a member (1987-1994) 1992
Ballard of the Board of Rockefeller Center Properties,
Inc. (a real estate investment trust);
Limited Partner of The Goldman Sachs Group,
L.P. (since 1989); Limited Partner of Goldman
Sachs & Co. (1988-1989); Director of American
Building Maintenance Industries, Inc.
(1981-1994) (building maintenance);
Director of CBL & Associates (since
1993) (a real estate investment trust);
Director of Taubman Centers, Inc. (since 1993)
(a real estate investment trust); Trustee of
Mutual Life Insurance Company of New York
(1989-1994); Chairman of Merit Equity Partners,
Inc. (since 1989) (property acquisition and
management); Director of Horizon Hotels, Inc.
(since 1990) (hotel ownership and management).
Peter B.
Bedford 57 Chairman of the Board and Chief Executive 1992
Officer of the Company (since 1992);
Director of Bank America Corporation
(since 1987); Director of Bixby
Ranch Company (since 1985) (a real estate
investment company); Chairman of the Real
Estate Center Advisory Board of the
Wharton School at the University of
Pennsylvania (1992-1994); Chairman of
the Board of Kingswood Realty Advisors,
Inc. (1990-1994) (investment and asset
management); President of Bedford Properties
Holdings, Ltd. (formerly Bedford Properties,
Inc.) (since 1962) (real estate
development and property management).
Anthony
Downs 64 Director of General Growth Properties, Inc. 1992
(since 1992) (a real estate investment trust);
Senior Fellow at the Brookings Institution
(since 1977) (non-profit policy research
organization); Director of Massachusetts
Mutual Life Insurance Co. (since 1993);
Director of Pittway Corporation (since 1971)
(manufacturing company); Director of the Urban
Land Institute (since 1979); Director of Urban
Institute (since 1977); Director of NAACP Legal
Educational & Defense Fund, Inc. (since 1986);
Director of NHP Foundation (since 1991) (a
housing foundation); Executive Consultant to
Salomon Brothers (1986-1994) and Aetna Realty
Investors (since 1977).
Anthony M.
Frank 63 Chairman of Acrogen, Inc. (since 1992) (a 1992
bio-tech company); Director of Charles Schwab
& Co., Inc. (since 1993); Director of Irvine
Apartment Communities, Inc. (since 1993) (a
real estate investment trust); Director of
Capital Guaranty Corporation (since 1993)
(a municipal bond insurance company);
Director of General American Investors
(since 1992); Director of Living Centers
of America (since 1992) (retirement centers);
Director of Adia Temporary Services (since 1994);
Director of Temple-Inland (since 1992) (a forest
products company); Postmaster General of the
United States (1988-1992); Chief Executive
Officer of First Nationwide Bank (1971-1988).
Martin I.
Zankel, Esq. 60 Senior Partner at the law firm of Bartko, 1992
Zankel, Tarrant & Miller and predecessor
firms (since 1979); Chairman of the Board
and Chief Executive Officer of Landsing
Pacific Funds, Inc. (since 1992) (a real
estate investment trust).
The following persons have been chosen by the prospective purchasers of the
Series A Convertible Preferred Stock to serve as directors of the Company
contingent on the closing of the sale of the Series A Convertible Preferred
Stock. See Proposal 1 and Proposal 2 - "Terms of the Series A Convertible
Preferred Stock - Voting Rights". The following persons have not been nominated
for election by the Stockholders, and, accordingly, their names do not appear on
the enclosed Proxy Card. Rather, they will serve at the election of the holders
of Series A Convertible Preferred Stock.
Thomas G. Eastman is a founder and co-chairman of Aldrich Eastman Waltch
("AEW"). He is a board member and former Chairman of the National Association
of Real Estate Investment Managers. He is a Member of the Urban Land Institute
and its Finance and Membership Committees. He is a Member of the Executive
Committee of the Institutional Real Estate Clearinghouse. Mr. Eastman is a
graduate of Stanford University (B.A.) and Harvard University (M.B.A.).
Thomas H. Nolan, Jr., directs the management of several commingled
investment fund portfolios. Mr. Nolan joined AEW in 1984 and has specialized
in multi-asset portfolios. Prior to that, Mr. Nolan spent five years with
Coopers & Lybrand where he specialized in real estate and financial service
organizations. He is a Certified Public Accountant and a member of the
American Institute of Certified Public Accountants. Mr. Nolan is a graduate
of the University of Massachusetts (B.B.A.).
Executive Officers of the Company
The following three (3) persons serve as executive officers of the Company:
Business Experience
Name Age During Past Five Years
Peter B.
Bedford 57 Chairman of the Board and Chief Executive Officer of the
Company (since 1992); Director of Bank America Corporation
(since 1987); Director of Bixby Ranch Company (since 1985)
(a real estate investment company); Chairman of the Real
Estate Center Advisory Board of the Wharton School at the
University of Pennsylvania (1992-1994); Chairman of the
Board of Kingswood Realty Advisors, Inc. (1990-1994)
(investment and asset management); President of Bedford
Properties Holdings, Ltd. (formerly Bedford Properties,
Inc.) (since 1962) (real estate development and property
management).
Donald A.
Lorenz 45 Executive Vice President of the Company (since September
1994); Chief Executive Officer of Tri-Ox (1993-1994) (a
manufacturing company); Executive Vice President of
Bedford Holdings Ltd. (1989-1993); Managing Partner of
Armstrong, Gilmour & Associates (1979-1989) (a certified
public accounting firm).
Hanh Kihara 47 Controller of the Company (since 1993); Controller (1991-
1993) and Assistant Controller (1990-1991) of Bedford
Properties Holdings, Ltd.; Manager of Armstrong, Gilmour
& Associates (1988-1990); Certified Public Accountant
(since 1989).
Compensation of Executive Officers
The following table sets forth information regarding compensation paid by
the Company for services rendered during the past three years for the Company's
Chief Executive Officer and the two most highly compensated executive
officers of the Company who were employed by the Company as of December 31,
1994 (collectively, the "Named Executive Officers"). No executive officer
other than the Named Executive Officers earned more than $100,000 in any year.
The salaries of the two Vice Presidents-Acquisitions were, as of December 31,
1994, paid by BPI Acquisitions, then a separate division of the Company which
was funded by Mr. Bedford. The acquisition personnel are now employed directly
by a separate corporation, wholly-owned by Peter Bedford. See "Certain
Relationships and Related Transactions -- Cost of Acquisitions". Prior to
July 1992, the Company's affairs were managed by Kingswood Realty Advisors,
Inc., and the Company had no salaried employees.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Securities Underlying
Compensation(1) Options/SARS
Name and Principal Position Year Salary Options SARs
Management of Bedford
Property Investors:
Peter B. Bedford,
Chief Executive Officer(2) 1994 $156,013 10,000(3) -0-
50,000(4)
1993 $129,615 10,000(3) -0-
1992 -0- 50,000(3) -0-
Management of BPI Acquisitions:
John Papini,
Vice President-
Acquisitions(5) 1994 $147,988 20,000(6) 10,000
1993 $ 86,135 10,000(4) -0-
Robert E. Pester,
Vice President-
Acquisitions(7) 1994 $131,195 30,000(6) 10,000
_________________________
(1) The Company did not pay any bonuses to any of the Named Executive Officers
during the fiscal years covered by the table.
(2) Mr. Bedford did not commence employment with the Company until February
1993. He began serving as a director of the Company in December 1990.
(3) Represents stock options granted pursuant to the Directors' Stock Option
Plan.
(4) Represents stock options granted pursuant to the Employee Stock Option Plan.
(5) Mr. Papini commenced employment with the Company in February 1993; however,
as of March 1995, he was no longer employed by the Company.
(6) 10,000 of which represent either stock options or stock appreciation rights
("SARs"), at the option of holder thereof, granted under the Employee Stock
Option Plan.
(7) Mr. Pester commenced employment with the Company in February 1994.
Employment Contract. On February 16, 1993, the Company entered into an
employment agreement with Mr. Bedford, Chairman of the Board and Chief Executive
Officer. Concurrently with the closing of the sale of the Series A Convertible
Preferred Stock, the Company will amend its employment agreement (the "Amended
Employment Agreement") with Mr. Bedford. Pursuant to the Amended Employment
Agreement, Mr. Bedford has agreed to serve as Chief Executive Officer and
Chairman of the Board on a substantially full-time basis for a term of five
years from the date of the closing of the sale of Series A Convertible Preferred
Stock. Under the contract, both currently and as amended, the Company agrees
to pay Mr. Bedford $150,000 per annum. If the Company fails to give Mr.
Bedford one year notice of termination of his employment, he will be entitled
to severance pay equal to one year's salary. The Amended Employment Agreement
expires in 2000, but will be automatically renewable for an additional one-year
term unless either party notifies the other of termination thereof.
Employee Stock Option Plan. A total of 1,800,000 shares of the Company's
Common Stock have been reserved for issuance under the Company's 1985 Stock
Option Plan (the "Employee Stock Option Plan"). The Employee Stock Option Plan
expires by its own terms in 2003.
The Employee Stock Option Plan provides for the grant of "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), non-qualified stock options and SARs to officers, key
employees and consultants of the Company. Incentive stock options may be
granted only to employees. The Employee Stock Option Plan is administered by
the Compensation Committee, which determines the terms of options and SARs
granted, including the exercise price, the number of shares subject to an
option, and an option's exercisability. Options granted to employees are
exercisable upon vesting, which typically occurs over a four-year period.
The Employee Stock Option Plan requires that the exercise price of incentive
stock options be at least equal to the fair market value of such shares on the
date of grant and that the exercise price of non-qualified stock options be
equal to at least 85% of the fair market value of such shares on the date of
grant. The maximum term of options granted under the Employee Stock Option Plan
is ten years. Incentive stock options may not be granted to any participant
who owns stock possessing more than 10% of the voting rights of the Company's
outstanding capital stock.
SARs may be granted in conjunction with stock options granted under the
Employee Stock Option Plan and entitle the holder to receive the difference
between the fair market value and the exercise price of the Common Stock
receivable upon exercise of the underlying option. The value of a SAR may be
paid in cash or Common Stock, at the option of the Company. A SAR granted in
tandem with an incentive stock option may not be exercised if a previously
issued incentive stock option or related SAR held by such person remains
outstanding. The exercise of a SAR results in the termination of the related
option on a share-for-share basis. Shares covered by such terminated options
are not eligible for reissuance under the Employee Stock Option Plan.
Compensation of Directors
Members of the Board of Directors who are not employees of the Company are
currently paid an annual retainer fee of $12,500 and an additional fee of $2,500
for each Board meeting attended. Any Director attending in person a duly
constituted meeting of a committee of the Board of Directors of which such
Director is a member shall receive, in addition to any other fees to which he
may be entitled, a separate meeting attendance fee equal to $2,500 for his or
her attendance in person at any such committee meeting not held on the same day,
the day preceding or the day following a regular or special meeting of the
Board of Directors. Any member of the Board of Directors who participates in
a regular or special meeting of the Board of Directors by conference
telephone or similar communications equipment shall receive $600 for each
such meeting. Directors are reimbursed for out-of-pocket expenses in
connection with attendance at meetings. If a Director travels to conduct a
site inspection of a property to be acquired by the Company, such Director is
paid $1,000 per day and reimbursed for related travel expenses. Directors
receive no other compensation for their services on behalf of the Company
(except under the 1992 Directors' Stock Option Plan).
1992 Directors' Stock Option Plan. Under the Company's 1992 Directors' Stock
Option Plan (the "Directors' Plan"), members of the Board of Directors are
granted non-qualified stock options. The aggregate number of shares of Common
Stock reserved for issuance under the Directors' Plan is 500,000. The
Directors' Plan is administered by the Compensation Committee of the Board of
Directors of the Company. Pursuant to the Directors' Plan, each first year
director is granted an option for 50,000 shares of Common Stock effective on the
date on which such person becomes a director, and an additional option for
10,000 shares on the date of each successive annual meeting, provided they are
re-elected to the Board. On May 20, 1992, subject to subsequent approval of
the Directors' Plan by the Company's Stockholders, each of the five Directors
was granted an option for 50,000 shares of Common Stock at an exercise price
of the then market price (as defined in the Directors' Plan) of $2.665 per
share. On June 9, 1993, each of the same five Directors was granted an
additional option for 10,000 shares of Common Stock at the then market price
of $3.856 per share. On May 18, 1994, each of the same five Directors was
granted an additional option for 10,000 shares of Common Stock at the then
market price of $6.483 per share. Options granted under the Directors' Plan
are exercisable six months from the date of grant. As of November 18, 1994,
all options granted under the Directors' Plan
were exercisable. As of April 28, 1995, no options granted under the Directors'
Plan had been exercised. As of April 28, 1995, the market value of Common Stock
subject to options under the Directors' Plan, as measured by the closing price
on the New York Stock Exchange, was $5.50 per share.
Committees and Meetings of the Board of Directors
The Board of Directors held four regular meetings and no special meetings
during the 1994 fiscal year. During that period, no director was absent from
any meeting of the Board or of any committee on which he served.
The Company has an Audit Committee which consists of Messrs. Ballard
(Chairman), Downs and Frank. The Audit Committee reviews the internal controls
of the Company and reviews the services performed and to be performed by the
independent auditors of the Company during the year. The Audit Committee also
meets regularly with the independent auditors to review the quarterly financial
statements of the Company and to review the scope and results of the annual
audit. The Audit Committee held one meeting during 1994.
The Company has a Compensation Committee which consists of Messrs. Downs
(Chairman), Frank and Zankel. The Compensation Committee is responsible, with
respect to stock options, for the administration of stock option plans of the
Company, including the Employee Stock Option Plan and the 1992 Directors' Stock
Option Plan. A description of the Employee Stock Option Plan, the 1992
Directors' Stock Option Plan and the 1989 Share Equivalent Incentive Plan is
included under "Compensation of Directors and Executive Officers". The
Compensation Committee met once during 1994.
The Company also has a Nominating Committee which consists of Messrs. Frank
(Chairman) and Ballard. The Nominating Committee is responsible for submitting
nominations for the various officers and for directors which elections are to be
held at the Annual Meeting of Stockholders. The Nominating Committee does not
consider nominees proposed by Stockholders. The Nominating Committee held one
meeting in 1994.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during 1994 were Messrs. Downs,
Frank and Zankel. None of these individuals were officers or employees of the
Company at any time during the year ended December 31, 1994, nor have any of
these individuals ever been an officer of the Company or any of its
subsidiaries. In addition, none of the executive officers of the Company
served on the compensation committee of another entity or as a director of an
entity which employs any of the members of the Compensation Committee.
