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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 9, 1997
REGISTRATION NO. 333-15233
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BEDFORD PROPERTY INVESTORS, INC.
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
68-0306514
(I.R.S. EMPLOYER IDENTIFICATION NO.)
270 LAFAYETTE CIRCLE
LAFAYETTE, CALIFORNIA 94549
(510) 283-8910
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DONALD A. LORENZ
BEDFORD PROPERTY INVESTORS, INC.
270 LAFAYETTE CIRCLE
LAFAYETTE, CALIFORNIA 94549
(510) 283-8910
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copy to:
MICHAEL J. KENNEDY
SHEARMAN & STERLING
555 CALIFORNIA STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 616-1100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.[ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.[X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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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 OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JANUARY 9, 1997
PROSPECTUS
LOGO
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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.
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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.
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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.
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THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
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The date of this Prospectus is , 1997.
5,500,000 SHARES
LOGO
COMMON STOCK
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (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).
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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.
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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 corporations 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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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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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 on a fully-diluted basis 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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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, the Board of Directors generally owes a fiduciary duty to
the Company, 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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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. 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 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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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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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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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 person
who beneficially owns 10% or more of the voting power
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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 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.
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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 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 if: (i) 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; (ii) 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 (iii) 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 (i) 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
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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.
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. 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, 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 or (c) is an estate or trust, the income of which is subject
to United States federal income taxation regardless of its source. 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 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
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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.
39
<PAGE> 41
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
40
<PAGE> 42
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.
41
<PAGE> 43
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.
42
<PAGE> 44
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY
ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Information
by Reference........................ 2
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>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
5,500,000 SHARES
BEDFORD PROPERTY INVESTORS, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
--, 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 45
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Bedford Property Investors,
Inc. (the "Registrant") in connection with the sale of Common Stock being
registered. All amounts are estimates except the registration fee, the NASD
filing fee and the listing fees for the New York Stock Exchange and the Pacific
Stock Exchange.
<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 24,063
NASD Filing Fee........................................................... $ 8,441
Legal Fees and Expenses................................................... $ 50,000
Printing and Engraving Costs.............................................. $ 25,000
Accounting Fees and Expenses.............................................. $ 60,000
Blue Sky Fees and Expenses................................................ $ 5,000
New York Stock Exchange Listing Fee....................................... $ 19,250
Pacific Stock Exchange Listing Fee........................................ $ 7,500
Miscellaneous............................................................. $ 10,746
--------
Total........................................................... $210,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper personal benefit or profit in
money, property or services or (b) active and deliberate dishonesty established
by a final judgment as being material to the cause of action. The Charter of the
Registrant contains such a provision which eliminates such liability to the
maximum extent permitted by the MGCL.
The Charter of the Registrant authorizes it, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former director or officer or (b) any individual who, while a
director of the Registrant and at the request of the Registrant, serves or has
served another corporation, partnership, joint venture, trust, employee benefit
plan or any other enterprise as a director, officer, partner or trustee of such
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise. The Bylaws of the Registrant obligate it, to the maximum extent
permitted by Maryland law, without requiring a preliminary determination of the
ultimate entitlement to indemnification, to indemnify and to pay or reimburse
reasonable expense in advance of final disposition of a proceeding to (a) any
individual who is a present or former director or officer of the Registrant and
who is made a party to the proceeding by reason of his service in that capacity
or (b) any individual who, while a director of the Registrant and at the request
of the Registrant, serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. The
Registrant's Charter and Bylaws also permit the Registrant to indemnify and
advance expenses to any person who served a predecessor of the Registrant in any
of the capacities described above and to any employee or agent of the Registrant
or a predecessor of the Registrant.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Registrant's Charter does not) to indemnify a director or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity. The MGCL permits a corporation to indemnify its present and former
directors and officers, and certain other parties, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or business of the indemnified party was material to the matter giving rise
to
II-1
<PAGE> 46
the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the indemnified party actually received an
improper personal benefit in money, property or services or (c) in the case of
any criminal proceeding, the indemnified party had reasonable cause to believe
that the act or omission was unlawful. However, a Maryland corporation may not
indemnify for an adverse judgment in a suit by or in the right of the
corporation. In addition, the MGCL permits a corporation to advance reasonable
expenses to a director or officer upon the corporation's receipt of (a) a
written affirmation by the director or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the corporation
as authorized by the Bylaws and (b) a written statement by or on his behalf to
repay the amount paid or reimbursed by the corporation if it shall ultimately be
determined that the standard of conduct was not met.
Peter B. Bedford's employment agreement provides that the Registrant shall
indemnify Mr. Bedford to the fullest extent permitted by law, provided that the
indemnification applies to Mr. Bedford only so long as he acts in good faith and
is not found to be guilty of recklessness or willful or wanton misconduct.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEM 16. EXHIBITS.
(a) Exhibits
The following exhibits are filed herewith or incorporated herein by
reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement
4.1* -- Specimen Stock Certificate (incorporated herein by reference to Exhibit 4.1 to
the Registrant's Registration Statement on Form S-2, Commission File No.
