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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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)
------------------------
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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CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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TITLE OF EACH PROPOSED PROPOSED
CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE FEE
- -------------------------------------------------------------------------------------------------------
Common Stock par value $.02 per
Share.............................. 108,495 $20.25 $2,197,024 $666
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee, based on the average of the high and low prices for the Company's
Common stock as reported on the New York Stock Exchange on February , 1997
in accordance with Rule 457(c) under the Securities Act of 1933.
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 MARCH 20, 1997
PROSPECTUS
108,495 SHARES
[LOGO] BEDFORD PROPERTY INVESTORS, INC.
COMMON STOCK
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This Prospectus relates to the offer and sale from time to time of up to
108,495 shares of common stock (the "Shares"), par value $0.02 per share
("Common Stock"), of Bedford Property Investors, Inc., a Maryland corporation
(the "Company"), by the holders thereof following the potential issuance of such
Shares upon the exchange by such holders of up to 108,495 units of limited
partnership interest (the "Units") in Bedford Realty Partners, L.P. (the
"Partnership"), of which the Company is the sole general partner, if and to the
extent that such holders (the "Selling Stockholders") exercise their right to
redeem such Units and the Company elects to satisfy such redemption right
through the issuance of Common Stock.
The Company is registering the Shares issuable upon conversion of the Units
pursuant to the registration rights provisions of the Constituent Partner
Agreement, dated December 17, 1996 (the "Constituent Partner Agreement"), by and
among the Company, the Partnership and the holders of the Units. The
registration of the Shares does not necessarily mean that any of the Shares will
be issued by the Company or will be offered and sold by the holders thereof.
The Common Stock is listed on the New York Stock Exchange (the "NYSE") and
the Pacific Stock Exchange (the "PSE") under the symbol "BED." The Company will
cause the Shares to be listed on the NYSE and the PSE, subject to official
notice of issuance. The last reported sale price of the shares of Common Stock
on the NYSE on March 19, 1997 was $20 3/4 per share. To ensure that the Company
maintains its qualification as a real estate investment trust (a "REIT"),
ownership by any person is limited to 5% of the lesser of the number or value of
outstanding shares of Common Stock, subject to certain exceptions. See
"Description of Capital Stock of the Company - Restrictions on Transfer and
Ownership of Capital Stock - Limitation on Transfer of Capital Stock."
The Selling Stockholders from time to time may offer and sell the Shares
held by them directly or through agents or broker-dealers on terms to be
determined at the time of sale. To the extent required, the names of any agent
or broker-dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution." Each of the
Selling Stockholders reserves the sole right to accept or reject, in whole or in
part, any proposed purchase of the Shares to be made directly or through agents.
The Company will not receive any of the proceeds from the issuance of the
Shares or the sale of Shares by the Selling Stockholders but has agreed to bear
certain expenses of registration of the Shares under Federal and state
securities laws.
The Selling Stockholders and any agents or broker-dealers that participate
with the Selling Stockholders in the distribution of Shares may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and any commissions received by them and any profit on the
resale of the Shares may be deemed to be underwriting commissions or discounts
under the Securities Act.
SEE "RISK FACTORS" APPEARING ON PAGE 6 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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The date of this Prospectus is , 1997.
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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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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 Registrant's Current Report on Form 8-K/A filed on February 4,
1997.
11. 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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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in, or incorporated
herein by reference. References herein to the percentage of a Property or
Properties occupied are calculated by dividing rentable square feet occupied by
total rentable square feet, unless otherwise indicated. Unless otherwise
indicated, the information contained in this Prospectus, including, but not
limited to, Common Stock share numbers, share prices and per share amounts,
reflects a one-for-two reverse stock split of the Common Stock of the Company
effected on March 29, 1996. References to the "Company" in this Prospectus shall
be deemed to include the Company, its predecessors, and those entities of which
the Company has control or owns a majority of the economic interests, unless
otherwise indicated or the context indicates otherwise. The exchange of the
Units into shares of Common Stock and the offering of such shares of Common
Stock pursuant to this Prospectus is referred to herein as the "Offering."
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 in "Risk Factors." 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
subsequent events or circumstances or to reflect the occurrence of unanticipated
events.
THE COMPANY
Bedford Property Investors, Inc. is a self-administered and self-managed
equity REIT engaged in the business of owning, managing, acquiring and
developing industrial and suburban office properties proximate to selected
metropolitan areas primarily in the Western United States. As of December 31,
1996, the Company owned and operated, either directly or through one of its
wholly-owned subsidiaries, 45 properties aggregating approximately 3.9 million
rentable square feet and comprised of 36 industrial properties (the "Industrial
Properties"), eight suburban office properties (the "Suburban Office
Properties") and one retail property (the "Retail Property"). The Industrial
Properties, the Suburban Office Properties and the Retail Property are
hereinafter referred to individually as a "Property" and collectively as the
"Properties." As of December 31, 1996, the Properties were approximately 94%
occupied by over 400 tenants. The Company's Properties are located in Northern
and Southern California, Oregon, Washington, Arizona, Utah, Colorado and Kansas.
The Company seeks to grow its asset base through the acquisition of
industrial and suburban office properties and portfolios of such properties, as
well as through the development of new industrial and suburban office
properties. The Company's strategy is to operate in suburban markets that are
experiencing, or are expected by the Company to experience, superior economic
growth. The Company also seeks markets that are subject to limitations on the
development of similar properties. The Company believes that employment growth
is a reliable indicator of future demand for both industrial and suburban office
space. In addition, the Company believes that certain supply-side constraints,
such as limited availability of undeveloped land in a market and limited
financing for speculative real estate construction, increase a market's
potential for higher average rents over time. The Company is currently targeting
selected markets proximate to metropolitan areas in which the Company's
Properties are located. The Company believes that due to recent economic
improvements in these markets, and related improvements in the commercial
property markets, an investment in industrial or suburban office properties in
these markets, and in particular in California, provides the potential for
attractive returns through increased occupancy levels, rents and real estate
values.
The Company is led by a professional management team who have on average
over 17 years of experience in the ownership, management, acquisition and
development of industrial and suburban office properties in the Western United
States. Peter B. Bedford, the Company's Chairman and Chief Executive Officer,
has been engaged in the commercial real estate business, primarily in the
Western United States, for over 30 years and during his career has been
responsible for the ownership, management, acquisition and development of an
aggregate of approximately 18 million square feet of industrial, office and
retail properties, as well as land, in 14 states.
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After completion of the Offering, the senior officers and directors of the
Company will beneficially own approximately 12.4% of the outstanding Common
Stock, including 8.3% beneficially owned by Mr. Bedford. As of February 28,
1997, Bed Preferred No. 1 Limited Partnership ("BPLP"), a Delaware limited
partnership beneficially owned by an investment fund managed by AEW Capital
Management, a national real estate investment adviser whose clients primarily
include institutional investors, was the holder of all of the outstanding shares
of the Company's Series A Convertible Preferred Stock, par value $.01 per share
(the "Convertible Preferred Stock"). Each of the 8,333,334 outstanding shares of
Convertible Preferred Stock is convertible at the option of the holders, after
September 18, 1997, into one half of one share of the Company's Common Stock,
subject to adjustment upon the occurrence of certain events. Based upon the
current conversion ratio and following conversion, the outstanding shares of
Convertible Preferred Stock would represent approximately 26% of the shares of
Common Stock outstanding at the completion of the Offering.
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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 December 31, 1996, approximately 70% 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 December 31, 1996, the Company's consolidated balance sheet
reflected accumulated losses and distributions in excess of net income
aggregating approximately $74 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 December 31, 1996, leases representing 19.6%, 21.2%, 15.3% and 14.0%
of the Company's total annualized base rent were scheduled to expire during
1997, 1998, 1999 and 2000, respectively. The Company will be subject to the risk
that, upon expiration, certain of these or other leases will not be renewed, the
space may not be relet, or the terms of renewal or reletting (including the cost
of required renovations or concessions to tenants) may be less favorable than
current lease terms. 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 December 31, 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 properties and portfolios of properties will be
acquired on an "as is" basis, with limited recourse against the
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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."
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
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decrease the amount of cash available to pay cash dividends on the Common Stock.
At any time after September 18, 1997, the Company may redeem the Convertible
Preferred Stock in whole (but not in part) at its option at a price calculated
by determining an internal rate of return on the Convertible Preferred Stock of
25% per annum for the period from September 18, 1995 until September 18, 1997
and an internal rate of return on the Convertible Preferred Stock of 20% per
annum from and after September 18, 1997 until the date of redemption, but not
beyond September 18, 2000. At any time after September 18, 2000, or at any time
prior thereto if there are less than 400,000 shares of Convertible Preferred
Stock outstanding, the Convertible Preferred Stock may be redeemed in whole or
in part at the option of the Company at a redemption price equal to $6.30 per
share (declining $.06 in each of the first five full years commencing on
September 18, 2000) plus all accrued and unpaid dividends. In addition, the
Company is required, at the option of the holders of the Convertible Preferred
Stock, to redeem the Convertible Preferred Stock on demand of the holders
thereof, at a redemption price of $6.00 per share plus all accrued and unpaid
dividends, on the occurrence of any one or more of the following: (i) the
failure to pay dividends on the Convertible Preferred Stock for two consecutive
quarters, (ii) a default in the payment on certain institutional debt, (iii) the
failure of the Company to obtain any required consent of the holders of the
Convertible Preferred Stock or (iv) the failure to reach certain financial
performance levels. See "Description of Capital Stock of the
Company -- Convertible Preferred Stock -- Redemption."
