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PROSPECTUS SUPPLEMENT FILED PURSUANT TO RULE 424(B)(2)
(TO PROSPECTUS DATED MAY 31, 1996) REGISTRATION NO. 333-03688
625,000 SHARES
LEXINGTON CORPORATE PROPERTIES, INC.
CLASS A SENIOR
CUMULATIVE CONVERTIBLE
PREFERRED STOCK
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THE 625,000 SHARES OF PREFERRED STOCK (THE "SHARES") OF THE COMPANY, PAR
VALUE $.0001, OFFERED HEREBY (THE "OFFERING") ARE BEING SOLD DIRECTLY BY THE
COMPANY. PRIOR TO THIS OFFERING THERE HAS BEEN NO PUBLIC MARKET FOR THE SHARES.
EACH SHARE IS CONVERTIBLE INTO ONE (1) SHARE OF COMMON STOCK, PAR VALUE $.0001,
OF THE COMPANY, SUBJECT TO ADJUSTMENT, AND IS ENTITLED TO ONE (1) VOTE FOR EACH
SHARE OF COMMON STOCK INTO WHICH SUCH SHARE IS CONVERTIBLE. SEE "VOTING RIGHTS."
THE COMMON STOCK INTO WHICH SUCH PREFERRED STOCK IS CONVERTIBLE IS LISTED ON THE
NEW YORK STOCK EXCHANGE (THE "NYSE") UNDER THE SYMBOL "LXP."
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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 SUPPLEMENT OR THE PROSPECTUS TOWHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS SUPPLEMENT IS APRIL 28, 1997
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THE COMPANY
Lexington Corporate Properties, Inc. is a self-managed and
self-administered real estate investment trust ("REIT") which acquires, owns and
manages a geographically diversified portfolio of high quality office,
industrial and retail properties that are net leased to corporations operating
in a variety of industries. Under a net lease ("Net Lease"), the tenant bears
all, or substantially all, of the costs and cost increases for real estate
taxes, insurance and ordinary maintenance.
The Company commenced operations in 1993 as a real estate investment trust
to continue the business of its predecessor companies which had commenced
operations in the Net Lease business in 1986.
The Company was originally incorporated under the laws of the State of
Delaware, and was reincorporated in the State of Maryland in June 1994.
References herein to the Company include references to the Company's Delaware
predecessor and the predecessor companies referenced above, unless the context
otherwise requires. The principal executive offices of the Company are located
at 355 Lexington Avenue, New York, New York 10017, and its telephone number is
(212) 692-7260.
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $7,800,000, after payment of expenses related to the Offering. The
Company intends to use such net proceeds for the acquisition of additional
properties and/or the repayment of a portion of the Company's revolving credit
facility.
DESCRIPTION OF CLASS A SENIOR CUMULATIVE
CONVERTIBLE PREFERRED STOCK
The following description of certain terms of the Shares offered hereby
(which are included in the Preferred Stock referenced in the accompanying
Prospectus) supplements, and to the extent inconsistent therewith replaces, the
description and general terms and provisions of Preferred Stock set forth in the
accompanying Prospectus, to which reference is hereby made. The following
statements related to the Shares are summaries of the provisions contained in
the Articles Supplementary of Lexington Corporate Properties, Inc. (the
"Certificate of Designation") dated January 17, 1997 and do not purport to be
complete. As such, statements made herein are qualified in their entirety by
reference to the provisions of the Certificate of Designation. Capitalized terms
used herein but not otherwise defined shall have the meanings given to such
terms in the Prospectus or the Certificate of Designation.
GENERAL
The Shares are being offered to Five Arrows Realty Securities L.L.C. (the
"Investor") at a per Share purchase price of $12.50. Pursuant to the terms of an
Investment Agreement between the Company and Investor, the Offering is limited
to an aggregate of up to 2,000,000 Shares for an aggregate purchase price of
$25,000,000. On January 21, 1997 and April 28, 1997, the Company exercised its
right under the Investment Agreement to sell 700,000 and 625,000 Shares,
respectively, to the Investor.
DIVIDENDS
The holders of the Shares are entitled to receive, when, as and if declared
by the Board of Directors, dividends on the Shares, out of funds legally
available therefor, under the Maryland General Corporation Law, cumulative
(commencing as of the date of issuance of the Shares) preferential cash
dividends at a quarterly rate equal to the greater of (i) $0.295 per Share, per
quarter and (ii) the product of 1.05 and the per Share quarterly dividend paid
in respect of the Common Stock, par value $.0001 per share of the Company
(subject to adjustment). Dividends shall be paid for each of the quarters ending
on March 30, June 30, September 30 and December 31 and shall be paid on each
February 15, May 15, August 15 and November 15, with respect to the prior
quarter, commencing May 15, 1997, provided that, if such date is not a business
day, on the next
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succeeding business day. Dividends will cease to accrue on the first to occur of
(i) the date on which the Liquidation Value of the Shares (plus all accrued and
unpaid dividends thereon whether or not declared) is paid to the holders thereof
in connection with the liquidation of the Company, (ii) the last day of the
quarter preceding the quarter in which the Shares are converted into shares of
Common Stock if such date is after the record date for the Regular Quarterly
Dividend (as herein defined) on the Common Stock for the quarter in which such
conversion takes place, (iii) the last day of the quarter second preceding the
quarter in which the Shares are converted into shares of Common Stock if such
date is prior to the record date for the Regular Quarterly Dividend on the
Common Stock for the quarter in which such conversion takes place or (iv) the
date on which the Shares are otherwise acquired and paid for by the Company.
Dividends are calculated and paid pro rata based on the number of actual
days in any partial quarter. In the event that the legally available funds,
under Maryland General Corporation Law, available for the payment of dividends
shall be insufficient for the payment of the entire amount of dividends payable
with respect to Shares on any date on which the Board has declared the payment
of a dividend or otherwise, the amount of any available surplus shall be
allocated for the payment of dividends with respect to the Shares and any other
shares of capital stock that are pari passu as to dividends pro rata based upon
the amount of accrued and unpaid dividends of such shares of capital stock.
Dividends on the Shares shall accrue whether or not the Company has
earnings, whether or not there are funds legally available for the payment of
such dividends and whether or not such dividends are declared and shall
accumulate to the extent such dividends are not paid.
Unless dividends have been paid to the holders of the Shares, the Company
and its subsidiaries shall be prohibited from paying dividends on, making any
other distributions on, or redeeming or purchasing or otherwise acquiring for
consideration any capital stock of the Company.
LIQUIDATION RIGHTS
In the event of the liquidation, dissolution or winding up of the Company,
before the distribution or payment to the holders of shares of capital stock of
the Company ranking junior to the Shares (as to dividends or upon liquidation,
dissolution or winding up), the holders of the Shares shall be entitled to be
paid $12.50 per share (the "Liquidation Value") plus any accrued and unpaid
dividends whether or not declared (or a pro rata portion thereof with respect to
fractional shares), provided, however, that if the liquidation, dissolution or
winding up of the Company occurs in connection with or subsequent to a Change of
Control, then the holders of the Shares shall be entitled to be paid an amount
equal to 102% of the Liquidation Value plus any accrued and unpaid dividends
whether or not declared. If, upon liquidation, dissolution or winding up of the
Company, there are insufficient assets to permit the full payment to the holders
of the Shares, the sums which such holders are entitled to receive in such case,
then all of the assets available for distribution to the holders of the Shares
shall be distributed among and paid to the holders of the Shares, ratably in
proportion to the respective amounts that would be payable to such holders if
such assets were sufficient to permit payment in full.
VOTING RIGHTS
The holders of the Shares will have one (1) vote for each share of Common
Stock into which each Share is convertible and will be entitled to vote or
consent on all matters submitted to the holders of Common Stock, together with
the holders of the Common Stock and the holders of any other classes or series
of stock which are entitled to vote on such matter, as a single class and not as
a separate class.
In addition, subject to certain exceptions, so long as the Investor, an
affiliate thereof, a successor in which the current members of the Investor own
greater than a majority interest of such successor, or a member of the Investor,
is the holder of either (A) all of the outstanding Shares or (B) an amount of
the voting securities of the Company which, if converted into shares of Common
Stock, would exceed 7.5% of the outstanding Common Stock on a fully diluted
basis (determined on the basis of then convertible, exercisable or exchangeable
securities, warrants or options issued by the Company) (the "Minimum
Threshold"), then, in each such case, the holders of the Shares shall have the
special right, voting separately as a single class, to elect as soon as
practical, a director or directors, as the case may be, to the Board (the
"Preferred Directors").
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Except to the extent that the Board may otherwise determine hereafter, the
Preferred Directors shall not be entitled to receive any compensation, in cash
or kind, in connection with their service as a director of the Company;
provided, that, the indemnification or insurance provided by the Company to its
directors shall not be deemed "compensation" for these purposes.
So long as the conditions set forth in either (A) or (B) above exist, then
in each such case, (i) the number of directors constituting the Board shall be
automatically increased by one (1) member and (ii) upon the occurrence of any of
(x) the payment of the Regular Quarterly Dividend on the Common Stock for any
quarter of less than $.28 per share (subject to adjustment to the Conversion
Ratio) (the "Dividend Reduction Default"), (y) the Company's ratio of its
Consolidated EBITDA to its reported interest expense (as described in clause (2)
under the definition of Consolidated EBITDA below) for each of three consecutive
fiscal quarters was less than 1.25 to 1.00 (the "Earnings Default"), or (z) the
Company fails to pay in full the quarterly dividend payable hereunder (whether
or not declared) at any time in respect of the Shares (the "Dividend Payment
Default"), then, in the case of any of the events described in clauses (x), (y),
or (z), the Board shall be automatically increased by an additional one (1)
member for an aggregate increase of two (2) directors pursuant to clauses (i)
and (ii) above. The position on the Board established pursuant to clause (i)
shall remain available until the Minimum Threshold is no longer satisfied and
shall not be available at any time thereafter. The position on the Board
established pursuant to clause (ii) shall remain available until the earlier of
(i) the date on which the Minimum Threshold fails to be satisfied and (ii) the
Dividend Reduction/Earnings Cure (as herein defined).
The term "Regular Quarterly Dividend" means any cash dividend or dividends
paid in any calendar quarter that do not in the aggregate exceed the Company's
reported Funds From Operations (as defined by the National Association of Real
Estate Investment Trusts prior to 1996) for the quarter relating to such
dividend.
The term "Consolidated EBITDA" means the consolidated net income of the
Company (before extraordinary income or gains) as reported in its Quarterly
Report on Form 10-Q under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or otherwise furnished to holders of Shares by the sum of the
following (without duplication):
(1) all income and state franchise taxes paid or accrued according to
Generally Accepted Accounting Principles ("GAAP") for such period (other
than income taxes attributable to extraordinary, unusual or non-recurring
gains or losses except to the extent that such gains were not included in
Consolidated EBITDA),
(2) all interest expense paid or accrued in accordance with GAAP for
such period (including financing fees and amortization of deferred
financing fees and amortization of original issue discount),
(3) depreciation and depletion reflected in such reported net income,
(4) amortization reflected in such reported net income including,
without limitation, amortization of capitalized debt issuance costs (only
to the extent that such amounts have not been previously included in the
amount of Consolidated EBITDA pursuant to clause (2) above), and
(5) any other non-cash charges or discretionary prepayment penalties,
to the extent deducted from consolidated net income (including, but not
limited to, income allocated to minority interests).
If, at any time, (i) the rights granted pursuant to the immediately
preceding paragraph shall no longer be available, (ii) any persons designated to
serve on the Board pursuant to such paragraph shall have resigned as required by
the terms of such paragraph and (iii) a Dividend Payment Default shall have
occurred for three consecutive quarters, the number of directors constituting
the Board shall be automatically increased by two (2) members. The position on
the Board created hereby shall continue to be available until the earlier of (i)
the date on which there are no Shares of the Company outstanding and (ii) the
date on which the Dividend Payment Cure (as herein defined) is effected.
The term "Dividend Reduction/Earnings Cure" shall mean the time at which
(i) the Regular Quarterly Dividend paid in the immediately preceding quarter on
the Common Stock shall be greater than $.28 per
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share (subject to adjustment), (ii) the Company reports for the prior three
consecutive fiscal quarters that the ratio of its Consolidated EBITDA to its
reported interest expense (as described in clause (2) under the definition of
Consolidated EBITDA above) for each such quarter was greater than 1.25 to 1.00,
and (iii) all accrued and unpaid dividends, whether or not declared, on the
Shares have been paid or made available for payment. Upon the occurrence of the
Dividend Payment Default, the same shall be deemed to continue and exist until
(the "Dividend Payment Cure") such time as the earlier to occur of (i) none of
the Shares shall remain outstanding and (ii) all accrued and unpaid dividends,
whether or not declared, on the Shares have been paid or made available for
payment.
Furthermore, so long as any Shares are outstanding, without the consent of
the holders of at least a majority of the Shares at the time outstanding, the
Company may not (i) effect or validate the amendment, alteration or repeal of
any provision of the Certificate of Designation, (ii) effect or validate the
amendment, alteration or repeal of any provision of the Charter of the Company
which would adversely effect the rights of the holders of the Shares, (iii)
other than as required to maintain the status of the Company as a real estate
investment trust (or to prevent the Company from becoming a Pension-held REIT)
as described in Section 856 of the Internal Revenue Code of 1986, as amended,
effect or validate the amendment, alteration or repeal of any provision of the
Charter of the Company which would increase in any respect the restrictions or
limitations on ownership applicable to the Shares pursuant thereto, (iv) effect
or validate the amendment, alteration or repeal of any provision of the Charter
of the Company or By-Laws of the Company in a manner which would make the right
to indemnification provided to any present or future director elected by the
holders of Shares materially different from that provided to other members of
the Board, (v) other than the Shares, issue a series of preferred stock that
would vote as a class with the Shares with respect to the election of any
Preferred Director) or shares of stock ranking senior or equal to the Shares (as
to dividends or upon liquidation, dissolution or winding up), or (vi) effect or
validate the amendment, alteration or repeal of any provision of the Charter of
the Company or By-Laws of the Company so as to increase the number of members of
the Board beyond twelve (12) members (not including any Preferred Directors).
Any action required or permitted to be taken by holders of Shares at any
meeting of stockholders may be taken without a meeting, without prior notice and
without a vote, if a consent, in writing, setting forth the action so taken, is
signed by the holders of Shares who would have been sufficient to approve such
action at a meeting duly held and is executed and delivered to the Secretary of
the Company for placement among the minutes of proceedings of the stockholders
of the Company.
REDEMPTION
Subject to certain exceptions, the Company may, at its option, to the
extent it shall have legally available funds therefor, under Maryland General
Corporation Law, redeem all (but not less than all) of the outstanding Shares,
at any time on or after the date which is the fifth (5th) anniversary of the
original date of issuance of the Shares. The option of the Company to redeem the
Shares shall be exercised by mailing of a written notice of election (the
"Redemption Notice") by the Company to the holders of the Shares at such
holder's address appearing in the records of the Company not less than thirty
(30) days prior to the date specified therein for the redemption of the Shares.
