SCHEDULE 14A
(Rule 14a-101)
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
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: $125.00
(2) Form, schedule or registration statement no.: PRE 14A
(3) Filing party: Donald A. Lorenz for Bedford Property Investors, Inc.
(4) Date filed: May 30, 1995
_________________________
* 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 Wednesday, September 13, 1995 at 1:00 p.m., at the A. P.
Giannini Auditorium on the Concourse Level of the Bank of America
Building in San Francisco, California.
Enclosed please find the Notice of Meeting, Proxy Statement, 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 Statement 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. You
should note that the approval of the matters set forth herein will
result in a change of control of the Company. If the proposed stock
sale is consummated, the purchaser will hold Series A Convertible
Preferred Stock which, after two years, will be convertible into
common stock representing 58% of the Company's currently outstanding
common stock. Prior to conversion, under the terms of the Series A
Convertible Preferred Stock and the terms of the Series A Convertible
Preferred Stock Purchase Agreement (all of which is described more
fully in Proposals 1 and 2 of the attached Proxy Statement), the
purchaser will have the ability to exercise substantial control over
the Company.
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, CA 94549
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held September 13, 1995
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of Bedford Property
Investors, Inc., a Maryland corporation (the "Company"), will be held
in the A. P. Giannini Auditorium, Concourse Level, The Bank of America
Building, 555 California Street, San Franisco, California on
Wednesday, September 13, 1995, at 1:00 p.m., 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 July 7,
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
August 7, 1995
Lafayette, California
<PAGE>
PROXY STATEMENT
TABLE OF CONTENTS
Page
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Stock Purchase Agreement. . . . . . . . . . . . . . . . . . 4
Terms of the Series A Convertible Preferred Stock . . . . . . . 8
Limitations on Transferability of the Company's Stock . . . . . 11
Removal of Article VIII from the Company's Charter
Regarding Business Combinations. . . . . . . . . . . . . . . 12
Certain Considerations Concerning the Investment
Proposals. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Potential Conflicts of Interest . . . . . . . . . . . . . . . . 16
PROPOSAL 1 APPROVAL OF THE SALE AND ISSUANCE OF 8,333,334
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK . . . . . . . 18
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The Stock Purchase Agreement. . . . . . . . . . . . . . . . . . 18
Background and Reasons for the AEW Stock Sale . . . . . . . . . 19
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 21
Certain Rights Under the Stock Purchase Agreement . . . . . . . 22
Certain Ancillary Agreements. . . . . . . . . . . . . . . . . . 27
Fees and Expenses Payable in Connection with the
Offering . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Conditions to Closing . . . . . . . . . . . . . . . . . . . . . 29
Listing of the Common Stock Issuable Upon Conversion
of the AEW Preferred Stock . . . . . . . . . . . . . . . . . 30
Certain Considerations. . . . . . . . . . . . . . . . . . . . . 30
Potential Conflicts of Interest . . . . . . . . . . . . . . . . 35
Certain Income Tax Considerations . . . . . . . . . . . . . . . 36
Vote Required; Recommendation of the Board of
Directors. . . . . . . . . . . . . . . . . . . . . . . . . . 38
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. . . . . . . . . . . . . . . . . . . . . . . . 40
Terms of the Series A Convertible Preferred Stock . . . . . . . 40
General. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Ranking. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . 41
Liquidation Preference . . . . . . . . . . . . . . . . . . . 42
Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 42
Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . 44
Conversion Rights. . . . . . . . . . . . . . . . . . . . . . 46
Protective Provisions. . . . . . . . . . . . . . . . . . . . 48
Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . 49
Vote Required; Recommendation of the Board of
Directors. . . . . . . . . . . . . . . . . . . . . . . . . . 49
PROPOSAL 3 AMENDMENT OF CHARTER TO SUBSTITUTE A NEW ARTICLE
VII LIMITING TRANSFERABILITY OF THE COMPANY'S
STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Limitations on Transferability of the Company's Stock . . . . . 50
The Current Charter Provision. . . . . . . . . . . . . . . . 50
The Articles of Amendment. . . . . . . . . . . . . . . . . . 50
Antitakeover Effect. . . . . . . . . . . . . . . . . . . . . 54
Effect on AEW and Mr. Bedford. . . . . . . . . . . . . . . . 54
Vote Required; Recommendation of the Board of
Directors. . . . . . . . . . . . . . . . . . . . . . . . . . 54
PROPOSAL 4 AMENDMENT OF CHARTER TO DELETE ARTICLE VIII
REGARDING CERTAIN BUSINESS COMBINATIONS. . . . . . . . . . . 55
Vote Required; Recommendation of the Board of
Directors. . . . . . . . . . . . . . . . . . . . . . . . . . 58
PROPOSAL 5 ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . 59
Executive Officers of the Company . . . . . . . . . . . . . . . 61
Compensation of Executive Officers. . . . . . . . . . . . . . . 62
Compensation of Directors . . . . . . . . . . . . . . . . . . . 64
Committees and Meetings of the Board of Directors . . . . . . . 65
Compensation Committee Interlocks and Insider