Martin I. Zankel, a director of the Company, and his associates provided
legal services to the Company for which his firm was paid, in the aggregate,
$82,666, in 1994.
Certain Other Matters
Mr. Bedford did not file a Form 4 in connection with certain transactions
involving the sale of shares held by Kingswood Realty Advisors, Inc., which is
now subject to bankruptcy proceedings. In addition, Mr. Bedford did not file a
Form 4 with respect to the transfer of shares in certain other transactions. Mr.
Bedford filed a Form 5 at year end reporting all of such sales.
Option Grants
The following table sets forth certain information concerning options/SARs
granted during 1994 to the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted Fiscal Year ($/Share) Date
Peter B. Bedford 10,000(1) 5.2% 6.483 11/18/99
50,000(2) 26.2% 7.00 5/18/99
John Papini 10,000(2) 5.2% 7.00 5/18/99
10,000(2) 5.2% 6.875 9/23/04
Robert E. Pester 10,000(2) 5.2% 7.00 5/18/99
10,000(2) 5.2% 6.875 3/16/04
10,000(2) 5.2% 6.875 9/23/04
______________________________
(1) Stock Options granted pursuant to 1992 Directors Stock Option Plan,
which options vest and become exercisable six months from
the date of grant.
(2) Stock Options granted pursuant to Employee Stock Option Plan, which
options vest and become exercisable at a rate of 25% per
year either from the date of employment or the date of grant.
In addition to the options indicated above, on May 18, 1994, options to
purchase up to 51,000 shares of Common Stock were granted to officers and
employees other than the Named Executive Officers under the Company's Employee
Stock Option Plan (the "Employee Plan") at the then market price of $7.00 per
share. Additionally on September 23, 1994, options to purchase up to 30,000
shares of Common Stock (or SARs, at the option of the holders) were granted at
the then market price of $6.875 per share. Such options vest and become
exercisable at a rate of 25% per year from either the date of employment or the
date of grant. In general, the Employee Plan provides that all options held by
an officer or employee shall be cancelled upon termination of employment and
after the expiration of specified time periods during which the optionee may
exercise his or her options. As of April 28, 1995, the market value of Common
Stock subject to options under the Employee Plan, as measured by the closing
price on the New York Stock Exchange, was $5.50 per share. No stock options or
SARs were exercised in 1994.
Aggregate Option Values at Year-End 1994
The Named Executive Officers did not exercise any stock options or SARs in
1994. The following table sets forth the number and aggregate dollar value of
Named Executive Officers' unexercised options at the end of 1994.
AGGREGATED OPTION/SAR
EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Value of Securities
Number of Securities Unexercised in-the-
Underlying Unexercised Money Options at
Options/SARs at FY-End FY-End
Name Exercisable Unexercisable Exercisable Unexercisable
Peter B.
Bedford 82,500 37,500 $158,190 $0
John Papini 5,000 25,000 $3,125 $9,375
Robert E.
Pester 0 30,000 $0 $0
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of April 28, 1995, with
respect to directors, certain employees of the Company and each person who is
known by the Company to own beneficially more than 5% of the shares of its
Common Stock, and with respect to shares owned beneficially by all directors
and officers of the Company as a group:
Title Number of Shares Percent of
of Class Name and Address Beneficially Owned Outstanding Shares
Common Stock Peter B. Bedford 1,806,825(1) 28%(2)
270 Lafayette Circle
Lafayette, CA 94549
Common Stock Anthony M. Downs 70,500(3) 1.1%
8483 Portland Place
McLean, VA 22102
Common Stock Anthony M. Frank 78,000(3) 1.2%
10 Windward Road
Belvedere, CA 94920
Common Stock Claude M. Ballard 71,000(3) 1.1%
7 St. Johns Place
Little Rock, AR 72207
Common Stock Martin I. Zankel 90,000(3) 1.4%
900 Front Street, Suite 300
San Francisco, CA 94111
Common Stock Bob Pester 11,000 (4)
270 Lafayette Circle
Lafayette, CA 94549
Common Stock John Papini 1,100 (4)
3470 Mt. Diablo Blvd.
Lafayette, CA 94549
Common Stock All Directors and Officers 1,950,566(5) 30.6%(6)
as a group (9 persons)
_________________________
(1) Includes 300,000 shares owned by Mr. Bedford's children (as to which
Mr. Bedford has sole voting power) and 95,000 shares of
Common Stock subject to exercisable options.
(2) Assuming conversion of all of the shares of the Series A Convertible
Preferred Stock to be sold pursuant to the AEW Stock Sale
(although such stock is not convertible for two years), Mr. Bedford
would hold 13% of the outstanding Common Stock.
(3) Includes for each director exercisable options to purchase 70,000
shares of Common Stock.
(4) Less than 1%.
(5) Includes exercisable options to purchase 397,500 shares.
(6) Assuming conversion of all of the shares of the Series A Convertible
Preferred Stock to be sold pursuant to the AEW Stock Sale
(although such stock is not convertible for two years), the Directors
and Officers as a group would hold 13% of the outstanding
Common Stock.
(7) Assumes consummation of the AEW Stock Sale.
(8) The Company has no information as to the identity and percentage
ownership of AEW's limited partners, and, therefore, does not
know whether any of such limited partners would be deemed to
beneficially own more than five percent of the Series A Convertible
Preferred Stock.
(9) Assuming conversion of all of the shares of the Series A Convertible
Preferred Stock to be sold pursuant to the AEW Stock Sale
(although such stock is not convertible for two years), AEW would hold
58% of the outstanding Common Stock.
SECURITY OWNERSHIP ASSUMING CONSUMMATION OF THE AEW STOCK SALE
The following table sets forth certain information concerning the ownership
of the Company's stock assuming consummation of the AEW Stock Sale. Although
the AEW Preferred Stock will not be convertible until the second anniversary
of the date of issuance, the following table assumes conversion of the AEW
Preferred Stock to Common Stock at the initial Conversion Price as of the
date of the Closing, and sets forth stockholders who would hold
more than five percent of the then outstanding Common Stock of the Company:
%
Number of Outstanding
Name of Shares of Shares of
Beneficial Owner Common Stock Common Stock(3)
AEW Partners, L.P. 8,333,334 58%
Peter B. Bedford 1,806,825(1) 13%
All Directors and Officers 1,950,566(2) 13%
as a group
_______________
(1) Includes 300,000 shares owned by Mr. Bedford's children (as to which he has
sole voting power) and 95,000 shares of Common Stock subject to exercisable
options.
(2) Includes exercisable options to purchase 397,500 shares of Common Stock.
(3) Rounded to nearest percentage.
Certain Relationship and Related Transactions
Cost of Acquisitions
From February 1993 until December 31, 1994, all of the Company's activities
relating to debt and equity financings and the acquisition of new properties
(the "Acquisition Services") were handled under an arrangement with Mr. Bedford
whereby he provided acquisition and financing personnel (the "Acquisition
Personnel"), allocable overhead costs, and the costs of all due diligence
conducted prior to an acquisition, whether or not any financing is obtained or
a property is acquired. Upon the completion of a financing or the acquisition
of a property, Mr. Bedford was paid a fee by the Company equal to the lesser of
(a) 1-1/2% of the gross amount raised or of the purchase price of a property, as
the case may be, or (b) an amount equal to (i) the aggregate amount of costs
funded by Mr. Bedford through the time of such acquisition or financing minus
(ii) the aggregate amount of fees previously paid to Mr. Bedford pursuant to
such arrangement. In no event would the aggregate amount of fees paid to Mr.
Bedford exceed the aggregate amount of costs funded by Mr. Bedford. Such
fees were capitalized by the Company as part of the direct costs of acquisition
and financing activities. As of December 31, 1994, the Company had paid Mr.
Bedford an aggregate amount of $903,000 pursuant to this arrangement, which was
$712,000 less than the amount of total acquisition and financing costs funded by
Mr. Bedford. Commencing as of January 1, 1995, the Acquisition Services have
been performed by BPIA, a California corporation wholly owned by Mr. Bedford,
pursuant to a written contract. Accordingly, the Acquisition Personnel
previously employed by the Company are now employed by BPIA, and all amounts
previously owed to Mr. Bedford personally are now owed to BPIA. The substantive
financial terms of the arrangement remain unchanged. See Proposal 1 - "The
Series A Convertible Preferred Stock Purchase Agreement - Certain Ancillary
Agreements".
Upon closing of the sale of Series A Convertible Preferred Stock, the Company
will pay $750,000 to BPIA for its services and expenses in connection with the
sale. In addition, upon closing of the Amended Credit Facility, as defined
hereafter, the Company will pay BPIA $555,000 in connection therewith. Amounts
paid will be in accordance with the agreement between BPIA and the Company, and
will not exceed the actual costs incurred by BPIA.
Other Transactions
The Company is leasing 2,400 square feet of industrial space on a month-to-
month basis at a market rental rate of $1,288 per month to a company wholly-
owned by Mr. Bedford.
During 1994, furniture and equipment was purchased from a company wholly
owned by Mr. Bedford. The purchase price of approximately $69,000 was based on
independent valuations.
Martin I. Zankel, a director of the Company, and his associates provided
legal services to the Company for which his firm was paid, in the aggregate,
$82,666, in 1994.
Mr. Bedford is the President and sole director of Kingswood Realty Advisors,
Inc.("Kingswood Realty"), a real estate investment advisory company. Kingswood
Realty, a former advisor of the Company, ceased operations on January 26, 1994.
Following the termination of its operations, Kingswood Realty retained as its
sole asset 44,250 shares of the Company's Common Stock while its liabilities
consisted of its obligations under three long-term office leases. Although
Kingswood Realty was able to negotiate the early termination of one of these
leases, the landlords under the other two leases refused to negotiate an early
termination of such leases, and as a result Kingswood Realty filed a petition
under Chapter 11 of the United States Bankruptcy Code on June 8, 1994. The sole
creditors in the bankruptcy proceeding are Kingswood Realty's prior two
landlords.
Vote Required; Recommendation of the Board of Directors
Election as a Director requires the approval of a plurality of all of the
votes cast at the meeting. THE BOARD RECOMMENDS THAT YOU VOTE "FOR" ALL OF THE
NOMINEES. IN THE ABSENCE OF INSTRUCTIONS TO THE CONTRARY, PROXIES SOLICITED IN
CONNECTION WITH THIS PROXY STATEMENT WILL BE SO VOTED.
<PAGE>
INDEPENDENT AUDITORS
KPMG Peat Marwick, Certified Public Accountants, served as independent
auditors of the Company for the fiscal year ended December 31, 1994. The Board
of Directors, acting upon the recommendation of the Audit Committee, has
selected KPMG Peat Marwick to audit the financial statements of the Company for
the fiscal year ending December 31, 1995. A representative of KPMG Peat Marwick
is expected to be present at the Annual Meeting and will have the opportunity
to make a statement if he so desires and will be available to respond to
appropriate questions from stockholders.
OTHER MATTERS
The Board of Directors knows of no matter to be presented at the Annual
Meeting other than those set forth in the Notice of Meeting and described in
this Proxy Statement. If, however, any other business should properly come
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote in accordance with their best judgment on such matters.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company hereby incorporates by reference into this Proxy Statement the
following sections of the Company's Annual Report: (i) Management's Discussion
and Analysis set forth at pages 8-11 thereof, and (ii) the Company's Audited
Financial Statements set forth at pages 16-27 thereof. In addition, the Company
hereby incorporates by reference into this Proxy Statement the unaudited
Financial Statements set forth at pages 1-10 of the Company's Form 10-Q for its
first quarter ending March 31, 1995, and the Company's Form 8-K filed May 19,
1995. A copy of the Company's Annual Report and Form 10-Q is included with the
mailing of this Proxy Statement.
STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be presented at the annual meeting of
Stockholders to be held in 1995 must be received by the Company at its principal
executive offices no later than _______________, 1995 for inclusion in the
Company's proxy statement and form of proxy relating to that meeting. Such
proposals must meet the requirements of the rules of the Securities and Exchange
Commission relating to stockholder proposals.
By Order of the Board of Directors,
_______________, 1995 ___________________________________
Jennifer I. Mori
Secretary
<PAGE>
GLOSSARY
"Acquisition Services" means all of the Company's activities relating to
debt and equity financing.
"Additional Stock" means all Common Stock issued by the Company after the
Closing Date, other than Common Stock issued or issuable at any time: (a) upon
conversion of the AEW Preferred Stock; (b) upon exercise of options outstanding
on the Closing Date; (c) upon issue of options granted pursuant to the Stock
Option Plans with respect to employees, directors, and consultants of the
Company in amounts not exceeding the aggregate amount reserved for issuance
under such plans on the Closing Date, as increased from time to time upon
approval by a majority of the Directors elected by the holders of the AEW
Preferred Stock; (d) upon issue of warrants to underwriters in any firm
commitment public offering of
securities by the Company; (e) as a dividend or distribution on AEW Preferred
Stock or any subdivision, combination, or consolidation of the Common Stock; or
(f) by way of dividend or other distribution on shares of Common Stock the
issuance of which was excluded from the definition of Additional Stock by
clauses (a) through (e) of this paragraph, or on shares of Common Stock so
excluded.
"AEW" means AEW Partners, L.P., a Delaware limited partnership, or a single
affiliate of AEW to be identified prior to Closing.
"AEW Affiliates" means affiliates of AEW, as defined in the Company's
Charter.
"AEW Preferred Stock" means the shares of Series A Convertible Preferred
Stock to be issued pursuant to the Stock Purchase Agreement.
"AEW Stock Sale" means the sale of AEW Preferred Stock to AEW pursuant to
the Stock Purchase Agreement.
"Aggregate Stock Ownership Limit" means ownership of no more than five
percent (in value) of the aggregate of the outstanding shares of stock in the
company.
"Amended Credit Facility" means an amended credit facility with BofA,
permitting borrowing by the Company in an aggregate principal amount of $60
million, subject to certain limitations.
"Amended Employment Agreement" means the amended employment agreement between
Peter B. Bedford and the Company to be executed concurrent with the Closing.