On the redemption date specified in the Redemption Notice, the Company
shall be required, unless such holder of Shares has exercised its conversion
rights with respect to such Shares, to purchase from such holder
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of Shares, such Shares, at a price equal to the product of (i) $12.50 per Share
plus accrued and unpaid dividends, plus a premium equal to the following
percentage of $12.50:
<TABLE>
<CAPTION>
REDEMPTION OCCURS
ON OR AFTER BUT PRIOR TO % PREMIUM
- ------------------ --------------------------------------------------- ---------
<S> <C> <C>
December 31, 2001 December 31, 2003.................................. 6.0
December 31, 2003 December 31, 2005.................................. 5.0
December 31, 2005 December 31, 2007.................................. 4.0
December 31, 2007 December 31, 2009.................................. 3.0
December 31, 2009 December 31, 2010.................................. 2.0
December 31, 2010 December 31, 2011.................................. 1.0
December 31, 2011 0.0
</TABLE>
and (ii) the number of Shares held by such holder to be redeemed (the
"Redemption Price").
In addition, subject to the conversion rights of the holder of Shares, if a
Change of Control occurs on or before December 31, 2001, the Company may, at its
option, to the extent it shall have legally available funds therefor, under
Maryland General Corporation Law, redeem all (but not less than all) of the
outstanding Shares on the date of such Change of Control. On the date of the
Change of Control, the Company shall be required, unless such holder of Shares
has exercised its right to convert such Shares, to purchase from such holder
such Shares, at a price equal to the product of (i) $13.75 plus accrued and
unpaid dividends and (ii) the number of Shares held by such holder to be
redeemed. No Share is entitled to any dividends accruing after the date on which
the payment for such share is paid or made available for payment to the holder
thereof.
If a Change of Control or Put Event occurs each holder of Shares will have
the right to require that the Company, to the extent the Company shall have
legally available funds therefor, under Maryland General Corporation Law, to
redeem such holder's Shares at a redemption price payable in cash in an amount
equal to 102% of the Liquidation Value thereof, plus accrued and unpaid
dividends whether or not declared, if any (the "Put Payment"), to the date of
redemption or the date payment is made available (the "Put Date").
If a REIT-Put Event occurs each holder of Shares will have the right to
require that the Company, to the extent the Company shall have legally available
funds therefor, under Maryland General Corporation Law, to redeem such holder's
Shares at a redemption price payable in cash in an amount equal to the greater
of (i) 110% of the Liquidation Value thereof, plus accrued and unpaid dividends
whether or not declared, if any, (ii) 105% of the Current Market Price, plus
accrued and unpaid dividends whether or not declared, if any, and (iii) the
difference between the 52-Week Trading High and $12.50, plus accrued and unpaid
dividends whether or not declared, if any (any of (i), (ii) or (iii), the
"REIT-Put Payment"), to the date of redemption or the date payment is made
available (the "REIT-Put Date").
"52-Week Trading High" means, for any date, the highest per share closing
price of the Common Stock for the 52-calendar week period immediately preceding
such date.
"Change of Control" means each occurrence of any of the following: (i) the
acquisition, directly or indirectly, by any individual or entity or group (as
such term is used in Section 13(d)(3) of the Exchange Act) of beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act, except that such
individual or entity shall be deemed to have beneficial ownership of all shares
that any such individual or entity has the right to acquire, whether such right
is exercisable immediately or only after passage of time) of more than 30% of
the aggregate outstanding voting power of capital stock of the Company; (ii)
other than with respect to the election, resignation or replacement of the
Preferred Directors, during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company
was approved by a vote of 66 2/3% of the directors of the Company (excluding
Preferred Directors) then still in office who were either directors at the
beginning of such period, or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; and (iii) (A) the Company
consolidates with or merges into another entity or conveys, transfers or leases
all or substantially all of their respective assets (including,
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but not limited to, real property investments) to any individual or entity, or
(B) any corporation consolidates with or merges into the Company, which in
either event (A) or (B) is pursuant to a transaction in which the outstanding
voting capital stock of the Company is reclassified or changed into or exchanged
for cash, securities (unless the holders of the exchanged securities of the
Company immediately prior to such transaction hold immediately after such
transaction at least a majority of the securities into which such exchange was
made) or other property; provided, however, that the events described in clause
(iii) shall not be deemed to be a Change of Control if the sole purpose of such
event is that the Company is seeking to change its domicile or to change its
form from a corporation to a statutory business trust.
"Put Event" means each occurrence of the Company ceasing to be engaged
primarily in the business of owning and managing triple net leased properties
directly, or through subsidiaries, as carried on as of the date hereof and
described in the Company's Annual Report on Form 10-K as filed with the
Commission for the year ended December 31, 1995.
"REIT-Put Event" means each occurrence of either of (i) the Company fails
to qualify as a real estate investment trust as described in Section 856 of the
Internal Revenue Code of 1986, as amended, other than as a result of any action,
or unreasonable failure to act, by the holders of Shares; (ii) the Company
becomes a "Pension-held REIT" as defined in Section 856(h)(3)(D) of the Internal
Revenue Code of 1986, as amended, other than as a result of any action, or
unreasonable failure to act, by holders of Shares.
OPTIONAL CONVERSION AT THE OPTION OF THE HOLDER
A holder of Shares shall have the right, at such holder's option, at any
time to convert all or any portion of Shares held by such holder into the number
of fully paid and non-assessable shares of Common Stock obtained by dividing the
number of Shares being converted by the Conversion Ratio and by surrendering to
the Company such Shares to be converted. Such surrender shall be made in the
manner provided herein; provided, however, that the right to convert any Shares
called for redemption shall terminate at the close of business on the Final
Conversion Date, unless the Company shall default in making payment of any cash
payable upon such redemption. The "Conversion Ratio" with respect to any Shares
will initially be equal to 1, subject to adjustment.
In order to exercise the conversion right, the holder of each Share to be
converted shall surrender to the Company the certificate representing such
Share, duly endorsed or assigned to the Company or in blank, accompanied by
written notice to the Company that the holder thereof elects to convert such
Shares. Unless the shares of Common Stock issuable on conversion are to be
issued in the same name as the name in which such Shares are registered, each
Share surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Company, duly executed by the holder or
such holder's duly authorized attorney.
Holders of Shares shall be entitled on the date of conversion of any Shares
to receive all accumulated and unpaid dividends on such Shares.
CONVERSION ADJUSTMENT
If the Company shall, while any Shares are outstanding, (A) pay a dividend
or make a distribution with respect to its capital stock in shares of its Common
Stock, (B) subdivide its outstanding Common Stock into a greater number of
shares, (C) combine its outstanding Common Stock into a smaller number of
shares, or (D) issue any shares of capital stock by reclassification of its
Common Stock, the Conversion Ratio in effect at the opening of business on the
day next following the date fixed for the determination of shareholders entitled
to receive such dividend or distribution or at the opening of business on the
day following the day on which such subdivision, combination or reclassification
becomes effective, as the case may be, shall be adjusted so that the holder of
any Shares thereafter surrendered for conversion shall be entitled to receive
the number of shares of Common Stock that such holder would have owned or have
been entitled to receive after the happening of any of the events described
above had such Shares been converted immediately prior to the record date in the
case of a dividend or distribution or the effective date in the case of a
subdivision, combination or reclassification.
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In addition, if the Company shall, while any Shares are outstanding, issue
rights, options or warrants to all holders of Common Stock entitling them (for a
period expiring within forty five (45) days after the record date mentioned
below) to subscribe for or purchase Common Stock at a price per share less than
the Current Market Price per share of Common Stock on the record date for the
determination of shareholders entitled to receive such rights or warrants, then
the Conversion Ratio in effect at the opening of business on the day next
following such record date shall be adjusted to equal the ratio determined by
multiplying (I) the Conversion Ratio in effect immediately prior to the opening
of business on the day next following the date fixed for such determination by
(II) a fraction, the numerator of which shall be the sum of (A) the number of
shares of Common Stock outstanding on the close of business on the date fixed
for such determination (without giving effect to such issuance) and (B) the
number of shares that the aggregate proceeds to the Company from the exercise of
such rights or warrants for Common Stock would purchase at such Current Market
Price, and the denominator of which shall be the sum of (A) the number of shares
of Common Stock outstanding on the close of business on the date fixed for such
determination (without giving effect to such issuance) and (B) the number of
additional shares of Common Stock offered for subscription or purchase pursuant
to such rights or warrants.
If the Company shall distribute to all holders of its Common Stock any
shares of capital stock of the Company (other than Common Stock) or evidence of
its indebtedness or assets (excluding Regular Quarterly Dividends and certain
other distributions) or rights or warrants to subscribe for or purchase any of
its securities (excluding those rights and warrants issued to all holders of
Common Stock entitling them for a period expiring within forty five (45) days
after the record date referred to above to subscribe for or purchase Common
Stock, which rights and warrants are referred to above), then in each such case
each holder of Shares shall receive concurrently with the receipt by holders of
the Common Stock the kind and amount of such securities that such holder would
have owned or been entitled to receive had such Shares been converted
immediately prior to such distribution or related record date, as the case may
be.
In case the Company shall pay or make a dividend or other distribution on
its Common Stock exclusively in cash (excluding Regular Quarterly Dividends),
each holder of Shares shall receive concurrently with the receipt by holders of
the Common Stock the kind and amount of any such distribution that it would have
owned or been entitled to receive had such Shares been converted immediately
prior to such distribution or related record date, as the case may be.
The "Current Market Price" per share of Common Stock on any date in
question shall be deemed to be the average of the daily closing prices for the
five consecutive Trading Days immediately preceding such date in question;
provided, however, that if another event occurs that would require an adjustment
pursuant to subsection (f) through (j), inclusive, the Board may make such
adjustments to the closing prices during such five Trading Day period, in which
case any such determination by the Board shall be set forth in a resolution of
the Board and shall be conclusive.
"Trading Day" shall mean a day on which Shares are traded on the national
securities exchange or quotation system used to determine the closing price.
No adjustment in the Conversion Ratio shall be required unless such
adjustment would require a cumulative increase or decrease of at least .5%;
provided, however, that any adjustments that by reason of this paragraph are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment until made.
ADJUSTMENT FOR CERTAIN TRANSACTIONS
If the Company becomes a party to any transaction (including, without
limitation, a merger, consolidation, statutory share exchange, self tender offer
for all or substantially all shares of Common Stock, sale of all or
substantially all of the Company's assets or recapitalization of the Common
Stock) (each of the foregoing being referred to herein as a "Transaction"), in
each case as a result of which shares of Common Stock shall be converted into
the right to receive stock, securities or other property (including cash or any
combination thereof) of another corporation, each Share that is not converted
into the right to receive stock, securities or other property in connection with
such Transaction shall thereafter be convertible into the kind and amount of
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shares of stock, securities and other property (including cash or any
combination thereof) receivable upon the consummation of such Transaction by a
holder of that number of shares of Common Stock into which one Share was
convertible immediately prior to such Transaction, assuming such holder of
Common Stock (i) is not a person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which such sale
or transfer was made, as the case may be ("Constituent Person"), or an affiliate
of a Constituent Person or (ii) failed to exercise his or her rights of
election, if any, as to the kind or amount of stock, securities and other
property (including cash) receivable upon such Transaction (provided that if the
kind or amount of stock, securities and other property (including cash)
receivable upon such Transaction is not the same for each share of Common Stock
of the Company held immediately prior to such Transaction by other than a
Constituent Person or an affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-electing Share"), then for the
purpose of this paragraph the kind and amount of stock, securities and other
property (including cash) receivable upon such Transaction by each Non-electing
Share shall be deemed to be the kind and amount so receivable per share by a
plurality of the Non-electing Shares).
In the event that: (i) the Company shall declare a dividend (or any other
distribution) on the Common Stock (other than the Regular Quarterly Dividend);
(ii) the Company shall authorize the granting to the holders of Common Stock of
rights or warrants to subscribe for or purchase any shares of any class or any
other rights or warrants; (iii) there shall be any reclassification of the
Common Stock or any consolidation or merger to which the Company is a party and
for which approval of any shareholders of the Company is required, or a
statutory share exchange, or self tender offer by the Company for all or
substantially all of its outstanding shares of Common Stock or the sale or
transfer of all or substantially all of the assets of the Company as an entity;
or (iv) there shall occur the involuntary liquidation, dissolution or winding up
of the Company, then, in each such case, the Company shall cause to be mailed to
the holders of Shares, at the address as shown on the stock records of the
Company, as promptly as possible, but at least 15 Business Days prior to the
applicable date hereinafter specified, a notice stating (A) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights
or warrants, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution
or rights or warrants are to be determined or (B) the date on which such
reclassification, consolidation, merger, statutory share exchange, sale,
transfer, liquidation, dissolution or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
shall be entitled to exchange their shares of Common Stock for securities or
other property, if any, deliverable upon such reclassification, consolidation,
merger, statutory share exchange, sale, transfer, liquidation, dissolution or
winding up.
OWNERSHIP LIMIT
Except pursuant to an exemption granted by the Board, (A) prior to the
Restriction Termination Date, no Person shall Beneficially Own or Constructively
Own shares of the outstanding Equity Stock in excess of the Ownership Limit; (B)
prior to the Restriction Termination Date, any Transfer that, if effective,
would result in any Person Beneficially Owning or Constructively Owning Equity
Stock in excess of the Ownership Limit shall be void ab initio as to the
Transfer of that number of shares of Equity Stock which would be otherwise
Beneficially or Constructively Owned by such Person in excess of the Ownership
Limit; and the intended transferee shall acquire no rights in such excess shares
of Equity Stock; (C) prior to the Restriction Termination Date, any Transfer
that, if effective, would result in the Equity Stock's being Beneficially Owned
by fewer than 100 Persons (determined without reference to any rules of
attribution) shall be void ab initio as to the Transfer of that number of shares
which would be otherwise Beneficially or Constructively Owned by the transferee;
and the intended transferee shall acquire no rights in such excess shares of
Equity Stock; and (D) prior to the Restriction Termination Date, any Transfer of
shares of Equity Stock that, if effective, would result in the Company's being
"closely held" within the meaning of Section 856(h) of the Code shall be void ab
initio as to the Transfer of that number of shares of Equity Stock which would
cause the Company to be "closely held" within the meaning of Section 856(h) of
the Code; and the intended transferee shall acquire no rights in such shares of
Equity Stock.
S-9
<PAGE> 10
The Board has granted a conditional exemption to the Investor from the
Ownership Limit. However, if the Company fails to qualify as a REIT, then the
waiver of the Ownership Limit may be void ab initio or the Shares held by the
Investor may be converted to Excess Shares of the Company. Either event, under
certain
circumstances, may cause a REIT Put Event.
"Beneficial Ownership" shall mean ownership of Capital Stock by a Person
who would be treated as an owner of such shares of Capital Stock either directly
or indirectly through the application of Section 544 of the Code as modified by
Section 856(h)(1)(B) of the Code.