Participation. . . . . . . . . . . . . . . . . . . . . . . . 66
Certain Other Matters . . . . . . . . . . . . . . . . . . . . . 66
Option Grants . . . . . . . . . . . . . . . . . . . . . . . . . 67
Aggregate Option Values at Year-End 1994. . . . . . . . . . . . 68
Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . 69
Security Ownership Assuming Consummation of the AEW
Stock Sale . . . . 70
Certain Relationship and Related Transactions . . . . . . . . . 71
Cost of Acquisitions . . . . . . . . . . . . . . . . . . . . 71
Other Transactions . . . . . . . . . . . . . . . . . . . . . 72
Vote Required; Recommendation of the Board of
Directors. . . . . . . . . . . . . . . . . . . . . . . . . . 72
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . . . . . . . . 73
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE. . . . . . . . . . . . 73
STOCKHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . 74
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
<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
EXHIBIT C Bedford Property Investors, Inc. Pro Forma
Consolidated Statement of Operations for the Year
Ended December 31, 1994
EXHIBIT D Historical Summary of Gross Income and Direct
Operating Expenses of Properties Acquired in 1994
for the Year Ended December 31, 1993
<PAGE>
BEDFORD PROPERTY INVESTORS, INC.
270 Lafayette Circle
Lafayette, CA 94549
PROXY STATEMENT
September 13, 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
Wednesday, September 13, 1995, in the A. P. Giannini Auditorium,
Concourse Level, The Bank of America Building, 555 California Street,
San Francisco, California, at 1:00 p.m., 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 August 14, 1995.
Only the holders of record of the shares of Common Stock at the
close of business on July 7, 1995 (the "Record Date") are entitled to
notice of and to vote at the Annual Meeting. As of the Record Date,
5,990,650 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 effective by the
Company.
Under the Maryland General Corporation Law ("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
$15,000 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.
<PAGE>
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 among the Company, AEW
Partners, L.P. and Peter B. Bedford 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 Stock by
imposing limitations on the amount of the Company's 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).
If the Investment Proposals are approved and the stock sale is
consummated, the transaction will result in a change of control of the
Company. The purchaser of the Series A Convertible Preferred Stock
will hold stock which, after two years, will be convertible into
common stock representing 58% of the Company's currently outstanding
common stock. Prior to conversion, under the terms of the Series A
Convertible Preferred Stock and the terms of the Stock Purchase
Agreement, the purchaser of the Preferred Stock will have the ability
to exercise substantial control over the Company. See Proposals 1 and
2 of this Proxy Statement.
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 on 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. It
should be noted, however, that whether or not the AEW Stock Sale
closes, the Company will continue to evaluate potential sources of
capital, including both public and private debt and equity offerings.
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".
The approval of the AEW Stock Sale and the approval of the
Investment Proposals as a group will have certain adverse consequences
to the Stockholders, including (i) that the Investment Proposals may
discourage certain transactions involving a change of control which
could be beneficial to the Stockholders, (ii) that the adoption of the
Investment Proposals will result in a change of control of the
Company, (iii) that as a result of the Investment Proposals the
Company will lose certain protections from unsolicited takeovers which
may be detrimental to the Stockholders, (iv) that the holders of the
AEW Preferred Stock will have the right to cause the redemption at a
time when the Company may not be able to finance such a redemption,
(v) 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; (vi) the potential dilutive effect of the conversion of the
AEW Preferred Stock to Common Stock; (vii) the preferential dividends
and liquidation preference of the AEW Preferred Stock; (viii) the
potential impairment of the Company's use of approximately $31 million
of net operating loss carryforwards; and (ix) 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 " - Certain
Considerations Regarding the Investment Proposals", and Proposal 1 -
"Certain Considerations".
In addition, the Investment Proposals involve certain conflicts of
interest, including (i) that upon closing of the AEW Stock Sale, the
Company will pay to a corporation wholly-owned by Mr. Bedford $750,000
and that on closing of an Amended Credit Facility, the Company will
pay to that corporation $550,000, in each case for services rendered
in connection therewith, (ii) that under the proposed Charter
amendment Mr. Bedford and AEW will be subject to ownership limitations
higher than those applicable to other Stockholders, (iii) that because
of the terms of the Stock Purchase Agreement and the AEW Preferred
Stock, the Company will be less likely to replace Mr. Bedford as Chief
Executive Officer and (iv) that the Company has entered into
preliminary negotiations with an affiliate of AEW regarding the
purchase of a property owned by that affiliate. See " - Potential
Conflicts of Interest", and Proposal 1 - "Potential Conflicts of
Interest".