"Articles of Amendment" means the Articles of Amendment adopted by the Board
of Directors and recommended for Stockholder approval in the form attached
hereto as Exhibit A.
"Annual Meeting" means the Annual Meeting of Stockholders to be held on
_______________, 1995, at , at
____________, local time, and at any adjournment(s) or postponement(s) of such
meeting.
"BofA" means Bank of America, NT & SA.
"Board of Directors" or the "Board" means the Board of Directors of Bedford
Property Investors, Inc., a Maryland corporation.
"Borrowing Base" means the limit of the amount that the Company may borrow
under the Amended Credit Facility and is equal to the lesser of (i) a specified
percentage of the appraised value of the properties which have been pledged as
collateral under the Amended Credit Facility and (ii) an amount calculated
quarterly by reference to net operating income (as such will be defined in the
Amended Credit Facility) from properties pledged as collateral under the Amended
Credit Facility.
"BPIA" means Bedford Acquisitions, Inc. d/b/a/ BPI Acquisitions.
"BPIA Agreement" means the written contract to be entered into between the
Company and BPIA setting forth the terms under which BPIA will provide
Acquisition Services to the Company in exchange for certain fees to be paid.
"Business Combination Articles" means the Articles of Amendment adopted
by the Board and recommended for Stockholder approval in the form attached
hereto as Exhibit B.
"Charter" means the Charter of the Company.
"Closing" means the closing the AEW Stock Sale.
"Closing Date" means the date of closing of the AEW Stock Sale.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Ownership Limit" means ownership by a single owner of no more than
five percent (in number or value, whichever is more restrictive) of the
outstanding shares of Common Stock.
"Common Stock" means the Company's issued and outstanding shares of Common
Stock, par value $.01 per share.
"Company" means Bedford Property Investors, Inc., a Maryland corporation.
"Conversion Price" means the conversion price with respect to the AEW
Preferred Stock used to determine the number of shares of Common Stock issuable
upon conversion of the AEW Preferred Stock, initially set at $6.00, as such may
be adjusted from time to time pursuant to the Articles of Amendment.
"Directors' Plan" means the Company's 1992 Directors' Stock Option Plan.
"Employee Stock Option Plan" means the Company's 1985 Stock Option Plan.
"FAD" means the Funds Available for Distribution, which equals Funds From
Operations, as defined in the Articles of Amendment, minus Non-Revenue Enhancing
Capital Expenditures, as defined in the Articles of Amendment.
"Holder" means AEW, any affiliate, or any permitted transferee of the
registration rights who holds shares of Common Stock of the Company.
"Interested Stockholder" means a beneficial owner of ten percent or more of
the voting power of the then outstanding voting stock of the corporation.
"Investment Proposals" means the investment proposals described in this Proxy
Statement relating to the transaction and acts contemplated by the Company in
connection with the Stock Purchase Agreement consisting of: (i) a proposal to
approve the sale and issuance of 8,333,334 shares of Series A Convertible
Preferred Stock to AEW Partners, L.P., for an aggregate purchase price of $50
million; (ii) a proposal to amend the Charter of the Company to create the
Series A Convertible Preferred Stock and to set forth the terms of such stock;
(iii) a proposal to amend the Charter to substitute a new Article VII limiting
the transferability of the Company's Common Stock by imposing limitations on the
amount of the Company stock a stockholder may own; and (iv) to amend the Charter
to delete the provisions of Article VIII regarding business combinations. Each
of the Investment Proposals are more fully described in the Proxy Statement.
"Liquidating Event" means (a) any transaction, including without limitation,
a consolidation or merger of the Company, or other corporate reorganization if,
immediately after such transaction, the stockholders of the Company (determined
prior to such event) hold fifty percent or less in interest of the outstanding
voting securities of the surviving corporation, (b) a sale of all or
substantially all of the assets of the Company to any person, or the acquisition
of a majority of the outstanding shares of Common Stock of the Company by any
person, other than (i) AEW and its affiliates (as defined in the Stock Purchase
Agreement), (ii) Mr. Bedford, members of his immediate family, or his affiliates
(as defined in the Stock Purchase Agreement), (iii) as a result of the
conversion of shares of AEW Preferred Stock, and (iv) any underwriter in either
a public or private offering.
"Liquidation Preference" means the right of the preferred shareholders to
receive, in the event of a Liquidation Event, $6.30 per share of AEW Preferred
Stock plus an amount per share of Preferred Stock equal to all dividends accrued
and unpaid thereon to the date of the final distribution to such holders.
"Major Transactions" means any one or more of the following transactions:
(i) the consolidation or merger of the Company; (ii) the issuance or
modification of any debt in a principal amount which exceeds $10 million;
(iii) the making of new investments, including a purchase of real estate
operating companies or real estate investment trusts, with a purchase price
equal to or greater than $10 million, or any series of purchases within any
90-day period with aggregate purchase prices exceeding $25 million; (iv) the
issuance of any equity securities, other than pursuant to the Stock Option
Plans, and the issuance of equity securities the proceeds of which will be
used to redeem the AEW Preferred Stock; (v) the sale of any asset or assets
with a sale price in excess of $10 million, or any series of sales within any
90-day period with aggregate sales prices exceeding $25 million; (vi) the
modification of any executive employment
agreement; (vii) the modification of the BPIA Agreement or any other agreement
between the Company and Mr. Bedford or any of his Affiliates (as defined in the
Charter) which would make any of the agreements less favorable to the Company;
(viii) the termination of the Company's status as a REIT; (ix) any substantial
change in the Company's current business strategies or annual operating plan (as
approved by the Board of Directors); (x) permitting Mr. Bedford to cease serving
substantially full-time as chief executive officer of the Company or permitting
Mr. Bedford to dispose of his shares of Common Stock so that Mr. Bedford, his
affiliates (as defined in the Articles of Amendment) and members of his
immediate family beneficially own fewer than 1,198,278 shares of Common Stock
(as adjusted for stock splits or similar transactions; (xi) the issuance of
awards of any shares or options other than those permitted in paragraph (iv);
and (xii) any amendment to the resolution of the Board of Directors exempting
AEW and any affiliate of AEW from the provisions of the business combination
provisions set forth in Section 3-602 of the MGCL, and exempting therefrom any
transaction resulting from the exercise of a redemption right of the AEW
Preferred Stock which may constitute a business combination.
"Merrill" means Merrill Lynch & Co., Merrill Lynch Pierce Fenner & Smith
Incorporated, the Company's Placement Agent.
"MGCL" means the Maryland General Corporation Law.
"NYSE" means the New York Stock Exchange.
"Named Executive Officers" means the Company's Chief Executive Officer and
the two most highly compensated executive officers of the Company who were
employed by the Company as of December 31, 1994.
"New Securities" means any voting securities sold and issued for cash or cash
equivalents other than (i) securities issuable upon conversion of any
convertible voting securities; (ii) securities issuable upon exercise of any
options or warrants; (iii) securities issuable pursuant to the Directors' Stock
Option Plan and the Employee Stock Option Plan of the Company; (iv) securities
issuable in consideration of the acquisition of assets or shares of another
entity; (v) securities issuable in a firm commitment underwritten public
offering; (vi) warrants (or the shares of Common Stock issuable upon exercise
thereof) issuable to an underwriter as partial compensation for a firm
commitment underwritten public offering; and (vii) securities issuable in
connection with any stock split, stock dividend, or recapitalization of the
Company.
"Permitted Holder" means a person, designated by the trustee, who may own
such shares without violating the ownership restrictions.
"Prohibited Owner" means any person who, if a purported transfer were
effected, would beneficially own shares of stock in excess of an applicable
ownership restriction.
"Record Date" means the holders of record of the shares of Common Stock at
the close of business on _______________, 1995.
"Registrable Securities" means the shares of Common Stock issuable upon the
conversion of the AEW Preferred Stock and any Common Stock which may be issued
or distributed in respect thereof by way of recapitalization, reclassification,
stock dividend, stock split or other distribution.
"REIT" means a real estate investment trust, as defined under the Code.
"Right" means the rights issued pursuant to the Rights Plan.
"Rights Plan" means the Stockholder Rights Plan between the Company and
Mellon Bank, N.A., originally dated as of July 18, 1989.
"SARs" means stock options or stock appreciation rights.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Stock" means Series A Convertible Preferred Stock, $.01
par value per share.
"Stockholders" means the holders of the Company's issued and outstanding
shares of Common Stock, par value $.01 per share.
"Stock Option Plans" means the Directors' Stock Option Plan and the Employee
Stock Option Plan of the Company.
"Stock Purchase Agreement" means the Series A Convertible Preferred Stock
Purchase Agreement with AEW dated as of May 18, 1995.
"Takeover Provisions" means the Rights Plan, the Charter Provision, and
Section 3-602 of the MGCL.
"Transaction Proceeds" means the aggregate purchase price to be paid
pursuant to the AEW Stock Sale less payment of offering expenses.
"Voting Agreement" means an agreement entered into by Mr. Bedford with AEW
pursuant to which Mr. Bedford will agree to vote his shares of Common Stock in
favor of the AEW Stock Sale.
<PAGE>
EXHIBIT LIST
EXHIBIT A Articles of Amendment Defining the Terms of the Series A
Convertible Preferred Stock and Amending the Limitations
on the Transferability of the Company's Stock
EXHIBIT B Articles of Amendment Deleting Article VIII (relating to
Certain Business Combinations) from the Charter
<PAGE>
EXHIBIT A
ARTICLES OF AMENDMENT DEFINING THE
TERMS OF THE SERIES A CONVERTIBLE PREFERRED STOCK AND
AMENDING THE LIMITATIONS ON THE TRANSFERABILITY OF
THE COMPANY'S STOCK
THIS IS TO CERTIFY THAT:
FIRST: The charter of Bedford Property Investors, Inc., a
Maryland corporation (the "Corporation"), is hereby amended by (a) deleting
existing Section 1 of Article V and adding a new Section 1 as follows and (b)
adding new Section 5 to Article V as follows:
Section 1. Authorized Shares. The total number of shares
of stock which the Corporation has authority to issue is
50,000,000 shares, of which 30,000,000 shares are shares of Common
Stock, $.01 par value share ("Common Stock"), 10,000,000 shares
are shares of Preferred Stock, $.01 par value per share
("Preferred Stock"), and 10,000,000 shares are shares of Series
A Convertible Preferred Stock, $.01 par value per share ("Series
A Preferred"). The aggregate par value of all authorized shares
of stock having a par value is $500,000.
Section 5. Series A Preferred Stock. The preferences,
conversion or other rights, voting powers, restrictions,
limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption of the
Series A Preferred are set forth below. The Board of Directors
may reclassify any unissued shares of Series A Preferred from time
to time in one or more classes or series of stock of the
Corporation.
1. Cumulative Dividends.
(a)(i) The holders of outstanding shares of the
Series A Preferred shall be entitled to receive
in each fiscal quarter, when and as authorized
and declared by the Board of Directors, out of
any assets at the time legally available
therefor, dividends in cash at the greater of (X)
the rate of $0.135 (the "Dividend Rate") per
share and (Y) the dividends payable with respect
to such quarter in respect of the Common Stock
into which each share of the Preferred Stock is
Convertible, plus, in both cases, dividends
accumulated on the Series A Preferred but unpaid
for all prior quarters, before any cash dividend
is paid on the Common Stock for such quarter. If
any shares of Series A Preferred have been called
for redemption by the holders of the Series A
Preferred but the redemption payment has not been
made thereon on the redemption date for any
reason whatsoever, then the rate at which
dividends shall accrue on such shares shall
increase to $0.165 per share until the earlier of
(A) the payment of the redemption price, and (B)
such time as the size of the board has been
increased to eleven pursuant to Paragraph 3(a)
hereof and the holders of Series A Preferred have
elected four directors to fill the newly created
vacancies. The right to dividends on shares of
Series A Preferred shall be cumulative.
(ii) Such dividends or distributions shall be
payable quarterly (commencing with the calendar
quarter ending September 30, 1995) in arrears on
such dates as the Board of Directors may from
time to time determine which shall not be later
than the 45th day after the end of the calendar
quarter. Any dividends payable on Series A
Preferred for any partial dividend period
(including the period commencing on the date the
shares are initially issued and ending on
September 30, 1995) will be computed on the basis
of a 360-day year consisting of twelve 30-day
months. Dividends or distributions (other than
dividends payable solely in shares of Common
Stock) may be authorized and declared and paid
upon shares of Common Stock in any fiscal quarter
of the Corporation only if dividends shall have
been paid on or declared and set apart upon all
shares of Series A Preferred at such quarterly
rates for all prior periods through and including
the end of such quarter.
(b) In the event the Corporation shall declare a
distribution payable in securities of other persons,
evidences of indebtedness issued by the Corporation
or other persons, assets (excluding cash
distributions) or options or rights to purchase any
such securities or evidences of indebtedness, then,
in each such case the holders of the Series A
Preferred shall be entitled to a proportionate share
of any such distribution as though the holders of the
Series A Preferred were the holders of the number of
shares of Common Stock of the Corporation into which
their shares of Series A Preferred are convertible as
of the record date fixed for the determination of the
holders of Common Stock of the Corporation entitled
to receive such distribution.
(c) In determining whether a distribution (other
than upon voluntary or involuntary liquidation), by
dividend (but not by redemption or other acquisition
of shares or otherwise), is permitted under the
Maryland General Corporation Law, amounts that would
be needed, if the Corporation were to be dissolved at
the time of the distribution, to satisfy the
preferential rights upon dissolution of holders of
Preferred Stock whose preferential rights upon
dissolution are superior to those receiving the
distribution shall not be added to the Corporation's
total liabilities.
2. Liquidation Preference.
(a) In the event of any Liquidation Event (as
defined at (b) below) either voluntary or
involuntary, the holders of the Series A Preferred
shall be entitled to receive, prior and in preference
to any distribution of any of the assets or surplus
funds of the Corporation to the holders of the Common
Stock by reason of their ownership thereof, the
amount of $6.30 per share plus any accrued and unpaid
dividends, for each share of Series A Preferred then
held by them (the "Series A Liquidation Preference").
