<PAGE>
Prospectus filed under
Rule 424(b)(2) SEC File No. 333-18235
PROSPECTUS SUPPLEMENT
- ---------------------
(To Prospectus dated January 6, 1997)
2,250,000 Shares
CENTERPOINT PROPERTIES CORPORATION
Common Stock
_________________________
CenterPoint Properties Corporation (the "Company") is a self
administered and self managed real estate company focused on the acquisition,
development, redevelopment, management and ownership of warehouse/industrial
property located in the metropolitan Chicago area, which is the largest
warehouse/industrial market in the United States. As of December 31, 1996, the
Company owned and managed a portfolio of 70 warehouse/industrial properties,
containing approximately 13.3 million square feet of space. The Company
believes it is the largest owner and operator of warehouse/industrial property
in metropolitan Chicago.
This Prospectus Supplement relates to the offering by the Company of
shares of its common stock, $.001 par value per share (the "Common Stock"). See
"Underwriting." The Common Stock is currently listed on the New York Stock
Exchange ("NYSE") under the symbol "CNT." On February 19, 1997, the closing
price of the Company's Common Stock was $32 per share. The Company has paid
regular quarterly distributions to holders of its Common Stock. See "Price
Range of Common Stock and Distributions." To help ensure that the Company
qualifies as a real estate investment trust ("REIT"), transfer of shares of
Common Stock is restricted and ownership by any person is limited to 9.8% of the
outstanding shares of the Common Stock and Preferred Stock, subject to certain
exceptions. See "Description of Capital Stock--Restrictions on Transfer" in the
accompanying Prospectus.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS
FOR CERTAIN FACTORS AND MATERIAL RISKS IN CONNECTION WITH THE PURCHASE OF THE
COMMON STOCK.
_________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
TO WHICH IT RELATES. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- ------------------------------------------------------------------------------
Per Share . . . . . . . . . . . $31.50 $1.65 $29.85
- ------------------------------------------------------------------------------
Total (3) . . . . . . . . . . . $70,875,000 $3,712,500 $67,162,500
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of $200,000 payable by the Company.
(3) The Company has granted the Underwriters an option to purchase up to an
aggregate of 250,000 shares of Common Stock to cover over-allotments. If
all of such shares are purchased, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $78,750,000,
$4,125,000 and $74,625,000, respectively. See "Underwriting."
_________________________
The shares of Common Stock are offered by the Underwriters subject to
prior sale, to withdrawal, cancellation or modification of the offer without
notice, to delivery and acceptance by the Underwriters and to certain further
conditions. It is expected that delivery of the shares of Common Stock will be
made at the offices of Lehman Brothers Inc., New York, New York on or about
March 5, 1997.
_____________________________
LEHMAN BROTHERS, A.G. EDWARDS & SONS, INC., SMITH BARNEY INC., MCDONALD &
COMPANY SECURITIES, INC. , WHEAT FIRST BUTCHER SINGER
February 27, 1997
<PAGE>
_________________________
THIS PAGE INTENTIONALLY
LEFT BLANK
_________________________
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-
THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and other applicable legal
or NYSE requirements, pursuant to which the Company files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information filed
by the Company under the Exchange Act may be examined without charge at, or
copies obtained upon payment of prescribed fees from, the Public Reference
Section of the Commission at Judiciary Plaza Office Building, 450 Fifth Street,
N.W., Washington, D.C. 20549 and will also be available for inspection and
copying at the regional offices of the Commission located at 13th Floor, 7 World
Trade Center, New York, New York 10048 and at Northwestern Atrium Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661, and at the New York
Stock Exchange, Inc., 20 Broad Street, New York, New York 10005. Electronic
filings made through the Electronic Data Gathering, Analysis and Retrieval
System are publicly available through the Commission's Web site
(http://www.sec.gov).
THE FOLLOWING INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS
QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING ELSEWHERE IN
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS OR INCORPORATED
THEREIN BY REFERENCE. CERTAIN TERMS USED BUT NOT DEFINED HEREIN ARE AS DEFINED
IN THE ACCOMPANYING PROSPECTUS.
THE COMPANY
The Company is a self-administered and self-managed real estate company
focused on the acquisition, development, redevelopment, management and ownership
of warehouse/industrial property located in metropolitan Chicago (defined as the
area within a 100-mile radius of Chicago), which, according to a ranking of
markets published by CB Commercial/Torto Wheaton Research, is the largest
warehouse/industrial market in the United States. The Company's election of
REIT status, filed with its 1994 federal income tax return, was effective as of
January 1, 1994.
The Company, a Maryland corporation, was founded in 1984 and completed its
initial public offering of securities in December 1993 (the "IPO"). Between
completion of the IPO and December 31, 1996, the Company has increased the size
of its warehouse/industrial portfolio by 8.1 million square feet or 156% by
acquiring (net of dispositions) 35 fully-leased warehouse/industrial properties.
As of December 31, 1996, the Company owned and managed a portfolio of 70
warehouse/industrial properties, containing approximately 13.3 million square
feet of space. Based on published statistics regarding square feet of space
owned and managed by other firms and publicly available information filed with
the Commission, as well as its knowledge and experience in the market, the
Company believes it is the largest owner and operator of warehouse/industrial
property in metropolitan Chicago. The Company also owns and manages three
retail properties, one office property and one apartment property. The
Company's properties are currently 98% leased, with the warehouse/industrial
properties occupied by 132 tenants in diverse industries with no tenant
accounting for the lease of more than 6% of the total square footage of the
Company's warehouse/industrial portfolio. Substantially all of the Company's
properties have been constructed or renovated during the past ten years.
The Company's principal executive office is located at 401 North Michigan
Avenue, 30th Floor, Chicago, Illinois 60611, and its telephone number is (312)
346-5600.
S-3
<PAGE>
RECENT DEVELOPMENTS
RECENT EARNINGS REPORT
- On February 13, 1997, the Company announced its fourth quarter and
annual 1996 results as follows ($ in thousands, except per share
data):
QUARTER ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
----------- -----------
1996 1995 1996 1995
---- ---- ---- ----
Total Revenues $19,264 $13,573 $63,330 $46,952
Income Before Extraordinary Item (1) 5,673 3,868 18,272 8,844
Net Income 3,772 3,236 14,941 8,212
Per Share
Income Before Extraordinary Item (1) .35 .31 1.24 .89
Net Income .23 .26 1.01 .83
_________________________
(1) Early extinguishment of debt.
1996 ACQUISITIONS
- In September, 1996, two industrial properties were purchased. The
first property, located in Northlake, Illinois, was purchased for
approximately $22.6 million and funded in part with a $16.0 million
advance under the Company's line of credit with Lehman Brothers
Holdings Inc. and in part with proceeds of a public offering of shares
of the Company's Common Stock which was completed on July 2, 1996.
The other property, located in Franklin Park, Illinois, was purchased
for approximately $1.9 million and funded with proceeds from a tax-
free exchange of properties sold in May, 1996.
- In October, 1996, the Company acquired three industrial properties and
one office building. The three industrial properties, located in
Buffalo Grove, Illinois, Lemont, Illinois and St. Charles, Illinois,
were purchased for approximately $6.0 million, $2.3 million and $3.3
million, respectively, and were funded in part with a $4.0 million
advance under the Company's line of credit with Lehman Brothers
Holdings Inc. and in part with the proceeds from a tax free exchange
of properties in May, 1996 and September, 1996. The office building,
located in Elgin, Illinois, was purchased for approximately $5.2
million and funded with an advance under the Company's line of credit
with Lehman Brothers Holdings Inc.
- In November, 1996, the Company purchased an industrial property,
located in Arlington Heights, Illinois, for approximately $15.0
million which was funded with an advance on the Company's unsecured
credit facility co-led by The First National Bank of Chicago and
Lehman Brothers Holdings Inc.
1996 DISPOSITIONS
- In September, 1996, the Company disposed of property located in St.
Charles, Illinois in a transaction that is intended to qualify as a
tax-free exchange under applicable provisions of the Internal Revenue
Code. Consideration for the property was approximately $5.4 million.
S-4
<PAGE>
1996 FINANCINGS
- On October 24, 1996, the Company closed a $135 million unsecured
credit facility to replace the Company's secured line of credit with
Lehman Brothers Holdings Inc. and the Company's secured line of credit
with LaSalle National Bank. The $135 million line of credit is co-led
by The First National Bank of Chicago, as administrative agent, and
Lehman Brothers Holdings Inc., as documentation agent, and the other
participating banks include The First National Bank of Boston,
NationsBank, N.A.,Bank of America Illinois and LaSalle National Bank.
The current interest rate is LIBOR plus 1.15% for LIBOR borrowings and
First Chicago's corporate base rate plus .15% for other borrowings.
The Company borrowed $20.8 million under the new unsecured line of
credit to repay and terminate its secured line of credit with Lehman
Brothers Holdings Inc., and the Company terminated its secured line of
credit with LaSalle National Bank.
OTHER RECENT DEVELOPMENTS
- Prior to June 12, 1996, the Company's Common Stock and 8.22%
Convertible Subordinated Debentures (the "Debentures") were listed on
the American Stock Exchange. On June 12, 1996, shares of the Company's
Common Stock were listed on the NYSE under the symbol "CNT" and the
Company's Debentures were also listed on the NYSE
S-5
<PAGE>
ADDITIONAL INFORMATION REGARDING PROPERTIES
The following table sets forth certain information regarding the
warehouse/industrial properties owned by the Company as of December 31, 1996.
The table does not include buildings under development aggregating 1,623,220
square feet, buildings in which the Company holds investments in the form of
mortgages aggregating 777,510 square feet and non-warehouse/industrial
properties aggregating 664,301 square feet.
<TABLE>
<CAPTION>
WAREHOUSE INDUSTRIAL PROPERTIES Year of
Original
Construction/
Last
Redevelopment Pct. of Pct. Of Number
And/Or GLA (2) Total GLA of Investment
Expansion (1) (Sq.Ft.) GLA(3) Leased Tenants Type
------------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
1996 Investments
- ----------------
1500 W. Dundee Rd., Arlington Heights, IL 1969 500,000 3.76% 100% 2 Acquisition
425 South 37th Avenue, St. Charles, IL 1975 103,106 0.78% 100% 1 Acquisition
16400 West 103rd Street, Lemont, IL 1983/1995 63,612 0.48% 100% 1 Acquisition
911 Commerce, Buffalo Grove, IL 1993 118,009 0.89% 100% 2 Acquisition
10740 West Grand Ave., Franklin Park, IL 1965/1971 66,000 0.50% 100% 1 Acquisition
400 North Wolf Road, Northlake, IL 1956/1997 1,353,582 10.18% 100% 4 Acquisition
1501 Pratt Ave., Elk Grove Village, IL 1973 151,900 1.13% 100% 2 Acquisition
1100 Chase Avenue, Elk Grove Village, IL 1980 41,651 0.31% 100% 1 Acquisition
2553 North Edgington, Franklin Park, IL 1967/1995 274,303 2.06% 100% 4 Acquisition
875 Fargo Avenue, Elk Grove Village, IL 1980 82,368 0.62% 100% 1 Acquisition
7501 North 81st Street, Milwaukee, WI 1987 183,958 1.38% 100% 1 Acquisition
1800 Bruning Drive, Itasca, IL 1975/1978 202,000 1.52% 100% 1 Acquisition
6600 River Road, Hodgkins, IL 1968 630,410 4.74% 100% 1 Acquisition
------- -----
Subtotal 3,770,899 28.35% 22
--------- ------
Average 290,069 100%
-------
Previously Owned Properties
- ---------------------------
10601 Seymour Ave., Franklin Park, IL 1970 677,000 5.08% 100% 1 Acquisition
4400 S. Kolmar, Chicago, IL 1966 92,000 0.69% 100% 1 Acquisition
1827 North Bendix Drive, South Bend, IN 1964 199,730 1.50% 100% 1 Acquisition
850 Arthur Avenue, Elk Grove Village, IL 1971 42,490 0.32% 100% 1 Acquisition
11701 S. Central Avenue, Alsip, IL 1970 300,000 2.26% 100% 1 Acquisition
11601 S. Central Avenue, Alsip, IL 1970 259,000 1.95% 100% 1 Acquisition
11743 Mayfield, Alsip, IL 1962 42,000 0.32% 100% 1 Acquisition
1700 Butterfield Road Mundelein, IL 1977 60,000 0.45% 100% 1 Acquisition
1810-1820 Industrial Drive, Libertyville, IL 1977 85,000 0.64% 100% 1 Acquisition
1733 Downs Drive, West Chicago, IL 1975 145,526 1.09% 100% 1 Acquisition
1645 Downs Drive, West Chicago, IL 1975 129,390 0.97% 100% 1 Acquisition/
Redevelopment
825-845 Hawthorne Lane, West Chicago,IL IL 1974 158,772 1.19% 100% 2 Acquisition
750 East 110th Street, Chicago, IL 1966 71,510 0.54% 100% 1 Acquisition
800 Chase Avenue, Elk Grove Village, IL 1972 341,348 2.57% 100% 1 Acquisition
2600 Elmhurst Road, Elk Grove Village, IL 1995 105,000 0.79% 100% 1 Build to Suit
8901 102nd Street, Pleasant Prairies, WI 1990 105,637 0.79% 100% 1 Acquisition
655 Wheat Lane, Wood Dale, IL 1984/1990 41,300 0.31% 100% 1 Acquisition
1300 Northpoint Road, Waukegan, IL 1994 65,000 0.49% 100% 1 Acquisition
7001 Adams Street, Willowbrook, IL 1994 25,324 0.19% 100% 1 Build to Suit
1700 West Hawthorne, West Chicago, IL 1959 735,196 5.53% 100% 1 Acquisition
745 Birginal Road, Bensenville, IL 1975 113,266 0.85% 100% 1 Acquisition
1 Wildlife Way, Long Grove, IL 1979 54,100 0.41% 100% 1 Redevelopment
S-6
<PAGE>
WAREHOUSE INDUSTRIAL PROPERTIES
Year of
Original
Construction/
Last
Redevelopment Pct. of Pct. Of Number
And/Or GLA (2) Total GLA of Investment
Expansion (1) (Sq. Ft.) GLA(3) Leased Tenants Type
------------- --------- ------- ------- ------- ---------------------
Previously Owned Properties
- ---------------------------
21399 Torrence Avenue, Sauk Village, IL 1991 372,835 2.80% 100% 1 Acquisition
900 W. University Dr., Arlington Heights, IL 1974 86,254 0.65% 100% 1 Acquisition
8200 100th Street, Pleasant Prairie, WI 1990 148,472 1.12% 100% 1 Acquisition
1800 Industrial Drive, Libertyville, IL 1992/1994 175,196 1.32% 100% 1 Acquisition/Expansion
1120 Frontenac, Naperville, IL 1980/1994 153,902 1.16% 100% 1 Acquisition/Expansion
1015 East State Parkway, Schaumburg, IL 1980 19,576 0.15% 100% 1 Acquisition
2764 Golfview, Naperville, IL 1985 20,022 0.15% 100% 1 Acquisition
5619-25 West 115th Street, Alsip, IL 1974/1991 396,979 2.98% 98% 4 Acquisition
1400 Busse Road, Elk Grove Village, IL 1975 148,436 1.12% 90% 9 Acquisition
1250 Carolina Drive, West Chicago, IL 1990 150,000 1.13% 100% 1 Build to Suit
1500 Shore Drive, Naperville, IL 1985 43,230 0.32% 100% 2 Acquisition
800 Enterprise Court, Naperville, IL 1985 34,984 0.26% 100% 1 Acquisition
1651 Frontenac, Naperville, IL 1978 30,414 0.23% 100% 1 Acquisition
1560 Frontenac, Naperville, IL 1987 85,608 0.64% 100% 2 Acquisition
920 Frontenac, Naperville, IL 1987 121,200 0.91% 0% 1 Acquisition
1020 Frontenac, Naperville, IL 1980 99,684 0.75% 100% 1 Acquisition
1510 Frontenac, Naperville, IL 1986 104,886 0.79% 100% 1 Acquisition
4501 West Augusta Blvd., Chicago, IL 1930/1974 432,661 3.25% 95% 7 Redevelopment
825 Tollgate Road, Elgin, IL 1989 83,122 0.62% 100% 2 Acquisition
820 Frontenac, Naperville, IL 1988 153,604 1.15% 100% 1 Acquisition
720 Frontenac, Naperville, IL 1991 171,935 1.29% 100% 2 Acquisition
1150 Shore Rd, Naperville, IL 1985 30,184 0.23% 100% 1 Acquisition
5990 Touhy Avenue, Niles, IL 1960/1993 295,964 2.22% 100% 3 Redevelopment
1201 Lunt Avenue, Elk Grove Village, IL 1971 7,380 0.06% 100% 1 Redevelopment
950-970 Tower Road, Mundelein, IL 1979/1990 38,359 0.29% 100% 3 Build to Suit
201 Mississippi Street, Gary, IN 1945/1988 1,052,173 7.91% 97% 16 Redevelopment
425 West 151st Street, East Chicago, IN 1913/1991 349,236 2.63% 89% 10 Redevelopment
2339-41 Ernie Krueger Court, Waukegan, IL 1990/1993 54,450 0.41% 100% 1 Build to Suit/ Redevelopment
1520 Pratt Avenue, Elk Grove Village, IL 1968 62,546 0.47% 100% 1 Acquisition
620-630 Butterfield Road, Mundelein, IL 1990 24,237 0.18% 100% 1 Build to Suit/ Redevelopment
1319 Marquette Drive, Romeoville, IL 1990 36,349 0.27% 100% 1 Build to Suit
1850 Greenleaf, Elk Grove Village, IL 1965 58,627 0.44% 100% 1 Acquisition
900 East 103rd Street, Chicago, IL 1910/1990 575,462 4.33% 100% 3 Redevelopment
2743 Armstrong Court, Des Plaines, IL 1989 53,325 0.40% 100% 2 Build to Suit
245 Beinoris Drive, Wood Dale, IL 1988 11,989 0.09% 100% 1 Build to Suit/ Redevelopment
------ -----
Subtotal 9,531,870 71.65% 110
--------- ------ ---
Average 167,226 98%
-------
Company Totals 13,302,769 100.00% 132
---------- ------- ---
Company Average 190,040 98%
-------
</TABLE>
- --------------------------------------------
(1) First date is the date of original construction; second date is year of
last redevelopment and/or expansion. If only one date appears, it is the
acquisition date, and the property has not been redeveloped or expanded.
(2) "GLA" means gross leasable area.
(3) Determined as a percentage of the total GLA for the warehouse/industrial
properties.
