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Filed pursuant to Rule 424(b)(2)
Registration No. 333-11431
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 20, 1996)
LOGO
310,000 SHARES
SIMON DEBARTOLO GROUP, INC.
COMMON STOCK
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The 310,000 shares of Common Stock, par value $0.0001 per share (the
"Common Stock") of Simon DeBartolo Group, Inc. (the "Company") offered hereby
are being offered by the Company to an institutional investor in a directly
negotiated transaction at a purchase price of $33.125 per share. Net proceeds to
the Company will be approximately $10.3 million. See "Use of Proceeds". The sale
is subject to approval for listing of the shares of Common Stock on the New York
Stock Exchange.
The Company is a self-administered and self-managed real estate investment
trust ("REIT"). Through its subsidiary partnerships, the Company is engaged
primarily in the ownership, development, management, leasing, acquisition and
expansion of income producing properties, primarily regional malls and community
shopping centers. As of September 30, 1997, the partnerships owned or held
interests in a diversified portfolio of 200 income producing properties,
including 124 super-regional and regional malls, 66 community shopping centers,
four specialty retail centers, five mixed-use properties and one value-oriented
super-regional mall located in 33 states.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus Supplement is November 20, 1997.
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The following information in this Prospectus Supplement is qualified in its
entirety by the detailed information appearing in the accompanying Prospectus or
incorporated herein and therein by reference. Unless indicated otherwise, the
information contained in this Prospectus Supplement is presented as of September
30, 1997. All references to the "Company" in this Prospectus Supplement and the
accompanying Prospectus include the Company, those entities owned or controlled
by the Company and predecessors of the Company, unless the context indicates
otherwise.
This Prospectus Supplement and the accompanying Prospectus, including the
periodic reports of the Company and other documents incorporated by reference in
the accompanying Prospectus, contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended. Actual results could differ materially from those projected in the
forward-looking statements as a result of the factors set forth in the periodic
reports and other documents incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus. The Company cautions the reader,
however, that any such list of factors may not be exhaustive.
THE COMPANY
The Company is a self-administered and self-managed real estate investment
trust ("REIT"). Through its subsidiary partnerships, Simon DeBartolo Group, L.P.
(the "Operating Partnership") and Simon Property Group, L.P. ("SPG, LP" and,
together with the Operating Partnership, the "Partnerships"), the Company is
engaged primarily in the ownership, development, management, leasing,
acquisition and expansion of income producing properties, primarily regional
malls and community shopping centers. On August 9, 1996, the Company acquired
the national shopping center business of DeBartolo Realty Corporation ("DRC"),
The Edward J. DeBartolo Corporation ("EJDC") and their affiliates as the result
of the merger (the "Merger") of DRC with a subsidiary of the Company. As a
result of the Merger, the Company expanded its portfolio by 61 properties and
combined the management resources of the merged entities. Management believes
that the Company's portfolio, as measured in gross leasable area ("GLA"), is the
largest and most geographically diverse portfolio of any publicly traded REIT in
North America and that the Company's market capitalization is the largest of any
publicly traded real estate company in North America. As of September 30, 1997,
the Company owned 63.0% of the equity interest in the Operating Partnership.
In addition, the Company owns, through the Partnerships, substantially all
of the economic interest in M.S. Management Associates, Inc. (together with its
subsidiaries, the "Management Company"), which manages regional malls and
community shopping centers not wholly owned by the Partnerships and certain
other properties, engages in certain property development activities, and
provides architectural, design, construction and other services to substantially
all of the Portfolio Properties (as defined below) owned by the Partnerships, as
well as certain other regional malls and community shopping centers owned by
third parties.
The Partnerships own or hold interests in a diversified portfolio of 200
income producing properties (the "Portfolio Properties"), including 124
super-regional and regional malls, 66 community shopping centers, four specialty
retail centers, five mixed-use properties and one value-oriented super-regional
mall located in 33 states. The Portfolio Properties contain an aggregate of
approximately 128 million square feet of GLA, of which approximately 75 million
square feet is GLA owned by the Partnerships ("Owned GLA"). In addition, the
Partnerships have interests in five properties under construction and own seven
parcels of land held for future development. The Partnerships, together with the
Management Company, own or manage approximately 144 million square feet of GLA
of retail and mixed-use properties.
RECENT DEVELOPMENTS
On November 11, 1997, the Company issued 3,809,523 shares of Common Stock
upon the conversion of all of the outstanding shares of the Company's Series A
Preferred Stock, $.0001 par value per share.
On November 17, 1997, the Company completed a restructuring of its
ownership of four Chicago-area super-regional malls, which ownership the Company
acquired as a result of its acquisition of The Retail
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Property Trust ("RPT"), which acquisition closed September 29, 1997. Through the
restructuring, the Company acquired sole ownership of Orland Square and River
Oaks Center malls and disposed of its interests in Fox Valley Center and
Hawthorn Center malls.
USE OF PROCEEDS
The net proceeds from the sale of the shares of Common Stock offered
hereby, after deducting estimated expenses payable by the Company are estimated
to be approximately $10.3 million. The Company intends to contribute or
otherwise transfer the net proceeds of the sale of the shares of Common Stock
offered hereby in exchange for an equal number of units of limited partnership
interest ("Units") to be issued by the Operating Partnership. The Operating
Partnership will use the proceeds to reduce the amount outstanding on its credit
facilities and for general working capital purposes. Pending such use, the net
proceeds may be invested in short-term investments such as commercial paper,
government securities or money market funds that invest in government
securities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For a discussion of material federal income tax consequences applicable to
distributions to stockholders and the Company's election to be taxed as a REIT,
see "Federal Income Tax Considerations" in the accompanying Prospectus.
OPINION OF COUNSEL
In the opinion of Baker & Daniels, counsel to the Company, commencing with
the taxable year ended December 31, 1994 and ending on August 9, 1996 (the
"Merger Date"), the Company (as Simon Property Group, Inc.) has been organized
and has operated in a manner so as to qualify for taxation as a REIT under the
Code and commencing on the Merger Date, the Company (as Simon DeBartolo Group,
Inc.) and its subsidary, SD Property Group, Inc. (the "Subsidiary") have been
organized and have operated in manners so as to qualify for taxation as a REIT
under the Code and their proposed methods of operation will enable them to
continue to so qualify. It must be emphasized that counsel's opinion is based on
various assumptions and conditioned upon certain representations made by the
Company as to factual matters. In addition, counsel's opinion is based upon
factual representations of the Company concerning its business and properties
and the business and properties of the Operating Partnership. Unlike a tax
ruling, an opinion of counsel is not binding on the IRS. Moreover, such
qualification and taxation as a REIT depend upon the Company's ability to meet,
through actual annual operating results, distribution levels, diversity of stock
ownership, and the various other qualification tests imposed under the Code
discussed in the accompanying Prospectus, 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. See "Federal Income Tax Considerations -- Failure to Qualify" in
the accompanying Prospectus.
RECENT ACQUISITION
The Operating Partnership recently acquired RPT, a privately owned REIT.
Management believes that RPT has been organized and operated so as to qualify as
a REIT under the Code. There can be no assurance that RPT will continue to meet
all of the requirements under the Code for qualification as a REIT discussed in
the accompanying Prospectus. If RPT fails to meet any such requirement, the
Company would no longer qualify as a REIT. For a discussion of the consequences
of a failure to qualify as a REIT, see "Federal Income Tax
Consideration -- Failure to Qualify" in the accompanying Prospectus.
The opinion of counsel concerning the qualification of the Company and the
Subsidiary as REITs under the Code assumes that RPT is and will remain qualified
as a REIT under the Code.
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TAXPAYER RELIEF ACT OF 1997
Prospective purchasers should be aware that the recently enacted Taxpayer
Relief Act of 1997 (the "1997 Act") made numerous changes to the Code, including
reducing the maximum tax imposed on net capital gains from the sale of assets
held for more than 18 months by individuals, trust and estates. The 1997 Act
also makes certain changes to the requirements to qualify as a REIT and to the
taxation of REITs and their shareholders.
For gains realized after July 28, 1997, and subject to certain exceptions,
the maximum rate of tax on net capital gains of individuals, trusts and estates
from the sale or exchange of assets held for more than 18 months has been
reduced to 20%, and the maximum rate is reduced to 18% for assets acquired after
December 31, 2000 and held for more than five years. For taxpayers who would be
subject to a maximum tax rate of 15%, the rate on net capital gains is reduced
to 10%, and for assets acquired after December 31, 2000, the rate is reduced to
8% for assets held for more than five years. The maximum rate for net capital
gains attributable to the sale of depreciable real property held for more than
18 months is 25% to the extent of the deductions for depreciation with respect
to such property. Long-term capital gain allocated to a stockholder by the
Company will be subject to the 25% rate to the extent that the gain does not
exceed depreciation on real property sold by the Company. The maximum rate of
capital gains tax for capital assets held more than one year but not more than
18 months remains at 28%. The taxation of capital gains of corporations was not
changed by the 1997 Act.
The 1997 Act also includes several provisions that are intended to simplify
the taxation of REITs. These provisions are generally effective for the
Company's taxable year that commences January 1, 1998. First, in determining
whether a REIT satisfies the income tests, a REIT's rental income from a
property will not cease to qualify as "rents from real property" merely because
the REIT performs services for a tenant other than permitted customary services
if the amount that the REIT is deemed to have received as a result of performing
impermissible services does not exceed one percent of all amounts received,
directly or indirectly, by the REIT with respect to such property. The amount
that a REIT will be deemed to have received for performing impermissible
services is at least 150% of the direct cost to the REIT of providing those
services. Second, certain non-cash income, including income from cancellation of
indebtedness and original issue discount in excess of actual payments received
will be excluded from income in determining the amount of dividends that a REIT
is required to distribute. Third, a REIT may elect to retain and pay income tax
on any net capital gains and require its stockholders to include such
undistributed net capital gains in their income. If a REIT makes such an
election, the REIT's stockholders would receive a tax credit attributable to
their share of capital gains tax paid by the REIT on the undistributed net
capital gains that was included in the stockholders' income, and such
stockholders will receive an increase in the basis of their shares in the amount
of undistributed net capital gain included in their income reduced by the amount
of the credit. Fourth, the 1997 Act repeals the requirement that a REIT receive
less than 30% of its gross income from the sale or disposition of stock or
securities held for less than one year, gain from prohibited transactions, and
gain from certain sales of real property held less than four years. Finally, the
1997 Act contains a number of technical provisions that reduce the risk that a
REIT will inadvertently cease to qualify as a REIT.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Piper & Marbury L.L.P., Baltimore, Maryland. Certain
other legal matters, including federal income tax matters, will be passed upon
for the Company by Baker & Daniels, Indianapolis, Indiana.
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PROSPECTUS
$750,000,000
SIMON DEBARTOLO GROUP, INC.
COMMON STOCK, PREFERRED STOCK, DEPOSITARY SHARES AND WARRANTS
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Simon DeBartolo Group, Inc. (the "Company") may from time to time offer (i)
shares of its common stock, par value $0.0001 per share ("Common Stock"), (ii)
in one or more series, shares of its preferred stock, par value $0.0001 per
share ("Preferred Stock"), (iii) in one or more series, its Preferred Stock
represented by depositary shares ("Depositary Shares") and (iv) warrants to
purchase Common Stock or Preferred Stock ("Warrants"), with an aggregate public
offering price of up to $750,000,000 (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 Common Stock, Preferred Stock, Depositary Shares and
Warrants (collectively, the "Securities") may be offered, separately or
together, in amounts, at prices and on terms to be described in one or more
supplements to this Prospectus (each a "Prospectus Supplement").