333-921)
4.2* -- Charter of the Registrant, as amended (incorporated herein by reference to
Exhibit 4.2 to the Registrant's Registration Statement on Form S-2, Commission
File No. 333-921)
4.3* -- Amended and Restated Bylaws of the Registrant (incorporated herein by reference
to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995)
5.1* -- Opinion of Ballard Spahr Andrews & Ingersoll as to the legality of the
Registrant's Common Stock
8.1* -- Opinion of Shearman & Sterling as to certain tax matters
23.1 -- Consent of KPMG Peat Marwick LLP, independent auditors
23.2* -- Consent of Ballard Spahr & Andrews & Ingersoll (included in the opinion filed as
Exhibit 5.1)
23.3* -- Consent of Shearman & Sterling (included in the opinion filed as Exhibit 8.1)
24.1* -- Powers of Attorney (included on page II-4 of this Registration Statement)
</TABLE>
- ---------------
* Previously filed.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration
II-2
<PAGE> 47
Statement (Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) may be reflected in
the form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the change in volume represents no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.);
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in this Registration
Statement; and
(iv) To file a post-effective amendment to this Registration
Statement to include any financial statements required by Rule 3-19 of
Regulation S-X at the start of any delayed offering or throughout a
continuous offering;
provided, however, that paragraphs (i), (ii) and (iv) above do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Company
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act") that are incorporated by reference in this
Registration Statement.
(2) For the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) For purposes of determining any liability under the Securities
Act, each filing of the Company's annual report pursuant to Section 13(a)
or Section 15(d) of the Exchange Act that is incorporated by reference in
this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referred to in Item
15, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(6) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as a part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(7) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 48
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Lafayette, State of California, on the
8th day of January, 1997.
BEDFORD PROPERTY INVESTORS, INC.
By: /s/ DONALD A. LORENZ
--------------------------------------
Donald A. Lorenz
Executive Vice President
and Chief Financial Officer
POWERS OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------- -----------------
<S> <C> <C>
* Chairman of the Board and Chief January 8, 1997
- ------------------------------------- Executive Officer (Principal
Peter B. Bedford Executive Officer)
/s/ DONALD A. LORENZ Executive Vice President and Chief January 8, 1997
- ------------------------------------- Financial Officer (Principal
Donald A. Lorenz Financial Officer)
* Controller (Principal Accounting January 8, 1997
- ------------------------------------- Officer)
Hanh Kihara
* Director January 8, 1997
- -------------------------------------
Claude M. Ballard
* Director January 8, 1997
- -------------------------------------
Anthony Downs
* Director January 8, 1997
- -------------------------------------
Thomas G. Eastman
* Director January 8, 1997
- -------------------------------------
Anthony M. Frank
* Director January 8, 1997
- -------------------------------------
Thomas H. Nolan, Jr.
* Director January 8, 1997
- -------------------------------------
Martin I. Zankel
*By: /s/ DONALD A. LORENZ
- -------------------------------------
Donald A. Lorenz
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 49
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ -------------------------------------------------------------------------------- ----
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement.....................................................
4.1* -- Specimen Stock Certificate (incorporated herein by reference to Exhibit 4.1 to
the Registrant's Registration Statement on Form S-2, Commission File No.
333-921)...........................................................................
4.2* -- Charter of the Registrant, as amended (incorporated herein by reference to
Exhibit 4.2 to the Registrant's Registration Statement on Form S-2, Commission
File No. 333-921)..................................................................
4.3* -- Amended and Restated Bylaws of the Registrant (incorporated herein by reference
to Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995)..........................................................
5.1* -- Opinion of Ballard Spahr Andrews & Ingersoll as to the legality of the
Registrant's Common Stock..........................................................
8.1* -- Opinion of Shearman & Sterling as to certain tax matters...........................
23.1 -- Consent of KPMG Peat Marwick LLP, independent auditors.............................
23.2* -- Consent of Ballard Spahr & Andrews & Ingersoll (included in the opinion filed as
Exhibit 5.1).......................................................................
23.3* -- Consent of Shearman & Sterling (included in the opinion filed as Exhibit 8.1)......
24.1* -- Powers of Attorney (included on page II-5 of this Registration Statement)..........
</TABLE>
- -------------
* Previously filed.
<PAGE> 1
BEDFORD PROPERTY INVESTORS, INC.
(a Maryland corporation)
____________ Shares of Common Stock
PURCHASE AGREEMENT
Dated: ___________, 199_
<PAGE> 2
BEDFORD PROPERTY INVESTORS, INC.
(a Maryland corporation)
____________ Shares of Common Stock
(Par Value $.02 Per Share)
PURCHASE AGREEMENT
____________, 199_
[Name and address
of underwriters]
Dear Sirs:
Bedford Property Investors, Inc., a Maryland corporation (the
"Company"), confirms its agreement with __________________________________ and
each of the other Underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 10 hereof), for whom __________________________
are acting as representatives (in such capacity, the "Representatives"), with
respect to the sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of shares of Common Stock,
par value $.02 per share, of the Company ("Common Stock") set forth in said
Schedule A, and with respect to the grant by the Company to the Underwriters,
acting severally and not jointly, of the option described in Section 2(b) hereof
to purchase all or any part of __________ additional shares of Common Stock to
cover over-allotments, if any. The aforesaid _____________ shares of Common
Stock (the "Initial Securities") to be purchased by the Underwriters and all or
any part of the ___________ shares of Common Stock subject to the option
described in Section 2(b) hereof (the "Option Securities") are hereinafter
called, collectively, the "Securities."