In addition, any Common Stock issued in connection with a sale of the
Shares hereunder will further substantially increase the cash required to
continue to pay cash dividends at current levels. Any Common Stock or preferred
stock that may in the future be issued to finance acquisitions, upon exercise of
stock options or otherwise would have a similar effect. See "-- Shares Available
for Future Sale." The Company's ability to pay dividends will depend in large
part on the performance of its properties and other properties that it may
acquire in the future. In addition, the Company's existing credit facility (the
"Credit Facility") places certain limitations on the Company's ability to pay
quarterly dividends to stockholders.
In addition, the Company's ability to pay dividends is based upon a number
of uncertainties. In particular, the Company only recently acquired a number of
its Properties and, therefore, has a limited operating history with respect to
those Properties. The Company's ability to pay dividends depends in large part
upon whether these recently acquired Properties, as well as the Company's other
Properties and future acquisitions perform in accordance with expectations.
Likewise, the Company's ability to pay dividends will depend upon, among other
things, occupancy levels at its Properties, its ability to enter into new leases
upon expiration of current leases and costs associated with the renewal or
reletting of space, expenditures with respect to existing and newly acquired
Properties, the amount of its debt and the interest rate thereon, default or
bankruptcy by tenants, and other costs relating to its Properties, as well as
the continued absence of significant expenditures relating to environmental or
other regulatory matters. Most of these matters are beyond the control of the
Company and it is unlikely that the Company's expectations with respect to these
matters will prove accurate in all respects. A significant difference between
such expectations and actual results could have a material adverse effect on the
Company and its ability to pay dividends.
The Company's ability to pay dividends on the Common Stock is further
limited by the laws of Maryland, its state of incorporation. Under the Maryland
General Corporate Law, as amended, (the "MGCL"), a Maryland corporation may not
make a distribution if, after giving effect to such distribution, either (i) the
corporation would not be able to pay indebtedness of the corporation as such
indebtedness becomes due in the usual course of business or (ii) the
corporation's total assets would be less than the sum of the corporation's total
liabilities plus (unless the corporation's charter provides otherwise, which the
Company's charter (the "Charter") does with respect to dividends but does not
with respect to distributions by redemption or other acquisition of shares or
otherwise), the amount that would be needed, if the corporation were to be
dissolved at the time of distribution, to satisfy the preferential rights upon
dissolution of stockholders whose preferential rights are superior to those
receiving the distribution. Thus, the Company cannot make a distribution, except
by dividend, on the Common Stock if, after giving effect to the distribution,
the Company's total assets would be less than the sum of the Company's
liabilities plus the amount that would be needed to satisfy the preferential
rights upon dissolution of the holders of shares of the Convertible Preferred
Stock if the Company
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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
30.7% 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 30.9% based on the number of shares of Common Stock outstanding
after the sale of all the Shares hereunder. If each share of the Convertible
Preferred Stock and each share of the Common Stock
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<PAGE> 12
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 Stock, with certain exceptions. In addition, no
holder is permitted to own, either actually or constructively
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<PAGE> 13
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 adverse effect
on the Company's ability to lease space in the Properties or at newly acquired
or developed
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<PAGE> 14
properties. In addition, numerous real estate companies (including other REITs)
compete with the Company in making bids to acquire new properties. Many of these
companies are larger and have substantially greater financial resources than the
Company. The activities of these competitors could cause the Company to pay a
higher purchase price for a new property than it otherwise would have paid, or
may prevent the Company from purchasing a desired property at all.
REGULATORY COMPLIANCE
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances released on, above, under
or in such property. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The costs of such removal or remediation could be
substantial. Additionally, the presence of such substances, or the failure to
properly remediate such substances, may adversely affect the owner's ability to
borrow using such real estate as collateral. All of the Properties have had
Phase I environmental site assessments (which involve inspection without soil
sampling or groundwater analysis) by independent environmental consultants and
have been inspected for hazardous materials as part of the Company's acquisition
inspections. None of the Phase I assessments has revealed any environmental
conditions requiring material expenditures for remediation. The Phase I
assessment for Milpitas Town Center indicates that the groundwater under that
Property either has been, or may in the future be, impacted by the migration of
contaminants originating off-site. According to information available to the
Company, the responsible party for this off-site source has been identified and
has begun remediation pursuant to a cleanup program mandated by a California
environmental authority and the cleanup program is backed by an insurance policy
from CIGNA up to $10 million. The Company does not believe that this
environmental matter will impair the future value of Milpitas Town Center in any
significant respect, or that the Company will be required to fund any portion of
the cost of remediation, although there can be no assurance in this regard. No
assurance can be given that these Phase I assessments or the Company's
inspections have revealed all environmental liabilities and problems relating to
its Properties.
Certain environmental laws impose liability on a previous owner of property
to the extent that hazardous or toxic substances were present during the prior
ownership period. A transfer of the property does not relieve an owner of such
liability. Thus, the Company may be liable in respect of properties and joint
venture interests previously sold or otherwise divested.
The Company believes that it is in compliance in all material respects with
all federal, state and local laws regarding hazardous or toxic substances. To
date, compliance with federal, state and local environmental protection
regulations has not had a material effect upon the Company. However, there can
be no assurance that costs of investigating and remediating environmental
matters with respect to properties currently or previously owned by the Company
or properties which the Company may acquire in the future, or other expenditures
or liabilities (including claims by private parties) resulting from hazardous
substances present in, on, under or above such properties or resulting from
circumstances or other actions or claims relating to environmental matters, will
not have a material adverse effect on the Company and its ability to make
distributions to stockholders.
AMERICANS WITH DISABILITIES ACT COMPLIANCE; GOVERNMENT REGULATION;
RISK OF INCREASED REGULATORY COMPLIANCE COSTS
Under the Americans with Disabilities Act (the "ADA"), effective in 1992,
all public accommodations and commercial facilities are required to meet certain
federal requirements related to access and use by disabled persons. Compliance
with the ADA requires removal of access barriers, and noncompliance may result
in imposition of fines by the U.S. government or an award of damages to private
litigants. Although the Company believes that the Properties are substantially
in compliance with these requirements, the Company may in the future incur costs
to comply with the ADA with respect to both existing Properties and properties
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<PAGE> 15
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 December 31, 1996 had an outstanding
balance of $46.1 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 December 31, 1996
the Credit Facility was secured by mortgages on 26 Properties (which Properties
collectively accounted for approximately 55% of the Company's annualized base
rent as of December 31, 1996), along with the rental proceeds from such
Properties. As of December 31, 1996, these 26 properties comprised approximately
49% 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 obtained mortgage
loans which, as of December 31, 1996 were in the aggregate principal amount of
$51.9 million. As of December 31, 1996, these mortgage loans were collateralized
by 13 Properties (which Properties collectively accounted for approximately 32%
of the Company's annualized base rent as of December 31, 1996). As of December
31, 1996, these 13 Properties comprised approximately 32% of the Company's total
assets. 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
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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
instrument could, pursuant to cross-default clauses, cause or permit the
acceleration of other indebtedness and trigger the right of the holders of the
Convertible Preferred Stock, subject to applicable laws regarding distributions,
to cause the Company to redeem all of the then outstanding shares of Convertible
Preferred Stock at a price of $6.00 per share plus all accrued dividends payable
thereon. Any such default or acceleration could have a material adverse effect
on the Company and its ability to make distributions to stockholders and to
maintain its qualification as a REIT under the Code and could threaten the
continued viability of the Company. See "-- Dependence on Key Personnel," and
"Description of Capital Stock of the Company -- Convertible Preferred
Stock -- Redemption."
POLICIES ON INDEBTEDNESS SUBJECT TO CHANGE
The Company currently has a policy of limiting its total consolidated
indebtedness to 50% of the aggregate market value of the outstanding shares of
Common Stock plus the outstanding balance of the Convertible Preferred Stock
plus the total consolidated indebtedness of the Company. The organizational
documents of the Company, however, do not contain any limitation on the amount
or percentage of indebtedness the Company may incur. Accordingly, the Board of
Directors could alter its policy of limiting the extent of its borrowing. If
this policy were changed, the Company could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the Company
and its ability to make distributions to stockholders and in increased risk of
default on its obligations. Moreover, although the Company will consider factors
other than market capitalization in making decisions regarding the incurrence of
debt (such as the purchase price of properties to be acquired with debt
financing, the estimated market value of properties upon refinancing, and the
ability of particular properties and the Company as a whole to generate cash
flow to cover expected debt service), there can be no assurance that the
aforementioned ratio will be such that the Company, after meeting debt service
obligations thereon, would be able to continue to make stockholder distributions
at current levels.