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
Preferred 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 Ancillary
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. Unless Board approval is
obtained, however, (i) AEW will not be permitted to acquire additional
shares of the Company's stock and (ii) Mr. Bedford will be permitted
to purchase only that number of additional shares which would bring
his ownership total to 15% of the outstanding shares assuming
conversion of the AEW Preferred Stock. See Proposal 3 - "Effect on
AEW and Mr. Bedford".
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, the
continued presence of Article VIII in the Charter may tend to
discourage investment in the Company. Moreover, management believes
that the potential adverse consequences to the Company and its
Stockholders of the loss of the takeover protections provided by
Article VIII (as described in " - Certain Considerations Concerning
the Investment Proposals - Loss of Protection from Unsolicited
Takeovers") is outweighed by the overall benefit to the Company
resulting from the AEW Stock Sale.
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"; and (vi) the risk
that, as a result of, among other things, a substantial decline in the
value of a share of the Common Stock of the Company relative to the
value of a share of Preferred Stock, the Company would cease to be
eligible to be treated as a real estate investment trust (see Proposal
One - "Certain Income Tax 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.
Unless Board approval is obtained, however, (i) AEW will not be
permitted to acquire additional shares of the Company's stock and (ii)
Mr. Bedford will be permitted to purchase only that number of
additional shares which would bring his ownership total to 15% of the
outstanding shares assuming conversion of the AEW Preferred Stock.
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 affiliate of AEW (see Proposal 1 -
"Background and Research for the AEW Stock Sale") is a national real
estate investment adviser. 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,
which will be funded either from the proceeds of the AEW Stock Sale or
from the proceeds of mortgage debt to be secured on certain of the
Company's other properties. 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. <PAGE>
PROPOSAL 1
APPROVAL OF THE SALE AND ISSUANCE OF 8,333,334 SHARES
OF SERIES A CONVERTIBLE PREFERRED STOCK
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 Preferred
Stock Purchase Agreement dated as of May 18, 1995 (the "Stock Purchase
Agreement") without Stockholder approval, either before or after the
approval of the Stock Purchase Agreement, 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 pursuant to which the Company has agreed
to sell and issue on the date (the "Closing Date") of closing of the
sale (the "Closing"), 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 the 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. 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. 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. It should be noted, however, that whether or not the
AEW Stock Sale closes, the Company will continue to evaluate potential
sources of capital, including both public and private debt and equity
offerings.
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 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".
The Company has entered into a contract to acquire a 142,620 square
foot building in San Jose, California, for a purchase price of
$8,325,000. The building is leased to a single tenant under the terms
of a lease expiring on December 31, 2001. The lease provides for
annual rent of $1,112,000 with the tenant also responsible for all
property taxes, insurance and operating expenses (triple-net lease).
Upon acquisition, the Company estimates that the annual straight-
line depreciation will be $118,000. This estimate of depreciation has
been calculated utilizing the estimated portion of the purchase price
to be allocated to buildings and an estimated useful life of forty-
five years. Additionally, if the Company borrows the funds to acquire
the property, annual interest expense is estimated to be $697,200.
The estimated interest expense has been calculated utilizing the
August 1, 1995 interest rate being charged on the Company's Credit
Facility of 8.375%. An increase in the interest rate of one-eighth
percent would increase annual interest expense by approximately
$10,400.
The building is leased to Compression Labs, Inc., a company
manufacturing and marketing products for videoconferencing, broadcast
video and personal video/multimedia. Compression Labs, Inc.'s stock
trades on the NASDAQ national market under the symbol CLIX.
Although there can be no assurance that the acquisition will be
completed, the Company believes that it is probable that the
transaction will close in the middle of September. The Company
expects to complete this sale either from (i) proceeds from the AEW
Preferred Stock, (ii) availability from the Company's credit facility,
or (iii) proceeds from secured indebtedness to be placed on either the
property being acquired or other properties in the Company's
portfolio.
For financial information concerning the Company's acquisitions in
1994, please see the Proforma Consolidated Statement of Operations for
the year ended December 31, 1994, and the Historical Summary of Gross
Income and Direct Operating Expenses for the year ended December 31,
1993, set forth in Exhibits C and D to this Proxy Statement.
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 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.
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.
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. 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". 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 or
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".
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 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 the 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 Loss of REIT Status. If there were a substantial decline
in the value of a share of Common Stock of the Company relative to the
value of a share of the AEW Preferred Stock and five or fewer
"individuals" (within the meaning of the Internal Revenue Code) owned
greater than 50% of the value of all shares of outstanding stock of
the Company, the Company would cease to be eligible to be treated as a
real estate investment trust (see Proposal One - "Certain Income Tax
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 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 adviser. 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,
which will be funded either from the proceeds of the AEW Stock Sale or
from the proceeds of mortgage debt to be secured on certain of the
Company's other properties. 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. In rendering their opinion, Shearman &
Sterling will assume 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.