S-7
<PAGE>
LEASE EXPIRATIONS
The following table shows as of December 31, 1996 scheduled lease
expirations for the Company's warehouse/industrial properties for the next
twelve years, assuming that no tenants exercise renewal options:
<TABLE>
<CAPTION>
AVERAGE % OF TOTAL
BASE RENT PROPERTIES % OF 1997
GLA OF ANNUALIZED PER SQ.FT. GLA BASE RENT
NO. OF EXPIRING BASE RENT UNDER REPRESENTED REPRESENTED
LEASES LEASES EXPIRING EXPIRING BY EXPIRING BY EXPIRING
EXPIRING (SQ. FT.) LEASES LEASES LEASES LEASES
--------- ---------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDING DECEMBER 31
1997 . . . . . . . . . . . . . . . . . . 24 2,246,042 5,890,276 2.62 16.88% 13.70%
1998 . . . . . . . . . . . . . . . . . . 19 1,754,141 5,555,776 3.17 13.19% 12.93%
1999 . . . . . . . . . . . . . . . . . . 17 1,712,125 5,344,156 3.12 12.87% 12.44%
2000 . . . . . . . . . . . . . . . . . . 25 1,343,358 5,339,378 3.97 10.10% 12.43%
2001 . . . . . . . . . . . . . . . . . . 14 981,585 3,697,505 3.77 7.38% 8.61%
2002 . . . . . . . . . . . . . . . . . . 8 993,795 4,110,207 4.14 7.47% 9.57%
2003 . . . . . . . . . . . . . . . . . . 6 462,450 2,138,987 4.63 3.48% 4.98%
2004 . . . . . . . . . . . . . . . . . . 4 834,196 2,349,345 2.82 6.27% 5.47%
2005 . . . . . . . . . . . . . . . . . . 3 671,970 1,514,491 2.25 5.05% 3.52%
2006 . . . . . . . . . . . . . . . . . . 7 1,560,437 5,146,761 3.30 11.73% 11.98%
2007 . . . . . . . . . . . . . . . . . . 1 148,472 538,737 3.63 1.12% 1.25%
2008 . . . . . . . . . . . . . . . . . . 1 65,000 304,820 4.69 0.49% 0.71%
thereafter . . . . . . . . . . . . . . . 3 235,661 1,034,642 4.39 1.77% 2.41%
. . . . . . . . . . . . . . . . . . . . ------- ---------
. . . . . . . . . . . . . . . . . . . . 132 13,009,232 $42,965,081 $3.30 97.79% 100.00%
</TABLE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby, before deducting expenses payable by the Company, are estimated to be
$67,162,500 ($74,625,000 if the Underwriter's over-allotment option is exercised
in full). The Company intends to use approximately $58 million of the net
proceeds to reduce amounts outstanding under its $135 million unsecured credit
facility co-led by The First National Bank of Chicago and Lehman Brothers
Holdings Inc., which is an affiliate of one of the Underwriters under this
Prospectus Supplement, and to use the remainder of the net proceeds for the
acquisition of additional warehouse/industrial properties. The $135 million
unsecured line of credit currently bears interest at LIBOR plus 1.15% for LIBOR
borrowings and First Chicago's corporate base rate plus .15% for other
borrowings and matures on October 24, 1999.
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
The following table sets forth the quarterly high and low sales prices per
share (as reported on the American Stock Exchange prior to June 12, 1996 and as
reported on the NYSE on and after June 12, 1996 (see "Recent Developments")), as
well as the quarterly distributions declared per share of Common Stock.
CASH
QUARTERLY PERIOD ENDING HIGH LOW DISTRIBUTION/SHARE
----------------------- ---- --- ------------------
December 31, 1994 $19-7/8 $17-1/2 $0.375
March 31, 1995 19-5/8 18-3/8 0.390
June 30, 1995 20-3/4 19-5/8 0.390
September 30, 1995 22-7/8 20-1/2 0.390
December 31, 1995 23-3/8 21-5/8 0.390
March 31, 1996 24-1/8 22 0.405
June 30, 1996 26-1/8 27 0.405
September 30, 1996 26-3/4 26-7/8 0.405
December 31, 1996 30-7/8 32-3/4 0.405
S-8
<PAGE>
On February 19, 1997, the last reported sale price of the Company's Common
Stock on the NYSE was $32 per share. As of February 19, 1997, the Company's
transfer agent reported 135 holders of record of the Company's Common Stock.
TAXATION OF STOCKHOLDERS
The Company's REIT election was filed with its 1994 federal income tax
return, effective as of January 1, 1994. Failure of the Company to maintain its
status as a REIT would materially alter the tax and economic consequences to a
purchaser. Ungaretti & Harris, Chicago, Illinois ("Counsel"), has provided its
opinion that the Company has been organized in conformity with the requirements
for qualification as a REIT under the Internal Revenue Code of 1986, as amended
(the "Code") and that its method of operation as described herein and as
represented by the Company will permit it to so qualify for the taxable year
starting January 1, 1994 and subsequent taxable years. Such opinion is based
upon the Code, as amended, applicable Treasury Regulations adopted thereunder,
reported judicial decisions, and rulings of the Internal Revenue Service (the
"IRS"), all as of the date hereof, and certain representations of the Company
and factual assumptions related to the ownership and operation of the Company.
It should be noted that whether the Company will qualify as a REIT under the
Code will depend in part upon whether the Company meets the various
qualification tests imposed under the Code through actual annual operating
results. No assurance can be given that the actual results of the Company's
operations will satisfy such requirements.
The following summary is based on federal income tax law in effect as of
the date hereof. Such law is subject to change without notice, and may be
changed with retroactive effect. The summary is for general information only,
and does not constitute tax advice. The discussion does not address all aspects
of taxation that may be relevant to the particular circumstances of each
stockholder or to certain types of stockholders (including insurance companies,
tax-exempt entities, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States,
except as discussed below) subject to special treatment under the federal income
tax law.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT THE PROSPECTUS, AS WELL AS
HIS TAX ADVISOR, REGARDING THE SPECIFIC FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES, IN LIGHT OF HIS INDIVIDUAL CIRCUMSTANCES, OF THE ACQUISITION,
OWNERSHIP AND DISPOSITION OF THE SECURITIES, AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
TAXATION OF TAXABLE STOCKHOLDERS
TAX ON DISTRIBUTIONS. Distributions from the Company will be taxable to
stockholders as ordinary income to the extent of the current and accumulated
earnings and profits of the Company and will not be eligible for the dividend
received deduction available to corporations. Distributions from the Company
which are designated as capital gains dividends by the Company will be taxed as
long-term capital gains to stockholders to the extent such distributions do not
exceed the Company's actual net capital gain for the taxable year. Corporate
stockholders may be required to treat up to 20% of any such capital gains
distributions as ordinary income and will not be eligible for the dividend
received deduction available to corporations.
Distributions from the Company to stockholders which are not designated as
capital gains dividends and which are in excess of the Company's current and
accumulated earnings and profits will be treated as a tax-free return of capital
to stockholders to the extent of the tax basis of a stockholder's shares. Any
such distribution in excess of such tax basis is taxable to such stockholders as
gain realized from the sale of the shares. A stockholder who has received a
distribution in excess of current and accumulated earnings and profits of the
Company may, upon the sale of his shares, realize a higher taxable gain or a
smaller loss because of the reduction in the basis of his shares.
In addition, any dividend declared by the Company in October, November or
December of any year and payable to a shareholder of record on a specific date
in such month will be treated as both paid by the Company and received by the
shareholder on December 31 of such year, provided that the dividend is actually
paid during January of the following year.
S-9
<PAGE>
NO FLOW-THROUGH OF COMPANY'S LOSSES. If the Company incurs net losses,
such losses will not flow through to, and will not be not deductible by, the
stockholders.
SALE OF SHARES. Gain or loss recognized by a stockholder who holds his
shares as a capital asset will generally be taxable as capital gain or loss
which will be long-term capital gain or loss, provided such stockholder has held
his shares for more than one year at the time of sale. Furthermore, if a
stockholder sells shares which were held for one year or less and with respect
to which a capital gain distribution was received, any loss on the sale up to
the amount of the capital gain distribution will be treated as long-term capital
loss.
BACK-UP WITHHOLDING. Distributions from the Company will ordinarily not be
subject to withholding of Federal income taxes. However, the Company will be
required to withhold tax at a rate of 31% from distributions paid to those
stockholders who (a) fail to furnish their taxpayer identification number
("TIN") to the Company; (b) have, according to the IRS, furnished an incorrect
TIN to the Company; (c) have, according to the IRS, underreported interest,
dividend or patronage dividend income in the past; or (d) have failed to satisfy
the payee certification requirements of Section 3406 of the Code. Each
stockholder will be required to provide and certify his correct TIN and to
certify that he is not subject to backup withholding.
DISTRIBUTION INFORMATION. The Company will notify each stockholder after
the end of each year as to the portion of distributions paid that constitute
ordinary income, return of capital, capital gain and items of tax preference.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The IRS has issued a revenue ruling in which it held that amounts
distributed by a REIT to a tax-exempt pension trust do not constitute unrelated
business taxable income ("UBTI"). Subject to the discussion below,
distributions by a qualified REIT will not constitute UBTI provided that a tax-
exempt entity has not financed the acquisition with "acquisition indebtedness"
within the meaning of the Code and that the shares are not used in an unrelated
trade or business of a tax-exempt entity.
However, for taxable years beginning on or after January 1, 1994, if any
pension trust or other retirement trust that qualifies under Section 401(a) of
the Code ("qualified pension trust") holds more than 10% by value of the
interests in a "pension-held REIT," at any time during a taxable year, a portion
of the dividends paid to the qualified pension trust by the REIT may constitute
UBTI. For these purposes an entity would be a "pension-held REIT" if (i) it
would not have qualified as a REIT but for the provisions of the Code which look
through such a qualified pension trust in determining the ownership of shares of
the REIT and (ii) (A) at least one qualified pension trust holds more than 25%
by value of the shares of such REIT or (B) two or more qualified pension trusts
(each owning more than 10% by value of the REIT) hold in the aggregate more than
50% by value of interests in such REIT.
For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts, and qualified group legal services plans exempt
from tax under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code,
income from an investment in the Company will constitute UBTI unless the
organization is able to 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 own tax advisors
concerning these "set aside" and reserve requirements.
TAXATION OF FOREIGN STOCKHOLDERS
The rules governing United States income, gift and estate taxation of
foreign entities and individuals who are non-U.S. stockholders (as defined
below) are complex. They depend not only upon United States federal and state
income, gift and estate tax principles, but also upon the treaties, if any,
between the United States and the country of the nonresident investor.
Accordingly, no attempt will be made to provide more than a summary of these
rules. A "non-U.S. stockholder" is any person other than (i) a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized under the laws of the United States or any state thereof, (iii)
estates the income of which is subject to U.S. federal income taxation
regardless of its source, and (iv) trusts with respect to which a court within
the United States is able to exercise primary supervision over its
administration and one or more U.S. fiduciaries have the authority to control
all substantive decisions. All non-U.S. stockholders should consult their own
tax advisors as to the tax treatment of the acquisition, ownership and
disposition of shares in the Company under the tax laws applicable to them.
S-10
<PAGE>
ORDINARY DIVIDENDS. Distributions by the Company to non-U.S. stockholders
are treated as dividends to the extent of the Company's current and accumulated
earnings and profits, except to the extent such distributions are attributable
to capital gains of the Company. Such dividends are subject to withholding at
the rate of 30% unless the non-U.S. stockholder (i) establishes that a lower
rate of withholding (or no withholding) applies pursuant to a treaty, or (ii)
files Internal Revenue Service Form 4224 with the Company claiming that income
from the stockholder's investment in the stock is treated as effectively
connected with a United States trade or business. Income that is treated as
effectively connected with a United States trade or business is taxed at rates
applicable to income recognized by United States stockholders. If the
stockholder is a corporation, effectively connected income may also be subject
to a 30% branch profits tax, unless a treaty exemption applies.
Distributions in excess of the Company's current and accumulated earnings
and profits are not taxable to the stockholder to the extent they do not exceed
the adjusted basis of the stockholder's shares, but reduce the stockholder's
adjusted basis in such shares. To the extent such distributions exceed the
adjusted basis of the stockholder's shares, they are treated in the same manner
as gain from the sale or exchange of such shares, and may give rise to tax
liability as described below. Such distributions are also not subject to U.S.
withholding tax. If it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of the Company's earnings and
profits, the distribution will be subject to withholding at the rate applicable
to dividends. The non-U.S. stockholder may, however, seek a refund of such
amounts from the IRS if it is subsequently determined that such distribution
was, in fact, in excess of the Company's earnings and profits.
CAPITAL GAIN DIVIDENDS. For any year in which the Company qualifies as a
REIT, distributions that are attributable to gain from sales or exchanges by the
Company of United States real property interests will be taxed to a non-U.S.
stockholder as if such gain were effectively connected with a United States
trade or business. Such gain is therefore subject to tax at rates applicable to
capital gain recognized by United States stockholders, subject to the possible
application of alternative minimum tax and, in the case of nonresident alien
stockholders, a special alternative minimum tax. These distributions may also
be subject to a 30% branch profits tax in the hands of a foreign corporate
stockholder, unless a treaty exemption applies. The Company is required to
withhold 35% of any distribution to a non-U.S. stockholder that could be
designated by the Company as a capital gains dividend. The amount withheld is
allowed as a credit against the tax liability of the non-U.S. stockholder.
DISPOSITION OF STOCK OF THE COMPANY. It is possible that 50% or more in
value of the stock of the Company will be held directly or indirectly by foreign
persons. If this is the case, the Company will not be a "domestically
controlled REIT," and gain recognized by a non-U.S. stockholder on a sale or
exchange of stock in the Company will be subject to tax at rates applicable to
capital gain recognized by United States stockholders, subject to the possible
application of alternative minimum tax and, in the case of nonresident alien
stockholders, a special alternative minimum tax. For any period in which any
class of the Company's stock is regularly traded on an established securities
market, this tax will apply to such class only in the case of non-U.S.
stockholders who have held more than 5% of such class of the Company's stock
during the relevant testing period.
If less than 50% in value of the stock of the Company is held directly or
indirectly by foreign persons at all times during the relevant testing period,
the Company will be a "domestically controlled REIT." In this event, gain
recognized by a non-U.S. stockholder on a sale or exchange of stock in the REIT
will not be subject to tax under rules of general application. If (i) the gain
is effectively connected with a United States trade or business of the non-U.S.
stockholder or (ii) the non-U.S. stockholder is an individual who is present in
the United States for more than 182 days during the taxable year, gain
recognized by such non-U.S. stockholder will be subject to tax at rates
applicable to capital gain recognized by United States stockholders.
STATE AND LOCAL TAXES
The Company and its stockholders may be subject to state and local taxes in
various jurisdictions such as those in which the Company owns property or may be
deemed to be engaged in activities or in which the stockholders reside or own
property or other interests. The tax treatment of the Company and its
stockholders in states having taxing jurisdiction over them may differ from the
Federal income tax treatment described in this summary. No discussion of state
taxation of the Company, the shares or the stockholders is provided herein.
Each stockholder should consult his tax advisor as to the status of the shares
under the respective state tax laws applicable to him.
S-11
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
among Lehman Brothers Inc., A.G. Edwards & Sons, Inc., Smith Barney Inc.,
McDonald & Company Securities, Inc. and Wheat, First Securities, Inc.
(collectively, the "Underwriters") and the Company (the "Underwriting
Agreement"), the Underwriters have severally agreed to purchase from the
Company, and the Company has agreed to sell to the Underwriters, the number of
shares of Common Stock set forth opposite their respective names below:
UNDERWRITER NUMBER OF SHARES
----------- ----------------
Lehman Brothers Inc.. . . . . . . . . . . . . . . 495,000
A.G. Edwards & Sons, Inc. . . . . . . . . . . . . 495,000
Smith Barney Inc. . . . . . . . . . . . . . . . . 495,000
McDonald & Company Securities, Inc. . . . . . . . 270,000
Wheat, First Securities, Inc. . . . . . . . . . . 495,000
---------
TOTAL . . . . . . . . . . . . . . . . . . 2,250,000
---------
---------
The Underwriting Agreement provides that the Underwriters' obligation to
purchase the shares of Common Stock is subject to the satisfaction of certain
conditions, including the receipt of certain legal opinions. The nature of the
Underwriters' obligation is such that the Underwriters are committed to purchase
all of the shares of Common Stock if any are purchased.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock offered hereby for sale, from time to time, to purchasers
directly or through agents, or through brokers in brokerage transactions on the
NYSE, or to underwriters or dealers in negotiated transactions or in a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Brokers, dealers, agents and underwriters that participate in the
distribution of the shares of Common Stock offered hereby may be deemed to be
underwriters under the Securities Act of 1933, as amended (the "Securities
Act"). Those who act as underwriter, broker, dealer or agent in connection with
the sale of the shares of Common Stock offered hereby will be selected by the
Underwriter and may have other business relationships with the Company and its
subsidiaries or affiliates in the ordinary course of business.
The Company has granted to the Underwriters an option to purchase up to
an additional 250,000 shares of Common Stock at a purchase price of $29.85 per
share, solely to cover over-allotments, if any. Such option may be exercised at
any time until 30 days after the date of this Prospectus Supplement.
The Company has agreed, subject to certain exceptions (including the
issuance of shares of Common Stock pursuant to the Company's stock option plan,
restricted stock incentive plan, director stock plan and dividend reinvestment
and stock purchase plan and the issuance of Common Stock upon conversion of the
Debentures), not to offer, sell, enter into any agreement to sell or otherwise
dispose of any shares of Common Stock for a period of 90 days after the date of
this Prospectus Supplement.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
The Company has recently closed a $135 million unsecured credit facility
under which Lehman Brothers Holdings Inc., an affiliate of Lehman Brothers Inc.
(one of the Underwriters under this Prospectus Supplement), is one of the
lenders. The Company intends to use approximately $58 million of the net
proceeds to the Company from the sale of the Common Stock offered hereby to
reduce amounts outstanding under this unsecured credit facility. In the event
that a default occurs under the unsecured credit facility, Lehman Brothers
Holdings Inc. and the other lenders thereunder have the right to pursue various
remedies which may be to the disadvantage of the holders of the Common Stock.
See "Recent Developments--1996 Financings."
S-12
<PAGE>
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
the Company by Ungaretti & Harris, Chicago, Illinois and certain legal matters
will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom
LLP. Ungaretti & Harris and Skadden, Arps, Slate, Meagher & Flom LLP will rely
on Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC, Baltimore, Maryland
as to certain matters of Maryland law. In addition, Ungaretti & Harris will
provide an opinion as to the qualification of the Company as a REIT under the
Code.
EXPERTS
The financial statements and financial statement schedules included in
the Company's Annual Report on Form 10-K and in the Company's Current Report on
Form 8-K/A incorporated by reference in this Prospectus Supplement, to the
extent and for the periods indicated in their reports, have been audited by
Coopers & Lybrand L.L.P., independent accountants, and are included herein in
reliance upon the authority of those experts in giving their reports.
S-13
<PAGE>
PROSPECTUS
$200,000,000
CENTERPOINT PROPERTIES CORPORATION
DEBT SECURITIES, COMMON STOCK, PREFERRED STOCK, SECURITIES WARRANTS
_________________
CenterPoint Properties Corporation (the "Company") may from time to time
offer in one or more series its (i) senior debt securities ("Senior Debt
Securities"), (ii) subordinated debt securities ("Subordinated Debt Securities")
(Senior Debt Securities and Subordinated Debt Securities being collectively
referred to herein as "Debt Securities"), (iii) common stock, $.001 par value
per share ("Common Stock"), (iv) preferred stock, par value $.001 per share
("Preferred Stock"), and (v) warrants exercisable for Debt Securities, Common
Stock or Preferred Stock ("Securities Warrants"), in amounts, at prices and on
terms to be determined at the time of offering. The Senior Debt Securities,
Subordinated Debt Securities, Common Stock, Preferred Stock and Securities
Warrants (collectively referred to herein as the "Securities") may be offered
separately or together, in separate series, in amounts, at prices and on terms
to be described in one or more supplements to this Prospectus (a "Prospectus
Supplement").
The aggregate public offering price for Securities offered by the Company
will be up to $200,000,000 (or the equivalent based on the applicable exchange
rate at the time of the offering).
The specific terms of the Securities with respect to which this Prospectus
is being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, any terms for
redemption at the option of the Company or repayment at the option of the
holder, any terms for any sinking fund payment, covenants and any initial public
offering price; (ii) in the case of Common Stock, any initial public offering
price; (iii) in the case of Preferred Stock, the specific title and stated
value, any dividend, liquidation, redemption, conversion, voting and other
rights, and any initial public offering price; and (iv) in the case of
Securities Warrants, the specific title and aggregate number, the issue price
and the exercise price. In addition, such specific terms may include
limitations on direct or beneficial ownership and restrictions on transfer of
the Securities, in each case as may be appropriate to preserve the status of the
Company as a real estate investment trust ("REIT") for U.S. federal income tax
purposes.
The applicable Prospectus Supplement also will contain information, where
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the Securities covered by such
Prospectus Supplement.
The Securities may be offered directly by the Company, through agents
designated from time to time by the Company, 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 with, between or among them, will be set forth, or will be
calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such Securities.
SEE "RISK FACTORS" ON PAGE 4 OF THIS PROSPECTUS
FOR CERTAIN FACTORS AND MATERIAL RISKS
IN CONNECTION WITH THE PURCHASE OF THE SECURITIES.