REDEMPTION OF THE CONVERTIBLE PREFERRED STOCK
The Company is required, at the option of the holders of the Convertible
Preferred Stock, to redeem the Convertible Preferred Stock on demand of the
holders thereof on the occurrence of any one or more of the following: (i) the
failure to pay dividends on the Convertible Preferred Stock for two consecutive
quarters, (ii) a default in the payment on certain institutional debt, (iii) the
failure of the Company to obtain any required consent of the holders of the
Convertible Preferred Stock or (iv) the failure to reach certain financial
performance levels. The Company could experience substantial difficulty in
financing any such redemption and may be required to liquidate a substantial
portion of its properties. In addition, it is likely that the resultant
financial strain on the Company's capital resources would adversely affect the
market price of the Common Stock. See "Description of Capital Stock of the
Company -- Convertible Preferred Stock -- Redemption."
REGISTRATION RIGHTS
After September 18, 1997, BPLP and certain of its transferees have the
right to cause the Company to register the shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock for sale to the public. In
addition, pursuant to a registration rights agreement, Mr. Bedford has the right
to require the Company to register up to 250,000 shares under the Securities Act
for offer and sale to the public (including by way of an underwritten public
offering) and to cause such shares to be included in any registration statement
filed by the Company. The right of BPLP and certain of its transferees and Mr.
Bedford to register shares of Common Stock (in the case of BPLP, issuable upon
conversion of the Convertible Preferred Stock) and sell them in the public
market could have a material adverse effect on both the market price for the
Common Stock and the Company's ability to raise additional equity capital in the
future. See "-- Shares Available for Future Sale," and "Description of Capital
Stock of the Company -- Convertible Preferred Stock -- Registration Rights."
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RISK OF SUBSTANTIAL DILUTION
At any time after September 18, 1997, the shares of Convertible Preferred
Stock will be convertible, at the option of the holders, into such number of
shares of Common Stock as is determined by dividing $6.00 by the conversion
price then in effect. The current conversion price is $12.00 per share and,
therefore, each share of Convertible Preferred Stock is currently convertible
into one-half of one share of Common Stock. See "-- Shares Available For Future
Sale." The conversion price is subject to adjustment to provide certain
antidilution protection to holders of the Convertible Preferred Stock. Holders
of Common Stock could experience substantial dilution in the event that the
Company issues a substantial number of additional shares of the Common Stock
and/or preferred stock, either upon conversion of the Convertible Preferred
Stock, in connection with future acquisitions or otherwise, which issuance could
adversely affect the market price of Common Stock. See "Description of Capital
Stock of the Company -- Convertible Preferred Stock -- Conversion Rights."
EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK
One of the factors that will influence the market price of the shares of
Common Stock in public markets will be the annual yield on the price paid for
shares of Common Stock from distributions by the Company. An increase in market
interest rates may lead prospective purchasers of the Common Stock to seek a
higher annual yield from their investments. Such circumstances may adversely
affect the market price of the Common Stock.
CONCENTRATION OF VOTING POWER AND RIGHT TO CONSENT OF THE HOLDERS OF THE
CONVERTIBLE PREFERRED STOCK
The holders of the Convertible Preferred Stock have and will continue to
have significant direct and indirect influence over the Company's affairs.
Subject to certain limitations, the consent of BPLP or of any transferee holding
50% or more of the outstanding Convertible Preferred Stock will be required for
the Company to make substantial investments, to issue substantial amounts of
debt, modify executive compensation or employment contracts, or change the
Company's business plan. See "Description of the Capital Stock of the
Company -- Convertible Preferred Stock -- Protective Provisions." In addition,
the budget applicable to the overhead component of the Company's acquisitions
and financing expenditures made through Bedford Acquisitions, Inc., a
corporation wholly-owned by Mr. Bedford, is subject to the approval of BPLP. As
a result, although the Board of Directors and the Company's management will
continue to manage the ordinary business affairs of the Company, BPLP will have
the ability to exercise a controlling influence over most substantial
transactions.
In addition, the holders of the Convertible Preferred Stock as a class
currently have the right to elect two directors. Under certain circumstances,
the holders of the Convertible Preferred Stock will be entitled to elect a
number of directors constituting a majority of the Board of Directors. Such
circumstances include the Company's failure to pay quarterly dividends on the
Convertible Preferred Stock in two consecutive quarters or redeem the
Convertible Preferred Stock pursuant to a valid demand for redemption, and Mr.
Bedford's cessation to serve substantially full-time as Chief Executive Officer
of the Company. See "Description of Capital Stock of the Company -- Convertible
Preferred Stock -- Redemption." Moreover, the Company may not authorize or
create any class or series of equity securities that ranks equal or senior to
the Convertible Preferred Stock with respect to the payments of dividends or
amounts upon liquidation, dissolution or winding up without the consent of the
holders of a majority of the outstanding shares of Convertible Preferred Stock,
voting together as a single class. Although each Director is required by the
MGCL to perform his duties as a director (i) in good faith, (ii) in a manner he
reasonably believes to be in the best interest of the Company and (iii) with the
care that an ordinarily prudent person in a like position would use under
similar circumstances, there can be no assurance that the interests of BPLP, and
indirectly the directors elected by the holders of the Convertible Preferred
Stock, will not differ from or conflict with the interests of the holders of
Common Stock.
In addition, upon conversion of the Convertible Preferred Stock into shares
of Common Stock, the holders of the Convertible Preferred Stock would have
considerable influence with respect to the election of
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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 February 28, 1997, BPLP, an affiliate of AEW Capital Management, 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 February 28, 1997, Mr. Bedford's beneficial ownership of
964,163 shares of Common Stock of the Company (including then-exercisable
options to purchase 73,750 shares) represented approximately 8.4% 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 8.3% 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 Stockholder") or an affiliate thereof are prohibited for
five years after the date on which the Interested Stockholder becomes an
Interested Stockholder. Thereafter, all such business combinations must be
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, Preferred Stock, Convertible
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 such issuance by the affirmative vote of holders
of at least a majority of the
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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 obtain 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 a premium price for the
Company's stock or otherwise be in the best interests of the stockholders or
that could
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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
The Company will not receive any proceeds for the issuance of the Shares or
from the sale of Shares by the Selling Stockholders.
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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 February 28, 1997, there were
11,126,325 shares of Common Stock issued and outstanding and 8,333,334 shares of
Convertible Preferred Stock issued and outstanding. Under Maryland law,
stockholders generally are not liable for a corporation's debts or obligations
solely as a result of their status as stockholders.
COMMON STOCK
All shares of Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of the Convertible
Preferred Stock and any other shares or series of stock, holders of shares of
Common Stock are entitled to receive dividends on such stock if, as and when
authorized and declared by the Board of Directors out of assets legally
available therefor and to share ratably in the assets of the Company legally
available for distribution to its stockholders in the event of its liquidation,
dissolution or winding up after payment of or making adequate provision for all
debts and liabilities of the Company. See "-- Convertible Preferred
Stock -- Dividends" and "-- Convertible Preferred Stock -- Liquidation
Preference."
Each outstanding share of Common Stock entitles the holder to one vote on
all matters submitted to a vote of stockholders except as provided below
regarding the right of the holders of the Convertible Preferred Stock to vote as
a single class with respect to the election of a specified number of Directors
and certain amendments to the Charter (see "-- Convertible Preferred
Stock -- Voting Rights") and, except as provided with respect to any other class
or series of stock, the holders of such shares possess the exclusive voting
power. With respect to the election of Directors, the holders of the Convertible
Preferred Stock have the right to elect two members of the Board of Directors
and, upon the occurrence of certain events, a majority of the members of the
Board of Directors, and the holders of shares of Common Stock have the right to
elect the remaining Directors. See "-- Convertible Preferred Stock -- Voting
Rights -- Election of Directors." There is no cumulative voting in the election
of Directors, which means that the holders of a majority of the outstanding
voting shares of Common Stock can elect all of such remaining directors standing
for election and the holders of the remaining shares of Common Stock will not be
able to elect any directors.
Holders of shares of Common Stock have no preference, conversion, exchange,
sinking fund, redemption rights or preemptive rights to subscribe for any
securities of the Company.
Under the MGCL a Maryland corporation cannot dissolve, amend its charter,
merge, consolidate, sell all or substantially all of its assets, engage in a
share exchange or engage in similar transactions outside the ordinary course of
business unless such dissolution, amendment, merger, consolidation, sale or
share exchange is approved by the affirmative vote of stockholders holding at
least two-thirds of the outstanding shares entitled to vote on the matter unless
a lesser percentage (but not less than a majority of all the votes entitled to
be cast on the matter) is set forth in the corporation charter. The Company's
Charter specifies that the affirmative vote of the stockholders holding a
majority of the outstanding shares is necessary to approve such transactions. In
addition, as set forth below under the caption "-- Convertible Preferred
Stock -- Protective Provisions," the Charter provides that the holders of the
Convertible Preferred Stock have the right to consent to specified transactions
including, but not limited to, the consolidation or merger of the Company, the
issuance of debt in a principal amount in excess of $10 million, the making of
new investments, the issuance of specified equity securities and the sale of
assets in excess of specified amounts.
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CONVERTIBLE PREFERRED STOCK
As of February 28, 1997, 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 Certain Provisions of the Charter, the Bylaws, the Convertible
Preferred Stock and Certain Provisions of Maryland Law."
