<PAGE> 1
As filed with the Securities and Exchange Commission on March__, 1997
Registration No. 333-____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PACIFIC GULF PROPERTIES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 33-0577520
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NO.)
363 SAN MIGUEL
NEWPORT BEACH, CALIFORNIA 92660
(714) 721-2700
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
GLENN L. CARPENTER
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
PACIFIC GULF PROPERTIES INC.
363 SAN MIGUEL
NEWPORT BEACH, CALIFORNIA 92660
(714) 721-2700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
DHIYA EL-SADEN, ESQ.
GIBSON, DUNN & CRUTCHER, LLP
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90067
(213) 229-7000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO
THE PUBLIC: From time to time after the effective date of
this Registration Statement.
---------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box:
If any of the securities on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering:
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering:
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box:
<PAGE> 2
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
| | | |
Title of Each Class | Amount to be | Proposed Maximum | Proposed Maximum | Amount of
of Securities to be | Registered (1) | Offering Price Per | Aggregate Offering | Registration Fee
Registered | | Unit (1) | Price(1)(2) |
- -----------------------------------------------------------------------------------------------------------------
<S> | <C> | <C> | <C> | <C>
Common Stock (3) | $250,000,000 | (2) | $250,000,000 | $75,758(7)
- ----------------------| | | |
Preferred Stock (4) | | | |
- ----------------------| | | |
Warrants (5) | | | |
- ----------------------| | | |
Debt Securities (6) | | | |
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In no event will the aggregate maximum offering price of all securities
offered and sold pursuant to this Registration Statement exceed $250,000,000.
Any securities registered hereunder may be sold separately or as units with
other securities registered hereunder.
(2) The proposed maximum offering price per unit (a) has been omitted pursuant
to Instruction II.D. of Form S-3, and (b) will be determined, from time to time,
by the Registrant in connection with the issuance of the securities registered
hereunder.
(3) Subject to footnote (1), there is being registered hereunder an
indeterminate number of shares of Common Stock as may be sold, from time to
time, by Registrant. There is also being registered hereunder an indeterminate
number of shares of Common Stock that may be issued upon conversion of Preferred
Stock or exercise of Warrants registered hereunder.
(4) Subject to footnote (1), there is being registered hereunder an
indeterminate number of shares of Preferred Stock as may be sold, from time to
time, by Registrant. There is also being registered hereunder an indeterminate
number of shares of Preferred Stock that may be issued upon exercise of Warrants
hereunder.
(5) Subject to footnote (1), there is being registered hereunder an
indeterminate number of Warrants as may be sold, from time to time, by
Registrant.
(6) Subject to footnote (1), there is being registered hereunder an
indeterminate number of Debt Securities as may be sold, from time to time, by
Registrant. There is also being registered hereunder an indeterminate number of
Debt Securities that may be issued upon exercise of Warrants hereunder.
(7) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 19, 1997
PROSPECTUS
[GRAPHIC OMITTED] PACIFIC GULF PROPERTIES INC.
$250,000,000
COMMON STOCK, PREFERRED STOCK, DEBT SECURITIES
AND
WARRANTS TO PURCHASE THE ABOVE SECURITIES
---------------
Pacific Gulf Properties Inc. (the "Company") may offer and issue from
time to time (i) its debt securities (the "Debt Securities"), (ii) shares of its
common stock, par value $.01 per share (the "Common Stock"), (iii) shares of its
preferred stock, par value $.01 per share (the "Preferred Stock"), and (iv)
warrants to purchase Debt Securities, Common Stock or Preferred Stock (the
"Warrants"). The Debt Securities, Common Stock, Preferred Stock and Warrants are
herein collectively referred to as the "Securities," with an aggregate public
offering price not to exceed $250,000,000. The Securities may be offered in one
or more separate classes or series, in amounts and at prices and terms to be set
forth in one or more supplements to this Prospectus (each, a "Prospectus
Supplement"). Any Securities may be offered with other Securities or separately.
Debt Securities or Preferred Stock may be convertible into shares of Common
Stock.
Certain terms of any Debt Securities in respect of which this
Prospectus is being delivered will be set forth in the accompanying Prospectus
Supplement including, without limitation, the specific designation (including
whether such Debt Securities are senior or subordinated and whether such Debt
Securities are convertible), aggregate principal amount, purchase price,
maturity, interest rate (which may be fixed or variable) and time of payment of
interest (if any), terms (if any) for the subordination, redemption or
conversion thereof, listing (if any) on a securities exchange and any other
specific terms of the Debt Securities. Certain terms of any Preferred Stock in
respect of which this Prospectus is being delivered will be set forth in the
accompanying Prospectus Supplement including, without limitation, the
designation, number of shares, liquidation preference, purchase price, dividend,
voting, redemption and conversion provisions and any listing on a securities
exchange. Certain terms of any Warrants in respect of which this Prospectus is
being delivered will be set forth in the accompanying Prospectus Supplement,
including the specific designation, number, duration, purchase price and terms
thereof, any listing of the Warrants or the underlying securities on a
securities exchange and any other terms in connection with the offering, sale
and exercise of the Warrants, as well as the terms on which and the securities
for which such Warrants may be exercised. In addition, terms of the Securities
may include limitations on direct and beneficial ownership and restrictions on
transfer of the Securities, in each case as may be appropriate to preserve the
status of the Company as a real estate investment trust ("REIT") for federal
income tax purposes. The specific number of shares of Common Stock and issuance
price per share will be set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will also contain information
about all material federal income tax considerations relating to, and any
listing on a securities exchange of, the Securities covered by such Prospectus
Supplement.
1
<PAGE> 4
The Company may sell all or a portion of any offering of its securities
directly, through agents designated from time to time, or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in the applicable Prospectus
Supplement. No Securities may be sold without delivery of the applicable
Prospectus Supplement describing the method and terms of the offering of such
Securities.
SEE "RISK FACTORS" BEGINNING AT PAGE 9 OF THIS PROSPECTUS FOR CERTAIN
RISK FACTORS RELEVANT TO AN INVESTMENT IN THE SECURITIES.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Prospectus is March__, 1997
2
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 (the "Registration
Statement"), of which this Prospectus is a part, under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Securities. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. Statements contained in this Prospectus as to
the content of any contract or other document are not necessarily complete, and
in each instance reference is made to the copy of the contract or other document
filed as an exhibit to the Registration Statement, each statement being
qualified in all respects by that reference and the exhibits to the Registration
Statement. For further information regarding the Company and the Securities,
reference is hereby made to the Registration Statement, the exhibits to the
Registration Statement, and the documents incorporated by reference into the
Registration Statement, which may be obtained from the Commission at its
principal office in Washington, D.C., upon payment of fees prescribed by the
Commission.
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements and other
information with the Commission. These reports, proxy and information
statements, and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
13th Floor, 7 World Trade Center, New York, New York 10048, and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Electronic filings made through the Electronic Data Gathering, Analysis
and Retrieval System are publicly available though the Commission's web site
(http://www.sec.gov). The Common Stock is traded on the New York Stock Exchange,
Inc. ("NYSE"). The reports, proxy and information statements and other
information can also be inspected at the offices of NYSE, 20 Broad Street, New
York, New York 10005.
3
<PAGE> 6
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference the following documents
heretofore filed by the Company under the Exchange Act with the Commission.
(a) The Company's Annual Report on Form 10-K, for its fiscal year ended
December 31, 1996;
(b) The description of the Company's Common Stock and 8.375% Convertible
Subordinated Debentures due 2001 contained in its Registration
Statement on Form 8-A/A filed with the Commission, on January 25, 1994
(file no. 1-12546).
All documents filed by the Company pursuant to Sections 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 made hereby shall be deemed to be
incorporated by reference into this Prospectus, and to be a part hereof from the
date of filing such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of the Registration Statement, this
Prospectus, and any applicable Prospectus Supplement to the extent that a
statement contained in the Registration Statement, this Prospectus, any
applicable Prospectus Statement or any other subsequently filed document that is
also incorporated by reference herein modifies or supersedes that statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a Prospectus is delivered, upon written
or oral request of that person, a copy of any document incorporated herein by
reference (other than exhibits to those documents unless the exhibits are
specifically incorporated by reference into the documents that this Prospectus
incorporates by reference). Written or oral requests should be directed to
Stockholder Relations, Pacific Gulf Properties Inc., 363 San Miguel Drive,
Newport Beach, California 92660; telephone (714) 721-2700.
4
<PAGE> 7
THE COMPANY
Pacific Gulf Properties Inc., a self-administered and self-managed
equity REIT, owns, operates, leases, acquires and rehabilitates industrial and
multifamily properties. In addition, the Company has recently begun to develop
properties, including redevelopment of an industrial property consisting of
approximately 327,000 square feet and development of an active senior
residential property consisting of approximately 166 units. The Company's
properties are located in California and the Pacific Northwest, with the largest
concentration in Southern California. The Company focuses on this geographic
region due to management's extensive experience in these markets, and
management's belief that these markets present potential for long-term economic
growth. At February 28, 1997, the Company owned a portfolio of 24 industrial
properties, containing approximately 5.7 million leasable square feet (the
"Industrial Properties"), and 22 multifamily properties, containing 4,110
apartment units (the "Multifamily Properties," and together with the Industrial
Properties, the "Properties.") As of February 28, 1997, the Company's Industrial
Properties and Multifamily Properties experienced occupancy rates of 97% and
93%, respectively.
Management believes that focusing on two property types allows the
Company greater investment opportunities and flexibility than would be available
by investing only in one property type. Apartments have shorter leases than
industrial properties and, hence, apartment rental income reacts more quickly to
changes in economic conditions. Lease income on industrial properties reacts
more slowly to changes in the real estate economy due to longer term leases on
such properties. The values of these two property types and the opportunities
they present for growth are affected by the timing of such rental adjustments.
This distinction, along with other market factors that impact the demand for
multifamily and industrial properties differently, provides the Company with
greater options in implementing its investment, disposition and property
management strategies.
The Company seeks to maximize cash flow per share by improving net
operating income (rental property income less rental property expenses) of
existing properties, by acquiring or developing additional properties and by
reducing its cost of capital. Management closely monitors rental operations and
administrative expenses, utilizes new technologies, periodically conducts
contract reviews, and seeks opportunities to maximize economies of scale in
order to control costs, reduce tenant turnover and assure that the Company is
competitive in all aspects of its operations. The Company also seeks to increase
stockholder value through the acquisition of properties that provide attractive
initial returns and opportunities to increase net operating income.
Additionally, the Company seeks well-located properties in strong markets where
values have suffered due to poor management or maintenance and that can be
acquired at less than replacement cost.
The Company's Common Stock is listed on the NYSE under the symbol
"PAG." The Company was incorporated in Maryland in August 1993. The Company's
executive offices are located at 363 San Miguel Drive, Newport Beach,
California, 92660; and its telephone number is (714) 721-2700. Unless the
context otherwise requires, as used herein the term "Company" includes Pacific
Gulf Properties Inc. and its consolidated subsidiaries, including without
limitation its operating partnership, PGP Inland Communities, L.P..
5
<PAGE> 8
USE OF PROCEEDS
Unless otherwise described in any Prospectus Supplement that
accompanies this Prospectus, the Company intends to use the net proceeds from
the sale of the Securities for general corporate purposes, which may include
acquiring additional properties or interests in entities owning properties as
suitable opportunities arise, making improvements to properties, repaying
certain then-outstanding secured or unsecured indebtedness and for working
capital. Pending such uses, the Company may invest such net proceeds in
short-term, income-producing investments such as investment grade commercial
paper, government securities or money market funds that invest in government
securities.
6
<PAGE> 9
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges
for the Company and for the predecessor to the Company prior to February 18,
1994.
<TABLE>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges............... - 1.12x 1.26x - -
</TABLE>
Earnings for the year ended December 31, 1996 were inadequate to cover
fixed charges by approximately $.2 million as a result primarily of the
non-cash charge of $3.6 million relating to the Company's exchange of
debentures for common stock. The ratio of earnings to fixed charges excluding
this $3.6 million non-cash items is 1.18 to 1.
For the purpose of calculating the ratio of earnings to fixed charges,
earnings consist of pre-tax income excluding non-recurring and extraordinary
items, the effects of discontinued operations, the cumulative effect of
accounting changes and fixed charges. Fixed charges consist of interest
expense, capitalized interest and amortization of deferred financing costs.
Prior to completion of the Company's initial public offering in
February 1994, the predecessor of the Company operated in a highly leveraged
manner. As a result, although the Company and the predecessor have historically
generated positive net cash flow, the financial statements of the predecessor
show net losses for the periods prior to February 1994. Consequently, the
computation of the ratio of earnings to fixed charges for such periods indicate
that earnings were inadequate to cover fixed charges by approximately $1.6
million and $2.3 million for the years ended December 31, 1993 and 1992,
respectively.
7
<PAGE> 10
RISK FACTORS
Prospective investors should carefully consider the following
information in conjunction with the other information contained in this
Prospectus and the applicable Prospectus Supplement before purchasing
Securities. This Prospectus and the accompanying Prospectus Supplement include
certain statements that may be deemed to be "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. All statements, other than statements of historical facts, included in
this Prospectus that address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future, including such
matters as future capital expenditures, dividends and acquisitions (including
the amount and nature thereof), the use of proceeds of the offering of the
Securities, expansion and other development trends of the real estate industry,
business strategies, expansion and growth of the Company's operations and other
such matters are forward-looking statements. These statements are based on
certain assumptions and analyses made by the Company in light of its experience
and its perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate. Such statements are
subject to a number of assumptions, risks and uncertainties, including the risk
factors discussed below, general economic and business conditions, the business
opportunities that may be presented to and pursued by the Company, and changes
in laws or regulations and other factors, many of which are beyond the control
of the Company. Prospective investors are cautioned that any such statements are
not guarantees of future performance and that actual results or developments may
differ materially from those anticipated in the forward-looking statements.
DEBT FINANCING; RISK OF RISING INTEREST RATES
The Company is subject to the risks normally associated with debt
financing, including the risk that the Company's cash flow will be insufficient
to meet required payments of principal and interest, that the Company will not
be able to refinance existing indebtedness, or that the terms of such
refinancing will not be as favorable as the terms of existing indebtedness. As
of December 31, 1996, the Company had outstanding approximately $13.7 million of
unsecured indebtedness and $183.7 million of indebtedness secured by certain of
its Properties.
If prevailing interest rates or other factors at the time of a
refinancing result in higher interest rates on refinancing, the Company's
interest expense would increase, which would adversely affect the Company's cash
provided by operating activities and its ability to maintain or improve its
Properties or to make distributions or payments to holders of its securities. In
addition, in the event the Company were unable to secure refinancing of such
indebtedness on acceptable terms, the Company might be forced to dispose of
properties upon disadvantageous terms, which might result in losses to the
Company and might adversely affect the Company's cash flow or operating results.
In addition, if a property or properties are mortgaged to secure payment of
indebtedness and the Company is unable to meet mortgage payments, the property
could be foreclosed upon by or otherwise transferred to the mortgagee with a
consequent loss of income and asset value to the Company.
As of December 31, 1996, certain of the Properties were subject
to variable rate mortgage indebtedness. At that date, the weighted average
interest rate on such outstanding indebtedness was 7.4%. An increase in interest
rates will have an adverse effect on the Company's net income and results of
operations.
8
<PAGE> 11
RISKS OF ACQUISITION AND DEVELOPMENT ACTIVITIES
The Company intends to actively continue to acquire Industrial and
Multifamily Properties. Acquisitions of such properties entail risks that
investments will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may prove
inaccurate. In addition, there are general real estate investment risks
associated with any new real estate investment.