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 dated January 8, 1996
(Registration No. 333-15233, the "Registration Statement"), including the
related prospectus dated ____________, for the registration of its Common Stock
(including the Securities) under the
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Securities Act of 1933, as amended (the "1933 Act"), and the offering thereof
from time to time in accordance with Rule 415 of the rules and regulations of
the Commission under the 1933 Act (the "1933 Act Regulations"). Such
registration statements and any Rule 462(b) Registration Statement (as defined
below) have each been declared effective by the Commission. As provided in
Section 3(a), a prospectus supplement relating to the Securities, the terms of
the offering thereof and the other matters set forth therein has been prepared
and will be filed pursuant to Rule 424 of the 1933 Act Regulations. Such
prospectus supplement, in the form first filed after the date hereof pursuant
to Rule 424, is herein referred to as the "Prospectus Supplement." The
prospectus included in the Registration Statement relating to all offerings of
Securities under the Registration Statement, as supplemented by the Prospectus
Supplement, is herein called the "Prospectus;" provided, however, that, if the
Prospectus is amended or supplemented on or after the date hereof but prior to
the date on which the Prospectus Supplement is first filed pursuant to Rule
424, the term "Prospectus" shall refer to the Prospectus as so amended or
supplemented and as supplemented by the Prospectus Supplement; and provided,
further, that all references to the "Registration Statement" and the
"Prospectus" shall be deemed to include all documents incorporated therein by
reference pursuant to the Securities Exchange Act of 1934, as amended (the
"1934 Act"); and provided, further, that if the Company files a registration
statement with the Commission pursuant to Rule 462(b) of the 1933 Act
Regulations (the "Rule 462(b) Registration Statement"), then, after such
filing, all references to the "Registration Statement" shall also be deemed to
include the Rule 462(b) Registration Statement. For purposes of this
Agreement, all references to the Registration Statement, Prospectus, Prospectus
Supplement or preliminary prospectus or to any amendment or supplement to any
of the foregoing shall be deemed to include the copy filed with the Commission
pursuant to its Electronic Data Gathering, Analysis and Retrieval system
("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, preliminary prospectus or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, preliminary prospectus
or the Prospectus shall be deemed to mean and include the filing of any
document under the 1934 Act which is incorporated by reference in the
Registration Statement, preliminary prospectus or the Prospectus, as the case
may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof and as of the
Closing Time referred to in Section 2(c) hereof, and agrees with each
Underwriter, as follows:
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(i) Compliance with Registration Requirements. The Company
meets the requirements for use of Form S-3 under the 1933 Act. Each
of the Registration Statement and any Rule 462(b) Registration
Statement have become effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement has been issued under the 1933 Act and
no proceedings for that purpose have been instituted or are pending
or, to the knowledge of the Company, are contemplated by the
Commission, and any request on the part of the Commission for
additional information has been complied with.
At the respective times the Registration Statement, the Rule
462(b) Registration Statement and any post-effective amendments
thereto (including the filing of the Company's most recent Annual
Report on Form 10-K with the Commission) became effective and at the
Closing Time (and, if any Option Securities are purchased, at the Date
of Delivery referred to below), the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements
thereto complied and will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and will not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. On the date hereof and at the
Closing Time (and, if any Option Securities are purchased, at such
date of delivery) neither the Prospectus nor any amendments or
supplements thereto contained or will contain an untrue statement of a
material fact or omitted or will omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this subsection
shall not apply to statements in or omissions from the Registration
Statement or Prospectus made in reliance upon and in conformity with
information furnished to the Company in writing by any Underwriter
through _____________ expressly for use in the Registration Statement
or Prospectus.
Each preliminary prospectus and the Prospectus filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus
delivered to the Underwriters for use in connection with this offering
was substantially identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(ii) Incorporated Documents. The documents incorporated or
deemed to be incorporated by reference in the Registration Statement
and the Prospectus, at the time they were or hereafter are filed with
the Commission, complied and will comply in all material respects with
the requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read
together with the other information in the Prospectus, at the date of
the Prospectus and at the Closing Time, will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make
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the statements therein, in the light of the circumstances under
which they were made, not misleading.
(iii) Independent Accountants. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iv) Financial Statements. The financial statements included
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and incorporated by reference in the Registration
Statement, and any more recent financial statements included or
incorporated by reference in the Registration Statement, present
fairly the financial position of the Company and its consolidated
subsidiaries at the dates indicated and the statements of operations,
changes in stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules, if any,
included in the Registration Statement present fairly in accordance
with GAAP the information required to be stated therein. The selected
consolidated financial and operating data and the summary consolidated
financial and operating data included in the Prospectus present fairly
the information shown therein and have been compiled on a basis
consistent with that of the last audited financial statements included
or incorporated by reference in the Registration Statement. The
Historical Summaries of Gross Income and Direct Operating Expenses of
Landsing Pacific Portfolio, 3002 Dow Business Center, 6600 College
Boulevard and 350 East Plumeria Drive (the "Properties") incorporated
by reference into the Registration Statement and the Prospectus,
together with the related notes, present fairly the results of
operations of the Properties for the periods specified and have been
prepared in conformity with GAAP applied on a consistent basis
throughout the periods involved. The pro forma financial statements
of the Company and its subsidiaries and the related notes thereto
incorporated by reference into the Registration Statement and the
Prospectus present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly
compiled on the bases described therein, and the assumptions used in
the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions and
circumstances referred to therein.
(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given or incorporated by
reference into the Registration Statement and the Prospectus, except
as otherwise stated therein, (A) there has been no material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise (a "Material Adverse
Effect"), whether or not arising in the ordinary course of business,
(B) there have been no transactions entered into by
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the Company or any of its subsidiaries, other than those in the
ordinary course of business, which are material with respect to the
Company and its subsidiaries considered as one enterprise, and (C)
except for regular quarterly dividends on the Series A Convertible
Preferred Stock, par value $.02 per share (the "Convertible Preferred
Stock") and the Common Stock in amounts per share that are consistent
with past practice, there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Maryland and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform
its obligations under this Agreement; and the Company is duly
qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to
be in good standing would not result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each subsidiary of the
Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital
stock of each "significant subsidiary" as defined in Rule 405 of
Regulation C of the 1933 Act (each a "Subsidiary" and, collectively,
the "Subsidiaries") of the Company has been duly authorized and
validly issued, is fully paid and non-assessable and is owned by the
Company, directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of the
Subsidiaries was issued in violation of the preemptive or similar
rights arising by operation of law, under the charter or by-laws of
any Subsidiary or under any agreement to which the Company or any
subsidiary is a party. Each of the Subsidiaries is a "qualified REIT
subsidiary" within the meaning of Section 856(i)(2) of the Internal
Revenue Code of 1986, as amended (the "Code").