"Capital Stock" shall mean stock that is Common Stock, Excess Stock or
Preferred Stock, if any. "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Constructive Ownership" shall mean ownership of Capital Stock by a Person
who would be treated as an owner of such shares of Capital Stock either directly
or indirectly through the application of Section 318 of the Code, as modified by
Section 856(d)(5) of the Code. The terms "Constructive Owner," "Constructively
Owns" and "Constructively Owned" shall have correlative meanings.
"Equity Stock" shall mean Common Stock and Preferred Stock in the
aggregate.
"Ownership Limit" shall mean 9.8% of the value of the outstanding Equity
Stock of the Company.
"Person" shall mean an individual, corporation, partnership, estate, trust
(including a trust qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in Section 642(c) of the Code, association, private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other entity and also includes a group as that term is used for purposes of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
"Restriction Termination Date" shall mean the first day on which the Board
of Directors of the Company determines that it is no longer in the best
interests of the Company to attempt to, or continue to, qualify as a REIT.
"Transfer" shall mean any sale, transfer, gift, hypothecation, pledge,
assignment, devise or other disposition of Capital Stock (including (i) the
granting of any option or entering into any agreement for the sale, transfer or
the disposition of Equity Stock or (ii) the sale, transfer, assignment or other
disposition of any securities or rights convertible into or exchangeable for
Capital Stock), whether voluntary or involuntary, whether of record,
constructively or beneficially and whether by operation of law or otherwise.
MISCELLANEOUS
Upon issuance, the Shares will be fully paid and nonassessable. The
transfer agent for the Shares is ChaseMellon Shareholder Services L.L.C.
LEGAL MATTERS
Certain legal matters, including the validity of the Shares and certain tax
matters, will be passed upon for the Company by Paul, Hastings, Janofsky &
Walker LLP, New York, New York. Seth M. Zachary, a partner of Paul, Hastings,
Janofsky & Walker LLP, is presently serving as a director of the Company and
will continue to serve as a director at least until the 1997 Annual Meeting of
Stockholders. Mr. Zachary is the beneficial owner of 5,211 shares of Common
Stock and holds options to purchase an additional 12,500 shares of Common Stock.
In connection with certain matters related to the laws of the State of Maryland,
Paul, Hastings, Janofsky & Walker LLP will rely on the opinion of Piper &
Marbury L.L.P., Baltimore, Maryland.
S-10
<PAGE> 11
PROSPECTUS
$150,000,000
LEXINGTON CORPORATE PROPERTIES, INC.
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
------------------------
Lexington Corporate Properties, Inc. (the "Company"), may offer from time
to time in one or more series (i) its debt securities ("Debt Securities"), which
may be senior or subordinated debt securities, (ii) shares of its preferred
stock, $.0001 par value per share ("Preferred Stock") and (iii) shares of its
common stock, $.0001 par value per share ("Common Stock"), with an aggregate
public offering price of up to $150,000,000 (or its equivalent based on the
exchange rate at the time of sale) in amounts, at prices and on terms to be
determined at the time of offering. The Debt Securities, Preferred Stock and
Common Stock (collectively, the "Securities") may be offered, separately or
together, in separate classes or series, in amounts, at prices and on terms to
be set forth in one or more supplements to this Prospectus (each, a "Prospectus
Supplement").
The specific terms of the Securities for which this Prospectus is being
delivered will be set forth in the applicable Prospectus Supplement and will
include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, ranking, currency, form (which may be
registered or bearer, or certificated or global), authorized denominations,
maturity, rate (or manner of calculation thereof) and time of payment of
interest, terms for redemption at the option of the Company or repayment at the
option of the holder thereof, terms for sinking fund payments, terms for
conversion into Common Stock or Preferred Stock, covenants and any initial
public offering price; (ii) in the case of Preferred Stock, the specific
designation and stated value per share, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price; and
(iii) in the case of Common Stock, any initial public offering price. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Securities, in each case as may be
consistent with the Company's Second Amended and Restated Articles of
Incorporation or otherwise appropriate to preserve the status of the Company as
a real estate investment trust for federal income tax purposes. See
"Restrictions on Transfers of Capital Stock and Anti-Takeover Provisions."
The applicable Prospectus Supplement will also contain information, where
appropriate, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered by the Company directly, through agents
designated from time to time by the Company or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them will be set forth or will be
calculable from the information set forth in the applicable Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such Securities.
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY MATTERS DISCUSSED UNDER THE
CAPTION "RISK FACTORS" APPEARING ON PAGES 4 THROUGH 7.
------------------------
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.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------
THE DATE OF THIS PROSPECTUS IS MAY 31, 1996.
<PAGE> 12
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, is required to file reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information 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 located at 7 World Trade Center, 13th Floor, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material also can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
The Company's Common Stock is traded on the New York Stock Exchange (the
"NYSE") and reports, proxy and information statements, and other information
concerning the Company can be inspected at the offices of the NYSE at 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3, of which this Prospectus forms a part (together with any amendments
thereto, the "Registration Statement"), under the Securities Act of 1933, as
amended (the "Securities Act"). As permitted by the rules and regulations of the
Commission, this Prospectus omits certain information, exhibits and undertakings
contained in the Registration Statement. Such additional information, exhibits
and undertakings may be inspected and obtained from the Commission's principal
office in Washington, D.C. The summaries or descriptions of documents in this
Prospectus are not necessarily complete. Reference is made to the copies of such
documents attached hereto or otherwise filed as a part of the Registration
Statement for a full and complete statement of their provisions, and such
summaries and descriptions are, in each case, qualified in their entirety by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or information have been filed by the Company with
the Commission and are incorporated herein by reference:
1. The Company's Quarterly Report on Form 10-Q (Commission File No.
1-12386) for the quarter ended March 31, 1996, filed on May 15,
1996.
2. The Company's Annual Report on Form 10-K (Commission File No.
1-12386) for the year ended December 31, 1995, filed on March 22,
1996.
3. The description of the Company's capital stock contained in the
Company's Registration Statement on Form 8-B under the Exchange
Act, filed on August 10, 1994 (File No. 1-12386), including any
amendment or report filed for the purpose of updating that
description.
All documents subsequently filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the termination of the offering of all
Securities covered by this Prospectus will be deemed incorporated by reference
into this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document 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 modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO
WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON THE WRITTEN OR ORAL
REQUEST OF SUCH PERSON TO THE COMPANY AT 355 LEXINGTON AVENUE, NEW YORK, NEW
YORK 10017, ATTENTION: T. WILSON EGLIN, PRESIDENT AND CHIEF OPERATING OFFICER,
ANY OR ALL OF THE DOCUMENTS REFERRED TO ABOVE (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS) WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
2
<PAGE> 13
THE COMPANY
Lexington Corporate Properties, Inc. is a self-managed and
self-administered real estate investment trust ("REIT") which acquires, owns and
manages a geographically diversified portfolio of high quality office,
industrial and retail properties that are net leased to corporations operating
in a variety of industries. The Company focuses on acquiring and owning
properties which the Company believes are important to the ongoing operations of
its tenants. Under a net lease ("Net Lease"), the tenant bears all, or
substantially all, of the costs and cost increases for real estate taxes,
insurance and ordinary maintenance.
The Company currently owns 29 properties, and minority interests in two
additional properties (collectively, the "Properties") which are located in 18
states and have approximately 4.7 million square feet of net leasable space. The
Company's tenants include WalMart Stores, Inc., Federal Express Corporation,
Honeywell, Inc., Bank One, Arizona, N.A., Circuit City Stores, Inc., Tenneco,
Inc., and The Hartford Fire Insurance Company. The Properties are 100% leased
pursuant to Net Leases with an average remaining term (excluding renewal
options) of approximately 8.75 years (based on 1996 proportionate rental
revenues).
The Company's four most senior executive officers average 16 years of
experience in the Net Lease real estate business. The Company's management team
has demonstrated its ability to create value and increase cash flow for the
Company through active management of its portfolio of Properties subject to Net
Leases, including acquisitions, expansions of existing Properties, attracting
strong tenants, refinancings and selective dispositions. Management has an
active presence in and knowledge of the real estate market in the United States,
particularly with respect to the market for single tenant properties subject to
Net Leases. Management subjects each prospective property acquisition candidate
to a rigorous underwriting process which analyzes the property's (i) design,
construction quality, efficiency and functionality; (ii) location with respect
to the immediate submarket, city and region; (iii) tenant financial strength,
credit rating, growth prospects and competitive position within its respective
industry; (iv) lease integrity with respect to term, rental rate increases,
corporate guarantees and property maintenance provisions; (v) economics with
respect to the current and future cash flow growth prospects and expected
investment yield sensitivity calculations; and (vi) fit within the existing
Company portfolio of Properties.
The Company commenced operations in 1993 as an umbrella partnership real
estate investment trust ("UPREIT") to continue the business of its predecessor
companies which had commenced operations in the Net Lease business in 1986. The
Company believes that the UPREIT structure facilitates the Company's ability to
acquire properties by using operating partnership units as currency in property
acquisitions.
The Company was originally incorporated under the laws of the State of
Delaware, and was reincorporated in the State of Maryland in June 1994.
References herein to the Company include references to the Company's Delaware
predecessor and the predecessor companies referenced above, unless the context
otherwise requires. The principal executive offices of the Company are located
at 355 Lexington Avenue, New York, New York 10017, and its telephone number is
(212) 692-7260.
3
<PAGE> 14
RISK FACTORS
Risks Involved in Single Tenant Leases. The Company focuses its
acquisition activities in Net Leased real properties or interests therein.
Because the Company's Net Leased real properties are leased to single tenants,
the financial failure of or other default by a tenant resulting in the
termination of a lease is likely to cause a significant reduction in the
operating cash flow of the lessor and might decrease the value of the property
leased to such tenant.
Dependence on Major Tenants. Revenues from several of the Company's
properties constitute a significant percentage of the Company's consolidated
rental revenues. On May 22, 1996, the Company consummated the acquisition of its
Salt Lake City, Utah property (the "Salt Lake City Property") which is 100%
occupied by Northwest Pipeline Corporation pursuant to a Net Lease which expires
on September 30, 2009, subject to two renewal options for a total of 19
additional years. Revenue derived from the Salt Lake City Property (net of
ground lease payments) is expected to represent approximately 23% of the
Company's consolidated rental revenue for 1997. In addition, the Company's
Newark, California property is 100% occupied by Ross Stores, Inc. pursuant to a
Net Lease which expires on August 31, 2002, subject to six, five-year renewal
options. During 1995, the revenue derived by the Company from the Newark
Property represented approximately 13% of the Company's consolidated rental
revenue. The default, financial distress or bankruptcy of either of the
foregoing tenants could cause interruptions in the receipt of lease revenues
from such tenants and/or result in vacancies in the respective properties, which
would reduce the revenues of the Company until the affected property is re-let,
and could decrease the ultimate sale value of each such property. Upon the
expiration of the leases that are currently in place with respect to these
properties, the Company may not be able to re-lease the vacant property at a
comparable lease rate or without incurring additional expenditures in connection
with such re-leasing.
Prior to 1996, revenue derived from the Company's Glendale, Arizona
property (the "Glendale Property") accounted for a significant percentage of the
Company's consolidated rental revenues and represented approximately 13% of the
Company's consolidated rental revenue for 1995. Annual rent on the Glendale
Property is scheduled to decrease by 50.7%, from an annual rent of $3,840,000 to
an annual rent of $1,892,250, commencing on July 16, 1996. Thus, based on the
Company's current and expected revenues, the percentage of the Company's
consolidated net revenue represented by rental revenue from the Glendale
Property will be significantly decreased.
Renewal of Leases and Re-letting of Space. The Company will be subject to
the risks that, upon expiration of leases for space located in the Company's
properties, the premises may not be re-let or the terms of re-letting (including
the cost of concessions to tenants) may be less favorable than current lease
terms. If the Company were unable to re-let promptly all or a substantial
portion of its commercial units or if the rental rates upon such re-letting were
significantly lower than expected rates, the Company's net income and ability to
make expected distributions to stockholders would be adversely affected. There
can be no assurance that the Company will be able to retain tenants in any of
the Company properties upon the expiration of their leases.
Risks Relating to Acquisitions. A significant element of the Company's
business strategy is the enhancement of its portfolio through acquisitions of
additional properties. There can be no assurance that the Company will be able
to identify and acquire additional properties or that it will be able to finance
acquisitions in the future. In addition, there can be no assurance that any such
acquisition, if consummated, will be profitable for the Company. The
consummation of any future acquisition will be subject to satisfactory
completion of the Company's extensive valuation analysis and due diligence
review and to the negotiation of definitive documentation. If the Company is
unable to consummate the acquisition of additional properties in the future,
there can be no assurance that the Company will be able to increase the funds
available for distribution to stockholders.
Leverage; No Limitation on Debt; Possible Inability to Refinance Balloon
Payments on Mortgage Debt. The Company has incurred, and may continue to incur,
indebtedness (secured and unsecured) in furtherance of its activities. Neither
the Company's Second Amended and Restated Articles of Incorporation (the
"Articles of Incorporation") nor any policy statement formally adopted by the
Board limits either the total
4
<PAGE> 15
amount of indebtedness or the specified percentage of indebtedness (based upon
the total capitalization of the Company) which may be incurred. Accordingly, the
Company could become more highly leveraged, resulting in increased risk of
default on obligations of the Company and in an increase in debt service
requirements which could adversely affect the financial condition and results of
operations of the Company and the Company's ability to pay dividends.
A significant number of the Company's properties are subject to mortgages
with balloon payments. Balloon payments, relating to four properties, of
approximately $10.0 million, $5.6 million and $8.0 million are due in 1998, 1999
and 2000, respectively. In addition, the Company may fund certain projects and
operating expenses from borrowings under its $25 million secured revolving
credit facility with Fleet National Bank (the "Credit Facility"). The Credit
Facility matures in 1998, subject to a right of the Company to extend the term
for five years under certain conditions. If the Company does not or is unable to
exercise its option to extend the term of the Credit Facility, then any amount
outstanding under the Credit Facility would become due on November 14, 1998.
Also, on May 19, 1995, the Company, through its wholly owned subsidiary, LXP
Funding Corp., completed a $70 million secured debt offering by issuing
commercial mortgage pass-through certificates, which mature in 2005. See Note 5
of the Company's Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K. The ability of the Company to make such balloon
payments will depend upon its ability either to refinance the mortgage related
thereto or to sell the related property. The ability of the Company to
accomplish such goals will be affected by various factors existing at the
relevant time, such as the state of the national and regional economies, local
real estate conditions, available mortgage rates, the Company's equity in the
mortgaged properties, the financial condition of the Company, the operating
history of the mortgaged properties, and tax laws.
Although the Company does not generally cross-collateralize any of its
properties, management may determine to do so from time to time. As of the date
of this Prospectus, two of the Company's properties in Florida were
cross-collateralized and fifteen of the Company's properties were the subject of
a segregated pool of assets with respect to which commercial mortgage
pass-through certificates (as discussed above) were issued. To the extent that
any of the Company's properties are cross-collateralized, any default by the
Company under the mortgage relating to one such property will result in a
default under the financing arrangements relating to any other property which
also provides security for such mortgage.