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Until the holders of the Convertible Preferred Stock have been paid the
Liquidation Preference in full, no payment will be made to any holder of Common
Stock upon the liquidation, dissolution or winding up of the Company. If, upon
the occurrence of a Liquidation Event (as defined below), the assets of the
Company, or proceeds thereof, distributable among the holders of the shares of
Convertible Preferred Stock are insufficient to pay in full the Liquidation
Preference, then such assets, or the proceeds thereof, will be distributed pro
rata to the holders of shares of Convertible Preferred Stock in accordance with
their respective holdings thereof.
A "Liquidation Event" is (a) any transaction, including without limitation,
a consolidation or merger of the Company (other than for the purposes of
reincorporation), or other corporate reorganization if, immediately after such
transaction, the stockholders of the Company (determined prior to such event)
hold fifty percent or less in interest of the outstanding voting securities of
the surviving corporation, or (b) a sale of all or substantially all of the
assets of the Company to any person or the acquisition of a majority of the
outstanding shares of Common Stock of the Company by any person, other than (i)
BPLP and its affiliates, (ii) Mr. Bedford, members of his immediate family, or
his affiliates, (iii) any person as a result of the conversion of shares of
Convertible Preferred Stock, or (iv) any underwriter in either a public or
private offering.
REDEMPTION
Redemption may be made at the option of the holders of the Convertible
Preferred Stock or at the option of the Company under the conditions described
below. All redemption payments are to be made in cash, unless the holders of the
Convertible Preferred Stock agree, at their sole discretion, to accept some
alternative payment. If redemption is prohibited under the MGCL or similar
statute, redemption is pro rata to the extent of funds legally available
therefor.
Redemption at Convertible Preferred Stockholders' Option
On September 18, 1996, the Company became obligated, at the option of the
holders of the Convertible Preferred Stock, to redeem the Convertible Preferred
Stock of any holder demanding redemption at a price of $6.00 per share plus all
accrued and unpaid dividends on the occurrence of any one or more of the
following: (a) failure to pay required dividends on the Convertible Preferred
Stock for two consecutive quarters, including all dividends accumulated but
unpaid for all prior quarters; (b) a default in the payment of principal or
interest on any institutional debt (or debts) having an aggregate outstanding
balance greater than (i) $5 million for non-recourse debt, and (ii) $2 million
for recourse debt (which default, in either case, shall not have been cured by
the Company within 30 business days from the time the Company receives written
notification of the default); (c) the failure of the Company to obtain the
approval of BPLP or a holder of more than 50% of the outstanding shares of the
Convertible Preferred Stock prior to completing certain major transactions, as
and if required pursuant to the terms of the Charter (see "-- Protective
Provisions"); (d) for the calendar year 1996, the Company's Funds Available for
Distribution, as defined in the Charter ("FAD"), fail to reach at least a
break-even dividend coverage equal to the full dividend payable on the
Convertible Preferred Stock; (e) for calendar year 1997, the Company's FAD fails
to reach at least a break-even dividend coverage equal to the full dividend
payable on the Convertible Preferred Stock and annual dividends on the Common
Stock equal to a seven percent (7%) yield on $5.72 (before giving effect to the
one-for-two reverse stock split effected on March 29, 1996) (rounded to the
nearest whole cent); and (f) for calendar year 1998 and subsequent years, the
Company's FAD fails to reach at least a break-even dividend coverage equal to
the full dividend payable on the Preferred Stock and dividends on the Common
Stock equal to an eight percent (8%) yield on $5.72 (before giving effect to the
one-for-two reverse stock split effected on March 29, 1996) (rounded to the
nearest whole cent). Because the Convertible Preferred Stock is redeemable at
the option of the holder, it is reported separately from the stockholders'
equity (i.e., classified as temporary equity) in the Company's consolidated
financial statements.
Redemption at the Option of the Company
Except as provided with respect to automatic redemption under "-- Automatic
Redemption Cancellable at the Option of the Non-Series A Directors," shares of
Convertible Preferred Stock are not redeemable by
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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 Certain Provisions 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."
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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 Certain Provisions 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.
UNITS OF LIMITED PARTNERSHIP INTEREST
On December 17, 1996, the Company caused to be issued 108,495 units of
limited partnership interest (the "Units") in Bedford Realty Partners, L.P. (the
"Partnership"). These Units were issued to the original owners of the Units in
exchange for the contribution by such owners of certain Properties to the
Company. The Units 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. Each holder of the Units may, however, subject to
certain limitations, require that the Partnership redeem all or a portion of
such holder's Units beginning on March 17, 1997. Upon redemption, a holder will
receive, at the option of the Company, as general partner of the Partnership,
either (i) a number of shares of Common Stock equal to the number of Units
redeemed or (ii) cash in an amount equal to the market value of the number of
shares of Common Stock the holder would have received pursuant to (i) above. In
lieu of the Partnership redeeming Units, the Company, as general partner, in its
sole discretion, has the right to assume directly and satisfy the redemption
right of the holder of the Units. The Company anticipates that it generally will
elect to assume directly and satisfy any redemption right exercised by a holder
of the Units through the issuance of the Shares, which may then be resold by the
initial holder pursuant to this Prospectus. The Shares are subject to the
transfer and ownership restrictions set forth below.
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
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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 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
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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.
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
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trusts, are more than 50% owned by individuals or the entities described above.
Under appropriate circumstances, the Board of Directors may waive one or more of
the foregoing restrictions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and the Convertible
Preferred Stock is Chemical Mellon Shareholder Services LLC.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
COMPANY'S CHARTER AND BYLAWS
The following summary of certain provisions of Maryland law and of the
Charter and Bylaws of the Company does not purport to be complete and is subject
to and qualified in its entirety by reference to Maryland law and the Charter
and Bylaws of the Company. Copies of the Charter and Bylaws may be obtained as
described under "Available Information."
MARYLAND BUSINESS COMBINATION LAW
Under the MGCL, certain "business combinations" (including certain
issuances of equity securities) between a Maryland corporation and any
Interested Shareholder or an affiliate thereof are prohibited for five 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. 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.
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"Control shares" are voting shares of stock which, if aggregated with all
other such shares of stock previously acquired by the acquiror, or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing directors within one of the following ranges
of voting power: (i) one-fifth or more but less than one-third, (ii) one-third
or more but less than a majority, or (iii) a majority or more of all voting
power. Thus, if an acquisition of control shares within one range is approved by
stockholders and is followed by an acquisition of additional control shares by
the same person that results in the total number of control shares owned by that
person being in a higher range, then voting rights for the additional shares in
excess of the previously approved range would also have to be approved by the
stockholders. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain limitations, the corporation may redeem any or all of the
control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of the stockholders meeting at which the voting
rights of such shares were considered and not approved. If voting rights for
control shares are approved at the stockholders meeting and the acquiror becomes
entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
As stated above, the control share provisions of the MGCL do not currently
apply to the Company because the Bylaws of the Company contain a provision
exempting from the control share provisions of the MGCL any and all acquisitions
by any person of the Company's shares of stock. There can be no assurance,
however, that such provision will not be amended or eliminated by the Board of
Directors (subject to the consent of the holders of the Convertible Preferred
Stock required by the Bylaws) at any time in the future. Moreover, any amendment
or elimination of such provision of the Bylaws may result in the application of
the control share provisions of the MGCL not only to shares which may be
acquired in any future control share acquisitions, but also to shares acquired
in prior control share acquisitions. The potential for such application of the
control share provisions of the MGCL could delay, defer or prevent a transaction
or change in control of the Company that might involve a premium price for the
Company's stock or otherwise be in the best interest of the stockholders.
INTERESTED DIRECTOR TRANSACTIONS
The MGCL provides that a contract or other transaction between a
corporation and any of its directors or between a corporation and any other
entity in which any of its directors is a director or has a material financial
interest is not void or voidable by reason of (i) such common directorship or
interest; (ii) the presence of the director at the meeting of the board which
authorizes, approves, or ratifies the contract or transaction; or (iii) the
counting of the vote of the director for the authorization, approval, or
ratification of the contract or transaction if: (a) the fact of the common
directorship or interest is disclosed or known to the board of directors and the
board of directors ratifies or approves the contract or transaction by the
affirmative vote of a majority of its disinterested directors; (b) the fact of
the common directorship or interest is disclosed or known to the stockholders
entitled to vote, and the contract or transaction is authorized, approved or
ratified by a majority of the votes cast by the stockholders entitled to vote
other than the votes of shares owned of record or beneficially by the interested
director or corporation; or (c) the contract or transaction is fair and
reasonable to the corporation. In addition, the Company's Charter contains a
provision for approval by the disinterested
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directors that is substantially similar to the provision of the MGCL referred to
in clause (a) of the preceding sentence.
AMENDMENTS TO THE CHARTER AND BYLAWS
The Charter provides generally that its provisions may be amended only by
the affirmative vote of a majority of all the votes entitled to be cast on the
matter. However, the approval of holders of a majority of the outstanding shares
of Convertible Preferred Stock, voting as a single class, is required in order
to amend the Charter in a way that would materially and adversely affect the
rights or preferences of the holders of Convertible Preferred Stock or to
authorize any class or series of stock having rights equal or senior to the
Convertible Preferred Stock with respect to the payment of dividends or amounts
upon liquidation, dissolution or winding up of the Company. See "Description of
Capital Stock of the Company -- Convertible Preferred Stock -- Voting Rights."