The Company has also recently begun to pursue Industrial and
Multifamily residential property development projects. Such projects generally
require various governmental and other approvals, the receipt of which cannot be
assured. Such development activities entail certain risks, including the
expenditure of funds on and devotion of management's time to projects which may
not come to fruition; the risk that construction costs of a project may exceed
original estimates, possibly making the project not economical; the risk that
occupancy rates and rents at a completed project will be less than anticipated;
and the risk that expenses at a completed development will be higher than
anticipated. These risks may result in a development project causing a reduction
in cash flow or operating results or the funds available for distribution.
GENERAL REAL ESTATE INVESTMENT RISKS
Real property investments are subject to a variety of risks. The yields
available from equity investments in real estate depend on the amount of income
generated and expenses incurred. If the Properties do not generate sufficient
income to meet operating expenses, including debt service and capital
expenditures, the Company's cash flow and ability to make distributions to its
stockholders will be adversely affected. The performance of the economy in each
of the areas in which the Properties are located affects occupancy, market
rental rates and expenses and, consequently, has an impact on the income from
the Properties and their underlying values. The financial results of major local
employers may have an impact on the cash flow and value of certain of the
Properties.
Increases in income, service or other taxes generally are not passed
through to tenants under leases and may adversely affect the Company's cash flow
or operating results and its ability to make distributions to stockholders.
Similarly, compliance with current federal, state or local laws, or changes in
such laws, including (i) laws increasing the potential liability for
environmental conditions existing on properties or the restrictions on
discharges or other conditions, (ii) rent control or rent stabilization laws or
other laws regulating housing or (iii) laws (such as the Americans with
Disabilities Act) requiring modifications to existing buildings to improve
access to such buildings by disabled persons, may result in significant
unanticipated expenditures, which would adversely affect the Company's cash flow
or operating results and its ability to make distributions to stockholders.
LACK OF GEOGRAPHIC DIVERSIFICATION
The Properties are located in California and the Pacific Northwest,
with the largest concentration in Southern California. Income from the
Properties may be adversely affected by the general economic climate, local
economic conditions in which the Properties are located, such as an oversupply
of space or a reduction in demand for rental space, the attractiveness of the
Properties to tenants, competition from other available space, the ability of
the Company to provide the adequate maintenance and insurance and increased
operating expenses. There is also the risk that as leases on the Properties
expire, tenants will enter into new leases on terms that are less favorable to
the Company. Income and real estate values may also be adversely affected by
such factors as applicable laws (e.g., ADA and tax laws), interest rate levels
9
<PAGE> 12
and the availability of financing. In addition, real estate investments are
relatively illiquid and, therefore, will tend to limit the ability of the
Company to vary its portfolio promptly in response to changes in economic or
other conditions.
AFFORDABLE HOUSING LAWS
Certain of the Company's Multifamily Properties are, and will be in the
future, subject to federal, state and local statutes or other restrictions
requiring that a percentage of apartment homes be made available to residents
whose incomes do not exceed a certain percentage of the local median. These laws
and regulations, as well as any changes thereto making it more difficult to meet
such requirements, or a reduction in or elimination of certain financing
advantages available to those persons satisfying such requirements, could
adversely affect the Company's profitability and its ability to develop certain
communities in the future.
A certain amount of the Properties are financed by tax-exempt
financing. The tax-exempt financing subjects these Properties to certain deed
restrictions and restrictive covenants. In addition, the Internal Revenue Code
of 1986, as amended, (the "Code") and the regulations promulgated thereunder
impose various restrictions, conditions and requirements relating to the
exclusion from gross income for Federal income tax purposes of interest on
qualified bond obligations, including requirements that at least 20% of
apartment units be occupied by residents with gross incomes that do not
exceed 50% of the median income for the applicable family size as determined by
the Housing and Urban Development Department of the Federal government. In
addition to Federal requirements, certain state and local authorities may impose
additional rental restrictions. The bond compliance requirements and the
requirements of any future tax-exempt bond financing utilized by the Company may
have the effect of limiting the Company's income from the tax-exempt median
income test. If the required number of apartment homes are not reserved form
residents satisfying these income requirements, the tax-exempt status of the
bonds may be terminated, the obligations of the Company under the bond documents
may be accelerated and other contractual remedies against the Company may be
available.
COMPETITION
Numerous industrial and residential properties compete with the
Properties in attracting tenants to lease space. Some of these competing
properties are newer, better located or better capitalized than the Properties.
The number of competitive properties in a particular area could have a material
effect on the Company's ability to lease space in its Properties or at newly
developed or acquired properties and on the rents charged.
POSSIBLE ENVIRONMENTAL LIABILITIES
Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real estate is liable for the costs of
removal or remediation of certain hazardous or toxic substances on or in such
property. Such laws often impose such liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. The presence of such substances, or the failure
to properly remediate such substances, may adversely affect the owner's or
operator's ability to sell or rent such property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs or removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. In connection with the
ownership (direct or indirect), operation, management and development of real
properties, the Company may be considered an owner or operator of
10
<PAGE> 13
such properties or as having arranged for the disposal or treatment of hazardous
or toxic substances and, therefore, may be potentially liable for removal or
remediation costs, as well as certain other costs, including governmental fines
and injuries to persons and property.
Certain environmental laws impose liability for any release of
asbestos-containing materials ("ACMs") into the air. In addition, third parties
may seek recovery from owners or operators of real properties for personal
injury associated with exposure to ACMs released from such properties. Limited
quantities of ACMs are present in various building materials such as floor
coverings, ceiling texture material, acoustical tiles and decorative treatments
located at certain Properties. The ACMs present at such Properties are generally
in good condition, and possess low probabilities for unintentional disturbance.
The Company has implemented operations and maintenance plans for Properties
where ACMs are present or reasonably suspected. It is the Company's general
policy that ACMs will be removed by the Company in the ordinary course of
renovation and construction.
Moreover, there may be potential liability associated with lead-based
paint arising from lawsuits alleging personal injury and related claims.
Typically, the existence of lead paint is more of a concern in residential units
than in commercial properties. Although a structure built prior to 1978 may
contain lead-based paint and may present a potential for exposure to lead,
structures built after 1978 are not likely to contain lead-based paint. Although
the Company's existing Multifamily Properties have not been tested for
lead-based paint, the majority were constructed after 1978, and therefore are
not likely to contain lead-based paint.
The Company also recognizes that the Properties' values may be affected
by the proximity of the Properties to electric transmission lines. Electric
transmission lines are one of many sources of electro-magnetic fields ("EMFs")
to which people may be exposed. Research completed regarding potential health
concerns associated with exposure to EMFs has produced inconclusive results.
Notwithstanding the lack of conclusive scientific evidence, some states now
regulate the strength of electric and magnetic fields emanating from electric
transmission lines, and other states have required transmission facilities to
measure for levels of EMFs. The Company understands that, on occasion, lawsuits
have been filed (primarily against electric utilities) that allege personal
injuries from exposure to transmission lines and EMFs, as well as from fear of
adverse health effects due to such exposure. This fear of adverse health effects
from transmission lines has been considered both when property values have been
determined to obtain financing, and in condemnation proceedings. The Company has
not searched for electric transmission lines near the Properties, but the
Company is aware of the potential exposure to damage claims by persons exposed
to EMFs.
Each of the Properties has been subjected to a Phase I or similar
environmental assessment. These assessments, completed by licensed and qualified
independent environmental consulting companies, usually are completed without
radon testing, and involve general inspections without soil sampling or
groundwater analysis. Some of the Properties have been subject to a limited
subsurface investigation. While these environmental assessments have not
revealed any environmental liability, no assurances can be given that such
assessments would reveal all such liabilities. Similarly, while the Company's
management is not aware of any environmental liability that it believes would
have a material adverse effect on the Company's business, assets or results of
operations, no assurances can be given that either a material environmental
condition does not otherwise exist as to any one or more of the Properties, or
that a prior owner of any of the Properties did not create any such condition
not known to the Company.
11
<PAGE> 14
GENERAL UNINSURED LOSSES
The Company carries comprehensive liability, fire, flood, extended
coverage and rental loss insurance for each of its Properties, with policy
specifications, limits and deductibles customarily carried for similar
properties. However, certain types of extraordinary losses exist which are
either uninsurable or not economically insurable. Further, all of the Properties
are located in areas subject to earthquake activity. Although the Company has
obtained certain limited earthquake insurance policies, should one or more of
the Properties sustain damage as a result of an earthquake, the Company may
sustain losses due to insurance deductibles and co-payments on insured or
uninsured losses.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Tax Liabilities Upon Failure to Qualify as a REIT. The Company made the
election to be treated for Federal income tax purposes as a REIT under the Code.
No assurance can be given that the Company will operate in a manner enabling it
to remain so qualified. Qualification as a REIT involves the application of
numerous highly technical and complex Code provisions which have only a limited
number of judicial or administrative interpretations, and the determination of
various factual matters and circumstances not entirely within the Company's
control may impact its ability to qualify as a REIT. See "Federal Income Tax
Considerations." In addition, no assurance can be given that new legislation,
regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to REIT qualification or the
Federal income tax consequences of such qualification.
If in any taxable year the Company does not qualify as a REIT, it would
be taxed as a regular corporation and distributions to its stockholders would
not be deductible by the Company in computing its taxable income. In addition,
unless entitled to relief under certain statutory provisions, the Company would
also be disqualified from REIT treatment for the four taxable years following
the year during which qualification was lost. This treatment would significantly
reduce the funds available for investment, distribution or payment to holders of
Securities because of the additional tax liability of the Company for the year
or years involved. In addition, the Company would no longer be required by the
Code to make any distributions.
To qualify as a REIT, the Company is required to distribute at least
95% of its taxable income to its stockholders each year. Possible timing
differences between receipt of income and payment of expenses, and the inclusion
and deduction of such amounts in determining taxable income, could require the
Company to borrow funds or dispose of assets in order to pay dividends, or to
reduce its dividends below the level necessary to maintain its qualification as
a REIT, which would have material adverse tax consequences.
QUALIFICATION OF CERTAIN ENTITIES AS PARTNERSHIPS FOR FEDERAL INCOME TAX
PURPOSES; IMPACT ON REIT STATUS
PGP Inland Communities, L.P., the Company's subsidiary operating
partnership, and Pacific Inland Communities, LLC, the entity used to effect
certain tax-exempt financing of the Company (collectively, the "Partnerships"),
are intended to be treated as partnerships for Federal income tax purposes. If
the Internal Revenue Service, (the "IRS") were to successfully challenge the
status of either or both of the Partnerships as partnerships for Federal income
tax purposes, then either or both of the Partnerships would be treated as an
association taxable similar to a corporation. In such event, for Federal income
tax purposes the character of the Company's assets and income pertaining to its
interest in the Partnerships would change, and could cause the Company to fail
to meet the requirements for taxation as a REIT for Federal income tax purposes
and therefore to be taxed as a regular corporation. The imposition
12
<PAGE> 15
of a corporate tax on the Company and on one or both of the Partnerships would
significantly reduce the funds available for investment, distribution or payment
to holders of the Securities.
Other REIT Taxes. Although qualified to be taxed as a REIT, certain
transactions or other events could lead to the Company being taxed at rates
ranging from 4% to 100% on certain income or gains.
DEPENDENCE ON KEY PERSONNEL
The Company's management has substantial experience in acquiring,
managing and financing industrial and multifamily properties. The Company
believes that its success will depend in significant part upon the efforts of
such persons and that it may be difficult to replace such persons with
individuals having comparable experience.
ISSUANCE OF SHARES MAY ADVERSELY AFFECT MARKET PRICE OF COMMON STOCK AND DILUTE
PER SHARE AMOUNTS AVAILABLE FOR DISTRIBUTION
Future issuances of substantial amounts of Common Stock upon conversion
of the Company's 8.375% Convertible Subordinated Debentures (the "Debentures")
could adversely affect the market price for the Common Stock and dilute per
share amounts available for distribution to stockholders. An aggregate of
$56,551,000 in principal amount of Debentures, convertible into an aggregate of
3,036,710 additional shares of Common Stock, was issued by the Company in
February 1994. In December 1996, the Company consummated an exchange offer
pursuant to which it issued an aggregate of 2,440,002 shares of Common Stock in
exchange for $42,069,000 in principal amount of Debentures (at a rate of 58
shares of Common Stock for each $1,000 principal amount of Debentures).
Accordingly, an aggregate of $14,437,000 in principal amount of Debentures is
currently outstanding. The Debentures are convertible at any time at the
election of the holders at a rate of 53.6986 shares of Common Stock per $1,000
principal amount of Debentures, resulting in 268,852 issuable shares.
DESCRIPTION OF CAPITAL STOCK
The summary of the terms of the Company's Capital stock set forth below
does not purport to be complete and is subject to and qualified in its entirety
by reference to the Articles of Incorporation and Bylaws of the Company.
GENERAL
The Articles of Incorporation of the Company provide that the Company
may issue up to 60,000,000 shares of capital stock, consisting of 25,000,000
shares of common stock, par value $.01 per share (the "Common Stock"),
30,000,000 shares of excess stock, par value $.01 per share (the "Excess
Shares"), and 5,000,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock"). As of March 3, 1997, 12,058,273 shares of Common Stock were
issued and outstanding. On December 31, 1996, the Company entered into an
agreement to issue 1,351,351 shares of Class A Senior Cumulative Convertible
Preferred Stock to an institutional investor on or before December 31, 1997.
Under Maryland law, stockholders generally are not liable for a corporation's
debts or obligations.
COMMON STOCK
Any shares of Common Stock offered hereby by the Company will be issued
and delivered upon receipt of payment. Subject to the preferential rights of any
other shares or series of capital stock and to
13
<PAGE> 16
the provisions of the Company's Articles of Incorporation regarding Excess
Shares, holders of Common Stock will be entitled to receive distributions on
such shares if, as and when authorized and declared by the Board of Directors of
the Company out of assets legally available therefor, and to share ratably in
the assets of the Company legally available for distribution to its stockholders
in the event of its liquidation, dissolution or winding-up after payment of, or
adequate provision for, all known debts and liabilities of the Company.
The Company commenced quarterly distributions on its Common Stock on
April 15, 1994, and intends to continue making quarterly distributions on the
outstanding shares of Common Stock.
Subject to the provisions of the Company's Articles of Incorporation
regarding Excess Shares and to the matters discussed under "Certain Provisions
of Maryland Law and of the Company's Articles of Incorporation and Bylaws --
Control Share Acquisitions," each outstanding share of Common Stock entitles the
holder to one vote on all matters submitted to a vote of stockholders, including
the election of directors, and, except as otherwise required by law or except as
provided with respect to any other class or series of stock, the holders of such
Common Stock will possess the exclusive voting power. There is no cumulative
voting in the election of directors, which means that the holders of a plurality
of the outstanding Common Stock can elect all of the directors then standing for
election and the holders of the remaining Common Stock will not be able to elect
any directors.
Holders of Common Stock have no conversion, sinking fund, redemption
rights or preemptive rights to subscribe for any securities of the Company.
Subject to the provisions of the Company's Articles of Incorporation
regarding Excess Shares, all shares of Common Stock will have equal dividend,
distribution, liquidation and other rights, and will have no preference,
appraisal or exchange rights.
Pursuant to the Maryland General Corporation Law (the "MGCL"), a
corporation generally cannot dissolve, amend its Articles of Incorporation,
merge, transfer all or substantially all of its assets, engage in a share
exchange or engage in certain similar fundamental transactions unless
recommended by the Board of Directors and approved by the affirmative vote of
stockholders holding at least two-thirds of the shares entitled to vote on the
matter unless a lesser percentage (but not less than a majority of all of the
votes entitled to be cast on the matter) is set forth in the corporation's
Articles of Incorporation. The Company's Articles of Incorporation require the
affirmative vote of stockholders holding at least a majority of all the votes
entitled to be cast on such matters. In addition, a number of other provisions
of the MGCL could have a significant effect on the Common Stock and the rights
and obligations of holders thereof. See "Certain Provisions of Maryland Law and
of the Company's Articles of Incorporation and Bylaws."