Possible Liability Relating to Environmental Matters. Under various
federal, state and local environmental laws, statutes, ordinances, rules and
regulations, an owner of real property may be liable for the costs of removal or
remediation of certain hazardous or toxic substances at, on, in or under such
property, as well as certain other potential costs relating to hazardous or
toxic substances (including government fines and penalties and damages for
injuries to persons and adjacent property). Such laws often impose liability
without regard to whether the owner knew of, or was responsible for, the
presence or disposal of such substances. Such liability may be imposed on the
owner in connection with the activities of an operator of, or tenant at, the
property. The cost of any required remediation, removal, fines or personal or
property damages and the owner's liability therefor could exceed the value of
the property and/or the aggregate assets of the owner. In addition, the presence
of such substances, or the failure to properly dispose of or remove such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral, which, in turn, would
reduce the Company's revenues and ability to make distributions. A property can
also be adversely affected either through physical contamination or by virtue of
an adverse effect upon value attributable to the migration of hazardous or toxic
substances, or other contaminants that have or may have emanated from other
properties. Although the Company's tenants are primarily responsible for any
environmental damages and claims related to the leased premises, in the event of
the bankruptcy or inability of the tenant of such premises to satisfy any
obligations with respect thereto, the Company may be required to satisfy such
obligations. In addition, under certain environmental laws, the Company, as the
owner of such properties, may be held directly liable for any such damages or
claims irrespective of the provisions of any lease.
From time to time, in connection with the conduct of the Company's
business, and prior to the acquisition of any property from a third party or as
required by the Company's financing sources, the Company authorizes the
preparation of Phase I environmental reports and, when necessary, Phase II
environmental reports, with respect to its properties. Based upon such
environmental reports and management's ongoing
5
<PAGE> 16
review of its properties, as of the date of this Prospectus, management was not
aware of any environmental condition with respect to any of the Company's
properties which management believed would be reasonably likely to have a
material adverse effect on the Company. There can be no assurance, however, that
(i) the discovery of environmental conditions, the existence or severity of
which were previously unknown, (ii) changes in law, (iii) the conduct of tenants
or (iv) activities relating to properties in the vicinity of the Company's
properties will not expose the Company to material liability in the future.
Changes in laws increasing the potential liability for environmental conditions
existing on properties or increasing the restrictions on discharges or other
conditions may result in significant unanticipated expenditures or may otherwise
adversely affect the operations of the Company's tenants, which could adversely
affect the Company's financial condition or results of operations.
Uninsured Loss. The Company carries comprehensive liability, fire,
extended coverage and rental loss insurance covering all of its properties, with
policy specifications and insured limits customarily carried for similar
properties. There are, however, certain types of losses (such as due to wars or
acts of God) that generally are not insured because they are either uninsurable
or not economically insurable. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose capital invested in a property, as
well as the anticipated future revenues from a property, while remaining
obligated for any mortgage indebtedness or other financial obligations related
to the property. Any such loss would adversely affect the financial condition of
the Company. Management believes that the Company's properties are adequately
insured in accordance with industry standards.
Adverse Effects of Changes in Market Interest Rates. The trading prices of
equity securities issued by REITs have historically been affected by changes in
broader market interest rates, with increases in interest rates resulting in
decreases in trading prices, and decreases in interest rates resulting in
increases in such trading prices. An increase in market interest rates could
therefore adversely affect the trading prices of any equity Securities issued by
the Company.
Competition. The real estate industry is highly competitive. The Company's
principal competitors include national REITs, many of which are substantially
larger and have substantially greater financial resources than the Company.
Failure to Qualify as a REIT. Management believes that the Company has met
the requirements for qualification as a REIT for federal income tax purposes
beginning with its taxable year ended December 31, 1993 and intends to continue
to meet such requirements in the future. However, qualification as a REIT
involves the application of highly technical and complex provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), for which there are only
limited judicial or administrative interpretations. No assurance can be given
that the Company has qualified or will remain qualified as a REIT. The Code
provisions and income tax regulations applicable to REITs are more complex than
those applicable to corporate forms. The determination of various factual
matters and circumstances not entirely within the Company's control may affect
its ability to qualify as a REIT. In addition, no assurance can be given that
legislation, regulations, administrative interpretations or court decisions will
not significantly change the requirements for qualification as a REIT or the
federal income tax consequences of such qualification. If the Company does not
qualify as a REIT, the Company would not be allowed a deduction for
distributions to stockholders in computing its income subject to tax at the
regular corporate rates. The Company also could be disqualified from treatment
as a REIT for the four taxable years following the year during which
qualification was lost. Funds available for distribution to the Company's
stockholders would be significantly reduced for each year in which the Company
does not qualify as a REIT. Although the Company currently intends to continue
to qualify as a REIT, it is possible that future economic, market, legal, tax or
other considerations may cause the Company, without the consent of the
stockholders, to revoke the REIT election or to otherwise take action that would
result in disqualification.
6
<PAGE> 17
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of Securities for general
corporate purposes, which may include the acquisition of additional properties,
the repayment of outstanding indebtedness or the improvement of certain
properties already in the Company's portfolio.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the years ended 1995,
1994, 1993, 1992 and 1991 were 1.31, 1.49, 1.40, 1.45 and 1.58, respectively.
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, earnings consist of pre-tax income from
continued operations plus fixed charges (excluding capitalized interest). Fixed
charges consist of interest expense and the amortization of debt issuance costs.
To date, the Company has not issued any Preferred Stock; therefore, the ratios
of earnings to combined fixed charges and preferred stock dividend requirements
are the same as the ratios of earnings to fixed charges presented above.
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DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities will be direct obligations of the Company, which may be
secured or unsecured and may be either senior Debt Securities ("Senior
Securities") or subordinated Debt Securities ("Subordinated Securities"). The
Debt Securities will be issued under one or more indentures in the form filed as
an exhibit to the Registration Statement of which this Prospectus is a part (the
"Form of Indenture"). As provided in the Form of Indenture, the specific terms
of any Debt Security issued pursuant to an indenture will be set forth in one or
more Supplemental Indentures, each dated as of a date of or prior to the
issuance of the Debt Securities to which it relates (the "Supplemental
Indentures" and each a "Supplemental Indenture"). Senior Securities and
Subordinated Securities may be issued pursuant to separate indentures
(respectively, a "Senior Indenture" and a "Subordinated Indenture"), in each
case between the Company and a trustee (a "Trustee"), which may be the same
Trustee, subject to such amendments or supplements as may be adopted from time
to time. The Senior Indenture and the Subordinated Indenture, as amended or
supplemented from time to time, are sometimes hereinafter referred to
collectively as the "Indentures." The Indentures will be subject to and governed
by the Trust Indenture Act of 1939, as amended. The statements made under this
heading relating to the Debt Securities and the Indentures are summaries of the
provisions thereof, do not purport to be complete and are qualified in their
entirety by reference to the Indentures and such Debt Securities.
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the applicable Indenture.
TERMS
The indebtedness represented by the Senior Securities will rank equally
with all other unsecured and unsubordinated indebtedness of the Company. The
indebtedness represented by Subordinated Securities will be subordinated in
right of payment to the prior payment in full of the Senior Debt of the Company
as described under "-- Subordination." The particular terms of the Debt
Securities offered by a Prospectus Supplement will be described in the
applicable Prospectus Supplement, along with any applicable federal income tax
considerations unique to such Debt Securities. Accordingly, for a description of
the terms of any series of Debt Securities, reference must be made to both the
Prospectus Supplement relating thereto and the description of the Debt
Securities set forth in this Prospectus.
Except as set forth in any Prospectus Supplement, the Debt Securities may
be issued without limits as to aggregate principal amount, in one or more
series, in each case as established from time to time by the Company or as set
forth in the applicable Indenture or in one or more Supplemental Indentures. All
Debt Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
of the Debt Securities of such series, for issuance of additional Debt
Securities of such series.
The Form of Indenture provides that the Company may, but need not,
designate more than one Trustee thereunder, each with respect to one or more
series of Debt Securities. Any Trustee under an Indenture may resign or be
removed with respect to one or more series of Debt Securities and a successor
Trustee may be appointed to act with respect to such series. If two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the applicable
Indenture separate and apart from the trust administered by any other Trustee,
and, except as otherwise indicated herein, any action described herein to be
taken by each Trustee may be taken by each such Trustee with respect to, and
only with respect to, the one or more series of Debt Securities for which it is
Trustee under the applicable Indenture.
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The following summaries set forth certain general terms and provisions of
the Indentures and the Debt Securities. The Prospectus Supplement relating to
the series of Debt Securities being offered will contain further terms of such
Debt Securities, including the following specific terms:
(1) The title of such Debt Securities and whether such Debt Securities
are secured or unsecured or Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) The price (expressed as a percentage of the principal amount
thereof) at which such Debt Securities will be issued and, if other than
the principal amount thereof, the portion of the principal amount thereof
payable upon declaration of the maturity thereof, or (if applicable) the
portion of the principal amount of such Debt Securities that is convertible
into Common Stock or Preferred Stock, or the method by which any such
portion shall be determined;
(4) If convertible, the terms on which such Debt Securities are
convertible, including the initial conversion price or rate and the
conversion period and any applicable limitations on the ownership or
transferability of the Common Stock or Preferred Stock receivable on
conversion;
(5) The date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(7) The date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the dates on which any
such interest will be payable, the record dates for such interest payment
dates, or the method by which such dates shall be determined, the persons
to whom such interest shall be payable, and the basis upon which interest
shall be calculated if other than that of a 360-day year of twelve 30-day
months;
(8) The place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, where such
Debt Securities may be surrendered for conversion or registration of
transfer or exchange and where notices or demands to or upon the Company
with respect to such Debt Securities and the applicable Indenture may be
served;
(9) The period or periods, if any, within which, the price or prices
at which and the other terms and conditions upon which such Debt Securities
may, pursuant to any optional or mandatory redemption provisions, be
redeemed, as a whole or in part, at the option of the Company;
(10) The obligation, if any, of the Company to redeem, repay or
purchase such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a holder thereof, and the period or periods
within which, the price or prices at which and the other terms and
conditions upon which such Debt Securities will be redeemed, repaid or
purchased, as a whole or in part, pursuant to such obligation;
(11) If other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not, be based on a currency, currencies, currency unit
or units, or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) Whether such Debt Securities will be issued in certificated or
book-entry form and, if so, the identity of the depository for such Debt
Securities;
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<PAGE> 20
(14) Whether such Debt Securities will be in registered or bearer form
or both and, if in registered form, the denominations thereof if other than
$1,000 and any integral multiple thereof and, if in bearer form, the
denominations thereof and terms and conditions relating thereto;
(15) The applicability, if any, of the defeasance and covenant
defeasance provisions described herein or set forth in the applicable
Indenture, or any modification thereof;
(16) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have
the option to redeem such Debt Securities in lieu of making such payment;
(17) Any deletions from, modifications of or additions to the events
of default or covenants of the Company, to the extent different from those
described herein or set forth in the applicable Indenture with respect to
such Debt Securities, and any change in the right of any Trustee or any of
the holders to declare the principal amount of any of such Debt Securities
due and payable;
(18) The provisions, if any, relating to the security provided for
such Debt Securities; and
(19) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture.
If so provided in the applicable Prospectus Supplement, the Debt Securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities"). In
such cases, any special U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
Except as may be set forth in any Prospectus Supplement, neither the Debt
Securities nor the Indenture will contain any provisions that would limit the
ability of the Company to incur indebtedness or that would afford holders of
Debt Securities protection in the event of a highly leveraged or similar
transaction involving the Company or in the event of a change of control,
regardless of whether such indebtedness, transaction or change of control is
initiated or supported by the Company, any affiliate of the Company or any other
party. However, certain restrictions on ownership and transfers of the Common
Stock and Preferred Stock are designed to preserve its status as a REIT and,
therefore, may act to prevent or hinder a change of control. See "Restrictions
on Transfers of Capital Stock and Anti-Takeover Provisions." Reference is made
to the applicable Prospectus Supplement for information with respect to any
deletions from, modifications of, or additions to, the events of default or
covenants of the Company that are described below, including any addition of a
covenant or other provision providing event risk or similar protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the corporate trust office of the applicable
Trustee, the address of which will be stated in the applicable Prospectus
Supplement; provided, however, that, at the option of the Company, payment of
interest may be made by check mailed to the address of the person entitled
thereto as it appears in the applicable register for such Debt Securities or by
wire transfer of funds to such person at an account maintained within the United
States.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for any
authorized denomination of other Debt Securities of the same series and of a
like aggregate principal amount and tenor upon surrender of such Debt Securities
at the corporate trust office of the applicable Trustee or at the office of any
transfer agent designated by the Company for such purpose. In addition, subject
to certain limitations imposed upon Debt Securities issued in book-entry form,
the Debt Securities of any series may be surrendered for conversion or
registration of transfer or exchange thereof at the corporate trust office of
the applicable Trustee or at the office of any transfer agent
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<PAGE> 21
designated by the Company for such purpose. Every Debt Security surrendered for
conversion, registration of transfer or exchange must be duly endorsed or
accompanied by a written instrument of transfer, and the person requesting such
action must provide evidence of title and identity satisfactory to the
applicable Trustee or transfer agent. No service charge will be made for any
registration of transfer or exchange of any Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. If the applicable Prospectus Supplement
refers to any transfer agent (in addition to the applicable Trustee) initially
designated by the Company with respect to any series of Debt Securities, the
Company may at any time rescind the designation of any such transfer agent or
approve a change in the location through which any such transfer agent acts,
except that the Company will be required to maintain a transfer agent in each
place of payment for such series. The Company may at any time designate
additional transfer agents with respect to any series of Debt Securities.
Neither the Company nor any Trustee shall be required (i) to issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before the day of mailing of
a notice of redemption of any Debt Securities that may be selected for
redemption and ending at the close of business on the day of such mailing; (ii)
to register the transfer of or exchange any Debt Security, or portion thereof,
so selected for redemption, in whole or in part, except the unredeemed portion
of any Debt Security being redeemed in part; or (iii) to issue, register the
transfer of or exchange any Debt Security that has been surrendered for
repayment at the option of the holder, except the portion, if any, of such Debt
Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indentures will provide that the Company may, without the consent of
the holders of any outstanding Debt Securities, consolidate with, or sell, lease
or convey all or substantially all of its assets to, or merge with or into, any
other entity provided that (a) either the Company shall be the continuing
entity, or the successor entity (if other than the Company) formed by or
resulting from any such consolidation or merger or which shall have received the
transfer of such assets, is organized under the laws of any domestic
jurisdiction and assumes the Company's obligations to pay principal of (and
premium, if any) and interest on all of the Debt Securities and the due and
punctual performance and observance of all of the covenants and conditions
contained in each Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness that becomes an obligation of the
Company or any subsidiary as a result thereof as having been incurred by the
Company or such subsidiary at the time of such transaction, no event of default
under the Indentures, and no event which, after notice or the lapse of time, or
both, would become such an event of default, shall have occurred and be
continuing; and (c) an officers' certificate and legal opinion covering such
conditions shall be delivered to each Trustee.