If, upon the occurrence of such event, the assets and
funds thus distributed among the holders of the
Series A Preferred shall be insufficient to permit
the payment to such holders of the full Series A
Liquidation Preference, then the entire assets and
funds of the Corporation legally available for
distribution shall be distributed ratably in
satisfaction of the Series A Liquidation Preference
in proportion to the aggregate preferential amounts
owed to each holder of the Series A Preferred. After
payment has been made to the holders of the Series A
Preferred of their full Series A Liquidation
Preference, any remaining assets shall be distributed
ratably to the holders of the Common Stock.
(b) For purposes of this Paragraph 2, any
transaction, including without limitation a
consolidation or merger of the Corporation (other
than for purposes of reincorporation), or other
corporate reorganization of the Corporation with or
into any other corporation or corporations,
immediately after which transaction the stockholders
of the Corporation (determined prior to such event)
hold fifty percent or less in interest of the
outstanding voting securities of the surviving
corporation, or a sale of all or substantially all of
the assets of the Corporation or the acquisition of
a majority of the outstanding shares of Common Stock
of the Corporation by a person other than (i) AEW
Partners, L.P. and its Affiliates, (ii) as a result
of the conversion of the Series A Preferred Stock,
(iii) Peter Bedford or his Affiliates or members of
his immediate family (his spouse, issue, brothers,
sisters and their respective issue and trusts for the
benefit of such persons) or (iv) underwriters in a
public or private placement, shall be treated as a
Liquidation Event. "Affiliate" shall mean with
respect to any person, any other person controlling,
controlled by or under direct or indirect common
control with such person (for the purposes of this
definition "control", when used with respect to any
specified person, shall mean the power to direct the
management and policies of such person, directly or
indirectly, whether through ownership of voting
securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings
correlative to the foregoing).
(c) The value of securities and property paid or
distributed pursuant to this Paragraph 2 shall be
computed at fair market value at the time of payment
by the Corporation or at the time made available to
stockholders, all as determined by the Board of
Directors in the good faith exercise of its
reasonable business judgment, provided that (i) if
such securities are listed on any established stock
exchange or a national market system, their fair
market value shall be the closing sales price for
such securities as quoted on such system or exchange
(or the largest such exchange) for the date the value
is to be determined (or if there are no sales for
such date, then for the last preceding business day
on which there were sales), as reported in the Wall
Street Journal or similar publication, and (ii) if
such securities are regularly quoted by a recognized
securities dealer but selling prices are not
reported, their fair market value shall be the mean
between the high bid and low asked prices for such
securities on the date the value is to be determined
(or if there are no quoted prices for such date, then
for the last preceding business day on which there
were quoted prices).
(d) Nothing hereinabove set forth shall affect in
any way the right of each holder of Series A
Preferred to convert such shares at any time and from
time to time into Common Stock in accordance with
Paragraph 4 hereof.
3. Voting Rights and Voting Switch.Except as
expressly provided in this Charter, the holders of Series
A Preferred shall have no voting rights.
(a) Directors. The holder of shares of Series A
Preferred as a class shall have the right to elect
two members of the Board of Directors (which right to
elect such two directors shall be construed for the
purposes of this Charter as the right to vote
generally in the election of directors) and the
holders of shares of Common Stock shall have the
right to elect the remaining directors; provided
however that if at any time (i) the Corporation has
failed in two consecutive quarters to pay in full and
in a timely manner the quarterly dividends on the
Series A Preferred as required by Paragraph 1
(including all dividends accumulated but unpaid for
all prior quarters), (ii) Peter Bedford shall cease
to serve as the substantially full-time chief
executive officer of the corporation, (iii) Peter
Bedford and his Affiliates and members of his
immediate family (his spouse, issue, brothers,
sisters and their respective spouses and issue and
trusts for the benefit of such persons) own
beneficially fewer than 1,198,278 shares of Common
Stock of this Corporation (adjusted for any stock
splits or similar transactions), or (iv) the Company
fails to pay the full redemption price on the shares
of Series A Preferred subject to redemption pursuant
to Paragraph 5(c) on any redemption date (provided,
that such redemption was made at the request of
holders of a majority of the then outstanding shares
of Series A Preferred), then the holders of Series A
Preferred shall immediately (and regardless of any
subsequent cure) and thereafter be entitled to elect
the smallest number of directors constituting a
majority of the Board of Directors, and the holders
of Common Stock, as a class, shall retain the right
to elect the remaining directors. The number of
authorized directors is seven and such number cannot
be increased without the consent of the holders of
Series A Preferred. In order to facilitate the
effective control of the Board of Directors by the
holders of Series A Preferred upon the occurrence of
any event identified in (i), (ii), (iii) or (iv)
above, the size of the Board shall automatically be
increased to eleven, and the holders of the Series A
Preferred, voting together as a single class, shall
have the exclusive right to elect four persons to
fill such newly created vacancies on the Board of
Directors. All directors elected by the vote of the
Series A Preferred shall be referred to as "Series A
Directors". The holders of Series A Preferred may
elect the Series A Directors by unanimous written
consent, by a special meeting of the holders of
Series A Preferred, or at an annual meeting of
stockholders of the Corporation. Any special meeting
of the holders of Series A Preferred may be called by
holders who hold at least 10% of the outstanding
shares of Series A Preferred or by a Series A
Director and shall be held at the time and place
specified by the holder or director calling the
meeting. A majority of the holders of the Series A
Preferred shall constitute a quorum for the purposes
of any such special meeting. In the case of any
vacancy occurring among the Series A Directors, a
majority of the remaining Series A Directors, if any,
may elect a successor to hold office for the
unexpired term of such Series A Director. If all
Series A Directors shall cease to serve as directors
before their terms expire, the holders of Series A
Preferred then outstanding may, by unanimous written
consent or at a special meeting of the holders of
Series A Preferred, elect successors to hold office
for the unexpired terms of the Series A Directors.
(b) Senior Securities. Authorization of any
series or class of equity securities ranking senior
or equal to the Series A Preferred with respect to
the payment of dividends or amounts upon liquidation,
dissolution or winding up of the Corporation, must be
approved by the affirmative vote of holders of at
least a majority of the outstanding shares of Series
A Preferred, voting together as a single class.
(c) Amendment. Any amendment to the Charter of
the Corporation which would materially adversely
affect the preferences or rights of the Series A
Preferred must be approved by affirmative vote of the
holders of at least a majority of the outstanding
shares of Series A Preferred, voting together as a
single class.
(d) Termination. The voting rights set forth at
(b) and (c) above shall terminate if the Common
Shares issuable upon conversion of the outstanding
shares of Series A Preferred shall represent less
than 15% of the total of (i) outstanding shares of
Common Stock and (ii) the number of shares of Common
Stock that would be outstanding upon conversion of
the outstanding Series A Preferred. If the Common
Shares issuable upon conversion of the outstanding
Series A Preferred represent less than 15% but 7% or
more of such total, the voting rights set forth at
(a) above shall provide that the holders of shares of
Series A Preferred Stock as a class shall only have
the right to elect one member of the Board of
Directors rather than two; and provided further that
the voting rights set forth at (a) above shall
terminate if the Common Shares issuable upon
conversion of the outstanding shares of Series A
Preferred Stock represent less than 7% of such total.
(e) Mechanics. Solely for purposes of this
Paragraph 3, each holder of shares of Series A
Preferred shall be entitled to one vote for each such
share of Series A Preferred held on the record date
for the vote or consent of stockholders.
(f) Notice of Meetings. The holder of each share
of the Series A Preferred shall be entitled to notice
of any stockholders' meeting in the manner provided
in the Bylaws of the Corporation.
4. Conversion. The holders of the Series A Preferred
shall have conversion rights as follows (the "Conversion
Rights"):
(a) Right to Convert. Subject to Subsection (c),
each share of Series A Preferred shall be
convertible, at the option of the holder thereof, at
any time after ______, 1997 [two years after closing]
at the office of the Corporation or any transfer
agent for the Series A Preferred, into such number of
fully paid and nonassessable shares of Common Stock
as is determined by dividing $6.00 for each share of
Series A Preferred by the Conversion Price at the
time in effect for such share. The initial
Conversion Price for shares of Series A Preferred
shall be $6.00 per share; provided, however, that
such Conversion Price shall be subject to adjustment
as set forth in Subsection (c) below.
(b) Mechanics of Conversion. Before any holder
of Series A Preferred shall be entitled to convert
the same into shares of Common Stock, the certificate
or certificates therefor shall be surrendered, duly
endorsed, at the office of the Corporation or of any
transfer agent for the Series A Preferred, and the
holder shall give written notice by mail, postage
prepaid, to the Corporation at its principal office,
of the election to convert the same and shall state
therein the name or names in which the certificate or
certificates for shares of Common Stock are to be
issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred, or to
the nominee or nominees of such holder, a certificate
or certificates for the number of shares of Common
Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have
been made immediately prior to the close of business
on the date of such surrender of the shares of Series
A Preferred to be converted, and the person or
persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated
for all purposes as the record holder or holders of
such shares of Common Stock as of such date. No
fractional shares of Common Stock shall be issued
upon conversion of shares of Series A Preferred
Stock. Instead of any fractional shares of Common
Stock that would otherwise be issuable upon
conversion, the Corporation shall pay in cash an
amount equal to the fair market value of such
fractional interest as determined in good faith by
the Corporation's Board of Directors. In determining
the amount of fractional share payments, all of the
shares of a single holder of Series A Preferred shall
be aggregated so that no holder shall receive a
fractional share payment equal to or exceeding the
value of one share.
(c) Conversion Price Adjustments. The Conversion
Price of Series A Preferred shall be subject to
adjustment from time to time as follows:
(i) Special Definitions. For purposes of this
Paragraph 4(c), the following definitions shall
apply:
(1) "Options" shall mean rights, options or
warrants to subscribe for, purchase or
otherwise acquire either Common Stock or
Convertible Securities.
(2) "Original Issue Date" with respect to
the Series A Preferred shall mean the date on
which the first share of such Series A
Preferred was issued.
(3) "Convertible Securities" shall mean any
evidence of indebtedness, shares (other than
the Common Stock or Series A Preferred Stock)
or other securities convertible into or
exchangeable for Common Stock.
(4) "Additional Stock" shall mean all
Common Stock issued (or, pursuant to Paragraph
4(c)(iii), deemed to be issued) by the
Corporation after the Original Issue Date,
other than Common Stock issued or issuable at
any time:
(A) upon conversion of the Series A
Preferred;
(B) upon exercise of Options
outstanding on the Original Issue Date;
(C) upon issue of options to officers,
directors, and employees of, and
consultants to the Corporation pursuant to
the Amended Employee Stock Option Plan and
Directors Stock Option Plan of this
Corporation in amounts not exceeding the
aggregate reserved for issuance under such
plans on the Original Issue Date, as
increased from time to time provided that
any such increase is approved by a
majority of the Series A Directors;
(D) upon issue of warrants to
underwriters in any firm commitment public
offering of securities by this
Corporation;
(E) as a dividend or distribution on
Series A Preferred or any event for which
adjustment is made pursuant to
subparagraph (c)(vi) hereof;
(F) by way of dividend or other
distribution on Common Stock excluded from
the definition of Additional Stock by the
foregoing clauses (A), (B), (C), (D), (E)
or this clause (F) or on Common Stock so
excluded.
(ii) No Adjustment of Conversion Price. No
adjustment in the Conversion Price of a
particular share of Series A Preferred shall be
made as a result of the issuance of Additional
Stock unless the consideration per share for such
Additional Stock issued or deemed to be issued by
the Corporation is less than the Conversion Price
in effect on the date of, and immediately prior
to such issue, for such share of Series A
Preferred.
(iii) Deemed Issue of Additional Shares of
Common Stock.
(1) Options and Convertible Securities.
Except as otherwise provided in Paragraph
4(c)(ii), in the event the Corporation at any
time or from time to time after the Original
Issue Date shall issue any Options or
Convertible Securities or shall fix a record
date for the determination of holders of any
class of securities entitled to receive any
such Options or Convertible Securities, then
the maximum number of shares (as set forth in
the instrument relating thereto without regard
to any provisions contained therein for a
subsequent adjustment of such number) of
Common Stock issuable upon the exercise of
such Options or, in the case of Convertible
Securities and Options therefor, the
conversion or exchange of such Convertible
Securities, shall be deemed to be shares of
Additional Stock issued as of the time of such
issue or, in case such a record date shall
have been fixed, as of the close of business
on such record date, provided that Additional
Stock shall not be deemed to have been issued
unless the consideration per share (determined
pursuant to Paragraph 4(c)(v) hereof) of such
Additional Stock would be less than the
Conversion Price in effect on the date of and
immediately prior to such issue, or such
record date, as the case may be, and provided
further that in any such case in which
Additional Stock is deemed to be issued:
(A) no further adjustment in the
Conversion Price for such series shall be
made upon the subsequent issue of
Convertible Securities or shares of Common
Stock upon the exercise of such Options or
conversion or exchange of such Convertible
Securities;
(B) if such Options or Convertible
Securities by their terms provide, with
the passage of time or otherwise, for any
increase or decrease in the consideration
payable to the Corporation, or in the
number of shares of Common Stock issuable,
upon the exercise, conversion or exchange
thereof, the Conversion Price computed
upon the original issue thereof (or upon
the occurrence of a record date with
respect thereto), and any subsequent
adjustments based thereon, shall, upon any
such increase or decrease becoming
effective, be recomputed to reflect such
increase or decrease insofar as it affects
such Options or the rights of conversion
or exchange under such Convertible
Securities;
(C) upon the expiration of any such
Options or any rights of conversion or
exchange under such Convertible Securities
which shall not have been exercised, the
Conversion Price computed upon the
original issue thereof (or upon the
occurrence of a record date with respect
thereto), and any subsequent adjustments
based thereon, shall, upon such
expiration, be recomputed as if:
(I) in the case of Convertible
Securities or Options for Common
Stock, the only Additional Stock
issued was Common Stock, if any,
actually issued upon the exercise of
such Options or the conversion or
exchange of such Convertible
Securities and the consideration
received therefor was the
consideration actually received by the
Corporation for the issue of all such
Options, whether or not exercised,
plus the consideration actually
received by the Corporation upon such
exercise, or for the issue of all such
Convertible Securities which were
actually converted or exchanged, plus
the additional consideration, if any,
actually received by the Corporation
upon such conversion or exchange, and
(II) in the case of Options for
Convertible Securities, only the
Convertible Securities, if any,
actually issued upon the exercise
thereof were issued at the time of
issue of such Options, and the
consideration received by the
Corporation for the shares of
Additional Stock deemed to have been
then issued was the consideration
actually received by the Corporation
for the issue of all such Options,
whether or not exercised, plus the
consideration deemed to have been
received by the Corporation upon the
issue of the Convertible Securities
with respect to which such Options
were actually exercised;
(D) no readjustment pursuant to clause
(B) or (C) above shall have the effect of
increasing the Conversion Price to an
amount which exceeds the lower of (i) the
Conversion Price on the date immediately
prior to the original adjustment date, or
(ii) the Conversion Price that would have
resulted from any issuance of Additional
Stock between such date and such
readjustment date; and
(E) in the case of any Options which
expire by their terms not more than 90
days after the date of issue thereof, no
adjustment of the Conversion Price shall
be made until the expiration or exercise
of all such Options.