The Bylaws provide that the Board of Directors has the exclusive power to
adopt, alter or repeal any provision of the Bylaws and to make new Bylaws,
except as provided with respect to the provision regarding the exemption from
the control share provisions of the MGCL, in which case consent of the holders
of the Convertible Preferred Stock is necessary to amend or repeal.
THE BOARD OF DIRECTORS
The Bylaws provide that the number of Directors of the Company may be
established by a majority of the entire Board of Directors but may not be fewer
than the minimum required by the MGCL nor more than 15, and at least one-half of
the Board of Directors shall consist of Independent Directors. The Bylaws define
"Independent Director" as a director who is not an employee or consultant of the
Company. Any vacancy on the Company's Board of Directors for any cause other
than an increase in the number of Directors shall be filled by a majority of the
remaining Directors (although such majority is less than a quorum). However, any
vacancy that arises because an Independent Director ceases to be a Director of
the Company will be filled by the selection of a successor Director by a
majority vote of the remaining Independent Directors (although less than a
quorum). Any vacancy on the Board created by an increase in the number of
Directors may be filled by a majority vote of the entire Board of Directors,
except that a vacancy which is required to be filled by an Independent Director
pursuant to the Company's Bylaws will be filled by a majority vote of the Board
of Directors' remaining Independent Directors (although less than a quorum). The
Bylaws provide that an individual so elected as a Director will hold office for
the unexpired term of the Director he is replacing. The holders of the
Convertible Preferred Stock have certain rights with respect to the election of
Directors. See "Description of Capital Stock of the Company -- Convertible
Preferred Stock -- Voting Rights."
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (a) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders may be
made only (i) pursuant to the Company's notice of meeting, (ii) by or at the
discretion of the Board of Directors or (iii) by a stockholder who is entitled
to vote at the meeting and has complied with the advance notice procedures set
forth in the Bylaws and (b) with respect to special meetings of stockholders,
only the business specified in the Company's notice of meeting may be brought
before the meeting of stockholders, and nominations of persons for election to
the Board of Directors may be made only (i) pursuant to the Company's notice of
meeting, (ii) by or at the discretion of the Board of Directors or (iii)
provided that the Board of Directors has determined that Directors shall be
elected at such meeting, by a stockholder who is entitled to vote at the meeting
and has complied with the advance notice provisions set forth in the Bylaws. The
foregoing provisions of the Company's Bylaws could delay, defer or prevent a
transaction or a change in control of the Company that might involve a premium
price for the Common Stock or the Convertible Preferred Stock.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the material federal income tax
considerations associated with an investment in the Common Stock offered hereby.
Shearman & Sterling, counsel to the Company, has reviewed the following
discussion and is of the opinion that it fairly summarizes the federal income
tax considerations that are likely to be material to a holder of Common Stock.
The following discussion is not exhaustive of all possible tax considerations
and is not tax advice. Moreover, this summary does not deal with all tax aspects
that might be relevant to a particular prospective stockholder in light of his
or her personal circumstances; nor does it deal with particular types of
stockholders that are subject to special treatment under the Code, such as
insurance companies, financial institutions and broker-dealers. The Code
provisions governing the federal income tax treatment of REITs are highly
technical and complex, and this summary is qualified in its entirety by the
applicable Code provisions, rules and Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof. The
following discussion and the opinions of Shearman & Sterling are based on
current law.
EACH PROSPECTIVE PURCHASER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR
WITH RESPECT TO SUCH PURCHASER'S SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF THE PURCHASE, HOLDING AND SALE OF COMMON STOCK OF THE
COMPANY.
FEDERAL INCOME TAXATION OF THE COMPANY
The Company believes that, commencing with its taxable year ending December
31, 1985, it was organized and has operated in such a manner as to qualify for
taxation as a REIT under the Code, and the Company intends to continue to
operate in such a manner, but no assurance can be given that it will operate in
a manner so as to qualify or remain qualified. The Company has not and does not
intend to request a ruling from the IRS as to its status as a REIT. Based on
various assumptions and factual representations made by the Company, in the
opinion of Shearman & Sterling, counsel to the Company, the Company was
organized in conformity with the requirements for qualification as a REIT, the
Company has operated so as to qualify as a REIT since its taxable year ended
December 31, 1993 (which such counsel believes is the Company's earliest taxable
year which is within the normal period for federal tax audit), and the Company's
proposed method of operation will enable it to meet the requirements for
qualification and taxation as a REIT under the Code. Such qualification depends
upon the Company's ability to meet the various requirements imposed under the
Code through actual operations, as discussed below, and no assurance can be
given that actual operations will meet these requirements. The opinion of
Shearman & Sterling is not binding on the IRS. The opinion of Shearman &
Sterling also is based upon existing law, the Treasury Regulations, currently
published administrative positions of the IRS and judicial decisions, which are
subject to change either prospectively or retroactively. In addition, as
discussed under "Risk Factors -- Tax Risks; Risks Associated with REIT Status,"
for tax year 1993 (and possibly for certain prior years which such counsel
believes are outside the normal period for federal tax audit) it is uncertain
whether the Company properly requested the written statements required by the
Treasury Regulations concerning the ownership of its stock by certain
stockholders of record (the "Stockholder Polling Requirements") from certain
clearing organizations holding Common Stock as nominees for the beneficial
owners of such shares. However, the Company did employ stockholder polling
procedures for tax year 1993 which it believes went beyond what is required by
the Treasury Regulations in providing stockholder ownership information for
purposes of determining whether the Company satisfied the Five or Fewer
Requirement (defined below under the caption "-- Requirements for
Qualification"). In that regard, the Company has received an opinion of Shearman
& Sterling to the effect that, based on various assumptions and factual
representations made by the Company, the Company has not, by virtue of the
Stockholder Polling Requirements, failed to qualify as a REIT with respect to
tax year 1993.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on that portion of its ordinary income
or capital gain that is currently distributed to stockholders. The REIT
provisions of the Code generally allow a REIT to deduct dividends paid to its
stockholders. This deduction for dividends paid to stockholders substantially
eliminates the federal "double taxation" on earnings
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(once at the corporate level and once again at the stockholder level) that
usually results from investments in a corporation.
The Company, however, will be subject to federal income tax, as follows:
first, the Company will be taxed at regular corporate rates on its undistributed
REIT taxable income, including undistributed net capital gains. Second, under
certain circumstances, the Company may be subject to the "alternative minimum
tax." Third, if the Company has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or other non-qualifying income from foreclosure
property, it will be subject to tax at the highest corporate rate on such
income. Fourth, if the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property other
than foreclosure property held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax. Fifth, if the
Company should fail to satisfy either the 75% or 95% gross income test
(discussed below) but has nonetheless maintained its qualification as a REIT
because certain other requirements have been met, it will be subject to a 100%
tax on the net income attributable to the greater of the amount by which the
Company fails the 75% or 95% test, multiplied by a fraction intended to reflect
the Company's profitability. Sixth, if the Company fails to distribute during
each year at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, the Company will be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Company should acquire any asset from a C
corporation (i.e., a corporation generally subject to full corporate-level tax)
in a carryover-basis transaction and the Company subsequently recognizes gain on
the disposition of such asset during the ten-year period (the "Recognition
Period") beginning on the date on which the asset was acquired by the Company,
then, to the extent of the excess of (a) the fair market value of the asset as
of the beginning of the applicable Recognition Period over (b) the Company's
adjusted basis in such asset as of the beginning of such Recognition Period (the
"Built-In Gain"), such gain will be subject to tax at the highest regular
corporate rate, pursuant to guidelines issued by the IRS (the "Built-In Gain
Rules").
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, the Company must elect to be so treated and must meet
the requirements, discussed below, relating to the Company's organization,
sources of income, nature of assets and distributions of income to stockholders.
ORGANIZATIONAL REQUIREMENTS
The Code defines a REIT as a corporation, trust or association: (i) that is
managed by one or more directors or trustees, (ii) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest, (iii) that would be taxable as a domestic corporation but
for the REIT requirements, (iv) that is neither a financial institution nor an
insurance company subject to certain provisions of the Code, (v) the beneficial
ownership of which is held by 100 or more persons (the "100 Stockholder
Requirement"), and (vi) during the last half of each taxable year not more than
50% in value of the outstanding stock of which is owned, directly or indirectly,
through the application of certain attribution rules, by five or fewer
individuals (as defined in the Code to include certain entities) (the "Five or
Fewer Requirement"). In addition, certain other tests, described below,
regarding the nature of its income and assets also must be satisfied. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months or during a proportionate part of a taxable year
of less than 12 months. For purposes of conditions (v) and (vi), pension funds
and certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception in the case of condition (vi).
In order to protect the Company from a concentration of ownership of its
stock that would cause the Company to fail the Five or Fewer Requirement or the
100 Stockholder Requirement, the Charter of the Company provides that no holder
is permitted to own, either actually or constructively under the applicable
attribution rules of the Code, more than 5% (in value) of the aggregate
outstanding shares of all classes of
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stock of the Company or more than 5% (in number or value, whichever is more
restrictive) of the outstanding shares of Common Stock, with certain exceptions.
