<PAGE> 1
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 10, 1997)
<TABLE>
<S> <C>
LOGO 4,000,000 Shares
LOGO
Common Stock
--------------------------------------------------
</TABLE>
Bedford Property Investors, Inc. (the "Company") is a self-administered and
self-managed real estate investment trust ("REIT") engaged in the business of
owning, managing, acquiring and developing industrial and suburban office
properties proximate to selected metropolitan areas primarily in the Western
United States. As of December 31, 1996, the Company owned and operated 45
properties aggregating approximately 3.9 million rentable square feet and
comprised of 36 industrial properties, eight suburban office properties and one
retail property. As of December 31, 1996, the Company's properties were
approximately 94% occupied by over 400 tenants.
All of the shares of Common Stock offered hereby are being sold by the
Company. After giving effect to this offering, the senior officers and directors
of the Company will beneficially own Common Stock that represents approximately
13% of the Company's outstanding Common Stock. The Common Stock is listed on the
New York Stock Exchange and the Pacific Stock Exchange under the symbol "BED."
The last reported sale price of the shares of Common Stock on the New York Stock
Exchange on February 6, 1997 was $17 3/8 per share.
------------------------
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" ON PAGE 5 OF THE ACCOMPANYING PROSPECTUS FOR CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===============================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $17.375 $.870 $16.505
- -----------------------------------------------------------------------------------------------
Total(3).................................. $69,500,000 $3,480,000 $66,020,000
===============================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $375,000 payable by the Company.
(3) The Company has granted the Underwriters an option to purchase up to an
aggregate of 600,000 shares of Common Stock to cover over-allotments. If all
of such shares are purchased, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $79,925,000,
$4,002,000 and $75,923,000, respectively. See "Underwriting."
------------------------
The shares of Common Stock offered by this Prospectus Supplement are
offered by the Underwriters subject to prior sale, to withdrawal, cancellation
or modification of the offer without notice, to delivery to and acceptance by
the Underwriters and to certain further conditions. It is expected that delivery
of the certificates for the shares of Common Stock offered will be made at the
offices of Lehman Brothers Inc., New York, New York on or about February 12,
1997.
------------------------
LEHMAN BROTHERS
SMITH BARNEY INC.
ROBERTSON, STEPHENS & COMPANY
SUTRO & CO. INCORPORATED
------------------------
February 6, 1997
<PAGE> 2
[Map Showing Property Locations]
[Two Photographs of 1996 Acquisitions]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, ON THE
PACIFIC STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 3
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in, or incorporated by
reference into, this Prospectus Supplement or the accompanying Prospectus.
References herein to the percentage of a Property or Properties occupied are
calculated by dividing rentable square feet occupied by total rentable square
feet, unless otherwise indicated. Unless otherwise indicated, the information
contained in this Prospectus Supplement and the accompanying Prospectus assumes
that the Underwriters' over-allotment option is not exercised. Unless otherwise
indicated, the information contained in this Prospectus Supplement and the
accompanying Prospectus, including, but not limited to, Common Stock share
numbers, share prices and per share amounts, reflects a one-for-two reverse
stock split of the Common Stock of the Company effected on March 29, 1996.
Information regarding shares of Common Stock, unless otherwise indicated, is
based on a per-share market price of $17.375, the last reported sale price on
the New York Stock Exchange on February 6, 1997. References to the "Company" in
this Prospectus Supplement and the accompanying Prospectus shall be deemed to
include the Company, its predecessors, and those entities of which the Company
has control or owns a majority of the economic interests, unless otherwise
indicated or the context indicates otherwise. The offering of shares of Common
Stock pursuant to this Prospectus Supplement is referred to herein as the
"Offering."
When used in this Prospectus Supplement or the accompanying Prospectus, the
words "believes," "anticipates," "expects" and similar expressions are intended
to identify forward-looking statements. Such statements are subject to certain
risks and uncertainties which could cause actual results to differ materially,
including, but not limited to, those set forth in "Risk Factors" in the
accompanying Prospectus. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof or
thereof. The Company undertakes no obligation to publicly release the results of
any revisions to these forward-looking statements which may be made to reflect
subsequent events or circumstances or to reflect the occurrence of unanticipated
events.
THE COMPANY
Bedford Property Investors, Inc. is a self-administered and self-managed
equity REIT engaged in the business of owning, managing, acquiring and
developing industrial and suburban office properties proximate to selected
metropolitan areas primarily in the Western United States. As of December 31,
1996, the Company owned and operated, either directly or through one of its
wholly-owned subsidiaries, 45 properties aggregating approximately 3.9 million
rentable square feet and comprised of 36 industrial properties (the "Industrial
Properties"), eight suburban office properties (the "Suburban Office
Properties") and one retail property (the "Retail Property"). The Industrial
Properties, the Suburban Office Properties and the Retail Property are
hereinafter referred to individually as a "Property" and collectively as the
"Properties." As of December 31, 1996, the Properties were approximately 94%
occupied by over 400 tenants. The Company's Properties are located in Northern
and Southern California, Oregon, Washington, Arizona, Utah, Colorado and Kansas.
The Company seeks to grow its asset base through the acquisition of
industrial and suburban office properties and portfolios of such properties, as
well as through the development of new industrial and suburban office
properties. The Company's strategy is to operate in suburban markets that are
experiencing, or are expected by the Company to experience, superior economic
growth. The Company also seeks markets that are subject to limitations on the
development of similar properties. The Company believes that employment growth
is a reliable indicator of future demand for both industrial and suburban office
space. In addition, the Company believes that certain supply-side constraints,
such as limited availability of undeveloped land in a market and limited
financing for speculative real estate construction, increase a market's
potential for higher average rents over time. The Company is currently targeting
selected markets proximate to metropolitan areas in which the Company's
Properties are located. The Company believes that due to recent economic
improvements in these markets, and related improvements in the commercial
property markets, an investment in industrial or suburban office properties in
these markets, and in particular in California, provides the potential for
attractive returns through increased occupancy levels, rents and real estate
values.
S-3
<PAGE> 4
The Company is led by a professional management team who have on average
over 17 years of experience in the ownership, management, acquisition and
development of industrial and suburban office properties in the Western United
States. Peter B. Bedford, the Company's Chairman and Chief Executive Officer,
has been engaged in the commercial real estate business, primarily in the
Western United States, for over 30 years and during his career has been
responsible for the ownership, management, acquisition and development of an
aggregate of approximately 18 million square feet of industrial, office and
retail properties, as well as land, in 14 states.
After completion of the Offering, the senior officers and directors of the
Company will beneficially own approximately 13.0% of the outstanding Common
Stock, including 8.8% beneficially owned by Mr. Bedford. As of December 31,
1996, Bed Preferred No. 1 Limited Partnership ("BPLP"), a Delaware limited
partnership beneficially owned by an investment fund managed by AEW Capital
Management, a national real estate investment adviser whose clients primarily
include institutional investors, was the holder of all of the outstanding shares
of the Company's Series A Convertible Preferred Stock, par value $.01 per share
(the "Convertible Preferred Stock"). Each of the 8,333,334 outstanding shares of
Convertible Preferred Stock is convertible at the option of the holders, after
September 18, 1997, into one half of one share of the Company's Common Stock,
subject to adjustment upon the occurrence of certain events. Based upon the
current conversion ratio and following conversion, the outstanding shares of
Convertible Preferred Stock would represent approximately 28% of the shares of
Common Stock outstanding at the completion of the Offering.
RECENT DEVELOPMENTS
ACQUISITIONS AND DEVELOPMENT COMPLETED IN 1996
During 1996, the Company acquired 16 Properties, including 13 Industrial
Properties and three Suburban Office Properties aggregating approximately 1.4
million rentable square feet, for a total investment of approximately $96.5
million. At acquisition, the Company estimated that these Properties would
provide an initial weighted average unleveraged return on cost (computed as
annualized property NOI at the date of acquisition divided by total acquisition
cost) of 10.6%, assuming no further lease-up. The Company estimates the purchase
price of acquisitions completed in 1996 to be 76% of replacement cost. One of
these properties was purchased using a "Down REIT" transaction, whereby the
Company issued partnership units in Bedford Realty Partners, L.P. which are
convertible into shares of Common Stock.
During 1996, the Company completed the development of a single-story
research and development facility located in Milpitas, California. The facility
aggregates approximately 45,090 rentable square feet and was leased to Fujitsu
P.C. Corporation under a five year lease commencing on May 1, 1996. The
unleveraged annual return on total project costs of approximately $3.1 million
was 13.9% (computed as annualized property NOI at the lease commencement date
divided by total project costs).
In addition, the Company acquired five parcels of land aggregating
approximately 31.5 acres, all of which are adjacent to the existing Properties,
on which the Company plans to develop industrial properties. The Company is
currently developing three of these parcels, with revenue generation from the
completion of the developments on such land parcels beginning in the second and
third quarters of 1997. There can be no assurances, however, that the
development of these parcels will take place or that they will be successful.
The following table sets forth certain information regarding acquisitions
and development completed by the Company during 1996.
S-4
<PAGE> 5
DEVELOPMENT AND ACQUISITIONS COMPLETED IN 1996
<TABLE>
<CAPTION>
SQUARE ACQUISITION MONTH
PROPERTY NAME (CITY, STATE) FEET COST(1) YIELD(2) COMPLETED
- -------------------------------------------------------- --------- -------------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DEVELOPMENT
INDUSTRIAL BUILDING
598 Gibraltar Drive, Milpitas, CA................... 45,090 $ 3,057 13.9% May
--------- -------- ----
ACQUISITIONS
OFFICE BUILDINGS
Laguna Hills Square, Laguna Hills, CA............... 51,734 6,443 13.2% March
100 View Street, Mountain View, CA.................. 42,141 4,432 12.0% May
Kenyon Center, Bellevue, WA......................... 94,840 12,399 9.8% September
--------- -------- ----
Total Office Building Acquisitions............. 188,715 23,274 11.2%
--------- -------- ----
INDUSTRIAL BUILDINGS
Westech Business Center, Phoenix, AZ................ 143,940 7,981 11.1% April
Fourier Avenue, Fremont, CA......................... 104,400 9,180 10.2% May
Lundy Avenue, San Jose, CA.......................... 60,428 4,497 9.5% July
115 Mason Circle, Concord, CA....................... 35,000 1,581 11.3% September
47600 Westinghouse Drive, Fremont, CA............... 24,030 1,478 10.2% September
860-870 Napa Valley Corporate Way, Napa, CA......... 67,775 4,563 10.7% September
Carroll Tech Center, San Diego, CA.................. 88,829 7,265 12.4% October
47633 Westinghouse Drive, Fremont, CA............... 50,088 4,560 10.5% October
Oak Ridge Business Center, Vista, CA................ 90,058 5,262 9.9% October
Doherty Avenue, Modesto, CA......................... 251,308 3,771 11.2% December
Panorama Business Center, Kansas City, MO........... 103,457 3,789 11.0% December
O'Toole Business Center, San Jose, CA............... 122,320 9,760 9.3% December
Signal Systems Building, San Diego, CA.............. 109,780 9,537 9.1% December
--------- -------- ----
Total Industrial Building Acquisitions......... 1,251,413 73,224 10.4%
--------- -------- ----
Total Office and Industrial Building
Acquisitions................................. 1,440,128 96,498 10.6%
--------- -------- ----
ACRES
LAND
Lenexa, KS.......................................... 4.8 518 June
Phoenix, AZ......................................... 6.0 1,036 July
Fremont, CA......................................... 4.5 1,632 October
Napa, CA (two parcels).............................. 16.2 2,125 December
--------- --------
Total Land Acquisitions........................ 31.5 5,311
--------- --------
Total Acquisitions............................. 101,809
--------
Total Acquisitions and Development............. $104,866
========
</TABLE>
- ---------------
(1) Acquisition Cost includes purchase price, development and closing costs and
renovation expenditures, budgeted or spent.
(2) Yield is calculated as annualized property NOI at the date of acquisition
divided by Acquisition Cost.
RECENT ACQUISITION
On January 15, 1997, the Company completed the acquisition of a research
and development building located in Fremont, California comprising 78,611
rentable square feet for a purchase price of $7.8 million. The building is
occupied in its entirety under a long term lease to Elo Touchsystems, Inc., a
subsidiary of Raychem. The lease agreement provides for fixed rental increases.
At acquisition, the Company estimated the initial unleveraged return on cost
(computed as annualized property NOI at the date of acquisition divided by
Acquisition Cost) at 8.8%.
DEVELOPMENTS IN PROGRESS
As of January 15, 1997, the Company was in the process of developing three
properties aggregating approximately 299,000 rentable square feet for a total
estimated investment of approximately $17.4 million. Following is a brief
description of each of the properties under development.
S-5
<PAGE> 6
Westech Business Center-Phase II
This property is an 81,000 square foot service center industrial building
located on 6.0 acres of land in Phoenix, AZ adjacent to the existing Westech
Business Center. The total project costs are estimated to be $5.3 million, with
shell construction scheduled to be completed in April, 1997. The Phoenix market
is experiencing strong leasing activity, with a current vacancy rate of 6.7%.
99th Street Building #4
This property is a 68,296 square foot manufacturing/warehouse facility on
4.8 acres of land in Lenexa, KS adjoining the 99th Street Buildings #1, #2 and
#3. The total project costs are estimated to be $4.2 million, with shell
construction scheduled to be completed in April, 1997. The Lenexa market has a
vacancy rate of only 3% and this will be one of the few new buildings in the
market.
Napa Valley Corporate Park
This property is a 150,000 square foot manufacturing/warehouse facility on
8.3 acres of land in Napa, CA, adjoining the Napa Valley Corporate Way Property.
The total project costs are estimated to be $7.9 million, with shell
construction scheduled to be completed in June, 1997. The Napa market has
experienced very active leasing in the past few years, with a current vacancy
rate of 4.5%.
PROPERTY DISPOSITION
On December 31, 1996, the Company sold its St. Paul Business Center in St.
Paul, Minnesota for approximately $6.7 million. The St. Paul Business Center
comprised two of 14 Properties acquired by the Company in December 1995 from
Landsing Pacific Fund, Inc., a publicly-traded REIT based in San Mateo,
California. The sale of the St. Paul Business Center reflects the implementation
of the Company's strategy to sell assets which are not within the Company's
geographic or asset type focus. The sale proceeds from the St. Paul Business
Center were utilized to acquire other Industrial and Suburban Office Properties
in the Company's target markets.
OPERATING PERFORMANCE
The Company's strong operating performance has generated increased earnings
and dividends. For the twelve months ended December 31, 1996, the Company
reported net income of $11,021,000, or $1.13 per share on a fully-diluted basis,
on rental revenues of $27,541,000, compared with net income of $2,895,000, or
$.52 per share on a fully diluted basis, on rental revenues of $11,695,000 for
the twelve months ended December 31, 1995. The Company's Funds from Operations
for the twelve months ended December 31, 1996 was $13,645,000, as compared to
$5,021,000 for the twelve months ended December 31, 1995.
INCREASE IN COMMON STOCK DISTRIBUTIONS
On September 12, 1996, the Company announced an 8.3% increase in its
quarterly Common Stock dividend from $0.24 per share to $0.26 per share, which
is equal to $1.04 on an annualized basis. The higher dividend rate commenced
with the Company's third quarter of 1996 dividend. The Company previously
announced, in March 1996, a 14.3% increase in its quarterly dividend from $0.21
per share to $0.24 per share (adjusted for the Company's one-for-two reverse
stock split in March 1996), which, together with the September increase,
represents a total increase of 23.8% in the Company's Common Stock dividend
since March 1996.
TOTAL RETURN PERFORMANCE OF COMMON STOCK
An investor who purchased Common Stock in the Company's secondary Common
Stock offering on April 23, 1996, reinvested all dividends through the Company's
dividend reinvestment plan and held such shares through February 6, 1997 would
have had a cumulative pretax total return of approximately 40% or an annualized
pretax return of approximately 50%. Past performance, however is not necessarily
indicative of
S-6
<PAGE> 7
results that will be obtained in the future from an investment in the Company's
Common Stock, and no assurances can be given in this regard.
MORTGAGE FINANCING
On December 31, 1996, the Company obtained $25 million of mortgage
financing (the "Mortgage Loan") bearing interest at 7.5% per annum and maturing
in 2002. The proceeds from the Mortgage Loan were used to pay down a portion of
the outstanding balance under the Company's $100 million secured credit facility
(the "Credit Facility"). As adjusted to reflect (i) the Offering, (ii) all
property acquisitions completed since September 30, 1996 and the Mortgage Loan
and Credit Facility borrowings incurred in connection therewith and (iii) the
application of a portion of the net proceeds from the Offering to repay
indebtedness under the Credit Facility, the Company's total consolidated
indebtedness as of December 31, 1996 equaled approximately 18% of the Company's
Total Market Capitalization (defined as the aggregate market value of the
outstanding shares of Common Stock plus the outstanding balance of the
Convertible Preferred Stock plus the total consolidated indebtedness of the
Company).
IMPROVEMENT IN THE COMPANY'S PROPERTY MARKETS
The Company's Properties are located in selected markets proximate to
metropolitan areas in Northern and Southern California, Oregon, Washington,
Arizona, Utah, Colorado and Kansas. The Company believes that due to recent
economic improvements in these markets, and related improvements in the
commercial property markets, an investment in industrial or suburban office
properties in these markets provides the potential for attractive returns
through increased occupancy levels, rents and real estate values. In the 1997
edition of Emerging Trends in Real Estate, a publication of Equitable Real
Estate Investment Management, Inc., more than 150 real estate professionals
ranked San Francisco, Seattle, Denver, San Diego and Los Angeles among the top
eight markets in the nation for general real estate investment in 1997.
The following charts outline changes in the levels of employment and the
relationship between asking rental rates and occupancy levels for the years 1990
through 1996 in the markets where the Company operates.
EMPLOYMENT IN THE COMPANY'S MARKETS(1)
[Employment Graph]
Employment
1990 13871.3
1991 13699.3
1992 13548.5
1993 13606.9
1994 13860.4
1995 14257.3
1996 14859.9
S-7
<PAGE> 8
OCCUPANCY AND ASKING RENTAL RATES FOR INDUSTRIAL PROPERTIES IN THE COMPANY'S
MARKETS(1)
Dollars Per Sq. Ft. Occupancy (percent)
1990 5.25 87.7
1991 4.99 86.1
1992 4.56 86.9
1993 4.26 86.8
1994 4.54 89.3
1995 4.9 90.9
1996 5.14 91.8
OCCUPANCY AND ASKING RENTAL RATES FOR OFFICE PROPERTIES IN THE COMPANY'S
MARKETS(1)
Dollars Per Sq. Ft. Occupancy (percent)
1990 22.16 80.8
1991 21.82 80.3
1992 20.8 81.3
1993 19.77 82.9
1994 19.85 84.7
1995 20.03 86.1
1996 20.94 87.1
- ---------------
(1) Source: U.S. Census Bureau; Rosen Consulting Group. For 1996: employment
statistics are for the nine months ended September 30; occupancy and asking
rental rates are as of the end of the third quarter. The asking rental rates
for Industrial Properties exclude Ventura County, Denver, Kansas City and
Portland and for Office Properties exclude Ventura County and Kansas City as
the data was not available for the third quarter of 1996. Employment in the
Company's markets represents the aggregate number of jobs in the Company's
markets for the periods presented. Occupancy and asking rental rates are
weighted for 1995 and all prior periods based on the total square footage of
the respective types of properties in each market as of the fourth quarter
of 1995 and for 1996 based on the total square footage of the respective
types of properties in each market as of the third quarter of 1996.
S-8
<PAGE> 9
The State of California, in particular, where approximately 70% of the
Company's total Annualized Base Rent(1) was generated as of December 31, 1996,
has been experiencing economic growth in excess of national averages, as the
economy continues to recover from the severe recession it experienced between
1990 and 1993.
The following chart shows average annual growth in nonfarm payroll
employment for California and the United States as a whole. The chart
demonstrates that the recession, as evidenced by the growth (or decline) in
employment, came later in California than for the U.S. as a whole and the
recovery has come later as well. Through October 1996, the job growth rate in
California exceeded the job growth rate in the U.S. for the first time since
1990.
[Graph for Employment California/U.S.]
California United States
---------- -------------
1990 2.1 1.4
1991 -1.1 -1.1
1992 -1.7 0.3
1993 -0.9 2.0
1994 0.9 3.1
1995 2.3 2.7
1996 2.1 1.7
- ---------------
Source: Bureau of Labor Statistics.
* 1996 average as of October 1996.
This recovery has had a positive effect on both office and industrial real
estate markets throughout the state, with net absorption continuing to outpace
completions and occupancy rates continuing to trend upward. In the 1997 Emerging
Trends in Real Estate survey, San Francisco was rated the number one
metropolitan area for investment, and Los Angeles (excluding the central
business district) showed the greatest improvement among the top markets, moving
from number fourteen in 1996 to number eight.
- ---------------
(1) "Annualized Base Rent" means, for any Property and at any date, the product
of (i) the monthly base rent in effect with respect to such Property at such
date or, if such monthly base rent has been reduced by a temporary rent
concession, the monthly base rent that would have been in effect at such
date in the absence of such concession, multiplied by (ii) twelve.
Annualized Base Rent does not reflect any increases or decreases in monthly
rental rates or lease expirations which are scheduled to occur or which may
occur after the date of calculation or the cost of any leasing commissions
or tenant improvements.
S-9
<PAGE> 10
The following charts show absorption, construction and occupancy rates for
office and industrial properties in Northern and Southern California over the
past six years.
[Property Graphs for Southern California]
SOUTHERN CALIFORNIA(1)(2)
OFFICE
[Sq. Ft./Occupancy]
------------------------------------------
Net
Construction Absorption Occupancy
------------ ---------- ---------
1991 11,052 4,097 77.4
1992 2,545 3,061 77.8
1993 145 3,482 79.3
1994 237 1,634 80.0
1995 495 2,507 80.9
1996 121 1,728 81.6
INDUSTRY
[Sq. Ft./Occupancy]
------------------------------------------
Net
Construction Absorption Occupancy
------------ ---------- ---------
1991 7,533 -19,967 86.1
1992 3,225 4,477 86.3
1993 1,120 -7,459 85.5
1994 5,010 27,343 87.8
1995 4,089 25,367 89.8
1996 5,791 15,189 90.8
[Property Graphs for Northern California]
NORTHERN CALIFORNIA(1)(3)
OFFICE
[Sq. Ft./Occupancy]
------------------------------------------
Net
Construction Absorption Occupancy
------------ ---------- ---------
1991 1,530 1,776 84.4
1992 208 1,677 85.4
1993 39 316 85.6
1994 18 2,171 87.1
1995 150 2,872 89
1996 254 3,235 91.1
INDUSTRY
[Sq. Ft./Occupancy]
------------------------------------------
Net
Construction Absorption Occupancy
------------ ---------- ---------
1991 1,259 -1,487 84.2
1992 207 6,158 86.2
1993 420 86.4
1994 11,688 90.4
1995 1,120 7,945 92.8
1996 2,082 3,362 93.3
- ---------------
(1) Source: Rosen Consulting Group. Data for 1996 is as of the third quarter.
Data for years 1991 through 1995 is as of the fourth quarter. Occupancy is
weighted based on the total square footage of the respective types of
properties in each market as of the third quarter 1996.
(2) Based on data for the following metropolitan statistical area: Los
Angeles-Long Beach, Orange County, Riverside-San Bernardino and Ventura.
(3) Based on data for the following metropolitan statistical area: San
Francisco, San Jose and Oakland.
REDUCTION IN INTEREST RATE OF CREDIT FACILITY
Effective January 13, 1997, the Company's Credit Facility was amended to
lower the interest rate from LIBOR plus 2.00% to LIBOR plus 1.75%. In addition,
the Company is currently in discussions with its lenders to increase the size of
the Credit Facility under its existing terms and conditions. There can be no
assurance, however, that the size of the Credit Facility will actually be
increased.