________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
January 6, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and other applicable legal
or New York Stock Exchange, Inc. ("NYSE") requirements, pursuant to which the
Company files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company under the Exchange Act may
be examined without charge at, or copies obtained upon payment of prescribed
fees from, the Public Reference Section of the Commission at Judiciary Plaza
Office Building, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be
available for inspection and copying at the regional offices of the Commission
located at 13th Floor, 7 World Trade Center, New York, New York 10048 and at
Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661-2511, and at the NYSE, 20 Broad Street, New York, New York 10005.
Electronic filings made through the Electronic Data Gathering, Analysis and
Retrieval System are publicly available through the Commission's Web Site
(http://www.sec.gov).
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement"), of which this Prospectus is a part, under the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, with respect to the Securities offered pursuant to this
Prospectus. This Prospectus does not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Securities, reference is made to the Registration
Statement, which may be inspected and copied in the manner and at the sources
described above.
Statements contained in this Prospectus as to the contents of any contract
or other document that is filed as an exhibit to the Registration Statement are
not necessarily complete, and each such statement is qualified in its entirety
by reference to the full text of such contract or document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1995;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996;
3. The Company's Current Report on Form 8-K filed with the Commission on
July 1, 1996;
4. The Company's Current Report on Form 8-K filed with the Commission on
October 3, 1996, as amended by Form 8-K/A filed with the Commission on
November 27, 1996; and
5. The description of the Company's Common Stock set forth in the
Company's Post-Effective Amendment No. 1 to Form S-3 registration
statement filed with the Commission on March 22, 1995 (File No. 33-
89630).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of all Securities offered hereby shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof from
the date of filing of such documents. Any statement herein or in any document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for the purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part of this Prospectus except as so modified or
superseded.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
that have been or may be incorporated herein by reference (excluding exhibits to
such information unless such exhibits are specifically incorporated by reference
into the information that this Prospectus incorporates). Requests for such
information should be
2
<PAGE>
directed to CenterPoint Properties Corporation, 401 North
Michigan, 30th Floor, Chicago, Illinois 60611; Attention: Paul S. Fisher,
Secretary; telephone (312) 346-5600.
THE COMPANY
The Company is a fully integrated real estate company focused on the
acquisition, development, redevelopment, management and ownership of
warehouse/industrial property located in Greater Chicago (defined as the area
within a 150-mile radius of Chicago, including Milwaukee, Wisconsin and South
Bend, Indiana). The Company has elected and qualified for REIT status since
January 1, 1994. See "Federal Income Tax Considerations Relating to the
Company's REIT status -- Qualification as a REIT; Opinion of Counsel."
The Company, a Maryland corporation, was founded in 1984 and completed its
initial public offering of securities in December 1993. As of September 30,
1996, the Company owned and managed a portfolio of 73 warehouse/industrial
properties, containing approximately 13.8 million square feet of space, and
believes it is the largest owner and operator of warehouse/industrial property
in Greater Chicago. The Company also owns and manages three retail properties
and one apartment property. The Company's properties are currently 98% leased,
with the warehouse/industrial properties occupied by 129 tenants in diverse
industries and no tenant accounting for the lease of more than 10% of the total
square footage of the Company's warehouse/industrial portfolio. Substantially
all of the Company's properties have been constructed or renovated during the
past ten years.
The Company believes that Greater Chicago offers significant opportunities
for investment in and ownership of warehouse/industrial property. Greater
Chicago, due to its central location and extensive air, roadway, rail, and water
transportation infrastructure, supports a diverse industrial and service
industry base. Based on published statistics regarding square feet of space
owned and managed by other firms and publicly available information filed with
the Securities and Exchange Commission, as well as its knowledge and experience
in the market, the Company believes it is the largest owner and operator of
warehouse/industrial property in Greater Chicago.
The Company believes that investment in warehouse/industrial property
offers attractive returns and stable cash flow. Published statistics indicate
that total returns from warehouse/industrial properties have been among the
highest of any commercial property type in each of the past 15 years. The
Company believes that cash flow from warehouse/industrial property investments
is generally more predictable than cash flow from other property types because:
(i) relatively short construction periods discourage speculative building; (ii)
lower capital expenditures are required to sustain rental income due to the
adaptable character of warehouse/industrial property; and (iii) tenant renewal
rates are higher due to the significant cost and disruption to tenant operations
resulting from relocations. Moreover, leases for warehouse/industrial
properties provide generally for rent growth through contractual rent increases
or rents tied to certain indices such as the Consumer Price Index and are
generally structured as net leases, providing for the pass through to tenants of
all operating and real estate tax expenses.
The Company's objective is to maximize stockholder value by pursuing a
growth strategy consisting of (i) intensive management of the Company's existing
properties, and (ii) the acquisition of existing leased properties, build-to-
suit projects and properties suitable for redevelopment.
The Company's principal executive office is located at 401 North Michigan
Avenue, 30th Floor, Chicago, Illinois 60611, and its telephone number is (312)
346-5600.
3
<PAGE>
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
LIMITED GEOGRAPHICAL AND PROPERTY-TYPE DIVERSIFICATION
All of the Company's properties are located in Greater Chicago, and
substantially all of the Company's properties are warehouse/industrial
properties. While the Company believes that its focus on this geographical area
and property type is an advantage, the Company's performance and its ability to
make distributions to stockholders could be adversely affected by unfavorable
economic and/or warehouse/industrial real estate conditions in Greater Chicago.
RISKS OF DEBT FINANCING
The Company is subject to the risks normally associated with the incurrence
of debt financing, including the risks that (i) the Company will be unable to
meet required payments of principal and interest, (ii) existing indebtedness
will not be able to be refinanced or, if refinanced, the terms of such
refinancing will not be as favorable as the original terms of such indebtedness
and (iii) necessary capital expenditures for such purposes as renovations and
other improvements will not be able to be financed or, if financed, will not be
able to be financed on terms favorable to the Company. If a property is
mortgaged to secure payment of indebtedness and the Company is unable to meet
mortgage payments, the property could be foreclosed upon by the mortgagee with a
consequent loss of income and asset value to the Company.
The Company intends to continue its policy of maintaining a ratio of debt
(excluding the Company's 8.22% Convertible Subordinated Debentures due 2004 (the
"Debentures")) to total market capitalization of the Company of less than 50%.
However, the Articles of Incorporation do not contain any limitations on the
ratio of debt to total market capitalization. Accordingly, the Board of
Directors could alter or eliminate the current limitation on borrowing without
the approval of the Company's stockholders. If this policy were changed, the
Company could become more highly leveraged, resulting in an increase in debt
service that could adversely affect the Company's Funds from Operations and its
ability to make expected distributions to stockholders, as well as increase the
risk of default on the Company's other indebtedness and any borrowings incurred
under the Company's lines of credit.
Certain of the Company's debt now provides, and may in the future provide,
for variable interest rates. To the extent that the Company has variable
interest rate debt, the Company is exposed to the risk of interest rate
fluctuations and, consequently, an increase in interest expense. An increase in
interest expense could have a material adverse impact on the Company's
operations.
LIMITATION ON OWNERSHIP OF SHARES
In order for the Company to qualify as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"), not more than 50% in value of the
Company's outstanding stock may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities). Due to
these limitations on the concentration of ownership of stock of a REIT,
ownership of more than 9.8% of the value of the outstanding shares of stock by
any single stockholder has been restricted in the Articles of Incorporation,
with the exception of the ownership of the Common Stock by the Company's former
parent company, CRP-London.
Recent tax legislation relaxed the rules concerning ownership of stock in a
REIT by certain domestic pension trusts. The Articles of Incorporation do not
implement this change in the tax law. Under the Articles of Incorporation,
domestic pension funds are subject to the restriction on ownership of more than
9.8% of the value of the outstanding stock.
These ownership limits, as well as the ability of the Company to issue
additional shares of its Common Stock and Preferred Stock, may discourage a
change of control of the Company and may also (i) deter tender offers for the
Common Stock, which offers may be advantageous to stockholders, and (ii) limit
the opportunity for stockholders to receive a premium over then prevailing
market prices for their Common Stock that might otherwise exist if an investor
were attempting to assemble a block of Common Stock or otherwise effect a change
of control of the Company. See "Description of Capital Stock -- Restrictions on
Transfer."
4
<PAGE>
CHANGES IN INVESTMENT AND FINANCING OBJECTIVES
The investment and financing objectives of the Company, and its objectives
with respect to certain other activities, including without limitation, the
objective that the Company continue to qualify as a REIT, will be determined by
the Board of Directors. Although the Board of Directors has no present
intention to do so, the Board may revise current objectives of the Company at
any time and from time to time in its sole discretion. Accordingly,
stockholders will have no direct control over changes in the objectives of the
Company.
REAL ESTATE INVESTMENT CONSIDERATIONS
GENERAL. The business of owning and investing in real estate is highly
competitive and is subject to numerous inherent risks, including adverse changes
in general or local economic conditions and/or specific industry segments, real
estate values, rental rates, interest rates, real estate tax rates and other
operating expenses, the possibility of competitive overbuilding and of the
Company's inability to obtain or maintain high levels of occupancy in the
Company's properties, tenant defaults, unfavorable changes in governmental rules
and fiscal policies (including rent control legislation), acts of God and other
factors which are beyond the control of the Company. In addition to affecting
the profitability of operations, these and other factors could impact the
marketability of the Company's properties.
In addition to the general risks of ownership and investment in real
property, the Company will be subject to other risks in connection with the
leasing, redevelopment and improvement of properties, such as the risk that the
properties may operate at a cash deficit during the redevelopment and/or lease-
up period, and the risk of a contractor's inability to control costs and to
conform to plans, specifications and timetables, which may in turn be affected
by strikes, weather, government regulations and other conditions beyond the
contractor's control. The benefits anticipated from such transactions,
therefore, may be reduced or may not materialize. The Company may in the future
acquire properties in need of additional leasing activity, rehabilitation or
improvement.
COMPETITION. All of the Company's existing properties are, and all of the
properties that it may acquire in the future are expected to be, located in
areas that include numerous other warehouse/industrial, retail or apartment
properties, many of which may be deemed to be more suitable to any potential
tenant. The resulting competition could have a material adverse effect on the
Company's ability to lease its properties and to increase the rentals charged on
existing leases.
ENVIRONMENTAL MATTERS. All of the Company's existing properties have been,
and all properties the Company may acquire in the future will be, subjected to a
Phase I or similar environmental assessment. The purpose of a Phase I
environmental assessment is to determine if past and present uses of a property
indicate the potential for soil or groundwater contamination or if other
environmental conditions might affect the value of or future uses of the
property. Phase I environmental assessments generally include the following:
visual inspection of environmental conditions at and around the property; review
of available land use records; interviews with the property representatives;
examination of information from environmental agencies; and a walk through
survey for suspected asbestos containing or other toxic materials. These
environmental assessments have not revealed any environmental condition with
respect to any of the Company's existing properties that the Company believes
could have a material adverse effect upon the business or assets of the Company.
However, no assurance can be given that environmental assessments have revealed
or will reveal all potentially negative environmental conditions that may exist.
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is potentially liable to governmental entities
or third parties for property damage and the costs of investigation, removal or
remediation of contamination caused by certain hazardous or toxic substances on
or in such property. Such laws often impose liability without regard to whether
the owner knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remove such substances or remediate any contamination caused thereby, may
adversely affect the owner's ability to sell or rent such property or to borrow
using such property as collateral. Persons who arrange for the disposal of
hazardous substances at a treatment, storage or disposal facility may be liable
for the cost of removal or remediation of such substances at such treatment,
storage or disposal facility, whether or not such facility is owned or operated
by such person. Certain environmental laws impose liability for release of
asbestos-containing materials into the air, and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
such materials. In connection with the ownership, operation, management and
development of properties, the Company may be considered the owner or operator
of such properties or as having arranged for the disposal of hazardous or toxic
substances and, therefore, may be potentially liable for removal or remediation
costs, as well as certain other related costs, including governmental fines and
damages for injuries to persons and properties.
5
<PAGE>
UNINSURED LOSS. The Company maintains comprehensive liability, fire, flood
(where appropriate), extended coverage and rental loss insurance with respect to
its properties, with limits and deductibles customary in the industry. Certain
types of losses, however, may be either uninsurable or not economically
insurable, such as those due to earthquakes, riots or acts of war. Should an
uninsured loss occur, the Company could lose both its investment in and
anticipated profits and cash flow from a property and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss could adversely affect the Company.
COST OF COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public accommodations
are required to meet certain federal requirements related to access and use by
disabled persons. Existing warehouse/industrial properties generally are exempt
from the provisions of ADA but may be subject to provisions requiring that
buildings be made accessible to people with disabilities. Compliance with the
ADA could require removal of access barriers, and non-compliance could result in
the imposition of fines by the federal government or an award of damages to
private litigants. While the amounts of such compliance costs, if any, are not
currently ascertainable, they are not expected to have an adverse effect on the
Company.
CERTAIN RISKS RELATED TO REIT STATUS AND STRUCTURE
TAXATION AS A CORPORATION. The Company has elected and qualified for REIT
status since January 1, 1994. Although the Company believes that it has
operated in such a manner as to qualify as a REIT, no assurance can be given
that the Company will remain so qualified. Qualification as a REIT involves the
satisfaction of numerous requirements (some on an annual and quarterly basis)
established under highly technical and complex Code provisions for which there
are only limited judicial or administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within
the Company's control.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at corporate rates. Moreover,
unless entitled to relief under certain statutory provisions, the Company would
also be disqualified from treatment as a REIT for the four taxable years
following the year during which disqualification occurred. This treatment would
reduce the net earnings of the Company available for investment or distribution
to stockholders because of the additional tax liability to the Company for the
years involved. In addition, distributions to stockholders would no longer be
required to be made.
LACK OF CONTROL OF CERTAIN SUBSIDIARY CORPORATIONS. The Company expects to
derive income from certain activities (such as management of properties owned by
third parties) in excess of amounts the Company could earn directly or through
an entity controlled by the Company without jeopardizing its REIT status.
Accordingly, the Company owns a small percentage of the voting stock of
corporations carrying on such activities, and the Company has limited ability to
influence the day-to-day management of such corporations, even though the
Company owns stock representing most of the economic interest in such
corporations.
OTHER TAX LIABILITIES. Even as a REIT, the Company will be subject to
certain federal, state and local taxes on its income and property.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Company intends to invest the net proceeds of any sale of Securities for general
business purposes, including the development, redevelopment and acquisition of
additional properties and repayment of outstanding debt.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratios of earnings to fixed charges for the years ended
December 31, 1994 and 1995 were 1.19 and 1.63, respectively, and the Company's
ratios of earnings to fixed charges for the nine months ended September 30, 1995
and 1996 were 1.49 and 2.27, respectively. The ratios of earnings to fixed
charges for the years ended December 31, 1991 through December 31, 1993 were
less than one-to-one.
6
<PAGE>
The ratio of earnings to fixed charges means the ratio of pretax income
from continuing operations (with certain adjustments) to the total of: (i)
interest, (ii) amortization of debt expense and (iii) such portion of rental
expense as can be demonstrated to be representative of the interest factor in
the particular case.
The Company issued Series A Preferred Stock in September, 1995, which was
converted into Class B Common Stock in May, 1996. The Company's ratios of
earnings to combined fixed charges and Preferred Stock dividends for the year
ended December 31, 1995 was 1.51 and the Company's ratio of earnings to combined
fixed charges and Preferred Stock dividends for the nine months ended September
30, 1995 and September 30, 1996 was 1.48 and 1.71, respectively. The Company
had not issued any Preferred Stock prior to 1995; therefore, the ratios of
earnings to combined fixed charges and Preferred Stock dividends for years prior
to 1995 are unchanged from the ratios of earnings to fixed charges for such
years as set forth above.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions
of the Debt Securities to which this Prospectus and any applicable Prospectus
Supplement may relate. The particular terms of the Debt Securities being
offered and the extent to which such general provisions may apply will be set
forth in the applicable Indenture or in one or more indentures supplemental
thereto and described in a Prospectus Supplement relating to such Debt
Securities.
The Senior Debt Securities will be issued under an Indenture, as amended or
supplemented from time to time (the "Senior Indenture"), between the Company and
a trustee to be selected by the Company (the "Senior Trustee"), and the
Subordinated Debt Securities will be issued under an Indenture, as amended and
supplemented from time to time (the "Subordinated Indenture"), between the
Company and a trustee to be selected by the Company (the "Subordinated
Trustee"). The Senior Indenture and the Subordinated Indenture are each
referred to herein individually as an "Indenture," and they are together
referred to herein as the "Indentures;" the Senior Trustee and the Subordinated
Trustee are each referred to herein individually as a "Trustee," and they are
together referred to herein as the "Trustees." Forms of the Senior Indenture
and of the Subordinated Indenture have been filed as exhibits to the
Registration Statement of which this Prospectus is a part and will be available
for inspection at the corporate office of the Senior Trustee and Subordinated
Trustee, respectively, or as described above under "Available Information." The
Indentures will be subject to, and governed by, the Trust Indenture Act of 1939,
as amended. The Company will execute the applicable Indenture when and if the
Company issues Debt Securities. The statements made hereunder relating to the
Indentures and the Debt Securities to be issued thereunder are summaries of
certain provisions thereof and do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all provisions of the
Indentures and such Debt Securities. Unless otherwise indicated, all Section
references appearing herein are to Sections of the Indentures and capitalized
terms used but not otherwise defined herein will have the meanings set forth in
the Indentures.
PROVISIONS APPLICABLE TO SENIOR DEBT SECURITIES AND SUBORDINATED DEBT SECURITIES
GENERAL. The Debt Securities will be direct, unsecured obligations of the
Company and may be either Senior Debt Securities or Subordinated Debt
Securities.
The indebtedness represented by the Senior Debt Securities will rank pari
passu with other Senior Debt (as defined under "Provisions Applicable Solely to
Subordinated Debt Securities -- General") of the Company that may be outstanding
from time to time. The payment of principal of (and premium, if any) and
interest on indebtedness represented by Subordinated Debt Securities will be
subordinated, to the extent and in the manner provided in the Subordinated
Indenture, in right of payment to the prior payment in full of the Senior Debt
of the Company, including the Senior Debt Securities, as described under the
heading "Provisions Applicable Solely to Subordinated Debt Securities --
Subordination."
Each Indenture will provide that the Debt Securities may be issued without
limit as to aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the Board of Directors of the Company or as established in the
applicable Indenture or as may be established in one or more indentures
supplemental thereto. All Debt Securities of one series need not be issued at
the same time and, unless otherwise provided, a series may be reopened, without
the consent of the Holders of the Debt Securities of such series, for issuances
of additional Debt Securities of such series (Section 301).
7
<PAGE>
Each Indenture will provide that there may be more than one Trustee
thereunder, each with respect to one or more series of Debt Securities. Any
Trustee under an Indenture may resign or be removed with respect to one or more
series of Debt Securities, and a successor Trustee may be appointed to act with
respect to such series (Section 608). In the event that two or more persons are
acting as Trustee with respect to different series of Debt Securities, each such
Trustee will be a trustee of a trust under the applicable Indenture separate and
apart from the trust administered by any other Trustee thereunder, and, except
as otherwise indicated herein, any action described herein to be taken by each
Trustee may be taken by each such Trustee with respect to, and only with respect
to, the one or more series of Debt Securities for which it is Trustee under the
applicable Indenture.
The Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without limitation:
(1) the title of such Debt Securities;
(2) the classification of such Debt Securities as Senior Debt Securities
or Subordinated Debt Securities;
(3) The aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(4) The percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
(5) If convertible in whole or in part into Common Stock or Preferred
Stock, the terms on which such Debt Securities are convertible,
including the initial conversion price or rate (or method for
determining the same), the portion that is convertible and the
conversion period, and any applicable limitations on the ownership or
transferability of the Common Stock or Preferred Stock receivable on
conversion;
(6) The date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(7) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates will be determined, at which such Debt
Securities will bear interest, if any;
(8) The date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the dates on which any such
interest will be payable, the Regular Record Dates for such Interest
Payment Dates, or the method by which such dates will be determined,
the person to whom such interest will be payable, and the basis upon
which interest will be calculated if other than that of a 360-day year
of twelve 30-day months;
(9) The place or places where the principal of (and premium or Make-Whole
Amount, if any) and interest and Additional Amounts, if any, on such
Debt Securities will be payable, where such Debt Securities may be
surrendered for conversion or registration of transfer or exchange and
where notices or demands to or upon the Company in respect of such
Debt Securities and the applicable Indenture may be served;
(10) The period or periods within which, the price or prices at which and
the other terms and conditions upon which such Debt Securities may be
redeemed, in whole or in part, at the option of the Company, if the
Company is to have such an option;
(11) The obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous
provision or at the option of a Holder thereof, and the period or
periods within which or the date and dates on which, the price or
prices at which and the other terms and conditions upon which such
Debt Securities will be redeemed, repaid or purchased, in whole or in
part, pursuant to such obligation;
(12) If other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
8
<PAGE>
(13) Whether the amount of payments of principal of (and premium or Make-
Whole Amount, if any) or interest and Additional Amounts, if any, on
such Debt Securities may be determined with reference to an index,
formula or other method (which index, formula or method may, but need
not be, based on a currency, currencies, currency unit or units or
composite currency or currencies) and the manner in which such amounts
will be determined;
(14) Any additions to, modifications of or deletions from the terms of such
Debt Securities with respect to Events of Default or covenants set
forth in the applicable Indenture;
(15) Whether such Debt Securities will be issued in certificated or book-
entry form;
(16) Whether such Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the
denominations thereof and terms and conditions relating thereto;
(17) The applicability, if any, of the defeasance and covenant defeasance
provisions of Article Fourteen of the applicable Indenture;
(18) If such Debt Securities are to be issued upon the exercise of
Warrants, the time, manner and place for such Debt Securities to be
authenticated and delivered;
(19) Whether and under what circumstances the Company will pay any
Additional Amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will
have the option to redeem such Debt Securities in lieu of making such
payment; and
(20) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
The Indentures will not contain any provisions that would limit the ability
of the Company to incur indebtedness or that would afford Holders of Debt
Securities protection in the event of a highly leveraged or similar transaction
involving the Company or in the event of a change of control. Restrictions on
ownership and transfers of the Company's Common Stock and Preferred Stock are
designed to preserve its status as a REIT and, therefore, may act to prevent or
hinder a change of control. See "Description of Capital Stock -- Restrictions
on Transfer" and "Risk Factors -- Limitation on Ownership of Shares." Reference
is made to the applicable Prospectus Supplement for information with respect to
any deletions from, modifications of or additions to the Events of Default or
covenants of the Company that are described below, including any addition of a
covenant or other provision providing event risk or similar protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER. Unless otherwise
described in the applicable Prospectus Supplement, the Debt Securities of any
series will be issuable in denominations of $1,000 and integral multiples
thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium or Make-Whole Amount, if any) and interest
and Additional Amounts, if any, on any series of Debt Securities will be payable
at the corporate trust office of the applicable Trustee, the address of which
will be stated in the applicable Prospectus Supplement; provided that, at the
option of the Company, payment of interest may be made by check mailed to the
address of the person entitled thereto as it appears in the applicable register
for such Debt Securities or by wire transfer of funds to such person at an
account maintained within the United States (Sections 301, 305, 306, 307 and
1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
applicable Trustee, notice whereof will be given to the Holder of such Debt
Security not less than ten days prior to such Special Record Date, or may be
paid at any time in any other lawful manner, all as more completely described in
the applicable Indenture (Section 307).
9
<PAGE>
Subject to certain limitations imposed upon Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount and
tenor of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the applicable Trustee. In
addition, subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series may be surrendered for
conversion or registration of transfer or exchange thereof at the corporate
trust office of the applicable Trustee. Every Debt Security surrendered for
conversion, registration of transfer or exchange must be duly endorsed or
accompanied by a written instrument of transfer. No service charge will be made
for any registration of transfer or exchange of any Debt Securities, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith (Section 305). If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the applicable Trustee) initially designated by the Company with respect to any
series of Debt Securities, the Company may at any time rescind the designation
of any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Company will be required to maintain a
transfer agent in each place of payment for such series. The Company may at any
time designate additional transfer agents with respect to any series of Debt
Securities (Section 1002).
Neither the Company nor any Trustee will be required to (i) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; (iii) exchange any Bearer Security so selected for redemption, except to
exchange such Bearer Security for a Registered Security of that series of like
tenor when immediately surrendered for redemption; or (iv) issue, register the
transfer of or exchange any Debt Security which has been surrendered for
repayment at the option of the Holder, except the portion, if any, of such Debt
Security not to be so repaid (Section 305).
MERGER, CONSOLIDATION OR SALE. The Company will be permitted to
consolidate with, or sell, lease or convey all or substantially all of its
assets to, or merge with or into, any other entity, provided that (a) either the
Company will be the continuing entity, or the successor entity (if other than
the Company) formed by or resulting from any such consolidation or merger or
which has received the transfer of such assets will expressly assume payment of
the principal of (and premium or Make-Whole Amount, if any) and interest and
Additional Amounts, if any, on all of the Debt Securities and the due and
punctual performance and observance of all of the covenants and conditions
contained in each Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness that becomes an obligation of the
Company or any Subsidiary as a result thereof as having been incurred by the
Company or such Subsidiary at the time of such transaction, no Event of Default
under the Indentures, and no event which, after notice or the lapse of time, or
both, would become such an Event of Default, has occurred and be continuing; and
(c) an officer's certificate and legal opinion covering such conditions will be
delivered to each Trustee (Sections 801 and 803).
CERTAIN COVENANTS.
EXISTENCE. Except as described above under "Merger, Consolidation or
Sale," the Company will be required to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
and franchises; provided, however, that the Company will not be required to
preserve any right or franchise if it determines that the preservation thereof
is no longer desirable in the conduct of its business and that the loss thereof
is not disadvantageous in any material respect to the Holders of the Debt
Securities (Section 1006).
MAINTENANCE OF PROPERTIES. The Company will be required 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, the Company and its Subsidiaries will
not be prevented from selling or otherwise disposing for value its properties in
the ordinary course of business (Section 1007).
10
<PAGE>
INSURANCE. The Company will be required to, and will be required to
cause each of its Subsidiaries to, keep all of its insurable properties
insured against loss or damage at least equal to their then full insurable
value with financially sound and reputable insurers and, if described in the
applicable Prospectus Supplement, having a specified rating from a recognized
insurance rating service (Section 1008).
PAYMENT OF TAXES AND OTHER CLAIMS. The Company will be required to pay
or discharge or cause to be paid or discharged, before the same becomes
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of
the Company or any Subsidiary, and (ii) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Company or any Subsidiary; provided, however, that the
Company will not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim (i) whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings or (ii) for which the Company has set apart and maintains an
adequate reserve (Section 1009).
PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents (the "Financial Information") which the
Company would have been required to file with the Commission pursuant to such
Sections 13 or 15(d) if the Company were so subject, such documents to be filed
with the Commission on or prior to the respective dates (the "Required Filing
Dates") by which the Company would have been required so to file such documents
if the Company were so subject. The Company will also in any event (x) within
15 days of each Required Filing Date (i) transmit by mail to all Holders of Debt
Securities, as their names and addresses appear in the Security Register,
without cost to such Holders, copies of the annual reports and quarterly reports
and (ii) file with the Trustees copies of the Financial Information, and (y) if
filing such documents by the Company with the Commission is not permitted under
the Exchange Act, promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any
prospective Holder (Section 1010).
ADDITIONAL COVENANTS AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED ABOVE.
Any additional covenants of the Company and/or modifications to the covenants
described above with respect to any Debt Securities or series thereof, including
any covenants relating to limitations on incurrence of indebtedness or other
financial covenants, will be set forth in the applicable Indenture or an
indenture supplemental thereto and described in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER. Each Indenture will provide that the
following events are "Events of Default" with respect to any series of Debt
Securities issued thereunder: (i) default for 30 days in the payment of any
installment of interest on any Debt Security of such series; (ii) default in the
payment of principal of (or premium or Make-Whole Amount, if any, on) any Debt
Security of such series at its Maturity; (iii) default in making any sinking
fund payment as required for any Debt Security of such series; (iv) default in
the performance or breach of any other covenant or warranty of the Company
contained in the applicable Indenture (other than a covenant added to the
Indenture solely for the benefit of a series of Debt Securities issued
thereunder other than such series), that continues for 60 days after written
notice as provided in the applicable Indenture; (v) default in the payment of an
aggregate principal amount exceeding $10,000,000 of any indebtedness of the
Company or any mortgage, indenture or other instrument under which such
indebtedness is issued or by which such indebtedness is secured, such default
having occurred after the expiration of any applicable grace period and having
resulted in the acceleration of the maturity of such indebtedness, but only if
such indebtedness is not discharged or such acceleration is not rescinded or
annulled within a specified period of time; (vi) certain events of bankruptcy,
insolvency or reorganization, or court appointment of a receiver, liquidator or
trustee of the Company or any Significant Subsidiary or either of its property;
and (vii) any other Event of Default provided with respect to a particular
series of Debt Securities (Section 501). The term "Significant Subsidiary" will
mean each significant subsidiary (as defined in Regulation S-X promulgated under
the Securities Act) of the Company.
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the Holders of not less than 25% of the
principal amount of the Outstanding Debt Securities of that series will have the
right to declare the principal amount (or, if the Debt Securities of that series
are Original Issue Discount Securities or indexed securities, such portion of
the principal amount as may be specified in the terms thereof) of all the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then Outstanding under
any Indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the applicable Trustee,
the Holders of not less than a majority in principal amount of Outstanding Debt
Securities of such series (or of all Debt Securities then Outstanding under the
applicable Indenture, as the case may be) may rescind and
11
<PAGE>
annul such declaration and its consequences if (a) the Company has deposited
with the applicable Trustee all required payments of the principal of (and
premium, if any) and interest on the Debt Securities of such series (or of
all Debt Securities then Outstanding under the applicable Indenture, as the
case may be), plus certain fees, expenses, disbursements and advances of the
applicable Trustee and (b) all events of default, other than the non-payment
of accelerated principal (or specified portion thereof), with respect to Debt
Securities of such series (or of all Debt Securities then Outstanding under
the applicable Indenture, as the case may be) have been cured or waived as
provided in such Indenture (Section 502). Each Indenture also will provide
that the Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under the applicable Indenture, as the case may be) may waive any
past default with respect to such series and its consequences, except a
default (x) in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series or (y) in respect of a covenant
or provision contained in the applicable Indenture that cannot be modified or
amended without the consent of the Holder of each Outstanding Debt Security
affected thereby (Section 513).
Each Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default has been cured or waived; provided, however, that such Trustee may
withhold notice to the Holders of any series of Debt Securities of any default
with respect to such series (except a default in the payment of the principal of
(or premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if Responsible Officers of such Trustee consider such withholding to be
in the interest of such Holders (Section 601).
Each Indenture will provide that no Holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
such Indenture or for any remedy thereunder, except in the cases of failure of
the applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507). This provision will not prevent, however, any
Holder of Debt Securities from instituting suit for the enforcement of payment
of the principal of (and premium or Make-Whole Amount, if any) and interest on,
and any Additional Amounts in respect of such Debt Securities at the respective
due dates thereof (Section 508).
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under an Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under such Indenture, unless such
Holders have offered to the Trustee thereunder reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under an Indenture, as the case may be) will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the applicable Trustee, or of exercising any trust or power
conferred upon such Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may involve such Trustee in personal liability or which may be unduly
prejudicial to the Holders of Debt Securities of such series not joining therein
(Section 512).
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such default
and the nature and status thereof (Section 1011).
MODIFICATION OF THE INDENTURES. Modifications and amendments of an
Indenture will be permitted to be made only with the consent of the Holders
of not less than a majority in principal amount of all Outstanding Debt
Securities issued under such Indenture which are affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of each such Debt Security
affected thereby, (a) change the stated maturity of the principal of, or any
installment of interest (or premium or Make-Whole Amount, if any) on, any
such Debt Security; (b) reduce the principal amount of, or the rate or amount
of interest on or any Additional Amounts payable in respect thereof, or any
premium payable on redemption of, any such Debt Security, or reduce the
amount of principal of an Original Issue Discount Security that would be due
and payable upon declaration of acceleration of the maturity thereof or would
be provable in bankruptcy, or adversely affect any right of repayment of the
Holder of any such Debt Security; (c) change the place of payment, or the
coin or currency, for payment of principal or premium, if any, or interest on
any such Debt Security; (d) impair the right to institute suit for the
enforcement of any payment on or with respect to any such Debt Security; (e)
reduce the above-stated percentage of Outstanding Debt Securities of any
series necessary to modify or amend the applicable Indenture, to waive
compliance with certain provisions thereof or certain defaults and
consequences
12
<PAGE>
thereunder or to reduce the quorum or voting requirements set
forth in the applicable Indenture; (f) if Subordinated Debt Securities,
modify any of the provisions of the Subordinated Indenture relating to the
subordination of such Subordinated Debt Securities in a manner adverse to the
Holders thereof; or (g) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect such action
or to provide that certain other provisions may not be modified or waived
without the consent of the Holder of such Debt Security (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of each series affected thereby will have the right to waive
compliance by the Company with certain covenants in such Indenture (Section
1013).
Modifications and amendments of each Indenture will be permitted to be made
by the Company and the respective Trustee thereunder without the consent of any
Holder of Debt Securities for any of the following purposes: (i) to evidence
the succession of another person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in an Indenture; (iii) to add Events of Default for
the benefit of the Holders of all or any series of Debt Securities; (iv) to add
or change any provisions of an Indenture to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, provided that
such action will not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate any
provisions of an Indenture, provided that any such change or elimination will
become effective only when there are no Debt Securities Outstanding of any
series created prior thereto which are entitled to the benefit of such
provision; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series, including the provisions and procedures,
if applicable, for the conversion of such Debt Securities into Common Stock or
Preferred Stock of the Company; (viii) to provide for the acceptance of
appointment by a successor Trustee or facilitate the administration of the
trusts under an Indenture by more than one Trustee; (ix) to cure any ambiguity,
defect or inconsistency in an Indenture, provided that such action will not
adversely affect the interests of Holders of Debt Securities of any series
issued under such Indenture in any material respect; (x) to close either
Indenture with respect to the authentication and delivery of additional sums of
Debt Securities or to qualify, or maintain qualification of either Indenture
under the Trust Indenture Act; or (xi) to supplement any of the provisions of an
Indenture to the extent necessary to permit or facilitate defeasance and
discharge of any series of such Debt Securities, provided that such action will
not adversely affect the interests of the Holders of the Debt Securities of any
series in any material respect (Section 901).
Each Indenture will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
will be deemed to be Outstanding will be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of any Debt Security denominated in a foreign currency that will be deemed
Outstanding will be the U.S. dollar equivalent, determined on the issue date for
such Debt Security, of the principal amount (or, in the case of Original Issue
Discount Security, the U.S. dollar equivalent on the issue date of such Debt
Security of the amount determined as provided in (i) above), (iii) the principal
amount of an indexed security that will be deemed Outstanding will be the
principal face amount of such indexed security at original issuance, unless
otherwise provided with respect to such indexed security pursuant to Section 301
of the applicable Indenture, and (iv) Debt Securities owned by the Company or
any other obligor upon the Debt Securities or any affiliate of the Company or of
such other obligor will be disregarded (Section 101).
Each Indenture will contain provisions for convening meetings of the
Holders of Debt Securities of a series (Section 1501). A meeting may be called
at any time by the applicable Trustee, and also, upon request, by the Company or
the Holders of at least 10% in principal amount of the Outstanding Debt
Securities of such series, in any such case upon notice given as provided in the
Indenture (Section 1502). Except for any consent that must be given by the
Holder of each Debt Security affected by certain modifications and amendments of
an Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting or adjourned meeting duly reconvened at which a
quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with an Indenture will be
binding on all Holders of Debt Securities
13
<PAGE>
of that series. The quorum at any meeting called to adopt a resolution, and
at any reconvened meeting, will be persons holding or representing a majority
in principal amount of the Outstanding Debt Securities of a series; provided,
however, that if any action is to be taken at such meeting with respect to a
consent or waiver which may be given by the Holders of not less than a
specified percentage in principal amount of the Outstanding Debt Securities
of a series, the persons holding or representing such specified percentage in
principal amount of the Outstanding Debt Securities of such series will
constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, each Indenture will provide that
if any action is to be taken at a meeting of Holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such Indenture expressly provides may be
made, given or taken by the Holders of a specified percentage in principal
amount of all Outstanding Debt Securities affected thereby, or the Holders of
such series and one or more additional series: (i) there will be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
Outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action will
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture (Section 1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE. The Company may be
permitted under the applicable Indenture to discharge certain obligations to
Holders of any series of Debt Securities issued thereunder that have not already
been delivered to the applicable Trustee for cancellation and that either have
become due and payable or will become due and payable within one year (or
scheduled for redemption within one year) by irrevocably depositing with the
applicable Trustee, in trust, funds in such currency or currencies, currency
unit or units or composite currency or currencies in which such Debt Securities
are payable in an amount sufficient to pay the entire indebtedness on such Debt
Securities in respect of principal (and premium, if any) and interest and any
Additional Amounts to the date of such deposit (if such Debt Securities have
become due and payable) or to the stated maturity or redemption date, as the
case may be (Section 401).
Each Indenture will provide that, if the provisions of Article Fourteen are
made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities, and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under certain specified sections of Article Ten
of such Indenture as specified in the applicable Prospectus Supplement,
whereupon any omission to comply with such obligations will not constitute an
Event of Default with respect to such Debt Securities ("covenant defeasance")
(Section 1403), in either case upon the irrevocable deposit by the Company with
the applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient without reinvestment to pay the principal of (and
premium, if any) and interest on such Debt Securities, and any mandatory sinking
fund or analogous payments thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (as specified in the applicable Indenture) to the effect that the
Holders of such Debt Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
or covenant defeasance had not occurred, and such opinion of counsel, in the
case of defeasance, will be required to refer to and be based upon a ruling of
the Internal Revenue Service or a change in applicable U.S. federal income tax
law occurring after the date of the Indenture (Section 1404).
"Government Obligations" will be defined in the Indentures to mean
securities which are (i) direct obligations of the United States of America or
the government which issued the foreign currency in which the Debt Securities of
a particular series are payable, for the payment of which its full faith and
credit is pledged or (ii) obligations of a person controlled or supervised by
and acting as an agency or instrumentality of the United States of America or
such government which issued the foreign currency in which the Debt Securities
of such series are payable, the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation of the United States of America
or such government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and will also include a depository receipt issued
by a bank or
14
<PAGE>
trust company as custodian with respect to any such Government Obligation or
a specific payment of interest on or principal of any such Government
Obligation held by such custodian for the account of the Holder of a
depository receipt, provided that (except as required by law) such custodian
is not authorized to make any deduction from the amount payable to the Holder
of such depository receipt from any amount received by the custodian in
respect of the Government Obligation or the specific payment of interest on
or principal of the Government Obligation evidenced by such depository
receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security, or (b) a Conversion Event (as defined below) occurs in respect of the
currency, currency unit or composite currency in which such deposit has been
made, the indebtedness represented by such Debt Security will be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on such Debt Security as they
become due out of the proceeds yielded by converting the amount so deposited in
respect of such Debt Security into the currency, currency unit or composite
currency in which such Debt Security becomes payable as a result of such
election or such cessation of usage based on the applicable market exchange
rate. "Conversion Event" means the cessation of use of (i) a currency, currency
unit or composite currency both by the government of the country which issued
such currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities or
(iii) any currency unit or composite currency other than the ECU for the
purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium, if
any) and interest on any Debt Security that is payable in a foreign currency
that ceases to be used by its government of issuance will be made in U.S.
dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (iv) under "Events of Default, Notice and Waiver" with respect to
certain specified sections of Article Ten of each Indenture (which sections
would no longer be applicable to such Debt Securities as a result of such
covenant defeasance) or described in clause (vii) under "Events of Default,
Notice and Waiver" with respect to any other covenant as to which there has been
covenant defeasance, the amount in such currency, currency unit or composite
currency in which such Debt Securities are payable, and Government Obligations
on deposit with the applicable Trustee, will be sufficient to pay amounts due on
such Debt Securities at the time of their stated maturity but may not be
sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Event of Default. However, the Company would
remain liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS. The terms and conditions, if any, upon which the Debt
Securities are convertible into Common Stock or Preferred Stock will be set
forth in the applicable Prospectus Supplement relating thereto. Such terms will
include whether such Debt Securities are convertible into Common Stock or
Preferred Stock, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the Holders or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of such
Debt Securities and any restrictions on conversion, including restrictions
directed at maintaining the Company's REIT status.