(2) Stock Dividends. In the event the
Corporation at any time or from time to time
after the Original Issue Date shall pay any
dividend on the Common Stock payable in Common
Stock, then and in any such event, Additional
Stock shall be deemed to have been issued
immediately after the close of business on the
record date for the determination of holders
of any class of securities entitled to receive
such dividend; provided, however, that if such
record date is fixed and such dividend is not
fully paid the only Additional Stock deemed to
have been issued will be the number of shares
of Common Stock actually issued in such
dividend, and such shares will be deemed to
have been issued as of the close of business
on such record date, and the Conversion Price
shall be recomputed accordingly.
(iv) Adjustment of Conversion Price Upon
Issuance of Additional Stock.
(1)Prior to , 1997 [two years after
closing]. If prior to ___, 1997, the
Corporation shall issue Additional Stock
(including Additional Stock deemed to be
issued pursuant to Paragraph 4(c)(iii)) for a
consideration per share less than the
Conversion Price for the Series A Preferred in
effect on the date of and immediately prior to
such issue, then and in such event, such
Conversion Price shall be reduced,
concurrently with such issue, to a price equal
to the consideration per share received by the
Corporation for such Additional Stock.
(2)On or after , 1997. If on or
after ____________, 1997 [two years after
closing], the Corporation shall issue
Additional Stock (including Additional Stock
deemed to be issued pursuant to Paragraph
4(c)(iii)) for a consideration per share less
than the Conversion Price for the Series A
Preferred in effect on the date of and
immediately prior to such issue, then and in
such event, such Conversion Price shall be
reduced concurrently with such issue, to a
price (calculated to the nearest cent)
determined by multiplying such Conversion
Price by a fraction, the numerator of which
shall be the number of shares of Common Stock
outstanding immediately prior to such issue
(including all shares of Common Stock issuable
upon conversion of the outstanding Series A
Preferred) plus the number of shares of Common
Stock which the aggregate consideration
received by the Corporation for the total
number of shares of Additional Stock so issued
would purchase at such Conversion Price; and
the denominator of which shall be the number
of shares of Common Stock outstanding
immediately prior to such issue (including all
shares of Common Stock issuable upon
conversion of the outstanding Series A
Preferred) plus the number of shares of such
Additional Stock so issued.
(v) Determination of Consideration. For
purposes of this Paragraph 4(c), the
consideration received by the Corporation for the
issue of any shares of Additional Stock shall be
computed as follows:
(1) Cash and Property: Such
consideration shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash
received by the Corporation excluding
amounts paid or payable for accrued
interest or accrued dividends;
(B) insofar as it consists of property
other than cash, be computed at the fair
value thereof at the time of such issue,
as determined in good faith by the Board;
and
(C) in the event Additional Stock is
issued together with other shares or
securities or other assets of the
Corporation for consideration which covers
both, be the proportion of such
consideration so received, computed as
provided in clauses (A) and (B) above, as
determined in good faith by the Board.
(2) Options and Convertible Securities.
The consideration per share received by the
Corporation for Additional Stock deemed to
have been issued pursuant to Paragraph
4(c)(iii)(1), relating to Options and
Convertible Securities, shall be determined by
dividing:
(x) the total amount, if any, received
or receivable by the Corporation as
consideration for the issue of such
Options or Convertible Securities, plus
the minimum aggregate amount of additional
consideration (as set forth in the
instruments relating thereto, without
regard to any provision contained therein
for a subsequent adjustment of such
consideration) payable to the Corporation
upon the exercise of such Options or the
conversion or exchange of such Convertible
Securities, or in the case of Options for
Convertible Securities, the exercise of
such Options for Convertible Securities
and the conversion or exchange of such
Convertible Securities; by
(y) the maximum number of shares of
Common Stock (as set forth in the
instruments relating thereto, without
regard to any provision contained therein
for a subsequent adjustment of such
number) issuable upon the exercise of such
Options or the conversion or exchange of
such Convertible Securities.
(vi) Adjustments for Subdivisions,
Combinations or Consolidation of Common Stock.
In the event the outstanding shares of Common
Stock shall be subdivided (by stock split, or
otherwise), into a greater number of shares of
Common Stock, the Conversion Price for each
series then in effect shall, concurrently with
the effectiveness of such subdivision, be
proportionately decreased. In the event the
outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of
Common Stock, the Conversion Price then in effect
shall, concurrently with the effectiveness of
such combination or consolidation, be
proportionately increased.
(vii) Adjustments for Other Distributions.
In the event the Corporation at any time or from
time to time makes, or fixes a record date for
the determination of holders of Common Stock
entitled to receive any distribution payable in
securities of the Corporation other than shares
of Common Stock and other than as otherwise
adjusted in this Paragraph 4 or as otherwise
provided in Paragraph 1(b), then and in each such
event provision shall be made so that the holders
of Series A Preferred shall receive upon
conversion thereof, in addition to the number of
shares of Common Stock receivable thereupon, the
amount of securities of the Corporation which
they would have received had their shares of
Series A Preferred been converted into shares of
Common Stock on the date of such event and had
they thereafter, during the period from the date
of such event to and including the date of
conversion, retained such securities receivable
by them as aforesaid during such period, subject
to all other adjustments called for during such
period under this Paragraph 4 with respect to the
rights of the holders of the Series A Preferred.
(viii) Adjustments for Reclassification,
Exchange and Substitution. If the Common Stock
issuable upon conversion of the Series A
Preferred shall be changed into the same or a
different number of shares of any other class or
classes of stock, whether by capital
reorganization, reclassification or otherwise
(other than a subdivision or combination of
shares, consolidation or merger provided for
above), the Conversion Price then in effect
shall, concurrently with the effectiveness of
such reorganization or reclassification, be
proportionately adjusted such that the shares of
Series A Preferred shall be convertible into, in
lieu of the number of shares of Common Stock
which the holders would otherwise have been
entitled to receive, a number of shares of such
other class or classes of stock equivalent to the
number of shares of Common Stock that would have
been subject to receipt by the holders upon
conversion of the Series A Preferred immediately
before that change.
(e) No Impairment. The Corporation will not, by
amendment of its Charter or through any
reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to
be observed or performed hereunder by the Corporation
but will at all times in good faith assist in the
carrying out of all the provisions of this
Paragraph 4 and in the taking of all such action as
may be necessary or appropriate in order to protect
the Conversion Rights of the holders of Series A
Preferred against impairment.
(f) Certificate as to Adjustments. Upon the
occurrence of each adjustment or readjustment of the
Conversion Price for the Series A Preferred pursuant
to this Paragraph 4, the Corporation at its expense
shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and
furnish to each holder of such Series A Preferred a
certificate setting forth such adjustment or
readjustment and showing in detail the facts upon
which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any
time of any holder of Series A Preferred, furnish or
cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price in effect at
the time for such series, and (iii) the number of
shares of Common Stock and the amount, if any, of
other property which at the time would be received
upon the conversion of such Series A Preferred.
(g) Notices of Record Date. In the event of any
taking by the Corporation of a record of the holders
of any class of securities for the purpose of
determining the holders thereof who are entitled to
receive any dividend or other distribution, any right
to subscribe for, purchase, or otherwise acquire any
shares of stock of any class or any other securities
or property, or to receive any other right, this
Corporation shall mail to each holder of Series A
Preferred, at least 20 days prior to the date
specified therein, a notice specifying the date on
which any such record is to be taken for the purpose
of such dividend, distribution or right, and the
amount and character of such dividend, distribution,
or right.
(h) Reservation of Stock Issuable Upon
Conversion. The Corporation shall at all times
reserve and keep available out of its authorized but
unissued Common Stock solely for the purpose of
effecting the conversion of the shares of the
Series A Preferred such number of its shares of
Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of
Series A Preferred and if at any time the number of
authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all
then outstanding shares of the Series A Preferred, in
addition to such other remedies as shall be available
to the holder of such Series A Preferred, the
Corporation will take such corporate action as may,
in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient
for such purposes.
(i) Notices. Any notice required by the
provisions of this Paragraph (4) to be given to the
holders of shares of Series A Preferred shall be
deemed given if deposited in the United States mail,
postage prepaid, and addressed to each holder of
record at his address appearing on the books of this
Corporation.
5. Redemption. The Series A Preferred shall be
redeemable as follows:
(a) Redemption at the Option of the Corporation
after 1997 But Prior to 2000. At any time after
_______, 1997, but prior to ________, 2000, the
Series A Preferred may be redeemed in whole (but not
in part) at the option of the Corporation. The
Corporation will give notice to the holders of
Series A Preferred of its intent to redeem the
Series A Preferred not less than 30 nor more than 60
days prior to the date set for redemption. The
redemption price shall be that amount necessary to
cause the holders of the Series A Preferred to have
received an internal rate of return (defined below)
of 25% per annum over the period of the first two
years commencing with the Original Issue Date and an
internal rate of return of 20% per annum over the
period from and after two years after the Original
Issue Date until the date of redemption (but not
beyond ___ 2000). For the purposes of this paragraph
(a), "internal rate of return" or "IRR" shall be
calculated using the acquisition purchase price paid
by the holders of the Series A Preferred under the
stock purchase agreement under which such shares were
originally issued as the investment "out-flows", with
payments of dividends or other distributions received
by the Series A Preferred holders hereunder taken
into account as "in-flows" provided that (i) the
original purchasers of the Series A Preferred shall
be deemed to be the holders of the Series A Preferred
for the purposes of calculating investment amounts
and receipts, (ii) the fact that such holders may
from time to time finance or leverage funds invested
in the purchase of the Series A Preferred shall not
affect either the characterization or calculation of
such investment amounts (i.e. neither receipt of the
proceeds of any such financing nor the payment of any
debt service or costs related to such financing shall
be taken into account), (iii) neither the fact of any
transfer of Series A Preferred from the original
holders nor the amount of any consideration received
by the original holders or paid by the successor
holders in connection with any transfer shall affect
the calculation of internal rate of return and
(iv) all items of investment/expense and receipt
shall be deemed to have been invested/expended or
received on the last day of the calendar month in
which they occur. An example of the calculation of
IRR is attached as Exhibit A.
(b) Redemption at the Option of the Corporation
after Five Years or Upon Less than 400,000 Shares
Outstanding. Notwithstanding the provisions of
Paragraph 5(a), (i) at any time after _____, 2000, or
(ii) at any time prior thereto if there shall be less
than 400,000 shares of Series A Preferred outstanding
(adjusted for any stock splits or similar
transactions), the Series A Preferred may be redeemed
in whole or in part at the option of the Corporation.
The Corporation will give notice to the holders of
the Series A Preferred of its intent to redeem the
Series A Preferred not less than 30 nor more than 60
days prior to the redemption date. The redemption
price shall be $6.30 per share (declining $0.06 for
each of the first 5 full years after ____, 2000),
plus in each case, all accrued and unpaid dividends.
(c) Redemption at Preferred Stockholders Option.
After _________, 1996, the Corporation will be
required, at the option of the holders of the
Series A Preferred, to redeem the Series A Preferred
of any holder demanding redemption at a price of
$6.00 per share plus all accrued and unpaid dividends
on the occurrence of any one or more of the
following:
(i)failure in two consecutive quarters to pay
in full the quarterly dividends on the Series A
Preferred required by paragraph 1 of this Section
5 (including all dividends accumulated but unpaid
for all prior quarters);
(ii) a default in the payment of principal or
interest on any institutional debt (or debts)
having an outstanding balance (or balances
aggregating) greater than (a) $5 million for non-
recourse debt, and (b) $2 million for recourse
debt (which default, in either case, shall not
have been cured by the Corporation within 30
business days from the time the Corporation
receives written notification of the default);
(iii) failure to comply with paragraph 6
hereof;
(iv) for calendar year 1996, the Corporation's
FAD (defined below) fails to reach at least a
break-even dividend coverage equal to the full
dividend payable on the Series A Preferred;
(v) for calendar year 1997, the Corporation's
FAD fails to reach at least a break-even dividend
coverage equal to the full dividend payable on
the Series A Preferred and annual dividends on
the Common Stock equal to at least a seven
percent (7%) yield on $5.72; and
(vi) for calendar year 1998 and subsequent
years, the Corporation's FAD fails to reach at
least a break-even dividend coverage equal to the
full dividend payable on the Preferred Stock and
dividends on the Common Stock equal to at least
an eight percent (8%) yield on $5.72 (rounded to
the nearest whole cent).
For purposes of this Charter, Funds Available for Distribution
("FAD") shall mean "Funds From Operations" minus "Non-Revenue Enhancing Capital
Expenditures". The calculation of FAD shall be made by the Corporation and the
Corporation's independent public accounting firm shall prepare a special use
report on such calculation.
"Funds from Operations" or "FFO" shall be defined in accordance
with the FFO White Paper prepared in March 1995 by the National Association of
Real Estate Investment Trusts and shall mean the Corporation's net income
(computed in accordance with generally accepted accounting principles in effect
on December 31, 1994, applied in a manner consistent with the Corporation's
accounting policies and practices as of that date), excluding gains (or losses)
from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures will
be calculated to reflect funds from operations on the same basis. As the White
Paper provides, only depreciation and amortization of assets uniquely
significant to the real estate industry will be added back. Amounts added back
would include real property depreciation, amortization of capitalized leasing
expenses, tenant allowances or improvements, and the like. Specifically
excluded are the add back of items such as the amortization of deferred
financing costs, depreciation of computer software, company office
improvements, and other items commonly found in other industries and required
to be recognized as expenses in the calculation of net income. Items
classified by generally accepted accounting principles as
extraordinary or unusual, along with significant non-recurring events that
materially distort the comparative measurement of company performance over time,
are not meant to be reductions or increases in FFO, and should be disregarded in
its calculation. The use of a corporate form versus a partnership form for
unconsolidated partnerships and joint ventures should not affect the
determination of whether an entity is to be treated as a joint venture for
purposes of the definition. Gains or losses on sales of securities or
undepreciated land shall be included in FFO, unless they are unusual and non-
recurring.