The transfer agent and registrar for the Common Stock is Harris Trust
Company of California.
CLASS A SENIOR CUMULATIVE CONVERTIBLE PREFERRED STOCK
On December 31, 1996, the Company entered into an agreement to issue
1,351,351 shares of Class A Senior Cumulative Convertible Preferred Stock (the
"Class A Preferred Shares") to Five Arrows Realty Securities L.L.C. ("Five
Arrows") at a price of $18.50 per share. The Company is obligated to issue the
Class A Preferred Shares over the course of 1997 in a maximum of three separate
issuances, the timing of which may be specified by the Company, provided that
the Company will be charged with certain availability fees if all of the Class A
Preferred Shares are not issued before July 1, 1997. Management
14
<PAGE> 17
believes the issuance of Class A Preferred Shares will provide the Company with
ready access to additional capital in order to complete additional acquisitions
or to provide additional working capital.
The holders of the Class A Preferred Shares and the holders of the
Common Stock vote together as a single class. Each Class A Preferred Share is
convertible into one share of Common Stock, subject to adjustment upon certain
events. The annual dividend per share on the Class A Preferred Shares is (i)
$1.70 from the date of issuance until December 31, 1997, and (ii) the greater of
$1.70 or 104% of the then-current dividend on the Common Stock thereafter. The
liquidation preference of the Class A Preferred Shares is $18.50 per share, plus
an amount equal to any accumulated, accrued and unpaid dividends. The Company
may redeem the Class A Preferred Shares beginning on December 31, 2001 for cash
in an amount equal to $18.50 per Class A Preferred Share plus accrued and unpaid
dividends and plus a premium initially equal to 6.0% of $18.50. This premium
decreases to zero after December 31, 2009.
The Company has granted to Five Arrows, for as long as Five Arrows
maintains its ownership of either all of the Class A Preferred Shares or an
amount of voting securities that, if converted into Common Stock, would exceed
10% of the outstanding Common Stock, a seat on the Company's Board of Directors.
In addition, upon the occurrence of the failure of the Company to pay a
quarterly dividend on the Common Stock in an amount of at least $.40 per share,
the failure of the Company to meet certain earnings before interest,
depreciation and amortization budgets for three consecutive quarters or the
failure of the Company to pay accrued dividends on the Class A Preferred Shares,
Five Arrows would be granted one additional seat on the Board.
Five Arrows is prohibited from transferring any Class A Preferred
Shares, or any shares of Common Stock into which such Class A Preferred Shares
have been converted, until December 31, 1997. At that time, Five Arrows will
have the right, subject to certain conditions, to demand the Company effect the
registration under the Securities Act of 1933, as amended, of the Class A
Preferred Shares or the shares of Common Stock into which such Class A Preferred
Shares have been converted.
OWNERSHIP AND TRANSFER RESTRICTIONS AND REDEMPTION PROVISIONS
For the Company to qualify as a REIT under the Code, not more than 50%
in value of its issued and outstanding capital stock may be owned, directly or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year, and the shares of
issued and outstanding capital stock of the Company must be beneficially owned
by 100 or more persons during at least 335 days of a taxable year of twelve
months (or during a proportionate part of a shorter taxable year). Because the
Board of Directors believes it is essential for the Company to qualify as a
REIT, the Board of Directors has included certain provisions in the Articles of
Incorporation restricting the acquisition of the Company's capital stock,
including Common Stock and Preferred Stock (the "Ownership Limit Provision").
The Ownership Limit Provision provides that, subject to certain
exceptions, no stockholder may own, or be deemed to own by virtue of the
constructive ownership provisions of the Code, more than the Ownership Limit,
which is equal to 9.8% in value or in number, whichever is more restrictive, of
the issued and outstanding capital stock of the Company. The constructive
ownership rules are complex and may cause capital stock owned directly or
constructively by a group of related individuals or entities to be
constructively owned by one individual or entity. As a result, the acquisition
of less than 9.8% in value or in number of shares of the capital stock (or the
acquisition of an interest in an entity which owns Common Stock) by an
individual or entity could cause that individual or entity (or another
individual or entity) to constructively own in excess of 9.8% in value or in
number of the issued and outstanding capital stock of
15
<PAGE> 18
the Company, and thus subject such capital stock to the Ownership Limit. In
addition, for these purposes, Common Stock that may be acquired upon conversion
of the Debentures owned or deemed owned by an investor, but not Common Stock
issuable with respect to Debentures held by others, are deemed to be owned by
the investor and outstanding prior to conversion, for purposes of determining
the percentage of ownership of capital stock owned by that investor.
The Board of Directors may waive the Ownership Limit with respect to a
particular stockholder if evidence satisfactory to the Board of Directors and
the Company's tax counsel is presented that such ownership will not then or in
the future jeopardize the Company's status as a REIT. As a condition of such
waiver, the Board of Directors may require opinions of counsel satisfactory to
it and an undertaking from the applicant with respect to preserving the REIT
status of the Company. If shares of capital stock are issued or transferred to
any person, which would result in a violation of the Ownership Limit, or which
would cause the Company to be beneficially owned by fewer than 100 persons, such
issuance or transfer shall be null and void ab initio, and the intended
transferee will acquire no rights to, or economic interest in, the capital
stock.
The Articles of Incorporation provide that a transfer or other event
that results in a person owning capital stock in excess of the Ownership Limit
is null and void ab initio as to the intended transferee or purported owner, and
the intended transferee or purported owner acquires or retains no rights or
economic interest in those shares of capital stock. However, if the Company
obtains a ruling by the United States Internal Revenue Service ( the "IRS"),
that provides in form and substance satisfactory to the Board of Directors of
the Company that the issuance by the Company of Excess Stock and the immediate
conversion of the Common Stock or Preferred Stock into such Excess Stock will
not cause the Company to fail to satisfy the requirements that must be met to
qualify for treatment as a REIT (an "IRS Ruling Satisfactory to the
Corporation"), capital stock purportedly owned, or deemed to be owned, or
transferred to a person in excess of the Ownership Limit, will automatically be
exchanged for Excess Shares that will be transferred, by operation of law, to a
trust for the exclusive benefit of the transferee or transferees to whom the
capital stock may ultimately be transferred (without violating the Ownership
Limit). While held in trust, the Excess Shares will not be entitled to vote,
will not be considered outstanding for purposes of any stockholder vote or the
determination of a quorum for such vote, and will not be entitled to participate
in any distributions made by the Company. Any dividend or distribution paid to a
proposed transferee or owner on Excess Shares prior to the discovery by the
Company that such shares have become directly or constructively owned in
violation of the Company's Articles of Incorporation shall be repaid to the
Company upon demand. The intended transferee or owner may, at any time the
Excess Shares are held by the Company in trust, transfer the Excess Shares at a
price not to exceed the price paid by the intended transferee or owner to any
person whose ownership of such Excess Shares would be permitted under the
Ownership Limit, at which time the Excess Shares will automatically be exchanged
for shares of capital stock. In addition, the Company would have the right, for
a period of 90 days during the time the Excess Shares are held by the Company in
trust, to purchase all or any portion of the Excess Shares from the intended
transferee or owner at a price equal to the lesser of the price paid for the
shares of capital stock by the intended transferee or owner and the closing
market price for the shares of capital stock on the date the Company exercises
its option to purchase the capital stock. This period commences on the date of
the violative transfer of ownership if the intended transferee or owner gives
notice of the transfer to the Company, or the date the Board of Directors
determines that a violative transfer has occurred with no notices provided.
The Ownership Limit will not be automatically removed even if the REIT
provisions of the Code are changed so as to no longer contain any ownership
concentration limitation or if the Board of Directors and the stockholders of
the Company determine that it is no longer in the best interest of the Company
to
16
<PAGE> 19
attempt to qualify, or to continue to qualify, as a REIT. Except as otherwise
described above, any change of the Ownership Limit would require an amendment to
the Articles of Incorporation. Amendments to the Articles of Incorporation
require recommendation by the Board of Directors and the affirmative vote of
stockholders holding at least a majority of all the votes entitled to be cast on
the matter. 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 REIT without the approval of the Board of Directors.
All certificates representing shares of capital stock will bear a
legend referring to the restrictions described above.
All persons who own a specified percentage (or more) of outstanding
capital stock must file an affidavit with the Company containing information
regarding their ownership of capital stock, as set forth in the Treasury
Regulations. Under current Treasury Regulations, the percentage will be set
between one-half of one percent and five percent, depending on the number of
record holders of capital stock. In addition, each stockholder shall upon demand
by the Company 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 Code applicable to a REIT or to comply with the requirements of any
taxing authority or government agency.
The ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority, of
capital stock might receive a premium for their shares over the then prevailing
market price or which such holders might believe to be otherwise in their best
interest.
DESCRIPTION OF PREFERRED STOCK
GENERAL
The following description of terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Certain other terms of any series of the
Preferred Stock offered by any Prospectus Supplement will be described in such
Prospectus Supplement. The description of certain provisions of the Preferred
Stock set forth below and in any Prospectus Supplement does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Company's Articles of Incorporation and the Board of Directors' resolution or
resolutions relating to each series of the Preferred Stock which will be filed
with the Commission and incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part at or prior to the
time of the issuance of such series of Preferred Stock.
Subject to limitations prescribed by the MGCL and the Articles of
Incorporation, the Board of Directors is authorized to issue shares of Preferred
Stock in one or more series, to establish from time to time the number of shares
of Preferred Stock to be included in any such series and to fix for any such
series the designation and any preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption. The Company is authorized to issue five million shares
of Preferred Stock. On December 31, 1996, the Company entered into an agreement
to issue 1,351,351 shares of Class A Senior Cumulative Convertible Preferred
Stock to an institutional investor on or before December 31, 1997.
The Preferred Stock shall have the dividend, liquidation, redemption
and voting rights set forth below, unless otherwise provided in a Prospectus
Supplement relating to a particular series of the Preferred Stock. Reference is
made to the Prospectus Supplement relating to the particular series of the
Preferred
17
<PAGE> 20
Stock offered thereby for specific terms, including: (i) the designation and
stated value per share of such Preferred Stock and the number of shares offered;
(ii) the amount of liquidation preference per share; (iii) the initial public
offering price at which such Preferred Stock will be issued; (iv) the dividend
rate (or method of calculation), the dates on which dividends shall be payable
and the dates from which dividends shall commence to cumulate, if any; (v) any
redemption or sinking fund provisions; (vi) any conversion right; (vii) any
listing of the Preferred Stock on any securities exchange; (viii) any additional
voting, dividend, liquidation, redemption, sinking fund and other rights,
preferences, privileges, limitations and restrictions not in conflict with the
Articles of Incorporation or the MGCL; (ix) a discussion of Federal income tax
considerations applicable to the Preferred Stock; (x) the relative ranking and
preferences of the Preferred Stock as to dividends and rights upon liquidation;
and (xi) any limitations on direct or beneficial ownership and restrictions on
transfer. The Preferred Stock will, when issued for lawful consideration
therefor, be fully paid and nonassessable and will have no preemptive rights.
Unless otherwise indicated in a Prospectus Supplement relating thereto,
Harris Trust Company of California will be the transfer agent and registrar for
shares of each series of Preferred Stock.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights upon liquidation, dissolution or
winding up of the Company, rank: (i) senior to all classes or series of Common
Stock 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 equity securities issued by the Company
the terms of which specifically provide that such equity securities rank senior
to the Preferred Stock. The rights of the holders of each series of Preferred
Stock will be subordinate to those of the Company's general creditors.
DIVIDENDS
Holders of each series of Preferred Stock shall 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 dividends at such rates and on such dates as
will be set forth in the applicable Prospectus Supplement. Such rate may be
fixed or variable or both. Each such dividend shall be payable to holders of
record as they appear on the share transfer books of the Company on such record
dates as shall be fixed by the Board of Directors, as specified in the
Prospectus Supplement relating to such series of Preferred Stock.
Dividends on any series of Preferred Stock may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors fails to declare a
dividend payable on a dividend payment date on any series of Preferred Stock for
which dividends are noncumulative, then the holders of such series of Preferred
Stock will have no right to receive a dividend in respect of the dividend period
ending on such dividend payment date, and the Company will have no obligation to
pay the dividend accrued for such period, whether or not dividends on such
series are declared payable on any future dividend payment date. Dividends on
shares of each series of Preferred Stock for which dividends are cumulative will
accrue from the date on which the Company initially issues shares of such
series.
So long as any series of Preferred Stock shall be outstanding, unless:
(i) full dividends (including, if such dividends are cumulative, dividends for
prior dividend periods) shall have been paid or declared and set apart for
payment on all outstanding shares of Preferred Stock of such series and all
other classes and
18
<PAGE> 21
series of Preferred Stock (other than "Junior Stock," as defined below); and
(ii) the Company is not in default or in arrears with respect to the mandatory
or optional redemption or mandatory repurchase or other mandatory retirement of,
or with respect to any sinking or other analogous fund for, any shares of
Preferred Stock of such series or any other Preferred Stock of any class or
series (other than Junior Stock), the Company may not declare any dividends on
any Common Stock or any other equity securities of the Company ranking as to
dividends or distributions of assets junior to such series of Preferred Stock
(the Common Stock and any such other equity securities being herein referred to
as "Junior Stock"), or make any payment on account of, or set apart money for
the purchase, redemption of other retirement of or for a sinking or other
analogous fund, for any Junior Stock or make any distribution in respect
thereof, whether in cash or property or in obligations or equity securities of
the Company, other than shares of Junior Stock which are neither convertible
into, nor exchangeable or exercisable for, any securities of the Company other
than shares of Junior Stock.
Any dividend payment made on a series of Preferred Stock shall first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remains payable.
REDEMPTION
A series of Preferred Stock may be redeemable in whole or in part, from
time to time, at the option of the Company, or may be subject to mandatory
redemption pursuant to a sinking fund or otherwise, in each case upon the terms,
at the times and at the redemption prices set forth in the Prospectus Supplement
related to such series. Shares of Preferred Stock redeemed by the Company will
be restored to the status of authorized but unissued Preferred Stock of the
Company.
The Prospectus Supplement relating to a series of Preferred Stock that
is subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Stock does not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Stock of any series is payable only from the net
proceeds of the issuance of equity securities of the Company, the terms of such
series of Preferred Stock may provide that, if no such equity securities 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 equity securities of the Company pursuant to conversion provisions
specified in the applicable Prospectus Supplement.
So long as any dividends on shares of any series of Preferred Stock or
any other series of Preferred Stock of the Company ranking on a parity as to
dividends and distribution of assets with such series of Preferred Stock are in
arrears, no shares of any such series of Preferred Stock or such other series of
Preferred Stock of the Company will be redeemed (whether by mandatory or
optional redemption) unless all such shares are simultaneously redeemed, and the
Company will not purchase or otherwise acquire any such shares; provided,
however, that the foregoing will not prevent the purchase or acquisition of such
shares pursuant to a purchase or exchange offer made on the same terms to
holders of all such shares outstanding.
In the event that fewer than all of the outstanding shares of a series
of Preferred Stock are to be redeemed, whether by mandatory or optional
redemption, the number of shares to be redeemed will be
19
<PAGE> 22
determined by lot or pro rata (subject to rounding to avoid fractional shares)
as may be determined by the Company or by any other method as may be determined
by the Company in its sole discretion to be equitable. From and after the
redemption date (unless default shall be made by the Company in providing for
the payment of the redemption price plus accumulated and unpaid dividends, if
any), dividends shall cease to accumulate on the shares of Preferred Stock
called for redemption and all rights of the holders thereof (except the right to
receive the redemption price plus accumulated and unpaid dividends, if any)
shall cease.