(viii) Capitalization. The authorized, issued and
outstanding capital stock of the Company is as set forth in the
Prospectus in the column entitled "Actual" under the caption
"Capitalization" (except for subsequent issuances, if any, pursuant to
this Agreement, pursuant to employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or
options referred to in the Prospectus).
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(ix) Authorization of Agreement. This Agreement has been
duly authorized, executed and delivered by the Company.
(x) Authorization and Description of Securities. The shares
of issued and outstanding Common Stock have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of Common Stock of the Company was issued in
violation of preemptive or other similar rights arising by operation
of law, under the charter or by-laws of the Company, under any
agreement to which the Company or any of its subsidiaries is a party
or otherwise. The Securities have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement against
payment of the consideration set forth herein, will be validly issued
and fully paid and non-assessable; the Common Stock conforms to all
statements relating thereto contained or incorporated by reference in
the Prospectus and such description conforms to the rights set forth
in the instruments defining the same; no holder of the Securities will
be subject to personal liability by reason of being such a holder; and
the issuance of the Securities is not subject to preemptive or other
similar rights arising by operation of law, under the charter and
by-laws of the Company, or under any agreement to which the Company or
any of its subsidiaries is a party.
(xi) Absence of Defaults and Conflicts. Neither the Company
nor any of its subsidiaries is in violation of its charter or by-laws
or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which any of them may be bound, or to which any of the
property or assets of the Company or any of its subsidiaries is subject
(collectively, "Agreements and Instruments") except for such violations
or defaults that would not have a Material Adverse Effect; and the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein and in the
Registration Statement (including the use of the proceeds from the sale
of the Securities as described in the Prospectus under the caption "Use
of Proceeds") and compliance by the Company with its obligations
hereunder have been duly authorized by all necessary corporate action
and do not and will not, whether with or without the giving of notice
or passage of time or both, conflict with or constitute a breach of, or
default or Repayment Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant
to, any Agreement or Instrument except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not have a
Material Adverse Effect, nor will such action result in any violation
of the provisions of the charter or by-laws of the Company or any
applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their assets or properties. As used herein, a
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"Repayment Event" means any event or condition which gives the holder
of any note, debenture or other evidence of indebtedness (or any person
acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or any of its subsidiaries.
(xii) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent, and the Company is not aware of
any existing or imminent labor disturbance by the employees of any of
its or any of its subsidiaries' principal suppliers, manufacturers,
customers or contractors, which, in either case, may reasonably be
expected to result in a Material Adverse Effect.
(xiii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
might reasonably be expected to result in a Material Adverse Effect,
or which might reasonably be expected to materially and adversely
affect the properties or assets thereof or the consummation of this
Agreement or the performance by the Company of its obligations
hereunder; the aggregate of all pending legal or governmental
proceedings to which the Company or any subsidiary is a party or of
which any of their respective property or assets is the subject which
are not described in the Registration Statement, including ordinary
routine litigation incidental to the business could not reasonably be
expected to result in a Material Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement, the Prospectus or the documents incorporated by reference
therein or to be filed as exhibits thereto which have not been so
described and filed as required.
(xv) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance
or sale of the Securities hereunder or the consummation of the
transactions contemplated by this Agreement, except such as have been
already obtained or as may be required under the 1933 Act or the 1933
Act Regulations, state securities laws or the rules and regulations of
the National Association of Securities Dealers, Inc. (the "NASD").
(xvi) Possession of Licenses and Permits. The Company and
the subsidiaries possess such permits, licenses, approvals, consents
and other authorizations (collectively, "Governmental Licenses") issued
by the appropriate federal, state, local or foreign regulatory agencies
or bodies necessary to conduct the business now operated by them; the
Company and its subsidiaries are in compliance with the terms
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and conditions of all such Governmental Licenses, except where the
failure so to comply would not, singly or in the aggregate, have a
Material Adverse Effect; all of the Governmental Licenses are valid and
in full force and effect, except when the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to
be in full force and effect would not have a Material Adverse Effect;
and neither the Company nor any of its subsidiaries has received any
notice of proceedings relating to the revocation or modification of any
such Governmental Licenses which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in
a Material Adverse Effect.
(xvii) Title to Property. The Company and the Subsidiaries
have good and marketable title to all real property owned by the
Company and the Subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectus or (b) are not
materially significant in relation to the business of the Company and
the Subsidiaries, considered as one enterprise; and all of the leases
and subleases material to the business of the Company and the
Subsidiaries, considered as one enterprise, and under which the
Company or any of the Subsidiaries holds properties described in the
Prospectus, are in full force and effect, and neither the Company nor
any of the Subsidiaries has any notice of any material claim of any
sort that has been asserted by anyone adverse to the rights of the
Company or any of the Subsidiaries under any of the leases or
subleases mentioned above, or affecting or questioning the rights of
the Company or such Subsidiary of the continued possession of the
leased or subleased premises under any such lease or sublease.