The Internal Revenue Code sets forth a number of conditions which
must be satisfied in order for an entity to be treated as a real
estate investment trust for federal income tax purposes. One of these
conditions requires that an entity seeking to so qualify or maintain
its status as a real estate investment trust not be "closely held".
An entity would be deemed to be closely held if, at any time during
the last half of the taxable year of the entity, more than 50% in
value of its outstanding shares is owned, directly or indirectly, by
or for not more than five individuals. The test is with respect to
"individuals" and, therefore, the application of this test requires a
"look through" to the actual beneficial owners of stockholders which
are entities like corporations or partnerships.
Proposal 3, which substitutes a new Article VII to the Charter of
the Company, contains provisions limiting the transferability of
shares of stock intended to reduce the risk that the Company would
fail to satisfy the closely held test. Even if Proposal 3 regarding
the substitution of a new Article VII is not approved by the
shareholders, but the shareholders do approve the sale of the stock to
AEW pursuant to the Stock Purchase Agreement, the existing Charter
includes provisions which also are designed to reduce this risk. The
amendment to the Charter set forth in Proposal 3, however, would
provide the Company with greater flexibility in reducing the risk that
the Company would inadvertently fail to qualify as a REIT.
Whether or not Proposal 3 is approved, the Stock Purchase
Agreement, in effect, permits a partner in AEW to own up to 8.2% of
the outstanding shares of the Company on a fully diluted basis (that
is, treating the AEW Preferred Stock as if all of such stock were
converted to Common Stock). This is the equivalent of owning
approximately 14.2% of the AEW Preferred Stock. If each share of the
AEW Preferred Stock and the Common Stock were relatively equal in
value, the ownership of the AEW Preferred Stock or the Common Stock
upon conversion thereof by AEW would not cause the Company to be
closely held within the meaning of the Inernal Revenue Code since,
when the maximum ownership of each of the partners of AEW is combined
with the ownership of Peter Bedford, five or fewer individuals should
not own more than 50% in value of the outstanding shares of the
Company.
Notwithstanding the above, if (1) there were a substantial decline
in the value of a share of the Common Stock relative to a share of the
AEW Preferred Stock, (2) five or fewer individuals owned more than 50%
of the AEW Preferred Stock, and (3) such Preferred Stock constitutes
more than 50% of the aggregate value of both the Common and the AEW
Preferred Stock, the Company would cease to be eligible to be treated
as a real estate investment trust. The Company believes that the
likelihood of all three circumstances occurring is quite remote. For
example, as noted, five or fewer "individuals" would need to own more
than a 50% interest in AEW. Significantly, the Company believes that
most of the partners in AEW are entities which are widely held and not
individuals. Therefore, based upon the "look through" requirement
described above, the Company believes that it is unlikely that five or
fewer "individuals" would own more than 50% of the outstanding shares.
Nonetheless, if there were both such a substantial decline in value of
the shares of Common Stock and five or fewer individuals were treated
as owning more than 50% of AEW, the Company could fail to qualify as a
REIT.
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", AND 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
involuntary 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 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. Unless Board approval
is obtained, however, (i) AEW will not be permitted to acquire
additional shares of the Company's stock and (ii) Mr. Bedford will be
permitted to purchase only that number of 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.
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 this 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, 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 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 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.
Business Experience Director
Name Age During Past Five Years Since
Claude M.
Ballard 65 Chairman (1992-1994) and a member 1992
(1987-1994) 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 <PAGE>
Chairman of the Board and Chief 1992
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).
Anthony
Downs 64 Director of General Growth Properties, 1992
Inc. (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) 1992
(a 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 1992
Bartko, Zankel, Tarrant & Miller and
predecessor firms (since 1979);
Chairman of the Board and Chief
Executive Officer of Landsing Pacific
Fund, Inc. (since 1992) (a real estate
investment trust).
The following persons have been chosen by the prospective
purchasers of the AEW 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 AEW 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:
Name Age Business Experience
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 and Chief Financial
Officer of the Company (since 1995); 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
Annual Compensation(1) Compensation
Securities Underlying
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 AEW 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 AEW 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, $82,666 in 1994.
Certain Other Matters
Mr. Bedford did not file a Form 4 in connection with certain
transactions involving the sale of shares held by Kingswood Realty
Advisors, Inc., which is now subject to bankruptcy proceedings. In
addition, Mr. Bedford did not file a Form 4 with respect to the
transfer of shares in certain other transactions. Mr. Bedford filed a
Form 5 at year end reporting all of such sales.