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 Junior Stock, 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 (set forth in the applicable
Prospectus Supplement), plus an amount equal to all dividends accrued and unpaid
thereon (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such Preferred Stock does not have a cumulative
dividend). 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 equity
securities of the Company ranking on a parity with the Preferred Stock in the
distribution of assets, then the holders of the Preferred Stock and all other
such classes or series of equity securities 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 shares of Junior Stock, 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, or the sale, lease or conveyance of all or
substantially all of the assets or business of the Company, shall not be deemed
to constitute a liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Except as indicated below or in a Prospectus Supplement relating to a
particular series of Preferred Stock, or except as required by applicable law,
holders of the Preferred Stock will not be entitled to vote for any purpose.
So long as any series of Preferred Stock remains outstanding, the
consent or the affirmative vote of the holders of at least a majority of the
votes entitled to be cast with respect to the then outstanding shares of such
series of Preferred Stock together with any "Other Preferred Stock" (as defined
below), voting as one class, either expressed in writing or at a meeting called
for that purpose, will be necessary: (i) to permit, effect or validate the
authorization, or any increase in the authorized amount, of any class or series
of equity securities of the Company ranking prior to Preferred Stock of such
series as to dividends, voting or upon distribution of assets; and (ii) to
repeal, amend or otherwise change any of the provisions applicable to the
Preferred Stock of such series in any manner which adversely affects the powers,
preferences, voting power or other rights or privileges of such series of
Preferred Stock. In case any series
20
<PAGE> 23
of Preferred Stock would be so affected by any such action referred to in clause
(ii) above in a different manner than one or more series of Other Preferred
Stock which will also be affected, the holders of the Preferred Stock of such
series, together with any series of Other Preferred Stock which will be
similarly affected, will be entitled to be cast with respect to each such series
of Preferred Stock and Other Preferred Stock then outstanding, in lieu of the
consent or affirmative vote hereinafter otherwise required.
With respect to any matter as to which the Preferred Stock of any
series is entitled to vote, holders of the Preferred Stock of such series and
any other series of Preferred Stock ranking on a parity with such series of
Preferred Stock as to dividends and distributions of assets and which by its
terms provides for similar voting rights (the "Other Preferred Stock") will be
entitled to cast the number of votes set forth in the Prospectus Supplement with
respect to that series of Preferred Stock. As a result of the provisions
described in the preceding paragraph requiring the holders of shares of a series
of Preferred Stock to vote together as a class with the holders of shares of one
or more series of Other Preferred Stock, it is possible that the holders of such
shares of Other Preferred Stock could approve actions that would adversely
affect such series of Preferred Stock, including the creation of a class of
shares of stock ranking prior to such shares of Preferred Stock as to dividends,
voting or distributions of assets.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are 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,
the 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 the provisions affecting conversion.
21
<PAGE> 24
DESCRIPTION OF WARRANTS
The Company may issue warrants to purchase Debt Securities (the "Debt
Warrants"), Preferred Stock (the "Preferred Stock Warrants") or Common Stock
(the "Common Stock Warrants," collectively with the Debt Warrants and the
Preferred Stock Warrants, the "Warrants"). Warrants may be issued independently
or together with any Securities and may be attached to or separate from such
Securities. The Warrants are to be issued under warrant agreements (each, a
"Warrant Agreement") to be entered into between the Company and a bank or trust
company, as warrant agent (the "Warrant Agent"), all as shall be set forth in
the Prospectus Supplement relating to the Warrants being offered pursuant
thereto.
DEBT WARRANTS
The applicable Prospectus Supplement will describe the terms of Debt
Warrants offered thereby, the Warrant Agreement relating to such Debt Warrants
and the debt warrant certificates representing such Debt Warrants, including the
following: (1) the title of such Debt Warrants; (2) the aggregate number of such
Debt Warrants; (3) the price or prices at which such Debt Warrants will be
issued; (4) the designation, aggregate principal amount and terms of the Debt
Securities purchasable upon exercise of such Debt Warrants, and the procedures
and conditions relating to the exercise of such Debt Warrants; (5) the
designation and terms of any related Debt Securities with which such Debt
Warrants are issued, and the number of such Debt Warrants issued with each such
security; (6) the date, if any, on and after such Debt Warrants and the related
Debt Securities will be separately transferable; (7) the principal amount of
Debt Securities purchasable upon exercise of each Debt Warrant, and the price at
which such principal amount of Debt Securities may be purchased upon such
exercise; (8) the date on which the right to exercise such Debt Warrants shall
commence, and the date on which such right shall expire; (9) the maximum or
minimum number of such Debt Warrants that may be exercised at any time; (10) a
discussion of material federal income tax considerations, if any; and (11) any
other terms of such Debt Warrants and terms, procedures and limitations relating
to the exercise of such Debt Warrants.
Debt Warrant certificates will be exchangeable for new Debt Warrant
certificates of different denominations, and Debt Warrants may be exercised at
the corporate trust office of the Warrant Agent or any other office indicated in
the Prospectus Supplement. Prior to the exercise of their Debt Warrants, holders
of Debt Warrants will not have any of the rights of holders of the securities
purchasable upon such exercise and will not be entitled to payments of principal
of (or premium, if any) or interest, if any, on the securities purchasable upon
such exercise.
OTHER WARRANTS
The applicable Prospectus Supplement will describe the following terms
of Preferred Stock Warrants and Common Stock Warrants in respect of which this
Prospectus is being delivered: (1) the title of such Warrants; (2) the
Securities for which such Warrants are exerciseable; (3) the price or prices at
which such Warrants will be issued; (4) the number of such Warrants issued with
each share of Preferred Stock or Common Stock: (5) the number of Securities
purchaseable upon exercise of such Warrants and the price at which such
Securities may be purchased upon such exercise; (6) any provisions for
adjustment of the number or amount of shares of Preferred Stock or Common Stock
receivable upon exercise of such Warrants or the exercise price of such
Warrants; (7) if applicable, the date on and after which such Warrants and the
related Preferred Stock or Common Stock will be separately transferable; (8) if
applicable, a discussion of material federal income tax considerations; (9) any
other terms of such Warrants, including terms, procedures and limitations
relating to the exchange and exercise of such Warrants; (10) the date on which
the right to exercise such Warrants shall commence, and the date on
22
<PAGE> 25
which such right shall expire; and (11) the maximum or minimum number of such
Warrants that may be exercised at any time.
EXERCISE OF WARRANTS
Each Warrant will entitle the holder of Warrants to purchase for cash
such principal amount of Debt Securities or shares of Preferred Stock or Common
Stock at such exercise price as shall in each case be set forth in, or be
determinable as set forth in, the Prospectus Supplement relating to the Warrants
offered thereby. Warrants may be exercised at any time up to the close of
business on the expiration date set forth in the Prospectus Supplement relating
to the Warrants offered thereby. After the close of business on the expiration
date, unexercised Warrants will become void.
Warrants may be exercised as set forth in the Prospectus Supplement
relating to the Warrants offered thereby. Upon receipt of payment and the
warrant certificate properly completed and duly executed at the corporate trust
office of the Warrant Agent or any other office indicated in the Prospectus
Supplement, the Company will, as soon as practicable, forward the Debt
Securities or shares of Preferred Stock or Common Stock purchasable upon such
exercise. If less than all of the Warrants represented by such warrant
certificate are exercised, a new warrant certificate will be issued for the
remaining Warrants.
23
<PAGE> 26
DESCRIPTION OF THE DEBT SECURITIES
The following sets forth certain general terms and provisions of the
indentures under which the Debt Securities are to be issued. The particular
terms of the Debt Securities will be set forth in a Prospectus Supplement
relating to such Debt Securities.
The Debt Securities will represent unsecured general obligations of the
Company, unless otherwise provided in the Prospectus Supplement. As indicated in
the applicable Prospectus Supplement, the Debt Securities will either be senior
debt, senior to all future subordinated indebtedness of the Company and pari
passu with other current and future unsecured, unsubordinated indebtedness of
the Company or, in the alternative, subordinated debt subordinate in right of
payment to current and future senior debt and pari passu with other future
subordinated indebtedness of the Company. The Debt Securities will be issued
under an indenture in the form that has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part, subject to such
amendments or supplemental indentures as are adopted from time to time (each an
"Indenture" and collectively, the "Indentures"). The Indentures will be executed
by the Company and one or more trustees (each a "Trustee"). The following
summary of certain provisions of the Indentures does not purport to be complete
and is subject to, and qualified in its entirety by, reference to all the
provisions of the Indentures, including the definitions therein of certain
terms. Wherever particular sections or defined terms of the Indentures are
referred to, it is intended that such sections or defined terms shall be
incorporated herein by reference.
GENERAL
The Indentures will not limit the amount of Debt Securities that may be
issued thereunder. Reference is made to the Prospectus Supplement of the
following terms of the Debt Securities offered pursuant thereto: (i) designation
(including whether they are senior debt or subordinated debt and whether such
debt is convertible), aggregate principal amount, purchase price and
denomination; (ii) the date of maturity; (iii) interest rate or rates (or method
by which such rate will be determined), if any; (iv) the dates on which any such
interest will be payable; (v) the place or places where the principal of and
interest, if any, on the Debt Securities will be payable; (vi) any redemption or
sinking fund provisions; (vii) any rights of the holders of Debt Securities
(each a "Holder") to convert the Debt Securities into other securities or
property of the Company; (viii) the terms, if any, on which such Debt Securities
will be subordinate to other debt of the Company; (ix) if other than the
principal amount hereof, the portion of the principal amount of the Debt
Securities that will be payable upon declaration of acceleration of the maturity
thereof or provable in bankruptcy; (x) any Events of Default in addition to or
in lieu of those described herein and remedies therefor; (xi) any trustees,
authenticating or paying agents, transfer agents or registrars or any other
agents with respect to the Debt Securities; (xii) listing (if any) on a
securities exchange; (xiii) whether such Debt Securities will be certificated or
in book-entry form; and (xiv) any other specific terms of the Debt Securities,
including any additional events of default or covenants provided for with
respect to Debt Securities, and any terms that may be required by or advisable
under United States laws or regulations.
Debt Securities may be presented for exchange or transfer in the
manner, at the places and subject to the restrictions set forth in the Debt
Securities and the Prospectus Supplement. Such services will be provided without
charge, other than any tax or other governmental charge payable in connection
therewith, but subject to the limitations provided in the Indentures.
Debt Securities will bear interest at a fixed rate or a floating rate.
Debt Securities bearing no interest or interest at a rate that, at the time of
issuance, is below the prevailing market rate, will be sold at a discount below
its stated principal amount. Special United States federal income tax
considerations applicable to any such discounted Debt Securities or to any Debt
Securities issued at par that is treated as
24
<PAGE> 27
having been issued at a discount for United States income tax purposes will be
described in the relevant Prospectus Supplement.
The Indentures will not contain any covenant or other specific
provision affording protection to holders of the Debt Securities in the event of
a highly leveraged transaction or a change in control of the Company, except to
the limited extent described below under "--Consolidation, Merger and Sale of
Assets." Restrictions on ownership and transfers of the Company's Capital stock
are designed to preserve its status as a REIT and, therefore, may act to prevent
or hinder a change of control. The Company's Articles of Incorporation and
Bylaws also contain other provisions which may prevent or limit a change of
control. See "Description of Capital stock."
MODIFICATION AND WAIVER
Each Indenture will provide that modifications and amendments of such
Indenture may be made by the Company and the applicable Trustee, with the
consent of the Holders of a majority in aggregate principal amount of the
outstanding Debt Securities issued under such Indenture that are affected by the
modification or amendment voting as one class; provided that no such
modification or amendment may, without the consent of the Holder of each such
Debt Security affected thereby, among other things: (a) extend the final
maturity of such Debt Securities, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, or reduce any
amount payable on redemption thereof, or reduce the amount of the principal of
Debt Securities issued with original issue discount that would be due and
payable upon an acceleration of the maturity thereof or the amount thereof
provable in bankruptcy, or extend the time or reduce the amount of any payment
to any sinking fund or analogous obligation relating to such Debt Securities, or
materially and adversely affect any right to convert such Debt Securities in
accordance with such Indenture or impair or affect the right of any Holder of
Debt Securities to institute suit for the payment thereof or, if such Debt
Securities provide therefor, any right of repayment at the option of the Holder,
(b) reduce the aforesaid percentage of such Debt Securities of any series, the
consent of the Holders of which is required for any such supplemental indenture,
(c) reduce the percentage of such Debt Securities of any series necessary to
consent to waive any past default under such Indenture to less than a majority,
or (d) modify any of the provisions of the sections of such Indenture relating
to supplemental indentures with the consent of the Holders, except to increase
any such percentage or to provide that certain other provisions of such
Indenture cannot be modified or waived without the consent of each Holder
affected thereby, provided, however, that this clause shall not be deemed to
require the consent of any Holder with respect to changes in the references to
"the Trustee" and concomitant changes in such section or the deletion of this
proviso.
Each Indenture will provide that a supplemental indenture that changes
or eliminates any covenant or other provision of such Indenture that has
expressly been included solely for the benefit of one or more particular series
of Debt Securities, or that modifies the rights of the Holders of such series
with respect to such covenant or other provision, shall be deemed not to affect
the rights under such Indenture of the Holders of Debt Securities of any other
series.
The indenture in the form that has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part and each supplemental
indenture entered into thereunder will provide that the Company and the
applicable Trustee may, without the consent of the Holders of any series of Debt
Securities issued thereunder, enter into additional supplemental indentures for
one of the following purposes: (1) to secure any Debt Securities issued
thereunder; (2) to evidence the succession of another corporation to the Company
and the assumption by any such successor of the covenants, agreements and
obligations of the Company in such Indenture and in the Debt Securities issued
thereunder; (3) to add to the covenants of the Company or to add any additional
events of default; (4) to cure any ambiguity, to correct or supplement any
provision in such Indenture that may be inconsistent with any other provision of
such Indenture or to make any other provisions with respect to matters or
questions arising under such Indenture, provided that such action shall not
adversely affect the interests of the Holders of any series of Debt
25
<PAGE> 28
Securities issued thereunder in any material respect; (5) to establish the form
and terms of Debt Securities issued thereunder; (6) to evidence and provide for
a successor trustee under such Indenture with respect to one or more series of
Debt Securities issued thereunder or to provide for or facilitate the
administration of the trusts under such Indenture by more than one trustee; (7)
to permit or facilitate the issuance of Debt Securities in global form or bearer
form or to provide for uncertificated Debt Securities to be issued thereunder;
(8) to change or eliminate any provision of such Indenture, provided that any
such change or elimination shall become effective only when there are no Debt
Securities outstanding of any series created prior to the execution of such
supplemental Indenture that are entitled to the benefit of such provision; or
(9) to amend or supplement any provision contained in such Indenture, which was
required to be contained in the Indenture in order for the Indenture to be
qualified under the Trust Indenture Act of 1939, if the Trust Indenture Act of
1939 or regulations thereunder change what is so required to be included in
qualified indentures, in any manner not inconsistent with what then may be
required for such qualification.