(xviii) Investment Company Act. The Company is not, and upon
the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xix) Environmental Laws. Except as described in the
Registration Statement and except such violations as would not, singly
or in the aggregate, result in a Material Adverse Effect, to the
Company's knowledge, after due inquiry (A) neither the Company nor any
of its subsidiaries is in violation of any federal, state, local or
foreign statute, law, rule, regulation, ordinance, code, policy or
rule of common law and any judicial or administrative interpretation
thereof including any judicial or administrative order, consent,
decree or judgment, relating to pollution or protection of human
health, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials")
or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or
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handling of Hazardous Materials (collectively, "Environmental Laws"),
(B) the Company and its subsidiaries have all permits, authorizations
and approvals required under any applicable Environmental Laws and are
each in compliance with their requirements, (C) there are no pending or
threatened administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental
Law against the Company or any of its subsidiaries and (D) there are no
events or circumstances that might reasonably be expected to form the
basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against
or affecting the Company or any of its subsidiaries relating to any
Hazardous Materials or the violation of any Environmental Laws.
(xx) Qualification as a Real Estate Investment Trust. At all
times since the date of formation of the Company's predecessor, the
Company has operated and qualified as a real estate investment trust
under Section 856 through 860 of the Code and the related regulations,
and has met all applicable organizational and operational requirements
for qualification as a real estate investment trust, including the
requirements relating to stock ownership and annual stockholder
reporting, sources of income, nature of assets and annual
distributions. Based on the Company's current and anticipated status
and operations, the Company will qualify as a real estate investment
trust for the Company's current taxable year and the Company has no
reason to believe that it will be unable to maintain that status in
subsequent taxable years.
(b) Officer's Certificates. Any certificate signed by any officer
of the Company and delivered to the Representatives or to counsel for the
Underwriters shall be deemed a representation and warranty by the Company to
each Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to an additional
___________ shares of Common Stock at the price per share set forth in Schedule
B, less an amount per share equal to any dividends or distributions declared by
the Company
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and payable on the Initial Securities but not payable on the Option Securities.
The option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of
covering over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Representatives to
the Company setting forth the number of Option Securities as to which the
several Underwriters are then exercising the option and the time and date of
payment and delivery for such Option Securities. Any such time and date of
delivery (a "Date of Delivery") shall be determined by the Representatives, but
shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter defined. If
the option is exercised as to all or any portion of the Option Securities, each
of the Underwriters, acting severally and not jointly, will purchase that
proportion of the total number of Option Securities then being purchased which
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter bears to the total number of Initial Securities, subject in
each case to such adjustments as the Representatives in their discretion shall
make to eliminate any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the office of
Shearman & Sterling, 555 California Street, San Francisco, California, or at
such other place as shall be agreed upon by the Representatives and the
Company, at 7:00 A.M. (California time) on the third (fourth, if the pricing
occurs after 4:30 P.M. (Washington D.C. time) on any given day) business day
after the date hereof (unless postponed in accordance with the provisions of
Section 10 hereof), or such other time not later than ten business days after
such date as shall be agreed upon by the Representatives and the Company (such
time and date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Representatives and the Company, on each Date of Delivery as specified in the
notice from the Representatives to the Company. Payment shall be made to the
Company by certified or official bank check or checks drawn in, or wire
transfer of, immediately available funds payable to the order of the Company,
against delivery to the Representatives for the respective accounts of the
Underwriters of certificates for the Securities to be purchased by them. It is
understood that each Underwriter has authorized the Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Initial Securities and the Option Securities, if any, which it
has agreed to purchase. _____________, individually and not as representative
of the Underwriters, may (but shall not be obligated to) make payment of the
purchase price for the Initial Securities or the Option Securities, if any, to
be purchased by any Underwriter whose check has not been received by the
Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such Underwriter from its obligations
hereunder.
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(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations
and registered in such names as the Representatives may request in writing at
least two full business days before the Closing Time or the relevant Date of
Delivery, as the case may be. The certificates for the Initial Securities and
the Option Securities, if any, will be made available for examination and
packaging by the Representatives in The City of New York not later than 10:00
A.M. on the business day prior to the Closing Time or the relevant Date of
Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with
each Underwriter as follows:
(a) Preparation of Prospectus Supplement. If reasonably
requested by you in connection with the offering of the Securities,
the Company will prepare a preliminary prospectus supplement
containing such information as you and the Company deem appropriate,
and, prior to or immediately following the execution of this
Agreement, the Company will have prepared or will prepare a Prospectus
Supplement that complies with the 1933 Act and the 1933 Act
Regulations and that sets forth the number of Securities and their
terms not otherwise specified in the Prospectus, the name of each
Underwriter participating in the offering and number of Securities
that each severally has agreed to purchase, the name of each
Underwriter, if any, acting as representative of the Underwriters in
connection with the offering, the price at which the Securities are to
be purchased by the Underwriters from the Company, any initial public
offering price, any selling concession and reallowance, and such other
information as you and the Company deem appropriate in connection with
the offering of the Securities. The Company will promptly transmit
copies of the Prospectus Supplement to the Commission for filing
pursuant to Rule 424 of the 1933 Act Regulations and will furnish to
the Underwriters as many copies of any preliminary prospectus
supplement and the Prospectus as you shall reasonably request.