CERTAIN COVENANTS
Existence. Except as permitted under "-- Merger, Consolidation or Sale of
Assets," the Indentures will require the Company to do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence, rights (by articles of incorporation, by-laws and statute) and
franchises; provided, however, that the Company will not be required to preserve
any right or franchise if its Board of Directors determines that the
preservation thereof is no longer desirable in the conduct of its business by
appropriate proceedings.
Maintenance of Properties. The Indentures will require the Company to
cause all of its material properties used or useful in the conduct of its
business or the business of any subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that the
Company and its subsidiaries shall not be prevented from selling or otherwise
disposing of their properties for value in the ordinary course of business.
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Insurance. The Indentures will require the Company to cause each of its
and its subsidiaries' insurable properties to be insured against loss or damage
with insurers of recognized responsibility and, if described in the applicable
Prospectus Supplement, having a specified rating from a recognized insurance
rating service, in such amounts and covering all such risks as shall be
customary in the industry in accordance with prevailing market conditions and
availability.
Payment of Taxes and Other Claims. The Indentures will require the Company
to pay or discharge or cause to be paid or discharged, before the same shall
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any subsidiary or upon the income, profits or property of the
Company or any subsidiary and (ii) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith.
Provision of Financial Information. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Indentures will require the
Company, within 15 days of each of the respective dates by which the Company
would have been required to file annual reports, quarterly reports and other
documents with the Commission if the Company were so subject, (i) to transmit by
mail to all holders of Debt Securities, as their names and addresses appear in
the applicable register for such Debt Securities, without cost to such holders,
copies of the annual reports, quarterly reports and other documents that the
Company would have been required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act if the Company were subject to such Sections,
(ii) to file with the applicable Trustee copies of the annual reports, quarterly
reports and other documents that the Company would have been required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the
Company were subject to such Sections and (iii) to supply, promptly upon written
request and payment of the reasonable cost of duplication and delivery, copies
of such documents to any prospective holder.
Additional Covenants. Any additional covenants of the Company with respect
to any series of Debt Securities will be set forth in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Prospectus Supplement, each
Indenture will provide that the following events are "Events of Default" with
respect to any series of Debt Securities issued thereunder: (i) default for 30
days in the payment of any installment of interest on any Debt Security of such
series; (ii) default in the payment of principal of (or premium, if any, on) any
Debt Security of such series at its maturity; (iii) default in making any
sinking fund payment as required for any Debt Security of such series; (iv)
default in the performance or breach of any other covenant or warranty of the
Company contained in the Indenture (other than a covenant added to the Indenture
solely for the benefit of a series of Debt Securities issued thereunder other
than such series), continued for 60 days after written notice as provided in the
applicable Indenture; (v) a default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company or any of its
subsidiaries (including obligations under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting principles
but not including any indebtedness or obligations for which recourse is limited
to property purchased) in an aggregate principal amount in excess of $10,000,000
or under any mortgage, indenture or instrument under which there may be issued
or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company or any its subsidiaries (including such leases, but not
including such indebtedness or obligations for which recourse is limited to
property purchased) in an aggregate principal amount in excess of $10,000,000,
whether such indebtedness exists on the date of such Indenture or shall
thereafter be created, with such obligations being accelerated and not rescinded
or annulled; (vi) certain events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee of the Company or any
Significant Subsidiary of the Company; and (vii) any other event of default
provided with respect to a particular series of Debt Securities. The term
"Significant Subsidiary" has the meaning ascribed to such term in Regulation S-X
promulgated under the Securities Act.
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<PAGE> 23
If an event of default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the holders of not less than 25% in
principal amount of the Debt Securities of that series will have the right to
declare the principal amount (or, if the Debt Securities of that series are
Original Issue Discount Securities or indexed securities, such portion of the
principal amount as may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Trustee if given by the holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then outstanding under
any Indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the applicable Trustee,
the holders of not less than a majority in principal amount of outstanding Debt
Securities of such series (or of all Debt Securities then outstanding under the
applicable Indenture, as the case may be) may rescind and annul such declaration
and its consequences if (i) the Company shall have deposited with the applicable
Trustee all required payments of the principal of (and premium, if any) and
interest on the Debt Securities of such series (or of all Debt Securities than
outstanding under the applicable Indenture, as the case may be), plus certain
fees, expenses, disbursements and advances of the applicable Trustee and (ii)
all events of default, other than the non-payment of accelerated principal (or
specified portion thereof), with respect to Debt Securities of such series (or
of all Debt Securities then outstanding under the applicable Indenture, as the
case may be) have been cured or waived as provided in such Indenture. The
Indentures will also provide that the holders of not less than a majority in
principal amount of the outstanding Debt Securities of any series (or of all
Debt Securities then outstanding under the applicable Indenture, as the case may
be) may waive any past default with respect to such series and its consequences,
except a default (x) in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series or (y) in respect of a covenant or
provision contained in the applicable Indenture that cannot be modified or
amended without the consent of the holder of each outstanding Debt Security
affected thereby.
The Indentures will require each Trustee to give notice to the holders of
Debt Securities within 90 days of a default under the applicable Indenture
unless such default shall have been cured or waived; provided, however, that
such Trustee may withhold notice to the holders of any series of Debt Securities
of any default with respect to such series (except a default in the payment of
the principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect to any Debt
Security of such series) if specified responsible officers of such Trustee
consider such withholding to be in the interest of such holders.
The Indentures will provide that no holder of Debt Securities of any series
may institute any proceeding, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the case of failure of the
applicable Trustee, for 60 days, to act after it has received a written request
to institute proceedings in respect of an event of default from the holders of
not less than 25% in principal amount of the outstanding Debt Securities of such
series, as well as an offer of indemnity reasonably satisfactory to it. This
provision will not prevent, however, any holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof.
The Indentures will provide that, subject to provisions in each Indenture
relating to its duties in case of default, a Trustee will be under no obligation
to exercise any of its rights or powers under an Indenture at the request or
direction of any holders of any series of Debt Securities then outstanding under
such Indenture, unless such holders shall have offered to the Trustee thereunder
reasonable security or indemnity. The holders of not less than a majority in
principal amount of the outstanding Debt Securities of any series (or of all
Debt Securities then outstanding under an Indenture, as the case may be) shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the applicable Trustee, or of exercising any trust
or power conferred upon such Trustee. However, a Trustee may refuse to follow
any direction which is in conflict with any law or the applicable Indenture,
which may involve such Trustee in personal liability or which may be unduly
prejudicial to the holders of Debt Securities of such series not joining
therein.
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers of the Company, stating whether or not such
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<PAGE> 24
officer has knowledge of any default under the applicable Indenture and, if so,
specifying each such default and the nature and status thereof.
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding Debt Securities issued under such Indenture affected
by such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the holder of each such Debt Security
affected thereby, (i) change the stated maturity of the principal of, or any
installment of interest (or premium, if any) on, any such Debt Security; (ii)
reduce the principal amount of, or the rate or amount of interest on, or any
premium payable on redemption of, any such Debt Security, or reduce the amount
of principal of an Original Issue Discount Security that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the holder
of any such Debt Security; (iii) change the place of payment, or the coin or
currency, for payment of principal of, premium, if any, or interest on any such
Debt Security; (iv) impair the right to institute suit for the enforcement of
any payment on or with respect to any such Debt Security; (v) reduce the
above-stated percentage of outstanding Debt Securities of any series necessary
to modify or amend the applicable Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the applicable Indenture; or (vi)
modify any of the foregoing provisions or any of the provisions relating to the
waiver of certain past defaults or certain covenants, except to increase the
required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the holder of
such Debt Security.
The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of each series may, on behalf of all holders of Debt Securities
of that series, waive, insofar as that series is concerned, compliance by the
Company with certain restrictive covenants of the applicable Indenture.
Modifications and amendments of an Indenture will be permitted to be made
by the Company and the respective Trustee thereunder without the consent of any
holder of Debt Securities for any of the following purposes: (i) to evidence the
succession of another person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in such Indenture; (iii) to add events of default for
the benefit of the holders of all or any series of Debt Securities; (iv) to add
or change any provisions of an Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form; provided that
such action shall not adversely affect the interest of the holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate any
provisions of an Indenture; provided that any such change or elimination shall
be effective only when there are no Debt Securities outstanding of any series
created prior thereto which are entitled to the benefit of such provision; (vi)
to secure the Debt Securities; (vii) to establish the form or terms of Debt
Securities of any series, including the provisions and procedures, if
applicable, for the conversion of such Debt Securities into Common Stock or
Preferred Stock; (viii) to provide for the acceptance of appointment by a
successor Trustee or facilitate the administration of the trusts under an
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in an Indenture; provided that such action shall not adversely
affect the interests of holders of Debt Securities of any series issued under
such Indenture; or (x) to supplement any of the provisions of an Indenture to
the extent necessary to permit or facilitate defeasance and discharge of any
series of such Debt Securities; provided that such action shall not adversely
affect the interests of the holders of the outstanding Debt Securities of any
series.
The Indentures will provide that, in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination
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<PAGE> 25
upon declaration of acceleration of the maturity thereof, (ii) the principal
amount of any Debt Security denominated in a foreign currency that shall be
deemed outstanding shall be the U.S. dollar equivalent, determined on the issue
date for such Debt Security, of the principal amount (or, in the case of an
Original Issue Discount Security, the U.S. dollar equivalent on the issue date
of such Debt Security of the amount determined as provided in (i) above), (iii)
the principal amount of an indexed security that shall be deemed outstanding
shall be the principal face amount of such indexed security at original
issuance, unless otherwise provided with respect to such indexed security
pursuant to such Indenture, and (iv) Debt Securities owned by the Company or any
other obligor upon the Debt Securities or any affiliate of the Company or of
such other obligor shall be disregarded.
The Indentures will contain provisions for convening meetings of the
holders of Debt Securities of a series issued thereunder. A meeting may be
called at any time by the applicable Trustee, and also, upon request, by the
Company or the holder of at least 25% in principal amount of the outstanding
Debt Securities of such series, in any such case upon notice given as provided
in such Indenture. Except for any consent that must be given by the holder of
each Debt Security affected by certain modifications and amendments of an
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the outstanding Debt
Securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
holders of a specified percentage, which is less than a majority, in principal
amount of the outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the outstanding Debt Securities of that series. Any resolution passed or
decision taken at any meeting of holders of Debt Securities of any series duly
held in accordance with an Indenture will be binding on all holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the holders of
not less than a specified percentage in principal amount of the outstanding Debt
Securities of a series, the persons holding or representing such specified
percentage in principal amount of the outstanding Debt Securities of such series
will constitute a quorum.
Notwithstanding the foregoing provisions, the Indentures will provide that
if any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or of the holders of
such series and one or more additional series; (i) there shall be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture.
SUBORDINATION
Unless otherwise provided in the applicable Prospectus Supplement,
Subordinated Securities will be subject to the following subordination
provisions.
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
any Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Debt (as defined below), but the obligation of the Company to make
payments of the principal of and interest on such Subordinated Securities will
not otherwise be affected. No payment of principal or interest will be permitted
to be made on Subordinated Securities at any time if a default on Senior Debt
exists that permits the holders of such Senior Debt to accelerate its maturity
and the default is the subject of judicial proceedings or the Company receives
notice of the default. After all Senior debt is paid in full and until the
Subordinated
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Securities are paid in full, holders will be subrogated to the rights of holders
of Senior Debt to the extent that distributions otherwise payable to holders
have been applied to the payment of Senior Debt. The Subordinated Indenture will
not restrict the amount of Senior Indebtedness or other indebtedness of the
Company and its subsidiaries. As a result of these subordination provisions, in
the event of a distribution of assets upon insolvency, holders of Subordinated
Indebtedness may recover less, ratably, than senior creditors of the Company.
Senior Debt will be defined in the applicable Indenture as the principal of
and interest on, or substantially similar payments to be made by the Company in
respect of, the following, whether outstanding at the date of execution of the
applicable Indenture or thereafter incurred, created or assumed: (i)
indebtedness of the Company for money borrowed or represented by purchase-money
obligations, (ii) indebtedness of the Company evidenced by notes, debentures, or
bonds, or other securities issued under the provisions of an indenture, fiscal
agency agreement or other agreement, (iii) obligations of the Company as lessee
under leases of property either made as part of any sale and leaseback
transaction to which the Company is a party or otherwise, (iv) indebtedness of
partnerships and joint ventures which is included in the consolidated financial
statements of the Company, (v) indebtedness, obligations and liabilities of
others in respect of which the Company is liable contingently or otherwise to
pay or advance money or property or as guarantor, endorser or otherwise or which
the Company has agreed to purchase or otherwise acquire, and (vi) any binding
commitment of the real estate investment, in each case other than (a) any such
indebtedness, obligation or liability referred to in clauses (i) through (vi)
above as to which, in the instrument creating or evidencing the same pursuant to
which the same is outstanding, it is provided that such indebtedness, obligation
or liability is not superior in right of payment to the Subordinated Securities
or ranks pari passu with the Subordinated Securities, (b) any such indebtedness,
obligation or liability which is subordinated to indebtedness of the Company to
substantially the same extent as or to a greater extent than the Subordinated
Securities are subordinated, and (c) the Subordinated Securities. There will not
be any restriction in any Indenture relating to Subordinated Securities upon the
creation of additional Senior Debt.
If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Debt outstanding as of the end of the Company's most recent
fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company will be permitted, at its option, to discharge certain obligations to
holders of any series of Debt Securities issued under any Indenture that have
not already been delivered to the applicable Trustee for cancellation and that
either have become due and payable or will become due and payable within one
year (or scheduled for redemption within one year) by irrevocably depositing
with the applicable Trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness on
such Debt Securities with respect to principal (and premium, if any) and
interest to the date of such deposit (if such Debt Securities have become due
and payable) or to the stated maturity or redemption date, as the case may be.
The Indentures will provide that, unless otherwise indicated in the
applicable Prospectus Supplement, the Company may elect either (i) to defease
and be discharged from any and all obligations (except for the obligation to pay
additional amounts, if any, upon the occurrence of certain events of tax
assessment or governmental charge with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of such Debt Securities,
to hold moneys for payment in trust and, with respect to Subordinated Debt
Securities which are convertible or exchangeable, the right to convert or
exchange) with respect to such Debt Securities ("defeasance") or (ii) to be
released from its obligations with respect to such Debt Securities under the
applicable Indenture (being the restrictions described under "-- Certain
Covenants") or, if provided in the applicable Prospectus Supplement, its
obligations with respect to any other covenant, and any omission to comply with
such obligations shall not constitute an event of default with respect to such
Debt Securities ("covenant defeasance"), in either case
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upon the irrevocable deposit by the Company with the applicable Trustee, in
trust, of an amount, in such currency or currencies, currency unit or units or
composite currency or currencies in which such Debt Securities are payable at
stated maturity, or Government Obligations (as defined below), or both,
applicable to such Debt Securities, which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any) and interest on
such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
holders of such Debt Securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such opinion of counsel,
in the case of defeasance, will be required to refer to and be based upon a
ruling received from or published by the Internal Revenue Service or a change in
applicable United States federal income tax law occurring after the date of the
Indenture. In the event of such defeasance, the holders of such Debt Securities
would thereafter be able to look only to such trust fund for payment of
principal (and premium, if any) and interest.