In addition, no holder is permitted to own, either actually or constructively
under the applicable attribution rules of the Code, any shares of any class of
the Company's stock if such ownership would cause more than 50% in value of the
Company's outstanding stock to be owned by five or fewer individuals or would
result in the Company's stock being beneficially owned by less than 100 persons
(determined without reference to any rule of attribution). See "Description of
Capital Stock of the Company -- Restrictions on Transfer and Ownership of
Capital Stock." In addition, certain investors will be prohibited from
purchasing or holding shares of Convertible Preferred Stock or holding shares of
Common Stock issued on conversion of the Convertible Preferred Stock (but only
so long as such Common Stock is a "restricted security" as defined in Rule 144).
See "Description of Capital Stock of the Company -- Restrictions on Transfer and
Ownership of Capital Stock." In rendering its opinion that the Company has
operated so as to qualify, and its proposed method of operation will enable it
to qualify, as a REIT, Shearman & Sterling is relying on the representation of
the Company that the ownership of its stock has satisfied and will satisfy the
Five or Fewer Requirement and the 100 Stockholder Requirement; and Shearman &
Sterling expresses no opinion as to whether, as a matter of law, the provisions
contained in the Charter or the additional ownership restrictions imposed on the
Convertible Preferred Stock will preclude the Company from failing the Five or
Fewer Requirement or the 100 Stockholder Requirement.
In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company has a calendar year taxable year.
The Company owns and operates a number of properties through subsidiaries.
Under the Code, a corporation which is a "qualified REIT subsidiary" is not
treated as a separate corporation; rather, all assets, liabilities and items of
income, deduction, and credit of a "qualified REIT subsidiary" are treated as
assets, liabilities and such items (as the case may be) of the REIT. The
Company's subsidiaries are "qualified REIT subsidiaries." Thus, in applying the
requirements described herein, the Company's "qualified REIT subsidiaries" will
be ignored, and all assets, liabilities and items of income, deduction and
credit of such subsidiaries will be treated as assets, liabilities and items of
the Company. While this summary generally does not address state tax
consequences, some states may not recognize a "qualified REIT subsidiary", which
could cause a subsidiary to be taxed or could cause the Company to fail to
qualify as a REIT under such state law.
The Company owns investments through the Partnership, and may in the future
own additional investments through the Partnership or other partnerships. In
general, partnerships are "pass-through" entities which are not subject to
federal income tax. Rather, partners are allocated their proportionate share of
the items of income, gain, loss, deduction and credit of a partnership, and are
potentially subject to tax thereon, without regard to whether the partners
receive a distribution from the partnership. As a result, the Company will
include its proportionate share of (i) the Partnership's income, gains, losses,
deductions and credits for purposes of the various REIT gross income tests and
in its computation of its REIT taxable income and (ii) the Partnership's assets
for purposes of the REIT asset tests. See "Federal Income Tax Considerations --
Requirements for Qualification."
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
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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 connection with a lease of real property, is greater than 15% of the
total rent received under the lease, then the portion of rent attributable to
the personal property will not qualify as "rents from real property." Fourth,
for rents to qualify as "rents from real property" the REIT must not operate or
manage the property or furnish or render services to tenants, other than through
an "independent contractor" who is adequately compensated and from whom the REIT
does not derive any income; provided, however, that a REIT may provide services
with respect to its properties and the income will qualify as "rents from real
property" if the services are "usually or customarily rendered" in connection
with the rental of room or other space for occupancy only and are not otherwise
considered "rendered to the occupant."
The Company has not and does not anticipate that it will in the future
charge rent that is based in whole or in part on the income or profits of any
person (except by reason of being based on a fixed percentage or percentages of
receipts of sales consistent with the rule described above). The Company has not
and does not anticipate that it will in the future derive rent attributable to
personal property leased in connection with real property that exceeds 15% of
the total rents.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. An amount received or
accrued generally will not be excluded from the term "interest," however, solely
by reason of being based on a fixed percentage or percentages of receipts or
sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for that year
if it is eligible for relief under certain provisions of the Code. These relief
provisions will be generally available if (i) the Company's failure to meet
these tests was due to reasonable cause and not due to willful neglect, (ii) the
Company attaches a schedule of the sources of its income to its federal income
tax return and (iii) any incorrect information on the schedule is not due to
fraud with intent to evade tax. It is not possible, however, to state whether,
in all circumstances, the Company would be entitled to the benefit of these
relief provisions. For example, if the Company fails to satisfy the gross income
tests because nonqualifying income that the Company intentionally incurs exceeds
the limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. As discussed above in "--
Federal Income Taxation of the Company," even if these relief provisions apply,
a tax would be imposed with respect to the excess net income. No similar
mitigation provision provides relief if the Company fails the 30% income test;
and in such case, the Company will cease to qualify as a REIT. See "Risk
Factors -- Tax Risks; Risks Associated with REIT Status -- Adverse Consequences
of the Failure to Maintain Qualification as a REIT."
ASSET TESTS
At the close of each quarter of its taxable year, the Company also must
satisfy three tests relating to the nature and diversification of its assets.
First, at least 75% of the value of the Company's total assets must be
represented by real estate assets, cash, cash items and government securities.
Second, no more than 25% of the Company's total assets may be represented by
securities other than those in the 75% asset class. Third, of the investments
included in the 25% asset class (which does not include any securities issued by
a "qualified REIT subsidiary"), the value of any one issuer's securities owned
by the Company may not exceed 5% of the
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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.
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
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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."
TAXATION OF U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of Common Stock
that for United States federal income tax purposes (a) is a citizen or resident
of the United States, (b) is a corporation, partnership or other entity created
or organized in or under the laws of the United States or of any political
subdivision thereof, (c) is an estate or trust, the income of which is subject
to United States federal income taxation regardless of its source, or (d) is a
trust whose administration is under the primary supervision of a court within
the United States and over which one or more United States trustees have
authority to control all substantial decisions. For any taxable year for which
the Company qualifies for taxation as a REIT, amounts distributed to taxable
U.S. Stockholders will be taxed as follows.
DISTRIBUTIONS GENERALLY
Distributions to U.S. Stockholders, other than capital gain dividends
discussed below, will constitute dividends up to the amount of the Company's
current or accumulated earnings and profits and will be taxable to the
stockholders as ordinary income. For purposes of determining whether
distributions are out of current or accumulated earnings and profits, the
earnings and profits of the Company will be allocated first to the Company's
Preferred Stock, and then allocated to the Common Stock. These distributions are
not eligible for the dividends-received deduction for corporations. To the
extent that the Company makes a distribution in excess of its current or
accumulated earnings and profits, the distribution will be treated first as a
tax-free return of capital, reducing the tax basis in the U.S. Stockholder's
Common Stock, and the distribution in excess of a U.S. Stockholder's tax basis
in its Common Stock will be taxable as gain realized from the sale of its Common
Stock. Dividends declared by the Company in October, November or December of any
year payable to a stockholder of record on a specified date in any such month
shall be treated as both paid by the Company and received by the stockholder on
December 31 of the year, provided that the dividend is actually paid by the
Company during January of the following calendar year. Stockholders may not
include on their own federal income tax returns any losses of the Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the amount required to
be distributed in order to avoid imposition of the 4% excise tax discussed in
"-- Federal Income Taxation of the Company" above. Moreover, any "deficiency
dividend" will be treated as an ordinary or capital gain dividend, as the case
may be, regardless of the Company's earnings and profits. As a result,
stockholders may be required to treat certain distributions that would otherwise
result in a tax-free return of capital as taxable dividends.
CAPITAL GAIN DIVIDENDS
Dividends to U.S. Stockholders that are properly designated by the Company
as capital gain dividends will be treated as long-term capital gains (to the
extent they do not exceed the Company's actual net capital gain) for the taxable
year without regard to the period for which the stockholder has held his stock.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Capital gain dividends are not
eligible for the dividends-received deduction for corporations.
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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 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.
39
<PAGE> 41
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 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
40
<PAGE> 42
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.
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
41
<PAGE> 43
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 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."
42
<PAGE> 44
SELLING STOCKHOLDERS
The following table provides the name of each person who may receive Common
Stock upon exchange of the Units, the shares of Common Stock beneficially owned
by such person prior to the Offering, the total number of Shares that may be
offered by each such person pursuant to this Prospectus, and the number of
Shares to be beneficially owned after the Offering. This information assumes
that each Selling Stockholder elects to require the redemption of all of his or
her Units, the Company elects to satisfy this redemption through the issuance of
the Shares, and the Selling Stockholder sells all of his or her Shares pursuant
to this Prospectus. Since none of these facts are known for certain at this
time, no estimate can be made of the aggregate number of Shares that are to be
offered hereby or that will be owned by each Selling Stockholder upon completion
of the Offering.