S-10
<PAGE> 11
THE COMPANY'S PROPERTIES
As of December 31, 1996, the location and type of Properties by rentable
square feet were as follows:
RENTABLE SQUARE FOOTAGE OF PROPERTIES BY LOCATION AND TYPE OF PROPERTY
<TABLE>
<CAPTION>
SUBURBAN PERCENT NUMBER OF
METROPOLITAN AREA INDUSTRIAL OFFICE RETAIL TOTAL OF TOTAL PROPERTIES
- --------------------------------------- --------- -------- ------ --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Greater San Francisco Bay Area, CA..... 1,485,131 59,036 -- 1,544,167 40% 23
Greater Los Angeles Area, CA........... 931,984 264,823 -- 1,196,807 31% 8
Greater Kansas City Area, KS........... 247,903 79,316 -- 327,219 9% 6
Denver, CO............................. 210,536 -- -- 210,536 5% 2
Greater Portland Area, OR.............. 161,512 -- -- 161,512 4% 2
Phoenix, AZ............................ 143,940 -- -- 143,940 4% 1
Salt Lake City, UT..................... -- 114,352 -- 114,352 3% 1
Greater Seattle Area, WA............... -- 94,840 -- 94,840 2% 1
Colorado Springs, CO................... -- -- 84,347 84,347 2% 1
--
--------- ------- ------ --------- ----
Total........................ 3,181,006 612,367 84,347 3,877,720 100% 45
========= ======= ====== ========= ==== ==
Percent of Total............. 82% 16% 2% 100%
Number of Properties......... 36 8 1 45
</TABLE>
THE OFFERING
All of the shares of Common Stock offered hereby are being sold by the
Company. None of the Company's stockholders are selling any shares of Common
Stock in the Offering.
<TABLE>
<S> <C>
Common Stock outstanding prior to the Offering........ 6,526,325 shares(1)
Common Stock offered in the Offering.................. 4,000,000 shares
Common Stock to be outstanding after the Offering..... 10,526,325 shares(1)(2)
Common Stock outstanding after the Offering assuming
conversion of all outstanding shares of Convertible
Preferred Stock..................................... 14,692,992 shares(1)(2)
Use of Proceeds....................................... To repay all outstanding
indebtedness under the
Company's Credit Facility, to
purchase additional
properties and for general
corporate purposes, including
working capital. See "Use of
Proceeds."
New York Stock Exchange and Pacific Stock Exchange
Symbol.............................................. "BED"
</TABLE>
- ---------------
(1) Based on the number of shares of Common Stock outstanding as of December 31,
1996.
(2) Excludes the 600,000 shares of Common Stock subject to the Underwriters'
over-allotment.
S-11
<PAGE> 12
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth summary consolidated financial and operating
data for the Company and its subsidiaries for the nine months ended September
30, 1996 and 1995, as of September 30, 1996 and for the years ended December 31,
1993 through 1995. The financial and operating data for the years December 31,
1993 through 1995 have been derived from the Company's audited financial
statements. The financial and operating data for the nine months ended September
30, 1996 and 1995 and as of September 30, 1996 have been derived from the
Company's unaudited financial statements. The unaudited financial statements
include all adjustments (consisting of normal recurring adjustments) that
management considers necessary for a fair presentation of the financial position
and results of operations for these periods. Operating results for the nine
months ended September 30, 1996 are not necessarily indicative of the results to
be expected for the entire year ending December 31, 1996. The following data
should be read in conjunction with the Consolidated Financial Statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" incorporated by reference in this Prospectus
Supplement.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
---------------------- --------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- -------------- ----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE, PROPERTY AND
OCCUPANCY DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Rental income.................................. $ 19,168 $ 8,052 $ 11,695 $ 9,154 $ 7,207
Income from property operations................ 11,434 3,532 6,362 4,624 1,597
General and administrative expenses............ 1,341 1,018 1,457 1,309 1,303
Interest income................................ 105 56 226 56 136
Interest expense............................... 2,692 1,309 1,594 955 716
Income before gain (loss) on sale of real
estate investment............................ 7,506 1,261 3,537 2,416 2,247
Gain (loss) on sale of real estate
investment................................... 359 (12) (642) 1,193 900
Net income..................................... 7,865 1,249 2,895 3,609 3,147
Income applicable to common stockholders....... 4,490 1,089 1,607 3,609 3,147
Primary earnings per common and common
equivalent share............................. $ 0.87 $ 0.36 $ 0.52 $ 1.18 $ 1.06
Weighted average number of common and common
equivalent shares outstanding................ 5,161,087 3,071,380 3,089,549 3,073,832 2,987,950
Earnings per common share -- assuming full
dilution..................................... $ 0.84 $ 0.36 $ 0.52 $ 1.18 $ 1.06
Weighted average number of common shares --
assuming full dilution....................... 9,323,223 3,071,380 3,089,549 3,073,832 2,987,950
CASH FLOW INFORMATION
Net cash provided by operating activities...... $ 8,688 $ 1,501 $ 4,898 $ 2,716 $ 1,220
Net cash provided (used) by investment
activities................................... (55,389) (13,255) (73,259) (19,720) 10,085
Net cash provided (used) by financing
activities................................... 46,801 22,583 64,655 16,807 (6,550)
OTHER DATA:
Funds from operations.......................... $ 9,620 $ 2,961 $ 5,021 $ 3,622 $ 1,964
Dividends declared per share of Common Stock... $ 0.26 $ 0.21 $ 0.82 $ 0.71 $ 0.36
Numbers of Properties.......................... 40 15 30 12 9
Rentable square feet (in thousands)............ 3,241 1,357 2,576 1,157 632
Percent occupied............................... 91% 94% 95% 95% 88%
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------
<S> <C>
BALANCE SHEET DATA:
Real estate investments before accumulated depreciation.......................... $187,314
Total assets..................................................................... 189,945
Mortgage Loans................................................................... 25,000
Credit Facility.................................................................. 30,754
Convertible Preferred Stock...................................................... 50,000
Common stock and other stockholders' equity...................................... 73,547
</TABLE>
S-12
<PAGE> 13
THE COMPANY
Bedford Property Investors, Inc. is a self-administered and self-managed
equity REIT engaged in the business of owning, managing, acquiring and
developing industrial and suburban office properties proximate to selected
metropolitan areas primarily in the Western United States. As of December 31,
1996, the Company owned and operated, either directly or through one of its
wholly-owned subsidiaries, 45 properties aggregating approximately 3.9 million
rentable square feet and comprised of 36 Industrial Properties, eight Suburban
Office Properties and one Retail Property. As of December 31, 1996, the
Properties were approximately 94% occupied by over 400 tenants. The Company's
Properties are located in Northern and Southern California, Oregon, Washington,
Arizona, Utah, Colorado and Kansas.
The Company seeks to grow its asset base through the acquisition of
industrial and suburban office properties and portfolios of such properties, as
well as through the development of new industrial and suburban office
properties. The Company's strategy is to operate in suburban markets that are
experiencing, or are expected by the Company to experience, superior economic
growth. The Company also seeks markets that are subject to limitations on the
development of similar properties. The Company believes that employment growth
is a reliable indicator of future demand for both industrial and suburban office
space. In addition, the Company believes that certain supply-side constraints,
such as limited availability of undeveloped land in a market and limited
financing for speculative real estate construction, increase a market's
potential for higher average rents over time. The Company is currently targeting
selected markets proximate to metropolitan areas in which the Company's
Properties are located. The Company believes that due to recent economic
improvements in these markets, and related improvements in the commercial
property markets, an investment in industrial or suburban office properties in
these markets, and in particular in California, provides the potential for
attractive returns through increased occupancy levels, rents and real estate
values.
The Company is led by a professional management team who have on average
over 17 years of experience in the ownership, management, acquisition and
development of industrial and suburban office properties in the Western United
States. Peter B. Bedford, the Company's Chairman and Chief Executive Officer,
has been engaged in the commercial real estate business, primarily in the
Western United States, for over 30 years and during his career has been
responsible for the ownership, management, acquisition and development of an
aggregate of approximately 18 million square feet of industrial, office and
retail properties, as well as land, in 14 states.
After completion of the Offering, the senior officers and directors of the
Company will beneficially own approximately 13.0% of the outstanding Common
Stock, including 8.8% beneficially owned by Mr. Bedford. As of December 31,
1996, Bed Preferred No. 1 Limited Partnership ("BPLP"), a Delaware limited
partnership beneficially owned by an investment fund managed by AEW Capital
Management, a national real estate investment adviser whose clients primarily
include institutional investors, was the holder of all of the outstanding shares
of the Company's Convertible Preferred Stock. Each of the 8,333,334 outstanding
shares of Convertible Preferred Stock is convertible at the option of the
holders, after September 18, 1997, into one half of one share of the Company's
Common Stock, subject to adjustment upon the occurrence of certain events. Based
upon the current conversion ratio and following conversion, the outstanding
shares of Convertible Preferred Stock would represent approximately 28% of the
shares of Common Stock outstanding at the completion of the Offering.
BUSINESS OBJECTIVES AND GROWTH PLANS
The Company's business objectives are to increase funds available for
distribution to stockholders and to increase stockholders' long-term total
return through the appreciation in value of the Common Stock. To achieve these
objectives, the Company seeks to (i) increase cash flow from its existing
Properties, (ii) acquire quality industrial and suburban office properties
and/or portfolios of such properties and (iii) develop new industrial and
suburban office properties.
S-13
<PAGE> 14
INTERNAL GROWTH
The Company seeks to increase cash flow from existing Properties through
(i) the lease-up of vacant space, (ii) the reduction of costs associated with
tenant turnover through the retention of existing tenants, (iii) the negotiation
of increases in rental rates and of contractual periodic rent increases when
market conditions permit and (iv) the strict containment of operating expenses
and capital expenditures.
ACQUISITIONS
The Company seeks to acquire quality industrial and suburban office
properties and/or portfolios of such properties. The Company believes that (i)
the experience of its management team, (ii) its conservative capital structure
and its existing $100 million Credit Facility, (iii) its relationships with
private and institutional real estate owners, (iv) its strong relationships with
real estate brokers and (v) its integrated asset management program enable it to
effectively identify and capitalize on acquisition opportunities. Each
acquisition opportunity is reviewed to evaluate whether it meets the following
criteria: (i) potential for higher occupancy levels and/or rents as well as for
lower turnover and/or operating expenses, (ii) ability to generate returns in
excess of the Company's weighted average cost of capital, taking into account
the estimated costs associated with tenant turnover (i.e., tenant improvements,
leasing commissions and the loss of income due to vacancy) and (iii)
availability for purchase at a price at or below estimated replacement cost. The
Company has, however, acquired and may in the future acquire properties which do
not meet one or more of these criteria. This may be particularly true with the
acquisition of a portfolio of properties, which may include properties that do
not meet one or more of the foregoing criteria.
Following completion of an initial review, the Company may make a purchase
offer, subject to satisfactory completion of its due diligence process. The due
diligence process enables the Company to refine its original estimate of a
property's potential performance and typically includes a complete review and
analysis of the property's physical structure, systems, environmental status and
projected financial performance, as well as an evaluation of the local market
and competitive properties and of relevant economic and demographic information.
Mr. Bedford and at least one other member of the Board of Directors typically
visit each proposed acquisition property before the purchase is closed.
The Company's activities relating to the acquisition of new properties,
including the due diligence process, are conducted on an exclusive basis by
Bedford Acquisitions, Inc., a California corporation wholly-owned by Mr.
Bedford. Bedford Acquisitions receives a fee in an amount equal to the lesser of
(i) 1 1/2% of the gross amount raised in financings or the aggregate purchase
price of property acquisitions, or (ii) an amount equal to (a) the aggregate
amount of approved expenses funded by Bedford Acquisitions through the time of
such acquisition or financing minus (b) the aggregate amount of fees previously
paid to Bedford Acquisitions pursuant to such arrangement. In no event will the
aggregate amount of fees paid to Bedford Acquisitions exceed the aggregate
amount of costs funded by Bedford Acquisitions. The agreement with Bedford
Acquisitions has a term of one year, is renewable at the option of the Company
for additional one year terms, and will expire January 1, 1998.
DEVELOPMENT
The Company seeks to develop properties in markets where (i) strong demand
for space has caused or is expected to cause occupancy rates to remain high and
(ii) there is a limited supply of land available for new development. The
Company's management team has experience in all phases of the development
process, including market analysis, site selection, zoning, design,
pre-development leasing, construction and permanent financing and construction
management. The Company believes that a general decrease in competition in
development activity as well as higher occupancy rates in most of the Company's
markets will lead to additional attractive development opportunities. The
Company is currently in the process of developing properties in Northern
California, Arizona and Kansas and is considering developing additional
properties in Northern California. The Company has significant development
experience in each of these markets.
S-14
<PAGE> 15
CORPORATE STRATEGIES
In pursuing its business objectives and growth plans, the Company intends
to:
PURSUE A MARKET DRIVEN STRATEGY.
The Company's strategy is to operate in suburban markets which are
experiencing, or are expected by the Company to experience, economic growth, and
which are, ideally, subject to supply-side constraints. The Company believes
that certain metropolitan areas (e.g., the San Francisco Bay Area, the Los
Angeles Basin, Denver, Portland, Salt Lake City, Kansas City, Phoenix and
Seattle) have multiple suburban "cores" and that the potential for growth in
these metropolitan areas is generally greatest in and around these suburban
cores. The Company believes that such suburban cores emerge as jobs move to the
suburbs and typically offer a well-trained and well-educated work force, high
quality of life and, in many cases, a diversified economic base. The Company
focuses on owning, managing, acquiring and developing properties in these
suburban cores. Additionally, the Company seeks out real estate markets that are
subject to supply-side constraints such as limited availability of undeveloped
land and/or geographic, topographic, regulatory and/or infrastructure
restrictions. The Company believes that such restrictions serve as barriers of
entry to new construction, thereby limiting the supply of new commercial space.
The Company believes that these supply-side constraints, when combined with a
growing employment and population base, enhance the long-term investment
potential of a real estate asset.
FOCUS ITS EFFORTS IN THE WESTERN UNITED STATES.
The Company is currently targeting selected suburban markets in the Western
United States, including markets in which the Company's Properties are located.
The Company believes that due to continued economic improvements in these
markets, and related improvements in the commercial property markets, an
investment in industrial or suburban office properties in these markets, and in
particular in California, provides the potential for attractive returns through
increased occupancy levels, rents and real estate values. The Company believes
that this geographic focus, combined with management's market experience,
contributes to a more thorough understanding of these industrial and suburban
office property markets and allows the Company to anticipate trends and
therefore to better identify investment opportunities.
FOCUS ON "SERVICE CENTER/FLEX" INDUSTRIAL PROPERTIES
While the Company will continue to acquire suburban office, research and
development, and bulk industrial properties, one of its primary focuses will be
the acquisition and development of "service center/flex" industrial properties.
These properties are generally smaller than other industrial buildings and are
divisible into units ranging from approximately 1,500 square feet to
approximately 20,000 square feet in order to accommodate multiple tenants of
various sizes and needs. The buildings generally range in size from 8,000 to
80,000 square feet, have a clear height of 12 to 18 feet and are built using
concrete tilt construction with store fronts incorporated in the front elevation
and grade level service doors in the back elevation. The Company believes that
these properties require more management expertise than other types of
industrial properties and that it has developed such expertise. The Company also
believes that many potential buyers do not wish or are not well-positioned to
undertake such active management. As a result, the Company often finds that it
faces fewer competitors for this product and it is generally able to acquire
these properties at above average yields.
CAPITALIZE ON ITS EXPERIENCED MANAGEMENT TEAM.
The Company's management team has direct experience in all aspects of
managing a large real estate portfolio. The Company's management team has on
average over 17 years of experience in the ownership, management, acquisition
and development of industrial and suburban office properties in the Western
United States. The Company believes that the experience of its management team
makes it strategically well-positioned for growth.
S-15
<PAGE> 16
PLAN FOR FUTURE ANTICIPATED EXPENSES ASSOCIATED WITH TENANT TURNOVER.
The cash flow of a real estate asset can vary significantly from year to
year depending on tenant turnover. When a lease expires and a tenant renews or
vacates its space, costs associated with tenant improvements, lease commissions
and lost income due to vacancy or construction down-time can significantly
reduce property cash flow. Due to the capital intensive nature of suburban
office properties and, to a lesser degree, industrial properties, the Company
believes that planning and budgeting for future costs associated with tenant
turnover is a prudent component of managing the cash flow of the Properties. For
its existing portfolio, the Company estimates the future costs for tenant
improvements, lease commissions and lost income due to vacancy and construction
down-time on a property by property basis. Although these future costs are not
accrued for financial reporting purposes, the Company incorporates these
estimates in its annual budgets and longer-term forecasts and seeks to maintain
cash and/or availability under the Credit Facility adequate to cover these
budgeted expenditures. The Company believes that its ability to commit capital
to fund tenant improvements and pay lease commissions helps to retain and
attract tenants. To the extent that a vacancy in one of the Properties does
occur, the Company believes that its policy of budgeting ahead for anticipated
tenant improvement costs and leasing commissions enables it to compete
effectively for new tenants.
UTILIZE IN-HOUSE ASSET AND PROPERTY MANAGEMENT.
The Company believes that the long-term value of its Properties is enhanced
through in-house asset management and currently manages 38 of its 45 properties
from its three regional property management offices and its corporate
headquarters. The Company conducts its Northern California property management
activities out of its headquarters office in Lafayette, California, its Southern
California property management activities out of its regional office in Tustin,
California, its Kansas City property management activities out of its regional
office in Lenexa, Kansas and its Arizona property management activities out of
its regional office in Phoenix, Arizona. The Company's seven Properties in
Washington, Utah, Colorado and Oregon are currently managed for the Company by
third parties. The Company intends to open additional property management
offices in those regions as its portfolios grow to a point where it becomes
economically justified.
The Company's asset management team develops and monitors a comprehensive
asset management plan for each Property in an effort to ensure its efficient
operation. The Company's Vice President of Property/Asset Management works
directly with the Company's internal finance and accounting staff to develop and
monitor detailed budgets and financial reports for each Property. He also works
with each property manager to identify and implement opportunities to improve
cash flow from each Property and to maximize each Property's long-term
investment value. The Company's property management staff is generally
responsible for leasing activities, ordinary maintenance and repairs, keeping
financial records on income and expenses, rent collection, payment of operating
expenses and property operations. The Company's property management philosophy
is based on the belief that the long-term value of the Properties is enhanced by
attention to detail and hands-on service provided by professional in-house
property managers. The Company believes that a successful leasing program starts
by servicing existing tenants first. Costs associated with tenant turnover
(i.e., tenant improvements, leasing commissions and the loss of income due to
vacancy) can be significant and, by addressing and attending to existing
tenants' needs, the Company believes that it can increase its retention of
existing tenants and simultaneously make its properties more attractive to
tenants.
COOPERATE WITH LOCAL REAL ESTATE BROKERS.
The Company seeks to develop strong relationships with local real estate
brokers, who can provide access to tenants as well as general market
intelligence and research. The Company believes that these relationships have
enhanced the Company's ability to attract and retain tenants.
S-16
<PAGE> 17
MAINTAIN ITS CONSERVATIVE FINANCIAL LEVERAGE.
As adjusted to reflect (i) the Offering, (ii) all property acquisitions
completed since September 30, 1996 and the Mortgage Loan and Credit Facility
borrowings incurred in connection therewith and (iii) the application of a
portion of the proceeds from the Offering to repay the outstanding balance under
the Company's Credit Facility, the Company's total consolidated indebtedness as
of December 31, 1996 equaled approximately 18% of the Company's Total Market
Capitalization. The Company currently intends to limit its total consolidated
indebtedness to no more than 50% of its Total Market Capitalization. The Board
of Directors intends, however, to retain the ability to raise additional
capital, including additional debt and equity, in order to pursue acquisition
and development opportunities that meet the Company's investment criteria.
S-17
<PAGE> 18
THE COMPANY'S PROPERTIES
As of December 31, 1996, the Company owned and operated 45 Properties,
aggregating approximately 3.9 million rentable square feet and comprised of 36
Industrial Properties totalling approximately 3.2 million rentable square feet,
eight Suburban Office Properties totalling approximately 612,000 rentable square
feet and one Retail Property totalling approximately 84,000 rentable square
feet. As of December 31, 1996, the Suburban Office Properties and Industrial
Properties were approximately 99% and 93% occupied, respectively, by a total of
395 tenants, of which 89 were Suburban Office Property tenants and 306 were
Industrial Property tenants. As of December 31, 1996, the Retail Property was
100% occupied by 16 tenants.
The following table summarizes certain information as of December 31, 1996
with respect to the Properties. The table excludes information related to the
Company's most recent acquisition, a 78,611 rentable square foot building in
Fremont, California, which closed on January 15, 1997.
TABLE OF PROPERTIES
<TABLE>
<CAPTION>
YEAR TOTAL PERCENT OFFICE/ NET
ACQUIRED/ RENTABLE TOTAL RESEARCH AND NUMBER EFFECTIVE
PROPERTY NAME YEAR SQUARE PERCENT ANNUALIZED DEVELOPMENT OF RENT/
AND LOCATION CONSTRUCTED FEET OCCUPIED BASE RENT FINISH TENANTS SQ. FT. LARGEST TENANT
- -------------- ------------ --------- -------- ----------- --------------- ------- --------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL
PROPERTIES
GREATER SAN FRANCISCO BAY AREA, CALIFORNIA
Building #3 at
Contra Costa
Diablo
Industrial
Park,
Concord..... 1990/1983 21,840 100% $ 145,092 50% 1 $ 6.64 Phase Metrics
Building #8 at
Contra Costa
Diablo
Industrial
Park,
Concord..... 1990/1981 31,800 100% $ 190,800 18% 1 $ 6.00 Apria Healthcare
Building #18
at Mason
Industrial
Park,
Concord..... 1990/1984 28,836 83% $ 163,032 17% 7 $ 6.78 Rust Scaffold
115 Mason
Circle,
Concord..... 1996/1971 35,000 100% $ 211,908 20% 5 $ 6.05 Koppl Industrial
Auburn Court,
Fremont..... 1995/1983 68,030 100% $ 461,004 50% 6 $ 6.78 Dow Corning
47650
Westinghouse
Drive,
Fremont..... 1995/1982 24,030... 100% $ 132,648 25% 1 $ 5.52 SMT Unlimited
47600
Westinghouse
Drive,
Fremont..... 1996/1982 24,030 100% $ 142,740 100% 1 $ 5.94 Phase Metrics
47633
Westinghouse
Drive,
Fremont..... 1996/1983 50,088 100% $ 569,412 100% 1 $ 11.37 Quester Technology
Fourier
Avenue,
Fremont..... 1996/1982 104,400 100% $ 938,352 100% 1 $ 8.99 Credence Systems
Milpitas Town
Center,
Milpitas.... 1994/1983 102,620 100% $ 824,280 60% 4 $ 8.03 Solectron Corp.
598 Gibraltar
Drive,
Milpitas.... 1996/1996 45,090 100% $ 427,452 100% 1 $ 9.48 Fujitsu PC
Doherty
Avenue,
Modesto..... 1996/1963-71 251,308 100% $ 469,776 0% 1 $ 1.87 Stanislaus Food
860-870 Napa
Valley
Corporate
Way, Napa... 1996/1984 67,775 96% $ 612,588 70% 19 $ 9.44 Robert Mondavi
350 East
Plumeria
Drive, San
Jose........ 1995/1983 142,700 100% $ 1,113,060 52% 1 $ 7.80 Compression Labs
Lundy Avenue,
San Jose.... 1996/1982 60,428 100% $ 428,496 100% 2 $ 7.09 Hall-Mark Electronics
O'Toole
Business
Center, San
Jose........ 1996/1984 122,320 94% $ 1,010,040 45% 22 $ 8.75 Image Color
301 East
Grand, South
San
Francisco... 1995/1974 57,846 100% $ 322,020 21% 3 $ 5.57 Radix Group Int'l
342 Allerton,
South San
Francisco... 1995/1969 69,312 100% $ 497,928 15% 4 $ 7.18 Danzas Corp.
400 Grandview
Bldg, South
San
Francisco... 1995/1976 107,004 100% $ 806,136 37% 5 $ 7.53 Kuehne & Nagel
410 Allerton,
South San
Francisco... 1995/1970 46,050 100% $ 237,612 12% 1 $ 5.16 See's Candies
417 Eccles,
South San
Francisco... 1995/1964 24,624 100% $ 147,924 8% 2 $ 6.01 Haitai America
--------- ---- ----------- ---- --- ------
Subtotal/Weighted
Average... 1,485,131 99% $ 9,852,300 45% 89 $ 6.70
--------- ---- ----------- ---- --- ------
GREATER LOS ANGELES AREA, CALIFORNIA
Dupont
Industrial
Center,
Ontario..... 1994/1989 451,192 59% $ 947,184 5% 15 $ 3.53 Fibre Glass
3002 Dow
Business
Center,
Tustin...... 1995/1987-89 192,125 99% $ 1,626,480 50% 63 $ 8.55 XCd, Inc.