"Government Obligations" means securities that are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt; provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(i) the holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the applicable Indenture or the terms of such Debt Security to
receive payment in a currency, currency unit or composite currency other than
that in which such deposit has been made in respect of such Debt Security, or
(ii) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which such deposit has been made, the
indebtedness represented by such Debt Security will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or such
cessation of usage based on the applicable market exchange rate. "Conversion
Event" means the cessation of use of (a) a currency, currency unit or composite
currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (b) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the European Communities or (c) any currency
unit or composite currency other than the ECU for the purposes for which it was
established. Unless otherwise provided in the applicable Prospectus Supplement,
all payments of principal of (and premium, if any) and interest on any Debt
Security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. dollars.
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If the Company effects covenant defeasance with respect to any Debt
Securities and such Debt Securities are declared due and payable because of the
occurrence of any event of default other than the event of default described in
clause (iv) under "-- Events of Default, Notice and Waiver" with respect to
specified sections of an Indenture (which sections would no longer be applicable
to such Debt Securities) or described in clause (vii) under "-- Events of
Default, Notice and Waiver" with respect to any other covenant as to which there
has been covenant defeasance, the amount in such currency, currency unit or
composite currency in which such Debt Securities are payable, and Government
Obligations on deposit with the applicable Trustee, will be sufficient to pay
amounts due on such Debt Securities at the time of their stated maturity but may
not be sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such event of default. However, the Company would
remain liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into shares of Common Stock or
Preferred Stock, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the holders or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of such
Debt Securities and any restrictions on conversion, including restrictions
directed at maintaining the Company's REIT status.
PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the corporate trust office of the Trustee, the
address of which will be stated in the applicable Prospectus Supplement;
provided that, at the option of the Company, payment of interest may be made by
check mailed to the address of the person entitled thereto as it appears in the
applicable register for such Debt Securities or by wire transfer of funds to
such person at an account maintained within the United States.
All moneys paid by the Company to a paying agent or a Trustee for the
payment of the principal of or any premium or interest on any Debt Security
which remain unclaimed at the end of one year after such principal, premium or
interest has become due and payable will be repaid to the Company, and the
holder of such Debt Security thereafter may look only to the Company for payment
thereof.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such series.
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DESCRIPTION OF PREFERRED STOCK
The description of the Company's preferred stock, par value $.0001 per
share ("Preferred Stock"), set forth below does not purport to be complete and
is qualified in its entirety by reference to the Company's Articles of
Incorporation and Amended Bylaws (the "Bylaws").
GENERAL
Under the Articles of Incorporation, the Company has authority to issue
10,000,000 shares of Preferred Stock, none of which was outstanding as of the
date of this Prospectus. Shares of Preferred Stock may be issued from time to
time, in one or more series, as authorized by the Board of Directors of the
Company. Prior to issuance of shares of each series, the Board of Directors is
required by the Maryland General Corporation Law ("MGCL") and the Company's
Articles of Incorporation to fix for each series, subject to the provisions of
the Company's Articles of Incorporation regarding excess stock, $.0001 par value
per share ("Excess Stock"), the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption, as are permitted by
Maryland law. The Preferred Stock will, when issued against payment therefor, be
fully paid and nonassessable and will not be subject to preemptive rights. The
Board of Directors could authorize the issuance of shares of Preferred Stock
with terms and conditions that could have the effect of discouraging a takeover
or other transaction that holders of Common Stock might believe to be in their
best interests or in which holders of some, or a majority, of the shares of
Common Stock might receive a premium for their shares over the then market price
of such shares of Common Stock.
TERMS
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Articles of Incorporation and Bylaws and
any applicable amendment to the Articles of Incorporation designating terms of a
series of Preferred Stock (a "Designating Amendment").
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(5) The provision for a sinking fund, if any, for such Preferred
Stock;
(6) The provision for redemption, if applicable, of such Preferred
Stock;
(7) Any listing of such Preferred Stock on any securities exchange;
(8) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock, including the conversion price
(or manner of calculation thereof);
(9) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(10) A discussion of federal income tax considerations applicable to
such Preferred Stock;
(11) The relative ranking and preference of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding-up of
the affairs of the Company;
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(12) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding-up of
the affairs of the Company; and
(13) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding-up of the Company, rank (i) senior to all classes or
series of Common Stock of the Company, and to all equity securities ranking
junior to such Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding-up of the Company, (ii) on a parity with all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank on a parity with the Preferred Stock with
respect to dividend rights or rights upon liquidation, dissolution or winding-up
of the Company; and (iii) junior to all equity securities issued by the Company
the terms of which specifically provide that such equity securities rank senior
to the Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding-up of the Company. The term "equity
securities" does not include convertible debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of the Company, out of assets
of the Company legally available for payment, cash dividends at such rates and
on such dates as will be set forth in the applicable Prospectus Supplement. Each
such dividend shall be payable to holders of record as they appear on the share
transfer books of the Company on such record dates as shall be fixed by the
Board of Directors of the Company.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are non-cumulative, then the holders of such
series of the Preferred Stock will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of the Company of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series for any period unless (i) if such series of
Preferred Stock has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for such payment on the Preferred Stock of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Stock does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for such payment on the Preferred Stock of such series. When
dividends are not paid in full (or a sum sufficient for such full payment is not
so set apart) upon Preferred Stock of any series and the shares of any other
series of Preferred Stock ranking on a parity as to dividends with the Preferred
Stock of such series, all dividends declared upon Preferred Stock of such series
and any other series of Preferred Stock ranking on a parity as to dividends with
such Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share of Preferred Stock of such series and such other series of
Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if such Preferred Stock does not have a cumulative dividend) and such
other series of Preferred Stock bear to each
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other. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on Preferred Stock of such series
which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
is set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Stock does not have a
cumulative dividend, full dividends on the Preferred Stock of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof is set apart for payment for the then current dividend
period, no dividends (other than in shares of Common Stock or other shares of
capital stock ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment nor shall any other distribution be declared or made upon the Common
Stock, or any other capital stock of the Company ranking junior to or on a
parity with the Preferred Stock of such series as to dividends or upon
liquidation, nor shall any shares of Common Stock, or any other shares of
capital stock of the Company ranking junior to or on a parity with the Preferred
Stock of such series as to dividends or upon liquidation be redeemed, purchased
or otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Company (except by conversion into or exchange for other capital stock of the
Company ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of shares of capital stock of the Company, the terms of
such Preferred Stock may provide that, if no such shares of capital stock shall
have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Stock shall automatically and mandatorily be converted into the
applicable shares of capital stock of the Company pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if a series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all shares of all such
series of Preferred Stock shall have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, and
(ii) if a series of Preferred Stock does not have a cumulative dividend, full
dividends on all shares of the Preferred Stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period, no
shares of such series of Preferred Stock shall be redeemed unless all
outstanding shares of Preferred Stock of such series are simultaneously
redeemed; provided, however, that the foregoing shall not prevent the purchase
or acquisition of Preferred Stock of such series to preserve the REIT status of
the Company or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding shares of Preferred Stock of such series. In
addition, unless (a) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on all outstanding shares of
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such series of Preferred Stock have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period, and
(b) if such series of Preferred Stock does not have a cumulative dividend, full
dividends on the Preferred Stock of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company shall
not purchase or otherwise acquire directly or indirectly any shares of Preferred
Stock of such series (except by conversion into or exchange for capital shares
of the Company ranking junior to the Preferred Stock of such series as to
dividends and upon liquidation); provided, however, that the foregoing shall not
prevent the purchase or acquisition of shares of Preferred Stock of such series
to preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding shares of Preferred
Stock of such series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares held
or for which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or by any other equitable manner determined by
the Company.
Notice of redemption will be mailed at least 15 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
of shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by the Company in trust for
the benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such
Preferred Stock, and all rights of the holders of such shares will terminate,
except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Stock or any other class or series of capital
stock of the Company ranking junior to the Preferred Stock in the distribution
of assets upon any liquidation, dissolution or winding-up of the Company, the
holders of each series of Preferred Stock shall be entitled to receive out of
assets of the Company legally available for distribution to stockholders
liquidating distributions in the amount of the liquidation preference per share,
if any, set forth in the applicable Prospectus Supplement, plus an amount equal
to all dividends accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid noncumulative dividends for prior dividend
periods). After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Preferred Stock will have no right or
claim to any of the remaining assets of the Company. In the event that, upon any
such voluntary or involuntary liquidation, dissolution or winding-up, the
available assets of the Company are insufficient to pay the amount of the
liquidating distributions on all outstanding shares of Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with the Preferred Stock in the
distribution of assets, then the holders of the Preferred Stock and all other
such classes or series of capital stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of capital stock ranking junior to
the Preferred Stock upon liquidation, dissolution or winding-up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the
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consolidation or merger of the Company with or into any other corporation, trust
or entity, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding-up of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock of a series remain outstanding, the Company will not,
without the affirmative vote or consent of the holders of a percentage to be
specified in the applicable Prospectus Supplement of the shares of such series
of Preferred Stock outstanding at the time, given in person or by proxy, either
in writing or at a meeting (such series voting separately as a class), (i)
authorize or create, or increase the authorized or issued amount of, any class
or series of capital stock ranking prior to such series of Preferred Stock with
respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding-up or reclassify any authorized capital stock of the
Company into such shares, or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any such shares;
or (ii) amend, alter or repeal the provisions of the Company's Articles of
Incorporation or the Designating Amendment for such series of Preferred Stock,
whether by merger, consolidation or otherwise (an "Event"), so as to materially
and adversely affect any right, preference, privilege or voting power of such
series of Preferred Stock or the holders thereof; provided, however, with
respect to the occurrence of any of the Events set forth in (ii) above, so long
as the Preferred Stock remains outstanding with the terms thereof materially
unchanged, taking into account that upon the occurrence of an Event the Company
may not be the surviving entity, the occurrence of any such Event shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting power of holders of Preferred Stock, and provided further that (x) any
increase in the amount of the authorized Preferred Stock or the creation or
issuance of any other series of Preferred Stock, or (y) any increase in the
amount of authorized shares of such series or any other series of Preferred
Stock, in each case ranking on a parity with or junior to the Preferred Stock of
such series with respect to payment of dividends or the distribution of assets
upon liquidation, dissolution or winding-up, shall not be deemed to materially
and adversely affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of shares of
Common Stock into which the shares of Preferred Stock are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year. To assist the Company in meeting this
requirement, the Company may take certain actions to limit the beneficial
ownership, directly or indirectly, by a single person of the Company's
outstanding equity securities, including any Preferred Stock of the Company.
Therefore, the Designating Amendment for each series of Preferred Stock may
contain provisions restricting
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the ownership and transfer of the Preferred Stock. The applicable Prospectus
Supplement will specify any additional ownership limitation relating to a series
of Preferred Stock. See "Restrictions on Transfers of Capital Stock and
Anti-Takeover Provisions."
TRANSFER AGENT
The transfer agent and registrar for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
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DESCRIPTION OF COMMON STOCK
The description of the Company's Common Stock set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Articles of Incorporation and Bylaws.
GENERAL
Under the Articles of Incorporation, the Company has authority to issue
40,000,000 shares of Common Stock, par value $.0001 per share. Under Maryland
law, stockholders generally are not responsible for a corporation's debts or
obligations. At May 15, 1996, the Company had outstanding 9,369,499 shares of
Common Stock.
TERMS
Subject to the preferential rights of any other shares or series of stock
and to the provisions of the Company's Articles of Incorporation regarding
Excess Stock, holders of shares of Common Stock are entitled to receive
dividends on shares of Common Stock if, as and when authorized and declared by
the Board of Directors of the Company 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 adequate provision for, all known debts and
liabilities of the Company and the amount to which holders of any class of stock
classified or reclassified or having a preference on distributions in
liquidation, dissolution or winding-up of the Company have a right.
Subject to the provisions of the Company's Articles of Incorporation
regarding Excess Stock, each outstanding share of Common Stock entitles the
holder to one vote on all matters submitted to a vote of stockholders, including
the election of Directors and, except as otherwise required by law or except as
provided with respect to any other class or series of stock, the holders of
Common Stock will possess the exclusive voting power. There is no cumulative
voting in the election of Directors, which means that the holders of a majority
of the outstanding shares of Common Stock can elect all of the Directors then
standing for election, and the holders of the remaining shares of Common Stock
will not be able to elect any Directors.
Holders of Common Stock have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company.
The Company furnishes its stockholders with annual reports containing
audited consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm and quarterly reports for the first three
quarters of each fiscal year containing unaudited financial information.
Subject to the provisions of the Company's Articles of Incorporation
regarding Excess Stock, all shares of Common Stock will have equal dividend,
distribution, liquidation and other rights, and will have no preference,
appraisal or exchange rights.
Pursuant to the MGCL, a corporation generally cannot dissolve, amend its
Articles of Incorporation, merge, 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 approved by the affirmative vote of
stockholders holding at least two-thirds of the shares entitled to vote on the
matter unless a lesser percentage (but not less than a majority of all of the
votes to be cast on the matter) is set forth in the corporation's Articles of
Incorporation. However, the Company's Articles of Incorporation provide that
such actions, with the exception of certain amendments to the Articles of
Incorporation for which a higher vote requirement has been set, shall be valid
and effective if authorized by holders of a majority of the total number of
shares of all classes outstanding and entitled to vote thereon.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year. To assist the Company in meeting this
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requirement, the Company may take certain actions to limit the beneficial
ownership, directly or indirectly, by a single person of the Company's
outstanding equity securities. See "Restrictions on Transfers of Capital Stock
and Anti-Takeover Provisions."
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Chemical Mellon
Shareholder Services.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK AND
ANTI-TAKEOVER PROVISIONS
Restrictions Relating to REIT Status
For the Company to qualify as a REIT under the Code, among other things,
not more than 50% in value of its outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (defined in the Code to
include certain entities) during the last half of a taxable year, and such
capital stock must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year (in each case, other than the first such year). To ensure
that the Company remains a qualified REIT, the Articles of Incorporation,
subject to certain exceptions, provide that no holder may own, or be deemed to
own by virtue of the attribution provisions of the Code, more than 9.8% (the
"Ownership Limit") of the Company's equity stock, defined as Common Stock or
Preferred Stock. The Board of Directors may waive the Ownership Limit if
evidence satisfactory to the Board of Directors and the Company's tax counsel is
presented that the changes in ownership will not then or in the future
jeopardize the Company's status as a REIT. Any transfer of equity stock or any
security convertible into equity stock that would create a direct or indirect
ownership of equity stock in excess of the Ownership Limit or that would result
in the disqualification of the Company as a REIT, including any transfer that
results in the equity stock being owned by fewer than 100 persons or results in
the Company being "closely held" within the meaning of Section 856(h) of the
Code, shall be null and void, and the intended transferee will acquire no rights
to the equity stock. The foregoing restrictions on transferability and ownership
will not apply if the Board of Directors determines that it is no longer in the
best interests of the Company to attempt to qualify, or to continue to qualify,
as a REIT.