The specific terms of the Securities in respect of 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 Common Stock, any initial
public offering price; (ii) in the case of Preferred Stock, the specific title
and stated value, any distribution, liquidation, redemption, conversion, voting
and other rights, and any initial public offering price; (iii) in the case of
Depositary Shares, the fractional Preferred Stock represented by each Depositary
Share; and (iv) in the case of Warrants, the duration, offering price, exercise
price and detachability. 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 appropriate to assist in maintaining the
status of the Company as a real estate investment trust ("REIT") for federal
income tax purposes.
The applicable Prospectus Supplement also will contain information, where
applicable, about the material U.S. federal income tax considerations relating
to, and any listing on a securities exchange of, the Securities covered by such
Prospectus Supplement, not contained in this Prospectus.
The Securities may be offered directly or 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 an accompanying Prospectus Supplement. No
Securities may be sold by the Company through agents, underwriters or dealers
without delivery of a Prospectus Supplement describing the method and terms of
the offering of such Securities. Shares of Common Stock may also be issued
pursuant to this Prospectus to holders of units in the Simon-DeBartolo Group,
L.P. ("Units") in exchange for their Units, which Units may be exchanged for
shares of Common Stock on a one-for-one basis or cash, as selected by the
Company, pursuant to the partnership agreement of such partnership. See "Plan of
Distribution."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON
OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
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THE DATE OF THIS PROSPECTUS IS SEPTEMBER 20, 1996.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied, at the prescribed rates, at the public reference facilities of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at 7 World Trade Center, Suite 1300, New York,
New York 10048, and Northwestern Atrium Center, 500 W. Madison Street, Chicago,
Illinois 60661. The Company's Common Stock is traded on the New York Stock
Exchange ("NYSE"). Reports and other information concerning the Company may be
inspected at the principal office of the NYSE at 20 Broad Street, New York, New
York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
omits certain of the information contained in the Registration Statement and the
exhibits and schedules thereto, in accordance with the rules and regulations of
the Commission. For further information concerning the Company and the
Securities offered hereby, reference is hereby made to the Registration
Statement and the exhibits and schedules filed therewith, which may be inspected
without charge at the office of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and copies of which may be obtained from the Commission
at prescribed rates. The Commission maintains a World Wide Web Site
(http://www.sec.gov) that contains such material regarding issuers that file
electronically with the Commission. This Registration Statement has been so
filed and may be obtained at such site. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company which have been filed with the
Commission are hereby incorporated by reference in this Prospectus.
1. The Company's Registration Statement on Form S-4 (Registration No.
333-06933), which contains, among other things, a description of the Common
Stock, including any amendment or report filed for the purpose of updating such
description;
2. The Company's Proxy Statement dated June 28, 1996, relating to the
annual and special meetings of stockholders held on August 7, 1996;
3. The Company's Annual Report on Form 10-K for the year ended December 31,
1995, as amended by Form 10-K/A-1;
4. The Company's Quarterly Reports on Form 10-Q for the calendar quarters
ended March 31, 1996, as amended by Form 10-Q/A-1, and June 30, 1996; and
5. The Company's Current Reports on Form 8-K dated March 26, August 9,
August 26, and September 18, 1996.
The Company's Exchange Act filing number is 1-12618.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14, or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Securities offered hereby shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof from
the respective dates of filing such documents. Any statement or information
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed modified or superseded for the purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated herein
by reference modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to any person to whom a Prospectus
is delivered, on written or oral request of such person, a copy of any or all of
the documents incorporated herein by reference (other than exhibits and
schedules to such documents). Requests should be directed to: James M. Barkley,
General Counsel, at National City Center, 115 West Washington Street, Suite 15
East, Indianapolis, IN 46204, Telephone (317) 636-1600.
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THE COMPANY
The Company,a self-administered and self-managed real estate investment
trust ("REIT"), through its subsidiary partnerships, Simon-DeBartolo Group, L.P.
(the "Operating Partnership") and Simon Property Group, L.P. ("SPG, LP" and,
together with the Operating Partnership, the "Partnerships"), is engaged
primarily in the ownership, development, management, leasing, acquisition and
expansion of income producing properties, primarily regional malls and community
shopping centers. In August 1996, the Company acquired the national shopping
center business of DeBartolo Realty Corporation ("DRC"), The Edward J. DeBartolo
Corporation ("EJDC") and their affiliates as the result of the merger (the
"Merger") of DRC with a subsidiary of the Company. As a result of the Merger,
the Company expanded its portfolio by 61 properties and combined the management
resources of the merged entities to create one of the most experienced
management teams in the shopping center business. Management believes that as a
result of the Merger, the Company's portfolio, as measured in gross leasable
area ("GLA"), is the largest and most geographically diverse portfolio of any
publicly traded REIT in North America. Management also believes that the Company
is the largest, as measured by market capitalization of any publicly traded real
estate company in North America. Management further believes that the Company's
relationships with tenants, access to capital markets and opportunities for
economies of scale and operating efficiencies will be enhanced as a result of
the Company's substantially increased portfolio size and market capitalization.
In conjunction with the Merger, DRC was renamed SD Property Group, Inc. (the
"Subsidiary") and is the managing general partner of the Operating Partnership.
The Company is a general partner of the Operating Partnership and the sole
general partner of SPG, LP. As of September 17, 1996, 61.4% of the equity
interest in the Operating Partnership was owned by the Company and 38.6% was
owned by certain limited partners of the Operating Partnership, including the
Simons (defined below), certain members of the DeBartolo family, including
certain affiliates and trusts and estates established for their benefit
(collectively, the "DeBartolos"), and other limited partners.
In addition, SPG, LP holds substantially all of the economic interest in,
and Melvin Simon, Herbert Simon, David Simon and certain of their affiliates,
including certain other Simon family members and estates, trusts and other
entities established for their benefit (collectively, the "Simons") or their
affiliates hold the voting stock of, M.S. Management Associates, Inc. (the "SPG
Management Company"), which manages regional malls and community shopping
centers not wholly owned by the Partnerships and certain other properties and
also engages in certain property development activities. The Operating
Partnership holds substantially all of the economic interest in, and the SPG
Management Company holds substantially all of the voting stock of, DeBartolo
Properties Management, Inc. (the "DRC Management Company"), which provides
architectural, design, construction and other services to substantially all of
the Portfolio Properties (as defined below) owned by the Operating Partnership,
as well as certain other regional malls and community shopping centers owned by
third parties.
As of June 30, 1996, on a combined basis, adjusted to give effect to the
Merger and related transactions thereto as though they had occurred prior to
such date: the Company owns or holds interests in a diversified portfolio of 183
income producing properties (the "Portfolio Properties"), including 111
super-regional and regional malls, 66 community shopping centers, two specialty
retail centers and four mixed-use properties located in 32 states; the Portfolio
Properties contain an aggregate of approximately 110 million square feet of GLA,
of which approximately 65 million square feet is GLA owned by the Company
("Owned GLA"); more than 3,600 different retailers occupy approximately 12,000
stores in the Portfolio Properties; total estimated retail sales at the
Portfolio Properties approached $16 billion in fiscal 1995; the Company has
interests in eight properties under construction in the United States
aggregating an additional seven million square feet of GLA, and owns land held
for future development; and the Operating Partnership, together with the SPG
Management Company and its affiliated management companies, manage over 127
million square feet of GLA of retail and mixed-use properties.
Each of the Company and the Subsidiary has elected to be taxed as a real
estate investment trust (a "REIT") under sections 856 through 860 of the
Internal Revenue Code, as amended (the "Code"), and applicable Treasury
Regulations relating to REIT qualification. The Company provides management,
leasing, accounting, design and construction expertise through its own personnel
or, where appropriate, through outside professionals.
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USE OF PROCEEDS
Except as otherwise provided in the applicable Prospectus Supplement,
proceeds to the Company from any sale of the Securities offered hereby will be
added to the working capital of the Company and will be available for general
corporate purposes, which may include the repayment of indebtedness, the
financing of capital commitments and possible future acquisitions associated
with the continued expansion of the Partnerships' business.
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The Company's ratio of earnings to fixed charges and preferred stock
dividends for the six months ended June 30, 1996 and 1995 was 1.47x and 1.59x,
respectively, and for the fiscal years ended December 31, 1995 and 1994 was
1.66x and 1.43x, respectively. From the commencement of its operations on
December 20, 1993 through December 31, 1993, the ratio of earnings to fixed
charges and preferred stock dividends for the Company was 3.36x. The pro forma
ratio of earnings to fixed charges and preferred stock dividends for the six
months ended June 30, 1996 and for the fiscal year ended December 31, 1995 of
the Company, assuming the Merger and related transactions had occurred as of
January 1, 1995 and carried forward through June 30, 1996, was 1.51x and 1.71x,
respectively.
For purposes of computing the ratio of earnings to fixed charges and
preferred stock dividends, earnings have been calculated by adding fixed
charges, excluding capitalized interest, to income (loss) from continuing
operations including income from minority interests which have fixed charges,
and including distributed operating income from unconsolidated joint ventures
instead of income from unconsolidated joint ventures. Fixed charges and
preferred stock dividends consist of interest costs, whether expensed or
capitalized, the interest component of rental expense and amortization of debt
issuance costs, plus any dividends on outstanding preferred stock.
Prior to the commencement of business by the Company in December, 1993, the
predecessor of the Company maintained a different ownership and equity
structure. The predecessor's operating properties have historically generated
positive net cash flow. The financial statements of the predecessor show net
income for the period January 1, 1993 through December 19, 1993, and net losses
for the fiscal years ended December 31, 1992 and 1991. The ratio of earnings to
fixed charges and preferred stock dividends for the period January 1, 1993
through December 19, 1993 was 1.11x. As a consequence of the net losses for the
fiscal years ended December 31, 1992 and 1991, the computation of the ratio of
earnings to fixed charges and preferred stock dividends for these fiscal years
indicates that earnings were inadequate to cover fixed charges by approximately
$12.8 million and $18.7 million, respectively.
The new capitalization of the Company effected in December 1993 in
connection with its initial public offering permitted the Company to deleverage
significantly resulting in an improved ratio of earnings to fixed charges and
preferred stock dividends subsequent to its commencement of operations.
DESCRIPTION OF THE SECURITIES
The following summary is a description of certain provisions of the Amended
and Restated Articles of Incorporation (the "Charter") and the Amended and
Restated By-laws (the "By-laws") of the Company, each as in effect on the date
hereof. This summary does not purport to be complete and is qualified by
reference to the Charter and By-laws, which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
Under the Charter, the total number of shares of all classes of capital
stock that the Company has authority to issue is 650,000,000 shares, par value
$0.0001 per share, currently consisting of 383,996,000 shares of Common Stock,
12,000,000 shares of Class B common stock, par value $0.0001 per share (the
"Class B Common Stock"), 4,000 shares of Class C common stock, par value $0.0001
per share (the "Class C Common Stock"), 4,000,000 shares of Series A preferred
stock, par value $0.0001 per share (the "Series A Preferred Stock"), and
250,000,000 shares of Excess Stock.