Carroll Tech
Center, San
Diego....... 1996/1984 88,829 100% $ 919,224 100% 1 $ 10.35 Hybritech, Inc.
Signal Systems
Building,
San Diego... 1996/1990 109,780 100% $ 856,284 100% 1 $ 7.80 Global Associates
Oak Ridge
Business
Center,
Vista....... 1996/1990 90,058 100% $ 521,754 12% 2 $ 5.79 Fujikura Composite
--------- ---- ----------- ---- --- ------
Subtotal/Weighted
Average... 931,984 80% $ 4,870,926 35% 82 $ 6.53
--------- ---- ----------- ---- --- ------
</TABLE>
S-18
<PAGE> 19
<TABLE>
<CAPTION>
YEAR TOTAL PERCENT OFFICE/ NET
ACQUIRED/ RENTABLE TOTAL RESEARCH AND NUMBER EFFECTIVE
PROPERTY NAME YEAR SQUARE PERCENT ANNUALIZED DEVELOPMENT OF RENT/
AND LOCATION CONSTRUCTED FEET OCCUPIED BASE RENT FINISH TENANTS SQ. FT. LARGEST TENANT
- -------------- ------------ --------- -------- ----------- --------------- ------- --------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DENVER,
COLORADO
Bryant Street
Annex,
Denver...... 1995/1968 55,000 100% $ 216,324 25% 2 $ 3.93 Denver General
Hospital
Bryant Street
Quad,
Denver...... 1995/1971-73 155,536 100% $ 527,268 20% 17 $ 3.39 Dillon Companies
--------- ---- ----------- ---- --- ------
Subtotal/Weighted
Average... 210,536 100% $ 743,592 21% 19 $ 3.53
--------- ---- ----------- ---- --- ------
GREATER PHOENIX AREA, ARIZONA
Westech
Business
Center,
Phoenix..... 1996/1985 143,940 91% $ 1,163,331 62% 44 $ 8.85 Brooks Hersey
--------- ---- ----------- ---- --- ------
GREATER PORTLAND AREA, OREGON
Twin Oaks
Technology
Center,
Beaverton... 1995/1984 95,173 94% $ 652,056 70% 17 $ 7.32 Nuvision Technologies
Twin Oaks
Business
Center,
Beaverton... 1995/1984 66,339 80% $ 441,096 100% 10 $ 8.35 U.S. Postal Service
--------- ---- ----------- ---- --- ------
Subtotal/Weighted
Average... 161,512 88% $ 1,093,152 82% 27 $ 7.71
--------- ---- ----------- ---- --- ------
GREATER KANSAS
CITY AREA
Panorama
Business
Center,
Kansas
City........ 1996/1984 103,457 100% $ 676,932 50% 16 $ 6.54 General Services
Ninety-Ninth
Street #3,
Lenexa...... 1990/1990 50,000 89% $ 260,424 18% 2 $ 5.89 Yellow Technology
Services
Ninety-Ninth
Street #1,
Lenexa...... 1995/1988 35,516... 100% $ 295,536 70% 3 $ 8.32 Snap-On-Tools
Ninety-Ninth
Street #2,
Lenexa...... 1995/1988 12,974 100% $ 111,840 95% 1 $ 8.62 Health Midwest
Lackman
Business
Center,
Lenexa...... 1995/1985 45,956 91% $ 360,753 75% 23 $ 8.59 Entertel
--------- ---- ----------- ---- --- ------
Subtotal/Weighted
Average... 247,903 98% $ 1,705,485 53% 45 $ 6.99
--------- ---- ----------- ---- --- ------
TOTAL/WEIGHTED
AVERAGE ALL
INDUSTRIAL
PROPERTIES... 3,181,006 93% $19,428,786 44% 306 $ 6.60
--------- ---- ----------- ---- --- ------
SUBURBAN
OFFICE
PROPERTIES
GREATER LOS ANGELES AREA, CALIFORNIA
Laguna Hills
Square,
Laguna...... 1996/1983 51,734 86% $ 1,128,084 100% 10 $ 25.38 Saddleback Memorial
1000 Town
Center
Drive,
Oxnard...... 1993/1990 107,653 100% $ 2,047,116 100% 11 $ 19.02 Kinko's
Mariner Court,
Torrance.... 1994/1989 105,436.. 100% $ 1,803,156 100% 34 $ 17.10 Dodge, Warren &
Peters
--------- ---- ----------- ---- --- ------
Subtotal/Weighted
Average... 264,823 97% $ 4,978,356 100% 55 $ 19.33
--------- ---- ----------- ---- --- ------
SALT LAKE
CITY, UTAH
Woodlands II,
Salt Lake
City........ 1993/1990 114,352 100% $ 1,666,692 100% 12 $ 14.58 Comphealth CHS
--------- ---- ----------- ---- --- ------
KANSAS CITY,
KANSAS
6600 College
Boulevard,
Overland
Park........ 1995/1982-83 79,316 98% $ 928,764 95% 5 $ 11.99 Sprint
--------- ---- ----------- ---- --- ------
GREATER SAN FRANCISCO BAY AREA, CALIFORNIA
Village Green,
Lafayette... 1994/1983 16,895 100% $ 337,804 100% 8 $ 19.99 Vocation Instruction
Software
100 View
Street,
Mountain
View........ 1996/1985 42,141 100% $ 793,152 100% 8 $ 18.82 Vista Research
--------- ---- ----------- ---- --- ------
Subtotal/Weighted
Average... 59,036 100% $ 1,130,956 99% 16 $ 19.16
--------- ---- ----------- ---- --- ------
GREATER SEATTLE AREA,
WASHINGTON
Kenyon Center,
Bellevue.... 1996/1987 94,840 100% $ 1,100,664 100% 1 $ 11.61 The Boeing Co.
--------- ---- ----------- ---- --- ------
TOTAL/WEIGHTED
AVERAGE ALL
SUBURBAN
OFFICE
PROPERTIES... 612,367 99% $ 9,805,432 99% 89 $ 16.26
--------- ---- ----------- ---- --- ------
RETAIL
PROPERTY
Academy Place
Shopping
Center,
Colorado
Springs..... 1995/1980-82 84,347 100% $ 871,200 N/A 16 $ 10.33 Ross Stores
--------- ---- ----------- ---- --- ------
TOTAL/WEIGHTED
AVERAGE ALL
PROPERTIES... 3,877,720.. 94% $30,105,418 53% 411 $ 8.29
--------- ---- ----------- ---- --- ------
</TABLE>
S-19
<PAGE> 20
LEASE EXPIRATIONS FOR THE PROPERTIES
The following table sets forth as of December 31, 1996 a schedule of lease
expirations for the Properties, assuming that none of the tenants exercise
renewal options or termination rights. The Company expects to benefit from
increasing rental rates in its markets as its leases expire. There can be no
assurance, however, that the Company will actually obtain this benefit or that
the Company's rental rates won't decline as a result of renegotiated leases.
<TABLE>
<CAPTION>
PERCENTAGE AND PERCENTAGE AND
CUMULATIVE PERCENTAGE CUMULATIVE PERCENTAGE
OF TOTAL LEASED SQUARE ANNUALIZED OF ANNUALIZED BASE
FEET SUBJECT TO BASE RENT RENT UNDER
RENTABLE EXPIRING LEASES UNDER EXPIRING EXPIRING LEASES
NUMBER OF SQUARE FEET ------------------------ LEASES -----------------------
YEAR OF LEASE LEASES SUBJECT TO CUMULATIVE -------------- CUMULATIVE
EXPIRATION EXPIRING EXPIRING LEASES PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
- --------------------- --------- --------------- ---------- ----------- (IN THOUSANDS) ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997................. 153 713,085 19.7% 19.7% $ 5,898,168 19.6% 19.6%
1998................. 111 813,802 22.4% 42.1% 6,393,720 21.2% 40.8%
1999................. 72 568,893 15.7% 57.8% 4,597,524 15.3% 56.1%
2000................. 43 399,347 11.0% 68.8% 4,202,484 14.0% 70.1%
2001................. 29 426,704 11.8% 80.6% 3,921,954 13.0% 83.1%
2002................. 10 91,063 2.5% 83.1% 1,445,400 4.8% 87.9%
2003................. 4 89,342 2.5% 85.5% 904,368 3.0% 90.9%
2004................. 2 107,170 3.0% 88.5% 990,648 3.3% 94.2%
2005................. 3 50,497 1.4% 89.9% 370,372 1.2% 95.4%
2006 and
thereafter......... 5 367,090 10.1% 100.0% 1,380,780 4.6% 100.0%
====== ======
--- --------- ------ ----------- ------
Total....... 432 3,626,993 100.0% $ 30,105,418 100.0%
=== ========= ====== =========== ======
</TABLE>
As set forth in the foregoing table, as of December 31, 1996, leases
representing 19.6%, 21.2%, 15.3% and 14.0%, respectively, of the Company's total
Annualized Base Rent were scheduled to expire during 1997, 1998, 1999, and 2000,
respectively. The Company will be subject to the risk that, upon expiration,
certain of these or other leases will not be renewed, the space may not be
relet, or the terms of renewal or reletting (including the cost of required
renovations or concessions to tenants) may be less favorable than current lease
terms. See "Risk Factors -- Risks Inherent in Real Estate Investments -- Lease
Expirations; Renewal of Leases and Reletting of Unleased Space" in the
accompanying Prospectus.
S-20
<PAGE> 21
LEASE EXPIRATIONS FOR THE INDUSTRIAL PROPERTIES
The following table sets forth as of December 31, 1996 the scheduled lease
expirations at the Industrial Properties, assuming that none of the tenants
exercise renewal options or termination rights.
<TABLE>
<CAPTION>
PERCENTAGE AND PERCENTAGE AND
CUMULATIVE PERCENTAGE OF
TOTAL LEASED SQUARE ANNUALIZED CUMULATIVE PERCENTAGE OF
FEET SUBJECT TO BASE RENT ANNUALIZED BASE RENT
RENTABLE EXPIRING LEASES UNDER EXPIRING UNDER EXPIRING LEASES
NUMBER OF SQUARE FEET ------------------------ LEASES ------------------------
YEAR OF LEASE LEASES SUBJECT TO CUMULATIVE -------------- CUMULATIVE
EXPIRATION EXPIRING EXPIRING LEASES PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
- ---------------------------- --------------- ---------- ----------- (IN THOUSANDS) ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997............... 121 628,194 21.4% 21.4% $ 4,416,636 22.7% 22.7%
1998............... 88 718,994 24.5% 45.9% 4,902,480 25.2% 47.9%
1999............... 51 447,091 15.2% 61.1% 2,864,628 14.7% 62.6%
2000............... 25 200,102 6.8% 67.9% 1,377,204 7.1% 69.7%
2001............... 17 339,370 11.6% 79.5% 2,464,830 12.7% 82.4%
2002............... 4 11,046 0.4% 79.9% 104,004 0.5% 82.9%
2003............... 3 81,952 2.8% 82.7% 774,900 4.0% 86.9%
2004............... 1 104,400 3.6% 86.3% 938,352 4.8% 91.7%
2005............... 1 42,508 1.5% 87.8% 219,336 1.1% 92.8%
2006 and
thereafter....... 4 365,784 12.2% 100.0% 1,366,416 7.2% 100.00%
====== ======
--- --------- ------ ----------- ------
Total.... 315 2,939,441 100.0% $ 19,428,786 100.0%
=== ========= ====== =========== ======
</TABLE>
LEASE EXPIRATIONS FOR THE SUBURBAN OFFICE PROPERTIES
The following table sets forth as of December 31, 1996 the scheduled lease
expirations of all leases for the Suburban Office Properties, assuming that none
of the tenants exercise renewal options or termination rights.
<TABLE>
<CAPTION>
PERCENTAGE AND PERCENTAGE AND
CUMULATIVE PERCENTAGE OF
TOTAL LEASED SQUARE ANNUALIZED CUMULATIVE PERCENTAGE OF
FEET SUBJECT TO BASE RENT ANNUALIZED BASE RENT
RENTABLE EXPIRING LEASES UNDER EXPIRING UNDER EXPIRING LEASES
NUMBER OF SQUARE FEET ------------------------ LEASES ------------------------
YEAR OF LEASE LEASES SUBJECT TO CUMULATIVE -------------- CUMULATIVE
EXPIRATION EXPIRING EXPIRING LEASES PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
- ---------------------------- --------------- ---------- ----------- (IN THOUSANDS) ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997............... 30 75,228 12.5% 12.5% $1,390,832 14.2% 14.2%
1998............... 18 82,312 13.7% 26.1% 1,338,480 13.7% 27.8%
1999............... 20 118,788 19.7% 45.8% 1,703,160 17.4% 45.2%
2000............... 14 156,112 25.9% 71.7% 2,459,916 25.1% 70.3%
2001............... 9 72,599 12.0% 83.7% 1,238,748 12.6% 82.9%
2002............... 6 80,017 13.3% 97.0% 1,341,396 13.7% 96.7%
2003............... 1 7,390 1.2% 98.2% 129,468 1.3% 98.0%
2004............... 1 2,770 0.5% 98.7% 52,296 0.5% 98.5%
2005............... 2 7,989 1.3% 100.0% 151,036 1.5% 100.0%
2006 and
thereafter....... 0 0 0.0% 100.0% 0 0.0% 100.0%
====== ======
--- ------- ------ ---------- ------
Total.... 101 603,205 100.0% $9,805,432 100.0%
=== ======= ====== ========== ======
</TABLE>
S-21
<PAGE> 22
USE OF PROCEEDS
The net cash proceeds to the Company from the sale of Common Stock offered
hereby are estimated to be approximately $65.6 million or approximately $75.5
million if the Underwriters' over-allotment option is exercised in full. The
Company will use the net cash proceeds of the Offering to repay the outstanding
principal balance under the Company's Credit Facility (which amounted to
approximately $54.9 million as of February 6, 1997). The Company intends to use
the remaining net proceeds to purchase additional properties and for general
corporate purposes, including working capital. The Company is continuously
engaged, in the ordinary course of its business, in the evaluation of properties
for acquisition. Pending application of any remaining net proceeds, the Company
will invest such portion of the net proceeds in interest-bearing accounts and
short-term, interest-bearing securities, which are consistent with the Company's
intention to qualify for taxation as a REIT. Such investments may include, for
example, government and governmental agency securities, certificates of deposit
and interest-bearing bank deposits.
As of December 31, 1996, the weighted average interest rate on the
indebtedness expected to be repaid with the net proceeds of the Offering was
7.7% and the maturity date of such indebtedness was July 1, 1999.
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY
The Common Stock of the Company trades on the New York Stock exchange and
the Pacific Stock Exchange under the symbol "BED." The following table sets
forth, for the periods indicated, the quarterly high and low sale prices per
share reported on the New York Stock Exchange and the dividends declared per
share by the Company on the Common Stock during each quarterly period since the
first quarter of 1995. All of the following quotations have been adjusted to
reflect the one-for-two reverse stock split of the Common Stock effected on
March 29, 1996.
SALE PRICE
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
---- --- ---------
<S> <C> <C> <C>
1995
First Quarter.......................................... $12 3/4 $10 3/4 $ .19
Second Quarter......................................... $11 3/4 $10 1/4 $ .21
Third Quarter.......................................... $13 1/2 $11 1/4 $ .21
Fourth Quarter......................................... $15 1/4 $12 3/4 $ .21
1996
First Quarter.......................................... $15 1/4 $14 $ .24
Second Quarter......................................... $16 $12 3/8 $ .24
Third Quarter.......................................... $14 5/8 $12 3/4 $ .26
Fourth Quarter......................................... $17 1/2 $14 1/8 $ .26
1997
First Quarter (through February 6, 1997)............... $18 1/2 $16 5/8 N/A
</TABLE>
As of December 31, 1996 the Company had 483 record holders of Common Stock.
On February 6, 1997, the last reported sale price of the Common Stock on the
NYSE was $17 3/8 per share.
On September 12, 1996, the Company announced an 8.3% increase in its
quarterly Common Stock dividend from $0.24 per share to $0.26 per share, which
is equal to $1.04 per share on an annualized basis. The higher dividend rate
commenced with the Company's third quarter of 1996 dividend. The Company
previously announced, in March 1996, a 14.3% increase in its quarterly dividend
(from $0.21 per share to $0.24 per share), which, together with the September
increase, represents a total increase of 23.8% in the Company's Common Stock
dividend since March 1996.
Of the dividends declared for 1995, 100% represented a return of capital to
shareholders for tax purposes. The Company currently anticipates that none of
the dividends declared in 1996 will represent a return of capital for tax
purposes. There can be no assurance, however, that the estimate for 1996 will
not vary from actual results for 1996 which will depend, in 1996 and future
years, among other things, upon the Company's actual taxable income and amounts
distributed.
S-22
<PAGE> 23
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1996, (ii) as adjusted to give effect to all Property acquisitions
completed since September 30, 1996 and the Mortgage Loan and Credit Facility
borrowings incurred in connection therewith, and (iii) as further adjusted for
these acquisitions and the issuance of the 4,000,000 shares of Common Stock
offered hereby and the application of a portion of the net proceeds therefrom to
repay indebtedness under the Credit Facility.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
---------------------------------------------
ACTUAL AS ADJUSTED AS FURTHER ADJUSTED
-------- ------------ -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Credit Facility...................................... $ 30,754 54,900 $ --
Mortgage Loans....................................... 25,000 51,850 51,850
-------- -------- -------
Total Debt................................... 55,754 106,750 51,850
-------- -------- -------
Convertible Preferred Stock:
Series A Convertible Preferred Stock: $.01 par value;
10,000,000 authorized; 8,333,334 issued and
outstanding....................................... 50,000 50,000 50,000
-------- -------- -------
Common Stock and Other Stockholders' Equity:
Preferred Stock: $.01 par value; 10,000,000
authorized; none issued and outstanding........... -- -- --
Common Stock: $.02 par value; 15,000,000 authorized;
6,501,325 issued and outstanding, actual and as
adjusted; 10,501,325 issued and outstanding as
further adjusted(1)............................... 130 130 210
Additional paid-in capital........................... 147,744 147,744 213,309
Accumulated losses and distributions in excess of net
income............................................ (74,327) (74,327) (74,327)
-------- -------- -------
Total Common Stock and Other Stockholders'
Equity..................................... 73,547 73,547 139,192
-------- -------- -------
Total Capitalization......................... $179,301 $230,297 $ 241,042
======== ======== =======
</TABLE>
- ---------------
(1) Does not include (i) 4,166,667 shares of Common Stock currently reserved for
issuance upon the conversion of the Convertible Preferred Stock, and (ii)
109,000 shares of Common Stock reserved for issuance upon the conversion of
partnership units issued by the Company in connection with its acquisition
of certain Properties in December, 1996 utilizing a Down REIT acquisition
structure. The Convertible Preferred Stock is convertible into Common Stock
on or after September 18, 1997 and the partnership units are convertible
into Common Stock on or after March 17, 1997.
S-23
<PAGE> 24
MANAGEMENT
The following table sets forth certain information concerning the Company's
Directors and senior officers. Officers of the Company serve at the discretion
of the Board of Directors, subject, in the case of Mr. Bedford, to the terms of
an employment agreement. In addition to the Company's senior officers, 22
employees assist with the management of the Company's day-to-day operations.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ ---- ------------------------------------------
<S> <C> <C>
Peter B. Bedford.......................... 58 Chairman of the Board and Chief Executive
Officer
Donald A. Lorenz.......................... 47 Executive Vice President and Chief
Financial Officer
James R. Moore............................ 56 Vice President of Property/Asset
Management
Robert E. Pester.......................... 40 Vice President of Acquisitions (Bedford
Acquisitions)
Hanh Kihara............................... 48 Controller
Claude M. Ballard......................... 67 Director, Limited Partner of the Goldman
Sachs Group, L.P.
Anthony Downs............................. 66 Director, Senior Fellow at the Brookings
Institution
Thomas G. Eastman......................... 50 Director, Director and Co-Founder of
Aldrich Eastman Waltch
Anthony M. Frank.......................... 65 Director, Chairman, Acrogen, Inc.; former
Chairman of First Nationwide Bank
Thomas H. Nolan, Jr. ..................... 39 Director, Director of AEW Capital
Management, L.P.
Martin I. Zankel.......................... 62 Director, Senior Partner, Bartko, Zankel,
Tarrant & Miller
</TABLE>
COMPANY OFFICERS
Mr. Bedford has been Chairman of the Board since May 1992 and Chief
Executive Officer since November 1992. He has served as a Director of the
Company since February 1991. Mr. Bedford has been engaged in the commercial real
estate business, primarily in the Western United States, for over 30 years and
has been responsible for the acquisition, ownership, development and management
of an aggregate of approximately 18 million square feet of industrial, office
and retail properties, as well as land, in 14 states. Mr. Bedford serves on the
boards of directors of BankAmerica Corporation, Bixby Ranch Company, a real
estate investment company, and First American Title Guarantee Co., a title
insurance company. Mr. Bedford is the recipient of numerous awards recognizing
his contributions to the real estate industry and serves as a trustee of the
Urban Land Institute, a governor of the Urban Land Foundation and an overseer of
the Hoover Institution. His previous experience also includes serving as Vice
Chairman of the National Realty Committee and of the Hoover Institution and as
Chairman of the Real Estate Advisory Board of the Wharton School of Business.
Mr. Bedford received his B.A. in Economics from Stanford University.
Mr. Lorenz became Executive Vice President of the Company in September 1994
and Chief Financial Officer in July 1995. Previously, Mr. Lorenz served as CEO
of Tri-Ox, a manufacturing company, from 1993 to 1994. He served as Executive
Vice President of Bedford Property Holdings Limited ("BPHL"), a private
diversified real estate holding company, from 1989 to 1994, the Managing Partner
of Armstrong, Gilmour and Associates, a certified public accounting firm, from
1979 to 1989 and Audit Manager with KPMG Peat Marwick LLP from 1971 to 1978. Mr.
Lorenz has been a certified public accountant since 1973. Mr. Lorenz received a
B.S. in Business Administration from California State University -- Hayward.
Mr. Moore joined the Company as Vice President of Property/Asset Management
in September 1995. From 1983 to 1994, he was Managing Director of Cushman &
Wakefield, an international commercial real estate services firm. Mr. Moore was
also a branch manager and commercial real estate broker at Cushman & Wakefield.
He has served on the Board of Trustees of The Lindsay Museum in Walnut Creek,
California since
S-24
<PAGE> 25
1984. Mr. Moore has studied at the Commercial Investment Real Estate Institute
and has lectured at the University of San Francisco and San Francisco State
University. He received a B.A. in History from the University of California at
Berkeley, an M.B.A. from the University of San Francisco and is currently
working toward a Doctor of Business Administration at Golden Gate University.
Mr. Pester has been Vice President of Acquisitions of Bedford Acquisitions
since February 1994. Prior to joining Bedford Acquisitions, he was a real estate
investment consultant from 1992 to 1993, President of the Development Division
of BPHL from 1989 to 1992 and Vice President of Cushman & Wakefield in Northern
California from 1980 to 1989. Mr. Pester received a B.S. in Economics and in
Political Science from the University of California at Santa Barbara.
Ms. Kihara has been the Controller of the Company since May 1993. Prior to
joining the Company she was Controller and Assistant Controller of BPHL from
1990 to 1993. From 1986 to 1990, Ms. Kihara was a Manager of Armstrong, Gilmour
and Associates, a certified public accounting firm. Ms. Kihara has been a
certified public accountant since 1989. Ms. Kihara received a B.S. in
Administration and Accounting from California State University -- Hayward.
S-25
<PAGE> 26
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to the
underwriters named below (the "Underwriters"), and each of the Underwriters has
severally agreed to purchase, the respective number of shares of Common Stock
set forth below opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------- ----------
<S> <C>
Lehman Brothers Inc. ............................................... 1,000,000
Smith Barney Inc. .................................................. 1,000,000
Robertson, Stephens & Company LLC................................... 1,000,000
Sutro & Co. Incorporated............................................ 1,000,000
---------
Total..................................................... 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase the shares of Common Stock are subject to certain
conditions precedent and that if any of the shares of Common Stock are purchased
by the Underwriters pursuant to the Underwriting Agreement, all shares of Common
Stock must be so purchased.