(b) Compliance with Securities Regulations and Commission
Requests. During the period when the Prospectus is required by the
1933 Act to be delivered in connection with sales of the Securities,
the Company will notify you immediately, and confirm the notice in
writing, (i) of the effectiveness of any amendment to the Registration
Statement, (ii) of the transmission to the Commission for filing of any
supplement to the Prospectus or any document that would as a result
thereof be incorporated by reference in the Prospectus, (iii) of the
receipt of any comments from the Commission with respect to the
Registration Statement, the Prospectus or the Prospectus Supplement,
(iv) of any request by the Commission for any amendment to the
Registration Statement or any supplement to the Prospectus or for
additional information relating thereto or to any document incorporated
by reference in the Prospectus and (v) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement, of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the
institution or threatening of any proceeding for any of such purposes.
The Company will use every reasonable effort to prevent the issuance of
any such stop order or of any order
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suspending such qualification and, if any such order is issued, to
obtain the lifting thereof at the earliest possible moment.
(c) Filing of Amendments. During the period when the
Prospectus is required by the 1933 Act to be delivered in connection
with sales of the Securities, the Company will inform you of its
intention to file any amendment to the Registration Statement
(including any filing under Rule 462(b) of the 1933 Act Regulations),
any supplement to the Prospectus or any document that would as a
result thereof be incorporated by reference in the Prospectus; will
furnish you with copies of any such amendment, supplement or other
document a reasonable time in advance of filing; and will not file any
such amendment, supplement or other document in a form to which you or
your counsel shall reasonably object; except that the Company shall
inform you of its intention to file documents pursuant to Section
14(d) of the 1934 Act and shall furnish you with copies of such
documents immediately upon the filing thereof, and you or your counsel
shall not be entitled to object thereto other than pursuant to Section
3(f). The Prospectus and any amendments or supplements thereto
furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to
EDGAR, except to the extent permitted by Regulation S-T.
(d) Delivery of Registration Statement. The Company has
furnished or will furnish to you as many signed copies of the
Registration Statement (as originally filed) and of all amendments
thereto, whether filed before or after the Registration Statement
became effective, copies of all exhibits and documents filed therewith
or incorporated by reference therein (through the end of the period
when the Prospectus is required by the 1933 Act to be delivered in
connection with sales of the Securities) and signed copies of all
consents and certificates of experts, as you may reasonably request,
and has furnished or will furnish to you, for each of the
Underwriters, one conformed copy of the Registration Statement (as
originally filed) and of each amendment thereto (including documents
incorporated by reference into the Prospectus but without exhibits,
but excluding any such documents filed by the Company under the 1934
Act prior to the end of the most recent fiscal year for which the
Company has filed an Annual Report on Form 10-K). The copies of the
Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to
the extent permitted by Regulation S-T.
(e) Delivery of Prospectuses. The Company will furnish to
each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934
Act, such number of copies of the Prospectus (including the Prospectus
Supplement) (as amended or supplemented) as such Underwriter may
reasonably request. The Prospectus and any amendments or supplements
thereto furnished to the Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
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(f) Continued Compliance with Securities Laws. If, at
any time when the Prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall
occur or condition exist as a result of which it is necessary, in the
opinion of counsel for the Underwriters or counsel for the Company, to
amend the Registration Statement or amend or supplement the Prospectus
in order that the Prospectus will not include an untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or
if it shall be necessary, in the opinion of either such counsel, at
any such time to amend the Registration Statement or amend or
supplement the Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly
prepare and file with the Commission, subject to Section 3(c), such
amendment or supplement as may be necessary to correct such untrue
statement or omission or to make the Registration Statement or the
Prospectus comply with such requirements.
(g) Blue Sky Qualifications. The Company will use its
best efforts, in cooperation with the Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions as you may designate and to
maintain such qualifications in effect for a period of not less than
one year from the date hereof; provided, however, that the Company
shall not be obligated to file any general consent to service of
process or to qualify as a foreign corporation or as a dealer in
securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise so subject. The Company
will file such statements and reports as may be required by the laws
of each jurisdiction in which the Securities have been qualified as
above provided. The Company will also supply you with such
information as is necessary for the determination of the legality of
the Securities for investment under the laws of such jurisdictions as
you may request.
(h) Rule 158. The Company will make generally available
to its security holders as soon as practicable, but not later than 45
days after the close of the period covered thereby, an earnings
statement of the Company (in form complying with the provisions of
Rule 158 of the 1933 Act Regulations), covering (i) a period of 12
months beginning after the effective date of the Registration
Statement but not later than the first day of the Company's fiscal
quarter next following such effective date and (ii) a period of 12
months beginning after the date of this Agreement but not later than
the first day of the Company's fiscal quarter next following the date
of this Agreement.
(i) Use of Proceeds. The Company will apply the proceeds
from the sale of the Securities for the purposes set forth under the
caption "Use of Proceeds" in the Prospectus.
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<PAGE> 15
(j) Listing. The Company will comply with all rules and
regulations of the New York Stock Exchange and the Pacific Stock
Exchange in respect of the listing of the Common Stock and will use
its best efforts to cause the Securities to be eligible for trading
thereon.
(k) Restriction on Sale of Securities. During a period of
90 days from the date hereof, the Company will not, without the
prior written consent of ___________, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any
share of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or
(ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, whether any
such swap or transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (A) the
Securities to be sold hereunder, (B) any shares of Common Stock issued
by the Company upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof and referred
to in the Prospectus, (C) any shares of Common Stock issued or
options to purchase Common Stock granted pursuant to existing employee
benefit plans of the Company referred to in the Prospectus, any
non-employee director stock option plan or dividend reinvestment plan
or (D) the issuance of partnership units exchangeable for shares of
Common Stock in connection with property acquisitions.
(l) Reporting Requirements. During the period when the
Prospectus is required by the 1933 Act to be delivered in connection
with sales of the Securities, the Company will, subject to Section
3(c), file promptly all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.