REDEMPTION OF SECURITIES. Each Indenture will provide that the Debt
Securities may be redeemed at any time at the option of the Company, in whole or
in part, at the Redemption Price, except as may otherwise be provided in
connection with any Debt Securities or series thereof (Section 1102).
From and after notice has been given as provided in the Indentures, if
funds for the redemption of any Debt Securities called for redemption have been
made available on such redemption date, such Debt Securities will cease to bear
interest on the date fixed for such redemption specified in such notice (Section
1105), and the only right of the Holders of the Debt Securities will be to
receive payment of the Redemption Price (Section 1106).
15
<PAGE>
Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the Security Register, not more than 60
nor less than 30 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the Debt Securities held by such Holder to be redeemed
(Section 1104). With respect to Bearer Securities, notice will be sufficiently
given if published in an Authorized Newspaper in the City of New York and in
such other city or cities as may be specified in the Debt Securities (Section
106).
If the Company elects to redeem Debt Securities, it will notify the
applicable Trustee at least 45 days prior to the redemption date (or such
shorter period as satisfactory to such Trustee) of the aggregate principal
amount of Debt Securities to be redeemed and the redemption date (Section 1102).
If less than all the Debt Securities are to be redeemed, the applicable Trustee
will select the Debt Securities to be redeemed PRO RATA, by lot or in such
manner as it deems fair and appropriate (Section 1103).
GLOBAL SECURITIES. The Debt Securities of a series may be issued in whole
or in part in the form of one or more global securities (the "Global
Securities") that will be deposited with, or on behalf of, a depository
identified in the applicable Prospectus Supplement relating to such series
(Section 201). Global Securities, if any, issued in the United States are
expected to be deposited with the Depository Trust Company, as Depository.
Global Securities may be issued in fully registered form and may be issued in
either temporary or permanent form. Unless and until a Global Security is
exchanged in whole or in part for the individual Securities represented thereby,
it may not be transferred except as a whole by the Depository for such Global
Security to a nominee of such Depository or by a nominee of such Depository to
such Depository or another nominee of such Depository or by such Depository or
any nominee of such Depository to a successor Depository or any nominee of such
successor.
The specific terms of the depository arrangement with respect to particular
Securities will be described in the Prospectus Supplement relating to such
Securities. The Company expects that unless otherwise indicated in the
applicable Prospectus Supplement, the following provisions will apply to
depository arrangements.
Upon the issuance of a Global Security, the Depository for such Global
Security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual Securities represented
by such Global Security to the accounts of persons that have accounts with such
Depository ("Participants"). Such accounts will be designated by the
underwriters, dealers or agents with respect to such Securities or by the
Company if such Securities are offered directly by the Company. Ownership of
beneficial interests in such Global Security will be limited to Participants or
person that may hold interests through Participants. Ownership of beneficial
interests in such Global Security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the Depository
for such Global Security or its nominee (with respect to beneficial interests of
participants) and records of Participants (with respect to beneficial interests
of persons who hold through Participants). The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to own, pledge or
transfer beneficial interest in a Global Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Securities
represented by such Global Security for all purposes. Except as described below
or in the applicable Prospectus Supplement, owners of beneficial interest in a
Global Security will not be entitled to have any of the individual Securities
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of any such Securities in definitive
form and will not be considered the Owners or Holders thereof.
Payment with respect to Securities represented by a Global Security
registered in the name of a Depository or its nominee (including dividends, with
respect to Common Stock, dividends and any redemption payments on Preferred
Stock and principal of, any premium or Make-Whole Amount and any interest on, or
any Additional Amounts payable with respect to, individual Debt Securities) will
be made to the Depository or its nominee, as the case may be, as the registered
owner of the Global Security. None of the Company, any Trustee, any Paying
Agent, the Security Registrar or any transfer agent for Securities represented
by a Global Security will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Global Security for such Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
16
<PAGE>
The Company expects that the Depository for any Securities or its nominee,
upon receipt of any payment with respect to Securities represented by a Global
Security will immediately credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interests in such Global Security
as shown on the records of such Depository or its nominee. The Company also
expects that payments by Participants to owners of beneficial interests in such
Global Security held through such Participants will be governed by standing
instructions and customary practices, as is the case with securities held for
the account of customers in bearer form or registered in street name. Such
payments will be the responsibility of such Participants.
If a Depository for any Securities is at any time unwilling, unable or
ineligible to continue as depository and a successor depository is not appointed
by the Company within 90 days, the Company will issue individual Securities in
exchange for the Global Security representing such discretion, subject to any
limitations described in the Prospectus Supplement relating to such Securities,
determine not to have any of such Securities represented by one or more Global
Securities and in such event will issue individual Securities in exchange for
the Global Security or Securities representing such Securities. Individual Debt
Securities so issued will be issued in denominations of $1,000 and integral
multiples thereof.
PROVISIONS APPLICABLE SOLELY TO SUBORDINATED DEBT SECURITIES
GENERAL. Subordinated Debt Securities will be issued under the
Subordinated Indenture and will rank pari passu with certain other
subordinated debt of the Company that may be outstanding from time to time
and will rank junior to all Senior Debt of the Company, including the Senior
Debt Securities, that may be outstanding from time to time. All Section
references appearing below are to Sections of the Subordinated Indenture.
If Subordinated Debt Securities are issued under the Subordinated
Indenture, the aggregate principal amount of Senior Debt outstanding as of a
recent date will be set forth in the Prospectus Supplement. The Subordinated
Indenture will not restrict the amount of Senior Debt that the Company may
incur.
The term "Senior Debt" will be defined in the Subordinated Indenture to
mean: (i) the principal of and premium, if any, and interest on indebtedness
for borrowed money; (ii) purchase money and similar obligations; (iii)
obligations under capital leases; (iv) guarantees, assumptions or purchase
commitments relating to, or other transactions as a result of which the Company
is responsible for payment of, such indebtedness of others; (v) renewals,
extensions and refunding of any such indebtedness; (vi) interest or obligations
in respect of any such indebtedness accruing after the commencement of any
insolvency or bankruptcy proceedings; and (vii) obligations associated with
derivative products such as interest rate and currency exchange contracts,
foreign exchange contracts, commodity contracts, and similar arrangements,
unless, in each case, the instrument by which the Company incurred, assumed or
guaranteed the indebtedness or obligations described in clauses (i) through
(vii) expressly provides that such indebtedness or obligation is subordinate or
junior in right of payment to any other indebtedness or obligations of the
Company. As used in the preceding sentence, the term "purchase-money
obligations" means indebtedness or obligations evidenced by a note, debenture,
bond or other instrument (whether or not secured by any lien or other security
interest but excluding indebtedness or obligations for which recourse is limited
to the property purchased) issued or assumed as all or a part of the
consideration for the acquisition of property, whether by purchase, merger,
consolidation or otherwise, but will not include any trade accounts payable
(Section 101).
SUBORDINATION. The payment of the principal of (and premium, if any) and
interest on the Subordinated Debt Securities is expressly subordinated, to the
extent and in the manner set forth in the Subordinated Indenture, in right of
payment to the prior payment in full of all Senior Debt of the Company (Section
1601).
No Payment or Distribution will be made by the Company, the Trustee or the
Paying Agent on account of principal of (or premium, if any) or interest on the
Subordinated Debt Securities, whether upon stated maturity, upon redemption or
acceleration, or otherwise, or on account of the purchase or other acquisition
of Subordinated Debt Securities, whether upon stated maturity, upon redemption
or acceleration, or otherwise, if there has occurred and be continuing a default
with respect to any Senior Debt permitting the acceleration thereof or with
respect to the payment of any Senior Debt and (a) such default is the subject of
a judicial proceeding or (b) notice of such default in writing or by telegram
has been given to the Company by any holder or holders of any Senior Debt,
unless and until the Company has received written notice from such holder or
holders that such default or event of default has been cured or waived or has
ceased to exist (Section 1602).
17
<PAGE>
Upon any acceleration of the principal of the Subordinated Debt Securities
or any payment by the Company or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors upon
any dissolution or winding up or liquidation or reorganization of the Company,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or
other proceedings, all amounts due or to become due upon all Senior Debt will
first be paid in full in cash, or payment thereof provided for to the
satisfaction of the holders thereof, before any Payment or Distribution is made
on account of the redemption price or principal of (and premium, if any) or
interest on the Subordinated Debt Securities; and (subject to the power of a
court of competent jurisdiction to make other equitable provision, which has
been determined by such court to give effect to the rights conferred in Article
16 of the Subordinated Indenture upon the Senior Debt and the holders thereof
with respect to the Subordinated Debt Securities or the Holders thereof or the
Trustee, by a lawful plan of reorganization or readjustment under applicable
law) upon any such dissolution or winding up or liquidation or reorganization,
any Payment or Distribution by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the Holders of the Subordinated Debt Securities or the Trustee would be
entitled except for the provisions of Article 16 of the Subordinated Indenture,
will be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such Payment or Distribution
directly to the holders of Senior Debt of the Company or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Debt may have been issued, as their
respective interests may appear, to the extent necessary to pay all Senior Debt
in full in cash, after giving effect to any concurrent payment or distribution
to or for the holders of Senior Debt, before any Payment or Distribution is made
to the Holders of the Subordinated Debt Securities or to the Trustee, except
that the Trustee will have a lien for the payment of its fees and expenses
(Section 1602).
In the event that, notwithstanding the foregoing, any Payment or
Distribution by the Company of any kind or character, whether in cash, property
or securities, prohibited by the foregoing, will be received by the Trustee or
the Holders of the Subordinated Debt Securities before all Senior Debt is paid
in full in cash, or provision is made for such payment to the satisfaction of
the holders thereof, and if such fact has then been or thereafter is made known
to a Responsible Officer of the Trustee or, as the case may be, such Holder,
then and in such event such Payment or Distribution will be paid over or
delivered to the holders of Senior Debt or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all Senior
Debt remaining unpaid to the extent necessary to pay all Senior Debt in full in
cash, after giving effect to any concurrent Payment or Distribution to or for
the holders of such Senior Debt, and, until so delivered, the same will be held
in trust by any Holder of a Security as the property of the holders of Senior
Debt (Section 1602).
The holders of Senior Debt may, at any time and from time to time, without
the consent of or notice to the Holders of the Subordinated Debt Securities,
without incurring responsibility to the Holders of the Subordinated Debt
Securities and without impairing or releasing the obligations of the Holders of
the Subordinated Debt Securities hereunder to the holders of Senior Debt: (i)
change the manner, place or terms of payment or change or extend the time of
payment of, or renew or alter, Senior Debt, or otherwise amend in any manner
Senior Debt or any instrument evidencing the same or any agreement under which
Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Debt; (iii) release
any Person liable in any manner for the collection of Senior Debt; and/or (iv)
exercise or refrain from exercising any rights against the Company and any other
Person (Section 1602).
SUBROGATION. Subject to the payment in full in cash of all amounts then
due (whether by acceleration of the maturity thereof or otherwise) on account of
all Senior Debt at the time outstanding, the Holders of the Subordinated Debt
Securities will be subrogated to the rights of the holders of Senior Debt to
receive Payments or Distributions of cash, property or securities of the Company
applicable to the Senior Debt until the principal of (and premium, if any) and
interest on the Subordinated Debt Securities is paid in full; and, for the
purposes of such subrogation, no Payments or Distributions to the holders of
Senior Debt to which the Holders of the Subordinated Debt Securities or the
Trustee would be entitled except for the provisions of Article 16 of the
Subordinated Indenture, and no payments over pursuant to the provisions of
Article 16 of the Subordinated Indenture to the holders of Senior Debt by
Holders of the Subordinated Debt Securities or the Trustee, will, as between the
Company, the Company's creditors other than holders of Senior Debt, and the
Holders of the Subordinated Debt Securities, be deemed to be a payment by the
Company to or on account of the Senior Debt. It is understood that the
provisions of Article 16 of the Subordinated Indenture are and are intended
solely for the purpose of defining the relative rights of the Holders of the
Subordinated Debt Securities, on the one hand, and the holders of Senior Debt,
on the other hand (Section 1603).
18
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the terms of the capital stock of the
Company. This summary 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. See "Available Information."
GENERAL
The Articles of Incorporation authorize the issuance of up to 60,000,000
shares, of which 47,727,273 are shares of Common Stock, par value $.001 per
share ("Common Stock"), 2,272,727 are shares of Class B Common Stock, par
value $.001 per share ("Class B Common Stock"), and 10,000,000 are shares of
Series Preferred Stock, par value $.001 per share ("Preferred Stock"). As of
October 31, 1996, there were 14,312,195 shares of Common Stock issued and
outstanding and 2,272,727 shares of Class B Common Stock issued and
outstanding, all of which are fully-paid and non-assessable. The Class B
Common Stock was issued in May 1996 upon conversion of the Company's Series A
Preferred Stock. As a consequence of such conversion, no shares of Preferred
Stock are currently issued and outstanding, and the Series A Preferred Stock
reverted to the status of authorized and unissued Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to receive dividends when and as
declared by the Board of Directors out of funds legally available therefor
after payment of any preferential dividends to the holders of any series of
Preferred Stock that may then be issued and outstanding. Upon any
liquidation, dissolution or winding up of the Company, holders of Common
Stock are entitled to receive ratably any assets remaining after payment in
full of all liabilities of the Company and any preferential payments to the
holders of the Preferred Stock. The holders of Common Stock are entitled to
one vote per share on all matters voted on by stockholders, including
elections of directors, and, except as otherwise required by law with respect
to class voting rights, or as granted to the holders of Class B Common Stock,
or provided in any resolution adopted by the Board of Directors with respect
to any series of Preferred Stock establishing the powers, designations,
preferences and relative, participating, optional or other special rights of
such series, the holders of Common Stock possess all voting powers. Holders
of Common Stock do not possess preemptive rights to subscribe for additional
securities of the Company or the right to cumulate their shares in the
election of directors or in any other matter. All shares of Common Stock
offered by the Company will be, and all issued and outstanding shares of
Common Stock are, fully paid and non-assessable.
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company of New York, Jersey City, New Jersey.
CLASS B COMMON STOCK
DIVIDENDS. Holders of Class B Common Stock are entitled to receive, when
and as declared by the Board of Directors, out of funds legally available
therefor, dividends PARI PASSU with any dividends paid on the Common Stock,
in an amount per share equal to the Class B Common Stock Common Dividend
Amount as in effect from time to time. Each calendar quarter is referred to
as a "Dividend Period." The amount of dividends payable with respect to each
full Dividend Period is computed by dividing the Class B Common Stock Common
Dividend Amount by four. The amount of dividends on the Class B Common Stock
with respect to any Dividend Period shorter or longer than a full Dividend
Period is computed ratably on the basis of the actual number of days in such
Dividend Period. The initial Class B Common Stock Dividend Amount was
$1.6068. Upon a change in the quarterly cash dividend per share applicable to
the Common Stock, the quarterly cash dividend per share of the Class B Common
Stock is adjusted for the same Dividend Period by an amount computed by
multiplying the amount of the change in the Common Stock dividend by the
Conversion Ratio (as defined below).
In the event the Company declares a distribution payable in (i)
securities of other persons, (ii) evidences of indebtedness issued by the
Company or other persons, (iii) assets (excluding cash dividends), or (iv)
options or rights to purchase capital stock or evidences of indebtedness in
the Company or other persons, then the holders of Class B Common Stock will
be entitled to a proportionate share of any such distribution as though they
were the holders of the number of shares of Common Stock into which their
shares of Class B Common Stock are or would be convertible (assuming such
shares of Class B Common Stock were then convertible) as of the record date
fixed for determination of the holders of Common Stock entitled to receive
such distribution.
19
<PAGE>
LIQUIDATION RIGHTS. Subject to any prior rights of any other class or
series of stock, the holders of the Class B Common Stock will be entitled to
receive the remaining assets of the Company available for distribution pro
rata with the holders of shares of capital stock of the Company as though
they were the holders of the number of shares of Common Stock of the Company
into which their shares of Class B Common Stock are or would be convertible
(assuming such shares of Class B Common Stock were then convertible) as of
the record date applicable to such distribution.
Neither a consolidation or merger of the Company with or into any other
corporation, nor a merger of any other corporation into the Company, nor the
purchase or redemption of all or part of the outstanding shares of any class
or classes of stock of the Company, nor a sale or transfer of all or any part
of its assets, will be considered a liquidation, dissolution or winding up of
the Company.
VOTING RIGHTS. The holders of Class B Common Stock are not entitled to
vote on any matter on which the holders of Common Stock are entitled to vote,
except that the holders of a majority of the Class B Common Stock, voting as
a separate class, must approve (i) any material adverse change in the rights,
preferences or privileges of the Class B Common Stock and (ii) any creation
of a new class of stock having rights, preferences or privileges senior to or
on a parity with the preferences or privileges of the Class B Common Stock.
CONVERSION RIGHTS. Beginning on September 30, 1998, and at the end of
each calendar quarter thereafter, such number of shares of Class B Common
Stock will mandatorily convert into such number of shares of Common Stock as
will result in the holders of the Class B Common Stock owning, in the
aggregate, 4.9% of the then outstanding shares of Common Stock; and if on any
such date the total number of outstanding shares of Class B Common Stock
would not, upon conversion, result in the holders thereof owning, in the
aggregate, 4.9% of the then outstanding shares of Common Stock, then all such
outstanding shares of Class B Common Stock will mandatorily convert into
Common Stock.
On May 22, 2006 (the tenth anniversary of issuance of the Class B Common
Stock), each remaining share of Class B Common Stock which has not been
converted to Common Stock will mandatorily convert to that number of
non-assessable shares of Common Stock equal to the Conversion Ratio, as
adjusted, regardless of the 4.9% limitation.
Beginning on September 21, 1998, the holders of shares of Class B Common
Stock will have the right, at their option, to convert each such share of
Class B Common Stock, at any time and from time to time, into one fully paid
and non-assessable share of Common Stock (the "Conversion Ratio," which is
subject to adjustment as provided below); PROVIDED, HOWEVER, that no holder
of Class B Common Stock will be entitled to convert shares of such Class B
Common Stock into Common Stock pursuant to the foregoing provision, if, as a
result of such conversion, such person would become the Beneficial Owner of
more than 4.9% of the Corporation's outstanding Common Stock. "Beneficial
Owner" has the meaning set forth in Rule 13d-3 under the Securities and
Exchange Act of 1934 (or any successor provision thereto). Notwithstanding
the foregoing, the foregoing conversion right may be exercised at any time
and irrespective of the 4.9% limitation (and no such limit will apply) if any
of the following circumstances occurs:
(i) For any two consecutive fiscal quarters, the aggregate
amount outstanding as of the end of the quarter under (A) all mortgage
indebtedness of the Company and its consolidated entities and (B)
unsecured indebtedness of the Company and its consolidated entities for
money borrowed that has not been made generally subordinate to the other
indebtedness for borrowed money of the Company or any consolidated
entity exceeds fifty-five percent (55%) of the Company's total market
capitalization, defined as the market value of all of the Company's
outstanding capital stock, assuming the conversion of all outstanding
convertible securities, including the Class B Common Stock, plus the
amount of the Company's total non-convertible indebtedness; or
(ii) Fewer than three of John S. Gates, Jr., Robert M.