EVENTS OF DEFAULT
Unless otherwise provided in any Prospectus Supplement, the following
will be events of default under each Indenture with respect to each series of
Debt Securities issued thereunder: (a) failure to pay principal (or premium, if
any) on any series of the Debt Securities outstanding under such Indenture when
due; (b) failure to pay any interest on any series of the Debt Securities
outstanding under such Indenture when due, continued for 30 days; (c) default in
the payment, if any, of any sinking fund installment when due, payable by the
terms of such series of Debt Securities; (d) failure to perform any other
covenant or warranty of the Company contained in such Indenture or such Debt
Securities continued for 90 days after written notice; (e) certain events of
bankruptcy, insolvency or reorganization of the Company; and (f) any other Event
of Default provided in a supplemental indenture with respect to a particular
series of Debt Securities. In case an event of default described in (a), (b) or
(c) above shall occur and be continuing with respect to any series of such Debt
Securities, the applicable Trustee or the Holders of not less than 25% in
aggregate principal amount of the Debt Securities of such series then
outstanding (each such series acting as a separate class) may declare the
principal (or, in the case of discounted Debt Securities, the amount specified
in the terms thereof) of such series to be due and payable. In case an event of
default described in (d) above shall occur and be continuing, the applicable
Trustee or the Holders of not less than 25% in aggregate principal amount of all
Debt Securities of each affected series then outstanding under such Indenture
(treated as one class) may declare the principal (or, in the case of discounted
Debt Securities, the amount specified in the terms thereof) of all Debt
Securities of all such series to be due and payable. If an event of default
described in (e) above shall occur and be continuing then the principal amount
(or, in the case of discounted Debt Securities, the amount specified in the
terms thereof) of all the Debt Securities outstanding shall be and become due
and payable immediately, without notice or other action by any Holder or the
applicable Trustee, to the full extent permitted by law. Any event of default
with respect to particular series of Debt Securities under such Indenture may be
waived by the Holders of a majority in aggregate principal amount of the
outstanding Debt Securities of such series (voting as a class), except in each
case a failure to pay principal of or premium, if any, or interest on such Debt
Securities or a default in respect of a covenant or provision which cannot be
modified or amended without the consent of each Holder affected thereby.
Each Indenture will provide that the applicable Trustee may withhold
notice to the Holders of any default with respect to any series of Debt
Securities (except in payment of principal of or interest or premium on, or
sinking fund payment in respect of, the Debt Securities) if the applicable
Trustee considers it in the interest of Holders to do so.
The Company will be required to furnish to each Trustee annually a
statement as to its compliance with all conditions and covenants in the
applicable Indenture.
Each Indenture will contain a provision entitling the applicable
Trustee to be indemnified by the Holders before proceeding to exercise any trust
or power under such Indenture at the request of such
26
<PAGE> 29
Holders. Each Indenture will provide that the Holders of a majority in aggregate
principal amount of the then outstanding Debt Securities of any series may
direct the time, method and place of conducting any proceedings for any remedy
available to the applicable Trustee or of exercising any trust or power
conferred upon the applicable Trustee with respect to the Debt Securities of
such series; provided, however, that the applicable Trustee may decline to
follow any such direction if, among other reasons, the applicable Trustee
determines in good faith that the actions or proceedings as directed may not
lawfully be taken, would involve the applicable Trustee in personal liability or
would be unduly prejudicial to the Holders of the Debt Securities of such series
not joining in such direction. The right of a Holder to institute a proceeding
with respect to the applicable Indenture will be subject to certain conditions
precedent including, without limitation, that the Holders of not less than 25%
in aggregate principal amount of the Debt Securities of such series then
outstanding under such Indenture make a written request upon the applicable
Trustee to exercise its powers under such Indenture, indemnify the applicable
Trustee and afford the applicable Trustee reasonable opportunity to act, but the
Holder has an absolute right to receipt of the principal of, premium, if any,
and interest when due on the Debt Securities, to require conversion of Debt
Securities if such Indenture provides for convertibility at the option of the
Holder and to institute suit for the enforcement thereof.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Each Indenture will provide that the Company may not consolidate with,
merge into or sell, convey or lease all or substantially all of its assets to
any Person unless the Company is the surviving corporation or the successor
Person is a corporation organized under the laws of any domestic jurisdiction
and assumes the Company's obligations on the Debt Securities issued thereunder,
and under such Indenture, and after giving effect thereto no event of default,
and no event that, after notice or lapse of time or both, would become an event
of default shall have occurred and be continuing, and that certain other
conditions are met.
CERTAIN COVENANTS
Existence. Except as permitted under "--Consolidation, Merger or Sale
of Assets," the Indentures will require the Company to do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence, rights (by Articles of Incorporation, Bylaws and statute) and
franchises; provided, however, that the Company will not be required to preserve
any right or franchise if its Board of Directors determines that the
preservation thereof is no longer desirable in the conduct of its business.
Maintenance of Properties. The Indentures will require the Company to
cause all of its material properties used or useful in the conduct of its
business or the business of any subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that the
Company and its subsidiaries will not be prevented from selling or otherwise
disposing of their properties for value in the ordinary course of business.
Insurance. The Indentures will require the Company to cause each of its
and its subsidiaries' insurable properties to be insured against loss or damage
with insurers of recognized responsibility and, if described in the applicable
Prospectus Supplement, in specified amounts and with insurers having a specified
rating from a recognized insurance rating service.
Payment of Taxes and Other Claims. The Indentures will require the
Company to pay or discharge or cause to be paid or discharged, before the same
shall become delinquent, (i) all taxes, assessments and governmental charges
levied or imposed upon it or any subsidiary or upon the income, profits or
property of the Company or any subsidiary and (ii) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Company or any subsidiary;
27
<PAGE> 30
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith.
Provision of Financial Information. Whether or not the Company is
subject to Section 13 or 15(d) of the Exchange Act, the Indentures will require
the Company, within 15 days of each of the respective dates by which the Company
would have been required to file annual reports, quarterly reports and other
documents with the Commission if the Company were so subject, (i) to transmit by
mail to all holders of Debt Securities, as their names and addresses appear in
the applicable register for such Debt Securities, without cost to the holders,
copies of the annual reports, quarterly reports and other documents that the
Company would have been required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act if the Company were subject to such Sections,
(ii) to file with the applicable Trustee copies of the annual reports, quarterly
reports and other documents that the Company would have been required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the
Company were subject to such Sections and (iii) to supply, promptly upon written
request and payment of the reasonable cost of duplication and delivery, copies
of the documents to any prospective holder.
Additional Covenants. Any additional covenants of the Company
with respect to any series of Debt Securities will be set forth in the
Prospectus Supplement relating thereto.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the conversion price (or
manner of calculation thereof), the conversion period, provisions as to whether
conversion will be at the option of the Holders or the Company, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of redemption of such Debt Securities and any
restrictions on conversion, including restrictions directed at maintaining the
Company's REIT status.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Each Indenture will provide with respect to each series of Debt
Securities issued thereunder that the Company may terminate its obligations
under such Debt Securities of a series and such Indenture with respect to Debt
Securities of such series if: (i) all Debt Securities of such series previously
authenticated and delivered, with certain exceptions, have been delivered to the
applicable Trustee for cancellation and the Company has paid all sums payable by
it under the Indenture; or (ii) (A) the Debt Securities of such series mature
within one year or all of them are to be called for redemption within one year
under arrangements satisfactory to the applicable Trustee for giving the notice
of redemption, (B) the Company irrevocably deposits in trust with the applicable
Trustee, as trust funds solely for the benefit of the Holders of such Debt
Securities, for that purpose, money or U.S. government obligations or a
combination thereof sufficient (unless such funds consist solely of money, in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the applicable
Trustee), without consideration of any reinvestment, to pay principal of and
interest on the Debt Securities of such series to maturity or redemption, as the
case may be, and to pay all other sums payable by it under such Indenture, and
(C) the Company delivers to the applicable Trustee an officers' certificate and
an opinion of counsel, in each case stating that all conditions precedent
provided for in such Indenture relating to the satisfaction and discharge of
such Indenture with respect to the Debt Securities of such series have been
complied with. With respect to the foregoing clause (i), only the Company's
obligations to compensate and indemnify the applicable Trustee under the
Indenture shall survive. With respect to the foregoing clause (ii) only the
Company's obligations to execute and deliver Debt Securities of such series for
authentication, to maintain an office or agency in respect of the Debt
Securities of such series, to have moneys held for payment in trust, to register
the transfer or exchange of Debt Securities of such series, to deliver Debt
Securities of such series for replacement or to be canceled, to compensate and
indemnify the
29
<PAGE> 31
applicable Trustee and to appoint a successor trustee, and its right to recover
excess money held by the applicable Trustee shall survive until such Debt
Securities are no longer outstanding. Thereafter, only the Company's obligations
to compensate and indemnify the applicable Trustee and its right to recover
excess money held by the applicable Trustee shall survive.
Each Indenture will provide that the Company (i) will be deemed to have
paid and will be discharged from any and all obligations in respect of the Debt
Securities issued thereunder of any series, and the provisions of such Indenture
will, except as noted below, no longer be in effect with respect to the Debt
Securities of such series ("legal defeasance") and (ii) may omit to comply with
any term, provision, covenant or condition of such Indenture, and such omission
shall be deemed not to be an Event of Default under clause (d) of the first
paragraph of "--Events of Default" with respect to the outstanding Debt
Securities of such series ("covenant defeasance"); provided that the following
conditions shall have been satisfied: (A) the Company has irrevocably deposited
in trust with the applicable Trustee as trust funds solely for the benefit of
the Holders of the Debt Securities of such series, for payment of the principal
of and interest of the Debt Securities of such series, money or U.S. Government
Obligations or a combination thereof sufficient (unless such funds consist
solely of money, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to the
applicable Trustee) without consideration of any reinvestment and after payment
of all federal, state and local taxes or other charges and assessments in
respect thereof payable by the applicable Trustee, to pay and discharge the
principal of and accrued interest on the outstanding Debt Securities of such
series to maturity or earlier redemption (irrevocably provided for under
arrangements satisfactory to the applicable Trustee), as the case may be; (B)
such deposit will not result in a breach or violation of, or constitute a
default under, such Indenture or any other material agreement or instrument to
which the Company is a party or by which it is bound; (C) no default with
respect to such Debt Securities of such series shall have occurred and be
continuing on the date of such deposit; (D) the Company shall have delivered to
such Trustee an opinion of counsel that (1) the Holders of the Debt Securities
of such series will not recognize income, gain or loss for Federal income tax
purposes as a result of the Company's exercise of its option under this
provision of such Indenture and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred, and (2) the Holders of the
Debt Securities of such series have a valid security interest in the trust funds
subject to no prior liens under the Uniform Commercial Code; and (E) the Company
has delivered to the applicable Trustee an officers' certificate and an opinion
of counsel, in each case stating that all conditions precedent provided for in
such Indenture relating to the defeasance contemplated have been complied with.
In the case of legal defeasance under clause (i) above, the opinion of counsel
referred to in clause (D)(l) above may be replaced by a ruling directed to the
applicable Trustee received from the Internal Revenue Service to the same
effect. Subsequent to a legal defeasance under clause (i) above, the Company's
obligations to execute and deliver Debt Securities of such series for
authentication, to maintain an office or agency in respect of the Debt
Securities of such series, to have moneys held for payment in trust, to register
the transfer or exchange of Debt Securities of such series, to deliver Debt
Securities of such series for replacement or to be canceled, to compensate and
indemnify the applicable Trustee and to appoint a successor trustee, and its
right to recover excess money held by the applicable Trustee shall survive until
such Debt Securities are no longer outstanding. After such Debt Securities are
no longer outstanding, in the case of legal defeasance under clause (i) above,
only the Company's obligations to compensate and indemnify the applicable
Trustee and its right to recover excess money held by the applicable Trustee
shall survive.
APPLICABLE LAW
The Indentures will provide that the Debt Securities and the Indentures
will be governed by and construed in accordance with the laws of the State of
New York.
29
<PAGE> 32
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
The following paragraphs summarize certain provisions of Maryland law
and the Company's Articles of Incorporation and Bylaws. The summary does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Company's Articles of Incorporation and Bylaws, copies of which
are exhibits to the Registration Statement of which this Prospectus is a part,
as described in "Additional Information," and to Maryland law.
CLASSIFICATION OF THE BOARD OF DIRECTORS
The Company's Articles of Incorporation provide that the number of
directors of the Company may be established by the Board of Directors, but may
not be fewer than three nor more than eleven. Any vacancy will be filled, at any
regular meeting or at any special meeting called for that purpose, by a majority
vote by the stockholders or directors then in office. A director chosen by the
stockholders shall hold office for the balance of the term remaining. A director
so chosen by the remaining directors shall hold office until the next annual
meeting of stockholders, at which time the stockholders shall elect a director
to hold office for the balance of the term then remaining. Pursuant to the terms
of the Articles of Incorporation, the directors are divided into three classes
- -- i.e., Class I, Class II, and Class III. Presently, one class will hold office
for a term expiring at the annual meeting of stockholders to be held in 1997
(i.e., Class III), another class will hold office for a term expiring at the
annual meeting of stockholders to be held in 1998 (i.e., Class I), and another
class will hold office for a term expiring at the annual meeting of stockholders
to be held in 1999 (i.e., Class II). As the term of each class expires,
directors in that class will be elected for a term of three years or until their
successors are duly elected and qualify. The Company believes that
classification of the Board of Directors will help to assure the continuity and
stability of the Company's business strategies and policies as determined by the
Board of Directors.
The classified director provision could have the effect of making the
removal of incumbent directors more time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in a
majority of the Board of Directors. Thus, the classified board provision could
increase the likelihood that incumbent directors will retain their positions.
Holders of Common Stock will have no right to cumulative voting in the election
of directors. Consequently, at each annual meeting of stockholders, the holders
of a plurality of Common Stock will be able to elect all of the successors of
the class of directors whose term expires at that meeting.
REMOVAL OF DIRECTORS AND VACANCIES
The Articles of Incorporation provide that a director may be removed
only for cause and only by the affirmative vote of stockholders holding at least
two-thirds of all the votes entitled to be cast in the election of directors.
The Company's Bylaws provide that stockholders may elect a successor to fill a
vacancy on the Board of Directors that results from the removal of a director.
In addition, a vacant position occurring in the Board of Directors for any cause
other than an increase in the number of directors may be filled by a majority
vote of the remaining directors, even if such majority is less than a quorum or
by a majority vote of the stockholders. Any vacancy occurring in the Board of
Directors by reason of an increase in the number of directors may be filled by a
majority vote of the entire Board of Directors or by a majority vote of the
stockholders.
30
<PAGE> 33
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Articles of Incorporation limit the liability of the
Company's directors and officers to the Company and its stockholders to the
fullest extent permitted from time to time by Maryland law. Maryland law
presently permits the liability of directors and officers to a corporation or
its stockholders for money damages to be limited, except (i) to the extent that
it is proved that the director or officer actually received an improper benefit
or profit, or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceedings. This provision
does not limit the ability of the Company or its stockholders to obtain other
relief, such as an injunction or rescission.
The Company's Bylaws require the Company to indemnify its directors,
officers and certain other parties to the fullest extent permitted from time to
time by Maryland law. The MGCL permits a corporation to indemnify its directors,
officers and certain other parties against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service to
or at the request of the corporation, unless it is established that the act or
omission of the indemnified party was material to the matter giving rise to the
proceeding and (i) was committed in bad faith or was the result of active and
deliberate dishonesty or (ii) the indemnified party actually received an
improper personal benefit, or (iii) in the case of any criminal proceeding, the
indemnified party had reasonable cause to believe that the act or omission was
unlawful. Indemnification may be made against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by the director or officer
in connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the corporation, indemnification may not be made with
respect to any proceeding in which the director or officer has been adjudged to
be liable to the corporation. In addition, a director or officer may not be
indemnified with respect to any proceeding charging improper personal benefit to
the director or officer in which the director or officer was adjudged to be
liable on the basis that personal benefit was improperly received. The
termination of any proceeding by judgment, order or settlement does not create a
presumption that the director did not meet the requisite standard of conduct
required for indemnification to be permitted. However, the termination of any
proceeding by conviction, or upon a plea of nolo contendere or its equivalent,
or an entry of any order of probation prior to judgment, creates a rebuttable
presumption that the director or officer did not meet the requisite standard of
conduct required for indemnification to be permitted. It is the position of the
Commission that indemnification of directors and officers for liabilities
arising under the Securities Act is against public policy and is unenforceable
pursuant to Section 14 of the Securities Act.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange, or in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns ten percent or more of the
voting power of the corporation's shares or an affiliate of the corporation who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding voting stock of the corporation (an "Interested Stockholder") or an
affiliate thereof are prohibited for five years after the most recent date on
which the Interested Stockholder became an Interested Stockholder. Thereafter,
any such business combination must be recommended by the Board of Directors of
such corporation and approved by the affirmative vote of at least (a) 80% of the
votes entitled to be cast by holders of outstanding voting shares of the
corporation voting together as a single voting group, and (b) two-thirds of the
votes entitled to be cast by holders of outstanding voting shares other than
31
<PAGE> 34
shares held by the Interested Stockholder with whom the business combination is
to be effected, unless, among other things, the corporation's stockholders
receive a minimum price (as defined in the MGCL) for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Stockholder for its shares. These provisions of Maryland law do not
apply, however, to business combinations that are approved or exempted by the
Board of Directors of the corporation prior to the time that the Interested
Stockholder becomes an Interested Stockholder. As permitted by Maryland law, the
Articles of Incorporation of the Company include a provision exempting all
future business combinations involving the Company from the operation of the
business combination statute.