Option Grants
The following table sets forth certain information concerning
options/SARs granted during 1994 to the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Number % of Total
of Options/
Securities SAR's Exercise
Underlying Granted to or
Options/SARS Employees in Base Price Expiration
Name Granted Fiscal Year ($/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 Employee Stock Option 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 Stock Option 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
Stock Option 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
<PAGE>
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
270 Lafayette Circle
Lafayette, CA 94549 1,806,825(1) 28%(2)
Common
Stock Anthony M. Downs
8483 Portland Place
McLean, VA 22102 70,500(3) 1.1%
Common
Stock Anthony M. Frank
10 Windward Road
Belvedere, CA 94920 78,000(3) 1.2%
Common
Stock Claude M. Ballard
7 St. Johns Place
Little Rock, AR 72207 71,000(3) 1.1%
Common
Stock Martin I. Zankel
900 Front Street, Suite 300
San Francisco, CA 94111 90,000(3) 1.4%
Common
Stock Bob Pester
270 Lafayette Circle
Lafayette, CA 94549 11,000 (4)
Common
Stock John Papini
3470 Mt. Diablo Blvd.
Lafayette, CA 94549 1,100 (4)
Common
Stock All Directors and
Officers as a group
(9 persons) 1,950,566(5) 30.6%(6)
_________________________
(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.
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:
% of
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 Stock Purchase Agreement - Certain
Ancillary Agreements".
Upon closing of the sale of AEW 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.
<PAGE>
STOCKHOLDER PROPOSALS
Proposals of Stockholders intended to be presented at the annual
meeting of Stockholders to be held in 1996 must be received by the
Company at its principal executive offices no later than May 9, 1996
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,
August 7, 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 Wednesday, September 13, 1995, in the A.P. Giannini
Auditorium, Concourse Level, The Bank of America Building, 555
California Street, San Francisco, California, at 1:00 p.m., 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 July 7, 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
EXHIBIT C Bedford Property Investors, Inc., Pro Forma
Consolidated Statement of Operations for the Year
Ended December 31, 1994
EXHIBIT D Historical Summary of Gross Income and Direct
Operating Expenses of Properties Acquired in 1994
for the Year Ended December 31, 1993<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, $0.01 par value share
("Common Stock"), 10,000,000 shares are shares of
Preferred Stock, $0.01 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 or (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, or
(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.
(d) 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.
(e) 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.
(f) 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.
(g) 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.
(h) 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 Schedule 1.
(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 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 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:
<PAGE>
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 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) or (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, $0.01
par value per share, and 10,000,000 were Preferred Stock, $0.01 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, $0.01 par value per share, 10,000,000 are
shares of Preferred Stock, $0.01 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>
SCHEDULE 1
REDEMPTION PRICE CALCULATION
Year 1 Year 2 Year 3 Year 4
Preferred Stock $50,000,000 50,000,000 50,000,000 50,000,000
Accrued Redemption
Premium 0 8,000,000 18,000,000 27,100,000
Total Investment
Basis (1) 50,000,000 58,000,000 68,000,000 77,100,000
Internal Rate of
Return 25.00% 25.00% 20.00% 20.00%
Total Return 12,500,000 14,500,000 13,600,000 15,420,000
Minimum Dividends
Paid (4,500,000) (4,500,000)(4,500,000) (4,500,000)
Accrued Redemption
Premium $8,000,000 $10,000,000 $9,100,000 $10,920,000
Redemption Price(2) $58,000,000 $68,000,000 $77,100,000 $88,020,000
Footnotes:
(1) Beginning of 12 month period.
(2) End of 12 month period.
Note: The above analysis calculates the redemption price at the end
of four consecutive twelve month periods. The actual redemption price
would be calculated based upon the exact number of days between the
date of initial investment and the date of redemption utilizing the
required internal rates of return applicable to each period and the
actual dividends paid, as such dividends paid may exceed the minimum
dividends indicated above.
<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>
EXHIBIT C
Bedford Property Investors, Inc.
Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1994
(Unaudited)
(in thousands, except per share amounts)
Acquired Properties
Historical Properties Sold Pro Forma Pro Forma
Consolidated (1) (2) Adjustments Consolidated
Rental income $9,154 $1,182 $ (11) $ - $10,325
Operating
expenses 2,408 275 (50) - 2,633
Real estate
taxes 916 159 (6) - 1,069
Depreciation
and
amortization 1,206 - (205) 106 (3) 1,107
Income from
property
operations 4,624 748 250 (106) 5,516
General and
adminstrative
expense (1,309) - - - (1,309)
Interest
income 56 - - - 56
Interest
expense (955) - - (665)(4) (1,620)
Income before
gain
on sale 2,416 748 250 (771) 2,643
Gain on sale of
real estate
investment 1,193 - (1,193) 1,180(5) 1,180
Net income $3,609 $ 748 $ (943) $ 409 $ 3,823
Net income per common
and common equivalent
share $0.59 $0.12 $(0.15) $0.06 $0.62
<PAGE>
Notes to Pro Forma Consolidated Statement of Operations (dollars in
thousands)
(1) The unaudited pro forma consolidated statement of operations
reflects the acquisitions of Milpitas Town Center, Village
Green, Dupont Industrial Center, and Mariner Court and the
sale of Texas Bank North as if such transactions had occurred
on January 1, 1994. The Company acquired Milpitas Town Center
on August 11, 1994, Village Green on July 7, 1994, Dupont
Industrial Center on May 24, 1994, and Mariner Court on
January 5, 1994, and sold Texas Bank North on January 14,
1994.
The pro forma operating results for the four acquired properties
for the year ended December 31, 1994, have been prepared utilizing
(i) the actual operating results of the seller for the period from
January 1, 1994 to the acquisition date, and (ii) the actual
operating results of the Company for the period from acquisition to
December 31, 1994. The combined statement of operations for the
period from January 1, 1994 to the acquisition date for these four
acquired properties is as follows:
Milpitas Dupont
Town Village Industrial Mariner Acquired
Center Green Center Court Properties
Rental
income $571 $161 $450 $0 $1,182
Operating
expenses 76 48 151 0 275
Real estate
taxes 58 11 90 0 159
Income from
property
operations $437 $102 $209 $0 $ 748
No pro forma adjustments are included for Mariner Court, which was
acquired on January 5, 1994. The actual results of operations of
this property from January 5, 1994 to December 31, 1994 reasonably
approximate the pro forma results of operations for the year ended
December 31, 1994.
(2) The unaudited pro forma consolidated statement of operations
reflects the elimination of the actual results of operations
of Texas Bank North from January 1, 1994 to January 14, 1994.
(3) Adjusted to reflect pro forma straight-line depreciation for
the period from January 1, 1994 to the acquisition date for
the four acquired properties as follows:
Pro Forma Depreciation
Milpitas Town Center $ 54
Village Green 14
Dupont Industrial Center 38
Mariner Court -
Total $106
The above amounts consist of pro forma depreciation on the
buildings located at the properties for the period from January 1,
1994 to the acquisition date. Depreciation has been calculated
utilizing an estimated useful life of 45 years.
(4) Adjusted to reflect additional borrowings of $24,505 under the
Credit Facility for the period from January 1, 1994 to the
acquisition date for each of the four acquired properties.
Interest was calculated on the total cash outflows at a
weighted assumed borrowing rate of 8.1%. The impact of a one-
eighth percent increase in the interest rate would be to
increase annual interest expense by $31.
(5) Adjusted to reflect the gain on the sale of Texas Bank North
as of January 1, 1994; the actual date of sale was January 14,
1994.
<PAGE>
EXHIBIT D
Bedford Property Investors, Inc.
Historical Summary of Gross Income
and Direct Operating Expenses of
Properties Acquired in 1994
Year Ended December 31, 1993
Presented herein are the Historical Summaries of Gross Income and
Direct Operating Expenses ("the Summaries") prepared in accordance
with Rule 3-14 of Regulaton S-X of the Securities and Exchange
Commission. The Summaries are presented for the following 1994
property acquisitions:
Property Page
Mariner Court. . . . . . . . . . . . . . . . . D-2
Dupont Industrial Center . . . . . . . . . . . D-4
Milpitas Town Center . . . . . . . . . . . . . D-6
An historical summary is not presented for the 1994 acquisition of
Village Green; as the purchase price was $1,687,000, and therefore,
the acquisition was not significant.
<PAGE>
Independent Auditors' Report
The Board of Directors
Bedford Property Investors, Inc.:
We have audited the accompanying Historical Summary of Gross Income
and Direct Operating Expenses (the Summary) of Mariner Court (the
Property) for the year ended December 31, 1993. The Summary is the
responsibility of the Property's owner. Our responsibility is to
express an opinion on the Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the Summary is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Summary. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall Summary presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the current Report on Form 8-K of Bedford
Property Investors, Inc.) and excludes certain expenses, described in
note A, that would not be comparable to those resulting from the
proposed future operations of the Property.
In our opinion, the Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses,
exclusive of expenses described in note A, of Mariner Court for the
year ended December 31, 1993, in conformity with generally accepted
accounting principles.