Stovall, Michael M. Mullen and Paul S. Fisher are continuing as Key
Managers of the Company. (For purposes of this subparagraph (ii), a "Key
Manager" means a Person who is (A) employed by the Company and (B)
actively participates as a senior executive officer in the management of
the Company); or
(iii) If (A) the Company is party to, or has announced or
entered into an agreement for, any transaction (including, without
limitation, a merger, consolidation, statutory share exchange or sale of
all or substantially all of its assets (each of the foregoing a
"Transaction"), in each case as a result of which shares of Common Stock
has been or will be converted into the right to receive stock,
securities or other property (including cash or any combination thereof)
or which has resulted or will result in the holders of Common Stock
immediately prior to the Transaction owning less than 50% of the Common
Stock after the Transaction, or (B) a "Change of Control" as
20
<PAGE>
defined in the next sentence occurs with respect to the Company.
"Change of Control" means the acquisition (including by virtue of a
merger, share exchange or other business combination) by one
stockholder or a group of stockholders acting in concert of the power to
elect a majority of the Company's board of directors.
No fractional shares will be issued upon conversion of the Class B
Common Stock into Common Stock, and the number of shares of Common Stock to
be issued will be rounded to the nearest whole share.
The Conversion Ratio is subject to adjustment as follows:
(i) In the event the Company at any time (A) pays a
dividend or make a distribution to holders of Common Stock in shares
of capital stock of the Company, (B) subdivides its outstanding shares
of Common Stock into a larger number of shares, (C) combines its
outstanding shares of Common Stock into a smaller number of shares, or
(D) issues by reclassification of its shares of Common Stock any
shares of the Company, the Conversion Ratio in effect immediately
prior thereto will be adjusted as provided below so that the holder of
any share of Class B Common Stock thereafter surrendered for
conversion will be entitled to receive the number of shares of the
Company which such holder would have owned or have been entitled to
receive after the happening of any of the events described above, had
such share of Class B Common Stock been converted immediately prior to
the happening of such event. Any adjustment made pursuant to this
subparagraph (i) will become effective retroactively immediately after
the record date in the case of a dividend and will become effective
immediately after the effective date in the case of a subdivision,
combination or reclassification.
(ii) In case the Company issues rights or warrants to
all holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the
current market price (as hereinafter defined) per share of Common
Stock at the record date mentioned below, the number of shares of
Common Stock into which each share of Class B Common Stock will
thereafter be convertible will be determined by multiplying the number
of shares of Common Stock into which such share of Class B Common
Stock was theretofore convertible by a fraction, of which the
numerator will be the number of shares of Common Stock outstanding on
the date of issuance of such rights or warrants plus the number of
additional shares of Common Stock offered for subscription or
purchase, and of which the denominator will be the number of shares of
Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price
of the total number of shares so offered would purchase at such
current market price. Such adjustment will be made whenever such
rights or warrants are issued, and will become effective retroactively
immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants.
(ii) In case the Company distributes to all holders of
its Common Stock evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase securities issued by the Company
or property of the company (excluding those referred to in
subparagraph (ii) above), then in each such case the number of shares
of Common Stock into which each share of Class B Common Stock will
thereafter be convertible will be determined by multiplying the number
of shares of Common Stock into which such share of Class B Common
Stock was theretofore convertible by a fraction, of which the
numerator will be the current market price per share of the Common
Stock, and of which the denominator will be such current market price
per share of Common Stock, less the then fair market value (as
determined by the Board of Directors of the Company, whose
determination will be conclusive) of the portion of the assets or
evidence of indebtedness so distributed or of such rights or warrants
applicable to one share of the Common Stock. Such adjustment will be
made whenever any such distribution is made, and will become effective
retroactively immediately after the record date for the determination
of stockholders entitled to receive such distribution.
(iv) If any such rights or warrants referred to above
expires without having been exercised, the Conversion Ratio as
theretofore adjusted because of the issue of such rights or warrants
will forthwith be readjusted to the Conversion Ratio which would have
been in effect had an adjustment been made on the basis that only the
rights or warrants to issued or sold were those rights or warrants
actually exercised and that with respect to any such rights or
warrants to subscribe for or purchase securities issued by the
Company, other than Common Stock or property of the Company, the fair
market value thereof will be the fair market value of the rights or
warrants actually exercised or warrants actually exercised.
21
<PAGE>
For the purpose of any computation under these paragraphs (i)-(iv), the
current market price per share of Common Stock at any date will be deemed to
be the average of the daily closing prices for the 15 consecutive business
days commencing 30 business days before the day in question. The closing
price for each day will be the last reported sale price regular way or, in
the case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in either case on the New
York Stock Exchange, or, if the Common Stock is not listed or admitted to
trading on such Exchange, on any national securities exchange, designated by
the Board of Directors, on which the Common Stock is listed or admitted to
trading, or if not listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices as furnished by any
New York Stock Exchange firm selected from time to time by the Company for
the purpose.
No adjustment of the Conversion Ratio will be made as a result of or in
connection with the issuance of Common Stock of the Company pursuant to
options or stock purchase agreements now or hereafter granted or entered into
with directors, officers or employees of the Company or its subsidiaries in
connection with their employment, whether entered into at the beginning of
the employment or at any time thereafter.
In case of:
(i) any capital reorganization of the Company, or
(ii) the consolidation or merger of the Company with or
into another corporation, or
(iii) a statutory share exchange whereby the Company's
Common Stock is converted into property other than
cash, or
(iv) the sale, transfer or other disposition of all or
substantially all of the property, assets or business
of the Company as a result of which sale, transfer or
other disposition property other than cash will be
payable or distributable to the holders of the Common
Stock,
then, in each such case, each share of Class B Common Stock will thereafter
be convertible into the number and class of shares or other securities or
property of the Company, or of the corporation resulting from such
consolidation or merger or with or to which such statutory share exchange,
sale, transfer or other disposition has been made, to which the Common Stock
otherwise issuable upon conversion of such share of Class B Common Stock
would have been entitled upon such reorganization, consolidation, merger,
statutory share exchange, or sale, transfer or other disposition if
outstanding at the time thereof; and in any such case appropriate adjustment,
as determined by the Board of Directors, will be made in the application of
the provisions set forth in the foregoing paragraph with respect to the
conversion rights thereafter of the holders of the Class B Common Stock, to
the end that such provisions will thereafter be applicable, as nearly as
reasonably may be, in relation to any shares or securities or other property
thereafter issuable or deliverable upon the conversion of Class B Common
Stock. Proper provision will be made as a part of the terms of any such
reorganization, consolidation, merger, statutory share exchange or sale,
transfer or other disposition whereby the conversion rights of the holders of
Class B Common Stock will be protected and preserved in accordance with the
provisions of this paragraph. The provisions of this paragraph will similarly
apply to successive capital reorganizations, consolidations, mergers,
statutory share exchanges, sales, transfers or other dispositions of property
as aforesaid.
Upon conversion of any shares of Class B Common Stock, no payment or
adjustment will be made on account of dividends accrued, whether or not in
arrears, on such shares or on account of dividends declared and payable to
holders of Common Stock of record on a date prior to the date of conversion.
If the Company is party to any Transaction in each case as a result of
which shares of Common Stock will be converted into the right to receive
stock, securities or other property (including cash or any combination
thereof), the holder of each share of Class B Common Stock will have the
right after such Transaction to convert such share, pursuant to the optional
conversion provisions hereof, into the number and kind of shares of stock or
other securities and the amount and kind of property receivable upon such
Transaction by a holder of the number of shares of Common Stock issuable upon
conversion of such share of Class B Common Stock immediately prior to such
Transaction. The Company will not be party to any Transaction unless the
terms of such Transaction are consistent with the provisions of this
paragraph, and it will not consent to or agree to the occurrence of any
Transaction until the Company has entered into an agreement with the
successor or purchasing entity, as the case may be, for the benefit of the
holders of the Class B Common Stock, thereby enabling the
22
<PAGE>
holders of the Class B Common Stock to receive the benefits of this
paragraph and the other provisions of the Company's Articles of Incorporation
applicable to the Class B Common Stock.
PREFERRED STOCK
GENERAL. Shares of Preferred Stock may be issued from time to time, in
one or more series, as authorized by the Board of Directors. Prior to
issuance of shares of each series, the Board is required to fix for each such
series, subject to the provisions of Maryland law and the Articles of
Incorporation, the powers, designations, preferences and relative,
participating, optional or other special rights of such series and
qualifications, limitations or restrictions thereof, including such
provisions as may be desired concerning voting, redemption, dividends,
dissolution or the distribution of assets, conversion or exchange, and such
other matters as may be fixed by resolution of the Board of Directors or a
duly authorized committee thereof. The Board could authorize the issuance of
shares of Preferred Stock with terms and conditions which could have the
effect of discouraging a takeover or other transaction which holders of some,
or a majority of, shares of Common Stock might believe to be in their best
interests, or in which holders of some, or a majority of, shares of Common
Stock might receive a premium for their shares of Common Stock over the then
market price of such shares. The Preferred Stock will, when issued, be
fully-paid and non-assessable and will have no preemptive rights.
The Prospectus Supplement relating to any Preferred Stock offered
thereby will contain the specific terms, including:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such
Preferred Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock will
accumulate, if applicable.
(5) The procedures for any auction and remarketing, if any, for such
Preferred Stock;
(6) The provision for a sinking fund, if any, for such Preferred Stock;
(7) The provisions for redemption, if applicable, of such Preferred
Stock;
(8) Any listing of such Preferred Stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock of the Company,
including the conversion price (or manner of calculation thereof);
(10) A discussion of federal income tax considerations applicable to
such Preferred Stock;
(11) The relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding
up of the affairs of the Company;
(12) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred
Stock as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company;
(13) Any limitations on direct or beneficial ownership and restrictions
on transfer of such Preferred Stock, in each case as may be
appropriate to preserve the status of the Company as a REIT; and
(14) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock.
The Registrar and Transfer Agent for the Preferred Stock will be set
forth in the applicable Prospectus Supplement.
23
<PAGE>
RANK. Unless otherwise specified in the Prospectus Supplement, the
Preferred Stock will, with respect to dividend rights and/or rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Stock of the Company, and to all Equity Stock
(defined below) ranking junior to such Preferred Stock; (ii) on a parity with
all Equity Stock issued by the Company the terms of which specifically
provide that such Equity Stock rank on a parity with the Preferred Stock; and
(iii) junior to all Equity Stock issued by the Company the terms of which
specifically provide that such Equity Stock rank senior to the Preferred
Stock. The term "Equity Stock" includes Common Stock and Preferred Stock and
does not include convertible debt securities.
DIVIDENDS. Holders of the Preferred Stock of each series will be
entitled to receive, when, as and if declared by the Board of Directors of
the Company, out of assets of the Company legally available for payment, cash
dividends at such rates (or method of calculation thereof) and on such dates
as will be set forth in the applicable Prospectus Supplement. Each such
dividend will be payable to holders of record as they appear on the stock
transfer books of the Company on such record dates as are fixed by the Board
of Directors of the Company.
Dividends on any series of Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement.
Dividends, if cumulative, will be cumulative from and after the date set
forth in the applicable Prospectus Supplement. If the Board of Directors of
the Company fails to declare a dividend payable on a dividend payment date on
any series of the Preferred Stock for which dividends are non-cumulative,
then the holders of such series of the Preferred Stock will have no right to
receive a dividend in respect of the dividend period ending on such dividend
payment date, and the Company will have no obligation to pay the dividend
accrued for such period, whether or not dividends on such series are declared
payable on any future dividend payment date.
If any Preferred Stock of any series is outstanding, no full dividends
will be declared or paid or set apart for payment on any Preferred Stock of
the Company of any other series ranking, as to dividends, on a parity with or
junior to the Preferred Stock of such series for any period unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for such payment on
the Preferred Stock of such series for all past dividend periods and the then
current dividend period or (ii) if such series of Preferred Stock does not
have a cumulative dividend, full dividends for the then current dividend
period have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for such payment on the
Preferred Stock of such series. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Preferred
Stock of any series and the shares of any other series of Preferred Stock
ranking on a parity as to dividends with the Preferred Stock of such series,
all dividends declared upon the Preferred Stock of such series and any other
series of Preferred Stock ranking on a parity as to dividends with such
Preferred Stock will be declared pro rata so that the amount of dividends
declared per share on Preferred Stock of such series and such other series of
Preferred Stock will in all cases bear to each other the same ratio that
accrued dividends per share on the Preferred Stock of such series (which will
not include any accumulation in respect of unpaid dividends for prior
dividend periods if such Preferred Stock does not have a cumulative dividend)
and such other series of Preferred Sock bear to each other. No interest, or
sum of money in lieu of interest, will be payable in respect of any dividend
payment or payments on Preferred Stock of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Stock has a cumulative dividend, full cumulative
dividends on the Preferred Stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and
the then current dividend period, and (ii) if such series of Preferred Stock
does not have a cumulative dividend, full dividends on the Preferred Stock of
such series have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for the
then current dividend period, no dividends (other than in Common Stock or
other capital stock ranking junior to the Preferred Stock of such series as
to dividends and upon liquidation) will be declared or paid or set aside for
payment or other distribution upon the Common Stock, or any other capital
stock of the Company ranking junior to or on a parity with the Preferred
Stock of such series as to dividends or upon liquidation, nor will any Common
Stock, or any other capital stock of the Company ranking junior to or on a
parity with the Preferred Stock of such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any such shares) by the Company (except by conversion
into or exchange for other capital stock of the Company ranking junior to the
Preferred Stock of such series as to dividends and upon liquidation).
Any dividend payment made on a series of Preferred Stock will first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remains payable.
24
<PAGE>
REDEMPTION. If so provided in the applicable Prospectus Supplement, the
Preferred Stock will be subject to mandatory redemption or redemption at the
option of the Company, in whole or in part, in each case upon the terms, at the
times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of Preferred
Stock, if any, that will 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
will 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 capital stock of the Company, the terms of such
Preferred Stock may provide that if no such capital stock has 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 will automatically
and mandatorily be converted into the applicable capital stock of the Company
pursuant to conversion provisions specified in the applicable Prospectus
Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Stock
has a cumulative dividend, full cumulative dividends on all Preferred Stock of
any series have been or contemporaneously are declared and paid or declared and
a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the current dividend period and (ii) if such series of
Preferred Stock does not have a cumulative dividend, full dividends on all
shares of such series have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
the then current dividend period, no shares of such series of Preferred Stock
will be redeemed unless all outstanding shares of Preferred Stock of such series
are simultaneously redeemed; provided, however, that the foregoing will not
prevent the purchase or acquisition of Preferred Stock of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Stock of
such series. In addition, unless (i) if such series of Preferred Stock has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
series of Preferred Stock have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period, and (ii) if
such series of Preferred Stock does not have a cumulative dividend, full
dividends on all shares of such series of Preferred Stock have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for the then current dividend period, the
Company will not purchase or otherwise acquire directly or indirectly any
Preferred Stock of such series (except by conversion into or exchange for
capital stock of the Company ranking junior to the Preferred Stock of such
series as to dividends and upon liquidation); provided, however, that the
foregoing will not prevent the purchase or acquisition of Preferred Stock of
such series to preserve the REIT status of the Company or pursuant to a purchase
or exchange offer made on the same terms to holders of all outstanding Preferred
Stock of such series.
If fewer than all of the outstanding Preferred Stock of any series are to
be redeemed, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record of
such shares in proportion to the number of such shares held or for which
redemption is requested by such holders (with adjustments to avoid redemption of
fractional shares) or in any other manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice will state: (i) the redemption date; (ii) the number
of shares and series of Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption prices; (v) that dividends on
the shares to be redeemed will cease to accrue on such redemption date; and (vi)
the date upon which the holder's conversion rights, if any, as to such shares
will terminate. If fewer than all of the shares of Preferred Stock of any
series are to be redeemed, the notice mailed to each such holder thereof will
also specify the number of shares of Preferred Stock to be redeemed from each
such holder. If notice of redemption of any shares of Preferred Stock has been
given and if the funds necessary for such redemption have been irrevocably set
aside by the Company in trust for the benefit of the holders of any shares of
Preferred Stock so called for redemption, then from and after the redemption
date dividends will cease to accrue on such shares of Preferred Stock, such
shares of Preferred Stock will no longer be deemed outstanding and all rights of
the holders of such shares will terminate, except the right to receive the
redemption price.
25
<PAGE>
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment will be made to the holders of any Common Stock or any
other class or series of capital stock of the Company ranking junior to the
Preferred Stock in the distribution of assets upon any liquidation, dissolution
or winding up of the Company, the holders of each series of Preferred Stock will
be entitled to receive out of assets of the Company legally available for
distribution to shareholders 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 will 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 for 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
legally 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
capital stock of the Company ranking on a parity with the Preferred Stock in the
distribution of assets, then the holders of the Preferred Stock and all other
such classes or series of capital stock will 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 have been made in full to all holders of a
series of Preferred Stock, the remaining assets of the Company will be
distributed among the holders of any other classes or series of capital stock
ranking junior to the Preferred Stock upon liquidation, dissolution or winding
up, according to their respective rights and preferences and in each case
according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation, trust
or entity, or the sale, lease or conveyance of all or substantially all of the
property or business of the Company, will not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS. Holders of Preferred Stock will not have any voting rights,
except as set forth below or as otherwise from time to time required by law or
as indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Stock, so long as any
Preferred Stock remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of each series
of Preferred Stock outstanding at the time, given in person or by proxy, either
in writing or at a meeting (such series voting separately as a class), (i)
authorize, create or increase the authorized or issued amount of, any class or
series of capital stock ranking prior to such series of Preferred Stock with
respect to the payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up or reclassify any authorized capital
stock of the Company into such shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to purchase any
such shares; or (ii) amend, alter or repeal the provisions of the Company's
Articles of Incorporation, whether by merger, consolidation or otherwise (an
"Event"), so as to materially adversely affect any right, preference, privilege
or voting power of such series of Preferred Stock or the holders thereof;
provided, however, with respect to the occurrence of any of the Events set forth
in (ii) above, so long as the Preferred Stock remains outstanding with the terms
thereof materially unchanged, taking into account that upon the occurrence of an
Event, the Company may not be the surviving entity, the occurrence of any such
Event will not be deemed to materially and adversely affect such rights,
preferences, privileges or voting power of holders of Preferred Stock and
provided further that (x) any increase in the amount of the authorized Preferred
Stock or the creation or issuance of any other series of Preferred Stock, or (y)
any increase in the amount of authorized shares of such series or any other
series of Preferred Stock, in each case ranking on a parity with or junior to
the Preferred Stock of such series with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, will not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required is
effected, all outstanding Preferred Stock of such series have been redeemed or
called for redemption and sufficient funds have been deposited in trust to
effect such redemption.
CONVERSION RIGHTS. The terms and conditions, if any, upon which any series
of Preferred Stock is convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Stock.
26
<PAGE>
NO STOCKHOLDER LIABILITY
Applicable Maryland law provides that no holder of Common or Preferred
Stock will be personally liable for the acts and obligations of the Company and
that the funds and property of the Company will be the only recourse for such
acts or obligations.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, shares of Common Stock
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months (other than the first year for which REIT status is
elected) or during a proportionate part of a shorter taxable year. Also, not
more than 50% of the value of the issued and outstanding shares of capital stock
may be owned, directly or indirectly, by five or fewer individuals (as defined
in the Code to include certain entitles) during the last half of a taxable year
(other than the first year for which REIT status is elected) or during a
proportionate part of a shorter taxable year. To ensure compliance with these
requirements, the Articles of Incorporation contain provisions restricting the
ownership and acquisition of shares of the Company's capital stock, including
any Preferred Stock of the Company.
The Articles of Incorporation, subject to an exception in favor of Capital
and Regional Properties, plc ("CRP-London"), provide that no holder may own, or
be deemed to own by virtue of the attribution provisions of the Code, more than
9.8% in value (the "Ownership Limit") of the issued and outstanding shares of
the Company's Common Stock or Preferred Stock (collectively, "Equity Stock").