"Non-Revenue Enhancing Capital Expenditures" shall mean those
capital expenditures (computed in accordance with generally accepted accounting
principles consistently applied) made with respect to existing real property
that the Corporation has owned and leased to others in order to continue (but
not those expenditures designed to enhance) the revenue-generating capacity of
the property; the following categories of capital expenditures shall not be
included for this purpose (and accordingly, the listed capital expenditures will
not be deducted from FFO in computing FAD): capital expenditures relating to (i)
acquisitions, (ii) deferred maintenance on acquisitions, (iii) tenant
improvements and leasing commissions on square footage that was not leased at
the time of acquisition, (iv) development of new properties or material new
elements of existing properties, and (v) improvements to bring a property into
compliance with governmental regulations.
(d) Waiver. The Corporation shall promptly
notify each holder of Series A Preferred of the
occurrence of any event set forth at (c) above, and
unless such holder has submitted a notice of
redemption to the Corporation on or before 90 days
after receipt of the Corporation's notice, the holder
shall be deemed to have waived the right to have
shares of Series A Preferred redeemed as a result of
such occurrence. No such waiver shall constitute as
a waiver of rights with respect to any subsequent
occurrence.
(e) Redemption Date; Notice of Redemption. The
notice of redemption submitted by the Corporation or
a Series A Preferred Stockholder shall set forth:
(i) the redemption date which shall be not less than
30 nor more than 60 days after the date of the notice
in the case of notice submitted by the Corporation
and not less than 30 nor more than 180 days after the
date of the notice in the case of notice submitted by
a Series A Preferred stockholder; (ii) the redemption
price; and (iii) the place at which the shareholders
may obtain payment of the redemption price upon
surrender of their share certificates. In case of a
partial redemption of Series A Preferred, such
redemption shall be pro rata among the various
holders thereof or as determined by lot in the
discretion of the Board of Directors. On or before
the redemption date, each holder of shares called for
redemption shall surrender the certificate
representing such shares to the Corporation at the
place designated in the redemption notice and shall
thereupon be entitled to receive payment of the
redemption price on the redemption date. If less
than all of the shares represented by a surrendered
certificate are redeemed, the Corporation shall issue
a new certificate representing the unredeemed shares.
If, on or before the redemption date, the Corporation has cash
funds available or has deposited for such purpose in trust with a bank or trust
company sufficient funds to pay the redemption price in full to the holders of
all shares called for redemption, the shares so called shall be deemed to be
redeemed as of the date of deposit, dividends on those shares shall cease to
accrue and no interest shall accrue on redemption price from and after the
redemption date.
All Conversion Rights shall remain valid and effective following
the Corporation's notice of redemption, provided that the right to convert
shares shall terminate at the close of business on the fifth day prior to the
redemption date if the holder thereof has not exercised its Conversion Right in
accordance with Paragraph 4(b) on or prior to such date. Any amounts so
deposited on account of the redemption price of shares converted subsequent to
the date of deposit shall be repaid to the Corporation forthwith upon the
conversion of such shares.
(f) Automatic Redemption and Authority for Non-
Series A Directors to Cancel. In the event that the
size of the Board of Directors has been increased to
eleven pursuant to Clauses (i), (ii) or (iii) of
Paragraph 3(a) hereof and the holders of Series A
Preferred have elected four Series A Directors to
fill the newly created vacancies (the date on which
the last of such four directors is elected being
referred to as the "Board Switch Date"), then all of
the shares of Series A Preferred shall be redeemed on
the 180th day following the Board Switch Date
pursuant to paragraph 5(a) or 5(b) (other than the
notice requirements and with any automatic redemption
occurring prior to ___________, 1997 being deemed a
redemption pursuant to paragraph 5(a)), as
applicable, from holders of record of such Shares as
of the close of business on the 150th day following
the Board Switch Date, unless a majority of the
directors who are not Series A Directors rescind such
automatic redemption prior to the 180th day following
the Board Switch Date. Nothing in this paragraph (f)
is intended to limit the rights of the Series A
Preferred to effect a redemption pursuant to
paragraph 5(c) or to limit the authority of a
majority of the full board to effect a redemption
pursuant to paragraphs 5(a) or 5(b), including the
ability to call the Series A Preferred for redemption
during the 180 day period following a Board Switch
Date notwithstanding the rescission of an automatic
redemption by the directors who are not Series A
Directors pursuant to this clause (f) during that
period.
(g) Payment in Cash. All redemption payments
shall be made in cash; provided, however, that if
shares of Series A Preferred are called for
redemption pursuant to paragraph 5(c) and the
Corporation does not reasonably believe that it can
obtain the cash necessary to make the redemption
payment by the redemption date, the Corporation
within 30 days after the date of the redemption
notice may provide the holders of Series A Preferred
a proposal to pay the redemption price in other than
cash, including real property, fully-collateralized
senior promissory notes or other assets. Such
proposal shall contain a valuation of any assets
proposed to be transferred or to be used as
collateral to secure the Corporation's obligations.
The holders of a majority of the outstanding shares
of Series A Preferred called for redemption shall
have the right in their absolute discretion, for any
reason or no reason, for a period of 30 days to
accept or reject such proposed alternative redemption
payment following submittal by the Corporation. If
holders of a majority of the outstanding shares of
Series A Preferred fail to respond within such 30 day
period, they shall be deemed to have rejected such
proposal.
(h) Payment Prohibited By Law. If the
Corporation fails to make a redemption payment
because such payment is prohibited by Section 2-311
of the Maryland General Corporation Law or similar
statute, then on the redemption date the Corporation
shall provide to the holders of Series A Preferred,
whose shares are subject to redemption, payment of
the maximum amount that may then be legally paid, on
a pro rata basis, together with a certificate of the
chief executive or chief financial officer of the
Corporation setting forth the computation made under
the applicable statutory provision to determine what
amount could be legally paid. Thereafter, until the
shares subject to redemption have been fully
redeemed, within fifteen days after the end of each
month, the Corporation shall provide the holders of
Series A Preferred whose shares are subject to
redemption, a similar certificate showing the
computation of the maximum legally permitted
redemption payment that may be made as of the end of
such month, together with the maximum permitted
payment, if any, on a pro rata basis. All shares of
Series A Preferred for which the redemption payment
has not been made on the redemption date shall be
considered to be outstanding for all purposes.
Nothing in this paragraph (h) is intended to limit
the other rights of the Series A Preferred relating
to the failure of the Company to make a redemption
payment.
6. Protective Provisions.
(a) For so long as the shares of Common Stock
issuable upon conversion of the outstanding shares of
Series A Preferred represent at least 15% of the
total of (a) the shares of Common Stock outstanding,
plus (b) the shares of Common Stock issuable upon
conversion of the outstanding Series A Preferred,
then the Corporation shall not voluntarily file or
assent to or in any other way participate in the
filing of an involuntary petition in bankruptcy or
seek similar protection from creditors under federal
or state bankruptcy or insolvency laws without first
obtaining the approval of holders of a majority of
the outstanding shares of Series A Preferred.
(b) For so long as (I) either the original
purchaser of the Series A Preferred still holds
shares of Series A Preferred or at least one holder
holds more than 50% of the outstanding shares of
Series A Preferred and (II) the shares of Common
Stock issuable upon conversion of all outstanding
shares of Series A Preferred represent at least 15%
of the total of (A) the shares of Common Stock
outstanding, plus (B) the shares of Common Stock
issuable upon conversion of the outstanding Series A
Preferred, then the Corporation shall not take any of
the following actions without first obtaining the
approval of the original purchaser or, if a holder
other than the original purchaser owns more than 50%
of the outstanding shares of Series A Preferred, such
holder ("the Approving Person"):
(i) The issuance of or modification of any
debt in a principal amount which exceeds $10
million;
(ii) New investments, including a purchase of
real estate operating companies or real estate
investment trusts, as defined in Section 856 of
the Internal Revenue Code of 1986 ("REIT"), with
a purchase price equal to or greater than $10
million, or any series of purchases within any 90
day period with aggregate purchase prices
exceeding $25 million;
(iii) Issuance of any equity securities other
than options granted pursuant to the Director
Option Plan or the Employee Option Plan or Common
Stock issued upon exercise of such options
(except approval will not be required upon
issuance of any equity securities the proceeds of
which will be used to redeem the Series A
Preferred);
(iv) Sale of any asset or assets with a sales
price in excess of $10 million, or any series of
sales within any 90 day period with aggregate
sales prices exceeding $25 million;
(v) Consolidation or merger of the
Corporation;
(vi) Modification in any material respect of
any employment agreement with an executive
officer of the Corporation, including
compensation;
(vii) Modification of the agreement between
the Corporation and Westminster Holdings, Inc.,
a California corporation, or any other agreement
between the Corporation and Peter Bedford or any
Affiliate of Peter Bedford which would make such
agreement less favorable to the Corporation, or
entering into any new agreement, arrangement or
transaction with Peter Bedford or any Affiliate
of Peter Bedford; provided, however, that this
clause (vii) shall not apply to the Standstill
Agreement to be entered into between Peter B.
Bedford and the Corporation;
(viii) Issuance of awards of any shares or
options other than those permitted in paragraph
(iii) above;
(ix) The termination of the Corporation's
status as a REIT for tax purposes;
(x) Any substantial change in the
Corporation's business strategies;
(xi) Permit Peter Bedford's ceasing to serve
as substantially full-time chief executive
officer of the Corporation or disposing of his
shares of Common Stock so that Peter Bedford and
his Affiliates and members of his immediate
family, his spouse, issue, brothers, sisters, and
their respective spouses and issue, and trusts
for the benefit of such persons) own beneficially
less than 1,198,278 shares of Common Stock (as
adjusted for stock splits or similar
transactions); and
(xii) any amendment to the resolution of the
Board of Directors exempting from the terms of
Section 3-602 of the Maryland General Corporation
Law and the Charter any transaction between AEW
Partners, L.P. (or any Affiliate of AEW Partners,
L.P.) and the Corporation and any transaction
contemplated by or resulting from the exercise of
any redemption right of the Series A Preferred
which may constitute a business combination.
With respect to each of the above transactions, the Approving Person shall be
provided with the information regarding the proposed transaction ten business
days (any day, Monday through Friday, in which the New York Stock Exchange is
open for regular trading) prior to the scheduled approval date. If the
Approving Person shall not deliver a written notice objecting to the particular
transaction before the end of such ten business day period, the Approving
Person shall be deemed to have consented to such transaction.
(c) In the event that any holder of Series A
Preferred takes any legal action to enforce any
of its rights under this Section 5 of Article V
of the Corporation's Charter, the non-prevailing
party shall be required to pay the costs and
expenses of the prevailing party incurred in
connection with such action, including attorney
and witness fees.
SECOND: The charter of the Corporation is further amended by
replacing Article VII in its entirety with the following:
ARTICLE VII
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 7.1. Definitions. For the purpose of this
Article VII, the following terms shall have the following
meanings:
Aggregate Stock Ownership Limit. The term "Aggregate
Stock Ownership Limit" shall mean not more than five percent in
value of the aggregate of the outstanding shares of Capital Stock.
The value of the outstanding shares of Capital Stock shall be
determined by the Board of Directors of the Corporation in good
faith, which determination shall be conclusive for all purposes
hereof.
Beneficial Ownership. The term "Beneficial Ownership"
shall mean ownership of Capital Stock by a Person, whether the
interest in the shares of Capital Stock is held directly or
indirectly (including by a nominee), and shall include interests
that would be treated as owned through the application of Section
544 of the Code, as modified by Section 856(h)(1)(B) of the Code.
The terms "Beneficial Owner", "Beneficially Owns" and
"Beneficially Owned" shall have the correlative meanings.
Business Day. The term "Business Day" shall mean any
day, other than a Saturday or Sunday, that is neither a legal
holiday nor a day on which banking institutions in New York City
are authorized or required by law, regulation or executive order
to close.
Capital Stock. The term "Capital Stock" shall mean all
classes or series of stock of the Corporation, including, without
limitation, Common Stock, Preferred Stock and Series A Preferred
Stock.
Charitable Beneficiary. The term "Charitable
Beneficiary" shall mean one or more beneficiaries of the Trust as
determined pursuant to Section 7.3.6, provided that each such
organization must be described in Section 501(c)(3) of the Code
and contributions to each such organization must be eligible for
deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of
the Code.
Charter. The term "Charter" shall mean the charter of
the Corporation, as that term is defined in the MGCL.
Code. The term "Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
Common Stock Ownership Limit. The term "Common Stock
Ownership Limit" shall mean not more than five percent (in value
or in number of shares, whichever is more restrictive) of the
aggregate of the outstanding shares of Common Stock of the
Corporation. The number and value of outstanding shares of Common
Stock of the Corporation shall be determined by the Board of
Directors of the Corporation in good faith, which determination
shall be conclusive for all purposes hereof.
Constructive Ownership. The term "Constructive
Ownership" shall mean ownership of Capital Stock by a Person,
whether the interest in the shares of Capital Stock is held
directly or indirectly (including by a nominee), and shall include
interests that would be treated as owned through the application
of Section 318(a) of the Code, as modified by Section 856(d)(5)
of the Code. The terms "Constructive Owner", "Constructively
Owns" and "Constructively Owned" shall have the correlative
meanings.
Excepted Holder. The term "Excepted Holder" shall mean
a stockholder of the Corporation for whom an Excepted Holder Limit
is created by these Articles or by the Board of Directors pursuant
to Section 7.2.7.