The Company has been advised by the Underwriters that they propose to offer
the shares of Common Stock directly to the public at the initial public offering
price set forth on the cover page of this Prospectus Supplement and to certain
dealers at such public offering price less a concession not in excess of $.48
per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $.10 per share to certain other underwriters or to
certain other brokers or dealers. After the initial public offering, the public
offering price, the concession to selected dealers and the reallowance to other
dealers may be changed by the Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional 600,000 shares of Common Stock at the initial public offering price
less underwriting discounts and commissions, solely to cover over-allotments, if
any. The Underwriters may exercise this option at any time up to 30 days after
the date of this Prospectus Supplement. To the extent that the Underwriters
exercise this option, each of the Underwriters will be obligated, subject to
certain conditions, to purchase a number of additional shares of Common Stock
proportionate to such Underwriter's initial commitment reflected in the
foregoing table.
The Company and the directors and senior officers of the Company have
agreed, subject to certain exceptions, that they will not, without the prior
written consent of Lehman Brothers Inc., directly or indirectly, for a period of
90 days with respect to the directors and for a period of 180 days with respect
to the Company and the senior officers after the date hereof, sell, offer to
sell, grant any option for sale of, or otherwise dispose of, or enter into any
agreement to sell, any shares of Common Stock or any securities convertible or
exchangeable or exercisable for Common Stock.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.
S-26
<PAGE> 27
PROSPECTUS 5,500,000 SHARES
COMMON STOCK
[LOGO BEDFORD PROPERTY INVESTORS, INC.]
------------------------
Bedford Property Investors, Inc., a Maryland corporation (the "Company"),
may offer from time to time, up to 5,500,000 shares (the "Shares") of the
Company's common stock, par value $0.02 per share (the "Common Stock") in
amounts, at prices and on terms to be determined at the time of sale.
The number of any Shares offered pursuant to this Prospectus will be set
forth in an accompanying supplement to this Prospectus (a "Prospectus
Supplement"), together with the terms of the offering of such Shares and the
initial price and the net proceeds to the Company from the sale thereof.
The Company's Common Stock is listed on the New York Stock Exchange (the
"NYSE") and the Pacific Stock Exchange (the "PSE") under the symbol "BED." Any
Common Stock offered pursuant to a Prospectus Supplement will be listed on such
exchanges, subject to official notice of issuance.
The Company may sell Shares directly or through agents, underwriters or
dealers designated from time to time or pursuant to a dividend reinvestment
plan. The Company may also issue Shares in connection with property or business
acquisitions. If any agents, underwriters, or dealers are involved in the sale
of the Shares, the names of such agents, underwriters, or dealers and any
applicable commissions or discounts and the net proceeds to the Company from
such sale will be set forth in the applicable Prospectus Supplement.
This Prospectus may not be used to consummate sales of Shares unless
accompanied by a Prospectus Supplement.
SEE "RISK FACTORS" APPEARING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
RELATING TO AN INVESTMENT IN THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL
NOT CONSTITUTE AN OFFER TO SELL NOR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
------------------------
The date of this Prospectus is January 10, 1997.
<PAGE> 28
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, as well as such reports, proxy statements and other information filed
with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
also can be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the site is http://www.sec.gov. Such reports, proxy statements
and other information can also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005 and the offices of the
Pacific Stock Exchange at 301 Pine Street, San Francisco, California 94104.
The Company has filed with the Commission a Registration Statement (of
which this Prospectus is a part) on Form S-3 under the Securities Act with
respect to the Common Stock offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission, and in the exhibits thereto. Statements contained in this Prospectus
as to the content of any contract or other document are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference and the exhibits and
schedules thereto. For further information regarding the Company and the Common
Stock offered hereby, reference is hereby made to the Registration Statement and
such exhibits and schedules, which may be examined without charge at, or copies
obtained upon payment of prescribed fees from, the Commission and its regional
offices listed above.
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (WITHOUT EXHIBITS, UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE WITHOUT
CHARGE UPON REQUEST. REQUESTS FOR DOCUMENTS SHOULD BE DIRECTED TO BEDFORD
PROPERTY INVESTORS, INC., 270 LAFAYETTE CIRCLE, LAFAYETTE, CALIFORNIA 94549,
ATTENTION: INVESTOR RELATIONS (TELEPHONE: (510) 283-8910).
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, ON THE
PACIFIC STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 29
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents are incorporated by reference in this Prospectus:
1. The Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
2. The Registrant's amendment to its Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1995.
3. The Registrant's Current Report on Form 8-K/A filed on February 16,
1996.
4. The Registrant's Current Report on Form 8-K/A filed on February 23,
1996.
5. The Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996.
6. The Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1996.
7. The Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1996.
8. The Registrant's Current Report on Form 8-K filed on December 3, 1996.
9. The Registrant's Current Report on Form 8-K filed on January 9, 1997.
10. The description of the Registrant's Common Stock set forth in the
Registrant's registration statement on Form 8-B as filed with the
Commission on July 26, 1993, under the Exchange Act.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of the filing hereof and prior to the
termination of this offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the dates of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
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THE COMPANY
Bedford Property Investors, Inc., a Maryland corporation, is a
self-administered and self-managed real estate investment trust (as defined
under the Code)(a "REIT") engaged in the business of owning, managing, acquiring
and developing industrial and suburban office properties proximate to selected
metropolitan areas primarily in the Western United States. As of September 30,
1996, the Company owned and operated, either directly or through one of its
wholly-owned subsidiaries, 40 properties aggregating approximately 3.2 million
rentable square feet and comprised of 31 industrial properties (the "Industrial
Properties"), eight suburban office properties (the "Suburban Office
Properties") and one retail property (the "Retail Property"). The Industrial
Properties, the Suburban Office Properties and the Retail Property are
hereinafter referred to individually as a "Property" and collectively as the
"Properties." As of September 30, 1996, the Properties were approximately 92%
occupied by over 400 tenants. The Company's Properties are located in Northern
and Southern California, Colorado, Oregon, Utah, Kansas, Minnesota, Arizona and
Washington. Additionally, the Company owns 4.8 acres of land in Lenexa, Kansas
and 6.0 acres of land in Phoenix, Arizona on which it has commenced, or is about
to commence, development of 149,000 square feet of industrial space. The Company
will continue to seek development opportunities that are demand driven and
located in suburban markets in which the Company owns properties.
The Company's strategy is to operate in suburban markets which are
experiencing, or are expected by the Company to experience, economic growth and,
if possible, are subject to limitations on the development of similar
properties. The Company believes that employment growth is a reliable indicator
of future demand for both industrial and suburban office space. In addition, the
Company believes that certain supply-side constraints, such as limited
availability of undeveloped land in a market and of financing for speculative
real estate construction, increase a market's potential for higher average rents
over time. The Company is currently targeting selected markets proximate to
metropolitan areas in Northern and Southern California, Colorado, Oregon, Utah,
Kansas, Arizona and Washington. The Company believes that due to recent economic
improvements in these markets, and related improvements in the commercial
property markets, an investment in industrial and suburban office properties in
these markets, and in particular in California, provides the potential for
attractive returns through increased occupancy levels, rents and real estate
values, although there can be no assurance that this will occur. The Company
seeks to grow its asset base through the acquisition of industrial and suburban
office properties and portfolios of such properties, as well as through the
development of new industrial and suburban office properties.
The Company is led by an experienced management team who have on average
over 17 years of experience in the ownership, management, acquisition and
development of industrial and suburban office properties in the Western United
States. Peter B. Bedford, the Company's Chairman and Chief Executive Officer,
has been engaged in the commercial real estate business, primarily in the
Western United States, for over 30 years and has been responsible for the
ownership, management, acquisition and development of an aggregate of
approximately 18 million square feet of industrial, office and retail
properties, as well as land in 14 states, primarily as founder and President of
Bedford Property Holdings Limited ("BPHL"), a private diversified real estate
holding company. Since his election as the Company's Chairman and Chief
Executive Officer in 1992, Mr. Bedford has been instrumental in assembling the
Company's Board of Directors, in the design and implementation of the Company's
business plan, in the Company's conversion to a self-administered REIT and in
the selection of the Company's experienced management team, many of the members
of which had previously worked with Mr. Bedford at BPHL.
As of September 30, 1996, Bed Preferred No. 1 Limited Partnership ("BPLP"),
a Delaware limited partnership beneficially owned by an investment fund managed
by Aldrich Eastman Waltch, a national real estate investment adviser whose
clients primarily include institutional investors, was the holder of all of the
outstanding shares of the Company's Series A Convertible Preferred Stock, par
value $.01 per share (the "Convertible Preferred Stock"). Each of the 8,333,334
outstanding shares of Convertible Preferred Stock is convertible at the option
of the holders, after September 18, 1997, into one half of one share of the
Company's Common Stock, subject to adjustment upon the occurrence of certain
events. Based upon the current conversion ratio and following conversion, the
outstanding shares of Convertible Preferred Stock would represent approximately
26% of the shares of Common Stock outstanding after the sale of all the Shares
hereunder.
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RISK FACTORS
When used in this Prospectus, the words "believes," "anticipates,"
"expects" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially, including, but not limited to,
those set forth below. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
In addition to the other information contained or incorporated by reference
in this Prospectus, prospective investors should carefully consider the
following factors before purchasing the Common Stock offered hereby.
GEOGRAPHIC CONCENTRATION; DEPENDENCE ON CALIFORNIA ECONOMY
As of September 30, 1996, approximately 63% of the Company's total
annualized base rent was generated by its Properties located in the State of
California. As a result of this geographic concentration, the performance of the
commercial real estate markets and the local economies in various areas within
California could affect the value of such Properties and the rental income from
such Properties and, in turn, the Company's results of operations. In addition,
the geographic concentration of the Company's Properties in California in close
proximity to regions known for their seismic activity exposes the Company to the
risk that operating results could be materially affected by a significant
earthquake. See "-- Risks Inherent in Real Estate Investments -- Effect of
Uninsured Loss."
HISTORICAL LOSSES; POSSIBILITY OF FUTURE LOSSES
The Company had losses of $12.3 million, $5.5 million, $21.9 million and
$286,000 for fiscal years 1990 through 1993, respectively, before taking into
account the gain on the extinguishment of debt in 1992 and gains on sales of
investments and joint venture partnerships in 1993. Although such losses were
due in large part to investments which the Company subsequently divested, there
can be no assurance that the Company will not incur significant losses in the
future. As of September 30, 1996, the Company's consolidated balance sheet
reflected accumulated losses and distributions in excess of net income
aggregating approximately $74.3 million, resulting from the losses referred to
above and the fact that aggregate dividends to stockholders have exceeded net
income.
RISKS INHERENT IN REAL ESTATE INVESTMENTS
GENERAL
Real property investments are subject to numerous risks. The yields
available from an equity investment in real estate depend on the amount of
income generated and costs incurred by the related properties. If properties in
which the Company invests do not generate sufficient income to meet costs,
including debt service, tenant improvements, third-party leasing commissions and
capital expenditures, the Company's results of operations and ability to make
distributions to its stockholders will be adversely affected. Revenues and
values of the Company's properties may be adversely affected by a number of
factors, including the national economic climate, the local economic climate,
local real estate conditions (such as an oversupply of space or a reduction in
demand for real estate in an area), the attractiveness of the properties to
tenants, competition from other available space, the ability of the Company to
provide adequate maintenance and insurance and to cover other operating costs,
government regulations and changes in real estate, zoning or tax laws, interest
rate levels, the availability of financing and potential liabilities under
environmental and other laws. Historically, the Company has had tenants leasing
space in the Properties who occasionally have been delinquent in their payments.
Further, because the Company generally does not have extensive historical or
financial information on the tenants in its recently acquired Properties, there
may be tenants in the Company's recently acquired Properties who, unknown to the
Company, were delinquent in the payment of their rent in the past. As
substantially all of the Company's income is derived from rental income from
real property, the Company's results of operations and ability to make
distributions to stockholders would be adversely affected
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if a number of the Company's tenants or one or more of the Company's significant
tenants were unable to meet their obligations to the Company or failed to renew
their leases with the Company, or if the rental rates upon reletting or renewal
of leases were significantly lower than current or expected rates or if the
Company were unable to lease a significant amount of space on economically
favorable terms or at all. In addition, certain significant expenditures
associated with each equity investment (such as debt service, real estate taxes
and maintenance costs) are generally not reduced when circumstances cause a
reduction in rental income from the investment. Should such events occur, the
Company's results of operations and ability to make distributions to
stockholders could be adversely affected.
LEASE EXPIRATIONS; RENEWAL OF LEASES AND RELETTING OF UNLEASED SPACE
As of September 30, 1996, leases representing 3%, 23%, 21%, 17% and 15% of
the Company's total annualized base rent at that date were scheduled to expire
in the remainder of 1996 and 1997, 1998, 1999 and 2000, respectively. The
Company will be subject to the risk that, upon expiration, certain of these
leases will not be renewed, the space may not be relet, or the terms of renewal
or reletting (including the cost of required renovations or concessions to
tenants) may be less favorable than current lease terms. In addition, the
Company expects to incur costs in making improvements or repairs to its
Properties required by new or renewing tenants and expenses associated with
brokerage commissions payable in connection with the reletting of space.
Similarly, rental income may be reduced due to vacancies resulting from lease
expirations or by construction of tenant improvements required by renewing or
new tenants. If the Company is unable to promptly renew leases or relet space or
to fund expenses relating to tenant turnover, if the terms of any such renewal
or reletting are less favorable than current lease terms, or if the expenses
relating to tenant turnover are greater than expected, the foregoing could have
a material adverse effect on the Company and its ability to make distributions
to stockholders.
DEPENDENCE ON CERTAIN TENANTS
As of September 30, 1996, ten of the Company's tenants accounted for
approximately 28% of its total annualized base rent. If the Company were to lose
any one or more of such tenants, or if any one or more of such tenants were to
declare bankruptcy or to fail to make rental payments when due, there could be a
material adverse effect on the Company and its ability to make distributions to
stockholders. See "-- Bankruptcy of Tenants."
BANKRUPTCY OF TENANTS
At any time, a tenant could seek the protection of the bankruptcy laws,
which might result in the modification or termination of such tenant's lease and
cause a reduction in the cash flow of the Company. In addition, a tenant from
time to time may experience a downturn in its business which may weaken its
financial condition and result in its failure to make rental payments when due.
In the event of default by or bankruptcy of a tenant, the Company may experience
delays in enforcing its rights as lessor and may incur substantial costs in
protecting its investment. The default, bankruptcy or insolvency of a major
tenant may have an adverse effect on the Company and its ability to make
distributions to stockholders. Moreover, a substantial number of the Company's
tenants are professionals or small- or medium-sized businesses, which are
generally more susceptible to the foregoing risks than are large,
well-capitalized enterprises.
RISKS ASSOCIATED WITH REAL ESTATE ACQUISITION AND DEVELOPMENT
The Company intends to actively seek to acquire industrial and suburban
office properties and portfolios of such properties, which may include the
acquisition of other companies and business entities owning such properties.
Although the Company will engage in due diligence with respect to each new
acquisition, there can be no assurance that the Company will be aware of all
potential liabilities and problems associated with such properties, and the
Company may have limited contractual recourse, or no contractual recourse,
against the sellers of such properties. In that regard, the Company only
recently acquired a number of its Properties, and there can be no assurance that
the Company is aware of all potential liabilities and problems associated with
these recently acquired Properties. Moreover, it is likely that in the future,
the majority of the Company's
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properties and portfolios of properties will be acquired on an "as is" basis,
with limited recourse against the sellers. In addition, acquisitions of new
properties entail risks that the investments will fail to perform in accordance
with expectations, and estimates of the costs of improvements to bring an
acquired property up to the Company's standards, and standards established for
the market position intended for that property, may prove inaccurate. To the
extent that the Company acquires properties with substantial vacancies (as it
has in the past), there is a risk that the Company will be unable to lease
vacant space in a timely manner or at all, and that the costs of obtaining
tenants (such as tenant improvements, lease concessions and brokerage
commissions) could prove more costly than anticipated.
The Company will be subject to a number of risks relating to the
development of any industrial and suburban office property projects it decides
to develop, including the risks that financing for such development may not be
available on favorable terms, that a project may not be completed or may not be
completed on schedule or for the amount planned (resulting in increased debt
service expense and construction costs) and that newly constructed properties
may not be leased on profitable terms or at all. Timely construction may be
adversely affected by the failure to obtain governmental permits, environmental
matters, by local or national strikes and by local or national shortages in
building materials or supplies or fuel for equipment. Any of the foregoing could
adversely affect the Company and its ability to make distributions to
stockholders.
EFFECT OF UNINSURED LOSS
The Company currently carries general liability coverage with primary
limits of $1 million per occurrence and $2 million in the aggregate, as well as
a $10 million umbrella liability policy. The Company carries property insurance
on a replacement value basis covering both the cost of direct physical damage
and the loss of rental income. Separate flood and earthquake insurance is
provided with an annual aggregate limit of $10 million, subject to varying
deductibles of 7.5% to 25% of total insurable value per building with respect to
earthquake coverage. Certain types of losses, however (such as losses due to
acts of war, nuclear accidents or pollution), may be either uninsurable or not
economically insurable. Likewise, certain losses could exceed the limits of the
Company's insurance policies or could cause the Company to bear a substantial
portion of those losses due to deductibles under those policies. Should an
uninsured loss occur, the Company could lose both its invested capital in and
anticipated cash flow from the property and would continue to be obligated to
repay any outstanding indebtedness incurred to acquire such property. In
addition, a majority of the Properties are located in areas that are subject to
earthquake activity. Although the Company has obtained earthquake insurance
policies for all of its Properties, should one or more Properties sustain damage
as a result of an earthquake, the Company may incur substantial losses up to the
amount of the deductible under its earthquake policy and, additionally, to the
extent that the damage exceeds the policy's maximum coverage. Although the
Company has obtained owner's title insurance policies for each of the
Properties, the title insurance may be in an amount less than the current market
value of certain of the Properties. If a title defect results in a loss that
exceeds insured limits, the Company could lose all or part of its investment in,
and anticipated gains (if any) from, such Property.
SUBSTANTIAL INCREASE IN DIVIDEND REQUIREMENTS; POSSIBLE INABILITY TO SUSTAIN
DIVIDENDS
The terms and conditions of the Convertible Preferred Stock provide that
dividends may be paid on shares of Common Stock in any fiscal quarter only if
full cumulative cash dividends have been paid on all shares of Convertible
Preferred Stock in the amount equal to the greater of (i) an amount per share of
$.135 or (ii) the dividends payable with respect to such quarter on the Common
Stock into which the Convertible Preferred Stock is convertible plus, in both
cases, any accumulated but unpaid dividends on the Convertible Preferred Stock.
Accordingly, the cash dividends payable on the Convertible Preferred Stock,
which was issued in September 1995, has substantially increased the total amount
of cash that must be generated to continue to pay cash dividends on the Common
Stock at current levels. Furthermore, if the holders of the Convertible
Preferred Stock exercise their redemption rights and such redemption is not
made, the dividend payable on the Convertible Preferred Stock will increase. See
"Description of Capital Stock of the Company -- Convertible Preferred
Stock -- Dividends."
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The Convertible Preferred Stock may be redeemed, under certain
circumstances, at the option of the Company or upon demand of the holders of the
Convertible Preferred Stock. Such a redemption would decrease the amount of cash
available to pay cash dividends on the Common Stock. At any time after September
18, 1997, the Company may redeem the Convertible Preferred Stock in whole (but
not in part) at its option at a price calculated by determining an internal rate
of return on the Convertible Preferred Stock of 25% per annum for the period
from September 18, 1995 until September 18, 1997 and an internal rate of return
on the Convertible Preferred Stock of 20% per annum from and after September 18,
1997 until the date of redemption, but not beyond September 18, 2000. At any
time after September 18, 2000, or at any time prior thereto if there are less
than 400,000 shares of Convertible Preferred Stock outstanding, the Convertible
Preferred Stock may be redeemed in whole or in part at the option of the Company
at a redemption price equal to $6.30 per share (declining $.06 in each of the
first five full years commencing on September 18, 2000) plus all accrued and
unpaid dividends. In addition, the Company is required, at the option of the
holders of the Convertible Preferred Stock, to redeem the Convertible Preferred
Stock on demand of the holders thereof, at a redemption price of $6.00 per share
plus all accrued and unpaid dividends, on the occurrence of any one or more of
the following: (i) the failure to pay dividends on the Convertible Preferred
Stock for two consecutive quarters, (ii) a default in the payment on certain
institutional debt, (iii) the failure of the Company to obtain any required
consent of the holders of the Convertible Preferred Stock or (iv) the failure to
reach certain financial performance levels. See "Description of Capital Stock of
the Company -- Convertible Preferred Stock -- Redemption."
In addition, any Common Stock issued in connection with a sale of the
Shares hereunder will further substantially increase the cash required to
continue to pay cash dividends at current levels. Any Common Stock or preferred
stock that may in the future be issued to finance acquisitions, upon exercise of
stock options or otherwise would have a similar effect. See "-- Shares Available
for Future Sale." The Company's ability to pay dividends will depend in large
part on the performance of its properties and other properties that it may
acquire in the future. In addition, the Company's existing credit facility (the
"Credit Facility") places certain limitations on the Company's ability to pay
quarterly dividends to stockholders.
In addition, the Company's ability to pay dividends is based upon a number
of uncertainties. In particular, the Company only recently acquired a number of
its Properties and, therefore, has a limited operating history with respect to
those Properties. The Company's ability to pay dividends depends in large part
upon whether these recently acquired Properties, as well as the Company's other
Properties and future acquisitions perform in accordance with expectations.
Likewise, the Company's ability to pay dividends will depend upon, among other
things, occupancy levels at its Properties, its ability to enter into new leases
upon expiration of current leases and costs associated with the renewal or
reletting of space, expenditures with respect to existing and newly acquired
Properties, the amount of its debt and the interest rate thereon, default or
bankruptcy by tenants, and other costs relating to its Properties, as well as
the continued absence of significant expenditures relating to environmental or
other regulatory matters. Most of these matters are beyond the control of the
Company and it is unlikely that the Company's expectations with respect to these
matters will prove accurate in all respects. A significant difference between
such expectations and actual results could have a material adverse effect on the
Company and its ability to pay dividends.
The Company's ability to pay dividends on the Common Stock is further
limited by the laws of Maryland, its state of incorporation. Under the Maryland
General Corporate Law, as amended, (the "MGCL"), a Maryland corporation may not
make a distribution if, after giving effect to such distribution, either (i) the
corporation would not be able to pay indebtedness of the corporation as such
indebtedness becomes due in the usual course of business or (ii) the
corporation's total assets would be less than the sum of the corporation's total
liabilities plus (unless the corporation's charter provides otherwise, which the
Company's charter (the "Charter") does with respect to dividends but does not
with respect to distributions by redemption or other acquisition of shares or
otherwise), the amount that would be needed, if the corporation were to be
dissolved at the time of distribution, to satisfy the preferential rights upon
dissolution of stockholders whose preferential rights are superior to those
receiving the distribution. Thus, the Company cannot make a distribution, except
by dividend, on the Common Stock if, after giving effect to the distribution,
the Company's total assets would be less than the sum of the Company's
liabilities plus the amount that would be needed to satisfy the
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preferential rights upon dissolution of the holders of shares of the Convertible
Preferred Stock if the Company were to be dissolved at the time of the
distribution. See "Description of Capital Stock of the Company -- Convertible
Preferred Stock -- Liquidation Preference."
TAX RISKS; RISKS ASSOCIATED WITH REIT STATUS
ADVERSE CONSEQUENCES OF THE FAILURE TO MAINTAIN QUALIFICATION AS A REIT
The Company believes that it has operated so as to qualify as a REIT under
the Internal Revenue Code of 1986, as amended (the "Code"), commencing with the
taxable year 1985. However, no assurance can be given that the Company will be
able to continue to operate in a manner enabling it to remain so qualified or
that it will not be found to have failed to qualify as a REIT for a prior tax
year. In that regard (as discussed below), it is uncertain whether the Company
properly requested written statements from certain stockholders for tax year
1993 as required by the regulations issued by the United States Treasury
Department (the "Treasury Regulations") under the Code. Qualification as a REIT
involves the application of highly technical and complex Code provisions which
have only a limited number of judicial and administrative interpretations, and
the determination of various factual matters and circumstances not entirely
within the Company's control may have an impact on its ability to maintain its
qualification as a REIT. For example, in order to qualify as a REIT, at least
95% of the Company's gross income in any year must be derived from qualifying
sources and the Company must make distributions to stockholders aggregating
annually at least 95% of its REIT taxable income (excluding net capital gains).