COMMON STOCK
Common Stock, Class B Common Stock and Class C Common Stock
Immediately following the consummation of the Merger, the Company had
93,234,190 shares of its Common Stock outstanding, 3,200,000 shares of its Class
B Common Stock outstanding and 4,000 shares of
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its Class C Common Stock outstanding. All outstanding shares of Common Stock,
Class B Common Stock and Class C Common Stock are duly authorized, fully paid
and nonassessable. Holders of Common Stock, Class B Common Stock and Class C
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders, other than the election of
directors elected exclusively by the holders of Class B Common Stock and the
election of directors elected exclusively by the holders of Class C Common
Stock. Holders of Common Stock, Class B Common Stock and Class C Common Stock
have no right to cumulative voting for the election of directors. Subject to
preferential rights with respect to the Series A Preferred Stock, the holders of
Common Stock, Class B Common Stock and Class C Common Stock are entitled to
receive ratably such dividends as may be declared by the Board of Directors of
the Company (the "Board of Directors") out of funds legally available therefor.
If the Company is liquidated, subject to the right of the holders of Series A
Preferred Stock (including any Excess Stock into which such Series A Preferred
Stock has been converted) to receive preferential distributions, each
outstanding share of Common Stock, Class B Common Stock and Class C Common
Stock, including shares of Excess Stock (other than those issued upon the
conversion of Series A Preferred Stock), if any, will be entitled to participate
pro rata in the assets remaining after payment of, or adequate provision for,
all known debts and liabilities of the Company.
The holders of Class B Common Stock are entitled to elect four of the 13
directors of the Company, unless their portion of the aggregate equity interest
of the Company (including Common Stock, Class B Common Stock and units in the
Operating Partnership ("Units") considered on an as-converted basis) decreases
to less than 50% of the amount that they owned as of the consummation of the
Merger, in which case they will be entitled to elect only two directors of the
Company.
Shares of Class B Common Stock may be converted at the holder's option into
an equal number of shares of Common Stock. If the Simons' aggregate equity
interest in the Company on a fully diluted basis has been reduced to less than
5%, the outstanding shares of Class B Common Stock convert automatically into an
equal number of shares of Common Stock. Shares of Class B Common Stock also
convert automatically into an equal number of shares of Common Stock upon the
sale or transfer thereof to a person not affiliated with the Simons. Holders of
shares of Common Stock and Class B Common Stock have no sinking fund rights,
redemption rights or preemptive rights to subscribe for any securities of the
Company.
Four thousand shares of Class C Common Stock were authorized and issued to
EJDC in connection with the Merger to enable the estate of Edward J. DeBartolo,
Edward J. DeBartolo, Jr., M. Denise DeBartolo York, EJDC and certain of their
affiliates, including certain other DeBartolo family members and estates and
trusts established for their benefit (collectively, the "DeBartolos"), to elect
two members of the Board of Directors under the Charter. Except with respect to
the right to elect directors, as summarized below, each share of Class C Common
Stock has the same rights and restrictions as a share of Class B Common Stock.
The holders of Class C Common Stock are entitled to elect two of the 13
directors of the Company, unless their portion of the aggregate equity interest
of the Company (including Common Stock, Class C Common Stock and Units
considered on an as-converted basis) decreases to less than 50% of the amount
that they owned as of the closing of the Merger, in which case they will be
entitled to elect only one director of the Company.
Shares of Class C Common Stock may be converted at the holder's option into
an equal number of shares of Common Stock. If the DeBartolos' aggregate equity
interest in the Company on a fully diluted basis has been reduced to less than
5%, the outstanding shares of Class C Common Stock convert automatically into an
equal number of shares of Common Stock. Shares of Class C Common Stock will also
convert automatically into an equal number of shares of Common Stock upon the
sale or transfer thereof to a person not affiliated with the DeBartolos. Holders
of shares of Class C Common Stock have no sinking fund rights, redemption rights
or preemptive rights to subscribe for any securities of the Company.
Certain Provisions of the Partnership Agreements of the Partnerships, the
Charter and By-Laws and of Maryland Law
The partnership agreements of the Partnerships provide that the Company may
not merge, consolidate or engage in any combination with another person or sell
all or substantially all of its assets unless such transaction includes the
merger of the Partnerships, which merger requires the approval of the holders of
a majority of the Units and the holders of a majority of the units of SPG, LP.
These voting requirements might limit the possibility for acquisition or change
in control of the Company, even if some of the Company's stockholders deem such
a change to be in the Company's and their best interest.
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The Charter and By-laws and certain Maryland statutes contain provisions
that may be deemed to have an anti-takeover effect and that may delay, defer or
prevent a tender offer or takeover attempt that a stockholder might consider in
its best interest, including an attempt that might result in a premium over the
market price for the shares held by stockholders. These provisions are expected
to discourage certain types of coercive takeover practices and inadequate
takeover bids and to encourage persons seeking to acquire control of the Company
to negotiate first with its Board of Directors. The Company's management
believes that the benefits of these provisions outweigh the potential
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals might result in an improvement of their terms.
Pursuant to the Maryland General Corporation Law (the "MGCL"), a
corporation generally cannot dissolve, merge, consolidate, sell all or
substantially all of its assets, engage in a share exchange or engage in similar
transactions outside the ordinary course of business unless approved by the
Board of Directors and by the affirmative vote of at least two-thirds of the
votes entitled to be cast on the matter.
Number of Directors; Filling Vacancies; Removal
The Charter currently fixes the number of directors of the Board of
Directors at 13. It provides that, subject to any separate rights of holders of
preferred stock, any vacancy created by the resignation, death or removal of a
director elected by the holders of Class B Common Stock will be filled by the
holders of the Class B Common Stock, and that any vacancy created by the
resignation, death or removal of a director elected by the holders of Common
Stock may be filled by a majority of the remaining directors or by the
stockholders at a special meeting. If such a vacancy has not been filled within
30 days after it occurs, a special meeting of the holders of Common Stock and
Class B Common Stock must be called to fill the vacancy. Accordingly, the Board
of Directors could temporarily prevent a stockholder from filling new
directorships with such stockholder's own nominees. Two directors will be
elected by the holders of Class C Common Stock voting as a separate class, and
there are separate provisions with respect to the filling of vacancies of a
director elected by the holders of Class C Common Stock.
The Charter provides that, subject to the right of holders of any class
separately entitled to elect one or more directors, if any such right has been
granted, directors may be removed only for cause and only upon the affirmative
vote of holders of at least a majority of the voting power of all the then
outstanding shares entitled to vote generally in the election of directors,
voting together as a single class.
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals
The By-laws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or bring other business
before an annual meeting of stockholders of the Company. This procedure provides
that (i) only persons who are nominated by, or at the direction of, the Board of
Directors, or by a stockholder who has given timely written notice containing
specified information to the Secretary of the Company prior to the meeting at
which directors are to be elected, will be eligible for election as directors of
the Company, and (ii) at an annual meeting only such business may be conducted
as has been brought before the meeting by, or at the direction of, the Chairman
of the Board of Directors or by a stockholder who has given timely written
notice to the Secretary of the Company of such stockholder's intention to bring
such business before such meeting. In general, for notice of stockholder
nominations or business to be made at an annual meeting to be timely, such
notice must be received by the Company not less than 60 days nor more than 90
days prior to the first anniversary of the previous year's annual meeting. Such
notice must contain information concerning the person or persons to be nominated
or the matters to be brought before the meeting and concerning the stockholder
submitting the proposal.
The purpose of requiring stockholders to give the Company advance notice of
nominations and other business is to afford the Board of Directors a meaningful
opportunity to consider the qualifications of the proposed nominees or the
advisability of the other proposed business and, to the extent deemed necessary
or desirable by the Board of Directors, to inform stockholders and make
recommendations about such qualifications or business, as well as to provide a
more orderly procedure for conducting meetings of stockholders. Although the
By-laws do not give the Board of Directors any power to disapprove stockholder
nominations for the election of directors or proposals for action, they may have
the effect of precluding a contest for the election of directors or the
consideration of stockholder proposals if the proper procedures are not
followed, and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to the Company and its stockholders.
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Director Action
The Charter, By-laws and MGCL generally require that a majority of a quorum
is necessary to approve any matter to come before the Board of Directors;
however, certain matters including sales of property, transactions with the
Simons or the DeBartolos and certain affiliates and certain other matters will
also require approval of a majority of independent directors on the Board of
Directors. The By-laws require that at least six of such independent directors
approve the sale of any property owned by any partnership in which the Company
acts as general partner, and the Charter requires that a majority of such
independent directors approve any transaction between the Simon DeBartolo Group
on the one hand and the Simons and/or the DeBartolos on the other hand.
PREFERRED STOCK
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 Board of Directors is authorized to establish one or more classes and
series of capital stock, including series of preferred stock, from time to time
and to establish the number of shares in each class or series and to fix the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to distributions, qualifications and terms and conditions of
redemption of such class or series, without any further vote or actions by the
stockholders (except in limited circumstances by holders of Series A Preferred
Stock), unless such action is required by applicable law or the rules of any
stock exchange or automated quotation system on which the Company's securities
may be listed.
The Board of Directors is empowered by the Charter to designate and issue
from time to time one or more series of Preferred Stock without stockholder
approval. The Board of Directors may determine the relative rights, preferences
and privileges of each series of Preferred Stock so issued. Because the Board of
Directors has the power to establish the preferences and rights of each series
of Preferred Stock, it may afford the holder of any series of Preferred Stock
preferences, powers and rights, voting or otherwise, senior to the rights of
holders of Common Stock. The Preferred Stock will, when issued, be fully paid
and nonassessable.
The Company currently has outstanding 4,000,000 shares of Series A
Preferred Stock. Series A Preferred Stock ranks, with respect to dividends,
voting, preferences, qualifications, limitations, restrictions and the
distribution of assets upon liquidation, senior to Common Stock, Class B Common
Stock and Class C Common Stock. Classification of authorized but unissued
capital stock into additional shares of Preferred Stock and issuance thereof,
unless ranking junior to or on a parity with Series A Preferred Stock, must be
approved by an 80% vote of the holders of Series A Preferred Stock. The Series A
Preferred Stock has no preemptive rights and is not subject to any sinking fund
or other obligation of the Company to purchase or redeem it.
Holders of Series A Preferred Stock are entitled to receive cumulative cash
dividends of the greater of either (i) $0.5078125 per share per calendar
quarter, or (ii) the aggregate amount of dividends paid since the end of the
previous calendar quarter on the number of shares of Common Stock into which
each share of Series A Preferred Stock is convertible, in either case payable in
arrears when and as declared by the Board of Directors, out of funds legally
available therefor, on the last business day of each quarter. Dividends are
cumulative from the payment date of any such declaration and accrue whether or
not there are funds of the Company legally available for the payment of such
dividends.
The Company may not declare or pay any dividend on the Common Stock, Class
B Common Stock or Class C Common Stock or on any other class of stock ranking
junior to Series A Preferred Stock as to dividends and upon liquidation,
distribution or winding up of the Company (the Common Stock, Class B Common
Stock, Class C Common Stock, and any other such junior class being referred to
as the "Junior Stock"), other than in shares of Junior Stock or rights to
purchase or acquire Junior Stock, and the Company may not redeem or make any
payment on account of, or set apart money for, a sinking or other analogous fund
for the purchase, redemption or other retirement of any Junior Stock or make any
distribution in respect thereof, in each case, either directly or indirectly and
whether in cash or property or in obligations or shares of the Company, unless
and until such time as all accrued and unpaid dividends with respect to Series A
Preferred Stock have been paid (or declared and a sum sufficient for the payment
thereof is set apart for such payment) and sufficient funds have been set apart
for the payment of the dividend for the current dividend period with respect to
Series A Preferred Stock.