CONTROL SHARE ACQUISITIONS
The Company's Bylaws currently contain a provision exempting from the
control share acquisition statute described below any and all acquisitions by
any person of shares of capital stock of the Company. The current or future
directors of the Company may decide to eliminate or amend this provision,
although no such change is currently contemplated.
The MGCL provides that "control shares" of a Maryland corporation
acquired in a "control share acquisition" have no voting rights except to the
extent approved by a vote of two-thirds of the votes entitled to be cast on the
matter, excluding shares of stock owned by the acquiror or by officers or
directors who are employees of the corporation. "Control shares" are voting
shares of stock which, if aggregated with all other such shares of stock
previously acquired by such person, or in respect of which such person is able
to exercise or direct the exercise of voting power, would entitle the acquiror
to exercise voting power in electing directors within one of the following
ranges of voting power: (i) one-fifth or more but less than one-third; (ii)
one-third or more but less than a majority; or (iii) a majority of all voting
power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained stockholder approval.
A "control share acquisition" means the acquisition of control shares, subject
to certain exceptions.
A person who has made or proposes to make a control share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the Board of Directors to call a special meeting of
stockholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring
person does not deliver an acquiring person statement as required by the
statute, then, subject to certain conditions and limitations, the corporation
may redeem any or all of the control shares (except those for which voting
rights have previously been approved) for fair value determined, without regard
to the absence of voting rights for control shares, as of the date of the last
control share acquisition or, if a meeting of stockholders is held where the
voting rights of such shares are considered and not approved, as of the date of
the meeting. If voting rights for control shares are approved at a stockholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other stockholders may exercise appraisal rights. The fair
value of the shares as determined for purposes of such appraisal rights may not
be less than the highest price per share paid in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired
in a merger, consolidation or share exchange if the Company is a party to the
transaction and such transaction is otherwise effected
32
<PAGE> 35
under the provision of the MGCL; or to acquisitions approved or exempted by the
Articles of Incorporation or Bylaws of the Company.
AMENDMENT TO THE ARTICLES OF INCORPORATION
The Company's Articles of Incorporation, including its provisions on
classification of the Board of Directors and removal of directors, may be
amended only with the recommendation of the Board of Directors and by the
affirmative vote of stockholders holding at least a majority of all the votes
entitled to be cast on the matters.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote
of stockholders holding at least a majority of all the votes entitled to be cast
on this matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (a) with respect to an annual
meeting of stockholders, nominations of persons for election to the Board of
Directors and the proposal of business to be considered by stockholders may be
made only (i) pursuant to the Company's notice of the meeting, (ii) by the Board
of Directors, or (iii) by a stockholder who is entitled to vote at the meeting
and who has complied with the advance notice procedures set forth in the Bylaws,
and (b) with respect to special meetings of stockholders, only the business
specified in the Company's notice of the meeting may be brought before the
meeting of stockholders, and nominations of persons for election to the Board of
Directors may be made only (i) pursuant to the Company's notice of meeting, (ii)
by the Board of Directors, or (iii) provided that the Board of Directors has
determined that directors shall be elected at such meeting, by a stockholder who
is entitled to vote at the meeting and who has complied with the advance notice
provisions set forth in the Bylaws.
The provisions in the Articles of Incorporation on classification of
the Board of Directors and removal of directors, the business combination and,
if the applicable provision in the Company's Bylaws is rescinded, control share
acquisition provisions of the MGCL, and the advance notice provisions of the
Bylaws could have the effect of discouraging a takeover or other transaction in
which holders of some, or a majority, of the Common Stock might receive a
premium for their Common Stock over the then prevailing market price or which
such holders might believe to be otherwise in their best interests.
PLAN OF DISTRIBUTION
The Company may sell the Securities through one or more underwriters or
dealers, directly to one or more purchasers, through agents, or through a
combination of any such methods of sale. Any such underwriter or agent involved
in the offer and sale of the Securities will be named in the applicable
Prospectus Supplement. Sales of Securities pursuant to any applicable Prospectus
Supplement may be effected from time to time in one or more transactions at a
fixed price or prices which may be changed, at prices related to the prevailing
market prices at the time of sale or at negotiated prices. The Company also may,
from time to time, authorize underwriters acting as the Company's agents to
offer and sell the Securities upon the terms and conditions as are set forth in
the applicable Prospectus Supplement. In connection with the sale of the
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of the Securities for whom they may act as
agent. Underwriters may sell the Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
33
<PAGE> 36
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or
agents in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Securities may be deemed to
be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of the Securities may be deemed to be
underwriting discounts and commissions under the Securities Act. Underwriters,
dealers, and agents may be entitled, under agreements entered into with the
Company, to indemnification against and contribution toward certain civil
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.
If so indicated in the applicable Prospectus Supplement, the Company
will authorize dealers acting as the Company's agents to solicit offers by
certain institutions to purchase the Securities at the public offering price set
forth in such Prospectus Supplement pursuant to Delayed Delivery Contracts
("Contracts") providing for payment and delivery on the date or dates stated in
such Prospectus Supplement. Each Contract will be for an amount not less than,
and the aggregate amount of the Securities sold pursuant to Contracts shall be
not less nor more than, the respective amounts stated in the applicable
Prospectus Supplement. Institutions with whom Contracts, when authorized, may be
made include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions, and other
institutions but will in all cases be subject to the approval of the Company.
Contracts will not be subject to any conditions except: (i) the purchase by an
institution of the Securities covered by its Contracts shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject; and (ii) if the Securities are being sold
to underwriters, the Company shall have sold to such underwriters the total
amount of the Securities less the amount thereof covered by the Contracts.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Stock which is listed on the New York Stock Exchange. Any
shares of Common Stock sold by the Company pursuant to a Prospectus Supplement
will be listed on such exchange, subject to official notice of issuance. The
Company may elect to list any series of Preferred Stock on any exchange, but is
not obligated to do so. It is possible that one or more underwriters may make a
market in a series of Securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. Therefore, no
assurance can be given as to the liquidity of the trading market of the
Securities.
34
<PAGE> 37
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain of the material federal
income tax considerations regarding the Company and is based on current law, is
for general information only and is not tax advice. This discussion does not
purport to deal with all aspects of taxation that may be relevant to particular
investors in light of their personal investment or tax circumstances, or to
certain types of investors including insurance companies, tax-exempt
organizations or retirement accounts (except to the extent discussed under the
heading "--Taxation of Tax-Exempt Stockholders"), financial institutions or
broker-dealers, foreign corporations, persons who are not citizens or residents
of the United States (except to the extent discussed under the heading
"--Taxation of Non-U.S. Stockholders"), and persons who own Securities as part
of a conversion transaction, as part of a hedging transaction, or as a position
in a straddle for tax purposes, which are subject to special treatment under the
federal income, estate and other tax laws.
EACH PURCHASER SHOULD CONSULT HIS OWN TAX ADVISOR AS TO THE
SPECIFIC FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF SECURITIES AND THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL,
FOREIGN OR OTHER TAX LAWS AND OF ANY POTENTIAL CHANGES IN THE APPLICABLE TAX
LAWS AFTER THE DATE HEREOF.
TAXATION OF THE COMPANY
General. The Company has made an election to be taxed as a REIT under
Sections 856 through 860 of the Code, commencing with its taxable year ended
December 31, 1994. The Company believes that it has been organized and has
operated in such a manner as to qualify for taxation as a REIT under the Code,
and the Company intends to continue to operate in such a manner, but no
assurance can be given that it has operated or will operate in a manner so as to
qualify or remain qualified.
The sections of the Code and Treasury Regulations governing REITs are
highly technical and complex. The following sets forth the material aspects of
the sections that govern the federal income tax treatment of a REIT and its
stockholders. This summary is qualified in its entirety by the applicable Code
provisions, Treasury Regulations and rules promulgated thereunder, and
administrative and judicial interpretations thereof.
In the opinion of Gibson, Dunn & Crutcher LLP, special tax counsel to
the Company, commencing with the Company's taxable year ended December 31, 1994,
the Company was organized in conformity with the requirements for qualification
as a REIT, and its method of operation has enabled, and its proposed method of
operation will enable, it to meet the requirements under the Code for
qualification and taxation as a REIT. It must be emphasized that this opinion is
based on various assumptions and is conditioned upon the accuracy of certain
representations made by the Company as to factual matters relating to the
Company's organization, operations, income, assets, distributions and stock
ownership. The Company's qualification as a REIT depends on the Company having
met and continuing to meet--through actual operating results, distribution
levels and diversity of stock ownership--the various qualification tests imposed
under the Code and discussed below, the results of which will not be reviewed by
Gibson, Dunn & Crutcher LLP. Accordingly, no assurance can be given that the
actual results of the Company's operations for any particular taxable year have
satisfied or will satisfy such requirements. An opinion of counsel is not
binding on the IRS or the courts, and no assurance can be given that the IRS
will not challenge the Company's eligibility for taxation as a REIT. Further,
the anticipated federal income tax treatment described in this Prospectus
may be changed, perhaps retroactively, by legislative, administrative or
judicial action at any time. See "--Failure to Qualify."
If the Company qualifies for taxation as a REIT, it generally will not
be subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) of income that generally
results from an investment in a regular corporation. However, the Company will
be subject to federal income tax as follows: First, the Company will be taxed at
regular corporate rates on any undistributed "REIT taxable income" (as defined
below), including undistributed net capital gains. Second, under certain
circumstances the Company may be subject to the "alternative minimum tax" as a
consequence of its items of tax preference to the extent that tax exceeds its
regular tax. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" (generally, property acquired by reason of
default on indebtedness held by the Company) that is held primarily for sale
35
<PAGE> 38
to customers in the ordinary course of business or (ii) other nonqualifying
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, if the Company has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business, other than foreclosure property), such income will be
subject to a 100% tax. Fifth, if the Company should fail to satisfy the 75%
gross income test or the 95% gross income test (as discussed below), but has
nonetheless maintained its qualification as a REIT because certain other
requirements have been met, it will be subject to a 100% tax on an amount equal
to (a) the greater of the amount by which the Company fails the 75% or 95% test,
multiplied by (b) a fraction intended to reflect the Company's profitability.
Sixth, if the Company should fail to distribute during each calendar year at
least the sum (i) 85% of its REIT ordinary income for such year, (ii) 95% of its
REIT capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, the Company would be subject to a 4% excise tax on
the excess of such required distribution over the amounts actually distributed.
Seventh, with respect to any asset (a "Built-in Gain Asset") acquired by the
Company from a corporation which is or has been a C corporation (i.e., generally
a corporation subject to full corporate-level tax) in certain transactions in
which the basis of the Built-in Gain Asset in the hands of the Company is
determined by reference to the basis of the asset in the hands of the C
corporation, if the Company recognizes gain on the disposition of such asset
during the 10-year period (the "Recognition Period") beginning on the date on
which such asset was acquired by the Company, then, to the extent of the
Built-in Gain (i.e., the excess of (a) the fair market value of such asset over
(b) the Company's adjusted basis in such asset, determined as of the beginning
of the Recognition Period), such gain will be subject to tax at the highest
regular corporate rate pursuant to IRS regulations that have not yet been
promulgated.
Requirements for Qualification. 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 Sections 856 through 859 of the
Code; (iv) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code; (v) the beneficial ownership of which
is held by 100 or more persons; (vi) in which during the last half of each
taxable year not more than 50% in value of its outstanding stock is owned,
actually or constructively, by five or fewer individuals (as defined in the Code
to include certain entities); and (vii) which meets certain other tests,
described below, regarding the nature of its income and assets. The Code
provides that conditions (i) to (iv), inclusive, must be met during the entire
taxable year and that condition (v) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months.
The Company believes that it has issued sufficient shares with
sufficient diversity of ownership to allow it to satisfy conditions (v) and
(vi). In addition, the Company's Charter provides for restrictions regarding the
transfer and ownership of shares, which restrictions are intended to assist the
Company in continuing to satisfy the share ownership requirements described in
(v) and (vi) above. Such transfer and ownership restrictions are described in
the accompanying Prospectus. These restrictions may not ensure that the Company
will, in all cases, be able to satisfy the share ownership requirements
described above. If the Company fails to satisfy such share ownership
requirements, the Company's status as a REIT will terminate. See "Failure to
Qualify."
To monitor the Company's compliance with the share ownership
requirements, the Company is required to maintain records regarding the actual
ownership of its shares. To do so, the Company must demand written statements
each year from the record holders of certain percentages of its shares of stock
in which the record holders are to disclose the actual owners of the shares
(i.e., the persons required to include in gross income the REIT dividends). A
REIT with 2,000 or more record stockholders must demand statements from record
holders of 5% or more of its shares, one with less than 2,000, but more than 200
record stockholders must demand statements from record holders of 1% or more of
the shares, while a REIT with 200 or fewer record stockholders must demand
statements from record holders of 0.5% or more of the shares. A list of those
persons failing or refusing to comply with this demand must be maintained as
36
<PAGE> 39
part of the Company's records. A stockholder who fails or refuses to comply with
the demand must submit a statement with its tax return disclosing the actual
ownership of the shares and certain other information.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to 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 Section 856 of the Code, including
satisfying the gross income tests and the assets tests, discussed below. Thus,
the Company's proportionate share of the assets, liabilities and items of income
of PGP Inland Communities, L.P., the Company's subsidiary operating partnership
and Pacific Inland Communities, LLC, the entity used to effect certain
tax-exempt financing of the Company (collectively, the "Partnerships"), are
treated as assets, liabilities and items of income of the Company for purposes
of applying the requirements described herein. The Company controls the
Partnerships and believes it has operated the Partnerships in a manner
consistent with the requirements for qualification as a REIT, and intends to
continue to operate the Partnerships in such a manner. However, there can be no
assurance that the Company has operated or will actually operate the
Partnerships in a manner that has enabled or will enable the Company to continue
to satisfy the REIT provisions of the Code.
Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from certain sales of real
property held primarily for sale) for each taxable year must be derived directly
or indirectly from investments relating to real property or mortgages on real
property (including "rents from real property" and, in certain circumstances,
interest) or from certain types of temporary investments. Second, at least 95%
of the Company's gross income (excluding gross income from certain sales of real
property held primarily for sale) for each taxable year must be derived from
items of income that qualify under the 75% test, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, gain from the sale or other disposition of stock or
securities held for less than one year, gain from certain sales of real property
held primarily for sale and gain from the sale or other disposition of real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property) must represent less than 30% of the Company's
gross income for each taxable year.
Rents received by the Company qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income test if the Company,
or an owner of 10% or more of the Company, actually or constructively owns 10%
or more of such tenant (a "Related Party Tenant"). Third, if rent attributable
to personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the Company generally must not operate or manage the property or furnish or
render services to the tenants of such property, other than through an
independent contractor from whom the Company derives no revenue, provided,
however, the Company may directly perform certain services that are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and not otherwise considered "rendered to the occupant" of the property. The
Company monitors its activities to ensure that the foregoing tests are
satisfied. There can be no assurances, however, that the Company will not
realize rental income that does not qualify as "rents from real property,"
including as a result of the constructive ownership of an interest in a tenant
by Five Arrows. See "Class A Senior Cumulative Convertible Preferred Stock."