SECTION 4. Payment of Expenses. (a) Expenses. The Company
will pay all expenses incident to the performance of its obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation, printing
and delivery to the Underwriters of this Agreement, any Agreement among
Underwriters and such other documents as may be required in connection with the
offering, purchase, sale and delivery of the Securities, (iii) the preparation,
issuance and delivery of the certificates for the Securities to the
Underwriters, including any stock or other transfer taxes or duties payable upon
the sale of the Securities to the Underwriters, (iv) the fees and disbursements
of the Company's counsel, accountants and other advisors, (v) the qualification
of the Securities under securities laws in accordance with the provisions of
Section 3(g) hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of any
preliminary prospectus supplements, and the Prospectus and any amendments or
supplements thereto, (vii) the preparation, printing and delivery to the
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<PAGE> 16
Underwriters of copies of the Blue Sky Survey and any supplement thereto,
(viii) the fees and expenses of any transfer agent or registrar for the
Securities, (ix) the filing fees incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review by
the NASD of the terms of the sale of the Securities and (x) the fees and
expenses incurred in connection with the listing of the Securities on the NYSE
and the PSE.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The
obligations of the several Underwriters hereunder are subject to the accuracy
of the representations and warranties of the Company contained in Section 1
hereof or in certificates of any officer of the Company or any of its
subsidiaries delivered pursuant to the provisions hereof, to the performance by
the Company of its covenants and other obligations hereunder, and to the
following further conditions:
(a) Effectiveness of Registration Statement and 462(b)
Registration Statement. The Registration Statement has become
effective not later than 5:30 P.M., Washington D.C. time, on the date
hereof, any Rule 462(b) Registration Statement has become effective
not later than 10:00 P.M., Washington D.C. time, on the date hereof,
and at Closing Time no stop order suspending the effectiveness of the
Registration Statement or 462(b) Registration Statement shall have
been issued under the 1933 Act or proceedings therefor initiated or
threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters.
(b) Opinions of Counsel for Company. At Closing Time the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Shearman & Sterling, counsel for the Company,
together with the favorable opinion of Ballard Spahr Andrews &
Ingersoll, special Maryland counsel for the Company, each in form and
substance satisfactory to counsel for the Underwriters, together with
signed or reproduced copies of each such letter for each of the other
Underwriters to the effect set forth in Exhibit A-1 and Exhibit A-2
hereto and to such further effect as counsel to the Underwriters may
reasonably request.
(c) Opinion of Counsel for Underwriters. At Closing Time
the Representatives shall have received the favorable opinion, dated
as of Closing Time, of _______________________, counsel for the
Underwriters, together with signed or reproduced copies of such letter
for each of the other Underwriters with respect to the matters set
forth in __________________. In giving such opinion such counsel may
rely, as to all matters governed by the laws of jurisdictions other
than the law of the States of New York and California and the federal
law of the United States, upon the opinions of counsel satisfactory to
you. Such counsel may also state that, insofar as
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<PAGE> 17
such opinion involves factual matters, they have relied, to the extent
they deem proper, upon certificates of officers of the Company and its
subsidiaries and certificates of public officials.
(d) Officers' Certificate. At Closing Time there shall
not have been, since the date hereof or since the respective dates as
of which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business, and the Representatives shall have
received a certificate of the Chief Executive Officer or a Vice
President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of Closing Time, to the
effect that (i) there has been no such material adverse change, (ii)
the representations and warranties in Section 1 hereof are true and
correct with the same force and effect as though expressly made at and
as of Closing Time, (iii) the Company has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied
at or prior to Closing Time, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been initiated or threatened by the
Commission.
(e) Accountant's Comfort Letter. At the time of the
execution of this Agreement, the Representatives shall have received
from KPMG Peat Marwick LLP a letter dated such date, in form and
substance satisfactory to the Representatives, together with signed or
reproduced copies of such letter for each of the other Underwriters
containing statements and information of the type ordinarily included
in accountants' "comfort letter" to underwriters with respect to the
financial statements and certain financial information contained in
the Registration Statement and the Prospectus.
(f) Bring-down Comfort Letter. At Closing Time the
Representatives shall have received from KPMG Peat Marwick LLP a
letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (e) of
this Section, except that the specified date referred to shall be a
date not more than three business days prior to Closing Time.
(g) Approval of Listing. At the Closing Time the
Securities shall have been approved for listing on the NYSE and the
PSE, subject only to official notice of issuance.
[(h) Lock-up Agreements. At the date of this Agreement,
the Representatives shall have received an agreement substantially in
the form of Exhibit B hereto signed by the persons listed on Schedule
C hereto.]
(i) Additional Documents. At Closing Time and at each
Date of Delivery counsel for the Underwriters shall have been
furnished with such documents and
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<PAGE> 18
opinions as they may require for the purpose of enabling them to pass
upon the issuance and sale of the Securities as herein contemplated, or
in order to evidence the accuracy of any of the representations or
warranties, or the fulfillment of any of the conditions, herein
contained; and all proceedings taken by the Company in connection with
the issuance and sale of the Securities as herein contemplated shall be
satisfactory in form and substance to the Representatives and counsel
for the Underwriters.
(j) Conditions to Purchase of Option Securities. In the
event that the Underwriters exercise their option provided in Section
2(b) hereof to purchase all or any portion of the Option Securities,
the representations and warranties of the Company contained herein and
the statements in any certificates furnished by the Company hereunder
shall be true and correct as of each Date of Delivery and, at the
relevant Date of Delivery, the Representatives shall have received:
(i) Officer's Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the
Company confirming that the certificate delivered at the
Closing Time pursuant to Section 5(d) hereof remains true and
correct as of such Date of Delivery.