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In the event of any liquidation, dissolution or winding up of the affairs
of the Company (any or all of such events, a "liquidation"), whether voluntary
or involuntary, the holders of Series A Preferred Stock then outstanding shall
be entitled to be paid out of the assets of the Company, before any payment
shall be made to the holders of the Junior Stock, an amount equal to $25 per
share, plus an amount equal to any unpaid cumulative dividends on Series A
Preferred Stock accrued to the date when such payment shall be made available to
the holders thereof. Neither a consolidation or merger of the Company with or
into any other corporation or corporations, nor a sale or transfer by the
Company of all or substantially all of its assets, nor a statutory share
exchange in which stockholders of the Company may participate shall be deemed to
be a liquidation of the Company.
If dividends on Series A Preferred Stock are in arrears and are unpaid for
any four consecutive calendar quarters, then the holders of Series A Preferred
Stock (voting as a separate class) have an additional right to vote on any
acquisition of the Company by any other entity, including by merger,
consolidation or reorganization, as well as on the sale of all or substantially
all of the Company's assets. This separate voting right does not arise, however,
if (i) the Company's stockholders will have at least 50% of the aggregate voting
power of the surviving entity following the merger, consolidation,
reorganization or other acquisition, or (ii) the terms of the acquisition or
sale provide for the contemporaneous full payment of all accrued and unpaid
dividends on the Series A Preferred Stock.
The Prospectus Supplement relating to any Preferred Stock offered thereby
will contain the specific terms thereof, including without limitation:
(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 distribution rate(s), period(s) or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) The date from which distributions on such Preferred Stock shall
accumulate, if applicable;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred
Stock;
(7) The provision for redemption, if applicable, of such Preferred
Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company, including the
conversion price (or manner of calculation thereof);
(10) Whether interests in such Preferred Stock will be represented by
Depositary Shares;
(11) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock;
(12) A discussion of all material federal income tax considerations,
if any, applicable to such Preferred Stock that are not discussed in this
Prospectus;
(13) The relative ranking and preferences of such Preferred Stock as
to distribution rights and rights upon liquidation, dissolution or winding
up of the affairs of the Company;
(14) 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
distribution rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company; and
(15) 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 distribution 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; (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; and (iii)
junior to all
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equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Stock. The term "equity
securities" does not include convertible debt securities.
Distributions. Holders of the Preferred Stock of each series will be
entitled to receive, when, as and if declared by the Board of Directors, out of
assets of the Company legally available for payment, cash distributions (or
distributions in kind or in other property if expressly permitted and described
in the applicable Prospectus Supplement) at such rates and on such dates as will
be set forth in the applicable Prospectus Supplement. Each such distribution
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.
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, in 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 distributions thereon
(which shall not, if such Preferred Stock does not have a cumulative
distribution, include any accumulation in respect of unpaid distributions for
prior distribution 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 to be specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative distribution, full cumulative distributions on all shares of
any 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 distribution periods and the then current distribution
period, and (ii) if such series of Preferred Stock does not have a cumulative
distribution, full distributions of the Preferred Stock of any 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 distribution
period, no shares of any series of Preferred Stock shall be redeemed unless all
outstanding Preferred Stock of such series is 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 Preferred Stock of such series. In addition, unless (i) if such
series of Preferred Stock has a cumulative distribution, full cumulative
distributions on all outstanding shares of any 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 distribution periods
and the then current distribution period, and (ii) if such series of Preferred
Stock does not have a cumulative distribution, full distributions on the
Preferred Stock of any 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 distribution 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 shares of capital stock
of the Company ranking junior to the Preferred Stock of such series as to
distributions and upon liquidation); 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 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 lot in a manner determined by the
Company.
Notice of redemption will be mailed at least 30 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
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share 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 distributions 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 distributions 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 shares 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 of Preferred Stock (set forth
in the applicable Prospectus Supplement), plus an amount equal to all
distributions accrued and unpaid thereon (which shall not include any
accumulation in respect of unpaid distributions for prior distribution periods
if such Preferred Stock do not have a cumulative distribution). 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 Preferred Stock and the corresponding amounts payable on all shares
of other classes or series of shares of capital stock of the Company ranking on
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 shares 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 shares 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 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 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 otherwise indicated in the applicable Prospectus Supplement,
whenever distributions on any shares of Preferred Stock shall be in arrears for
six or more quarterly periods, the holders of such shares of Preferred Stock
(voting separately as a class with all other series of preferred stock upon
which like voting rights have been conferred and are exercisable) will be
entitled to vote for the election of two additional directors of the Company at
a special meeting called by the holders of record of at least 10% of any series
of Preferred Stock so in arrears (unless such request is received less than 90
days before the date fixed for the next annual or special meeting of the
stockholders) or at the next annual meeting of stockholders, and at each
subsequent annual meeting until (i) if such series of Preferred Stock has a
cumulative distribution, all distributions accumulated on such shares of
Preferred Stock for the past distribution periods and the then current
distribution period shall have been fully paid or declared and a sum sufficient
for the payment thereof set aside for payment or (ii) if such series of
Preferred Stock does not have a cumulative distribution, four consecutive
quarterly distributions shall have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment. In such case, the
entire Board of Directors will be increased by two directors.
Unless otherwise provided for any series of Preferred Stock, so long as any
shares of Preferred Stock remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of the shares
of each series of Preferred Stock outstanding at the time, given in person or by
proxy,
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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 distributions 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
Charter or the articles supplementary 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 distributions 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 Preferred Stock is 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.
Registrar and Transfer Agent. The registrar and transfer agent for the
Preferred Stock will be set forth in the applicable Prospectus Supplement.
DEPOSITARY SHARES
General
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular series of Preferred Stock, as specified in the applicable Prospectus
Supplement. Shares of Preferred Stock of each series represented by Depositary
Shares will be deposited under a separate Deposit Agreement (each, a "Deposit
Agreement") among the Company, the depositary named therein (the "Preferred
Stock Depositary") and the holders from time to time of the Depositary Receipts.
Subject to the terms of the Deposit Agreement, each owner of a Depositary
Receipt will be entitled, in proportion to the fractional interest of a share of
a particular series of Preferred Stock represented by the Depositary Shares
evidenced by such Depositary Receipt, to all the rights and preferences of the
Preferred Stock represented by such Depositary Shares (including distribution,
voting, conversion, redemption and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by the Company to the Preferred Stock
Depositary, the Company will cause the Preferred Stock Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the following summary of the form thereof filed as an exhibit to
the Registration Statement of which this Prospectus is a part is qualified in
its entirety by reference thereto.
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Distributions
The Preferred Stock Depositary will distribute all cash distributions
received in respect of the Preferred Stock to the record holders of Depositary
Receipts evidencing the related Depositary Shares in proportion to the number of
such Depositary Receipts owned by such holders, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to the Preferred Stock Depositary.
In the event of a distribution other than in cash, the Preferred Stock
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Stock Depositary, unless the Preferred Stock
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Stock Depositary may, with the approval of the Company,
sell such property and distribute the net proceeds from such sale to such
holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock converted into Excess Stock.
Withdrawal of Preferred Stock
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Stock Depositary (unless the related Depositary Shares have
previously been called for redemption or converted into Excess Stock), the
holders thereof will be entitled to delivery at such office, to or upon such
holder's order, of the number of whole or fractional shares of Preferred Stock
and any money or other property represented by the Depositary Shares evidenced
by Depositary Receipts. Holders of Depositary Receipts will be entitled to
receive whole or fractional shares of the related Preferred Stock on the basis
of the proportion of the Preferred Stock represented by each Depositary Share as
specified in the applicable Prospectus Supplement, but holders of such Preferred
Stock will not thereafter be entitled to receive Depositary Shares therefor. If
the Depositary Receipts delivered by the holder evidence a number of Depositary
Shares in excess of the number of Depositary Shares representing the number of
shares of Preferred Stock to be withdrawn, the Preferred Stock Depositary will
deliver to such holder at the same time a new Depositary Receipt evidencing such
excess number of Depositary Shares.
Redemption of Depositary Shares
Whenever the Company redeems shares of Preferred Stock held by the
Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of the
same redemption date the number of Depositary Shares representing shares of
Preferred Stock so redeemed, provided the Company shall have paid in full to the
Preferred Stock Depositary the redemption price of the Preferred Stock to be
redeemed plus an amount equal to any accrued and unpaid distributions thereon to
the date fixed for redemption. The redemption price per Depositary Share will be
equal to the redemption price and any other amounts per share payable with
respect to the Preferred Stock. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by the Company that will not result in
the issuance of any Excess Stock.
From and after the date fixed for redemption, all distributions in respect
of the shares of Preferred Stock so called for redemption will cease to accrue,
the Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any monies payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the Preferred Stock Depositary.
Voting of the Preferred Stock
Upon receipt of notice of any meeting at which the holders of the Preferred
Stock are entitled to vote, the Preferred Stock Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Stock. Each record holder of Depositary Receipts evidencing Depositary
Shares on the record date (which will be the same date as the record date for
the Preferred Stock) will be entitled to instruct the Preferred Stock Depositary
as
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to the exercise of the voting rights pertaining to the amount of Preferred Stock
represented by such holder's Depositary Shares. The Preferred Stock Depositary
will vote the amount of Preferred Stock represented by such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the amount of Preferred
Stock represented by such Depositary Shares to the extent it does not receive
specific instructions from the holders of Depositary Receipts evidencing such
Depositary Shares. The Preferred Stock Depositary shall not be responsible for
any failure to carry out any instruction to vote, or for the manner or effect of
any such vote made, as long as any such action or non-action is in good faith
and does not result from negligence or willful misconduct of the Preferred Stock
Depositary.
Liquidation Preference
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
Conversion of Preferred Stock
The Depositary Shares, as such, are not convertible into Common Stock or
any other securities or property of the Company, except in connection with
certain conversions in connection with the preservation of the Company's status
as a REIT. Nevertheless, if so specified in the applicable Prospectus Supplement
relating to an offering of Depositary Shares, the Depositary Receipts may be
surrendered by holders thereof to the Preferred Stock Depositary with written
instructions to the Preferred Stock Depositary to instruct the Company to cause
conversion of the Preferred Stock represented by the Depositary Shares evidenced
by such Depositary Receipts into whole shares of Common Stock, other shares of
Preferred Stock (including Excess Stock) of the Company or other shares of
capital stock, and the Company has agreed that upon receipt of such instructions
and any amounts payable in respect thereof, it will cause the conversion thereof
utilizing the same procedures as those provided for delivery of Preferred Stock
to effect such conversion. If the Depositary Shares evidenced by a Depositary
Receipt are to be converted in part only, a new Depositary Receipt or Receipts
will be issued for any Depositary Shares not to be converted. No fractional
shares of Common Stock will be issued upon conversion, and if such conversion
will result in a fractional share being issued, an amount will be paid in cash
by the Company equal to the value of the fractional interest based upon the
closing price of the Common Stock on the last business day prior to the
conversion.