In addition, no assurance can be given that new legislation, Treasury
Regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to its qualification as a REIT or
the federal income tax consequences of such qualification. The Company, however,
is not aware of any proposal to amend the tax laws that would significantly and
adversely affect the Company's ability to continue to operate as a REIT.
As a condition to maintaining its status as a REIT, the Code, and the
Treasury Regulations promulgated thereunder, contain a requirement (the "Five or
Fewer Requirement") that, during the last half of each taxable year, not more
than 50% in value of the REIT's outstanding stock be owned, directly or
indirectly, by five or fewer individuals (defined in the Code to include certain
entities). In order to determine if a REIT satisfies the Five or Fewer
Requirement, the Treasury Regulations require a REIT to request written
statements concerning the ownership of its capital stock from certain
stockholders of record (the "Stockholder Polling Requirements"). See "Federal
Income Tax Considerations -- Requirements for Qualification." For tax year 1993
(and possibly for certain prior years which tax counsel referred to below
believes are outside the normal period for federal tax audit), it is uncertain
whether the Company properly requested the written statements required by the
Stockholder Polling Requirements from certain clearing organizations holding
Common Stock as nominees for the beneficial owners of such shares. However, the
Company did employ stockholder polling procedures for tax year 1993 which it
believes went beyond what is required by the Treasury Regulations under the Code
in providing stockholder ownership information for purposes of determining
whether the Company had satisfied the Five or Fewer Requirement. In that regard,
the Company has received an opinion of Shearman & Sterling, counsel to the
Company, to the effect that, based on various assumptions and factual
representations made by the Company, the Company has not, by virtue of the
Stockholder Polling Requirements, failed to qualify as a REIT with respect to
tax year 1993. However, such opinion is not binding on the Internal Revenue
Service (the "IRS"). If the IRS were to successfully challenge such compliance,
the Company would lose its status as a REIT as of the first taxable year in
which it was considered not to have complied with such requirements. See
"Federal Income Tax Considerations -- Failure to Qualify."
The Series A Convertible Preferred stock purchase agreement, dated May 18,
1995, pursuant to which BPLP acquired the Convertible Preferred Stock (the
"Stock Purchase Agreement") in effect, permits a partner in BPLP to own up to
8.2% of the outstanding shares of Common Stock of the Company on a fully diluted
basis (that is, treating the Convertible Preferred Stock as if all of such stock
were converted to Common Stock). This is the equivalent of owning approximately
21% of the Convertible Preferred Stock, based on the number of shares of Common
Stock outstanding before the completion of the sale of the Shares or
approximately 32% based on the number of shares of Common Stock outstanding
after the sale of all the
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Shares hereunder. If each share of the Convertible Preferred Stock and each
share of the Common Stock were relatively equal in value, the ownership of the
Convertible Preferred Stock or the Common Stock upon conversion by BPLP would
not cause the Company to violate the Five or Fewer Requirement since, when the
maximum ownership of each of the partners of BPLP is combined with the ownership
of Peter Bedford, five or fewer individuals would not own more than 50% in value
of the outstanding shares of the Company. Notwithstanding the foregoing, if (i)
there were a substantial decline in the value of a share of the Common Stock
relative to a share of the Convertible Preferred Stock, (ii) five or fewer
individuals owned more than 50% of the Convertible Preferred Stock, and (iii)
such Convertible Preferred Stock constituted more than 50% of the aggregate
value of both the Common Stock and the Convertible Preferred Stock, the Company
could cease to be eligible to be treated as a REIT. The Company believes that
the likelihood of all three circumstances occurring is remote. For example, as
noted, five or fewer "individuals" would need to own more than a 50% interest in
BPLP. The Company believes that most of the partners in BPLP 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 BPLP, the Company could fail to qualify as a REIT.
If the Company fails to maintain its qualification as a REIT, or is found
not to have qualified as a REIT for any prior year, the Company would not be
entitled to deduct dividends paid to its stockholders and would be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. In addition, unless entitled to
relief under certain statutory provisions, the Company would also be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. This treatment would reduce amounts
available for investment or distribution to stockholders because of the
additional tax liability to the Company for the year or years involved. In
addition, the Company would no longer be required by the Code to make any
distributions. As a result, disqualification of the Company as a REIT could have
a material adverse effect on the Company and its ability to make distributions
to stockholders. To the extent that distributions to stockholders have been made
in anticipation of the Company's qualifying as a REIT, the Company might be
required to borrow funds or to liquidate certain of its investments to pay the
applicable tax. See "Federal Income Tax Considerations."
EFFECT OF DISTRIBUTION REQUIREMENTS
To maintain its status as a REIT, the Company is required each year to
distribute to its stockholders at least 95% of its taxable income (excluding net
capital gains). In addition, the Company is subject to a 4% nondeductible excise
tax on the amount, if any, by which certain distributions paid by it with
respect to any calendar year are less than the sum of 85% of its ordinary income
and 95% of its capital gain net income for the calendar year plus any amount of
such income not distributed in prior years. See "Federal Income Tax
Considerations." Although the Company anticipates that cash flow from operations
will be sufficient to enable it to pay its operating expenses and meet the
distribution requirements discussed above, there can be no assurance that this
will be the case and it may be necessary for the Company to incur borrowings or
otherwise obtain funds to satisfy the distribution requirements associated with
maintaining its qualification as a REIT. In addition, differences in timing
between the receipt of income and the payment of expenses in arriving at taxable
income of the Company could require the Company to incur borrowings or otherwise
obtain funds to meet the distribution requirements that are necessary to
maintain its qualification as a REIT. There can be no assurance that the Company
will be able to borrow funds or otherwise obtain funds if and when necessary to
satisfy such requirements.
TRANSFER AND OWNERSHIP LIMITATIONS
For the purpose of preserving the Company's REIT qualification, the
Company's Charter provides that no holder is permitted to own, either actually
or constructively under the applicable attribution rules of the Code, more than
5% (in value) of the aggregate outstanding shares of all classes of stock of the
Company or more than 5% (in number or value, whichever is more restrictive) of
the outstanding shares of Common
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Stock, with certain exceptions. In addition, no holder is 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 would
cause more than 50% in value of the Company's outstanding stock to be owned by
five or fewer individuals or would result in the Company's stock being
beneficially owned by less than 100 persons (determined without reference to any
rule of attribution). Acquisition or ownership (actual or constructive) of the
Company's stock in violation of these restrictions results in automatic transfer
of such stock to a trust for the benefit of a charitable beneficiary or, under
certain specified circumstances, the violative transfer may be deemed void ab
initio or the Company may choose to redeem the violative shares. Mr. Bedford and
BPLP are subject to higher ownership limitations than the other stockholders.
Specifically, Mr. Bedford is not permitted to own more than 15% of the lesser of
the number or value of the outstanding shares of Common Stock, as adjusted to
take into account the conversion of the 8,333,334 shares of Convertible
Preferred Stock. BPLP is permitted to own 100% of the outstanding shares of
Convertible Preferred Stock, but not more than 58% of the lesser of the number
or value of the outstanding shares of Common Stock, as adjusted to take into
account the conversion of the 8,333,334 shares of Convertible Preferred Stock.
See "Description of Capital Stock of the Company -- Restrictions on Transfer and
Ownership of Capital Stock."
The constructive ownership rules are complex and may cause Common Stock or
Convertible 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 5% of the number or value
of outstanding Common Stock or of less than 5% of the value of outstanding
Convertible Preferred Stock (or the acquisition of an interest in an entity
which owns Common Stock or Convertible Preferred Stock) by an individual or
entity could cause that individual or entity (or another individual or entity)
to constructively own Common Stock or Convertible Preferred Stock in excess of
the limits described above, and thus subject such stock to the ownership
restrictions in the Charter. See "Description of Capital Stock of the Company --
Restrictions on Transfer and Ownership of Capital Stock."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the efforts of its senior officers, and
in particular Peter B. Bedford, its Chairman and Chief Executive Officer. While
the Company believes that it could find replacements for these key personnel,
the loss of their services could have a material adverse effect on the Company.
In addition, the Credit Facility provides that it is an event of default
thereunder if Mr. Bedford ceases for any reason to be the Chairman or Chief
Executive Officer of the Company and a replacement reasonably satisfactory to
the lenders thereunder has not been appointed by the Board of Directors within
six months thereafter. Additionally, if Mr. Bedford were to cease serving
substantially full-time as Chief Executive Officer of the Company, the holders
of the Convertible Preferred Stock would be entitled to elect the smallest
number of directors constituting a majority of the Board of Directors of the
Company which could result in significant changes in the business objectives,
strategies and other policies of the Company. In addition, the Convertible
Preferred Stock must be redeemed 180 days after such election. However, a
majority of directors who are not elected by the holders of the Convertible
Preferred Stock may rescind such automatic redemption prior to the end of the
180-day period at their discretion. See "Description of Capital Stock of the
Company -- Convertible Preferred Stock -- Redemption." Mr. Bedford and the
Company have entered into an amended employment agreement pursuant to which Mr.
Bedford has agreed to serve as Chairman of the Board and Chief Executive Officer
on a substantially full-time basis until the agreement's expiration on September
18, 2000. This agreement will be automatically renewed for additional
consecutive one-year terms unless either party gives the other notice of
non-renewal.
COMPETITION
Numerous industrial and suburban office properties compete with the
Company's Properties in attracting tenants. Some of these competing properties
are newer, better located or better capitalized than the Company's Properties.
Many of the Company's investments, particularly the Suburban Office Properties,
are located in markets which have a significant supply of available space,
resulting in intense competition for tenants and lower rents. The number of
competitive properties in a particular area could have a material
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adverse effect on the Company's ability to lease space in the Properties or at
newly acquired or developed properties. In addition, numerous real estate
companies (including other REITs) compete with the Company in making bids to
acquire new properties. Many of these companies are larger and have
substantially greater financial resources than the Company. The activities of
these competitors could cause the Company to pay a higher purchase price for a
new property than it otherwise would have paid, or may prevent the Company from
purchasing a desired property at all.
REGULATORY COMPLIANCE
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances released on, above, under
or in such property. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The costs of such removal or remediation could be
substantial. Additionally, the presence of such substances, or the failure to
properly remediate such substances, may adversely affect the owner's ability to
borrow using such real estate as collateral. All of the Properties have had
Phase I environmental site assessments (which involve inspection without soil
sampling or groundwater analysis) by independent environmental consultants and
have been inspected for hazardous materials as part of the Company's acquisition
inspections. None of the Phase I assessments has revealed any environmental
conditions requiring material expenditures for remediation. The Phase I
assessment for Milpitas Town Center indicates that the groundwater under that
Property either has been, or may in the future be, impacted by the migration of
contaminants originating off-site. According to information available to the
Company, the responsible party for this off-site source has been identified and
has begun remediation pursuant to a cleanup program mandated by a California
environmental authority and the cleanup program is backed by an insurance policy
from CIGNA up to $10 million. The Company does not believe that this
environmental matter will impair the future value of Milpitas Town Center in any
significant respect, or that the Company will be required to fund any portion of
the cost of remediation, although there can be no assurance in this regard. No
assurance can be given that these Phase I assessments or the Company's
inspections have revealed all environmental liabilities and problems relating to
its Properties.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may be liable in respect of properties and joint
venture interests previously sold or otherwise divested.
The Company believes that it is in compliance in all material respects with
all federal, state and local laws regarding hazardous or toxic substances. To
date, compliance with federal, state and local environmental protection
regulations has not had a material effect upon the Company. However, there can
be no assurance that costs of investigating and remediating environmental
matters with respect to properties currently or previously owned by the Company
or properties which the Company may acquire in the future, or other expenditures
or liabilities (including claims by private parties) resulting from hazardous
substances present in, on, under or above such properties or resulting from
circumstances or other actions or claims relating to environmental matters, will
not have a material adverse effect on the Company and its ability to make
distributions to stockholders.
AMERICANS WITH DISABILITIES ACT COMPLIANCE; GOVERNMENT REGULATION;
RISK OF INCREASED REGULATORY COMPLIANCE COSTS
Under the Americans with Disabilities Act (the "ADA"), effective in 1992,
all public accommodations and commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. Compliance
with the ADA requires removal of access barriers, and noncompliance may result
in imposition of fines by the U.S. government or an award of damages to private
litigants. Although the Company believes that the Properties are substantially
in compliance with these requirements, the Company may in the future incur costs
to comply with the ADA with respect to both existing Properties and properties
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<PAGE> 39
which may be acquired in the future, which could have an adverse effect on the
Company and its ability to make distributions to stockholders.
The Properties are, and properties which the Company may acquire in the
future will be, subject to various other federal, state and local regulatory
requirements such as local building codes and other similar regulations. Failure
to comply with these requirements could result in the imposition of fines by
governmental authorities or awards of damages to private litigants. The Company
believes that the Properties are currently in substantial compliance with all
applicable regulatory requirements, although expenditures at properties owned by
the Company may be required to comply with changes in these laws. No material
expenditures are contemplated at this time in order to comply with any such laws
or regulations; however, there can be no assurance that these requirements will
not be changed or that new requirements will not be imposed that would require
significant unanticipated expenditures by the Company, which could have an
adverse effect on the Company and its ability to make distributions to
stockholders. Similarly, changes in laws increasing the potential liability for
environmental conditions existing on the Properties may result in significant
unanticipated expenditures, which could adversely affect the Company and its
ability to make distributions to stockholders.
RISKS OF DEBT FINANCING
DEPENDENCE ON CREDIT FACILITY AND MORTGAGE FINANCING
The Credit Facility, which as of September 30, 1996 had an outstanding
balance of $30.8 million, permits the Company to borrow and issue letters of
credit thereunder. Borrowings under the Credit Facility bear interest at a
floating rate and the Company may from time to time incur or assume other
indebtedness which bears interest at a floating rate. In the event of interest
rate increases, the Company's results of operations may be adversely affected.
In that regard, the Company's results of operations for the last several years
have benefitted from historically low levels of interest rates and could be
adversely affected by the recent rise in interest rates. As of September 30,
1996 the Credit Facility was secured by mortgages on 19 Properties (which
Properties collectively accounted for approximately 43% of the Company's
annualized base rent as of September 30, 1996), along with the rental proceeds
from such Properties. As of September 30, 1996, these 19 properties comprised
approximately 41% of the Company's total assets. The Company anticipates that it
will pledge properties acquired after the sale of the Shares hereunder as
collateral under the Credit Facility. In addition, during 1996, the Company has
obtained mortgage loans which, as of September 30, 1996 were in the aggregate
principal amount of $25 million. If the Company fails to meet its obligations
under the Credit Facility or the aforementioned mortgage loans, or any other
debt instruments it may enter into from time to time, including failure to
comply with financial covenants, the holders of such indebtedness generally
would be entitled to demand immediate repayment of the principal thereof and to
foreclose upon any collateral securing such indebtedness.
The Credit Facility currently expires on July 1, 1999, when the principal
amount of all outstanding borrowings must be paid. Since the term of the Credit
Facility is limited, the Company's ability to continue to fund acquisitions and
provide funds for working capital and other cash needs following the expiration
or utilization of the Credit Facility will depend primarily on its ability to
obtain additional private or public equity or debt financing.
The Company is subject to the risks normally associated with debt
financing, including the risk that the Company's cash flow from operations will
be insufficient to meet required payments of principal and interest, the risk
that the Company will not be able to refinance existing indebtedness or that the
terms of any such refinancing will not be as favorable as the terms of such
indebtedness, and the risk that the Company may be unable to finance future
acquisitions or capital expenditures on favorable terms, or at all. In addition,
the Company is subject to the risk that its failure to maintain its REIT status
may constitute an event of default under the Credit Facility. In addition, the
Credit Facility provides that it is an event of default thereunder if Mr.
Bedford ceases for any reason to be Chairman or Chief Executive Officer of the
Company and a replacement reasonably satisfactory to the lender under the Credit
Facility has not been appointed by the Board of Directors within six months
thereafter. In addition, default under or acceleration of any debt
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<PAGE> 40
instrument could, pursuant to cross-default clauses, cause or permit the
acceleration of other indebtedness and trigger the right of the holders of the
Convertible Preferred Stock, subject to applicable laws regarding distributions,
to cause the Company to redeem all of the then outstanding shares of Convertible
Preferred Stock at a price of $6.00 per share plus all accrued dividends payable
thereon. Any such default or acceleration could have a material adverse effect
on the Company and its ability to make distributions to stockholders and to
maintain its qualification as a REIT under the Code and could threaten the
continued viability of the Company. See "-- Dependence on Key Personnel," and
"Description of Capital Stock of the Company -- Convertible Preferred
Stock -- Redemption."
POLICIES ON INDEBTEDNESS SUBJECT TO CHANGE
The Company currently has a policy of limiting its total consolidated
indebtedness to 50% of the aggregate market value of the outstanding shares of
Common Stock plus the outstanding balance of the Convertible Preferred Stock
plus the total consolidated indebtedness of the Company. The organizational
documents of the Company, however, do not contain any limitation on the amount
or percentage of indebtedness the Company may incur. Accordingly, the Board of
Directors could alter its policy of limiting the extent of its borrowing. If
this policy were changed, the Company could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the Company
and its ability to make distributions to stockholders and in increased risk of
default on its obligations. Moreover, although the Company will consider factors
other than market capitalization in making decisions regarding the incurrence of
debt (such as the purchase price of properties to be acquired with debt
financing, the estimated market value of properties upon refinancing, and the
ability of particular properties and the Company as a whole to generate cash
flow to cover expected debt service), there can be no assurance that the
aforementioned ratio will be such that the Company, after meeting debt service
obligations thereon, would be able to continue to make stockholder distributions
at current levels.
REDEMPTION OF THE CONVERTIBLE PREFERRED STOCK
The Company is required, at the option of the holders of the Convertible
Preferred Stock, to redeem the Convertible Preferred Stock on demand of the
holders thereof on the occurrence of any one or more of the following: (i) the
failure to pay dividends on the Convertible Preferred Stock for two consecutive
quarters, (ii) a default in the payment on certain institutional debt, (iii) the
failure of the Company to obtain any required consent of the holders of the
Convertible Preferred Stock or (iv) the failure to reach certain financial
performance levels. The Company could experience substantial difficulty in
financing any such redemption and may be required to liquidate a substantial
portion of its properties. 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. See "Description of Capital Stock of the
Company -- Convertible Preferred Stock -- Redemption."
REGISTRATION RIGHTS
After September 18, 1997, BPLP and certain of its transferees have the
right to cause the Company to register the shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock for sale to the public. In
addition, pursuant to a registration rights agreement, Mr. Bedford has the right
to require the Company to register up to 250,000 shares under the Securities Act
for offer and sale to the public (including by way of an underwritten public
offering) and to cause such shares to be included in any registration statement
filed by the Company. The right of BPLP and certain of its transferees and Mr.
Bedford to register shares of Common Stock (in the case of BPLP, issuable upon
conversion of the Convertible Preferred Stock) 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 "-- Shares Available for Future Sale," and "Description of Capital
Stock of the Company -- Convertible Preferred Stock -- Registration Rights."
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<PAGE> 41
RISK OF SUBSTANTIAL DILUTION
At any time after September 18, 1997, the shares of Convertible Preferred
Stock will be convertible, at the option of the holders, into such number of
shares of Common Stock as is determined by dividing $6.00 by the conversion
price then in effect. The current conversion price is $12.00 per share and,
therefore, each share of Convertible Preferred Stock is currently convertible
into one-half of one share of Common Stock. See "-- Shares Available For Future
Sale." The conversion price is subject to adjustment to provide certain
antidilution protection to holders of the Convertible Preferred Stock. Holders
of Common Stock could experience substantial dilution in the event that the
Company issues a substantial number of additional shares of the Common Stock
and/or preferred stock, either upon conversion of the Convertible Preferred
Stock, in connection with future acquisitions or otherwise, which issuance could
adversely affect the market price of Common Stock. See "Description of Capital
Stock of the Company -- Convertible Preferred Stock -- Conversion Rights."
EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK
One of the factors that will influence the market price of the shares of
Common Stock in public markets will be the annual yield on the price paid for
shares of Common Stock from distributions by the Company. An increase in market
interest rates may lead prospective purchasers of the Common Stock to seek a
higher annual yield from their investments. Such circumstances may adversely
affect the market price of the Common Stock.
CONCENTRATION OF VOTING POWER AND RIGHT TO CONSENT OF THE HOLDERS OF THE
CONVERTIBLE PREFERRED STOCK
The holders of the Convertible Preferred Stock have and will continue to
have significant direct and indirect influence over the Company's affairs.
Subject to certain limitations, the consent of BPLP or of any transferee holding
50% or more of the outstanding Convertible Preferred Stock will be required for
the Company to make substantial investments, to issue substantial amounts of
debt, modify executive compensation or employment contracts, or change the
Company's business plan. See "Description of the Capital Stock of the
Company -- Convertible Preferred Stock -- Protective Provisions." In addition,
the budget applicable to the overhead component of the Company's acquisitions
and financing expenditures made through Bedford Acquisitions, Inc., a
corporation wholly-owned by Mr. Bedford, is subject to the approval of BPLP. As
a result, although the Board of Directors and the Company's management will
continue to manage the ordinary business affairs of the Company, BPLP will have
the ability to exercise a controlling influence over most substantial
transactions.
In addition, the holders of the Convertible Preferred Stock as a class
currently have the right to elect two directors. Under certain circumstances,
the holders of the Convertible Preferred Stock will be entitled to elect a
number of directors constituting a majority of the Board of Directors. Such
circumstances include the Company's failure to pay quarterly dividends on the
Convertible Preferred Stock in two consecutive quarters or redeem the
Convertible Preferred Stock pursuant to a valid demand for redemption, and Mr.
Bedford's cessation to serve substantially full-time as Chief Executive Officer
of the Company. See "Description of Capital Stock of the Company -- Convertible
Preferred Stock -- Redemption." Moreover, the Company may not authorize or
create any class or series of equity securities that ranks equal or senior to
the Convertible 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 Convertible Preferred Stock,
voting together as a single class. Although each Director is required by the
MGCL to perform his duties as a director (i) in good faith, (ii) in a manner he
reasonably believes to be in the best interest of the Company and (iii) with the
care that an ordinarily prudent person in a like position would use under
similar circumstances, there can be no assurance that the interests of BPLP, and
indirectly the directors elected by the holders of the Convertible Preferred
Stock, will not differ from or conflict with the interests of the holders of
Common Stock.
In addition, upon conversion of the Convertible Preferred Stock into shares
of Common Stock, the holders of the Convertible Preferred Stock would have
considerable influence with respect to the election of
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<PAGE> 42
directors and the approval or disapproval of significant corporate actions,
since they would hold approximately 26% of all outstanding shares, assuming such
conversion took place after the sale of all of the Shares hereunder.
As of September 30, 1996, BPLP, an affiliate of Aldrich Eastman Waltch, was
the sole holder of all outstanding shares of the Convertible Preferred Stock. In
view of the substantial influence of the holders of the Convertible Preferred
Stock over the Company's affairs, it should be noted that BPLP's interests do
not necessarily coincide with those of the holders of the Common Stock and
therefore its actions with respect to the Company will not necessarily be in the
best interests of the holders of Common Stock. In addition, BPLP's affiliation
with Aldrich Eastman Waltch, a national real estate investment adviser whose
clients primarily include institutional investors and other affiliates engaged
in businesses competitive with the Company, may give rise to a conflict of
interest.
In addition, as of September 30, 1996, Mr. Bedford's beneficial ownership
of 1,004,663 shares of Common Stock of the Company (including then-exercisable
options to purchase 63,750 shares and options exercisable within sixty days of
such date to purchase 10,000 shares) represented approximately 15% of the
outstanding shares of Common Stock at that date. Mr. Bedford will be the
beneficial owner of the same number of shares after the sale of the Shares,
representing approximately 8% of the outstanding shares of Common Stock assuming
the sale of all of the Shares. While Mr. Bedford does not and, assuming the sale
of all of the Shares, will not have majority control of the Company, he
currently has, and likely will continue to have, significant influence with
respect to the election of directors and approval or disapproval of significant
corporate actions.