The Company includes its proportionate share (based on its capital
interest) of income, gain, loss, deduction and credit from the Partnerships in
applying these income tests. In addition, the Company receives fees in exchange
for management services rendered to the Partnerships. Although the percentage of
those fees exceeding the Company's capital interest in the Partnership paying
37
<PAGE> 40
such fee will not qualify under the 75% or 95% gross income tests, the Company
believes that the aggregate amount of such income (together with any other
nonqualifying income) in any taxable year has not exceeded and is not expected
to exceed the limits on nonqualifying income under the gross income tests.
If the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions generally will be available if (i) the Company's failure
to meet such tests was due to reasonable cause and not due to willful neglect,
(ii) the Company attaches to its return for that year a schedule of the nature
and amount of each item of its income and (iii) any incorrect information on the
schedule was not due to fraud with intent to evade tax. However, in the event
the Company does not meet these tests, the Company would not be entitled to the
benefit of these relief provisions. If these relief provisions are inapplicable
to a particular set of circumstances involving the Company, the Company will not
qualify as a REIT. As discussed above in "--General," even if these relief
provisions apply, a tax would be imposed with respect to the excess
nonqualifying income. No comparable relief provisions are available to
mitigate the consequences of a failure to satisfy the 30% gross income test.
Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets. First,
at least 75% of the value of the Company's total assets must be represented by
real estate assets, stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Company, cash, cash items and government securities.
Second, not more than 25% of Company's total assets may be represented by
securities other than those included in the 75% asset test. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Company may not exceed 5% of the value of the Company's
total assets and the Company may not own more than 10% of any one issuer's
outstanding voting securities. In applying these tests, the Company will be
deemed to own a proportionate share of any assets owned, directly or indirectly,
by the Partnerships based on its capital interest in the Partnerships.
The Company believes that it has complied and will continue to comply
with the asset tests. Substantially all of the Company's investments represent
qualifying real estate assets, including the Company's share of the assets of
the Partnerships.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, 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 the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income
(after tax), if any, from foreclosure property, minus (ii) the sum of certain
items of noncash income. "REIT taxable income" for any year means the taxable
income of the Company for such year (excluding any net income derived either
from property held primarily for sale to customers or from foreclosure
property), subject to certain adjustments provided in the REIT provisions of the
Code. In addition, if the Company disposes of any Built-in Gain Asset during
such asset's Recognition Period, the Company will be required, pursuant to IRS
regulations which have not yet been promulgated, to distribute at least 95% of
the Built-in Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before the Company timely files its
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. The Company intends to make, and to cause the
Partnerships to make, timely distributions sufficient to enable the Company to
satisfy these annual distribution requirements. To the extent that the 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 thereon at regular capital gain and ordinary corporate tax rates.
It is possible that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the distribution requirements
described above 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 the Company, or if
nondeductible capital
38
<PAGE> 41
expenditures such as principal amortization or capital expenditures exceed the
amount of noncash deductions. In the event that such timing differences occur,
in order to meet the distribution requirements, the Company may find it
necessary to arrange, or to cause the Partnerships to arrange, for short-term or
long-term borrowing, to sell assets, or to pay dividends in the form of taxable
stock dividends.
Under certain circumstances, the Company may be able to rectify a
failure to meet the above distribution requirements for a year by paying
"deficiency dividends" to stockholders in a later year, which may be included in
the Company's deduction for dividends paid for the earlier year. The Company
will, however, be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Furthermore, if the Company should fail to distribute 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 income for such year and (iii) any undistributed
taxable income from prior periods, the Company will be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed. Any REIT taxable income and capital gains on which tax is imposed
for any year is treated as an amount distributed during that year for purposes
of this excise tax.
FAILURE TO QUALIFY
If the Company should fail 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 rates applicable to regular C corporations. Distributions to
stockholders in any year in which the Company fails to qualify as a REIT will
not be deductible by the Company nor will they be required to be made. As a
result, the Company's failure to qualify as a REIT will reduce the cash
available for distribution by the Company to investors. In addition, if the
Company fails to qualify as a REIT, all distributions to stockholders will be
taxable as ordinary income to the extent of the Company's current and
accumulated earnings and profits, and, subject to certain limitations in the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, the
Company 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 would be entitled to such
statutory relief.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable domestic stockholders out of current or accumulated earnings
and profits (and not designated as capital gain dividends) will be taken into
account by them as ordinary income and will not be eligible for the dividends
received deduction for corporations. Distributions that are properly designated
by the Company as capital gain dividends will be taxed 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
its shares. However, corporate stockholders may be required to treat up to 20%
of certain capital gain dividends as ordinary income. Distributions (not
designated as capital gain dividends) in excess of current and accumulated
earnings and profits will be treated as tax-free returns of capital to the
extent of the stockholder's basis in the shares, and will reduce the adjusted
basis of such shares (but not below zero). To the extent distributions in excess
of current and accumulated earnings and profits exceed the basis of a
stockholder's shares they will be included in income as long-term capital gain
(or short-term capital gain if the shares have been held for one year or less),
assuming the shares are a capital asset in the hands of the stockholder. In
addition, any dividend declared by the Company in October, November or December
of any year payable to a stockholder of record on a specified date in any such
month shall be treated as both paid by the Company and received by the
stockholder on December 31 of such year,
39
<PAGE> 42
provided that the dividend is actually paid by the Company during January of the
following calendar year. Stockholders may not include in their individual income
tax returns any net operating losses or capital losses of the Company.
Upon any sale or other disposition of shares, a domestic stockholder
will recognize gain or loss for Federal income tax purposes in an amount equal
to the difference between (i) the amount of cash and the fair market value of
any property received on such sale or other disposition and (ii) the holder's
adjusted basis in such shares for tax purposes. In general, provided the shares
were held as a capital asset, any gain or loss realized on a taxable disposition
of shares will be treated as long-term capital gain or loss if the shares have
been held for more than one year and otherwise as short-term capital gain or
loss. However, any loss upon a sale or exchange of shares by a stockholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such stockholder as
long-term capital gain.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company reports to its domestic stockholders and the IRS the amount
of dividends paid with respect to each calendar year, and the amount of tax
withheld therefrom, if any. Under the backup withholding rules, a stockholder
may be subject to backup withholding at a rate of 31% with respect to dividends
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A stockholder that does not provide the Company with its
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount withheld under the backup withholding rules will be
creditable against the stockholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions made
to any stockholders who fail to certify to their nonforeign status to the
Company. See "--Taxation of Non-U.S. Stockholders."
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The IRS has ruled that amounts distributed as dividends by a REIT do
not constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, dividend income from the Company should
not, subject to certain exceptions described below, be UBTI to a qualified plan,
IRA or other tax-exempt entity (a "Tax-Exempt Stockholder") provided the
Tax-Exempt Stockholder has not held its shares as "debt financed property"
within the meaning of Section 514 of the Code and the shares are not otherwise
used in an unrelated trade or business of the Tax-Exempt Stockholder. Similarly,
income from the sale of stock of the Company should not, subject to certain
exceptions described below, constitute UBTI unless the Tax-Exempt Stockholder
has held such stock as a dealer (under Section 512(b)(5)(B) of the Code) or as
"debt-financed property."
For Tax-Exempt Stockholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans exempt from federal income taxation under Sections
501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code, respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their tax advisors concerning these
"set-aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by
the Company may be treated as UBTI to certain trusts if the Company is treated
as a "pension held REIT." A trust will be subject to this rule if it (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section 501(a)
of the Code and (iii) holds more than 10% (by value) of the interests in the
REIT. Tax-exempt pension funds that are described in Section 401(a) of the Code
are referred to below as "qualified trusts."
40
<PAGE> 43
The Company will be treated as a "pension held REIT" if (i) it would
not have qualified as a REIT but for the fact that Section 856(h)(3) of the Code
provides that stock owned by qualified trusts shall be treated, for purposes of
the "five or fewer" stockholder requirement (discussed above), as owned by the
beneficiaries of the trust (rather than by the trust itself) and (ii) either (a)
at least one such qualified trust holds more than 25% (by value) of the
interests in the Company or (b) one or more such qualified trusts, each of whom
owns more than 10% (by value) of the interests in the Company, hold in the
aggregate more than 50% (by value) of the interests in the Company. The Company
believes that it has not been, and is not, a "pension held REIT."
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing United States federal income taxation of the
ownership and disposition of stock by persons that are, for purposes of such
taxation, nonresident alien individuals, foreign corporations, foreign
partnerships or foreign estates or trusts (collectively, "Non-U.S.
Stockholders") are complex, and no attempt is made herein to provide more than a
brief summary of such rules. Accordingly, the discussion does not address all
aspects of United States federal income tax law and does not address state,
local or foreign tax consequences that may be relevant to a Non-U.S. Stockholder
in light of its particular circumstances. In addition, this discussion is based
on current law, which is subject to change, and assumes that the Company
qualifies for taxation as a REIT. Prospective Non-U.S. Stockholders should
consult with their own tax advisors to determine the impact of federal, state,
local and foreign income and other tax laws with regard to an investment in
Securities, including any reporting requirements.
Distributions. Distributions by the Company to a Non-U.S. Stockholder
that are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of current or accumulated earnings and profits of the
Company. Such distributions generally will be subject to withholding of United
States federal income tax at a 30% rate on the total amount distributed unless
an applicable income tax treaty reduces or eliminates that tax. However,
dividends that are "effectively connected" with the conduct of a trade or
business by the Non-U.S. Stockholder will be subject to tax on a net basis at
graduated rates, in the same manner as domestic stockholders are taxed with
respect to such dividends, and are generally not subject to withholding. Any
such "effectively connected" dividends received by a Non-U.S. Stockholder that
is a corporation may also be subject to an additional branch profits tax at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty.
Pursuant to current Treasury Regulations, dividends paid to an address
in a country outside the United States are generally presumed to be paid to a
resident of such country for purposes of ascertaining the requirement of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury Regulations not currently in effect, however, a Non-U.S.
Stockholder who seeks to claim the benefit of an applicable treaty rate would be
required to satisfy certain certification and other requirements. Under certain
treaties, lower withholding rates generally applicable to dividends do not apply
to dividends from a REIT, such as the Company. A Non-U.S. Stockholder must file
a properly completed and executed IRS Form 4224 (or, under proposed regulations
not currently in effect, IRS Form W-8) with the Company's withholding agent
certifying that the investment to which the distribution relates is effectively
connected with the conduct of a United States trade or business of such Non-U.S.
Stockholder in order to qualify for the exemption from withholding under the
effectively connected income exemption discussed above.
If the Company is a "domestically controlled REIT" (as described
below), distributions that are neither attributable to gain from sales or
exchanges by the Company of United States real property interests nor designated
by the Company as capital gains dividends and that are in excess of current or
accumulated earnings and profits of the Company will not be taxable to a
Non-U.S. Stockholder to the extent that they do not exceed the adjusted basis of
the stockholder's Common Stock, but rather will reduce the adjusted basis of
such Common Stock. To the extent such distributions in excess of the Company's
current and
41
<PAGE> 44
accumulated earnings and profits exceed the adjusted basis of a Non-U.S.
Stockholder's Common Stock, they will give rise to gain from the sale or
exchange of the Common Stock, the tax treatment of which is described below.
Under current Treasury Regulations, if it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current or accumulated earnings and profits, the entire distribution will
generally be treated as a dividend subject to withholding. However, amounts thus
withheld are generally refundable if it is subsequently determined that such
distribution was, in fact, in excess of current or accumulated earnings and
profits of the Company. Under proposed regulations not currently in effect, the
Company may, at its option, make a reasonable estimate of the portion of a
distribution that is out of current or accumulated earnings and profits and
withhold only with respect to such portion, although any such determination
would not affect the Non-U.S. Stockholder's liability for the 30% tax on the
amount ultimately determined to have been distributed out of the Company's
current or accumulated earnings and profits.
Distributions to a Non-U.S. Stockholder that are attributable to gain
from sales or exchanges by the Company of United States real property interests
will be treated as income that is effectively connected with a United States
trade or business of the Non-U.S. Stockholder. Non-U.S. Stockholders would thus
generally be taxed on such distributions at the same rates applicable to
domestic stockholders (subject to a special alternative minimum tax in the case
of nonresident alien individuals). Also, such gain may be subject to a 30%
branch profits tax in the hands of a corporate Non-U.S. Stockholder that is not
entitled to a treaty exemption or rate reduction. The Company is required to
withhold 35% of any such distribution, and the withheld amount is creditable
against the Non-U.S. Stockholder's United States federal income tax liability.
Sale of Common Stock. Gain recognized by a Non-U.S. Stockholder upon a
sale or other disposition of Common Stock generally will not be subject to
United States federal income tax unless (i) the Company is not a "domestically
controlled REIT," or (ii) the investment in the Common Stock is effectively
connected with the Non-U.S. Stockholder's United States trade or business or
(iii) in the case of a Non-U.S. Stockholder who is a nonresident alien
individual, the individual is present in the United States for 183 days or more
during the taxable year and either has a "tax home" in the United States or sold
his shares under circumstances where the sale is attributable to a U.S. office.
A domestically controlled REIT is defined generally as a REIT in which at all
times during a specified testing period less than 50% in value of the stock was
held directly or indirectly by foreign persons. The Company currently believes
that it is a domestically controlled REIT. However, because the Common Stock
will be publicly traded, no assurance can be given that the Company is or will
continue to be a domestically-controlled REIT. In the circumstances described
above in clauses (i) and (ii), the Non-U.S. Stockholders will generally be
subject to the same treatment as domestic stockholders with respect to such gain
(subject to a special alternative minimum tax in the case of nonresident alien
individuals in the circumstances described above in clause (i) and, in the case
of foreign corporations, subject to the possible application of the 30% branch
profits tax, discussed above). In the circumstances described above in clause
(iii), the nonresident alien individual will be subject to a 30% tax on the
individual's capital gain.
Estate Tax. Certain types of Securities owned or treated as owned by an
individual who is not a citizen or resident (as specially defined for United
States federal estate tax purposes) of the United States at the time of death
may be includable in the individual's gross estate for United States federal
estate tax purposes, unless an applicable estate tax treaty provides otherwise.
Such individual's estate may be subject to United States federal estate tax on
the property includable in the estate for United States federal estate tax
purposes.
Information Reporting and Backup Withholding. The Company must report
annually to the IRS and to each Non-U.S. Stockholder the amount of distributions
subject to withholding as described above and the tax withheld with respect to
such distributions, regardless of whether withholding is actually required.
Copies of the information returns reporting such distributions and withholding
may also be made available to the tax authorities in the country in which the
Non-U.S. Stockholder resides under the provisions of an applicable income tax
treaty. Additional issues may arise pertaining to information
42
<PAGE> 45
reporting and backup withholding for Non-U.S. Stockholders. Non-U.S.
Stockholders should consult their tax advisors with regard to U.S. information
reporting and backup withholding.
OTHER TAX CONSEQUENCES
The Company and its investors may be subject to state or local
taxation in various state or local jurisdictions, including those in which it or
they transact business or reside. The state and local tax treatment of the
Company and its investors may not conform to the federal income tax consequences
discussed above. Consequently, prospective investors should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Gibson,
Dunn & Crutcher LLP, Los Angeles, California, and the legality of the
Securities will be passed upon for the Company by Piper & Marbury LLP,
Baltimore, Maryland.
EXPERTS
The financial statements for Pacific Gulf Properties Inc. and the
Predecessor Multifamily and Industrial Operations included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated
by reference in this Prospectus have been audited by Ernst & Young LLP,
independent auditors, as stated in their report appearing therein and has been
so included in reliance upon the report given upon their authority as experts in
accounting and auditing.