Amendment and Termination of a Deposit Agreement
Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between the Company and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
anticipated exceptions in the Deposit Agreements, of any holder of Depositary
Receipts to surrender any Depositary Receipt with instructions to deliver to the
holder the related Preferred Stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Depositary Receipt, to consent and
agree to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.
A Deposit Agreement will be permitted to be terminated by the Company upon
not less than 30 days prior written notice to the applicable Preferred Stock
Depositary if (i) such termination is necessary to preserve the Company's status
as a REIT or (ii) a majority of each series of Preferred Stock affected by such
termination consents to such termination, whereupon such Preferred Stock
Depositary will be required to deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional shares of Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by such
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Preferred Stock Depositary with respect to such Depositary Receipts. The Company
will agree that if a Deposit Agreement is terminated to preserve the Company's
status as a REIT, then the Company will use its best efforts to list the
Preferred Stock issued upon surrender of the related Depositary Shares on a
national securities exchange. In addition, a Deposit Agreement will
automatically terminate if (i) all outstanding Depositary Shares thereunder
shall have been redeemed, (ii) there shall have been a final distribution in
respect of the related Preferred Stock in connection with any liquidation,
dissolution or winding up of the Company and such distribution shall have been
distributed to the holders of Depositary Receipts evidencing the Depositary
Shares representing such Preferred Stock or (iii) each share of the related
Preferred Stock shall have been converted into stock of the Company not so
represented by Depositary Shares.
Charges of a Preferred Stock Depositary
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, the
Company will pay the fees and expenses of a Preferred Stock Depositary in
connection with the performance of its duties under a Deposit Agreement.
However, holders of Depositary Receipts will pay the fees and expenses of a
Preferred Stock Depositary for any duties requested by such holders to be
performed which are outside of those expressly provided for in the applicable
Deposit Agreement.
Resignation and Removal of Depositary
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to the Company notice of its election to do so, and the Company will
be permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
Miscellaneous
The Preferred Stock Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Stock Depositary with respect to the related Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Stock Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the Depositary Shares), gross negligence or willful
misconduct, and the Company and the Preferred Stock Depositary will not be
obligated to prosecute or defend any legal proceeding in respect of any
Depositary Receipts, Depositary Shares or shares of Preferred Stock represented
thereby unless satisfactory indemnity is furnished. The Company and the
Preferred Stock Depositary may rely on written advice of counsel or accountants,
or information provided by persons presenting shares of Preferred Stock
represented thereby for deposit, holders of Depositary Receipts or other persons
believed in good faith to be competent to give such information, and on
documents believed in good faith to be genuine and signed by a proper party.
In the event the Preferred Stock Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, the Preferred Stock Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
WARRANTS
The Company has no Warrants outstanding (other than options issued under
the Company's employee stock option plan). The Company may issue Warrants for
the purchase of shares of Preferred Stock or Common Stock. Warrants may be
issued independently or together with any other Securities offered by any
Prospectus Supplement and may be attached to or separate from such Securities.
Each series of Warrants will be issued under a separate warrant agreement (each,
a "Warrant Agreement") to be entered into between the Company and a warrant
agent specified in the applicable Prospectus Supplement (the "Warrant Agent").
The Warrant Agent will act solely as an agent of the Company in connection with
the Warrants of such series and
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will not assume any obligation or relationship of agency or trust for or with
holders or beneficial owners of Warrants. The following sets forth certain
general terms and any provisions of the Warrants offered hereby. Further terms
of the Warrants and the applicable Warrant Agreements will be set forth in the
applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following:
(1) the title of such Warrants;
(2) the aggregate number of such Warrants;
(3) the price or prices at which such Warrants will be issued;
(4) the designation, terms and number of shares of Common Stock or
Preferred Stock purchasable upon exercise of such Warrants;
(5) the designation and terms of the Securities, if any, with which
such Warrants are issued and the number of such Warrants issued with each
such Security;
(6) the date, if any, on and after which such Warrants and the related
shares of Common Stock or Preferred Stock will be separately transferable;
(7) the price at which each share of Common Stock or Preferred Stock
purchasable upon exercise of such Warrants may be purchased;
(8) the date on which the right to exercise such Warrants shall
commence and the date on which such right shall expire;
(9) the minimum or maximum amount of such Warrants which may be
exercised at any one time;
(10) information with respect to book-entry procedures, if any;
(11) a discussion of certain federal income tax considerations; and
(12) any other terms of such Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Warrants.
RESTRICTIONS ON TRANSFER
The Charter contains certain restrictions on the number of shares of
capital stock of the Company (including the Common Stock, Class B Common Stock,
Class C Common Stock and Series A Preferred Stock and any other series of
preferred stock) that individual stockholders may own. For the Company to
qualify as a REIT under the Code, in addition to other requirements discussed in
"Federal Income Tax Considerations" not more than 50% in value of the
outstanding capital stock of the Company 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 (other than the first year) and
the capital stock also 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. Because the management of the Company currently
believes it is essential for the Company to maintain its status as a REIT, the
provisions of the Charter with respect to Excess Stock contain restrictions on
the acquisition of its capital stock intended to ensure compliance with these
requirements.
The Charter provides that, subject to certain specified exceptions, no
stockholder may own, or be deemed to own by virtue of the attribution provisions
of the Code, more than the ownership limit (the "Ownership Limit"), which is
equal to 6% (24% in the case of the Simons) of any class of capital stock of the
Company (calculated based on the lower of outstanding shares, voting power or
value). In the event of a purported transfer or other event that would, if
effective, result in the ownership of shares of stock in violation of the
Ownership Limit, such transfer or other event with respect to that number of
shares that would be owned by the transferee in excess of the Ownership Limit
would be deemed void ab initio and the intended transferee would acquire no
rights in such shares of stock. Such shares of stock would automatically be
converted into shares of Excess Stock, according to rules set forth in the
Charter, to the extent necessary to ensure that the purported transfer or other
event does not result in ownership of shares of stock in violation of the
Ownership Limit. The Board of Directors may exempt a person from the Ownership
Limit if they receive a ruling from the IRS or an opinion of tax counsel that
such ownership will not jeopardize the Company's status as a REIT.
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Upon a purported transfer or other event that results in Excess Stock, the
Excess Stock will be deemed to have been transferred to a trustee to be held in
trust for the exclusive benefit of a qualifying charitable organization
designated by the Company. Such Excess Stock will be issued and outstanding
stock of the Company, and it will be entitled to dividends equal to any
dividends which are declared and paid. Any dividend or distribution paid prior
to the discovery by the Company that stock has been converted into Excess Stock
is to be repaid upon demand. The recipient of such dividend will be personally
liable to the trust. Any dividend or distribution declared but unpaid will be
rescinded as void ab initio with respect to such shares of stock and will
automatically be deemed to have been declared and paid with respect to the
shares of Excess Stock into which such shares were converted. Such Excess Stock
will also be entitled to such voting rights as are ascribed to the stock from
which such shares of Excess Stock were converted. Any voting rights exercised
prior to discovery by the Company that shares of stock were converted to Excess
Stock will be rescinded and recast as determined by the trustee.
While Excess Stock is held in trust, an interest in that trust may be
transferred by the purported transferee, or other purported holder with respect
to such Excess Stock only to a person whose ownership of the shares of stock
would not violate the Ownership Limit, at which time the Excess Stock will be
automatically exchanged for the same number of shares of stock of the same type
and class as the shares of stock for which the Excess Stock was originally
exchanged.
The Charter contains provisions that are designed to ensure that the
purported transferee or other purported holder of the Excess Stock may not
receive in return for such a transfer an amount that reflects any appreciation
in the shares of stock for which such Excess Stock was exchanged during the
period that such Excess Stock was outstanding. Any amount received by a
purported transferee or other purported holder in excess of the amount permitted
to be received must be paid over to the trust. If the foregoing restrictions are
determined to be void or invalid by virtue of any legal decision, statute, rule
or regulation, then the intended transferee or holder of any Excess Stock may be
deemed, at the option of the Company, to have acted as an agent on behalf of the
trust in acquiring or holding such Excess Stock and to hold such Excess Stock on
behalf of the trust.
The Charter further provides that the Company may purchase, for a period of
90 days during the time the Excess Stock is held by the trustee in trust, all or
any portion of the Excess Stock from the original transferee-stockholder at the
lesser of the price paid for the stock by the purported transferee (or if no
notice of such purchase price is given, at a price to be determined by the Board
of Directors, in its sole discretion, but no lower than the lowest market price
of such stock at any time prior to the date the Company exercises its purchase
option) and the closing market price for the stock on the date the Company
exercises its option to purchase. The 90-day period begins on the date of the
violative transfer or other event if the original transferee-stockholder gives
notice to the Company of the transfer or (if no notice is given) the date the
Board of Directors determines that a violative transfer or other event has been
made.
The Charter further provides that in the event of a purported issuance or
transfer that would, if effective, result in the Company being beneficially
owned by fewer than 100 persons, such issuance or transfer would be deemed null
and void ab initio, and the intended transferee would acquire no rights to the
stock.
All certificates representing shares of any class of stock of the Company
bear a legend referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other percentage as may be required by the Code
or regulations promulgated thereunder) of the outstanding stock must file an
affidavit with the Company containing the information specified in the Charter
before January 30 of each year. In addition, each stockholder shall, upon
demand, be required to disclose to the Company in writing such information with
respect to the direct, indirect and constructive ownership of shares as the
Board of Directors deems necessary to comply with the provisions of the Charter
or the Code applicable to a REIT or to comply with the requirements of any
taxing authority or governmental agency.
The Excess Stock provision will not be removed automatically even if the
REIT provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the ownership concentration limitation is
increased. In addition to preserving the Company's status as a REIT, the
Ownership Limit may have the effect of precluding an acquisition of control of
the Company without the approval of the Board of Directors.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material federal income tax considerations
that may be relevant to a prospective purchase. The following is based upon
current law, and is not tax advice. This discussion does not address all aspects
of taxation that may be relevant to particular stockholders in light of their
personal investment or tax circumstances, or to certain types of stockholders
(including insurance companies, tax exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) subject to special treatment under
the federal income tax laws, nor does it give a detailed discussion of any
state, local or foreign tax considerations.
EACH PROSPECTIVE PURCHASER IS ENCOURAGED TO CONSULT ITS OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE PURCHASE,
OWNERSHIP AND SALE OF THE SECURITIES AND OF THE COMPANY'S ELECTION TO BE
TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP,
SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
GENERAL
Both the Company and the Subsidiary have made elections to be taxed as
REITs under the Code, and applicable Treasury Regulations relating to REIT
qualification (the "REIT Requirements"). Management of both companies believe
that both companies have been organized and operate in such a manner as to
qualify for taxation as REITs under the Code. Both companies intend to continue
to operate in such a manner, but no assurance can be given that they have
operated in a manner so as to qualify or will operate in a manner so as to
remain qualified.
The REIT Requirements, relating to the federal income tax treatment of
REITs and their stockholders, are highly technical and complex. The following
discussion sets forth only the material aspects of those requirements. This
summary is qualified in its entirety by the applicable Code provisions, rules
and regulations promulgated thereunder, and administrative and judicial
interpretations thereof.