Excepted Holder Limit. The term "Excepted Holder Limit"
shall mean, provided that the affected Excepted Holder agrees to
comply with the requirements established by the Board of Directors
pursuant to Section 7.2.7, and subject to adjustment pursuant to
Section 7.2.8: (a) for Peter B. Bedford, fifteen percent of the
lesser of the number or value of the outstanding shares of Common
Stock, (b) for AEW Partners, L.P., a Delaware limited partnership
("AEW") together with a partnership or limited liability company
that is 100% owned directly or indirectly by AEW, (i) fifty-eight
percent of the lesser of the number or value of the outstanding
shares of Common Stock and (ii) one hundred percent of the
outstanding shares of Series A Preferred Stock and (c) for other,
subsequently designated Excepted Holders, as to any class or
series of the outstanding Capital Stock, the percentage limit
established by the Board of Directors pursuant to Section 7.2.7.
For these purposes, the outstanding Common Stock shall include the
shares of Common Stock into which outstanding shares of Series A
Preferred Stock are convertible, and if shares of the Series A
Preferred Stock are redeemed by the Corporation, (a) the
percentage limit applicable to Peter B. Bedford shall be
automatically increased so as to permit his continued ownership
after the redemption of that number of shares Common Stock that
he was permitted to own under the applicable Excepted Holder Limit
immediately before the redemption, and (b) notwithstanding Section
7.2.7(d), the percentage limit with respect to shares of Common
Stock applicable to AEW shall be automatically decreased by the
same amount as the increase in (a).
Initial Date. The term "Initial Date" shall mean the
date upon which the Articles of Amendment containing this Article
VII are filed with the State Department of Assessments and
Taxation of Maryland.
Market Price. The term "Market Price" on any date shall
mean, with respect to any class or series of outstanding shares
of Capital Stock, the Closing Price for such Capital Stock on such
date. The "Closing Price" on any date shall mean the last sale
price for such Capital Stock, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and
asked prices, regular way, for such Capital Stock, in either case
as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading
on the NYSE or, if such Capital Stock is not listed or admitted
to trading on the NYSE, as reported on the principal consolidated
transaction reporting system with respect to securities listed on
the principal national securities exchange on which such Capital
Stock is listed or admitted to trading or, if such Capital Stock
is not listed or admitted to trading on any national securities
exchange, the last quoted price, or, if not so quoted, the average
of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotation system that
may then be in use or, if such Capital Stock is not quoted by any
such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in
such Capital Stock selected by the Board of Directors of the
Corporation or, in the event that no trading price is available
for such Capital Stock, the fair market value of the Capital
Stock, as determined in good faith by the Board of Directors of
the Corporation.
MGCL. The term "MGCL" shall mean the Maryland General
Corporation Law, as amended from time to time.
NYSE. The term "NYSE" shall mean the New York Stock
Exchange.
Person. The term "Person" shall mean an individual,
corporation, partnership, estate, trust (including a trust
qualified under Sections 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the
Code, association, private foundation within the meaning of
Section 509(a) of the Code, joint stock company or other entity
and also includes a group as that term is used for purposes of
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, and a group to which an Excepted Holder Limit applies.
Prohibited Owner. The term "Prohibited Owner" shall
mean, with respect to any purported Transfer, any Person who, but
for the provisions of Section 7.2.1, would Beneficially Own or
Constructively Own shares of Capital Stock, and if appropriate in
the context, shall also mean any Person who would have been the
record owner of the shares that the Prohibited Owner would have
so owned.
REIT. The term "REIT" shall mean a real estate
investment trust within the meaning of Section 856 of the Code.
Restriction Termination Date. The term "Restriction
Termination Date" shall mean the first day after the Initial Date
on which the Corporation determines pursuant to Article VI,
Section 9 of the Charter that it is no longer in the best
interests of the Corporation to attempt to, or continue to,
qualify as a REIT or that compliance with the restrictions and
limitations on Beneficial Ownership, Constructive Ownership and
Transfers of shares of Capital Stock set forth herein is no longer
required in order for the Corporation to qualify as a REIT.
Transfer. The term "Transfer" shall mean any issuance,
sale, transfer, gift, assignment, devise or other disposition, as
well as any other event that causes any Person to acquire
Beneficial Ownership or Constructive Ownership, or any agreement
to take any such actions or cause any such events, of Capital
Stock or the right to vote or receive dividends on Capital Stock,
including (a) the granting or exercise of any option (or any
disposition of any option), (b) any disposition of any securities
or rights convertible into or exchangeable for Capital Stock or
any interest in Capital Stock or any exercise of any such
conversion or exchange right and (c) Transfers of interests in
other entities that result in changes in Beneficial or
Constructive Ownership of Capital Stock; in each case, whether
voluntary or involuntary, whether owned of record, Constructively
Owned or Beneficially Owned and whether by operation of law or
otherwise. The terms "Transferring" and "Transferred" shall have
the correlative meanings.
Trust. The term "Trust" shall mean any trust provided
for in Section 7.3.1.
Trustee. The term "Trustee" shall mean the Person
unaffiliated with the Corporation and a Prohibited Owner, that is
appointed by the Corporation to serve as trustee of the Trust.
Section 7.2 Capital Stock.
Section 7.2.1 Ownership Limitations. During the period
commencing on the Initial Date and prior to the Restriction
Termination Date:
(a) Basic Restrictions.
(i) (1) No Person, other than an Excepted
Holder, shall Beneficially Own or Constructively
Own shares of Capital Stock in excess of the
Aggregate Stock Ownership Limit, (2) no Person,
other than an Excepted Holder, shall Beneficially
Own or Constructively Own shares of Common Stock
in excess of the Common Stock Ownership Limit and
(3) no Excepted Holder shall Beneficially Own or
Constructively Own shares of Capital Stock in
excess of the Excepted Holder Limit for such
Excepted Holder.
(ii) No Person shall Beneficially or
Constructively Own shares of Capital Stock to the
extent that such Beneficial or Constructive
Ownership of Capital Stock would result in the
Corporation being "closely held" within the
meaning of Section 856(h) of the Code (without
regard to whether the ownership interest is held
during the last half of a taxable year), or
otherwise failing to qualify as a REIT
(including, but not limited to, Beneficial or
Constructive Ownership that would result in the
Corporation owning (actually or Constructively)
an interest in a tenant that is described in
Section 856(d)(2)(B) of the Code if the income
derived by the Corporation from such tenant would
cause the Corporation to fail to satisfy any of
the gross income requirements of Section 856(c)
of the Code).
(iii) Notwithstanding any other provisions
contained herein, any Transfer of shares of
Capital Stock (whether or not such Transfer is
the result of a transaction entered into through
the facilities of the NYSE or any other national
securities exchange or automated inter-dealer
quotation system) that, if effective, would
result in the Capital Stock being beneficially
owned by less than 100 Persons (determined under
the principles of Section 856(a)(5) of the Code)
shall be void ab initio, and the intended
transferee shall acquire no rights in such shares
of Capital Stock.
(b) Transfer in Trust. If any Transfer of shares
of Capital Stock (whether or not such Transfer is the
result of a transaction entered into through the
facilities of the NYSE or any other national
securities exchange or automated inter-dealer
quotation system) occurs which, if effective, would
result in any Person Beneficially Owning or
Constructively Owning shares of Capital Stock in
violation of Section 7.2.1(a)(i) or (ii),
(i) then that number of shares of the Capital
Stock the Beneficial or Constructive Ownership of
which otherwise would cause such Person to
violate Section 7.2.1(a)(i) or (ii)(rounded to
the nearest whole shares) shall be automatically
transferred to a Trust for the benefit of a
Charitable Beneficiary, as described in Section
7.3, effective as of the close of business on the
Business Day prior to the date of such Transfer,
and such Person shall acquire no rights in such
shares; or
(ii) if the transfer to the Trust described
in clause (i) of this sentence would not be
effective for any reason to prevent the violation
of Section 7.2.1(a)(i) or (ii), then the Transfer
of that number of shares of Capital Stock that
otherwise would cause any Person to violate
Section 7.2.1(a)(i) or (ii) shall be void ab
initio, and the intended transferee shall acquire
no rights in such shares of Capital Stock.
Section 7.2.2 Remedies for Breach. If the Board of
Directors of the Corporation or any duly authorized committee
thereof shall at any time determine in good faith that a Transfer
or other event has taken place that results in a violation of
Section 7.2.1 or that a Person intends to acquire or has attempted
to acquire Beneficial or Constructive Ownership of any shares of
Capital Stock in violation of Section 7.2.1 (whether or not such
violation is intended), the Board of Directors or a committee
thereof shall take such action as it deems advisable to refuse to
give effect to or to prevent such Transfer or other event,
including, without limitation, causing the Corporation to redeem
shares, refusing to give effect to such Transfer on the books of
the Corporation or instituting proceedings to enjoin such Transfer
or other event; provided, however, that any Transfers or attempted
Transfers or other events in violation of Section 7.2.1 shall
automatically result in the transfer to the Trust described above,
and, where applicable, such Transfer (or other event) shall be
void ab initio as provided above irrespective of any action (or
non-action) by the Board of Directors or a committee thereof.
Section 7.2.3 Notice of Restricted Transfer. Any Person
who acquires or attempts or intends to acquire Beneficial
Ownership or Constructive Ownership of shares of Capital Stock
that will or may violate Section 7.2.1(a), or any Person who would
have owned shares of Capital Stock that resulted in a transfer to
the Trust pursuant to the provisions of Section 7.2.1(b) shall
immediately give written notice to the Corporation of such event,
or in the case of such a proposed or attempted transaction, give
at least 15 days prior written notice, and shall provide to the
Corporation such other information as the Corporation may request
in order to determine the effect, if any, of such Transfer on the
Corporation's status as a REIT.
Section 7.2.4 Owners Required To Provide Information.
From the Initial Date and prior to the Restriction Termination
Date:
(a) every owner of more than five percent (or
such lower percentage as required by the Code or the
Treasury Regulations promulgated thereunder) of the
outstanding shares of Capital Stock, within 30 days
after the end of each taxable year, shall give
written notice to the Corporation stating the name
and address of such owner, the number of shares of
Capital Stock and other shares of the Capital Stock
Beneficially Owned and a description of the manner in
which such shares are held. Each such owner shall
provide to the Corporation such additional
information as the Corporation may request in order
to determine the effect, if any, of such Beneficial
Ownership on the Corporation's status as a REIT and
to ensure compliance with the Capital Stock Ownership
Limit.
(b) each Person who is a Beneficial or
Constructive Owner of Capital Stock and each Person
(including the stockholder of record) who is holding
Capital Stock for a Beneficial or Constructive Owner
shall provide to the Corporation such information as
the Corporation may request, in good faith, in order
to determine the Corporation's status as a REIT and
to comply with requirements of any taxing authority
or governmental authority or to determine such
compliance.
Section 7.2.5 Remedies Not Limited. Subject to Article
VI, Section 9 of the Charter, nothing contained in this Section
7.2 shall limit the authority of the Board of Directors of the
Corporation to take such other action as it deems necessary or
advisable to protect the Corporation and the interests of its
stockholders in preserving the Corporation's status as a REIT.
Section 7.2.6 Ambiguity. In the case of an ambiguity in
the application of any of the provisions of this Section 7.2,
Section 7.3, or any definition contained in Section 7.1, the Board
of Directors of the Corporation shall have the power to determine
the application of the provisions of this Section 7.2 or Section
7.3 with respect to any situation based on the facts known to it.
In the event Section 7.2 or 7.3 requires an action by the Board
of Directors and the Charter fails to provide specific guidance
with respect to such action, the Board of Directors shall have the
power to determine the action to be taken so long as such action
is not contrary to the provisions of Sections 7.1, 7.2 or 7.3.
Section 7.2.7 Exceptions.
(a) Subject to Section 7.2.1(a)(ii), the Board of
Directors of the Corporation, in its sole discretion,
may exempt a Person from the Aggregate Stock
Ownership Limit and the Common Stock Ownership Limit,
as the case may be, and may establish or increase an
Excepted Holder Limit for such Person if:
(i) the Board of Directors obtains such
representations and undertakings from such Person
as are reasonably necessary to ascertain (to the
extent practicable and prudent) that no
individual's Beneficial or Constructive Ownership
of such shares of Capital Stock will violate
Section 7.2.1(a)(ii);
(ii) the Board of Directors obtains such
representations and undertakings from such Person
as are reasonably necessary to ascertain (to the
extent practicable and prudent) that such Person
does not and represents that it will not own,
actually or Constructively, an interest in a
tenant of the Corporation (or a tenant of any
entity owned or controlled by the Corporation)
that would cause the Corporation to own, actually
or Constructively, more than a 9.9% interest (as
set forth in Section 856(d)(2)(B) of the Code) in
such tenant and the Board of Directors obtains
such representations and undertakings from such
Person as are reasonably necessary to ascertain
this fact (for this purpose, a tenant from whom
the Corporation (or an entity owned or controlled
by the Corporation) derives (and is expected to
continue to derive) a sufficiently small amount
of revenue such that, in the opinion of the Board
of Directors of the Corporation, rent from such
tenant would not adversely affect the
Corporation's ability to qualify as a REIT, shall
not be treated as a tenant of the Corporation);
and
(iii) such Person agrees that any violation or
attempted violation of such representations or
undertakings (or other action which is contrary
to the restrictions contained in Sections 7.2.1
through 7.2.6) will result in such shares of
Capital Stock being automatically transferred to
a Trust in accordance with Sections 7.2.1(b) and
7.3.
(b) Prior to granting any exception pursuant to
Section 7.2.7(a), the Board of Directors of the
Corporation may require a ruling from the Internal
Revenue Service, or an opinion of counsel, in either
case in form and substance satisfactory to the Board
of Directors in its sole discretion, as it may deem
necessary or advisable in order to determine or
ensure the Corporation's status as a REIT.
Notwithstanding the receipt of any ruling or opinion,
the Board of Directors may impose such conditions or
restrictions as it deems appropriate in connection
with granting such exception.
(c) Subject to Section 7.2.1(a)(ii), an
underwriter which participates in a public offering
or a private placement of Capital Stock (or
securities convertible into or exchangeable for
Capital Stock) may Beneficially Own or Constructively
Own shares of Capital Stock (or securities
convertible into or exchangeable for Capital Stock)
in excess of the Aggregate Stock Ownership Limit, the
Common Stock Ownership Limit, or both such limits,
but only to the extent necessary to facilitate such
public offering or private placement.
(d) The Board of Directors may only reduce the
Excepted Holder Limit for an Excepted Holder: (1)
with the written consent of such Excepted Holder at
any time, or (2) pursuant to the terms and conditions
of the agreements and undertakings entered into with
such Excepted Holder in connection with the
establishment of the Excepted Holder Limit for that
Excepted Holder. No Excepted Holder Limit shall be
reduced to a percentage that is less than the Common
Stock Ownership Limit.