The constructive ownership rules are complex and may cause Equity Stock owned
directly or constructively by a group of related individuals and/or entities to
be deemed to be constructively owned by one individual or entity. As a result,
the acquisition of less than 9.8% of the Equity Stock (or the acquisition of an
interest in an entity which owns Equity Stock) by an individual or entity could
cause that individual or entity (or another individual or entity) to own
constructively in excess of 9.8% of the Equity Stock, and thus subject such
Equity Stock to the Ownership Limit. In addition, for these purposes, shares of
Common Stock that may be acquired upon conversion or exchange of convertible
Debt Securities directly or constructively held by an investor, but not
necessarily shares of Common Stock issuable with respect to convertible Debt
Securities held by others, will be deemed to be outstanding prior to conversion
or exchange, for purposes of determining the percentage of ownership of Equity
Stock held by that investor. The Board of Directors may, upon the receipt of a
ruling from the IRS or an opinion of counsel satisfactory to it, waive the
Ownership Limit with respect to a given holder if such holder's ownership will
not then or in the future jeopardize the Company's status as a REIT.
Recent tax legislation relaxed the rules concerning ownership of stock in a
REIT by certain domestic pension trusts. The Articles of Incorporation do not
implement this change in the tax law. Under the Articles of Incorporation,
domestic pension funds are subject to the restriction on ownership of more than
9.8% of the value of the outstanding stock.
The Articles of Incorporation contain a provision which limits the right of
any stockholder to transfer or otherwise dispose of his shares of Equity Stock
in a manner which is contrary to the Ownership Limit. If any stockholder
purports to transfer his shares to another person and either the transfer would
result in the Company failing to qualify as a REIT or such transfer would cause
the transferee to hold more than the Ownership Limit, the purported transfer
will be null and void and the stockholder will be deemed not to have transferred
his shares. Moreover, if any person holds shares in excess of the Ownership
Limit, such person will be deemed to hold those shares that cause such limit to
be exceeded solely in trust for the benefit of the Company, and will not receive
distributions with respect to such shares or be entitled to vote such shares.
In such event, such person will be deemed to have offered to sell such excess
shares to the Company for the lesser of the amount paid for such shares or the
market price of such shares, which offer the Company can accept for a period of
90 days after the later of (i) the date of the transfer resulting in such excess
shares and (ii) the date the Company's Board of Directors determines that such
excess shares exist. In its sole discretion, the Company may repurchase such
shares for cash.
Federal income tax regulations require that the Company demand within 30
days after the end of each of its taxable years written statements from
stockholders of record holding more than a specified percentage of the Company's
stock, in which the stockholders set out information with respect to their
actual and constructive ownership of the Equity Stock and the Debentures. In
addition, each stockholder must on demand disclose to the Company in writing
such additional information as the Company may request in order to determine the
effect of such stockholder's direct, indirect and constructive ownership of such
shares on the Company's status as a REIT.
27
<PAGE>
All certificates representing shares of Common Stock and/or Preferred Stock
will bear a legend referring to the restrictions on transfer described above.
These ownership limitations could have the effect of discouraging a
takeover or other transactions in which holders of some, or a majority, of
shares of Equity Stock might receive a premium for their shares over the
prevailing market price or which such holders might believe to be otherwise in
their best interest.
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Debt
Securities, Preferred Stock or Common Stock. Securities Warrants may be issued
independently or together with any other Securities offered by any Prospectus
Supplement and may be attached to or separate from such Securities. Each series
of Securities Warrants will be issued under a separate warrant agreement (each a
"Warrant Agreement") to be entered into between the Company and a warrant agent
specified in the applicable Prospectus Supplement (the "Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection with the
Securities Warrants of such series and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial owners of
Securities Warrants. The following summaries of certain provisions of the
Securities Warrant Agreement and the Securities Warrants do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the Securities Warrant Agreement and the Securities
Warrant certificates relating to each series of Securities Warrants 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 Securities Warrants.
If Securities Warrants are offered, the applicable Prospectus Supplement
will describe the terms of such Securities Warrants, including, in the case of
Securities Warrants for the purchase of Debt Securities, the following where
applicable: (i) the offering price; (ii) the denominations and terms of the
series of Debt Securities purchasable upon exercise of such Securities Warrants;
(iii) the designation and terms of any series of Debt Securities with which such
Securities Warrants are being offered and the number of such Securities Warrants
being offered with such Debt Securities; (iv) the date, if any, on and after
which such Securities Warrants and the related series of Debt Securities will be
transferable separately; (v) the principal amount of the series of Debt
Securities purchasable upon exercise of each such Securities Warrant and the
price at which such principal amount of Debt Securities of such series may be
purchased upon such exercise; (vi) the date on which the right to exercise such
Securities Warrants shall commence and the date on which such right shall expire
(the "Expiration Date"); (vii) whether the Securities Warrants will be issued in
registered or bearer form; (viii) any special United States federal income tax
consequences; (ix) the terms, if any, on which the Company may accelerate the
date by which the Securities Warrants must be exercised; and (x) any other
material terms of such Securities Warrants.
In the case of Securities Warrants for the purchase of Preferred Stock or
Common Stock, the applicable Prospectus Supplement will describe the terms of
such Securities Warrants, including the following where applicable: (i) the
offering price; (ii) the aggregate number of shares purchasable upon exercise of
such Securities Warrants, the exercise price, and in the case of Securities
Warrants for Preferred Stock, the designation, aggregate number and terms of the
series of Preferred Stock with which such Securities Warrants are being offered
and the number of such Securities Warrants being offered with such Preferred
Stock; (iii) the date, if any, on and after which such Securities Warrants and
the related series of Preferred Stock or Common Stock will be transferable
separately; (iv) the date on which the right to exercise such Securities
Warrants shall commence and the Expiration Date; (v) any special United States
federal income tax consequences; and (vi) any other material terms of such
Securities Warrants.
Securities Warrant certificates may be exchanged for new Securities Warrant
certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Warrant Agent or any other office indicated in the
applicable Prospectus Supplement. Prior to the exercise of any Securities
Warrant to purchase Debt Securities, holders of such Securities Warrants will
not have any of the rights of holders of the Debt Securities purchasable upon
such exercise, including the right to receive payments of principal, premium, if
any, or interest, if any, on such Debt Securities or to enforce covenants in the
applicable Indenture. Prior to the exercise of any Securities Warrants to
purchase Preferred Stock or Common Stock, holders of such Securities Warrants
will not have any rights of holders of such Preferred Stock or Common Stock,
including the right to receive payments of dividends, if any, on such Preferred
Stock or Common Stock, or to exercise any applicable right to vote.
28
<PAGE>
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase such
principal amount of Debt Securities or number of shares of Preferred Stock or
Common Stock, as the case may be, at such exercise price as shall in each case
be set forth in, or calculable from, the Prospectus Supplement relating to the
offered Securities Warrants. After the close of business on the Expiration Date
(or such later date to which such Expiration Date may be extended by the
Company), unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to the Warrant Agent
payment as provided in the applicable Prospectus Supplement of the amount
required to purchase the Common Stock purchasable upon such exercise, together
with certain information set forth on the reverse side of the Securities Warrant
certificate. Securities Warrants will be deemed to have been exercised upon
receipt of payment of the exercise price, subject to the receipt within five (5)
business days, of the Securities Warrant certificate evidencing such Securities
Warrants. Upon receipt of such payment and the Securities Warrant certificate
properly completed and duly executed at the corporate trust office of the
Securities Warrant agent or any other office indicated in the applicable
Prospectus Supplement, the Company will, as soon as practicable, issue and
deliver the Common Stock purchasable upon such exercise. If fewer than all of
the Securities Warrants represented by such Securities Warrant certificate are
exercised, a new Securities Warrant certificate will be issued for the remaining
amount of Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The Warrant Agreements may be amended or supplemented without the consent
of the holders of the Securities Warrants issued thereunder to effect changes
that are not inconsistent with the provisions of the Securities Warrants and
that do not adversely affect the interests of the holders of the Securities
Warrants.
COMMON STOCK WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of shares of Common Stock covered by, a Common
Stock Warrant are subject to adjustment in certain events, including (i) payment
of a dividend on the Common Stock payable in capital stock and stock splits,
combinations or reclassification of the Common Stock; (ii) issuance to all
holders of Common Stock of rights or warrants to subscribe for or purchase
shares of Common Stock at less than their current market price (as defined in
the Warrant Agreement for such series of Common Stock Warrants); and (iii)
certain distributions of evidences of indebtedness or assets (including
securities but excluding cash dividends or distributions paid out of
consolidated earnings or retained earnings or dividends payable in Common Stock)
or of subscription rights and warrants (excluding those referred to above).
No adjustment in the exercise price of, and the number of shares of Common
Stock covered by, a Common Stock Warrant will be made for regular quarterly or
other periodic or recurring cash dividends or distributions or for cash
dividends or distributions to the extent paid from consolidated earnings or
retained earnings. No adjustment will be required unless such adjustment would
require a change of at least 1% in the exercise price then in effect. Except as
stated above, the exercise price of, and the number of shares of Common Stock
covered by, a Common Stock Warrant will not be adjusted for the issuance of
Common Stock or any securities convertible into or exchangeable for Common
Stock, or carrying the right or option to purchase or otherwise acquire the
foregoing, in exchange for cash, other property or services.
In the event of any (i) consolidation or merger of the Company with or into
any entity (other than a consolidation or a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock); (ii) sale, transfer, lease or conveyance of all or substantially
all of the assets of the Company; or (iii) reclassification, capital
reorganization or exchange of the Common Stock (other than solely a change in
par value or from par value to no par value), then any holder of a Common Stock
Warrant will be entitled, on or after the occurrence of any such event, to
receive on exercise of such Common Stock Warrant the kind and amount of shares
of stock or other securities, cash or other property (or any combination
thereof) that the holder would have received had such holder exercised such
holder's Common Stock Warrant immediately prior to the occurrence of such event.
If the consideration to be received upon exercise of the Common Stock Warrant
following any such event consists of common stock of the surviving entity, then
from and after the occurrence of such event, the exercise price of such Common
Stock Warrant will be subject to the same anti-dilution and other adjustments
described in the second preceding paragraph, applied as if such common stock
were Common Stock.
29
<PAGE>
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S CHARTER 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 Maryland law and the Articles of Incorporation and Bylaws. See
"Available Information."
THE BOARD OF DIRECTORS
The Company's Bylaws provide that the number of directors of the Company
may be established by the Board but may not be fewer than three nor more than
ten, a majority of which must be independent. Any vacancy will be filled at
any regular meeting or at any special meeting of stockholders called for that
purpose or by a majority of the remaining directors, except that a vacancy
resulting from an increase in the number of directors will be filled by a
majority of the entire Board. Pursuant to the terms of the Articles of
Incorporation, each director will hold office for a one-year term expiring at
the annual meeting of stockholders to be held the following year and until
his successor is duly elected and qualified. Holders of shares will have no
right to cumulative voting in the election of directors.
BUSINESS COMBINATIONS
As a Maryland corporation, the Company is subject to certain
restrictions concerning certain "business combinations" (including a merger,
consolidation, share exchange, or, in certain circumstances, an asset
transfer or issuance or reclassification of equity securities) between the
Company and an Interested Stockholder (defined as any person who beneficially
owns 10% or more of the voting power of the Company's shares or an affiliate
of the Company who, at any time within the two-year period prior to the date
in question, was the beneficial owner of 10% or more of the voting power of
the then-outstanding voting stock of the Company) or an affiliate thereof.
Such business combinations 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 the Company and approved by the affirmative vote
of at least 80% of the votes entitled to be cast by holders of outstanding
voting shares of the Company voting together as a single group and of at
least two-thirds of the votes entitled to be cast by holders of voting shares
other than voting shares with whom the business combination is to be
effected, unless, among other things, the Company's stockholders receive a
"minimum price" (as determined under Maryland law) 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 combination that are approved or exempted
by the Board of Directors of the Company prior to the time that the
Interested Stockholder becomes an Interested Stockholder.
CONTROL SHARE ACQUISITIONS
Maryland law 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 acquirer or by officers or
directors who are employees of the Company. "Control Shares" are voting
shares which, if aggregated with all other such shares previously acquired by
such person, or in respect of which such person is able to exercise or direct
the exercise of voting power, except solely by virtue of a revocable proxy,
would entitle the acquirer, directly or indirectly, to exercise voting power
in electing directors within any 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 the demand to consider the voting
rights of the shares. If no request for a meeting is made, the Company may
itself present the question at any 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 Maryland
law, then, subject to certain conditions and limitations, the Company may
redeem any or all of the control shares (except those for which voting rights
have previously been approved) for fair value, determined without regard to
the absence of voting rights for control shares, as of the date of the last
control share acquisition or of any
30
<PAGE>
meeting of stockholders at which the voting rights of such shares are
considered and not approved. If voting rights for control shares are
approved at a stockholders' meeting and the acquirer becomes entitled to vote
a majority of the shares entitled to vote, all other stockholders may
exercise appraisal rights. The fair value of the shares 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 dissenter's rights do
not apply in the context of a control share acquisition.
The control share acquisition provisions of Maryland law do not apply to
shares acquired in a merger, consolidation or share exchange if the Company
is a party to the transaction, or to acquisitions which may be approved of or
exempted by the Articles of Incorporation or Bylaws of the Company. No such
provisions are currently contained in the Company's Articles of Incorporation
or Bylaws. There can be no assurance, however, that such provisions will not
be provided for in the future.
AMENDMENT TO THE ARTICLES OF INCORPORATION
The Company's Articles of Incorporation may be amended only by the
affirmative vote of the holders of not less than two-thirds of all of the
votes entitled to be cast on the matter.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote
of the holders of not less than two-thirds of all of the votes entitled to be
cast on the matter or the written consent of all holders of shares entitled
to vote on this matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Company's Articles of Incorporation establish an advance notice
procedure for stockholders to make nominations of candidates for election as
directors or bring other business before an annual meeting of stockholders
("Stockholder Notice Procedures").
The Stockholder Notice Procedures provide that (1) only persons who are
nominated by or at the direction of the Board of Directors, or by a
stockholder who has given timely written notice containing specified
information to the Secretary of the Company prior to the meeting at which
directors are to be elected, will be eligible for election as directors and
(2) at an annual meeting only such business may be conducted as has been
brought before the meeting by or at the direction of the Chairman of the
Board of Directors or by a stockholder who has given timely written notice to
the Secretary of such stockholder's intention to bring such business before
the meeting. In general, to be considered timely, notice of stockholder
nominations to be made or business to be conducted at an annual meeting must
be received not less than 60 days nor more than 90 days prior to the first
anniversary of the previous year's annual meeting.
The purpose of requiring such advance notice by stockholders is to
provide the Board of Directors a meaningful opportunity to consider the
qualifications of the proposed nominees or the advisability of the other
proposed business and, to the extent deemed necessary or advisable by the
Board of Directors, to inform stockholders and make recommendations about
such qualifications or business, as well as to provide a more orderly
procedure for conducting meetings of stockholders. Although the Company's
Article of Incorporation do not give the Board of Directors any power to
disapprove of stockholder nominations or proposals for action, they may have
the effect of precluding a contest for the election of directors or the
consideration of stockholder proposals if the proper procedures are not
followed. In addition, the Articles of Incorporation may discourage or deter
a third party from conducting a solicitation of proxies to elect its own
slate of directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or in the best
interests of the Company and its stockholders. The provisions in the
Company's Articles of Incorporation regarding advance notice provisions could
have the effect of discouraging a takeover or other transaction in which
holders of some, or a majority, of the shares of Common 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 interests.
31
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS RELATING TO
THE COMPANY'S REIT STATUS
The following is a summary of certain federal income tax considerations
regarding the Company's REIT election. The tax treatment of a holder of any
of the Securities will vary depending on the terms of the specific Securities
acquired by such holder, as well as his particular situation, and this
discussion does not attempt to address any aspects of federal income taxation
relating to holders of Securities. A description of certain federal income
tax considerations pertaining to holders of the Securities will be provided
in the relevant Prospectus Supplement.
The following summary is based on federal income tax law in effect as of
the date hereof. Such law is subject to change without notice, and may be
changed with retroactive effect. The summary is for general information
only, and does not constitute tax advice.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT THE APPLICABLE
PROSPECTUS SUPPLEMENT, AS WELL AS HIS OWN TAX ADVISOR, REGARDING THE SPECIFIC
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES, IN LIGHT OF HIS
INDIVIDUAL CIRCUMSTANCES, OF THE ACQUISITION, OWNERSHIP AND SALE OF THE
SECURITIES, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
QUALIFICATION AS A REIT; OPINION OF COUNSEL
The Company's REIT election was effective as of January 1, 1994. The
tax consequences described herein and in any Prospectus Supplement are
largely contingent on the qualification of the Company as a REIT for federal
income tax purposes. Failure of the Company to maintain its REIT status
would materially alter the tax and economic consequences to a purchaser. See
"Failure to Qualify as a REIT" below. Ungaretti & Harris, Chicago, Illinois
("Counsel"), has provided its opinion that the Company's method of operation
as described herein and as represented by the Company will permit it to
continue to qualify as a REIT for the current and subsequent taxable years.
Such opinion is based upon the Code, as amended, applicable Treasury
Regulations adopted thereunder, reported judicial decisions, and IRS rulings,
all as of the date hereof, and certain representations of the Company and
factual assumptions related to the ownership and operation of the Company.
It should be noted that whether the Company will maintain its status as a
REIT under the Code will depend upon whether the Company meets the various
qualification tests imposed under the Code through actual annual operating
results. No assurance can be given that the actual results of the Company's
operations will satisfy such requirements. The principal requirements the
Company must meet to maintain its status as a REIT are described below.
SHARE OWNERSHIP
FREE TRANSFERABILITY. In general, shares representing ownership of a
REIT must be freely transferable. The Company's shares will be subject to
certain restrictions designed to assure compliance with the rule prohibiting
closely-held status, described below. A REIT will not fail the requirement
of free transferability by reason of such restrictions.
100 STOCKHOLDERS REQUIRED. The beneficial ownership of an entity
seeking to qualify as a REIT must be held by 100 or more persons. This
requirement must be met for at least 335 days of a 12-month year, or a
proportionate part of a shorter tax year. For purposes of this rule, the
word "person" generally includes individuals and entities, with pension and
profit-sharing trusts, rather than their beneficiaries, being treated as
persons. The Company anticipates that this requirement will continue to be
met.
CLOSELY-HELD STATUS NOT PERMITTED. An entity does not qualify as a REIT
if a group of five or fewer individuals own, directly or indirectly, more
than 50% of the value of the outstanding shares of the entity at any time
during the last half of the taxable year. For this purpose, certain entities
are treated as individuals, but stock owned, directly or indirectly, by a
corporation, partnership, estate or trust is generally considered as being
owned proportionately by such entity's stockholders, partners or
beneficiaries. Accordingly, shares held by CRP-London will be considered as
being owned proportionately by the individual stockholders of CRP-London.
The Articles of Incorporation provide certain restrictions on ownership of
shares designed to assure compliance with this requirement.
REVENUE RECONCILIATION ACT OF 1993. Under the 1993 Act, pension funds
generally will not be treated as a single person for purposes of this rule.
Instead, the beneficiaries of the fund are treated as holding stock in the
REIT in proportion to their actuarial interests in the fund. In the event
the Company relies on this rule to maintain its status as a REIT, however,
32
<PAGE>
it is possible that pension funds holding more than 10% of the interests in
the Company will be subject to unrelated business income tax on a portion of
the dividends they receive from the Company. Under the Company's Articles of
Incorporation, pension funds are subject to the same ownership restrictions
as other persons, without regard to this recent law.
STOCKHOLDER INFORMATION. Federal income tax regulations require that
the Company demand within 30 days after the end of each of its taxable years
written statements from stockholders of record holding more than a specified
percentage of the Company's stock, in which the stockholders set out
information with respect to their actual and constructive ownership of the
Common Stock and the Debentures. In addition, each stockholder must on
demand disclose to the Company in writing such additional information as the
Company requests in order to determine the effect of such stockholder's
direct, indirect and constructive ownership of such shares on the Company's
status as a REIT.
ASSET TESTS
An entity seeking to maintain its qualification as a REIT must meet
certain tests with regard to its assets. Assets held by a qualified REIT
subsidiary are treated as if they were owned directly by the REIT. A
corporation is a qualified REIT subsidiary if 100% of its stock is owned by a
REIT during the entire period of its existence.