OPINION OF COUNSEL
In the opinion of Paul, Weiss, Rifkind, Wharton & Garrison ("Counsel"),
commencing with the taxable year ended December 31, 1994 and ending on the
Merger Date, the Company (as Simon Property Group, Inc.) was organized and has
operated in a manner so as to qualify for taxation as a REIT under the Code and
commencing on the Merger Date, the Company's and the Subsidiary's proposed
methods of operation will enable them to continue to meet the requirements for
qualification and taxation as REITs under the Code. In the opinion of Willkie
Farr & Gallagher, prior counsel to DRC ("WF&G"), commencing with the taxable
year ending December 31, 1994 and ending on the Merger Date, DRC was organized
and has operated in a manner so as to qualify for taxation as a REIT. It must be
emphasized that Counsel's opinion is based on the opinion of WF&G referred to
above, and Counsel's and WF&G's opinions are based on various assumptions and
discussions set forth in the Company's Prospectus/Joint Proxy Statement dated
June 28, 1996, with respect to the Merger and are conditioned upon certain
representations made by the Company and DRC as to factual matters. Such factual
assumptions and representations are set forth below in this discussion of
"Federal Income Tax Considerations." In addition, Counsel's and WF&G's opinions
are based upon the factual representations of the Company concerning its
business and properties, and the business and properties of the Subsidiary and
the Operating Partnership, as set forth in this Prospectus. Moreover, such
qualification and taxation as a REIT depend upon each of the Company's and the
Subsidiary's ability to meet, through actual annual operating results,
distribution levels, diversity of stock ownership, and the various other
qualification tests imposed under the Code discussed below, the results of which
will not be reviewed by Counsel or WF&G. Accordingly, no assurance can be given
that the actual results of either company's operation for any one taxable year
will satisfy such requirements. See "-- Failure to Qualify."
TAXATION OF THE COMPANY
A REIT generally is not subject to federal corporate income taxes on that
portion of its ordinary income or capital gain that is distributed currently to
stockholders because the REIT provisions of the Code generally allow a REIT to
deduct dividends paid to its stockholders. This deduction for dividends paid to
stockholders
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substantially eliminates the federal "double taxation" on earnings (once at the
corporate level and once again at the stockholder level) that generally results
from investment in a corporation.
However, REITs are taxed at regular corporate rates on their ordinary
income and capital gain not distributed to its stockholders and may be subject
to federal income or excise tax in certain other circumstances, some of which
are as follows. First, a REIT may be subject to the "alternative minimum tax" on
its items of tax preference, if any. Second, if the REIT has net income from a
"prohibited transaction" (generally, a sale or other disposition 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. Third, if
the REIT should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), and has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on the net income attributable to the greater of
the amount by which the REIT fails the 75% or 95% test, multiplied by a fraction
intended to reflect the REIT's profitability. Fourth, if the REIT should fail to
distribute with respect to 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 REIT will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed.
REQUIREMENTS FOR QUALIFICATION
To qualify as a REIT, a corporation must elect to be so treated and must
meet the requirements discussed below, relating to its organization, sources of
income, nature of assets, and distributions of income to stockholders.
Organizational Requirements
The Code defines a REIT as a corporation, trust or association: (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation but
for the REIT Requirements; (iv) that is neither a financial institution nor an
insurance company subject to certain provisions of the Code; (v) that has the
calendar year as its taxable year; (vi) the beneficial ownership of which is
held by 100 or more persons; and (vii) during the last half of each taxable year
not more than 50% in value of the outstanding capital stock of which is owned,
directly or indirectly through the application of certain attribution rules, by
five or fewer individuals (as defined in the Code to include certain entities).
In addition, certain other tests, described below, regarding the nature of a
REIT's income and assets must also be satisfied. The Code provides that
conditions (i) through (v), inclusive, must be met during the entire taxable
year and that condition (vi) 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. Conditions (vi) and (vii) do not apply until after the first taxable
year for which an election is made to be taxed as a REIT.
The Company satisfies the requirements set forth in (i) through (vi) above
and believes that it satisfies the requirement set forth in (vii) above. In
addition, the Charter includes certain restrictions regarding transfer of the
Common Stock that are intended to assist the Company in continuing to satisfy
the share ownership requirements described in (vi) and (vii) above.
The Subsidiary satisfies the requirements set forth in (i) through (vi)
above, and requirement (vii) is satisfied by virtue of the Company's owning
99.99% of the Subsidiary's outstanding stock.
The Company currently has several "qualified REIT subsidiaries." Code
section 856(i) provides that a corporation that is a "qualified REIT subsidiary"
will not be treated as a separate corporation, and all assets, liabilities and
items of income, deduction, and credit of a "qualified REIT subsidiary" will be
treated as assets, liabilities, and such items (as the case may be) of the REIT.
In applying the requirements described herein, the Company's "qualified REIT
subsidiaries" will be ignored, and all assets, liabilities, and items of income,
deduction, and credit of such subsidiaries will be treated as assets,
liabilities and items of the Company.
In the case of a REIT which is a partner in a partnership, the REIT is
deemed to own its proportionate share of the assets of the partnership and is
deemed to receive the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership shall
retain the same character in the hands of the REIT for purposes of the RElT
Requirements, including satisfying the income tests and asset tests. Thus, the
Company's and the Subsidiary's proportionate share of the assets, liabilities
and
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items of income of the Operating Partnership and the partnerships in which the
Operating Partnership has an interest are treated as assets, liabilities and
items of income of the Company and the Subsidiary for purposes of applying the
requirements described herein, provided that the Operating Partnership and the
other partnerships in which the Company or the Subsidiary holds a direct or
indirect interest are treated as partnerships for federal income tax purposes.
See "Effect of Tax Status of Operating Partnership and Other Partnerships on
REIT Qualification."
Income Tests
To maintain qualification as a REIT, there are three gross income
requirements that must be satisfied annually by each of the Company and the
Subsidiary. First, at least 75% of each company's gross income (excluding gross
income from 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", "dividends from
qualified REITS" and, in certain circumstances, interest) or from "qualified
temporary investment income" (described below). Second, at least 95% of each
company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived from such real property investments and from
dividends, interest, and gain from the sale or disposition of stock or
securities or from any combination of the foregoing. Third, short-term gain from
the sale or other disposition of stock or securities, gain from prohibited
transactions, and gain 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 each company's gross
income (including gross income from prohibited transactions) for each taxable
year. In applying these tests, the Company and the Subsidiary will each be
treated as realizing its share of the income and bearing its share of the loss
of the Operating Partnership, and the character of such income or loss, as well
as other partnership items, will be determined at the partnership level.
Rents received by each company will qualify as "rents from real property"
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" if the REIT, or a
direct or indirect owner of 10% or more of the REIT, directly 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" who is adequately compensated and from whom
the REIT does not derive any income; provided, however, that the REIT may
directly perform certain customary services (e.g., furnishing water, heat, light
and air conditioning, and cleaning windows, public entrances and lobbies) other
than services which are considered rendered to the occupant of the property.
Interpretations of the law concerning the types of services that may be rendered
by a REIT to its tenants is constantly evolving and the consequences of
rendering impermissible services are somewhat uncertain.
It is expected that both companies' real estate investments will give rise
to income that will enable both companies to satisfy all of the income tests
described above. Substantially all of the Company's and the Subsidiary's income
is and will continue to be derived from their interests in the Operating
Partnership, which income will, for the most part, qualify as "rents from real
property" for purposes of the 75% and 95% gross income tests. If, however, the
Subsidiary fails to qualify as a REIT, then the Company will not receive
qualifying income for purposes of the 75% gross income tests.
Neither company charges, nor anticipates charging, more than a de minimis
amount of rent that is based in whole or in part on the income or profits of any
person (except by reason of being based on a percentage of receipts or sales, as
described above). Although neither company can be absolutely certain whether all
Related Party Tenants have been or will be identified because of complex
attribution rules, neither company anticipates receiving rents in excess of a de
minimis amount from Related Party Tenants. Neither company anticipates holding a
lease on any property in which rents attributable to personal property
constitute greater than 15% of the total rents received under the lease. Both
companies, through the Operating Partnership, will perform all development,
construction and leasing services for, and does and will operate and manage the
properties wholly-owned by the Company directly without using an "independent
contractor." Management
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and Counsel believe that the services currently provided to lessees of these
properties are those usually or customarily rendered in connection with the
rental of space for occupancy only. As noted above, this area of the law is
somewhat uncertain and no absolute assurance can be given that the IRS or a
court will concur with Counsel's analysis with respect to such services.
The Operating Partnership indirectly owns 5% of the voting common stock,
substantially all of the nonvoting common stock and all of the preferred stock
of the SPG Management Company, a corporation that is taxable as a regular
corporation. The SPG Management Company performs management, development,
construction and leasing services for properties and other real estate owned in
whole or in part by third parties. The income is earned by and taxed to the SPG
Management Company and is received by the Operating Partnership only indirectly
as dividends and interest that qualify under the 95% test. The Operating
Partnership also owns 5% of the voting common stock and all of the preferred
stock of the DRC Management Company, a corporation that is also taxable as a
regular corporation. The SPG Management Company owns 95% of the voting common
stock of the DRC Management Company. The SPG Management Company and the DRC
Management Company (together, the "Management Companies") will perform
management, development, construction and leasing services for (i) any
income-producing property less than wholly-owned, directly or indirectly, by the
Operating Partnership, (ii) the properties in which the Simons own an interest
that were not transferred to the Company or the SPG Management Company in
connection with the initial public offering of the Common Stock consummated in
December, 1993 and (iii) other real estate owned in whole or in part by third
parties. The income will be earned by and taxed to the Management Companies and
will be received by the Operating Partnership only indirectly as dividends and
interest that qualify under the 95% test.
If either the Company or the Subsidiary 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 it is entitled to relief under certain provisions of
the Code. These relief provisions will be generally available if (i) the failure
to meet such tests was due to reasonable cause and not due to willful neglect,
(ii) the failing company attaches a schedule of the sources of its income to its
return, and (iii) any incorrect information on the schedule was not due to fraud
with intent to evade tax. It is not possible however, to state whether in all
circumstances either company would be entitled to the benefit of these relief
provisions. Even if these relief provisions apply, a tax would be imposed with
respect to the excess net income. No similar mitigation provision applies to
provide relief if the 30% income test is failed, and in such case, the Company
or the Subsidiary would cease to qualify as a REIT. See "-- Failure to Qualify."
Asset Tests
In order for each of the Company and the Subsidiary to maintain its
qualification as a REIT, at the close of each quarter of its taxable year it
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of each company's total assets must be represented by
real estate assets (which for this purpose include (i) its allocable share of
real estate assets held by partnerships in which such company or a "qualified
REIT subsidiary" of such company owns an interest and (ii) stock or debt
instruments purchased with the proceeds of a stock offering or a long-term (at
least five years) debt offering of such company and held for not more than one
year from the date such company receives such proceeds), cash, cash items, and
government securities. Second, not more than 25% of each 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 such company may not exceed 5% of the value of such
company's total assets, and such company may not own more than 10% of any one
issuer's outstanding voting securities (excluding securities of a qualified REIT
subsidiary or another REIT).