43
<PAGE> 46
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED HEREIN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER, AGENT, OR DEALER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE OF SECURITIES BEING OFFERED PURSUANT TO THIS PROSPECTUS
OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT SHALL UNDER ANY CIRCUMSTANCES COMMON
STOCK, PREFERRED STOCK, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY DEBT
SECURITIES CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR AND IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF WARRANTS TO PURCHASE THE SECURITIES
OR THEREOF.
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......4
THE COMPANY..........................................5
USE OF PROCEEDS......................................6
RATIO OF EARNINGS TO FIXED CHARGES...................7
RISK FACTORS.........................................8
DESCRIPTION OF CAPITAL STOCK........................13
DESCRIPTION OF PREFERRED STOCK......................17
DESCRIPTION OF WARRANTS.............................22
DESCRIPTION OF THE DEBT SECURITIES..................24
CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS........................30
PLAN OF DISTRIBUTION................................33
FEDERAL INCOME TAX CONSIDERATIONS...................35
LEGAL MATTERS.......................................43
EXPERTS.............................................43
</TABLE>
================================================================================
$______________
PACIFIC GULF
PROPERTIES INC.
Common Stock, Preferred Stock,
Debt Securities
and
Warrants to Purchase the Securities
_______________
PROSPECTUS
________________
MARCH__, 1997
================================================================================
<PAGE> 47
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated fees and expenses payable
by the Company in connection with the issuance and distribution of the
Securities registered hereby:
<TABLE>
<S> <C>
Registration fee....................................................... $75,758
NYSE listing fee....................................................... ____*___
Printing, duplicating and engraving expenses........................... ____*___
Legal fees and expenses (other than Blue Sky).......................... ____*___
Accounting fees and expenses........................................... ____*___
Blue sky fees and expenses............................................. ____*___
Miscellaneous.......................................................... __*___
--------
Total..................................................... $___*___
========
</TABLE>
*To be filed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation limit the liability of the
Company's directors and officers the Company and its stockholders to the fullest
extent permitted from time to time by Maryland law. Maryland law presently
permits the liability of directors and officers to a corporation or its
stockholders for money damages to be limited, except (i) to the extent that it
is proved that the director or officer actually received an improper benefit or
profit or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. This provision
does not limit the ability of the Company or its stockholders to obtain other
relief, such as an injunction or rescission.
The Company's Bylaws require the Company to indemnify its directors,
officers, and certain other parties to the fullest extent permitted from time to
time by Maryland law. The Articles of Incorporation also permit the Company to
indemnify employees, agents and other persons acting on behalf of or at the
request of the Company. The MGCL permits a corporation to indemnify its
directors, officers and certain other parties against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service to or at the request of the corporation, unless it is established
that the act or omission of the indemnified party was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or was the
result of active and deliberate dishonesty, (ii) the indemnified party actually
received an improper personal benefit or (iii) in the case of any criminal
proceeding, the indemnified party had reasonable cause to believe that the act
or omission was unlawful. Indemnification may be made against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by the
director or officer in connection with the proceeding; provided, however, that
if the proceeding is one by or in the right of the corporation, indemnification
may not be made with respect to any proceeding in which the director or officer
has been
II-1
<PAGE> 48
adjudged to be liable to the corporation. In addition, a director or officer may
not be indemnified with respect to any proceeding charging improper personal
benefit to the director or officer in which the director or officer was adjudged
to be liable on the basis that personal benefit was improperly received. The
termination of any proceeding by conviction, or upon a plea of nolo contendere
or its equivalent, or an entry of any order of probation prior to judgment,
creates a rebuttable presumption that the director or officer did not meet the
requisite standard of conduct required for indemnification to be permitted. It
is the position of the Commission that indemnification of directors and officers
for liabilities arising under the Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities Act. The Agreement of
Limited Partnership of the Operating Partnership also provides for
indemnification of the Company, or any director or officer of the Company, in
its capacity as general partner of the Partnership, from and against all losses,
claims, damages, liabilities, joint or several, expenses (including legal fees),
fines, settlements and other amounts incurred in connection with any actions
relating to the operations of the Operating Partnership as set forth in the
Operating Partnership Agreement. The Company entered into indemnification
agreements with each of its executive officers and directors. The
indemnification agreements require, among other things, that the Company
indemnify its officers and directors to the fullest extent permitted by the
MGCL, and advance to the officers and directors all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted. The Company must also indemnify and advance all expenses incurred by
officers and directors seeking to enforce their rights under the indemnification
agreements, and cover officers and directors under the Company's directors and
officers' liability insurance. Although the form of indemnification agreement
offers substantially the same scope of coverage afforded by provisions in the
Charter and the Bylaws, it provides greater assurance to directors and officers
that indemnification will be available, because, as a contract, it cannot be
modified unilaterally in the future by the Board of Directors or by the
stockholders to eliminate the rights it provides.
ITEM 16. EXHIBITS.
See Exhibit Index attached hereto and incorporated by reference.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change in such information in the
Registration Statement;
provided, however, that paragraphs (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or
II-2
<PAGE> 49
furnished to the Commission by the Registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby further undertakes that, for purposes
of determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions set forth or described in Item 15 of this
Registration Statement, or otherwise, the Registrant has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person, in
connection with the securities registered hereby, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
With respect to offerings of Warrants or rights, the undersigned
Registrant hereby undertakes to supplement the Prospectus, after the expiration
of the subscription period, to set forth the results of the subscription offer,
the transactions by the underwriters during the subscription period, the amount
of unsubscribed securities to be purchased by the underwriters, and the terms of
any subsequent reoffering thereof. If any public offering by the underwriters is
to be made on terms differing from those set forth on the cover page of the
applicable prospectus supplement, a post-effective amendment will be filed to
set forth the terms of such offering.
II-3
<PAGE> 50
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Newport Beach, State of California, on this 19th day
of March, 1997.
PACIFIC GULF PROPERTIES INC.
By: /s/ GLENN L. CARPENTER
----------------------------------------
Glenn L. Carpenter
President and Chief Executive Officer
POWERS OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENT, that each persons whose signature
appears below hereby constitutes and appoints Glenn L. Carpenter and Donald G.
Herrman, and each of them severally, as his true and lawful attorneys-in-fact
and agents with full power of substitution and resubstitution form him and him
and in his name, place, and stead in any and all capacities to sign any and all
amendments (including post-effective amendments and amendments filed pursuant to
462(b) under the Securities Act of 1933) to this Registration Statement, and to
file the name, with all exhibits thereto, and other documents in connection
therewith, with the Securities And Exchange Commission, granting unto said
attorneys-in-fact and agents, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-facts and
agents or any of them, or of his or her substitute or substitutes, may lawfully
do to cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ GLENN L. CARPENTER Chairman of the Board of Directors, President and March 19, 1997
- ----------------------------------------
Glenn L. Carpenter Chief Executive Officer (Principal Executive Officer)
/s/ DONALD G. HERRMAN Executive Vice President, Secretary, and Chief March 19, 1997
- ----------------------------------------
Donald G. Herrman Financial Officer (Principal Financial and Accounting
Officer)
/s/ ROYCE B. MCKINLEY
- ---------------------------------------- Director March 19, 1997
Royce B. McKinley
/s/ STEWART W. BOWIE
- ---------------------------------------- Director March 19, 1997
Stewart W. Bowie
/s/ PETER L. EPPINGA
- ---------------------------------------- Director March 19, 1997
Peter L. Eppinga
/s/ JOHN F. KOOKEN
- ---------------------------------------- Director March 19, 1997
John F. Kooken
</TABLE>
II-4
<PAGE> 51
<TABLE>
<S> <C> <C>
/s/ ROBERT E. MORGAN
- ---------------------------------------- Director March 19, 1997
Robert E. Morgan
/s/ KEITH W. RENKEN
- ---------------------------------------- Director March 19, 1997
Keith W. Renken
/s/ JAMES QUIGLEY, THE 3RD
- ---------------------------------------- Director March 19, 1997
James Quigley, the 3rd
</TABLE>
II-5
<PAGE> 52
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
**1.1 Form of Underwriting Agreement relating to the Debt Securities
**1.2 Form of Underwriting Agreement relating to the capital stock
***4.1 Articles of Amendment and Restatement of the Registrant
(previously filed as an Exhibit to Registrant's Registration
Statement on Form S-11 (Registration No. 33-69382) declared
effective on February 10, 1994 and incorporated herein by
reference).
***4.2 Amended and Restated Bylaws of the Registrant (previously
filed as an Exhibit to Registrant's Registration Statement
on Form S-11 (Registration No. 33-69382) declared effective
on February 10, 1994 and incorporated herein by reference).
**4.3 Form of Indenture
**4.3.1 Form of Senior Indenture (Form of Senior Security included
therein)
**4.3.2 Form of Subordinated Indenture (Form of Subordinated Security
included therein)
5.1 Opinion of Piper & Marbury
**8.1 Opinion of Gibson, Dunn & Crutcher regarding certain tax
matters
12.1 Statement re: Computation of Ratio of Earnings to
Fixed Charges
23.1 Consent of Ernst & Young LLP
23.2 Consent of Piper & Marbury (included in Exhibit 5.1)
24 Powers of Attorney (included on signature page)
**25.1 Statement of Eligibility and Qualification of Senior Trustee
under the Trust Indenture Act (to be filed in accordance
with Rule 305(b)(2) of the Trust Indenture Act of 1939)
**25.2 Statement of Eligibility and Qualification of Subordinate
Trustee under the Trust Indenture Act (to be filed in
accordance with Rule 305(b)(2) of the Trust Indenture Act of
1939)
- --------------------------------
** To be filed by amendment when necessary or incorporated by
reference as may be required with the offering of Securities.
*** Previously filed.
<PAGE> 1
EXHIBIT 5.1
[PIPER & MARBURY L.L.P. LETTERHEAD]
March 19, 1997
Pacific Gulf Properties, Inc.
363 San Miguel Drive
Suite 100
Newport Beach, California 92660
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as Maryland counsel to Pacific Gulf Properties, Inc., a
Maryland corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-3 (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the registration by
the Company of up to $250,000,000 aggregate public offering price of (i) its
debt securities (the "Debt Securities") (ii) shares of common stock of the
Company, $.01 par value per share (the "Common Stock"), (iii) shares of
preferred stock, $.01 par value per share (the "Preferred Stock"), and (iv)
warrants to purchase Debt Securities, Common Stock and Preferred Stock (the
"Warrants").
In this capacity, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments as we have deemed
necessary for the purpose of rendering this opinion. In addition, this opinion
is based upon the assumption that the Registration Statement and any required
post-effective amendments thereto have become effective under the Securities
Act. In such examination, we have assumed, without independent investigation,
the genuineness of all signatures, the legal capacity of all individuals who
have executed any of the aforesaid documents, the authenticity of all documents
submitted to us as originals and the conformity with originals of all documents
submitted to us as copies.
<PAGE> 2
PIPER & MARBURY
L.L.P.
Pacific Gulf Properties, Inc.
March 19, 1997
Page 2
Based upon the foregoing, and limited in all respects to applicable
Maryland law, we are of the opinion and advise you that:
1. The Company has been duly incorporated and is validly existing
in good standing as a corporation under the laws of the State of Maryland.
2. When (i) the amount and terms of the Debt Securities have been
duly and properly established by the Board of Directors; and (ii) such Debt
Securities have been duly authorized, issued and paid for in the manner
contemplated in the Registration Statement and any prospectus supplement
relating thereto, such Debt Securities will be validly issued, fully paid and
nonassessable.
3. When (i) the shares of Common Stock (in a number not to exceed
the number of shares of Common Stock authorized by the charter of the Company
and not outstanding or reserved for issuance) have been duly and properly
authorized for issuance; and (ii) such shares of Common Stock have been duly
issued, sold and delivered as contemplated in the Registration Statement and any
prospectus supplement relating thereto and the consideration contemplated
therein has been received, the shares of Common Stock (including any Common
Stock duly issued upon the conversion of any shares of Preferred Stock that are
convertible into Common Stock), will be validly issued, fully paid and
nonassessable.
4. When (i) the terms of the Preferred Stock have been duly and
property established by the Board of Directors in accordance with the Company's
charter and Articles Supplementary to the charter of the Company classifying
the Preferred Stock (in a number not to exceed the number of shares of
Preferred Stock authorized by the charter of the Company and not outstanding or
reserved for issuance) and setting forth such terms have been filed and accepted
for record and such shares have been authorized for issuance by the Board of
Directors; and (ii) such shares of Preferred Stock have been duly authorized,
issued and paid for in the manner contemplated in the Registration Statement
and any prospectus supplement relating thereto, such shares of Preferred Stock
will be validly issued, fully paid and nonassessable.
5. When (i) the terms of the Warrants have been duly and properly
established by the Board of Directors (provided the amount of Debt Securities or
the number of shares of Common Stock or Preferred Stock, as the case may be,
issuable upon the exercise of such Warrants does not exceed the amount of Debt
Securities or the number of shares of Common Stock or Preferred Stock, as the
case may be, authorized by the charter of the Company or otherwise and not
outstanding or reserved for issuance); and (ii) such Warrants have been duly
authorized, issued and paid for in the manner contemplated in the Registration
Statement and any prospectus supplement relating thereto, such Warrants will be
validly issued, fully paid and nonassessable.
We are members of the Bar of the State of Maryland and express no
opinion as to the laws of any other jurisdiction. The opinions expressed herein
are solely for the benefit of the persons to whom this opinion is addressed and,
without our prior written consent, may not be quoted in whole or in part or
otherwise referred to in any legal opinion, document, or other report, and may
not be furnished to any person or entity, except that Gibson, Dunn & Crutcher
LLP is authorized to rely on this opinion in rendering any opinion to the
Company which is to be filed as an exhibit to the Registration Statement. In
addition, we hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm in the Registration
Statement and the related Prospectus. These opinions are delivered as of the
<PAGE> 3
PIPER & MARBURY
L.L.P.
Pacific Gulf Properties, Inc.
March 19, 1997
Page 3
date hereof and we disclaim any responsibility to update these opinions at any
time following the date hereof.
Very truly yours,
PIPER & MARBURY L.L.P.
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratio of earnings to fixed
changes (Dollars in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------
1992 1993 1994(a) 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before non-
recurring and extraordinary
items......................... $(1,620) $(1,062) $ 2,158 $ 1,739 $ (192)
Add: Interest expense.......... 5,355 5,943 7,541 13,057 17,200
Loan Cost amortization........ 43 85 623 1,009 1,211
Minority interest in losses of
combined partnerships......... (646) (492) - - -
------- ------- ------- ------- -------
$ 3,132 $ 4,474 $10,322 $15,805 $18,219
Fixed changes:
Interest incurred.............. $ 5,355 $ 5,943 $ 7,541 $13,057 $17,200
Loan cost amortization......... 43 85 623 1,009 1,211
------- ------- ------- ------- -------
$ 5,398 $ 6,028 $ 8,164 $14,066 $18,411
Ratio of earnings to fixed
charges........................ 1.26 1.12
======= =======
Deficiency in earnings available
to cover fixed changes......... $ 2,266 $ 1,554 $ 192
======= ======= =======
</TABLE>
(a) Includes the operations of the Company from February 18, through
December 31, 1994 and the Predecessor Multifamily and Industrial Operations
prior to February 18, 1994.
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
Exhibit 23.1
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Pacific Gulf
Properties, Inc., for the registration of $250,000,000 of common stock,
preferred stock and debt securities and to the incorporation by reference
therein of our report dated February 13, 1997, with respect to the consolidated
and combined financial statements and schedule of Pacific Gulf Properties, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1996,
filed with the Securities and Exchange Commission.
Ernst & Young LLP
Newport Beach, California
March 19, 1997