EXEMPTION FROM THE MARYLAND BUSINESS COMBINATION LAW
Under the MGCL, certain "business combinations" (including certain
issuances of equity securities) between a Maryland corporation and any person
who beneficially owns 10% or more of the voting power of the corporation's
shares (an "Interested Shareholder") or an affiliate thereof are prohibited for
five years after the date on which the Interested Stockholder becomes an
Interested Stockholder unless approved by two super-majority votes of the
stockholders unless, among other conditions, the corporation's common stock
holders 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 common shares. Mr. Bedford and BPLP currently
beneficially own more than 10% of the Company's voting shares and would,
therefore, be subject to the business combination provisions of the MGCL.
However, as permitted by the MGCL, the Board of Directors has elected to exempt
any business combination with any person from these provisions of the MGCL.
Consequently, unless such exemption is amended or repealed by the Board of
Directors, the five-year prohibition and the super majority vote requirements
described above will not apply to any business combination between any
Interested Stockholder and the Company. As a result, the Company may in the
future enter into business combinations with Mr. Bedford, BPLP or other
Interested Stockholders, without compliance by the Company with the super
majority vote requirements and other provisions of the statute. The exemption
from these provisions may be amended or repealed by the Board of Directors at
any time, except that the Charter provides that the Company must obtain the
consent of certain specified holders of Convertible Preferred Stock before
amending or repealing such exemption with respect to BPLP or with respect to the
exercise of any redemption right of the Convertible Preferred Stock which may
constitute a business combination. See "Certain Provisions of Maryland Law and
of the Company's Charter and Bylaws -- Maryland Business Combination Law."
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE CHARTER, THE BYLAWS, THE
CONVERTIBLE PREFERRED STOCK AND MARYLAND LAW
The Company's Charter authorizes the Board of Directors to cause the
Company to issue additional shares of Common Stock or Preferred Stock and to set
the preferences, rights and other terms of such preferred stock without the
approval of the holders of the Common Stock. However, the Company must obtain
the consent of BPLP or the transferee of BPLP holding more than 50% of the
outstanding shares of Convertible Preferred Stock in order to issue certain
equity securities and may not authorize or create any class or series of stock
that ranks equal or senior to the Convertible Preferred Stock except after
approval of
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such issuance by the affirmative vote of holders of at least a majority of the
outstanding shares of Convertible Preferred Stock, voting together as a single
class. See "Description of Capital Stock of the Company -- Convertible Preferred
Stock -- Protective Provisions" and "Description of Capital Stock of the
Company -- Convertible Preferred Stock -- Ranking." Although the Board of
Directors has no intention to issue any shares of Preferred Stock at the present
time, it may establish one or more series of Preferred Stock that could,
depending on the terms of such series, delay, defer or prevent a transaction or
a change in control of the Company.
The Charter contains other provisions that may delay, defer or prevent a
transaction or a change in control of the Company that might involve a premium
price for the holders of the Common Stock or otherwise be in the best interests
of the stockholders or that could otherwise adversely affect the interests of
the holders of the Common Stock, and the Bylaws may be amended by the Board of
Directors (subject to the consent of BPLP) to include provisions that would have
a similar effect, although the Board presently has no such intention. The
Charter provides that the Company must seek the consent of BPLP or the
transferee of BPLP holding more than 50% of the outstanding shares of
Convertible Preferred Stock before it may, among other actions, merge or
consolidate or sell assets with a purchase price of more than $10 million.
Additionally, the Charter contains provisions limiting the transferability and
ownership of shares of the capital stock of the Company, which may have the
effect of delaying, deferring or preventing a transaction or a change in control
of the Company that might involve a premium price for the holders of the Common
Stock or otherwise be in their best interests or that could have dividend,
voting or other rights that could adversely affect the interests of holders of
Common Stock. See "Description of Capital Stock of the Company -- Restrictions
on Transfer and Ownership of Capital Stock." In addition, the Charter provides
that the holders of the shares of Convertible Preferred Stock are entitled to
receive $6.30 per share of Convertible Preferred Stock plus accrued and unpaid
dividends on the Convertible Preferred Stock (the "Liquidation Preference") in
the event of (i) any transaction, including a consolidation or merger or
corporate reorganization of the Company, 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, or (ii) a sale of all or substantially all of the assets
of the Company or the acquisition of a majority of the outstanding shares of
Common Stock of the Company by any person (other than certain specified persons,
including Mr. Bedford and affiliates of BPLP). Until the holders of the
Convertible 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. See "Description of Capital Stock of
the Company -- Convertible Preferred Stock -- Liquidation Preference."
Although, as described above in "-- Exemption from the Maryland Business
Combination Law," the Board of Directors has elected to exempt the Company from
the "business combination" provisions of the MGCL, such exemption may be amended
or repealed by the Board of Directors at any time, except that the Charter
provides that the Company must seek the consent of specified holders of the
Convertible Preferred Stock before amending or repealing such resolution with
respect to BPLP or with respect to the exercise of any redemption right of the
Convertible Preferred Stock which may constitute a business combination. Such
action by the Board of Directors would impose the "business combination"
restrictions of the MGCL on Interested Stockholders, which could delay, defer or
prevent a transaction or change in control of the Company that might involve a
premium price for the Company's stock or otherwise be in the best interests of
the stockholders or that could otherwise adversely affect the interests of the
stockholders.
In addition, the MGCL restricts the voting rights of shares deemed to be
"control shares." Under the MGCL, "control shares" are those which, when
aggregated with any other shares held by the acquiror, entitle the acquiror to
exercise voting power within specified ranges. Although the Bylaws provide that
the control share provisions of the MGCL shall not apply to any acquisition by
any person, of shares of stock of the Company, such provision of the Bylaws may
be amended or eliminated by the Board of Directors at any time in the future,
provided that it obtains the required consent from BPLP and other specified
holders of the Convertible Preferred Stock. Moreover, any such amendment or
elimination of such provision of the Bylaws may result in the application of the
control share provisions of the MGCL not only to control shares which may be
acquired in the future, but also to control shares previously acquired. The
control share provisions of the MGCL could delay, defer or prevent a transaction
or change in control of the Company that might involve
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a premium price for the Company's stock or otherwise be in the best interests of
the stockholders or that could otherwise adversely affect the interests of the
stockholders. See "Certain Provisions of Maryland Law and of the Company's
Charter and Bylaws."
SHARES AVAILABLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sales, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, may
adversely affect the prevailing market price for the Common Stock.
CHANGES IN POLICIES
The major policies of the Company, including its policies with respect to
maintaining its qualification as a REIT and with respect to dividends,
acquisitions, debt and investments, are established by the Board of Directors.
Although it has no present intention to do so, the Board of Directors may amend
or revise these and other policies from time to time without a vote of or notice
to the stockholders of the Company (subject to the rights of the holders of the
Convertible Preferred Stock). Accordingly, holders of the shares of Common Stock
will have no control over changes in policies of the Company, including any
policies relating to the payment of dividends or to maintaining qualification as
a REIT.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the
Company will issue the Shares or use the net cash proceeds from the sale of the
Shares to acquire new properties as suitable opportunities arise, to expand and
improve certain properties in the Company's portfolio, to develop new industrial
and suburban office properties, to repay certain indebtedness and for general
corporate purposes. Pending application of any net proceeds, the Company will
invest such proceeds in interest-bearing accounts and short-term, interest-
bearing securities, which are consistent with the Company's intention to
continue to qualify for taxation as a REIT. Such investments may include, for
example, government and governmental agency securities, certificates of deposit
and interest-bearing bank deposits.
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DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The following summary of certain terms of the capital stock of the Company
and Maryland law does not purport to be complete and is subject to and qualified
in its entirety by reference to the Company's Charter and Bylaws and Maryland
law.
GENERAL
The Company's Charter provides that the Company may issue up to 15,000,000
shares of Common Stock, 10,000,000 shares of Convertible Preferred Stock, and
10,000,000 shares of Preferred Stock. As of September 30, 1996, there were
6,501,325 shares of Common Stock issued and outstanding and 8,333,334 shares of
Convertible Preferred Stock issued and outstanding. Under Maryland law,
stockholders generally are not liable for a corporation's debts or obligations
solely as a result of their status as stockholders.
COMMON STOCK
All shares of Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of the Convertible
Preferred Stock and any other shares or series of stock, holders of shares of
Common Stock are entitled to receive dividends on such stock if, as and when
authorized and declared by the Board of Directors out of assets legally
available therefor and to share ratably in the assets of the Company legally
available for distribution to its stockholders in the event of its liquidation,
dissolution or winding up after payment of or making adequate provision for all
debts and liabilities of the Company. See "-- Convertible Preferred
Stock -- Dividends" and "-- Convertible Preferred Stock -- Liquidation
Preference."
Each outstanding share of Common Stock entitles the holder to one vote on
all matters submitted to a vote of stockholders except as provided below
regarding the right of the holders of the Convertible Preferred Stock to vote as
a single class with respect to the election of a specified number of Directors
and certain amendments to the Charter (see "-- Convertible Preferred
Stock -- Voting Rights") and, except as provided with respect to any other class
or series of stock, the holders of such shares possess the exclusive voting
power. With respect to the election of Directors, the holders of the Convertible
Preferred Stock have the right to elect two members of the Board of Directors
and, upon the occurrence of certain events, a majority of the members of the
Board of Directors, and the holders of shares of Common Stock have the right to
elect the remaining Directors. See "-- Convertible Preferred Stock -- Voting
Rights -- Election of Directors." There is no cumulative voting in the election
of Directors, which means that the holders of a majority of the outstanding
voting shares of Common Stock can elect all of such remaining directors standing
for election and the holders of the remaining shares of Common Stock will not be
able to elect any directors.
Holders of shares of Common Stock have no preference, conversion, exchange,
sinking fund, redemption rights or preemptive rights to subscribe for any
securities of the Company.
Under the MGCL a Maryland corporation cannot dissolve, amend its charter,
merge, consolidate, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary course of
business unless such dissolution, amendment, merger, consolidation, sale or
share exchange is approved by the affirmative vote of stockholders holding at
least two-thirds of the outstanding shares entitled to vote on the matter unless
a lesser percentage (but not less than a majority of all the votes entitled to
be cast on the matter) is set forth in the corporation charter. The Company's
Charter specifies that the affirmative vote of the stockholders holding a
majority of the outstanding shares is necessary to approve such transactions. In
addition, as set forth below under the caption "-- Convertible Preferred
Stock -- Protective Provisions," the Charter provides that the holders of the
Convertible Preferred Stock have the right to consent to specified transactions
including, but not limited to, the consolidation or merger of the Company, the
issuance of debt in a principal amount in excess of $10 million, the making of
new investments, the issuance of specified equity securities and the sale of
assets in excess of specified amounts.
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CONVERTIBLE PREFERRED STOCK
As of September 30, 1996, BPLP was the holder of all 8,333,334 outstanding
shares of Convertible Preferred Stock. The following summarizes certain rights
of BPLP, its affiliates and its transferees under the Charter and the Stock
Purchase Agreement between BPLP and the Company.
RANKING
The Convertible Preferred Stock ranks senior to the Common Stock with
respect to the payment of dividends and amounts upon liquidation, dissolution or
winding up of the Company. The Company may not authorize, create or increase the
authorized amount of any class or series of equity securities that ranks equal
or senior to the Convertible 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 Convertible
Preferred Stock, voting together as a single class.
DIVIDENDS
Holders of shares of Convertible Preferred Stock are 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 $.135 and (ii) the dividends payable with respect to such quarter
in respect of the Common Stock into which each share of the Convertible
Preferred Stock is convertible plus, in both cases, the dividends accumulated
but unpaid on the Convertible Preferred Stock. If the holders of the Convertible
Preferred Stock have exercised the right to require the Company to redeem such
stock and the redemption payment has not been made, then the rate at which
dividends accrue will increase to $.165 per share until either the redemption
price payable with respect to the Convertible Preferred Stock is paid or the
size of the Board is increased to eleven Directors and the holders of the
Convertible Preferred Stock elect four Directors to fill the newly-created
vacancies on the Board of Directors. See "-- Voting Rights." Dividends on the
Convertible Preferred Stock are payable quarterly in arrears, 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 began accruing on September 18,
1995 (the date that the Convertible Preferred Stock was issued), and are
cumulative from such date, whether or not in any dividend period or periods
there are 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 have been paid on or
authorized and set apart on all shares of Convertible 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 Convertible Preferred Stock are
entitled to a proportionate share of such distribution as though the holders of
Convertible Preferred Stock were holders of the number of shares of Common Stock
into which the Convertible 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 the Company's
Convertible Preferred Stock and 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
In the event of a Liquidation Event (as defined below), the holders of
shares of Convertible Preferred Stock are entitled to receive $6.30 per share of
Convertible Preferred Stock plus an amount per share of Convertible 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. See "Risk Factors -- Anti-takeover
Effect of the Charter, the Bylaws, the Convertible Preferred Stock and Certain
Provisions of Maryland Law."
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Until the holders of the Convertible 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. If, upon
the occurrence of a Liquidation Event (as defined below), the assets of the
Company, or proceeds thereof, distributable among the holders of the shares of
Convertible 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 Convertible Preferred Stock in accordance with
their respective holdings thereof.
A "Liquidation Event" is (a) any transaction, including without limitation,
a consolidation or merger of the Company (other than for the purposes of
reincorporation), 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, or (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)
BPLP and its affiliates, (ii) Mr. Bedford, members of his immediate family, or
his affiliates, (iii) any person as a result of the conversion of shares of
Convertible Preferred Stock, or (iv) any underwriter in either a public or
private offering.
REDEMPTION
Redemption may be made at the option of the holders of the Convertible
Preferred Stock or at the option of the Company under the conditions described
below. All redemption payments are to be made in cash, unless the holders of the
Convertible Preferred Stock agree, at their sole discretion, to accept some
alternative payment. If redemption is prohibited under the MGCL or similar
statute, redemption is pro rata to the extent of funds legally available
therefor.
Redemption at Convertible Preferred Stockholders' Option
On September 18, 1996, the Company became obligated, at the option of the
holders of the Convertible Preferred Stock, to redeem the Convertible 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 Convertible 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 aggregate outstanding
balance 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 the
approval of BPLP or a holder of more than 50% of the outstanding shares of the
Convertible Preferred Stock prior to completing certain major transactions, as
and if required pursuant to the terms of the Charter (see "-- Protective
Provisions"); (d) for the calendar year 1996, the Company's Funds Available for
Distribution, as defined in the Charter ("FAD"), fail to reach at least a
break-even dividend coverage equal to the full dividend payable on the
Convertible 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 Convertible Preferred Stock and annual dividends on the Common
Stock equal to a seven percent (7%) yield on $5.72 (before giving effect to the
one-for-two reverse stock split effected on March 29, 1996) (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 (before giving effect to the
one-for-two reverse stock split effected on March 29, 1996) (rounded to the
nearest whole cent). Because the Convertible Preferred Stock is redeemable at
the option of the holder, it is reported separately from the stockholders'
equity (i.e., classified as temporary equity) in the Company's consolidated
financial statements.
Redemption at the Option of the Company
Except as provided with respect to automatic redemption under "-- Automatic
Redemption Cancellable at the Option of the Non-Series A Directors," shares of
Convertible Preferred Stock are not redeemable by
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<PAGE> 48
the Company prior to September 18, 1997. At any time thereafter, the Convertible
Preferred Stock may be redeemed in whole (but not in part) at the option of the
Company. The redemption price is equal to a price calculated by determining an
internal rate of return on the Convertible Preferred Stock of 25% per annum
(treating the purchase price paid by BPLP as investment "out-flows," and all
dividends and other distributions paid on the Convertible Preferred Stock from
the date of issuance as "in-flows") for the period from September 18, 1995,
until September 18, 1997 and an internal rate of return on the Convertible
Preferred Stock of 20% per annum from and after September 18, 1997, until the
date of redemption, but not beyond September 18, 2000.
At any time after September 18, 2000, or at any time prior thereto if there
are less than 400,000 shares of Convertible Preferred Stock outstanding, the
Convertible 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 $.06 in each of the first five full years commencing on September 18,
2000) plus all accrued and unpaid dividends.
Prior to any redemption by the Company, the holders of Convertible
Preferred Stock have the right to convert the Convertible Preferred Stock into
Common Stock of the Company provided that the holder of Convertible Preferred
Stock shall have surrendered his 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.
Automatic Redemption Cancellable at the Option of the Non-Series A
Directors
If the right of the holders of the Convertible Preferred Stock to elect the
smallest number of Directors constituting a majority of the Board of Directors
has been triggered as discussed under "-- Voting Rights," and the holders have
elected Directors pursuant to this right, then the Company will be deemed to
have approved a redemption at the option of the Company to take place on the
date 180 days after such election. However, a majority of the Directors who are
not elected by the holders of Convertible Preferred Stock may cancel such a
redemption before the end of such 180-day period in their absolute discretion.
This automatic redemption provision will have no effect on the ability of a
majority of the Board of Directors to effect a redemption at any time following
September 18, 1997.
VOTING RIGHTS
Except as indicated below with respect to the election of Directors,
certain amendments to the Charter and the repeal of the Charter's provisions
regarding business combinations, the holders of shares of Convertible Preferred
Stock have no voting rights. On those matters for which the holders of the
Convertible Preferred Stock have the right to vote, each share is entitled to
one vote.
Election of Directors
The holders of the Convertible Preferred Stock as a class have the right to
elect two Directors. In the event that the number of outstanding shares of
Convertible Preferred Stock represents less than 15% but at least 7% of the
Company's outstanding shares of Common Stock (calculated on an as-converted
basis), then the holders of Convertible Preferred Stock will be entitled to
elect only one member of the Board; should such number represent less than 7%,
such right to elect Directors will terminate altogether.
In addition, if (i) the Company has failed in two consecutive quarters to
pay in full and in a timely manner the quarterly dividends on the Convertible
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, his affiliates and members
of his immediate family beneficially own fewer than 599,139 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 Convertible Preferred Stock pursuant to a demand
for redemption made by the holders of a majority of the Convertible Preferred
Stock under circumstances in which the holders of the Convertible Preferred
Stock have the right to demand redemption, then immediately thereafter, and
regardless of any subsequent cure, the holders of the Convertible Preferred
Stock are entitled to elect the smallest number of Directors constituting a
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<PAGE> 49
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 Convertible 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, and the holders of the Convertible
Preferred Stock will have the exclusive right to elect four persons to fill
newly created vacancies on the Board of Directors.
Senior Securities; Amendments to the Charter
The approval of holders of a majority of the outstanding shares of
Convertible Preferred Stock, voting as a single class, is required in order to
amend the Charter in a way that would materially and adversely affect the rights
or preferences of the holders of Convertible Preferred Stock or to authorize any
class or series of stock having rights equal or senior to the Convertible
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 Convertible Preferred Stock to vote on the foregoing matters terminates
if the holders of Convertible Preferred Stock hold less than 15% of the
Company's outstanding shares of Common Stock (calculated on an as-converted
basis).
CONVERSION RIGHTS
Shares of Convertible Preferred Stock are convertible at the option of the
holder at any time after September 18, 1997 into such number of shares of Common
Stock as is determined by dividing $6.00 by the conversion price in respect of
the Convertible Preferred Stock (the "Conversion Price"). The current Conversion
Price is $12.00 per share. The Conversion Price is subject to adjustment as
described below. In addition, the holders of Convertible Preferred Stock have
the right to convert the Convertible Preferred Stock into Common Stock prior to
any redemption by the Company.
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.
The Conversion Price is subject to adjustments in the event that the
Company issues Additional Stock (as defined below) for consideration which, on a
per share basis, is less than the Conversion Price as then in effect. Prior to
September 18, 1997, if the Company issues Additional Stock for a consideration
per share less than the Conversion Price, then the Conversion Price will 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 September
18, 1997, 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 is
the number of shares of Common Stock outstanding immediately prior to such
issuance, assuming conversion of all outstanding shares of Convertible 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 is the number of shares of Common Stock
outstanding immediately prior to such issue, assuming conversion of the
outstanding shares of Convertible 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 of the foregoing discussion, "Additional Stock" means all
Common Stock issued by the Company after September 18, 1995, other than Common
Stock issued or issuable at any time: (a) upon conversion of the Convertible
Preferred Stock; (b) upon exercise of options outstanding on September 18, 1995;
(c) upon issue of options granted pursuant to the Company's 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 September
18, 1995, as increased from time to time upon approval by a majority
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<PAGE> 50
of the Directors elected by the holders of the Convertible 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 Convertible
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) above, 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 will be made such that
holders of the Convertible 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 Convertible Preferred Stock been converted as
of the date of such distribution.
If the Common Stock issuable upon conversion of the Convertible 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 will be proportionately adjusted,
concurrently with the effectiveness of such reorganization or reclassification,
such that the shares of Convertible Preferred Stock are 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 Convertible Preferred Stock immediately before
that change.
PROTECTIVE PROVISIONS
The approval of BPLP or any single holder who holds more than 50% of the
outstanding shares of Convertible Preferred Stock is 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 REITs, 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, and the issuance of equity securities
the proceeds of which will be used to redeem the Convertible 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 in any material respect of any
executive employment agreement; (vii) the modification of the contract with
Bedford Acquisitions regarding the provision of acquisition and financing
activities or any other agreement between the Company and Mr. Bedford or any of
his affiliates 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 business strategies); (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 and members of his immediate family
beneficially own fewer than 599,139 shares of Common Stock; (xi) the issuance of
awards of any shares or options other than those permitted in clause (iv) above;
and (xii) any amendment to the resolution of the Board of Directors exempting
BPLP and any affiliate thereof 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 Convertible
Preferred Stock which may constitute a business combination. See "Risk
Factors -- Antitakeover Effect of the Charter, the Bylaws, the Convertible
Preferred Stock and Certain Provisions of Maryland Law."
In order to protect the Company from violating one of the foregoing
provisions, Mr. Bedford has entered into an agreement with the Company pursuant
to which he has agreed not to sell certain of his shares of Common Stock without
prior approval from the Company.
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The foregoing right to approve the Major Transactions remains effective
until such time as the total outstanding shares of Convertible Preferred Stock
represents less than 15% of the Company's outstanding shares of Common Stock
(calculated on an as-converted basis).
In addition, for so long as the outstanding shares of Convertible Preferred
Stock represent at least 15% of the total of (i) the shares of Common Stock
outstanding, plus (ii) the shares of Common Stock issuable upon the conversion
of the outstanding Convertible Preferred Stock, the Company must obtain the
approval of holders of a majority of the outstanding shares of Convertible
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.
RIGHT TO PARTICIPATE IN FUTURE OFFERINGS
So long as BPLP owns shares of Convertible Preferred Stock which represent
15% or more of the total of (i) the shares of Common Stock outstanding, plus
(ii) the shares of Common Stock issuable upon the conversion of the outstanding
Convertible Preferred Stock, BPLP has the right to purchase for cash its pro
rata share of each issuance by the Company of New Securities (as defined below),
on the same terms and conditions as the New Securities are offered to third
parties. "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. Other than BPLP, the holders of the Convertible 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.
REGISTRATION RIGHTS
The outstanding shares of Convertible Preferred Stock are not registered
under 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, certain holders of the Convertible Preferred Stock
have the right to request that the Company register the shares of Common Stock
issuable upon the conversion of the Convertible 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 ("Registrable Securities"). Any stockholder owning 40% or more of
the Registrable Securities that have not been sold to the public has the right,
after September 18, 1997, to require the Company to use its best efforts to
register under the Securities Act at least 500,000 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 BPLP, 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 250,000. If the Company
qualifies for the use of Form S-3 as promulgated by the Securities and Exchange
Commission, then at any time after September 18, 1997 and prior to September 18,
2002, any Holder has the right to cause the Company to use its best efforts to
effect a registration of at least 500,000 shares of the Registrable Securities
on behalf of such Holder and other Holders. The registration rights are
assignable by any Holder to any transferee acquiring at least 250,000
Registrable Securities. The Company will pay all registration expenses in
connection with each registration of Registrable Securities pursuant to the
Stock Purchase Agreement. See "Risk Factors -- Registration Rights," "Risk
Factors -- Shares Available for Future Sale" and "Shares Available for Future
Sale."