It is anticipated that the Company and the Subsidiary will be able to
comply with these asset tests. The Company and the Subsidiary are deemed to hold
directly their proportionate shares of all real estate and other assets of the
Operating Partnership. As a result, each company plans to hold more than 75% of
its assets as real estate assets. In addition, neither the Company nor the
Subsidiary plan to hold any securities representing more than 10% of any one
issuer's voting securities, other than any qualified REIT subsidiary or another
REIT, nor securities of any one issuer exceeding 5% of the value of either the
Company's or the Subsidiary's gross assets, respectively (determined in
accordance with generally accepted accounting principles). Securities of the
Subsidiary held by the Company will not violate the asset test so long as the
Subsidiary qualifies as a REIT. If, however, the Subsidiary fails to qualify as
a REIT, then the Company would fail this asset test because the Company would
then hold more than 10% of the securities of an issuer which is not a REIT.
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The Operating Partnership indirectly owns 5% of the voting common stock,
substantially all of the nonvoting common stock and all of the participating
preferred stock of the SPG Management Company, which, in the aggregate, does not
exceed 10% of the voting securities of the SPG Management Company. The Operating
Partnership also owns 5% of the voting common stock and all of the nonvoting
preferred stock of the DRC Management Company, which, in the aggregate, does not
exceed 10% of the voting securities of the DRC Management Company. Management
believes that (a) neither the value of the securities of SPG Management Company
nor the value of the securities of DRC Management Company held by the Company
will exceed 5% of the value of the total assets of the Company and (b) neither
the value of the securities of SPG Management Company nor the value of DRC
Management Company held by the Subsidiary will exceed 5% of the value of the
total assets of the Subsidiary.
After initially meeting the asset tests at the close of any quarter,
neither the Company nor the Subsidiary will lose its status as a REIT for
failure to satisfy the asset tests at the end of a later quarter solely by
reason of changes in asset values. If the failure to satisfy the asset tests
results from an acquisition of securities or other property during a quarter,
the failure can be cured by disposition of sufficient nonqualifying assets
within 30 days after the close of that quarter. Both companies maintain adequate
records of the value of its assets to ensure compliance with the asset tests,
and to take such other action within 30 days after the close of any quarter as
may be required to cure any noncompliance. However, there can be no assurance
that such other action will always be successful.
Annual Distribution Requirements
In order to be treated as a REIT, each of the Company and the Subsidiary is
required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (i) the sum of (a) 95% of its "REIT
taxable income" (computed without regard to the dividends paid deduction and the
Company's net capital gain) and (b) 95% of its net income, if any, from
foreclosure property in excess of the special tax on income from foreclosure
property, minus (ii) the sum of certain items of noncash income.
To the extent that either company does not distribute all of its net
capital gain or distributes at least 95% (but less than 100%) of its REIT
taxable income, as adjusted, it will be subject to tax on the undistributed
portion, at regular ordinary and capital gains corporate tax rates. Furthermore,
if either company fails to distribute during each calendar year at least the sum
of (a) 85% of its REIT ordinary income for such year, (b) 95% of its REIT
capital gain net income for such year, and (c) any undistributed taxable income
from prior periods, such company will be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed. Each
of the Company and the Subsidiary intends to make timely distributions
sufficient to satisfy this annual distribution requirement.
It is expected that each of the Company's and the Subsidiary's taxable
income will be less than its cash flow, due to the allowance of depreciation and
other noncash charges in computing its taxable income. Accordingly, each of the
Company and the Subsidiary anticipates that it will generally have sufficient
cash or liquid assets to enable it to satisfy the 95% distribution requirement.
It is possible that, from time to time, neither the Company nor the
Subsidiary may have sufficient cash or other liquid assets to meet the 95%
distribution requirement due to timing differences between the actual receipt of
income and actual payment of deductible expenses and the inclusion of such
income and deduction of such expenses in arriving at taxable income of either
company or if the amount of nondeductible expenses such as principal
amortization or capital expenditures exceed the amount of noncash deductions. In
the event that such situation occurs, in order to meet the 95% distribution
requirement, either company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable share
dividends. If the amount of nondeductible expenses exceeds noncash deductions,
either company may refinance its indebtedness to reduce principal payments and
borrow funds for capital expenditures.
Under certain circumstances, either the Company or the Subsidiary may be
able to rectify a failure to meet the distribution requirement for a year by
paying "deficiency dividends" to stockholders in a later year, which may be
included in such company's deduction for dividends paid for the earlier year.
Thus, either company may be able to avoid being taxed on amounts distributed as
deficiency dividends; however, such company will be required to pay interest
based upon the amount of any deduction taken for deficiency dividends.
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FAILURE TO QUALIFY
If either the Company or the Subsidiary fails to qualify for taxation as a
REIT in any taxable year, and the relief provisions do not apply, the Company
will be subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates. The failure of the Company or the
Subsidiary to qualify as a REIT will subject the Company to such tax.
Distributions to stockholders in any year in which the Company fails to qualify
will not be deductible by the Company nor will they be required to be made. In
such event, to the extent of current or accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income, and subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends-received deduction. Unless entitled to relief under specific statutory
provisions, the Company and the Subsidiary (if it fails to qualify as a REIT)
will also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Company or the Subsidiary would be
entitled to such statutory relief.
TAXATION OF U.S. STOCKHOLDERS
As used herein, the term "U.S. Stockholder" means a holder of shares of
Common Stock that (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership, or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, or (iii) is an estate or trust the income
of which is subject to United States federal income taxation regardless of its
source. For any taxable year for which the Company qualifies for taxation as a
REIT, amounts distributed to taxable U.S. Stockholders will be taxed as follows.
Distributions Generally
Distributions to U.S. Stockholders, other than capital gain dividends
discussed below, will be taxable as ordinary income to such holders up to the
amount of the Company's current or accumulated earnings and profits. Such
distributions are not eligible for the dividends-received deduction for
corporations. To the extent that the Company makes distributions in excess of
its current or accumulated earnings and profits, such distributions will first
be treated as a tax-free return of capital, reducing the tax basis in the U.S.
Stockholders' shares of Common Stock, and distributions in excess of the U.S.
Stockholders' tax basis in their respective shares of Common Stock are taxable
as gain realized from the sale of such shares. Dividends declared by the Company
in October, November, or December of any year payable to a stockholder of record
on a specified date in any such month will be treated as both paid by the
Company and received by the stockholder on December 31 of such year, provided
that the dividend is actually paid by the Company during January of the
following calendar year. Stockholders may not include on their own income tax
returns any tax losses of the Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the greater of its
current or accumulated earnings and profits. As a result, stockholders may be
required to treat certain distributions that would otherwise result in a tax
free return of capital as taxable dividends. Moreover, any "deficiency dividend"
will be treated as a "dividend" (an ordinary dividend or a capital gain
dividend, as the case may be), regardless of the Company's earnings and profits.
Capital Gain Dividends
Dividends to U.S. Stockholders that are properly designated by the Company
as capital gain dividends will be treated as long-term capital gain (to the
extent they do not exceed the Company's actual net capital gain) for the taxable
year without regard to the period for which the stockholder has held his stock.
Corporate stockholders, however, may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Capital gain dividends are not
eligible for the dividends-received deduction for corporations.
Dispositions of Shares of Common Stock
A U.S. Stockholder will recognize gain or loss on the sale or exchange of
shares of Common Stock to the extent of the difference between the amount
realized on such sale or exchange and the holder's tax basis in such shares.
Such gain or loss generally will constitute long-term capital gain or loss if
the holder has held such shares for more than one year. Losses incurred on the
sale or exchange of shares of Common Stock held for six months or less (after
applying certain holding period rules), however, will generally be deemed long-
term capital loss to the extent of any long-term capital gain dividends received
by the U.S. Stockholder with respect to such shares.
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Treatment of Tax-Exempt U.S. Stockholders
The IRS has ruled that amounts distributed by a REIT to a tax-exempt
pension trust did not constitute unrelated business taxable income ("UBTI").
Although rulings are merely interpretations of law by the IRS and may be revoked
or modified, based on this analysis, indebtedness incurred by the Company in
connection with the acquisition of an investment should not cause any income
derived from the investment to be treated as UBTI to a tax exempt entity. A
tax-exempt entity that incurs indebtedness to finance its purchase of shares,
however, will be subject to UBTI by virtue of the acquisition indebtedness
rules.
In addition, qualified trusts that hold more than 10% (by value) of the
interests in a REIT may be required to treat a percentage of REIT dividends as
UBTI. The requirement applies if (i) the qualification of the REIT depends upon
the application of a "look-through" exception to the restriction on REIT
stockholdings by five or fewer individuals, including qualified trusts, and (ii)
the REIT is "predominantly held" by qualified trusts. Qualification of the
Company as a REIT does not depend upon application of the "look-through"
exception and the Company is not "predominantly held" by qualified trusts. Thus,
the Company does not expect this rule to apply to it.
Additional Tax Consequences for Holders of Preferred Stock, Depositary Shares
and Warrants
If the Company offers one or more series of Preferred Stock, Depositary
Shares or Warrants, then there may be additional tax consequences for the
holders of such Preferred Stock, Depositary Shares or Warrants. For a discussion
of any such additional consequences, see the applicable Prospectus Supplement.
SPECIAL TAX CONSIDERATIONS FOR FOREIGN STOCKHOLDERS
The rules governing United States federal income taxation of non-resident
alien individuals, foreign corporations, foreign partnerships, and foreign
trusts and estates (collectively, "Non-U.S. Stockholders") are complex, and the
following discussion is intended only as a summary of such rules. Prospective
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state, and local income tax laws on an investment in the
REIT, including any reporting requirements, as well as the tax treatment of such
an investment under tax treaties and their home country laws.
In general, Non-U.S. Stockholders will be subject to regular United States
federal income tax with respect to their investment in the Company if such
investment is "effectively connected" with the Non-U.S. Stockholder's conduct of
a trade or business in the United States. A corporate Non-U.S. Stockholder that
receives income that is (or is treated as) effectively connected with a United
States trade or business may also be subject to the branch profits tax under
section 884 of the Code, which is payable in addition to regular United States
corporate income tax. The Company expects to withhold United States income tax,
as described below, on the gross amount of any distributions paid to a Non-U.S.
Stockholder unless (i) a lower treaty rate applies and the required form
evidencing eligibility for that reduced rate is filed with the Company, or (ii)
the Non-U.S. Stockholder files an IRS Form 4224 with the Company, claiming that
the distribution is "effectively connected" income.
A distribution by the Company that is not attributable to gain from the
sale or exchange by the Company of a United States real property interest and
that is not designated by the Company as a capital gain dividend will be treated
as an ordinary income dividend to the extent made out of current or accumulated
earnings and profits. Generally, an ordinary income dividend received by a
Non-U.S. Stockholder that is not "effectively connected" with such Non-U.S.
Stockholder's trade or business in the United States will be subject to a United
States withholding tax equal to 30% of the gross amount of the distribution
unless such tax is reduced or eliminated by an applicable tax treaty. A
distribution of cash in excess of the Company's earnings and profits will be
treated first as a return of capital that will reduce a Non-U.S. Stockholder's
basis in its shares of Common Stock (but not below zero) and then as gain from
the disposition of such shares, the tax treatment of which is described under
the rules discussed below with respect to dispositions of shares.