75% ASSET TEST. On the last day of each calendar quarter, at least 75%
of a REIT's assets must consist of real estate assets, cash and cash items,
and government securities. Real estate assets include interests in real
property, interests in mortgages on real property, and shares in other
qualified REITs. In addition, real estate assets include any property
attributable to the temporary investment of new capital if the property is
stock or a debt instrument, and the investment is only for the one-year
period beginning on the date the REIT receives the capital (a "Qualified
Temporary Investment"). Cash and cash items include receivables that arise
in the ordinary course of the REIT's business, but not receivables purchased
from another person. It is anticipated that substantially all of the
Company's assets will qualify under this test.
5% ASSET TEST. A REIT must not own securities of any one
non-governmental issuer (other than another qualified REIT, or a qualified
REIT subsidiary) in an amount greater in value than 5% of the value of the
REIT's total assets. The Company intends to comply with this requirement.
10% ASSET TEST. A REIT must not own securities of any one
non-governmental issuer (other than another qualified REIT or a qualified
REIT subsidiary) representing more than 10% of the outstanding voting
securities of such issuer. The Company intends to comply with this
requirement.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the
close of the quarter. The Company intends to maintain adequate records of
the value of its assets to ensure compliance with the asset tests, and to
take such other actions within 30 days after the close of any quarter as may
be required to cure any noncompliance.
INTEREST IN MANAGEMENT CORPORATION. The Company expects to derive some
of its income from activities (such as management of properties owned by
third parties) which, if carried on directly by the Company or by an entity
controlled by the Company, would jeopardize its REIT status. The Company
will own non-voting stock representing more than 90 percent of the value of
corporations carrying on such activities, but intends to own less than 10% of
the voting stock of such corporations in order to comply with the 10% asset
test described above, and to hold stock in such corporations representing
less than 5% of the value of its overall assets in order to comply with the
5% assets test described above. There can be no assurance, however, that the
IRS will not contend that the non-voting stock held by the Company should be
considered voting stock for purposes of these rules, or that the value of the
stock held by the Company exceeds the 5% limitation.
INCOME TESTS
An entity will not maintain its qualification as a REIT unless its
income meets certain tests. In connection with these tests, income received
from a qualified REIT subsidiary is treated as having the same character as
it had when received by the subsidiary.
33
<PAGE>
75% INCOME TEST. At least 75% of the REIT's gross income (excluding
gross income from "prohibited transactions," as described below) for each
taxable year must be derived from (i) rents from real property, (ii) interest
on obligations collateralized by mortgages on, or interests in, real
property; (iii) gain from the sale or other disposition of interests in real
property and real estate mortgages, other than gain from property held
primarily for sale to customers in the ordinary course of the Company's trade
or business ("dealer property"); (iv) dividends or other distributions on
shares in other REITs as well as the gain from the sale of such shares; (v)
abatements and refunds of real property taxes; (vi) income from the
operation, and gain from the sale, of property acquired at or in lieu of
foreclosure of the mortgage collateralized by such property ("foreclosure
property"); (vii) commitment fees received for agreeing to make loans
collateralized by mortgages on real property or to purchase or lease real
property; and (viii) certain qualified temporary investment income.
95% INCOME TEST. At least 95% of the REIT's gross income (excluding
gross income from "prohibited transactions") for each taxable year must be
derived from sources qualifying for the 75% test, plus dividend or interest
income or capital gain on the sale or other disposition of stocks or
securities.
RENTS FROM REAL PROPERTY. Rents received by the Company will constitute
"rents from real property," qualifying for the 75% and 95% income tests, if
the following requirements are met:
- The amount of rent received generally must not be based in whole or in
part on the income or profits of any person.
- Rents will not qualify as "rents from real property" if the REIT, or a
10% owner of the REIT, owns directly or indirectly a 10% or greater
interest in any tenant or in the assets or net profits of a tenant.
- The term "rents from real property" does not include rents with
respect to any property with respect to which the REIT furnishes or
renders "disqualifying services" to tenants other than through an
independent contractor (as specially defined for this purpose) from
whom the REIT itself does not derive or receive any income. For this
purpose, "disqualifying services" are services which, if provided by
certain tax-exempt entities, would cause rents received by such
entities to be treated as unrelated business taxable income.
Generally, services other than services usually or customarily
rendered in connection with the rental of rooms or other space for
occupancy only are disqualifying services. Charges for services of a
type customarily furnished or rendered to tenants in connection with
the rental of real property of a similar class in the geographic
market in which the property is located qualify as "rents from real
property." The Company represents that it will not furnish or render
services with respect to any of the Properties that would cause rental
income from such Properties to fail to qualify as "rents from real
property."
- Rent attributable to personal property will not qualify as "rents from
real property" unless the personal property is leased in connection
with a lease of real property and such rent is no more than 15% of the
total rent received under the lease. Rent attributable to personal
property is that amount which bears the same ratio to total rent as
the average of the adjusted bases of the personal property at the
beginning and end of the taxable year bears to the average of the
aggregate adjusted bases of both the real property and personal
property at the beginning and end of such taxable year.
PROHIBITED TRANSACTIONS. The 75% and 95% income tests described above
are measured by reference to gross income of the Company. For this purpose,
however, gross income does not include income from "prohibited transactions."
Moreover, income from prohibited transactions is subject to a 100% tax.
The Company will be considered to have engaged in a prohibited
transaction if it sells stock in trade or other property of a kind which
would properly be included in inventory if on hand at the close of the
taxable year, or property held primarily for sale to customers in the
ordinary course of business. The Code provides a safe harbor under which
certain sales of real estate assets will not be considered to be a prohibited
transaction. The safe harbor applies if (a) the Company has held the
property for at least four years; (b) the total expenditures made by the
Company, or any partner of the Company, and capitalized as part of the basis
of the property during the four-year period preceding the sale, do not exceed
30% of the net sales price; and (c) the Company meets the limitation on sales
of such property. The Company will meet the limitation on sales if (d) it
makes no more than seven sales of property during the year, or (e) the
aggregate of the adjusted bases of the properties sold does not exceed 10% of
the aggregate adjusted bases of all the Company's properties during the year.
If the property consists of land or improvements not acquired through
foreclosure, the Company must have held the property for production of rental
income for at least four years to be eligible for the safe harbor. Also, if
the Company sold more than
34
<PAGE>
seven properties during the year, substantially all of the marketing and
development expenditures with respect to the property must have been made
through an independent contractor from whom the Company itself does not
derive or receive any income.
FAILURE TO MEET INCOME TESTS. If certain requirements are met, the
Company may retain its status as a REIT even in a year in which it fails
either the 75% or the 95% income test. In such event, however, the Company
will be subject to an excise tax based on the greater of the amount by which
it failed the 75% or 95% gross income test for that year, less expenses. The
Company will qualify for this relief if (a) it reports the amount and nature
of each item of its gross income in its federal income tax return for such
year; (b) the inclusion of any incorrect information in its return is not due
to fraud with intent to evade tax; and (c) the failure to meet such tests is
due to reasonable cause and not willful neglect.
30% INCOME TEST. Less than 30% of a REIT's gross income must be derived
from the sale or other disposition of: (a) stock or securities held for less
than one year; (b) property in a prohibited transaction; or (c) real property
(including interests in real property and interests in mortgages on real
property) held for less than four years, other than property involuntarily
converted within the meaning of Section 1033 of the Code or foreclosure
property (as defined below).
DISTRIBUTIONS TO STOCKHOLDERS
95% DISTRIBUTION REQUIREMENT. In order to maintain its qualification as
a REIT, the Company is required to distribute dividends (other than capital
gains dividends) to its stockholders in an amount equal to 95% of the sum of
(a) its "REIT taxable income" before deduction of dividends paid and
excluding any net capital gain, plus (b) any net income from foreclosure
property less the tax on such income, minus (c) any "excess noncash income."
The deduction for dividends paid is discussed below. See "Federal Income Tax
Considerations -- Taxation of the Company."
"REIT taxable income" for purposes of this requirement is the taxable
income of a REIT, computed as if it were an ordinary corporation, adjusted by
certain items, including an exclusion for net income from foreclosure
property, a deduction for the excise tax on the failure of the 75% or 95%
income tests, and an exclusion for an amount equal to any net income derived
from prohibited transactions.
"Foreclosure property" is any real property, interest in real property,
or personal property incident to the real property, acquired by the REIT in a
foreclosure or by a deed in lieu of foreclosure following a default of a debt
obligation or after termination of a defaulted lease, provided the REIT
elects to treat the property as foreclosure property. The property ceases to
be foreclosure property two years after the REIT acquires it, unless the IRS
consents to an extension of this time period.
"Excess noncash income" means the excess of certain amounts that the
REIT is required to recognize as income in advance of receiving cash, such as
original issue discount on purchase money debt, over 5% of REIT taxable
income before deduction for dividends paid and excluding any net capital gain.
The Company intends to make distributions to the stockholders on a
quarterly basis sufficient to meet the 95% distribution requirement.
However, because of the possible receipt of income without corresponding cash
receipts under the Code's rent allocation and original issue discount rules,
timing differences that may rise between the realization of taxable income
and net cash flow, and the possible disallowance by the IRS of deductions
claimed by the Company, it is possible that the Company may not have
sufficient cash or liquid assets at a particular time to meet the 95%
distribution requirement. To assure compliance with the 95% distribution
requirement, the Company will closely monitor the relationship between its
REIT taxable income and cash flow and, if necessary, will borrow funds in
order to satisfy the distribution requirement. If the Company fails to meet
the 95% distribution requirements as a result of an adjustment to the
Company's tax return by the Service, the Company may retroactively cure the
failure by paying a "deficiency dividend" (plus applicable penalties and
interest) within a specified period.
NON-REIT ACCUMULATED EARNINGS AND PROFITS. The Company will not qualify
as a REIT if, as of the close of its taxable year, it has earnings and
profits accumulated in any non-REIT year. For purposes of this rule,
positive earnings and profits of a corporation that is liquidated or merged
into another corporation may not be netted against the other corporation's
deficit in earnings and profits. The Company believes that it and each of
its subsidiaries had negative earnings and profits as of the effective date
of its REIT election.
35
<PAGE>
FAILURE TO QUALIFY AS A REIT
For any taxable year the Company fails to qualify as a REIT, it would be
taxed as a corporation. It would not be entitled to a deduction for dividends
paid to its stockholders in computing its taxable income. Assets of the Company
and distributions to stockholders would be reduced to the extent necessary to
pay any resulting tax liability of the Company. Distributions from the Company
at such time would be taxable to stockholders as dividends to the extent of the
current and accumulated earnings and profits of the Company and would be
eligible for the 70% dividend-received deduction for stockholders which are
corporations.
If the Company's election to be treated as a REIT is terminated
automatically, the Company will not be eligible to elect REIT status until the
fifth taxable year which begins after the year for which the Company's election
was terminated, unless (a) the Company did not willfully fail to file a timely
return with respect to the termination taxable year, (b) the incorrect
information in such return was not due to fraud with intent to evade tax, and
(c) the Company establishes that failure to meet the requirements was due to
reasonable cause and not to willful neglect.
TAXATION OF THE COMPANY
GENERAL. In general, corporations are subject to federal income tax on
their net income regardless of whether such income is currently distributed to
stockholders. Distributions to stockholders constitute taxable dividends to the
extent of current and accumulated earnings and profits of the corporation.
Under this general rule, double taxation of corporate profits -- that is,
taxation at the corporate level and the stockholder level -- is the norm.
However, the rules pertaining to REITs provide an exception to this general
rule. Except as otherwise discussed below, for any taxable year in which the
Company qualifies as a REIT, it will generally be able to deduct for federal
income tax purposes the portion of its ordinary income or capital gain which is
timely distributed to stockholders.
Even if the Company is treated as a REIT for federal income tax purposes,
however, it is subject to tax on any REIT taxable income and net capital gain
not distributed to stockholders. The Company may reinvest income or gain
recognized upon the sale of property or repayment of an investment, although it
does not intend to do so unless it has satisfied the 95% income distribution
test. Capital gain income which is not distributed will be taxable to the
Company. The Company will not be required to distribute capital gain income to
maintain its status as a REIT. In addition, the Company will be taxed at
regular corporate tax rates on net income from foreclosure property which is not
otherwise REIT qualifying income. Any tax incurred by the Company for these
reasons, or for any of the reasons discussed below, would reduce the amount of
cash available for distribution to stockholders, and ultimately reduce the
return on an investment in shares of the Company.
DIVIDENDS PAID DEDUCTION. For any taxable year it qualifies as a REIT, the
Company can claim the dividends paid deduction for dividends actually and
constructively paid during that tax year. The Company can also claim a
dividends paid deduction for dividends paid in the following year if it declares
the dividends before the time prescribed by law for filing its return for the
year, including extensions, and distributes the amount of the dividend during
the 12-month period following the close of the year but not later than the date
of the first regular dividend payment made after the declaration. In this
event, the Company will be required to specify the dollar amount of the
dividend, and send any notices required with respect to the dividend not later
than 30 days after the close of the tax year or by mail with its annual report
for the tax year. Certain so-called consent dividends declared in subsequent
years are also eligible for the dividends paid deduction.
TAX ON BUILT-IN GAIN. The Internal Revenue Service has announced its
intention to issue regulations dealing with "built-in gain" of REITs. A REIT
has built-in gain to the extent it has, at the time its status as a REIT
commences, any asset with a fair market value in excess of its adjusted tax
basis. The regulations would provide that a corporation that becomes a REIT
recognizes net built-in gain, and pays corporate level tax, as if it had been
liquidated at the end of the last taxable year before it qualified as a REIT
unless it makes an election under which it will recognize such gain only upon
disposition of such assets within the first ten years after it became a REIT.
If the election is made, the portion of any gain on such dispositions that is
built-in gain is taxable to the REIT without regard to whether the gain is
distributed to stockholders.
Some or all of the assets held by the Company on January 1, 1994, the
effective date of its REIT election, had built-in gain. The Company made the
election described above. The Company will therefore recognize built-in gain
only upon disposition of those assets prior to January 1, 2004. If such a
disposition occurs, the corporate level tax paid by the Company will reduce the
amount available for distribution to stockholders.
36
<PAGE>
EXCISE TAX ON FAILURE TO MEET 75% OR 95% INCOME TESTS. Regardless of
distributions to stockholders, if the Company fails either or both of the 75%
and 95% income tests, but still maintains its qualification as a REIT, it will
be subject to an excise tax on an amount equal to the greater of the amount by
which it failed the 75% test or the 95% test multiplied by a fraction the
numerator of which is REIT taxable income (determined without deductions for
dividends paid or net operating losses and excluding capital gains) and the
denominator of which is the gross income of the REIT (determined, generally, by
excluding income from prohibited transactions, certain gross income from
foreclosure property, long-term capital gain, and short-term capital gain to the
extent of any short-term capital loss).
100% TAX ON PROHIBITED TRANSACTIONS. To the extent the Company derives any
net income from a prohibited transaction, the Company will be subject to a 100%
tax on such net income.
ALTERNATIVE MINIMUM TAX. The Company will also be subject to the
alternative minimum tax on items of tax preference allocable to it. The Code
authorizes the Treasury Department to issue regulations allocating items of tax
preference between a REIT and its shareholders. Such regulations have not been
issued. The Company does not expect to have any significant items of tax
preference.
4% EXCISE TAX. A 4% excise tax applies if a REIT's "distributed amount"
for any year is less than its "required distribution." For this purpose, the
required distribution is specially defined, and does not correspond to the
amount the REIT must distribute in order to maintain its status as a REIT. The
required distribution is (a) 85% of the REIT's ordinary income for the year,
plus (b) 95% of the REIT's capital gain net income reduced by any net ordinary
loss. This amount must be "grossed up" for certain amounts of undistributed
income from prior years. For purposes of this rule, the REIT's ordinary income
is determined without regard to the dividends paid deduction. The distributed
amount includes dividends paid during the calendar year, plus any tax imposed on
REIT taxable income or capital gains, plus any excess of the distributed amount
for the preceding calendar year over the grossed up required distribution for
the preceding year.
TAX ELECTIONS. The Company's taxable year ends December 31. The Company
uses the accrual method of accounting. The effective date of the Company's
election to be taxed as a REIT is January 1, 1994.
STATE AND LOCAL TAXES
The Company may be subject to state and local taxes in various
jurisdictions such as those in which the Company owns property or may be deemed
to be engaged in activities. The tax treatment of the Company in states having
taxing jurisdiction over it may differ from the federal income tax treatment
described in this summary. No discussion of state taxation of the Company, the
shares or the stockholders is provided herein.
PLAN OF DISTRIBUTION
The Company may sell Securities to one or more underwriters for public
offer and sale by them or may sell Securities offered hereby to investors
directly or through agents. Any underwriter or agent involved in the offer and
sale of the Securities will be named in the applicable Prospectus Supplement.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at prices
related to the prevailing market prices at the time of sale or at negotiated
prices (any of which may represent a discount from the prevailing market
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 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 Securities for
whom they may act as agent. Underwriters may sell Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of 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.
37
<PAGE>
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.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize the underwriters, dealers or other persons acting as the Company's
agents to solicit offers by certain institutions to purchase Securities from the
Company 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 principal amount
of Securities sold pursuant to Contracts will not be less than nor greater 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 that (i) the purchase by an institution of
the Securities covered by its Contract will 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 has sold to such underwriters the total principal
amount of the Securities less the principal amount thereof covered by the
Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company and its
subsidiaries in the ordinary course of business.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Ungaretti &
Harris, Chicago, Illinois. Ungaretti & Harris will rely on the opinion of
Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC, Baltimore, Maryland, as
to certain matters of Maryland law.
EXPERTS
The financial statements and financial statement schedules included in the
Company's Annual Report on Form 10-K, incorporated by reference in this
Prospectus, to the extent and for the periods indicated in their report, have
been audited by Coopers & Lybrand L.L.P., independent accountants, and are
included herein in reliance upon the authority of those experts in giving their
report.
38
<PAGE>
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the Prospectus. If given or made, such information or
representations must not be relied upon as having been authorized by the Company
or the Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell, or a solicitation of an offer to buy, the Common
Stock in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus
Supplement or the Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has not been any change in the
facts set forth in this Prospectus Supplement or the Prospectus or in the
affairs of the Company since the date hereof.
_____________________
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
----
Available Information. . . . . . . . . . . . . . . S-3
The Company . . . . . . . . . . . . . . . . . . . S-3
Recent Developments. . . . . . . . . . . . . . . . S-4
Additional Information Regarding Properties. . . . S-6
Use of Proceeds. . . . . . . . . . . . . . . . . . S-8
Price Range of Common Stock
and Distributions . . . . . . . . . . . . . . . S-8
Taxation of Stockholders . . . . . . . . . . . . . S-9
Underwriting . . . . . . . . . . . . . . . . . . . S-12
Legal Matters. . . . . . . . . . . . . . . . . . . S-13
Experts. . . . . . . . . . . . . . . . . . . . . . S-13
PROSPECTUS
Available Information. . . . . . . . . . . . . . . 2
Incorporation of Certain Documents
by Reference. . . . . . . . . . . . . . . . . . 2
The Company. . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . 4
Use of Proceeds. . . . . . . . . . . . . . . . . . 6
Ratio of Earnings to Fixed Charges . . . . . . . . 6
Description of Debt Securities . . . . . . . . . . 7
Description of Capital Stock . . . . . . . . . . . 19
Description of Securities Warrants . . . . . . . . 28
Certain Provisions of Maryland Law and of
the Company's Charter and Bylaws. . . . . . . . 30
Federal Income Tax Considerations Relating
to the Company's REIT Election. . . . . . . . . 32
Plan of Distribution . . . . . . . . . . . . . . . 37
Legal Matters. . . . . . . . . . . . . . . . . . . 38
Experts. . . . . . . . . . . . . . . . . . . . . . 38
2,250,000 SHARES
CENTERPOINT
PROPERTIES
CORPORATION
COMMON STOCK
_____________________
PROSPECTUS SUPPLEMENT
February 27, 1997
_____________________
LEHMAN BROTHERS
A.G. EDWARDS & SONS, INC.
SMITH BARNEY INC.
MCDONALD & COMPANY
WHEAT FIRST BUTCHER SINGER