<TABLE>
<CAPTION>
SHARES SHARES TO BE
BENEFICIALLY BENEFICIALLY
OWNED MAXIMUM OWNED
PRIOR TO THE NUMBER OF AFTER THE
OFFERING(1) SHARES OFFERED(1) OFFERING(2)
---------------- ----------------- ----------------
NAME AND ADDRESS SHARES PERCENT SHARES SHARES PERCENT
- -------------------------------------------- ------ ------- ----------------- ------- -------
<S> <C> <C> <C> <C> <C>
Martin I. Zankel(3)......................... 68,991 * 8,991 60,000 *
Bernard A. Osher............................ 13,446 * 13,446 -- --
Henry Rabin................................. 13,446 * 13,446 -- --
The Jewish Community Federation............. 13,446 * 13,446 -- --
of San Francisco, the Peninsula,
Marin and Sonoma Counties
Kenneth C. Rowell........................... 8,898 * 8,898 -- --
Mel Shaffer(4).............................. 8,898 * 8,898 -- --
Mary Lee Scheidt(5)......................... 8,097 * 8,097 -- --
Herbert West................................ 6,690 * 6,690 -- --
Zel R. Kahn & Sons, Inc..................... 5,932 * 5,932 -- --
Paul M. Lewis............................... 5,932 * 5,932 -- --
Judith Lipsett(6)........................... 5,932 * 5,932 -- --
Richard A. Reese............................ 3,164 * 3,164 -- --
Paul M. Ginsburg(7)......................... 2,678 * 2,678 -- --
Robert Rubenstein........................... 1,471 * 1,471 -- --
Herbert J. Friedman (8)..................... 804 * 804 -- --
Marianne Friedman (8)....................... 804 * 804 -- --
Eugene L. Friend............................ 670 * 670 -- --
</TABLE>
- ---------------
* Less than one percent.
(1) Assumes that each Selling Stockholder elects to require the redemption of
all of his or her Units and that the Company elects to satisfy this
redemption through the issuance of the Shares.
(2) Assumes that each Selling Stockholder sells in the Offering all of the
shares he or she receives (if any) upon redemption of the Units.
(3) Includes 10,000 shares of Common Stock owned directly, 50,000 shares of
Common Stock subject to currently exercisable options and 8,991 shares of
Common Stock potentially issuable upon redemption of the Units. Mr. Zankel
has been a member of the Company's Board of Directors since May 1992.
(4) Includes 8,898 shares of Common Stock potentially issuable upon redemption
of the Units, which such shares will be beneficially owned by Mr. Shaffer as
trustee and with respect to which he has sole voting and investment power.
(5) Includes 8,097 shares of Common Stock potentially issuable upon redemption
of the Units, which such shares will be beneficially owned by Ms. Scheidt as
trustee and with respect to which she has sole voting and investment power.
43
<PAGE> 45
(6) Includes 5,932 shares of Common Stock potentially issuable upon redemption
of the Units, which such shares will be beneficially owned by Ms. Lipsett as
trustee and with respect to which she has sole voting and investment power.
(7) Includes 2,678 shares of Common Stock potentially issuable upon redemption
of the Units, which such shares will be beneficially owned by Mr. Ginsburg
as trustee and with respect to which he has sole voting and investment
power.
(8) Includes 804 shares of Common Stock potentially issuable upon redemption of
the Units, which such shares will be beneficially owned by Herbert J.
Friedman and Marianne Friedman as co-trustees and with respect to which they
share voting and investment power.
44
<PAGE> 46
PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time by the
holders of up to 108,495 shares of Common Stock that may be issued by the
Company to the holders of up to 108,495 Units in the Partnership, if and to the
extent such holders elect to redeem such Units and the Company elects to satisfy
this redemption through the issuance of the Shares. The Company has registered
the Shares for sale pursuant to the registration rights provisions of the
Constituent Partner Agreement, but registration of such Shares does not
necessarily mean that any of such Shares will be issued by the Company or
offered or sold by the holders thereof.
The Company will not receive any proceeds from the offering by the Selling
Stockholders or from the issuance of the Shares to holders of Units. The Shares
may be sold from time to time to purchasers directly by any of the Selling
Stockholders. Alternatively, the Selling Stockholders may from time to time
offer the Shares through dealers or agents, who may receive compensation in the
form of commissions from the Selling Stockholders and/or the purchasers of the
Shares for whom they may act as agent. The Selling Stockholders and any dealers
or agents that participate in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of the Shares by them and any commissions received by any such dealers or
agents might be deemed to be underwriting commissions under the Securities Act.
The distribution of the Shares also may be effected from time to time in
one or more underwritten transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Any such underwritten
offering may be on a "best efforts" or a "firm commitment" basis. In connection
with any such underwritten offering, underwriters or agents may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders or from purchasers of Shares for whom they may act as
agents. Underwriters may sell Shares to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents.
At a time a particular offer of Shares is made, a Prospectus Supplement, if
required, will be distributed that will set forth the name and names of any
dealers or agents and any commissions and other terms constituting compensation
from the Selling Stockholders and any other required information. The Shares may
be sold from time to time at varying prices determined at the time of sale or at
negotiated prices.
In order to comply with the securities laws of certain states, if
applicable, the Shares may be sold only through registered or licensed brokers
or dealers. In addition, in certain states, the Shares may not be sold unless
they have been registered or qualified for sale in such state or an exemption
from such registration or qualification requirement is available and is complied
with.
The Shares may also be sold in one or more of the following transactions:
(a) block transactions in which a broker-dealer may sell all or a portion of
such stock as agent but may position and resell all or a portion of the block as
principal to facilitate the transaction; (b) purchases by any such broker-dealer
as principal and resale by such broker-dealer for its own account pursuant to a
Prospectus Supplement; (c) a special offering, an exchange distribution or a
secondary distribution in accordance with applicable NYSE or other stock
exchange rules; (d) ordinary brokerage transactions and transactions in which
any such broker-dealer solicits purchasers; (e) sales "at the market" to or
through a market maker or into an existing trading market, on an exchange or
otherwise, for such shares; and (f) sales in other ways not involving market
makers or established trading markets, including direct sales to purchasers. In
effecting sales, broker-dealers engaged by the Selling Stockholders may arrange
for other broker-dealers to participate.
The Company has agreed to pay all costs and expenses incurred in connection
with the registration under the Securities Act of the Shares, including, without
limitation, all registration, listing and filing fees, printing expenses and
fees and disbursements of counsel and accountants for the Company. The Selling
Stockholders will pay any underwriting discounts or commissions, the fees and
disbursements of counsel for the Selling Stockholders and stock transfer taxes,
if any, relating to the sale of the Shares.
45
<PAGE> 47
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; 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; and the Combined
Historical Summary of Gross Income and Direct Operating Expenses of O'Toole
Business Center, Signal System Building and 6500 Kaiser Drive 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.
46
<PAGE> 48
=========================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS 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, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS
Available Information................... 2
Incorporation of Certain Information by
Reference............................. 3
Risk Factors............................ 6
Use of Proceeds......................... 19
Description of Capital Stock of the
Company............................... 20
Certain Provisions of Maryland Law and
of the Company's Charter and Bylaws... 30
Federal Income Tax Considerations....... 33
ERISA Considerations.................... 41
Selling Stockholders.................... 43
Plan of Distribution.................... 45
Experts................................. 46
Legal Matters........................... 46
</TABLE>
=========================================================
=========================================================
108,495 SHARES
BEDFORD PROPERTY INVESTORS, INC.
COMMON STOCK
---------------------------
PROSPECTUS
, 1997
---------------------------
=========================================================
<PAGE> 49
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, payable by Bedford
Property Investors, Inc. (the "Registrant") in connection with the sale of
Common Stock being registered. All amounts are estimates except the SEC
registration fee and the listing fees for the New York Stock Exchange and the
Pacific Stock Exchange.
<TABLE>
<S> <C>
SEC Registration Fee....................................................... $ 666
Legal Fees and Expenses.................................................... $30,000
Printing and Engraving Costs............................................... $25,000
Accounting Fees and Expenses............................................... $10,000
Blue Sky Fees and Expenses................................................. $ 3,000
New York Stock Exchange Listing Fee........................................ $ 1,500
Pacific Stock Exchange Listing Fee......................................... $ 500
Miscellaneous.............................................................. $ 4,334
--------
Total............................................................ $75,000
========
</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> 50
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>
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>
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 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
II-2
<PAGE> 51
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.; and
(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.
provided, however, that paragraphs (i) and (ii) 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) That, 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.
II-3
<PAGE> 52
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Lafayette, State of California, on the 19th day
of March, 1997.
BEDFORD PROPERTY INVESTORS, INC.