Distributions by the Company that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Stockholder under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S. Stockholder
as if such distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a Non-U.S. Stockholder will be taxed at the
capital gain rates applicable to a U.S. Stockholder (subject to any applicable
alternative minimum tax and a special alternative minimum tax in the case of
non-resident alien individuals). Distributions subject to FIRPTA may also be
subject to a 30% branch profits tax in the hands of a foreign corporate
stockholder that is not entitled to treaty exemption. The Company will be
required to
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withhold from distributions to Non-U.S. Stockholders, and remit to the IRS, (i)
35% of designated capital gain dividends (or, if greater, 35% of the amount of
any distributions that could be designated as capital gain dividends) and (ii)
30% of ordinary dividends paid out of earnings and profits.
A sale of shares of Common Stock by a Non-U.S. Stockholder generally will
not be subject to United States taxation unless such shares constitute a "United
States real property interest" within the meaning of FIRPTA or are effectively
connected with a U.S. trade or business. The shares of Common Stock of the
Company will not constitute a United States real property interest if the
Company is a "domestically controlled REIT." A domestically controlled REIT is a
REIT in which at all times during a specified testing period less than 50% in
value of its shares is held directly or indirectly by Non-U.S. Stockholders.
Currently, the Company is a domestically controlled REIT, and therefore the sale
of shares in the Company are not subject to taxation under FIRPTA. However,
because the shares of Common Stock are publicly traded, no assurance can be
given that the Company will continue to be a domestically controlled REIT. If
the Company, in the future, does not constitute a domestically controlled REIT,
whether a Non-U.S. Stockholder's sale of shares of Common Stock would be subject
to tax under FIRPTA as a sale of a United States real property interest would
depend on whether the shares were "regularly traded" (as defined by applicable
Treasury Regulations) on an established securities market (e.g., the New York
Stock Exchange, on which the shares of Common Stock will be listed) and on the
size of the selling stockholder's interest in the Company.
If the gain on the sale of the Company's shares were subject to taxation
under FIRPTA, the Non-U.S. Stockholder would be subject to the same treatment as
a U.S. Stockholder with respect to such gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals) and the purchaser of such shares may be required to withhold
10% of the purchase price and remit such amount to the IRS. Notwithstanding the
foregoing, capital gain not subject to FIRPTA will be taxable to a Non-U.S.
Stockholder if the Non-U.S. Stockholder is a nonresident alien individual who is
present in the United States for 183 days or more during the taxable year and
certain other conditions apply, in which case the nonresident alien individual
will be subject to a 30% tax on such individual's capital gains.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
The Company will report to its U.S. Stockholders and the IRS the amount of
distributions paid during each calendar year and the amount of tax withheld, if
any. U.S. Stockholders, other than certain exempt recipients, such as
corporations and tax-exempt organizations, may be subject to backup withholding
at a rate of 31% with respect to distributions paid unless such stockholder
complies with applicable requirements of backup withholding rules. U.S.
Stockholders should consult their own tax advisors regarding their qualification
for exemption from backup withholding and the procedure for obtaining such an
exemption. Any amount of backup withholding with respect to a payment to a U.S.
Stockholder will be allowed as a credit against such U.S. Stockholder's United
States federal income tax liability and may entitle such U.S. Stockholder to a
refund, provided that the required information is furnished to the IRS.
Additional issues may arise pertaining to information reporting and backup
withholding with respect to Non-U.S. Stockholders. For example, the Company may
be required to withhold a portion of capital gain distributions to any
stockholders who fail to certify their non-foreign status to the Company.
Non-U.S. Stockholders should consult their tax advisors with respect to any such
information reporting and backup withholding requirements.
OTHER TAX CONSIDERATIONS
Effect of Tax Status of Operating Partnership and Other Partnerships on REIT
Qualification.
All of the Company's and the Subsidiary's investments are through the
Operating Partnership, which in turn holds interests in other partnerships. The
Company believes that the Operating Partnership, and each other partnership in
which it holds an interest, is properly treated as a partnership for tax
purposes (and not as an association taxable as a corporation). If, however, the
Operating Partnership were treated as an association taxable as a corporation,
both the Company and the Subsidiary would cease to qualify as a REIT. If any of
the other partnerships were treated as an association taxable as a corporation
and the Operating Partnership's interest in such partnership exceeded 10% of the
partnership's voting interests or the value of such interest exceeded 5% of the
value of the Company's or the Subsidiary's assets, the Company or the Subsidiary
would cease to qualify as a REIT. Furthermore, in such a situation, any
partnerships treated as a corporation would be subject to corporate income
taxes, and distributions from any such partnership to the Company or the
Subsidiary, as the case may be, would be treated as dividends, which are not
taken into account in satisfying
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the 75% gross income test described above and which therefore could make it more
difficult for the Company or the Subsidiary to meet the 75% asset test described
above. Finally, in such a situation, the Company or the Subsidiary would not be
able to deduct its share of any losses generated by any such partnership in
computing its taxable income.
Sale of Partnership Property
Generally, any gain realized by a partnership on the sale of property held
by the partnership for more than one year will be long-term capital gain, except
for any portion of such gain that is treated as depreciation or cost recovery
recapture. However, under the REIT Requirements, both the Company's and the
Subsidiary's share as partners of any gain realized by the Operating Partnership
on the sale of any property held as inventory or other property held primarily
for sale to customers in the ordinary course of a trade or business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "Taxation of the Company." Such prohibited transaction income
will also have an adverse effect upon both the Company's and the Subsidiary's
ability to satisfy the income tests for REIT status. See "-- Requirements for
Qualification -- Income Tests." 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. A safe harbor to avoid
classification as a prohibited transaction exists as to real estate assets held
for the production of rental income by a REIT for at least four years where in
any taxable year the REIT has made no more than seven sales of property or, in
the alternative, the aggregate of the adjusted bases of all properties sold does
not exceed 10% of the adjusted bases of all of the REIT's properties during the
year and the expenditures includible in a property's basis made during the four-
year period prior to disposition must not exceed 30% of the property's net sales
price. The Operating Partnership holds the properties for investment with a view
to long-term appreciation, to engage in the business of acquiring, developing,
owning, and operating and leasing the properties and to make such occasional
sales of the properties, including peripheral land, as are consistent with the
Company's and the Operating Partnership's investment objectives. No assurance
can be given, however, that every property sale by the Operating Partnership
will constitute a sale of property held for investment.
There are additional consequences with respect to a sale or other taxable
disposition of any of the Operating Partnership's properties (a "Covered Sale")
listed in Exhibit C to the Fifth Amended and Restated Limited Partnership
Agreement of the Operating Partnership (the "Amended Operating Partnership
Agreement"). During the five-year period beginning with the Merger Date, a
limited partner of the Operating Partnership (a "Limited Partner") who is
allocated pre-contribution gain under Section 704(c) of the Code on a Covered
Sale is entitled to a distribution, pro rata in accordance with the Units, of
sufficient cash to pay any tax liability incurred by reason of such allocation
and distribution. In addition, during the sixth through the eighth years after
the Merger Date, a Limited Partner that is a DeBartolo family member or an
affiliate of the DeBartolo family (including certain estates and trusts) who is
allocated gain on a Covered Sale can require the Operating Partnership to
exchange such Limited Partner's Units pursuant to the exchange rights under the
Amended Operating Partnership Agreement for cash to the extent of the tax due on
such allocation and exchange.
STATE AND LOCAL TAXES
The Company and the Subsidiary are, and their stockholders may be, subject
to state, local or other taxation in various state, local or other
jurisdictions, including those in which they transact business or reside. The
tax treatment in such jurisdictions may differ from the federal income tax
consequences discussed above. Consequently, prospective stockholders should
consult their own tax advisors regarding the effect of state and local tax laws
on their investment in the Company.
POSSIBLE FEDERAL TAX DEVELOPMENTS
The rules dealing with federal income taxation are constantly under review
by the IRS, the Treasury Department and Congress. New federal tax legislation or
other provisions may be enacted into law or new interpretations, rulings or
Treasury Regulations could be adopted, all of which could affect the taxation of
the Company or of its stockholders. No prediction can be made as to the
likelihood of passage of any new tax legislation or other provisions either
directly or indirectly affecting the Company or its stockholders. Consequently,
the tax treatment described herein may be modified prospectively or
retroactively by legislative, judicial or administrative action. Any material
changes or developments will be described in a Prospectus Supplement.
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PLAN OF DISTRIBUTION
The Company may sell the Securities to or through underwriters, and also
may sell the Securities directly to one or more other purchasers or through
agents. 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, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Shares of Common Stock may
also be issued pursuant to this Prospectus to holders of Units in exchange for
their Units, which Units may be exchanged for shares of Common Stock on a
one-for-one basis or cash, as selected by the Company, pursuant to the
partnership agreement of the Operating Partnership.
The Prospectus Supplement will set forth terms of the offering of the
Securities, including where applicable, (i) the name or names of any
underwriters or agents with whom the Company has entered into arrangements with
respect to the sale or issuance of Securities, (ii) in the case of the Common
Stock, the initial public offering price, where applicable, (iii) in the case of
the Preferred Stock, the specific title and stated value, any distribution,
liquidation, redesignation, conversion, voting and other rights, and any initial
public offering price; (iv) in the case of Depositary Shares, the fractional
shares of Preferred Stock represented by each Depositary Share; (v) in the case
of Warrants, the duration, offering price, exercise price and detachability;
(vi) any underwriting discounts, commissions and other items constituting
underwriters compensation from the Company and any other discounts, concessions
or commissions allowed or reallowed or paid by any underwriters to other
dealers, (vii) any commissions paid to any agents and (viii) the net proceeds to
the Company. In connection with the sale of Securities, underwriters 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 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, 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.
Under agreements the Company may enter into, 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 customers of, the Company in the ordinary course of
business.
Unless otherwise set forth in the Prospectus Supplement relating to the
issuance of Securities, the obligations of the underwriters to purchase such
Securities will be subject to certain conditions precedent and each of the
underwriters with respect to such Securities will be obligated to purchase all
of the Securities allocated to it if any such Securities are purchased. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
LEGAL MATTERS
The validity of the issuance of the Securities offered pursuant to this
Prospectus will be passed upon by Piper & Marbury L.L.P., Baltimore, Maryland on
behalf of the Company. Certain tax matters will be passed upon by Paul, Weiss,
Rifkind, Wharton & Garrison, New York, New York, and certain legal matters will
be passed upon for any underwriters, dealers or agents by Rogers & Wells, New
York, New York.
EXPERTS
The audited financial statements and schedule of the Company incorporated
by reference in the Registration Statement of which this Prospectus is a part,
to the extent and for the periods indicated in their reports, have been audited
by Arthur Andersen LLP, independent public accountants, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said reports.
The audited financial statements and schedules of DRC incorporated by
reference in the Registration Statement of which this Prospectus is a part, to
the extent and for the periods indicated in their report, have been audited by
Ernst & Young LLP, independent public accountants, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said report.
26
<PAGE> 31
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
The Company........................... S-2
Recent Developments................... S-2
Use of Proceeds....................... S-3
Certain Federal Income Tax
Consequences........................ S-3
Legal Matters......................... S-4
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 3
Use of Proceeds....................... 4
Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends........... 4
Description of the Securities......... 4
Restrictions on Transfer.............. 15
Federal Income Tax Considerations..... 17
Plan of Distribution.................. 26
Legal Matters......................... 26
Experts............................... 26
</TABLE>
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310,000 SHARES
[SIMON DEBARTOLO LOGO]
COMMON STOCK
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PROSPECTUS SUPPLEMENT
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NOVEMBER 20, 1997
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