Equity stock owned, or deemed to be owned, or transferred to a stockholder
in excess of the Ownership Limit, will automatically be exchanged for shares of
Excess Stock that will be transferred, by operation of law, to the Company as
trustee of a trust for the exclusive benefit of the transferees to whom such
capital stock may be ultimately transferred without violating the Ownership
Limit. While the Excess Stock is held in trust, it will not be entitled to vote,
it will not be considered for purposes of any stockholder vote or the
determination of a quorum for such vote and, except upon liquidation, it will
not be entitled to participate in dividends or other distributions. Any dividend
or distribution paid to a proposed transferee of Excess Stock prior to the
discovery by the Company that equity stock has been transferred in violation of
the provisions of the Company's Articles of Incorporation shall be repaid to the
Company upon demand. The Excess Stock is not treasury stock, but rather
constitutes a separate class of issued and outstanding stock of the Company. The
original transferee-stockholder may, at any time the Excess Stock is held by the
Company in trust, transfer the interest in the trust representing the Excess
Stock to any individual whose ownership of the equity stock exchanged into such
Excess Stock would be permitted under the Articles of Incorporation, at a price
not in excess of the price paid by the original transferee-stockholder for the
equity stock that was exchanged into Excess Stock, or, if the
transferee-stockholder did not give value for such equity stock, a price not in
excess of the market price (as determined in the manner set forth in the
Articles of Incorporation) on the date of the purported transfer. Immediately
upon the transfer to the permitted transferee, the Excess Stock will
automatically be exchanged for equity stock of the class from which it was
converted. If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
intended transferee of any Excess Stock may be deemed, at the option of the
Company, to have acted as an agent on behalf of the Company in acquiring the
Excess Stock and to hold the Excess Stock on behalf of the Company.
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In addition to the foregoing transfer restrictions, the Company will have
the right, for a period of 90 days during the time any Excess Stock is held by
the Company in trust, to purchase all or any portion of the Excess Stock from
the original transferee-stockholder for the lesser of the price paid for the
equity stock by the original transferee-stockholder or the market price (as
determined in the manner set forth in the Articles of Incorporation) of the
equity stock on the date the Company exercises its option to purchase. The
90-day period begins on the date on which the Company receives written notice of
the transfer or other event resulting in the exchange of equity stock for Excess
Stock.
Each stockholder shall upon demand be required to disclose to the Company
in writing any information with respect to the direct, indirect and constructive
ownership of beneficial interests as the Board of Directors deems necessary to
comply with the provisions of the Code applicable to REITs, to comply with the
requirements of any taxing authority or governmental agency or to determine any
such compliance.
This ownership limitation may have the effect of precluding acquisition of
control of the Company unless the Board of Directors determines that maintenance
of REIT status is no longer in the best interests of the Company.
Authorized Capital
The Company has an aggregate of 40,000,000 authorized shares of Common
Stock, 40,000,000 shares of Excess Stock and 10,000,000 undesignated shares of
Preferred Stock available for issuance in its Articles of Incorporation. The
actual numbers of shares of Common Stock outstanding and reserved for issuance
fall far below the number of authorized shares, and no shares of Excess Stock or
Preferred Stock are outstanding or reserved for issuance. Such shares (other
than reserved shares) may be issued from time to time by the Company in the
discretion of the Board to raise additional capital, acquire assets, including
additional real properties, redeem or retire debt or for any other business
purpose. In addition, the undesignated shares of Preferred Stock may be issued
in one or more additional classes with such designations, preferences and
relative, participating, optional or other special rights including, without
limitation, preferential dividend or voting rights, and rights upon liquidation,
as shall be fixed by the Board. Also, the Board of Directors is authorized to
classify and reclassify any unissued shares of capital stock by setting or
changing, in any one or more respects, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of stock. Such authority
includes, without limitation, subject to the provisions of the Articles of
Incorporation, authority to classify or reclassify any unissued shares of such
stock into a class or classes of preferred stock, preference stock, special
stock or other stock, and to divide and reclassify shares of any class into one
or more series of such class. In certain circumstances, the issuance of
Preferred Stock, or the exercise by the Board of such rights to classify or
reclassify stock, could have the effect of deterring individuals or entities
from making tender offers for the shares of Common Stock or seeking to change
incumbent management.
Maryland Corporation Law
The General Corporation Law of the State of Maryland includes certain other
provisions which may also discourage a change in control of management of the
Company. Maryland law provides that a Maryland corporation may not engage in any
"business combination" with any "interested stockholder." An "interested
stockholder" is defined, in essence, as any person owning beneficially, directly
or indirectly, 10% or more of the outstanding voting stock of a Maryland
corporation. Unless an exemption applies, the Company may not engage in any
business combination with an interested stockholder for a period of five years
after the interested stockholder became an interested stockholder, and
thereafter may not engage in a business combination unless it is recommended by
the Board and approved by the affirmative vote of at least (i) 80% of the votes
entitled to be cast by the holders of all outstanding voting stock of the
Company, and (ii) 66 2/3% of the votes entitled to be cast by all holders of
outstanding shares of voting stock other than voting stock held by the
interested stockholder. The voting requirements do not apply at any time to
business combinations with an interested stockholder or its affiliates if
approved by the Board prior to the time the interested stockholder first became
an interested stockholder. Additionally, if the business combination involves
the receipt of consideration by the
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stockholders in exchange for the Company's stock, the voting requirements do not
apply if certain "fair price" conditions are met.
Maryland law provides for the elimination of the voting rights of any
person who makes a Control Share Acquisition (as defined) except to the extent
that such acquisition is exempt or is approved by at least 66 2/3% of all votes
entitled to be cast on the matter, excluding shares of capital stock owned by
the acquirer or by officers or directors who are employees of the Company. A
control share acquisition ("Control Share Acquisition") is the direct or
indirect acquisition by any person of ownership of, or the power to direct the
exercise of voting power with respect to, shares of voting stock ("Control
Shares") that would, if aggregated with all other voting stock owned by such
person, entitle such person to exercise voting power in electing directors
within one of the following ranges of voting power: (i) 20% or more but less
than 33 1/3%; (ii) 33 1/3% or more but less than a majority; or (iii) a majority
of voting power. 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 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 Company may itself present the question
at any stockholder meeting. If voting rights are not approved at the meeting or
if the acquiring person does not deliver an acquiring person statement as
permitted by the statute, then, subject to certain conditions and limitations,
the Company 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 voting rights, as of the date of the last Control Share Acquisition or
of any meeting of stockholders at which the voting rights of such shares are
considered and not approved. If voting rights for Control Shares are approved at
a stockholders meeting and the acquirer becomes entitled to vote a majority of
the shares entitled to vote, all other stockholders may exercise appraisal
rights. The fair value of the stock as determined for purposes of such appraisal
rights may not be less than the highest price per share paid in the Control
Share Acquisition, and certain limitations and restrictions otherwise applicable
to the exercise of dissenters' rights do not apply in the context of a Control
Share Acquisition. The Control Share Acquisition statute does not apply to stock
acquired in a merger, consolidation or stock exchange if the Company is a party
to the transaction, or to acquisitions approved or exempted by the charter or
by-laws of the Company.
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FEDERAL INCOME TAX CONSIDERATIONS
TREATMENT OF THE COMPANY AS A REIT
General. The Company elected to be taxed as a REIT under Sections 856
through 860 of the Code effective for its taxable year ended December 31, 1993.
The Company believes that it was organized, and has operated, in such a manner
so as to qualify for taxation as a REIT under the Code and intends to conduct
its operations so as to qualify for taxation as a REIT. No assurance, however,
can be given that the Company has operated in a manner so as to qualify or will
be able to operate in such a manner so as to remain qualified as a REIT. The
following is a general summary of the requirements for qualification as a REIT
and the federal income tax treatment of a REIT and its stockholders.
Qualification and taxation as a REIT depends upon the Company's ability to meet,
through actual annual operating results, the required distribution levels,
diversity of stock ownership and the various qualification tests imposed under
the Code discussed below, the results of which will not be reviewed by Counsel.
Accordingly, no assurance can be given that the actual results of the Company's
operations for any one taxable year will satisfy such requirements.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a corporation. However, the Company will be subject to Federal
income tax as follows: first, the Company will be taxed at regular corporate
rates on any undistributed REIT taxable income, including undistributed net
capital gains. Second, under certain circumstances, the Company may be subject
to the "alternative minimum tax" on its items of tax preference. Third, if the
Company has (i) net income from the sale or other disposition of "foreclosure
property" which is held primarily for sale to customers in the ordinary course
of business or (ii) other nonqualifying 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 held primarily for sale to
customers in the ordinary course of business other than foreclosure property),
such income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy the 75% gross income test or the 95% gross income test (as discussed
below), but nonetheless has maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on an
amount equal to (a) the gross income attributable to the greater of the amount
by which the Company fails the 75% or 95% test multiplied by (b) a fraction
intended to reflect the Company's profitability. Sixth, if the Company should
fail to distribute during each calendar 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 would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
Requirements for Qualification. A REIT is a corporation, trust or
association (i) which is managed by one or more trustees or directors, (ii) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (iii) which would be taxable
as a domestic corporation, but for Sections 856 through 859 of the Code, (iv)
which 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, (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, by five or fewer individuals (as defined in the Code to include
certain entities), and (vii) which meets certain other tests, described below,
regarding the nature of its income and assets. 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.
The Company expects to meet the ownership test immediately after the transaction
contemplated herein. The Company may redeem, at its option, a sufficient number
of shares or restrict the transfer thereof to bring or maintain the ownership of
the shares in conformity with the requirements of the Code. See "Description of
Capital Stock" and "Restrictions on Transfers of Capital Stock and Anti-Takeover
Provisions."
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from
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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, dividends, interest and gain from the sale or disposition of stock
or securities. Third, short-term gain from the sale or other disposition of
stock or securities, gain from prohibited transactions and gain on the sale or
other disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received 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 must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or 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 an owner of 10% or more of the REIT, actually or
constructively owns 10% or more of such tenant (a "Related Party 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 such personal property will not
qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives no revenue.
The REIT may, however, directly perform certain services that are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant" of the property.
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 such year
if such failure was due to reasonable cause and not willful neglect, it
disclosed the nature and amounts of its items of gross income in a schedule
attached to its return, and any incorrect information on the schedule was not
due to fraud with intent to evade tax. A 100% penalty tax would be imposed on
the amount by which the Company failed the 75% or 95% test (whichever amount is
greater), less an amount which generally reflects expenses attributable to
earning the nonqualified income. No analogous relief is available for failure to
satisfy the 30% income test.
Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of business will be treated as income from a prohibited transaction that
is subject to a 100% penalty tax. Such prohibited transaction income may also
have an adverse effect upon the Company's ability to satisfy the income tests
for qualification as a REIT. Under existing law, whether property is held as
inventory or primarily for sale to customers in the ordinary course of a trade
or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction.
Asset Tests. The Company must also satisfy three tests relating to the
nature of its assets every quarter. First, at least 75% of the value of the
Company's total assets must be represented by real estate assets (including (i)
its allocable share of real estate assets held by partnerships in which the
Company owns an interest or held by "qualified REIT subsidiaries" (as defined in
the Code) of the Company and (ii) stock or debt instruments held for not more
than one year purchased with the proceeds of a stock offering or long-term (at
least five years) debt offering of the Company, cash, cash items and government
securities). Second, not more than 25% of the Company's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the Company's
total assets and the Company may not own more than 10% of any one issuer's
outstanding voting securities. The Company expects that substantially all of its
assets will consist of (i) real properties, (ii) stock or debt investments that
earn qualified temporary investment income, (iii) other qualified real estate
assets, and (iv) cash, cash items and government securities. The Company may
also invest in securities of other entities, provided that such
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investments will not prevent the Company from satisfying the asset and income
tests for REIT qualification set forth above.
If the Company inadvertently fails one or more of the asset tests at the
end of a calendar quarter, such a failure would not cause it to lose its REIT
status, provided that (i) it satisfied all of the asset tests at the close of a
preceding calendar quarter, and (ii) the discrepancy between the values of the
Company's assets and the standards imposed by the asset test either did not
exist immediately after the acquisition of any particular acquisition or was not
wholly partly caused by such an acquisition. If the condition described in
clause (ii) of the preceding sentence were not satisfied, the Company could
still avoid disqualification by eliminating any discrepancy within 30 days after
the close of the calendar quarter in which it arose.
Distribution Test. With respect to each taxable year, the Company must
distribute to its stockholders, an amount equal to the sum of (i) 95% of its
"REIT Taxable Income" (determined without regard to the deduction for dividends
paid and by excluding any net capital gain), and (ii) 95% of any after-tax net
income from foreclosure property, in each case less any "excess noncash income."
REIT Taxable Income is generally computed in the same manner as taxable income
of ordinary corporations, with several adjustments, such as a deduction allowed
for dividends paid, but not for dividends received. "Excess noncash income" is
the amount, if any, by which the sum of certain items of noncash income exceeds
5% of REIT Taxable Income for the taxable year (determined without regard to the
deduction for dividends paid and by excluding any net capital gain). These items
of noncash income for which relief from the distribution requirement is provided
are (i) the excess of amounts includible in gross income due to the operation of
Section 467 of the Code (relating to deferred rental agreements) over the
amounts that would have been includible without regard to such provision, (ii)
income from certain like-kind exchanges not eligible for tax-free treatment and
(iii) the amounts includible on gross income with respect to the amount that
original issue discount on purchase money debt obligations (but not other kinds
of original issue discount or market discount) exceed the amount of money and
fair market value of other property received during the taxable year under such
instruments.
To the extent that the Company does not distribute all of its net long-term
capital gain or distributes at least 95%, but less than 100%, of its REIT
Taxable Income, as adjusted, it will be subject to regular federal corporate
income tax (including any applicable alternative minimum tax) on such
undistributed net long-term capital gain or such undistributed REIT Taxable
Income. In addition, a nondeductible 4% excise tax is imposed on the excess of
(i) 85% of the Company's ordinary income for the year plus 95% of capital gain
net income for the year and the undistributed portion of the required
distribution for the prior year over (ii) the actual distribution to
stockholders during the year (if any). Net operating losses generated by the
Company may be carried forward but not carried back and used by the Company for
15 years to reduce REIT Taxable Income and the amount that the Company will be
required to distribute in order to remain qualified as a REIT. Net capital
losses of the Company may be carried forward for five years (but not carried
back) and used to reduce capital gains.