By: /s/ PETER B. BEDFORD
--------------------------------------
Peter B. Bedford
Chairman of the Board 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. Each person whose signature appears below hereby appoints
and constitutes Peter B. Bedford and Donald A. Lorenz, as his or her
attorneys-in-fact, with full power of substitution, for him or her in any and
all capacities, to execute in the name and on behalf of such person any
amendment in this Registration Statement and to file the same, with exhibits
thereto, and other documents in connection therewith, making such changes in
this Registration Statement as the person so acting deems appropriate, hereby
ratifying and confirming all that said attorneys-in-fact, or their substitutes
may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ ---------------
<S> <C> <C>
/s/ PETER B. BEDFORD Chairman of the Board and Chief March 19, 1997
Executive Officer (Principal
- ------------------------------------- Executive Officer)
Peter B. Bedford
/s/ DONALD A. LORENZ Executive Vice President and Chief March 19, 1997
- ------------------------------------- Financial Officer (Principal
Donald A. Lorenz Financial Officer)
/s/ HANH KIHARA Controller (Principal Accounting March 19, 1997
- ------------------------------------- Officer)
Hanh Kihara
/s/ CLAUDE M. BALLARD Director March 19, 1997
- -------------------------------------
Claude M. Ballard
/s/ ANTHONY DOWNS Director March 19, 1997
- -------------------------------------
Anthony Downs
/s/ THOMAS G. EASTMAN Director March 19, 1997
- -------------------------------------
Thomas G. Eastman
/s/ ANTHONY M. FRANK Director March 19, 1997
- -------------------------------------
Anthony M. Frank
/s/ THOMAS H. NOLAN, JR. Director March 19, 1997
- -------------------------------------
Thomas H. Nolan, Jr.
Director March 19, 1997
- -------------------------------------
Martin I. Zankel
</TABLE>
II-4
<PAGE> 53
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------------
<C> <C> <S>
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>
<PAGE> 1
EXHIBIT 5.1
FILE NUMBER
862310
March 19, 1997
Bedford Property Investors, Inc.
270 Lafayette Circle
Lafayette, California 94549
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have served as Maryland counsel to Bedford Property Investors,
Inc., a Maryland corporation (the "Company"), in connection with certain
matters of Maryland law arising out of the Registration Statement on Form S-3
filed by the Company to register up to 108,495 shares of Common Stock, $.02 par
value per share (the "Shares"), for an offering to be made on a delayed or
continuous basis in the future pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Registration Statement"). Unless otherwise defined
herein, capitalized terms used herein shall have the meanings ascribed to them
in the Registration Statement.
In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The Registration Statement;
2. The charter of the Company (the "Charter"), certified as of a
recent date by the State Department of Assessments and Taxation of Maryland
(the "SDAT");
3. The Amended and Restated Bylaws of the Company, certifed as of the
date hereof by the Secretary of the Company;
<PAGE> 2
Bedford Property Investors, Inc.
March 19, 1997
Page 2
4. Resolutions of the Board of Directors of the Company relating
to the sale and issuance of the Shares and the filing of the Registration
Statement with the Securities and Exchange Commission, certified as of the date
hereof by the Secretary of the Company (the "Resolutions");
5. A form of certificate representing the Shares (the "Certificate"),
certifed as of the date hereof by the Secretary of the Company;
6. A certificate executed by Jennifer I. Mori, Secretary of the
Company, dated March 7, 1997;
7. A certificate of the SDAT as to the good standing of the Company,
dated March 6, 1997; and
8. A complete copy of the Constituent Partner Agreement, dated
December 17, 1996, pursuant to which holders of units of limited partnership
interest (the "Units") in Bedford Realty Partners, L.P., of which the Company
is the sole general partner, may redeem such Units for Common Stock.
9. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far
as is known to us, there are no facts inconsistent with the following:
1. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding and are enforceable in accordance with all stated
terms except as limited (a) by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other laws relating to or affecting the
enforcement of creditors' rights, (b) by general equitable principles.
2. Each individual executing any of the Documents on behalf of a
party (other than the Company) is duly authorized to do so.
<PAGE> 3
Bedford Property Investors, Inc.
March 19, 1997
Page 3
3. Each individual executing any of the Documents, whether on behalf
of such individual or another person, is legally competent to do so.
4. All Documents submitted to us as originals are authentic. All
Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all Documents are genuine. All public
records reviewed or relied upon by us or on our behalf are true and complete.
All statements and information contained in the Documents are true and complete.
There are no modifications or amendments to the Documents, by action or conduct
of the parties or otherwise.
5. The Shares will not be issued in violation of any restriction or
limitation contained in Article VII of the Charter.
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions, limitations
and qualifications stated herein, it is our opinion that upon adoption by the
Board of Directors of the Company, or a duly authorized committee thereof, of
resolutions in the form and content as required by applicable law, and upon
issuance and delivery of the Shares in the form of the Certificate and payment
therefor in the manner contemplated by the Registration Statement and/or the
applicable Prospectus Supplement and by such resolutions, such Shares will be
(assuming that the sum of (i) any shares of Common Stock issued between the
date hereof and the date on which the Shares are actually issued (not including
any Shares), (ii) all shares of Common Stock issued as of the date hereof and
(iii) the Shares, will not exceed the total number of shares of Common Stock
that the Company is authorized to issue) duly authorized, validly issued, fully
paid and nonassessable.
The foregoing opinion is limited to the substantive laws of the State
of Maryland, and we do not express any opinion herein concerning any other law.
We express no opinion as to the applicability or effect of any federal or state
securities laws,
<PAGE> 4
Bedford Property Investors, Inc.
March 19, 1997
Page 4
including the securities laws of the State of Maryland. To the extent that any
matter as to which our opinion is expressed herein would be governed by the
laws of any jurisdiction other than the State of Maryland, we do not express
any opinion on such matter.
We assume no obligation to supplement this opinion if any applicable
law changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion is being furnished to you solely for your benefit and may
not be relied upon by, quoted in any manner to, or delivered to any other
person or entity without, in each instance, our prior written consent (except
that Shearman & Sterling, counsel to the Company may rely upon this opinion as
if it were addressed to them).
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the 1933 Act.
Very truly yours,
<PAGE> 1
EXHIBIT 8.1
March 19, 1997
Bedford Property Investors, Inc.
270 Lafayette Circle
Lafayette, California 94549
Registration of Common Stock
----------------------------
Ladies and Gentlemen:
You have requested our opinion concerning certain federal income tax
aspects in connection with the registration by Bedford Property Investors,
Inc., a Maryland corporation (the "Company") of shares of Common Stock pursuant
to the Registration Statement on Form S-3 (the "Registration Statement"). The
Company, by action of its predecessor ICM Property Investors, Inc., has elected
to be treated as a real estate investment trust (a "REIT") as defined in
section 856 of the Internal Revenue Code of 1986, as amended (the "Code").
In rendering this opinion, we have reviewed and relied upon facts and
descriptions set forth in the Registration Statement. We also have relied on
statements as to matters of fact made in the letter from an Officer of the
Company (the "Letter"). We have assumed that the statements made in the Letter
are true and correct and that the Letter has been signed by appropriate and
authorized officers of the Company.
Based on the foregoing and the Code, the income tax regulations issued
by the United States Treasury Department thereunder, rulings of the Internal
Revenue Service and court decisions, all as in effect on the date hereof, we
are of the opinion that, for Federal income tax purposes:
(a) The Company was organized in conformity with the
requirements for qualification as a REIT, the Company has operated in a
manner so as to qualify as a REIT for all taxable years since the
taxable year ended December 31, 1993 (which we believe is the Company's
earliest taxable year which is within the normal period for federal
income tax audit), and the Company's proposed method of operation will
enable it to meet the requirements for qualification and taxation as a
REIT.
<PAGE> 2
Bedford Property Investors, Inc. 2
(b) The discussion contained under the captions "Risk
Factors--Tax Risks; Risks Associated with REIT Status" and "Certain
Federal Income Tax Considerations" in the Registration Statement has
been reviewed by us and, to the extent that it constitutes statements
of law or legal conclusions, is correct in all material respects; and
our opinions (in addition to opinion (a) above) set forth under such
captions are confirmed.
Qualification of the Company as a REIT, however, will depend upon the Company's
satisfaction, through actual annual operating results and other annual
requirements, of the various qualification tests imposed by the Code, and no
assurance can be made that the Company's actual annual operations will be able
to satisfy or will actually satisfy these various qualification tests. We do
not undertake to monitor whether the Company will, in fact, through actual
annual operating results, satisfy the various qualification tests, and we
express no opinion whether the Company actually will satisfy these various
qualification tests in the future.
We hereby consent to the use of our name and opinions under the
headings "Risk Factors--Tax Risks; Risks Associated with REIT Status" and
"Certain Federal Income Tax Considerations" in the Registration Statement and
the reference to our name under the heading "Legal Matters" in the Registration
Statement. This opinion has been delivered to you and is intended solely for
your benefit. It may not be relied upon for any other purpose or by any other
person or entity without our prior written approval, and it may not be made
available to any other person or entity.
This opinion relates solely to Federal income tax law, and we do not
undertake to render any opinion as to the qualification of the Company as a
REIT under any state or local corporate franchise or income tax laws. In
accordance with customary practice relating to opinion letters, our opinion
speaks only as of the date hereof; we disclaim any duty to update such opinion.
Very truly yours,
A.C.G.
L.E.C.
J.W.L.
<PAGE> 1
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), November 21, 1996 (relating to the
combined historical summary of gross income and direct operating of Laguna
Hills Square, Westech Business Center, Fourier Avenue, Kenyon Center and
Carroll Tech Center) and January 31, 1997 (relating to the combined historical
summary of gross income and direct operating expenses of O'Toole Business
Center, Signal System Building and 6500 Kaiser Drive) incorporated by reference
herein and to the reference to our firm under the heading "Experts" in the
prospectus.
San Francisco, California
March 18, 1997