February 18, 1994
San Francisco, California
<PAGE>
Mariner Court
Historical Summary of Gross Income
and Direct Operating Expenses
Year Ended December 31, 1993
Revenues:
Rental income $1,556,390
Common area reimbursement 145,068
Other 36,356
1,737,814
Operating expenses:
Real property tax 132,432
Repairs and maintenance 211,498
Utilities 255,482
Insurance 12,704
Legal and accounting 16,358
Other 42,526
671,000
Operating Income $1,066,814
Notes to Historical Summary of Gross Income and Direct Operating
Expenses
A. Property and Basis of Accounting
The Historical Summary of Gross Income and Direct Operating
Expenses has been prepared in accordance with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission and
relates to the operations of Mariner Court, an office building
located in Torrance, California, with approximately 106,000 rental
square feet.
In accordance with Rule 3-14, direct operating expenses are
presented exclusive of depreciation, interest, management fees and
income taxes as these expenses would not be comparable to the
proposed future operations of the property.
The acquisition of the property may result in a new valuation for
purposes of determining future property tax assessments.
Rental income is recognized on a straight line basis over the terms
of the related leases. For 1993, rental income was less than the
aggregate contractual rentals by $292,373.
B. Leases (unaudited)
Minimum future rental receipts are as follows:
1995 $1,211,097
1996 791,607
1997 450,423
1998 125,319
1999 131,688
Thereafter 33,522
$2,743,656
The total minimum future rental payments shown above do not include
tenants' obligations for reimbursement of operating expenses or
taxes as provided by the terms of certain leases.
C. Estimated Taxable Operating Results and Cash to be Made
Available by Operations (unaudited)
Pro forma cash available from operations and pro forma taxable
income for 1993 are shown below. Pro forma taxable operating
results are derived by deducting depreciation; however, as a Real
Estate Investment Trust (REIT), Bedford Property Investors, Inc. is
not subject to federal income tax if it qualifies under the
Internal Revenue Code ("Code") REIT provisions. That is, Bedford
Property Investors, Inc. is not subject to federal income tax if it
distributes 95% of its taxable income and otherwise complies with
the provisions of the Code. Bedford Property Investors, Inc.
intends to make distributions in order to maintain its REIT status.
These dividends paid to the REIT shareholders may be taxable to the
shareholders upon distribution.
Revenues $2,030,187
Operating expenses 671,000
Cash available from operations 1,359,187
Depreciation expense 112,980
Taxable Income $1,246,207
<PAGE>
Independent Auditors' Report
The Board of Directors
Bedford Property Investors, Inc.:
We have audited the accompanying Historical Summary of Gross Income
and Direct Operating Expenses (the Summary) of Dupont Industrial
Center (the Property) for the year ended December 31, 1993. The
Summary is the responsibility of the Property's owner. Our
responsibility is to express an opinion on the Summary based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the Summary is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Summary. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall Summary presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the current Report on Form 8-K of Bedford
Property Investors, Inc.) and excludes certain expenses, described in
note A, that would not be comparable to those resulting from the
proposed future operations of the Property.
In our opinion, the Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses,
exclusive of expenses described in note A, of Dupont Industrial Center
for the year ended December 31, 1993, in conformity with generally
accepted accounting principles.
May 26, 1994
San Francisco, California
<PAGE>
Dupont Industrial Center
Historical Summary of Gross Income
and Direct Operating Expenses
Year Ended December 31, 1993
Revenues:
Rental income $693,786
Common area reimbursement 112,422
Other 8,165
814,373
Operating expenses:
Real property tax 278,864
Repairs and maintenance 106,778
Utilities 43,354
Insurance 32,538
Legal and accounting 6,103
Other 22,662
490,299
Operating Income $324,074
<PAGE>
Notes to Historical Summary of Gross Income and Direct Operating
Expenses
A. Property and Basis of Accounting
The Historical Summary of Gross Income and Direct Operating
Expenses has been prepared in accordance with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission and
relates to the operations of Dupont Industrial Center, a suburban
industrial complex located in Ontario, California, with
approximately 452,000 rental square feet.
In accordance with Rule 3-14, direct operating expenses are
presented exclusive of depreciation, interest, management fees and
income taxes as these expenses would not be comparable to the
proposed future operations of the property.
The acquisition of the property may result in a new valuation for
purposes of determining future property tax assessments.
Rental income is recognized on a straight line basis over the terms
of the related leases. For 1993, the aggregate contractual rentals
exceeded rental income by $43,457.
B. Leases (unaudited)
Minimum future rental receipts are as follows:
1995 $ 769,747
1996 432,272
1997 307,859
1998 206,616
1999 66,237
Thereafter 0
$1,782,731
The total minimum future rental payments shown above do not include
tenants' obligations for reimbursement of operating expenses or
taxes as provided by the terms of certain leases.