Section 7.2.8. Increase in Aggregate Stock Ownership and
Common Stock Ownership Limits. The Board of Directors may from
time to time increase the Common Stock Ownership Limit and the
Aggregate Stock Ownership Limit.
Section 7.2.9 Legend. Each certificate for shares of
Capital Stock shall bear the following legend:
The shares represented by this
certificate are subject to restrictions
on Beneficial and Constructive Ownership
and Transfer for the purpose of the
Corporation's maintenance of its status
as a Real Estate Investment Trust under
the Internal Revenue Code of 1986, as
amended (the "Code"). Subject to certain
further restrictions and except as
expressly provided in the Corporation's
Charter, (i) no Person may Beneficially
or Constructively Own shares of the
Corporation's Common Stock in excess of
five percent (in value or number of
shares) of the outstanding shares of
Common Stock of the Corporation unless
such Person is an Excepted Holder (in
which case the Excepted Holder Limit
shall be applicable); (ii) no Person may
Beneficially or Constructively Own shares
of Capital Stock of the Corporation in
excess of five percent of the value of
the total outstanding shares of Capital
Stock of the Corporation, unless such
Person is an Excepted Holder (in which
case the Excepted Holder Limit shall be
applicable); (iii) no Person may
Beneficially or Constructively Own
Capital Stock that would result in the
Corporation being "closely held" under
Section 856(h) of the Code or otherwise
cause the Corporation to fail to qualify
as a REIT; and (iv) no Person may
Transfer shares of Capital Stock if such
Transfer would result in the Capital
Stock of the Corporation being owned by
fewer than 100 Persons. Any Person who
Beneficially or Constructively Owns or
attempts to Beneficially or
Constructively Own shares of Capital
Stock which causes or will cause a Person
to Beneficially or Constructively
Own shares of Capital Stock in
excess or in violation of the
above limitations must
immediately notify the
Corporation. If any of the
restrictions on transfer or
ownership are violated, the
shares of Capital Stock
represented hereby will be
automatically transferred to a
Trustee of a Trust for the
benefit of one or more Charitable
Beneficiaries. In addition, upon
the occurrence of certain events,
attempted Transfers in violation
of the restrictions described
above may be void ab initio. All
capitalized terms in this legend
have the meanings defined in the
charter of the Corporation, as
the same may be amended from time
to time, a copy of which,
including the restrictions on
transfer and ownership, will be
furnished to each holder of
Capital Stock of the Corporation
on request and without charge.
Section 7.3 Transfer of Capital Stock in Trust.
Section 7.3.1 Ownership in Trust. Upon any purported
Transfer or other event described in Section 7.2.1(b) that would
result in a transfer of shares of Capital Stock to a Trust, such
shares of Capital Stock shall be deemed to have been transferred
to the Trustee as trustee of a Trust for the exclusive benefit of
one or more Charitable Beneficiaries. Such transfer to the
Trustee shall be deemed to be effective as of the close of
business on the Business Day prior to the purported Transfer or
other event that results in the transfer to the Trust pursuant to
Section 7.2.1(b). The Trustee shall be appointed by the
Corporation and shall be a Person unaffiliated with the
Corporation and any Prohibited Owner. Each Charitable Beneficiary
shall be designated by the Corporation as provided in Section
7.3.6.
Section 7.3.2 Status of Shares Held by the Trustee.
Shares of Capital Stock held by the Trustee shall be issued and
outstanding shares of Capital Stock of the Company. The
Prohibited Owner shall have no rights in the shares held by the
Trustee. The Prohibited Owner shall not benefit economically from
ownership of any shares held in trust by the Trustee, shall have
no rights to dividends and shall not possess any rights to vote
or other rights attributable to the shares held in the Trust.
Section 7.3.3 Dividend and Voting Rights. The Trustee
shall have all voting rights and rights to dividends or other
distributions with respect to shares of Capital Stock held in the
Trust, which rights shall be exercised for the exclusive benefit
of the Charitable Beneficiary. Any dividend or other distribution
paid prior to the discovery by the Corporation that the shares of
Capital Stock have been transferred to the Trustee shall be paid
with respect to such shares of Capital Stock to the Trustee upon
demand and any dividend or other distribution authorized but
unpaid shall be paid when due to the Trustee. Any dividends or
distributions so paid over to the Trustee shall be held in trust
for the Charitable Beneficiary. The Prohibited Owner shall have
no voting rights with respect to shares held in the Trust and,
subject to Maryland law, effective as of the date that the shares
of Capital Stock have been transferred to the Trustee, the Trustee
shall have the authority (at the Trustee's sole discretion) (i)
to rescind as void any vote cast by a Prohibited Owner prior to
the discovery by the Corporation that the shares of Capital Stock
have been transferred to the Trustee and (ii) to recast such vote
in accordance with the desires of the Trustee acting for the
benefit of the Charitable Beneficiary. Notwithstanding the
provisions of this Article VII, until the Corporation has received
notification that shares of Capital Stock have been transferred
into a Trust, the Corporation shall be entitled to rely on its
share transfer and other stockholder records for purposes of
preparing lists of stockholders entitled to vote at meetings,
determining the validity and authority of proxies and otherwise
conducting votes of stockholders.
Section 7.3.4 Sale of Shares by Trustee. Within 20 days
of receiving notice from the Corporation that shares of Capital
Stock have been transferred to the Trust, the Trustee of the Trust
shall sell the shares held in the Trust to a person, designated
by the Trustee, whose ownership of the shares will not violate the
ownership limitations set forth in Section 7.2.1(a). Upon such
sale, the interest of the Charitable Beneficiary in the shares
sold shall terminate and the Trustee shall distribute the net
proceeds of the sale to the Prohibited Owner and to the Charitable
Beneficiary as provided in this Section 7.3.4. The Prohibited
Owner shall receive the lesser of (1) the price paid by the
Prohibited Owner for the shares or, if the Prohibited Owner did
not give value for the shares in connection with the event causing
the shares to be held in the Trust (e.g., in the case of a gift,
devise or other such transaction), the Market Price of the shares
on the day of the event causing the shares to be held in the Trust
and (2) the price per share received by the Trustee from the sale
or other disposition of the shares held in the Trust. Any net
sales proceeds in excess of the amount payable to the Prohibited
Owner shall be immediately paid to the Charitable Beneficiary.
If, prior to the discovery by the Corporation that shares of
Capital Stock have been transferred to the Trustee, such shares
are sold by a Prohibited Owner, then (i) such shares shall be
deemed to have been sold on behalf of the Trust and (ii) to the
extent that the Prohibited Owner received an amount for such
shares that exceeds the amount that such Prohibited Owner was
entitled to receive pursuant to this Section 7.3.4, such excess
shall be paid to the Trustee upon demand.
Section 7.3.5 Purchase Right in Stock Transferred to the
Trustee. Shares of Capital Stock transferred to the Trustee shall
be deemed to have been offered for sale to the Corporation, or its
designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that resulted in such transfer
to the Trust (or, in the case of a devise or gift, the Market
Price at the time of such devise or gift) and (ii) the Market
Price on the date the Corporation, or its designee, accepts such
offer. The Corporation shall have the right to accept such offer
until the Trustee has sold the shares held in the Trust pursuant
to Section 7.3.4. Upon such a sale to the Corporation, the
interest of the Charitable Beneficiary in the shares sold shall
terminate and the Trustee shall distribute the net proceeds of the
sale to the Prohibited Owner.
Section 7.3.6 Designation of Charitable Beneficiaries.
By written notice to the Trustee, the Corporation shall designate
one or more nonprofit organizations to be the Charitable
Beneficiary of the interest in the Trust such that (i) the shares
of Capital Stock held in the Trust would not violate the
restrictions set forth in Section 7.2.1(a) in the hands of such
Charitable Beneficiary and (ii) each such organization must be
described in Section 501(c)(3) of the Code and contributions to
each such organization must be eligible for deduction under each
of Sections 170(b)(1)(A), 2055 and 2522 of the Code.
THIRD: The charter of the Corporation is further amended by
replacing Article VIII, Section 3, Paragraph (c) in its entirety with the
following:
(c) A person shall be a "beneficial owner" or
shall "beneficially own" stock of the Corporation:
(i)which such person or any of its Affiliates
or Associates beneficially owns, directly or
indirectly; or
(ii)which such person or any of its Affiliates
or Associates has (a) the right to acquire
(whether such right is exercisable immediately or
only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (b)
the right to vote pursuant to any agreement,
arrangement or understanding; or
(iii)which is beneficially owned, directly or
indirectly, by any other person with which such
person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or
disposing of any shares of Voting Stock.
FOURTH: The charter of the Corporation is further amended by
replacing Article VIII, Section 3, Paragraph (e) in its entirety with the
following:
(e)"Affiliate" or "Associates" shall have the
respective meanings ascribed to such terms in
Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in
effect on April 5, 1993.
FIFTH: The amendments to the charter of the Corporation as
hereinabove set forth have been duly advised by the Board of Directors and
approved by the stockholders of the Corporation as required by law and by the
Charter of the Corporation.
SIXTH: The total number of shares of stock which the Corporation
had authority to issue immediately prior to this amendment was 40,000,000, of
which 30,000,000 were shares of Common Stock, $.01 par value per share, and
10,000,000 were Preferred Stock, $.01 par value per share. The aggregate par
value of all authorized shares of stock having a par value was $400,000.00.
SEVENTH: The total number of shares of stock which the
Corporation has authority to issue, pursuant to the charter of the Corporation
as hereby amended, is 50,000,000, of which 30,000,000 are shares of Common
Stock, $.01 par value per share, 10,000,000 are shares of Preferred Stock, $.01
par value per share, and 10,000,000 are shares of Series A Convertible Preferred
Stock. The aggregate par value of all authorized shares of stock having a par
value is $500,000.00.
EIGHTH: The undersigned President acknowledges these Articles of
Amendment to be the corporate act of the Corporation and as to all matters or
facts required to be verified under oath, the undersigned President acknowledges
that to the best of his knowledge, information and belief, these matters and
facts are true in all material respects and that this statement is made under
the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these presents to
be signed in its name and on its behalf by its President and attested to by its
Secretary on this _______ day of ________________, 1995.
ATTEST:
BEDFORD PROPERTY INVESTORS, INC.
By: (Seal)
President
By:_________________________
Secretary
<PAGE>
EXHIBIT B
ARTICLES OF AMENDMENT
DELETING ARTICLE VIII
(RELATING TO CERTAIN BUSINESS COMBINATIONS)
FROM THE CHARTER
THIS IS TO CERTIFY THAT:
FIRST: The charter of Bedford Property Investors, Inc., a
Maryland corporation (the "Corporation"), is hereby amended by deleting existing
Article VIII in its entirety.
SECOND: The charter of the Corporation is further amended by
deleting the remainder of the penultimate sentence of Article IX following the
phrase "entitled to be cast on the matter".
THIRD: The amendment to the charter of the Corporation as set
forth above has been duly advised by the board of directors and approved by the
stockholders of the Corporation as required by law.
FOURTH: The undersigned President acknowledges these Articles of
Amendment to be the corporate act of the Corporation and as to all matters or
facts required to be verified under oath, the undersigned President acknowledges
that to the best of his knowledge, information and belief, these matters and
facts are true in all material respects and that this statement is made under
the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles to
be signed in its name and on its behalf by its President and attested to by its
Secretary on this ___ day of __________, 1995.
ATTEST: BEDFORD PROPERTY INVESTORS, INC.
By:
(seal)
Secretary President
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY MANAGEMENT
The undersigned stockholder of Bedford Property Investors, Inc., a Maryland
corporation (the "Company"), hereby appoints Jennifer I. Mori and Donald A.
Lorenz, and each of them, as proxies for the undersigned, with full power of
substitution, to attend, to vote and otherwise represent all of the shares held
by the undersigned holders of record at the Annual Meeting of Stockholders of
the Company to be held on ________________, 1995 at ________.m. at
, and at any adjournment(s) or
postponement(s) thereof, with the same effect as if the undersigned were
present, as instructed below on each of the following matters, as further
described in the accompanying Proxy Statement. The undersigned hereby revokes
any proxy previously given with respect to such shares.
1. Approval of the Sale of FOR AGAINST
AB
ST
AIN
Series A Convertible
Preferred Stock to AEW
Partners, L.P. for an
aggregate purchase price
of $50 million
3. Approval of the Amendment FOR AGAINST
AB
ST
AIN
to the Company's Charter
to create the Series A
Convertible Preferred Stock
and to state the terms
thereof
4. Approval of the Amendment FOR AGAINST
AB
ST
AIN
to the Company's Charter to
substitute a new Article VII,
imposing certain ownership
limitations on the Company's
Stock and thereby
limiting the
transferability thereof
5. Approval of the Amendment FOR AGAINST
AB
ST
AIN
to the Company's Charter
deleting Article VIII
thereof, thereby removing
certain antitakeover protections
regarding certain business combinations
6. Election of Directors: Peter B. Bedford, Anthony Downs, Anthony M. Frank,
Martin I. Zankel, Claude M. Ballard
For all nominees Withhold authority as to all
(Except as marked to the nominees
contrary below)
_____________________________________________________________________________
To withhold authority for any individual nominee(s), print the name(s) of the
nominee(s) above.
7. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournment
thereof.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the accompanying Proxy Statement.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE
WITH THE SPECIFICATIONS MADE. IF THIS PROXY IS EXECUTED BUT NO
SPECIFICATION IS MADE, THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED FOR EACH OF THE FOREGOING PROPOSALS AND OTHERWISE IN THE
DISCRETION OF THE PROXIES AT THE MEETING OR ANY ADJOURNMENT(S) OR
POSTPONEMENT(S) THEREOF.
MARK HERE IF YOU PLAN TO ATTEND THE
MEETING
Please sign exactly as name appears hereon
and date. If the shares are held jointly, each
holder should sign. When signing as an
attorney, executor, administrator, trustee,
guardian or as an officer signing for a
corporation, please give full title under
signature.
Dated ______________________________, 1995
__________________________________________________
Signature
__________________________________________________
Signature, if held jointly
Votes must be indicated by filling in X in Black or Blue ink.
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope