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EXEMPTION FROM BUSINESS COMBINATION STATUTE
The Company has exempted from the provisions of Section 3-602 of the MGCL
any "business combination" (as defined in Section 3-601 of the MGCL) between the
Company and BPLP or any BPLP Affiliate and any transaction resulting from the
exercise of any redemption right of the Convertible Preferred Stock that may
constitute a business combination. Such exemption may not be repealed or amended
without the consent of BPLP or certain other specified holders of the
Convertible Preferred Stock.
ADDITIONAL SERIES OF PREFERRED STOCK
Shares of Preferred Stock (including any unissued shares of any series of
Preferred Stock, to the extent permitted by the terms of such series) may be
issued from time to time, in one or more series as authorized by the Board of
Directors and subject to the right to consent of certain holders of the
Convertible Preferred Stock. See "-- Convertible Preferred Stock -- Ranking" and
"-- Convertible Preferred Stock -- Protective Provisions." Prior to issuance of
shares of each series, the Board of Directors is required by the MGCL and the
Charter to specify the number of shares of Preferred Stock to be included in
such series and set the terms, preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series.
Accordingly, the Board of Directors, without approval of the holders of Common
Stock, could cause the issuance of one or more series of Preferred Stock that
could, depending on the terms of such series, delay, defer or prevent a
transaction or change in control of the Company that might involve a premium
price for the Common Stock or otherwise be in the best interests of the holders
of Common Stock, or that could have dividend, voting or other rights that could
adversely affect the interests of holders of Common Stock. See "Risk
Factors -- Anti-takeover Effect of the Charter, the Bylaws, the Convertible
Preferred Stock and Certain Provisions of Maryland Law." As of the date hereof,
the Company has no present plans to issue any additional series of Preferred
Stock.
RESTRICTIONS ON TRANSFER AND OWNERSHIP OF CAPITAL STOCK
GENERAL
The Charter provides that the Board of Directors shall use its reasonable
best efforts to cause the Company and its stockholders to qualify for federal
income tax treatment in accordance with provisions of the Code applicable to a
REIT. In furtherance of the foregoing, the Charter further provides that the
Board of Directors shall use its reasonable best efforts to take such actions as
are necessary and may take such actions, as in its sole judgment and discretion
are desirable, to preserve the status of the Company as a REIT; provided,
however, that if the Board of Directors determines that it is no longer in the
best interests of the Company for the Company to continue to qualify as a REIT,
the Board of Directors may revoke or otherwise terminate the Company's election
to be taxed as a REIT.
LIMITATION ON TRANSFER OF CAPITAL STOCK
For the Company to qualify as a REIT under the Code, the Company must,
among other things, satisfy the Five or Fewer Requirement and 100 Stockholder
Requirement. See "Federal Income Tax Considerations." To reduce the risk that
the Company would fail to meet these requirements, the Charter places
limitations on the transferability of the Company's stock.
Subject to certain exceptions, no holder is 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") or more than five
percent (in number or value, whichever is more restrictive) of the outstanding
shares of Common Stock (the "Common Stock Ownership Limit"). In addition to
either of the foregoing ownership limits, no holder is 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
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reference to any rules of attribution). Acquisition or ownership (actual or
constructive) of the Company's stock in violation of these restrictions results
in automatic transfer of such stock to a trust for the benefit of a charitable
beneficiary or, under certain specified circumstances, the violative transfer
may be deemed void ab initio or the Company may choose to redeem the violative
shares.
As noted above, if any transfer of stock occurs which, if effective, will
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 will 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 will have all voting rights with respect to such shares, and all
dividends or distributions paid on such shares will 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 will, 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 will 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 will be distributed to the
Prohibited Owner to the extent of the lesser of (i) the price paid by the
Prohibited Owner for the share 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 Charter) on the date of the event which
caused the shares to be held in trust and (ii) the price received by the Trustee
from the sale or other disposition of shares. Any net sales proceeds in excess
of this amount will be paid immediately to the charitable beneficiary.
The Charter exempts Mr. Bedford and BPLP from the Aggregate Stock Ownership
Limit and the Common Stock Ownership Limit and creates separate ownership
limitations for each of these two parties. Mr. Bedford is limited to the
ownership, either actual or constructive under the applicable attribution rules
of the Code, of no more than 15% of the lesser of the number or value of the
outstanding shares of Common Stock, as adjusted to take into account the
conversion of the 8,333,334 shares of Convertible Preferred Stock. BPLP is
limited to the ownership, either actual or constructive under the applicable
attribution rules of the Code, of 100% of the outstanding shares of the
Convertible Preferred Stock and 58% of the lesser of the number or value of
outstanding shares of Common Stock, as adjusted to take into account the
conversion of the 8,333,334 shares of Convertible Preferred Stock. If shares of
the Convertible Preferred Stock are redeemed pursuant to the redemption rights
of the Convertible Preferred Stock, the percentage limit applicable to Mr.
Bedford increases 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 BPLP's ownership limitation percentage with respect to shares of Common
Stock decreases by the same amount of Mr. Bedford's increase.
In addition, the Charter permits the Board of Directors to waive, under
certain conditions, 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 BPLP, 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 is
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, refuse to give effect to such ownership or
acquisition on the books of the Company or instituting proceedings to enjoin
such transfer or event.
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The constructive ownership rules are complex and may cause Common Stock or
Convertible 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 Convertible Preferred Stock (or the acquisition of an interest in
an entity which owns Common Stock or Convertible Preferred Stock) by an
individual or entity could cause that individual or entity (or another
individual or entity) to constructively own Common Stock or Convertible
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 Charter.
The Charter also requires 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 is 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.
LIMITATIONS ON TRANSFER OF CONVERTIBLE PREFERRED STOCK
The terms of the Convertible Preferred Stock prohibit anyone from owning
Convertible Preferred Stock, and permit the Company to invalidate any transfer
of Convertible Preferred Stock, if the Company's Board of Directors, in good
faith, concludes that any such ownership or transfer will or could result in the
Company's losing its REIT status. In addition, the following are prohibited from
purchasing or holding shares of Convertible Preferred Stock or holding shares of
Common Stock issued on conversion of Convertible Preferred Stock (but only so
long as such Common Stock is a "restricted security" as defined in Rule 144):
(i) individuals, (ii) pension plans in which five or fewer individuals own more
than 50% of the actuarial interests, (iii) trusts described in Code section
501(c)(17) that are part of a plan providing for the payment of supplemental
unemployment benefits, (iv) charitable foundations that are private foundations
described in Code section 509(a), (v) portions of a trust described in Code
section 642(c) that are permanently set aside or to be used exclusively to make
charitable contributions, (vi) a corporation with respect to which the stock
ownership requirement of Code section 542(a)(2) is met (generally five or fewer
individuals -- which includes the entities described above -- directly or
through attribution own more than 50% of the value of the corporation's
outstanding stock), and (vii) partnerships or trusts that directly, or through
other partnerships or trusts, are more than 50% owned by individuals or the
entities described above. Under appropriate circumstances, the Board of
Directors may waive one or more of the foregoing restrictions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and the Convertible
Preferred Stock is Chemical Mellon Shareholder Services LLC.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
COMPANY'S CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Charter and Bylaws of the Company does not purport to be complete and is subject
to and qualified in its entirety by reference to Maryland law and the Charter
and Bylaws of the Company. Copies of the Charter and Bylaws may be obtained as
described under "Available Information."
MARYLAND BUSINESS COMBINATION LAW
Under the MGCL, certain "business combinations" (including certain
issuances of equity securities) between a Maryland corporation and any
Interested Shareholder or an affiliate thereof are prohibited for five
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years after the date on which the Interested Stockholder becomes an Interested
Stockholder unless approved by two super-majority votes of the stockholders
unless, among other conditions, the corporation's common stock holders 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 common shares. Mr. Bedford and BPLP currently beneficially
own more than 10% of the Company's voting shares and would, therefore, be
subject to the business combination provisions of the MGCL. However, as
permitted by the MGCL, the Board of Directors has elected to exempt any business
combination with any person from these provisions of the MGCL. Consequently,
unless such exemption is amended or repealed by the Board of Directors, the
five-year prohibition and the super majority vote requirements described above
will not apply to any business combination between any Interested Stockholder
and the Company. As a result, the Company may in the future enter into business
combinations with Mr. Bedford, BPLP or other Interested Stockholders, without
compliance by the Company with the super majority vote requirements and other
provisions of the statute. The exemption from these provisions may be amended or
repealed by the Board of Directors at any time, except that the exemption may
not be repealed or amended with respect to BPLP, BPLP affiliates, and certain
transactions involving the redemption of the Convertible Preferred Stock. See
"Certain Provisions of Maryland Law and of the Company's Charter and
Bylaws -- Maryland Business Combination Law." Such action by the Board of
Directors would impose the restrictions of the business combination provisions
of the MGCL on the Company, which could delay, defer or prevent a transaction or
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 or that
could otherwise adversely affect the interests of the stockholders.
CONTROL SHARE ACQUISITIONS
The MGCL also provides that "control shares" (defined below) of a Maryland
corporation acquired in a "control share acquisition" have no voting rights
except to the extent approved by a vote of two-thirds of the votes entitled to
be cast on the matter, excluding shares of stock owned by the acquiror, by
officers or by directors who are employees of the corporation. The control share
provisions of the MGCL do not apply (a) to shares acquired in a merger,
consolidation or share exchange if the corporation is a party to the transaction
or (b) to acquisitions approved or exempted by the corporation's charter or
bylaws. The Bylaws of the Company currently contain a provision exempting from
the control share provisions of the MGCL any and all acquisitions by any person
of the Company's shares of stock and, as a result, the control share provisions
currently do not apply to the Company. There can be no assurance, however, that
such provision will not be amended or eliminated by the Board of Directors
(subject to the consent of the holders of the Convertible Preferred Stock
required by the Charter) at any time in the future.
"Control shares" are voting shares of stock which, if aggregated with all
other such shares of stock previously acquired by the acquiror, or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third, (ii) one-third
or more but less than a majority, or (iii) a majority or more of all voting
power. Thus, if an acquisition of control shares within one range is approved by
stockholders and is followed by an acquisition of additional control shares by
the same person that results in the total number of control shares owned by that
person being in a higher range, then voting rights for the additional shares in
excess of the previously approved range would also have to be approved by the
stockholders. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain limitations, the corporation may redeem
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any or all of the control shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for the control shares, as of the date of the last
control share acquisition by the acquiror or of the stockholders meeting at
which the voting rights of such shares were considered and not approved. If
voting rights for control shares are approved at the stockholders meeting and
the acquiror becomes entitled to vote a majority of the shares entitled to vote,
all other stockholders may exercise appraisal rights. The fair value of the
shares as determined for purposes of such appraisal rights may not be less than
the highest price per share paid by the acquiror in the control share
acquisition.
As stated above, the control share provisions of the MGCL do not currently
apply to the Company because the Bylaws of the Company contain a provision
exempting from the control share provisions of the MGCL any and all acquisitions
by any person of the Company's shares of stock. There can be no assurance,
however, that such provision will not be amended or eliminated by the Board of
Directors (subject to the consent of the holders of the Convertible Preferred
Stock required by the Bylaws) at any time in the future. Moreover, any amendment
or elimination of such provision of the Bylaws may result in the application of
the control share provisions of the MGCL not only to shares which may be
acquired in any future control share acquisitions, but also to shares acquired
in prior control share acquisitions. The potential for such application of the
control share provisions of the MGCL could delay, defer or prevent a transaction
or 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.
INTERESTED DIRECTOR TRANSACTIONS
The MGCL provides that a contract or other transaction between a
corporation and any of its directors or between a corporation and any other
entity in which any of its directors is a director or has a material financial
interest is not void or voidable by reason of (i) such common directorship or
interest; (ii) the presence of the director at the meeting of the board which
authorizes, approves, or ratifies the contract or transaction; or (iii) the
counting of the vote of the director for the authorization, approval, or
ratification of the contract or transaction if: (a) the fact of the common
directorship or interest is disclosed or known to the board of directors and the
board of directors ratifies or approves the contract or transaction by the
affirmative vote of a majority of its disinterested directors; (b) the fact of
the common directorship or interest is disclosed or known to the stockholders
entitled to vote, and the contract or transaction is authorized, approved or
ratified by a majority of the votes cast by the stockholders entitled to vote
other than the votes of shares owned of record or beneficially by the interested
director or corporation; or (c) the contract or transaction is fair and
reasonable to the corporation. In addition, the Company's Charter contains a
provision for approval by the disinterested directors that is substantially
similar to the provision of the MGCL referred to in clause (a) of the preceding
sentence.
AMENDMENTS TO THE CHARTER AND BYLAWS
The Charter provides generally that its provisions may be amended only by
the affirmative vote of a majority of all the votes entitled to be cast on the
matter. However, the approval of holders of a majority of the outstanding shares
of Convertible Preferred Stock, voting as a single class, is required in order
to amend the Charter in a way that would materially and adversely affect the
rights or preferences of the holders of Convertible Preferred Stock or to
authorize any class or series of stock having rights equal or senior to the
Convertible Preferred Stock with respect to the payment of dividends or amounts
upon liquidation, dissolution or winding up of the Company. See "Description of
Capital Stock of the Company -- Convertible Preferred Stock -- Voting Rights."
The Bylaws provide that the Board of Directors has the exclusive power to
adopt, alter or repeal any provision of the Bylaws and to make new Bylaws,
except as provided with respect to the provision regarding the exemption from
the control share provisions of the MGCL, in which case consent of the holders
of the Convertible Preferred Stock is necessary to amend or repeal.
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THE BOARD OF DIRECTORS
The Bylaws provide that the number of Directors of the Company may be
established by a majority of the entire Board of Directors but may not be fewer
than the minimum required by the MGCL nor more than 15, and at least one-half of
the Board of Directors shall consist of Independent Directors. The Bylaws define
"Independent Director" as a director who is not an employee or consultant of the
Company. Any vacancy on the Company's Board of Directors for any cause other
than an increase in the number of Directors shall be filled by a majority of the
remaining Directors (although such majority is less than a quorum). However, any
vacancy that arises because an Independent Director ceases to be a Director of
the Company will be filled by the selection of a successor Director by a
majority vote of the remaining Independent Directors (although less than a
quorum). Any vacancy on the Board created by an increase in the number of
Directors may be filled by a majority vote of the entire Board of Directors,
except that a vacancy which is required to be filled by an Independent Director
pursuant to the Company's Bylaws will be filled by a majority vote of the Board
of Directors' remaining Independent Directors (although less than a quorum). The
Bylaws provide that an individual so elected as a Director will hold office for
the unexpired term of the Director he is replacing. The holders of the
Convertible Preferred Stock have certain rights with respect to the election of
Directors. See "Description of Capital Stock of the Company -- Convertible
Preferred Stock -- Voting Rights."
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (a) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders may be
made only (i) pursuant to the Company's notice of meeting, (ii) by or at the
discretion of the Board of Directors or (iii) by a stockholder who is entitled
to vote at the meeting and has complied with the advance notice procedures set
forth in the Bylaws and (b) with respect to special meetings of stockholders,
only the business specified in the Company's notice of meeting may be brought
before the meeting of stockholders, and nominations of persons for election to
the Board of Directors may be made only (i) pursuant to the Company's notice of
meeting, (ii) by or at the discretion of the Board of Directors or (iii)
provided that the Board of Directors has determined that Directors shall be
elected at such meeting, by a stockholder who is entitled to vote at the meeting
and has complied with the advance notice provisions set forth in the Bylaws. The
foregoing provisions of the Company's Bylaws could delay, defer or prevent a
transaction or a change in control of the Company that might involve a premium
price for the Common Stock or the Convertible Preferred Stock.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material federal income tax
considerations associated with an investment in the Common Stock offered hereby.
Shearman & Sterling, counsel to the Company, has reviewed the following
discussion and is of the opinion that it fairly summarizes the federal income
tax considerations that are likely to be material to a holder of Common Stock.
The following discussion is not exhaustive of all possible tax considerations
and is not tax advice. Moreover, this summary does not deal with all tax aspects
that might be relevant to a particular prospective stockholder in light of his
or her personal circumstances; nor does it deal with particular types of
stockholders that are subject to special treatment under the Code, such as
insurance companies, financial institutions and broker-dealers. The Code
provisions governing the federal income tax treatment of REITs are highly
technical and complex, and this summary is qualified in its entirety by the
applicable Code provisions, rules and Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof. The
following discussion and the opinions of Shearman & Sterling are based on
current law.
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
WITH RESPECT TO SUCH PURCHASER'S SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF THE PURCHASE, HOLDING AND SALE OF COMMON STOCK OF THE
COMPANY.
FEDERAL INCOME TAXATION OF THE COMPANY
The Company believes that, commencing with its taxable year ending December
31, 1985, it was organized and has operated in such a manner as to qualify for
taxation as a REIT under the Code, and the Company intends to continue to
operate in such a manner, but no assurance can be given that it will operate in
a manner so as to qualify or remain qualified. The Company has not and does not
intend to request a ruling from the IRS as to its status as a REIT. Based on
various assumptions and factual representations made by the Company, in the
opinion of Shearman & Sterling, counsel to the Company, the Company was
organized in conformity with the requirements for qualification as a REIT, the
Company has operated so as to qualify as a REIT since its taxable year ended
December 31, 1993 (which such counsel believes is the Company's earliest taxable
year which is within the normal period for federal tax audit), and the Company's
proposed method of operation will enable it to meet the requirements for
qualification and taxation as a REIT under the Code. Such qualification depends
upon the Company's ability to meet the various requirements imposed under the
Code through actual operations, as discussed below, and no assurance can be
given that actual operations will meet these requirements. The opinion of
Shearman & Sterling is not binding on the IRS. The opinion of Shearman &
Sterling also is based upon existing law, the Treasury Regulations, currently
published administrative positions of the IRS and judicial decisions, which are
subject to change either prospectively or retroactively. In addition, as
discussed under "Risk Factors -- Tax Risks; Risks Associated with REIT Status,"
for tax year 1993 (and possibly for certain prior years which such counsel
believes are outside the normal period for federal tax audit) it is uncertain
whether the Company properly requested the written statements required by the
Treasury Regulations concerning the ownership of its stock by certain
stockholders of record (the "Stockholder Polling Requirements") from certain
clearing organizations holding Common Stock as nominees for the beneficial
owners of such shares. However, the Company did employ stockholder polling
procedures for tax year 1993 which it believes went beyond what is required by
the Treasury Regulations in providing stockholder ownership information for
purposes of determining whether the Company satisfied the Five or Fewer
Requirement (defined below under the caption "-- Requirements for
Qualification"). In that regard, the Company has received an opinion of Shearman
& Sterling to the effect that, based on various assumptions and factual
representations made by the Company, the Company has not, by virtue of the
Stockholder Polling Requirements, failed to qualify as a REIT with respect to
tax year 1993.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on that portion of its ordinary income
or capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct dividends paid to its
stockholders. This deduction for dividends paid to stockholders substantially
eliminates the federal "double taxation" on earnings
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(once at the corporate level and once again at the stockholder level) that
usually results from investments in a corporation.
The Company, however, will be subject to federal income tax, as follows:
first, the Company will be taxed at regular corporate rates on its undistributed
REIT taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax." Third, if the Company has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company should fail to satisfy either the 75% or 95% gross income test
(discussed below) but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which the
Company fails the 75% or 95% test, multiplied by a fraction intended to reflect
the Company's profitability. Sixth, if the Company fails to distribute during
each year at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company should acquire any asset from a C
corporation (i.e., a corporation generally subject to full corporate-level tax)
in a carryover-basis transaction and the Company subsequently recognizes gain on
the disposition of such asset during the ten-year period (the "Recognition
Period") beginning on the date on which the asset was acquired by the Company,
then, to the extent of the excess of (a) the fair market value of the asset as
of the beginning of the applicable Recognition Period over (b) the Company's
adjusted basis in such asset as of the beginning of such Recognition Period (the
"Built-In Gain"), such gain will be subject to tax at the highest regular
corporate rate, pursuant to guidelines issued by the IRS (the "Built-In Gain
Rules").
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, the Company must elect to be so treated and must meet
the requirements, discussed below, relating to the Company's organization,
sources of income, nature of assets and distributions of income to stockholders.
ORGANIZATIONAL REQUIREMENTS
The Code defines a REIT as a corporation, trust or association: (i) that is
managed by one or more directors or trustees, (ii) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest, (iii) that would be taxable as a domestic corporation but
for the REIT requirements, (iv) that is neither a financial institution nor an
insurance company subject to certain provisions of the Code, (v) the beneficial
ownership of which is held by 100 or more persons (the "100 Stockholder
Requirement"), and (vi) during the last half of each taxable year not more than
50% in value of the outstanding stock of which is owned, directly or indirectly,
through the application of certain attribution rules, by five or fewer
individuals (as defined in the Code to include certain entities) (the "Five or
Fewer Requirement"). In addition, certain other tests, described below,
regarding the nature of its income and assets also must be satisfied. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months or during a proportionate part of a taxable year
of less than 12 months. For purposes of conditions (v) and (vi), pension funds
and certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (vi).
In order to protect the Company from a concentration of ownership of its
stock that would cause the Company to fail the Five or Fewer Requirement or the
100 Stockholder Requirement, the Charter of the Company provides that no holder
is permitted to own, either actually or constructively under the applicable
attribution rules of the Code, more than 5% (in value) of the aggregate
outstanding shares of all classes of
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stock of the Company or more than 5% (in number or value, whichever is more
restrictive) of the outstanding shares of Common Stock, with certain exceptions.
In addition, no holder is 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 would cause more than 50% in value of the
Company's outstanding stock to be owned by five or fewer individuals or would
result in the Company's stock being beneficially owned by less than 100 persons
(determined without reference to any rule of attribution). See "Description of
Capital Stock of the Company -- Restrictions on Transfer and Ownership of
Capital Stock." In addition, certain investors will be prohibited from
purchasing or holding shares of Convertible Preferred Stock or holding shares of
Common Stock issued on conversion of the Convertible Preferred Stock (but only
so long as such Common Stock is a "restricted security" as defined in Rule 144).
See "Description of Capital Stock of the Company -- Restrictions on Transfer and
Ownership of Capital Stock." In rendering its opinion that the Company has
operated so as to qualify, and its proposed method of operation will enable it
to qualify, as a REIT, Shearman & Sterling is relying on the representation of
the Company that the ownership of its stock has satisfied and will satisfy the
Five or Fewer Requirement and the 100 Stockholder Requirement; and Shearman &
Sterling expresses no opinion as to whether, as a matter of law, the provisions
contained in the Charter or the additional ownership restrictions imposed on the
Convertible Preferred Stock will preclude the Company from failing the Five or
Fewer Requirement or the 100 Stockholder Requirement.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company has a calendar year taxable year.
The Company owns and operates a number of properties through subsidiaries.
Under the Code, a corporation which is a "qualified REIT subsidiary" is not
treated as a separate corporation; rather, all assets, liabilities and items of
income, deduction, and credit of a "qualified REIT subsidiary" are treated as
assets, liabilities and such items (as the case may be) of the REIT. The
Company's subsidiaries are "qualified REIT subsidiaries." Thus, in applying the
requirements described herein, the Company's "qualified REIT subsidiaries" will
be ignored, and all assets, liabilities and items of income, deduction and
credit of such subsidiaries will be treated as assets, liabilities and items of
the Company. While this summary generally does not address state tax
consequences, some states may not recognize a "qualified REIT subsidiary", which
could cause a subsidiary to be taxed or could cause the Company to fail to
qualify as a REIT under such state law.
INCOME TESTS
To maintain qualification as a REIT, three gross income requirements must
be satisfied annually. First, at least 75% of the Company's gross income,
excluding gross income from certain dispositions of property held primarily for
sale to customers in the ordinary course of a trade or business ("prohibited
transactions") for each taxable year, must be derived directly or indirectly
from investments relating to real property or mortgages on real property
(including "rents from real property" and, in certain circumstances, interest)
or from certain types of temporary investments. Second, at least 95% of the
Company's gross income (excluding gross income from "prohibited transactions")
for each taxable year must be derived from such real property investments and
from dividends, interest and gain from the sale or disposition of stock or
securities or from any combination of the foregoing. Third, short-term gain from
the sale or other disposition of stock or securities, gain from "prohibited
transactions" and gain from the sale or other disposition of real property held
for less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the Company's gross income
(including gross income from prohibited transactions) for each taxable year.