C. Estimated Taxable Operating Results and Cash to be Made
Available by Operations (unaudited)
Pro forma cash available from operations and pro forma taxable
income for 1993 are shown below. Pro forma taxable operating
results are derived by deducting depreciation; however, as a Real
Estate Investment Trust (REIT), Bedford Property Investors, Inc. is
not subject to federal income tax if it qualifies under the
Internal Revenue Code ("Code") REIT provisions. That is, Bedford
Property Investors, Inc. is not subject to federal income tax if it
distributes 95% of its taxable income and otherwise complies with
the provisions of the Code. Bedford Property Investors, Inc.
intends to make distributions in order to maintain its REIT status.
These dividends paid to the REIT shareholders may be taxable to the
shareholders upon distribution.
Revenues $857,920
Operating expenses 490,299
Cash available from operations 367,621
Depreciation expense 162,648
Taxable Income $204,973
<PAGE>
Independent Auditors' Report
The Board of Directors
Bedford Property Investors, Inc.:
We have audited the accompanying Historical Summary of Gross Income
and Direct Operating Expenses (the Summary) of Milpitas Town Center
(the Property) for the year ended December 31, 1993. The Summary is
the responsibility of management. Our responsibility is to express an
opinion on the Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the Summary is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Summary. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall Summary presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the current Report on Form 8-K of Bedford
Property Investors, Inc.) and excludes certain expenses, described in
note A, that would not be comparable to those resulting from the
proposed future operations of the Property.
In our opinion, the Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses,
exclusive of expenses described in note A, of Milpitas Town Center for
the year ended December 31, 1993, in conformity with generally
accepted accounting principles.
August 17, 1994
San Francisco, California
<PAGE>
Milpitas Town Center
Historical Summary of Gross Income
and Direct Operating Expenses
Year Ended December 31, 1993
Revenues:
Rental income $751,482
Common area reimbursement 170,408
Other 317
922,207
Operating expenses:
Real property tax 73,031
Repairs and maintenance 48,839
Utilities 26,934
Insurance 12,260
Administrative 119,912
Other 25,955
306,931
Operating Income Before Depreciation $615,276
Notes to Historical Summary of Gross Income and Direct Operating
Expenses
A. Property and Basis of Accounting
The Historical Summary of Gross Income and Direct Operating
Expenses has been prepared in accordance with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission and
relates to the operations of Milpitas Town Center, a suburban
industrial complex located in Milpitas, California, with
approximately 103,000 rentable square feet.
In accordance with Rule 3-14, direct operating expenses are
presented exclusive of depreciation, interest, management fees and
income taxes as these expenses would not be comparable to the
proposed future operations of the property.
The acquisition of the property may result in a new valuation for
purposes of determining future property tax assessments.
Rental income is recognized on a straight line basis over the terms
of the related leases. For 1993, the aggregate rental income
exceeded contractual rentals by $109,644.
B. Leases (unaudited)
Minimum future rental receipts are as follows:
1995 $ 749,388
1996 797,005
1997 611,870
1998 307,549
1999 190,505
Thereafter 15,850
$2,672,167
The total minimum future rental payments shown above do not include
tenants' obligations for reimbursement of operating expenses or
taxes as provided by the terms of certain leases.
C. Estimated Taxable Operating Results and Cash to be Made
Available by Operations (unaudited)
Pro forma cash available from operations and pro forma taxable
income for 1993 are shown below. Pro forma taxable operating
results are derived by deducting depreciation; however, as a Real
Estate Investment Trust (REIT), Bedford Property Investors, Inc. is
not subject to federal income tax if it qualifies under the
Internal Revenue Code ("Code") REIT provisions. That is, Bedford
Property Investors, Inc. is not subject to federal income tax if it
distributes 95% of its taxable income and otherwise complies with
the provisions of the Code. Bedford Property Investors, Inc.
intends to make distributions in order to maintain its REIT status.
These dividends paid to the REIT shareholders may be taxable to the
shareholders upon distribution.
Revenues $812,563
Operating expenses 306,931
Cash available from operations 505,632
Depreciation expense 115,591
Taxable Income $390,041
<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 September 13, 1995 at 1:00 p.m. in the A.P.
Giannnini Auditorium, The Bank of America Building, Concourse Level,
555 California Street, San Francisco, California, 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.
The Board of Directors recommends that you vote FOR each proposal.
In order to vote FOR all of the proposals, simply sign, date and
return this Proxy.
1. Approval of the Sale of FOR AGAINST ABSTAIN
Preferred Stock to AEW
Partners, L.P. for an
aggregate purchase price
of $50 million
2. Approval of the Amendment FOR AGAINST ABSTAIN
to the Company's Charter
to create the Series A
Convertible Preferred Stock
and to state the terms
thereof
3. Approval of the Amendment FOR AGAINST ABSTAIN
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
4. Approval of the Amendment FOR AGAINST ABSTAIN
to the Company's Charter
deleting Article VIII
thereof, thereby removing
certain antitakeover protections
regarding certain business combinations
5. 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.
6. 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