(ii) Opinions of Counsel for Company. The favorable opinion
of Shearman & Sterling, counsel for the Company, together with
the favorable opinion of Ballard Spahr Andrews & Ingersoll,
special Maryland counsel for the Company, each in form and
substance satisfactory to counsel for the Underwriters, dated
such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same
effect as the opinions required by Section 5(b) hereof.
(iii) Opinion of Counsel for Underwriters. The favorable
opinion of _______________, counsel for the Underwriters,
dated such Date of Delivery, relating to the Option Securities
to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from KPMG Peat
Marwick LLP, in form and substance satisfactory to the
Representatives and dated such Date of Delivery, substantially
in the same form and substance as the letter furnished to the
Representatives pursuant to Section 5(f) hereof, except that
the "specified date" on the letter furnished pursuant to this
paragraph shall be a date not more than five days prior to
such Date of Delivery.
(k) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement may be terminated by the Representatives by notice to the
Company at any time at or prior to Closing Time, and such termination shall be
without liability of any party to any other party except as
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provided in Section 4 and except that Sections 1, 6 and 7 shall survive any
such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including the
Rule 430A Information and the Rule 434 Information, if applicable, or
the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus
supplement or the Prospectus (or any amendment or supplement thereto),
or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission; provided that (subject to Section 6(d) hereof) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by
______________), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, to the extent that any
such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through ______________ expressly for use in the Registration
Statement (or any amendment thereto) or any preliminary prospectus supplement or
the Prospectus (or any amendment or supplement thereto); and provided, further,
that this indemnity agreement with respect to any preliminary prospectus
supplement shall not inure to the benefit of any Underwriter from whom the
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<PAGE> 20
person asserting any such losses, liabilities, claims, damages or expenses
purchased Securities, or any person controlling such Underwriter, if a copy of
the Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of any Underwriter to such person, if such is required by law, at or
prior to the written confirmation of the sale of such Securities to such person
and if the Prospectus (as so amended or supplemented) would have cured the
defect giving rise to such loss, liability, claim, damage or expense.
(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection
(a) of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus
supplement or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through _____________ expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary
prospectus supplement or the Prospectus (or any amendment or supplement
thereto).
(c) Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section
6(a) above, counsel to the indemnified parties shall be selected by
_____________, and, in the case of parties indemnified pursuant to Section 6(b)
above, counsel to the indemnified parties shall be selected by the Company. An
indemnifying party may participate at its own expense in the defense of any such
action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent
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<PAGE> 21
(i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim
and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) hereof effected without its written
consent if (i) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance with such
request prior to the date of such settlement.
SECTION 7. Contribution. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company on the one hand and
of the Underwriters on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Underwriters,
in each case as set forth on the cover of the Prospectus Supplement, or, if
Rule 434 is used, the corresponding location on the Term Sheet, bear to the
aggregate initial public offering price of the Securities as set forth on such
cover.
The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
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The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or controlling person, or
by or on behalf of the Company, and shall survive delivery of the Securities to
the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Registration
Statement, any material adverse change in the condition, financial
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<PAGE> 23
or otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, any
outbreak of hostilities or escalation thereof or other calamity or crisis or
any change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Representatives,
impracticable to market the Securities or to enforce contracts for the sale of
the Securities, or (iii) if trading in any securities of the Company has been
suspended or limited by the Commission or the NYSE or the PSE, or if trading
generally on the American Stock Exchange or the NYSE or in the over-the-counter
market has been suspended or limited, or minimum or maximum prices for trading
have been fixed, or maximum ranges for prices have been required, by any of
said exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority, or
(iv) if a banking moratorium has been declared by Federal, California or New
York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that
Sections 6 and 7 hereof shall survive such termination and remain in full force
and effect.
SECTION 10. Default by One or More of the Underwriters. If one
or more of the Underwriters shall fail at Closing Time or a Date of Delivery to
purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting Underwriters, or any other underwriters, to purchase all, but
not less than all, of the Defaulted Securities in such amounts as may be agreed
upon and upon the terms herein set forth; if, however, the Representatives
shall not have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed
10% of the number of Securities to be purchased on such date, each of
the non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of
the number of Securities to be purchased on such date, this Agreement
shall terminate without liability on the part of any non-defaulting
Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Representatives or the Company shall
have the right to postpone
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Closing Time or a Date of Delivery for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10.
SECTION 11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to
the Underwriters shall be directed to the Representatives at
_____________________, attention of ________________; notices to the Company
shall be directed to it at 270 Lafayette Circle, Lafayette, California 94549,
attention of Peter B. Bedford.
SECTION 12. Parties. This Agreement shall each inure to the
benefit of and be binding upon the Underwriters and the Company and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Underwriters and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the Underwriters and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities
from any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. Governing Law and Time. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
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If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Company in accordance with its
terms.
Very truly yours,
BEDFORD PROPERTY INVESTORS, INC.
By ___________________________________
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
[Names of underwriters]
_____________________________________
By: _________________________________
By _________________________________________________________
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Bedford Property Investors, Inc.:
We consent to the use of our reports dated February 6, 1996 (relating to the
consolidated financial statements of Bedford Property Investors, Inc.),
November 10, 1995 and January 26, 1996 (relating to the historical summaries of
gross income and direct operating expenses of the Landsing Pacific Portfolio
and 3002 Dow Business Center, respectively), and November 21, 1996 (relating to
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) incorporated by reference herein and to the reference
to our firm under the heading "Experts" in the prospectus.
San Francisco, California
January 8, 1997