In general, a distribution must be made during the taxable year to which it
relates to satisfy the distribution test and to be deducted in computing REIT
Taxable Income. However, the Company may elect to treat a dividend declared and
paid after the end of the year (a "subsequent declared dividend") as paid during
such year for purposes of complying with the distribution test and computing
REIT Taxable Income, if the dividend is (i) declared before the regular or
extended due date of the Company's tax return for such year and (ii) paid not
later than the date of the first regular dividend payment made after the
declaration (but in no case later than 12 months after the end of the year). For
purposes of computing the 4% excise tax, a subsequent declared dividend is
considered paid when actually distributed. Furthermore, any dividend that is
declared by the Company in October, November of December of a calendar year, and
payable to stockholders of record as of a specified date in such month of such
year will be deemed to have been paid by the Company (and received by
stockholders) on December 31 of such calendar year, but only if such dividend is
actually paid by the Company in January of the following calendar year. For
purposes of complying with the distribution test for a taxable year as a result
of an adjustment in certain of its items of income, gain or deduction by the
IRS, the Company may be permitted to remedy such failure by paying a "deficiency
dividend" in a later year together with interest and a penalty. Such deficiency
dividend may be included in the Company's deduction of dividends paid for the
earlier year for purposes of satisfying the distribution test. For
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purposes of the 4% excise tax, the deficiency dividend is taken into account
when paid, and any income giving rise to the deficiency adjustment is treated as
arising when the deficiency dividend is paid.
The Company believes that it has distributed and intends to continue to
distribute to its stockholders an amount at least equal to 95% of the sum of (i)
its REIT Taxable Income (determined without regard to the deduction for
dividends paid and by excluding any net capital gains) and (ii) any after-tax
net income from foreclosure properties less any "excess noncash income," as
those amounts are determined in good faith by the Company or its independent
accountants. However, it is possible that timing differences between the accrual
of income and its actual collection, and the need to make deductible
expenditures (such as capital improvements or principal payments on debt) may
cause the Company to recognize taxable income in excess of its net cash
receipts, thus increasing the difficulty of compliance with the distribution
requirement. In order to meet the 95% requirement, the Company might find it
necessary to arrange for short-term, or possibly long-term, borrowings.
Failure to Qualify. If the Company fails to qualify as a REIT for any
taxable year, and if certain relief provisions of the Code do not apply, it
would be subject to federal income tax (including applicable alternative minimum
tax) on its taxable income at regular corporate rates. Distributions to
stockholders in any year in which the Company fails to qualify will not be
deductible by the Company nor will they be required to be made. As a result, the
Company's failure to qualify as a REIT would reduce the cash available for
distribution by the Company to its stockholders. In addition, if the Company
fails to qualify as a REIT, all distributions to stockholders will be taxable as
ordinary income, to the extent of the Company's current and accumulated earnings
and profits. Subject to certain limitations of the Code, corporate distributees
may be eligible for the dividends received deduction.
If the Company's failure to qualify as a REIT is not due to reasonable
cause but results from willful neglect, the Company would not be permitted to
elect REIT status for the four taxable years after the taxable year for which
such disqualification is effective. In the event the Company were to fail to
qualify as a REIT in one year and subsequently requalify in a later year, the
Company might be required to recognize taxable income based on the net
appreciation in value of its assets as a condition to requalification. In the
alternative, the Company may be taxed on the net appreciation in value of its
assets if it sells properties within ten years of the date the Company
requalifies as a REIT under federal income tax laws.
TAXATION OF TAXABLE STOCKHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's U.S. stockholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will be taken into account by
them as ordinary income and will not be eligible for the dividends received
deductions for corporations. For purposes of computing the Company's earnings
and profits, depreciation for depreciable real estate will be computed on a
straight-line basis over a 40-year period. Distributions that are properly
designated as capital gain dividends will be taxed as long-term capital gains
(regardless of how long a stockholder has owned his shares) to the extent they
do not exceed the Company's actual net capital gain for the taxable year.
However, corporate stockholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income pursuant to Section 291 of the Code.
Distributions in excess of current and accumulated earnings and profits will
constitute a nontaxable return of capital to a stockholder to the extent that
such distributions do not exceed the adjusted basis of the stockholder's shares,
and will result in a corresponding reduction in the stockholder's basis in the
shares. Any reduction in a stockholder's tax basis for its shares will increase
the amount of taxable gain or decrease the deductible loss that will be realized
upon the eventual disposition of the shares. The Company will notify
stockholders at the end of each year as to the portions of the distributions
which constitute ordinary income, capital gain or a return of capital. Any
portion of such distributions that exceed the adjusted basis of a stockholder's
shares will be taxed as capital gain from the disposition of shares, provided
that the shares are held as capital assets.
Aside from the different income tax rates applicable to ordinary income and
capital gain dividends, regular and capital gain dividends from the Company will
be treated as dividend income for most other federal income tax purposes. In
particular, such dividends will be treated as "portfolio" income for purposes of
the
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passive activity loss limitation (including all individuals) and generally will
not be able to offset any "passive losses" against such dividends. Dividends
will be treated as investment income for purposes of the investment interest
limitation contained in Section 163(d) of the Code, which limits the
deductibility of interest expense incurred by noncorporate taxpayers with
respect to indebtedness attributable to certain investment assets.
In general, dividends paid by the Company will be taxable to stockholders
in the year in which they are received, except in the case of dividends declared
at the end of the year, but paid in the following January, as discussed above.
In general, any gain or loss realized upon a taxable disposition of shares
by a stockholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year and
otherwise as short-term capital gain or loss. However, any loss realized upon a
taxable disposition of shares held for less than six months will be treated as
long-term capital loss to the extent of any capital gain dividends received with
respect to such shares. All or a portion of any loss realized upon a taxable
disposition of shares may be disallowed if other shares of the Company are
purchased within 30 days before or after the disposition. Stockholders may not
include in their tax return any net operating losses or capital losses of the
Company.
TAXATION OF FOREIGN STOCKHOLDERS
The following discussion is only a summary of the rules governing United
States federal income taxation of nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign stockholders (collectively,
"Non-U.S. Stockholders"). Prospective Non-U.S. Stockholders should consult with
their own tax advisors to determine the impact of federal, state and local
income tax laws with regard to an investment in shares, including any reporting
requirements.
Distributions that are not attributable to gain from sales or exchanges by
the Company of United States real property interests and not designated by the
Company as capital gains dividends will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions ordinarily will be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces or eliminates that tax. Certain tax treaties limit
the extent to which dividends paid by a REIT can qualify for a reduction of the
withholding tax on dividends. The Company expects to withhold United States
income tax at the rate of 30% on the gross amount of any such dividends made to
a Non-U.S. Stockholder unless (i) a lower treaty rate applies and the
stockholder files an IRS Form 1001 or (ii) the Non-U.S. Stockholders files a
properly completed IRS Form 4224 with the Company claiming that the distribution
is effectively connected with the Non-U.S. Stockholder's conduct of a U.S. trade
or business. Distributions in excess of current and accumulated earnings and
profits of the Company will not be taxable to a Non-U.S. Stockholder to the
extent that they do not exceed the adjusted basis of the Stockholder's shares,
but rather will reduce the adjusted basis of such shares. To the extent that
such distributions exceed the adjusted basis of a Non-U.S. Stockholder's shares,
they will give rise to tax liability if the Non-U.S. Stockholder would otherwise
be subject to tax on any gain from the sale or disposition of his shares in the
Company, as described below.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Stockholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, a Non-U.S. Stockholder is taxed as if such gain were
effectively connected with a United States business. Non-U.S. Stockholders would
thus be taxed at the normal capital gain rates applicable to U.S. stockholders
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of non-resident alien individuals). Also, distributions subject
to FIRPTA may be subject to a 30% branch profits tax in the hands of a corporate
Non-U.S. Stockholder not entitled to treaty relief. The Company is required by
applicable regulations to withhold 35% of any distribution that could be
designated by the Company as a capital gains dividend regardless of the amount
actually designated as a capital gain dividend. This amount is creditable
against the Non-U.S. Stockholder's FIRPTA tax liability.
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Gain recognized by a Non-U.S. Stockholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a REIT in which at all times during specified
testing period less than 50% in value of the stock was held directly or
indirectly by foreign persons. It is anticipated that the Company will be a
"domestically controlled REIT;" therefore, the sale of shares will not be
subject to taxation under FIRPTA. However, gain not subject to FIRPTA will be
taxable to a Non-U.S. Stockholder if (i) investment in the shares is effectively
connected with the Non-U.S. Stockholder's United States trade or business, in
which case the Non-U.S. Stockholder will be subject to the same treatment as
U.S. Stockholders with respect to such gain, or (ii) the Non-U.S. Stockholder is
a nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and such gain is attributable to an office or
fixed place of business in the United States or such nonresident alien
individual has a "tax home" in the United States and such gain is not
attributable to an office or fixed place of business located outside the United
States or, if such gain is attributable to an office or fixed place of business
located outside the United States, it is not subject to foreign income tax equal
to at least 10% of such gain. If the gain on the sale of shares were to be
subject to taxation under FIRPTA, the Non-U.S. Stockholder will be subject to
the same treatment as U.S. Stockholders with respect to such gain (subject to
applicable alternative minimum tax, special alternative minimum tax in the case
of nonresident alien individuals and possible application of the 30% branch
profits tax in the case of foreign corporations) and the purchaser would be
required to withhold and remit to the Internal Revenue Service 10% of the
purchase price.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While investments
in real estate may generate UBTI, the Service has issued a published ruling to
the effect that dividend distributions by a REIT to an exempt employee pension
trust do not constitute UBTI, provided that the shares of the REIT are not
otherwise used in an unrelated trade or business of the exempt employee pension
trust. Based on that ruling and on the intention of the Company to invest its
assets in a manner that will avoid the recognition of UBTI by the Company,
amounts distributed by the Company to Exempt Organizations generally should not
constitute UBTI. However, if an Exempt Organization finances its acquisition of
stock with debt, a portion of its income from the Company, if any, will
constitute UBTI pursuant to the "debt-financed property" rules. Furthermore,
social clubs, voluntary employee benefit associations, supplemental unemployment
benefit trusts, and qualified group legal services plans that are exempt from
taxation under paragraphs (7), (9), (17), and (20), respectively, of Code
Section 501(c) are subject to different UBTI rules, which generally will require
them to characterize distributions from the Company as UBTI.
In addition, a pension trust that owns more than 10% of the Company is
required to treat a percentage of the dividends from the Company as UBTI (the
"UBTI Percentage") in certain circumstances. The UBTI Percentage is the gross
income derived from an unrelated trade or business (determined as if the Company
were a pension trust) divided by the gross income of the Company for the year in
which the dividends are paid. The UBTI rule applies only if (i) the UBTI
Percentage is at least 5%, (ii) the Company qualifies as a REIT by reason of the
modification of the 5/50 Rule that allows the beneficiaries of the pension trust
to be treated as holding shares of the Company in proportion to their actuarial
interests in the pension trust, and (iii) either (A) one pension trust owns more
than 25% of the value of the Company's stock or (B) a group of pension trusts
individually holding more than 10% of the value of the Company's stock
collectively own more than 50% of the value of the Company's stock.
While an investment in the Company by an Exempt Organization generally is
not expected to result in UBTI except in the circumstances described in the
preceding paragraph, any gross UBTI that does arise from such an investment will
be combined with all other gross UBTI of the Exempt Organization for a taxable
year and reduced by all deductions attributable to the UBTI plus $1,000. Any
amount then remaining will constitute UBTI on which the Exempt Organization will
be subject to tax. If the gross income taken into account in computing UBTI
exceeds $1,000, the Exempt Organization is obligated to file a tax return for
such year on IRS Form 990-T. None of the Company, the Board of Directors, or any
of their Affiliates expects to
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undertake the preparation or filing of IRS Form 990-T for any Exempt
Organization in connection with an investment by such Exempt Organization in the
Common Stock. Generally, IRS Form 990-T must be filed with the Service by April
15 of the year following the year in which it relates.
TAXATION OF REINVESTED DIVIDENDS
Those holders of shares of Common Stock who elect to participate in the
Dividend Reinvestment Plan will be deemed to have received the gross amount of
dividends distributed on their behalf of the Plan Agent as agent for the
participants in such plan. Such deemed dividends will be treated as actual
dividends to such stockholders by the Company and will retain their character
and have the tax effects as described above. Participants that are subject to
federal income tax will thus be taxed as if they received such dividends despite
the fact that their distributions have been reinvested and, as a result, they
will not receive any cash with which to pay the resulting tax liability.
PLAN OF DISTRIBUTION
The Company may sell Securities through underwriters or dealers, directly
to one or more purchasers, through agents or through a combination of any such
methods of sale.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, or at negotiated prices.
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities, for whom
they may act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Securities 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. Underwriters, dealers, and agents that participate in the distribution
of Securities may be deemed to be underwriters under the Securities Act, and any
discounts or commissions they receive from the Company and any profit on the
resale of Securities they realize may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from the Company will be
described, in the applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Stock which is listed on the NYSE. Any shares of Common
Stock sold pursuant to a Prospectus Supplement will be listed on the NYSE,
subject to official notice of issuance. The Company may elect to list any series
of Debt Securities or Preferred Stock on an exchange, but is not obligated to do
so. It is possible that one or more underwriters may make a market in a series
of Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of, or the trading market for, the Securities.
Under agreements into which the Company may enter, underwriters, dealers
and agents who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be tenants of, the Company in the ordinary course of
business.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states Securities may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
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EXPERTS
The consolidated financial statements of the Company incorporated into this
Prospectus by reference to the Annual Report on Form 10-K for the year ended
December 31, 1995, have been so incorporated in reliance on the report of KPMG
Peat Marwick LLP, independent certified public accountants, given on authority
of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters, including the validity of the Securities, will be
passed upon for the Company by Paul, Hastings, Janofsky & Walker, 399 Park
Avenue, New York, New York 10022. Seth M. Zachary, a partner of Paul, Hastings,
Janofsky & Walker, is presently serving as a director of the Company and will
continue to serve as a director until the 1997 Annual Meeting of Stockholders.
In connection with certain matters related to the laws of the State of Maryland,
Paul, Hastings, Janofsky & Walker will rely on the opinion of Piper & Marbury
L.L.P., 36 South Charles Street, Baltimore, Maryland 21201.
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======================================================
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS SUPPLEMENT OR PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS SUPPLEMENT OR PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
The Company............................. S-2
Use of Proceeds......................... S-2
Description of Class A Cumulative
Convertible Preferred Stock........... S-2
Legal Matters........................... S-10
PROSPECTUS
Available Information................... 2
Incorporation of Certain Documents
by Reference.......................... 2
The Company............................. 3
Risk Factors............................ 4
Use of Proceeds......................... 7
Ratio of Earnings to Fixed Charges...... 7
Description of Debt Securities.......... 8
Description of Preferred Stock.......... 19
Description of Common Stock............. 25
Restrictions on Transfers of Capital
Stock and Anti-Takeover Provisions.... 26
Federal Income Tax Considerations....... 29
Plan of Distribution.................... 35
Experts................................. 36
Legal Matters........................... 36
</TABLE>
======================================================
======================================================
625,000 SHARES
LEXINGTON CORPORATE
PROPERTIES, INC.
CLASS A SENIOR CUMULATIVE
CONVERTIBLE PREFERRED STOCK
------------------------
PROSPECTUS SUPPLEMENT
------------------------
April 28, 1997
======================================================