Rents received or deemed to be received by the Company will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met. First, the amount of
rent generally must not be based in whole or in part on the income or profits of
any person. An amount received or accrued generally will not be excluded from
the term "rents from real property," however, solely by reason of being based on
a fixed percentage or percentages of receipts of sales. Second, the Code
provides that rents received from a tenant will not qualify as "rents from real
property" in satisfying the gross income tests if the REIT, or a direct or
constructive owner of 10% or more of the REIT, directly or constructively owns
10% or more of such tenant. Third, if rent attributable to personal property,
leased in
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connection with a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to the personal
property will not qualify as "rents from real property." Fourth, for rents to
qualify as "rents from real property" the REIT must not operate or manage the
property or furnish or render services to tenants, other than through an
"independent contractor" who is adequately compensated and from whom the REIT
does not derive any income; provided, however, that a REIT may provide services
with respect to its properties and the income will qualify as "rents from real
property" if the services are "usually or customarily rendered" in connection
with the rental of room or other space for occupancy only and are not otherwise
considered "rendered to the occupant."
The Company has not and does not anticipate that it will in the future
charge rent that is based in whole or in part on the income or profits of any
person (except by reason of being based on a fixed percentage or percentages of
receipts of sales consistent with the rule described above). The Company has not
and does not anticipate that it will in the future derive rent attributable to
personal property leased in connection with real property that exceeds 15% of
the total rents.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. An amount received or
accrued generally will not be excluded from the term "interest," however, solely
by reason of being based on a fixed percentage or percentages of receipts or
sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for that year
if it is eligible for relief under certain provisions of the Code. These relief
provisions will be generally available if (i) the Company's failure to meet
these tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches a schedule of the sources of its income to its federal income
tax return and (iii) any incorrect information on the schedule is not due to
fraud with intent to evade tax. It is not possible, however, to state whether,
in all circumstances, the Company would be entitled to the benefit of these
relief provisions. For example, if the Company fails to satisfy the gross income
tests because nonqualifying income that the Company intentionally incurs exceeds
the limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. As discussed above in "--
Federal Income Taxation of the Company," even if these relief provisions apply,
a tax would be imposed with respect to the excess net income. No similar
mitigation provision provides relief if the Company fails the 30% income test;
and in such case, the Company will cease to qualify as a REIT. See "Risk
Factors -- Tax Risks; Risks Associated with REIT Status -- Adverse Consequences
of the Failure to Maintain Qualification as a REIT."
ASSET TESTS
At the close of each quarter of its taxable year, the Company also must
satisfy three tests relating to the nature and diversification of its assets.
First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, cash, cash items and government securities.
Second, no more than 25% of the Company's total assets may be represented by
securities other than those in the 75% asset class. Third, of the investments
included in the 25% asset class (which does not include any securities issued by
a "qualified REIT subsidiary"), the value of any one issuer's securities owned
by the Company may not exceed 5% of the value of the Company's total assets, and
the Company may not own more than 10% of any one issuer's outstanding voting
securities.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company has maintained and intends in the future to maintain
adequate records of the value of its assets to ensure compliance with the asset
tests and to take such other actions within 30 days after the close of any
quarter as may be required to cure any noncompliance.
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ANNUAL DISTRIBUTION REQUIREMENTS
In order to be taxed as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (a) the sum of (i) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends-paid deduction and the Company's net
capital gain) and (ii) 95% of the net income, if any, from foreclosure property
in excess of the special tax on income from foreclosure property, minus (b) the
sum of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate or in the following taxable year if declared
before the Company timely files its federal income tax return for such year and
if paid on or before the first regular dividend payment after such declaration.
Even if the Company satisfies the foregoing distribution requirements, to the
extent that the Company does not distribute all of its net capital gain or "REIT
taxable income," as adjusted, it will be subject to tax thereon at regular
capital gains or ordinary corporate tax rates. Furthermore, if the Company
should fail to distribute during each calendar year at least the sum of (a) 85%
of its ordinary income for that year, (b) 95% of its capital gain net income for
that year and (c) any undistributed taxable income from prior periods, the
Company would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. In addition, during its
Recognition Period, if the Company disposes of any asset subject to the Built-In
Gain Rules, the Company will be required, pursuant to guidance issued by the
IRS, to distribute at least 95% of the Built-In Gain (after tax), if any,
recognized on the disposition of the asset.
It is expected that the Company's REIT taxable income will continue to be
less than its cash flow due to the allowance of depreciation and other non-cash
charges in computing REIT taxable income. Accordingly, the Company anticipates
that it will generally have sufficient cash or liquid assets to enable it to
satisfy the 95% distribution requirement. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet the 95% distribution requirement or to distribute such greater amount as
may be necessary to avoid income and excise taxation, as a result of timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of such income and deduction of such
expenses in arriving at taxable income of the Company, or as a result of
nondeductible expenses such as principal amortization or repayments, or capital
expenditures in excess of non-cash deductions. In the event that such timing
differences occur, the Company may find it necessary to seek funds through
borrowings or the issuance of equity securities (there being no assurance that
it will be able to do so) or, if possible to pay taxable stock dividends in
order to meet the dividend requirement.
Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends. The Company
will, however, be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. In such event, to the extent of current or accumulated
earnings and profits, all distributions to stockholders will be dividends,
taxable as ordinary income; and subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless the Company is entitled to relief under specific statutory provisions,
the Company also will be disqualified from taxation as a REIT for the four
taxable years following the year during which qualification was lost. It is not
possible to state whether in all circumstances the Company would be entitled to
such statutory relief. For example, if the Company fails to satisfy the gross
income tests because nonqualifying income that the Company intentionally incurs
exceeds the limit on such income, the IRS could conclude that the Company's
failure to satisfy the tests was not due to reasonable cause and disallow relief
on that basis. See "Risk Factors -- Tax Risks; Risks Associated with REIT
Status -- Adverse Consequences of the Failure to Maintain Qualification as a
REIT."
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TAXATION OF U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of Common Stock
that for United States federal income tax purposes (a) is a citizen or resident
of the United States, (b) is a corporation, partnership or other entity created
or organized in or under the laws of the United States or of any political
subdivision thereof, (c) is an estate or trust, the income of which is subject
to United States federal income taxation regardless of its source, or (d) is a
trust whose administration is under the primary supervision of a court within
the United States and over which one or more United States trustees have
authority to control all substantial decisions. For any taxable year for which
the Company qualifies for taxation as a REIT, amounts distributed to taxable
U.S. Stockholders will be taxed as follows.
DISTRIBUTIONS GENERALLY
Distributions to U.S. Stockholders, other than capital gain dividends
discussed below, will constitute dividends up to the amount of the Company's
current or accumulated earnings and profits and will be taxable to the
stockholders as ordinary income. For purposes of determining whether
distributions are out of current or accumulated earnings and profits, the
earnings and profits of the Company will be allocated first to the Company's
Preferred Stock, and then allocated to the Common Stock. These distributions are
not eligible for the dividends-received deduction for corporations. To the
extent that the Company makes a distribution in excess of its current or
accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital, reducing the tax basis in the U.S. Stockholder's
Common Stock, and the distribution in excess of a U.S. Stockholder's tax basis
in its Common Stock will be taxable as gain realized from the sale of its Common
Stock. Dividends declared by the Company in October, November or December of any
year payable to a stockholder of record on a specified date in any such month
shall be treated as both paid by the Company and received by the stockholder on
December 31 of the year, provided that the dividend is actually paid by the
Company during January of the following calendar year. Stockholders may not
include on their own federal income tax returns any losses of the Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed in
"-- Federal Income Taxation of the Company" above. Moreover, any "deficiency
dividend" will be treated as an ordinary or capital gain dividend, as the case
may be, regardless of the Company's earnings and profits. As a result,
stockholders may be required to treat certain distributions that would otherwise
result in a tax-free return of capital as taxable dividends.
CAPITAL GAIN DIVIDENDS
Dividends to U.S. Stockholders that are properly designated by the Company
as capital gain dividends will be treated as long-term capital gains (to the
extent they do not exceed the Company's actual net capital gain) for the taxable
year without regard to the period for which the stockholder has held his stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Capital gain dividends are not
eligible for the dividends-received deduction for corporations.
PASSIVE ACTIVITY LOSS AND INVESTMENT INTEREST LIMITATIONS
Distributions from the Company and gain from the disposition of Common
Stock will not be treated as passive activity income, and therefore stockholders
will not be able to apply any "passive activity losses" against such income.
Dividends from the Company (to the extent they do not constitute a return of
capital) will generally be treated as investment income for purposes of the
investment income limitation on the deduction of investment interest. Under
recently enacted legislation, net capital gain from the disposition of Common
Stock and capital gain dividends generally will be excluded from investment
income.
CERTAIN DISPOSITIONS OF SHARES
In general, a U.S. Stockholder will realize capital gain or loss on the
disposition of shares of Common Stock equal to the difference between the sales
price for such shares and the adjusted tax basis for such shares. Gain or
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loss realized upon a sale or exchange of Common Stock by a U.S. Stockholder who
has held such Common Stock for more than one year will be treated as long-term
capital gain or loss, respectively, and otherwise will be treated as short-term
capital gain or loss. However, losses incurred on the sale or exchange of Common
Stock held for less than six months (after applying certain holding period
rules) will be deemed long-term capital loss to the extent of any capital gain
dividends received by the selling stockholder from those shares.
TREATMENT OF TAX-EXEMPT STOCKHOLDERS
Generally, a tax-exempt investor that is exempt from tax on its investment
income, such as an individual retirement account ("IRA") or a 401(k) plan, that
holds the Common Stock as an investment will not be subject to tax on dividends
paid by the Company. However, if such tax-exempt investor is treated as having
purchased its Common Stock with borrowed funds, some or all of its dividends
will be subject to tax. In addition, a portion of the dividends paid to certain
pension plans (including 401(k) plans but not including IRAs and government
pension plans) that own more than 10% (by value) of the Company's outstanding
Common Stock and Convertible Preferred Stock will be taxed as unrelated business
taxable income if the Company is treated as predominantly owned within the
meaning of the Code by such pension plans.
SPECIAL TAX CONSIDERATIONS FOR FOREIGN STOCKHOLDERS
The rules governing United States federal income taxation of non-resident
alien individuals, foreign corporations, foreign partnerships and foreign trusts
and estates (collectively, "Non-U.S. Stockholders") are complex, and the
following discussion is intended only as a summary of these rules. Prospective
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws on an investment in the
Company, including any reporting requirements.
In general, Non-U.S Stockholders will be subject to regular United States
federal income tax with respect to their investment in the Company if the
investment is "effectively connected" with the Non-U.S. Stockholder's conduct of
a trade or business in the United States. A corporate Non-U.S. Stockholder that
receives income that is (or is treated as) effectively connected with a U.S.
trade or business also may be subject to the branch profits tax under Section
884 of the Code, which is imposed in addition to regular United States federal
corporate income tax generally at the rate of 30%, subject to reduction under a
tax treaty, if applicable. The following discussion will apply to Non-U.S.
Stockholders whose investment in the Company is not so effectively connected.
A distribution by the Company that is not attributable to gain from the
sale or exchange by the Company of a United States real property interest and
that is not designated by the Company as a capital gain dividend will be treated
as an ordinary income dividend to the extent that it is made out of current or
accumulated earnings and profits. Generally, any ordinary income dividend will
be subject to a United States federal income tax equal to 30% of the gross
amount of the dividend unless this tax is reduced by an applicable tax treaty.
To the extent that the Company makes a distribution in excess of its current or
accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital, reducing a Non-U.S. Stockholder's basis in its
Common Stock (but not below zero), and the distribution in excess of a Non-U.S.
Stockholder's tax basis in its Common Stock will be treated as gain realized
from the sale of its Common Stock.
Distributions by the Company that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Stockholder under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S. Stockholder
as if the distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a Non-U.S. Stockholder will be taxed at the
normal capital gain rates applicable to a U.S. Stockholder (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of non-resident alien individuals). Distributions subject to FIRPTA also
may be subject to the branch profits tax generally at the rate of 30%, subject
to reduction under a tax treaty, if applicable.
Although tax treaties may reduce the Company's withholding obligations, the
Company generally will be required to withhold from distributions to Non-U.S.
Stockholders, and remit to the IRS, (i) 35% of designated capital gain dividends
(or, if greater, 35% of the amount of any distributions that could be designated
as capital gain dividends) and (ii) 30% of all other distributions, unless
reduced by an applicable
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tax treaty. In addition, if the Company designates prior distributions as
capital gain dividends, subsequent distributions, up to the amount of such prior
distributions, will be treated as capital gain dividends for purposes of
withholding. Because the Company will withhold 30% of all other distributions, a
Non-U.S. Stockholder will be entitled to a refund from the IRS to the extent the
distribution is not a distribution out of earnings and profits.
Unless the Common Stock constitutes a "United States real property
interest" within the meaning of FIRPTA, a sale of Common Stock by a Non-U.S.
Stockholder generally will not be subject to United States federal income
taxation. The Common Stock will not constitute a United States real property
interest if the Company is a "domestically controlled REIT." A domestically
controlled REIT is a REIT in which at all times during a specified testing
period less than 50% in value of its shares is held directly or indirectly by
Non-U.S. Stockholders. It is currently anticipated that the Company will be a
domestically controlled REIT and therefore that the sale of Common Stock will
not be subject to taxation under FIRPTA. However, because the Common Stock is
publicly traded, no assurance can be given that the Company will continue to be
a domestically controlled REIT. If the Company were not a domestically
controlled REIT, a sale of Common Stock by a Non-U.S. Stockholder would not be
subject to taxation under FIRPTA provided that the Non-U.S. Stockholder does not
beneficially own more than 5% of the stock of the Company and the Common Stock
of the Company continues to be traded on an established securities market (e.g.
the NYSE and the PSE). In addition, a sale of Common Stock by a Non-U.S.
Stockholder, regardless of whether the 5% beneficial ownership level is
exceeded, would not be subject to the 10% withholding tax so long as the Common
Stock continues to be traded on an established securities market.
Notwithstanding the foregoing, capital gains not subject to FIRPTA will be
taxable to a Non-U.S. Stockholder if the Non-U.S. Stockholder is a non-resident
alien individual who is present in the United States for 183 days or more during
the taxable year and certain other conditions apply, in which case the
non-resident alien individual will be subject to a 30% tax on his or her U.S.
source capital gains. If the Company were not a domestically controlled REIT,
gain on the sale of Common Stock would be subject to taxation under FIRPTA, and
a Non-U.S. Stockholder would be subject to the same treatment as a U.S.
Stockholder with respect to the gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of non-resident alien
individuals). In such case, under FIRPTA the purchaser of Common Stock may be
required to withhold 10% of the purchase price and remit this amount to the IRS.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Under certain circumstances, U.S. Stockholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, Common Stock. Backup withholding will apply only if
the holder (i) fails to furnish his or her taxpayer identification number
("TIN") (which, for an individual, would be his or her Social Security number),
(ii) furnishes an incorrect TIN, (iii) is notified by the IRS that he or she has
failed properly to report payments of interest and dividends or is otherwise
subject to backup withholding or (iv) under certain circumstances, fails to
certify, under penalties of perjury, that he or she has furnished a correct TIN
and (a) that he or she has not been notified by the IRS that he or she is
subject to backup withholding for failure to report interest and dividend
payments or (b) that he or she has been notified by the IRS that he or she is no
longer subject to backup withholding. Backup withholding will not apply with
respect to payments made to certain exempt recipients, such as corporations and
tax-exempt organizations.
U.S. Stockholders should consult their own tax advisors regarding their
qualifications for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a U.S.
Stockholder will be allowed as a credit against the U.S. Stockholder's United
States federal income tax liability and may entitle the U.S. Stockholder to a
refund, provided that the required information is furnished to the IRS.
Additional issues may arise pertaining to information reporting and backup
withholding for Non-U.S. Stockholders. Non-U.S. Stockholders should consult
their tax advisors with regard to U.S. information reporting and backup
withholding.
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STATE AND LOCAL TAX
The Company and its stockholders may be subject to state and local tax in
states and localities in which it does business or owns property. The tax
treatment of the Company and the stockholders in such jurisdictions may differ
from the federal income tax treatment described above. Consequently, prospective
stockholders should consult their own tax advisors regarding the effect of state
and local tax laws on an investment in the Company.
ERISA CONSIDERATIONS
The following is intended to be a summary only and is not a substitute for
careful planning with a professional. Employee benefit plans subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
various sections of the Code considering purchasing the shares of Common Stock
should consult with their own tax and other appropriate counsel regarding the
application of ERISA and the Code to their purchase of the Common Stock. Benefit
Plans (as defined below) should also consider the entire discussion under the
heading "Federal Income Tax Considerations" as material contained therein is
relevant to any decision by a Plan to purchase the Common Stock.
FIDUCIARY CONSIDERATIONS
Certain employee benefit plans and individual retirement accounts and
individual retirement annuities ("IRAs") (collectively "Benefit Plans") are
subject to various provisions of ERISA and the Code. Before investing in the
Common Stock of the Company, a Benefit Plan fiduciary should ensure that such
investment is in accordance with ERISA's general fiduciary standards. In making
such a determination, a Benefit Plan fiduciary should ensure that the investment
is in accordance with the governing instruments and the overall policies of the
Benefit Plan, and that the investment will comply with the diversification and
composition requirements of ERISA. In addition, provisions of ERISA and the Code
prohibit transactions involving the assets of a Benefit Plan by persons who have
specified relationships with such Benefit Plan ("Parties in Interest" under
ERISA and "Disqualified Persons" under the Code, collectively referred to herein
as "Parties in Interest"), unless an exemption is available for such
transaction. The consequences of such prohibited transactions include the
imposition of excise taxes, possible disqualification of IRAs and other
liabilities. A Benefit Plan fiduciary should ensure that any investment in
shares of the Common Stock will not constitute or give rise to a direct or
indirect non-exempt prohibited transaction. A Benefit Plan fiduciary should also
consider prohibitions in ERISA relating to improper delegation of control over
or responsibility for "plan assets."
PLAN ASSETS ISSUE
In certain circumstances where a Benefit Plan holds an interest in an
entity, the assets of the entity are deemed to be "plan assets" (the
"Look-Through Rule") of such Benefit Plan for purposes of the prohibited
transactions provisions of the ERISA Code. In addition, under such
circumstances, any person that exercises authority or control with respect to
the management or disposition of such assets is a Benefit Plan fiduciary. "Plan
assets" are not defined in ERISA or the Code, but the United States Department
of Labor has issued a regulation, effective March 13, 1987 (the "Regulation"),
that outlines the circumstances under which a Plan's interest in an entity will
be subject to the Look-Through Rule.
The Regulation applies to the purchase by a Benefit Plan of an "equity
interest" in an entity, such as common stock of a REIT. However, the Regulation
provides an exception to the Look-Through Rule for equity interests that are
"publicly-offered securities."
Under the Regulation, a "publicly-offered security" is a security that is
(1) freely transferable, (ii) part of a class of securities that is widely-held
and (iii) either (a) part of a class of securities that is registered under
section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or (b) sold to a Benefit Plan as part of an offering of
securities, and the class of securities of which such security is a part is
registered under the Exchange Act within 120 days (or such longer period allowed
by the
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Commission) after the end of the fiscal year of the issuer during which the
offering of such securities to the public occurred. Whether a security is
considered "freely transferable" depends on the facts and circumstances of each
case. Generally, if the security is part of an offering in which the minimum
investment is $10,000 or less, any restriction on or prohibition against
transfer or assignment of such security for the purposes of preventing a
termination or reclassification of the entity for federal or state tax purposes
will not itself prevent the security from being considered freely transferable.
A class of securities is considered "widely-held" if immediately after the
initial offering it is owned by 100 or more investors independent of the issuer
and of one another.
It is anticipated by the Company that the Common Stock will meet the
criteria of the publicly-offered securities exceptions to the Look-Through Rule.
Accordingly, the Company believes that, if a Benefit Plan purchases shares of
the Common Stock, the Company's assets should not be deemed to be "plan assets."
PLAN OF DISTRIBUTION
The Shares may be sold in or outside the United States through agents,
underwriters or dealers, directly to one or more purchasers or, directly by the
Company through a dividend reinvestment plan. The Company may also issue Shares
in connection with property or business acquisitions. The Prospectus Supplement
with respect to the Shares will set forth the terms of the offering of the
Shares, including the name or names of any agents, underwriters, or dealers, the
purchase price of the Shares and the proceeds to the Company from such sale, any
delayed delivery arrangements, any underwriting discounts and other items
constituting underwriters' compensation, the public offering price, and any
discounts or concessions allowed or reallowed or paid to dealers.
If underwriters are used in the sale of the Shares, the Shares may be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Shares may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more
firms acting as underwriters. The underwriter(s) with respect to a particular
underwritten offering of Shares will be named in the Prospectus Supplement
relating to such offering, and if an underwriting syndicate is used, the
managing underwriter(s) will be set forth on the cover of such Prospectus
Supplement. Unless otherwise set forth in the Prospectus Supplement relating
thereto, the obligations of the underwriters or agents to purchase the Shares
will be subject to conditions precedent, and the underwriters will be obligated
to purchase all the Shares if any are purchased. The public offering price and
any discounts or concessions allowed or reallowed or paid to dealers may be
changed from time to time.
If dealers are utilized in the sale of Shares with respect to which this
Prospectus is delivered, such Shares will be sold to the dealers as principals.
The dealers may then resell such Shares to the public at varying prices to be
determined by such dealers at the time of resale. The names of the dealers and
the terms of the transactions will be set forth in the Prospectus Supplement
relating thereto.
Shares may be sold directly by the Company or through agents designated by
the Company from time to time at fixed prices, which may be changed, or at
varying prices determined at the time of sale. Shares may also be issued by the
Company in connection with property or business acquisitions or sold directly by
the Company pursuant to a dividend reinvestment plan. Any agent involved in the
offer or sale of the Shares with respect to which this Prospectus is delivered
will be named, and any commissions payable by the Company to such agent will be
set forth, in the Prospectus Supplement relating thereto. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment.
In connection with the sale of the Shares, underwriters or agents may
receive compensation from the Company or from purchasers of Shares for whom they
may act as agents in the form of discounts, concessions or commissions.
Underwriters, agents and dealers participating in the distribution of the Shares
may be deemed to be underwriters and any discounts or commissions received by
them from the Company and any profit on the resale of the Shares by them may be
deemed to be underwriting discounts or commissions under the Securities Act.
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EXPERTS
The consolidated financial statements and financial statement schedule of
Bedford Property Investors, Inc. as of December 31, 1995 and 1994 and for each
of the years in the three-year period ended December 31, 1995; the Historical
Summaries of Gross Income and Direct Operating Expenses of the Landsing Pacific
Portfolio and 3002 Dow Business Center for the year ended December 31, 1994; and
the Combined Historical Summary of Gross Income and Direct Operating Expenses of
Laguna Hills Square, Westech Business Center, Fourier Avenue, Kenyon Center and
Carroll Tech Center for the year ended December 31, 1995 have been incorporated
by reference herein and in the registration statement in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Baltimore, Maryland. Certain legal
matters related to the sale of the Shares will be passed upon for the Company by
Shearman & Sterling, San Francisco, California. In addition, the description of
federal income tax consequences contained in the section of the Prospectus
entitled "Federal Income Tax Considerations" is based upon the opinion of
Shearman & Sterling. Certain legal matters related to the Offering will be
passed upon for the Underwriters, if any, by Brown & Wood, San Francisco,
California.
42
<PAGE> 69
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary........... S-3
The Company............................. S-13
Use of Proceeds......................... S-22
Price Range of Common Stock and
Distribution History.................. S-22
Capitalization.......................... S-23
Management.............................. S-24
Underwriting............................ S-26
PROSPECTUS
Available Information................... 2
Incorporation of Certain Information by
Reference............................. 3
The Company............................. 4
Risk Factors............................ 5
Use of Proceeds......................... 18
Description of Capital Stock of the
Company............................... 19
Certain Provisions of Maryland Law and
of the Company's Charter and Bylaws... 28
Federal Income Tax Considerations....... 32
ERISA Considerations.................... 40
Plan of Distribution.................... 41
Experts................................. 42
Legal Matters........................... 42
</TABLE>
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4,000,000 SHARES
LOGO
COMMON STOCK
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PROSPECTUS SUPPLEMENT
February 6, 1997
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LEHMAN BROTHERS
SMITH BARNEY INC.
ROBERTSON, STEPHENS & COMPANY
SUTRO & CO. INCORPORATED
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