<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-49359
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 13, 1998)
1,000,000 SHARES
[LOGO]
CENTERPOINT PROPERTIES TRUST
7.50% SERIES B CONVERTIBLE CUMULATIVE REDEEMABLE PREFERRED SHARES
(Liquidation Preference of $50.00 Per Share)
----------------
We are a self-managed real estate investment trust. We are offering and
selling our Series B Preferred Shares. The principal terms of the Series B
Preferred Shares are:
- We will pay cumulative dividends from the date of original issuance, in
the amount of 7.50% per annum of the liquidation preference (equivalent to
$3.75 per Series B Preferred Share).
- We will pay dividends quarterly, beginning on September 30, 1999.
- We are not allowed to redeem the shares before June 30, 2004.
- On and after June 30, 2004, we may redeem the shares from the proceeds of
an offering of our capital shares, by paying the holder $50 per Series B
Preferred Share, plus any accrued and unpaid dividends through the date of
redemption.
- Upon the death of a shareholder, the shareholder's estate has a limited
right to have us redeem Series B Preferred Shares owned by the
shareholder, which we may pay in cash or our common shares.
- The shares have no maturity date and will remain outstanding indefinitely
unless redeemed.
- The Series B Preferred Shares are convertible at any time into our common
shares at a conversion price of $43.50 per common share (which is
equivalent to a conversion rate of 1.1494 common shares for each Series B
Preferred Share), subject to certain adjustments.
- Holders of the Series B Preferred Shares generally have no voting rights,
except if we fail to pay dividends for six quarters.
- The Series B Preferred Shares have been approved for listing on the New
York Stock Exchange, subject to notice of issuance, under the symbol
"CPT-PRB." There can be no assurance as to the liquidity of the trading
market for the Series B Preferred Shares or that an active public market
will develop or be maintained. Our common shares are listed on the NYSE
under the symbol "CNT." The last reported sale price for the common shares
on June 17, 1999 was $36.25 per share.
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- -------------
<S> <C> <C>
Price to Investors................................... $ 50.00 $ 50,000,000
Underwriting Discount................................ $ 2.00 $ 2,000,000
Proceeds, before expenses, to Company................ $ 48.00 $ 48,000,000
</TABLE>
---------------------
This offering is being underwritten by Edward D. Jones & Co., L.P. on a firm
commitment basis, which means that it must purchase all of the Series B
Preferred Shares if any are purchased. The underwriter's purchase of the Series
B Preferred Shares is subject to a number of conditions.
---------------------
INVESTORS SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE S-6
OF THIS PROSPECTUS SUPPLEMENT AND PAGE 5 OF THE ACCOMPANYING PROSPECTUS BEFORE
DECIDING WHETHER TO PURCHASE SERIES B PREFERRED SHARES.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
EDWARD D. JONES & CO., L.P.
-------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS JUNE 17, 1999.
<PAGE>
FORWARD LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus include and
incorporate by reference forward looking statements. These statements generally
contain the words "believe," "expect" or similar words. We have based these
forward looking statements on our current expectations about future events. Our
actual results could differ materially from those set forth or implied in the
forward looking statements as a result of various factors, including, but not
limited to, uncertainties affecting real estate businesses generally (such as
entry into new leases, renewals of leases and dependence on tenants' business
operations), risks relating to acquisition, construction and development
activities, possible environmental liabilities, risks relating to leverage, debt
service and obligations with respect to the payment of dividends (including
availability of financing terms acceptable to us and the sensitivity of our
operations to fluctuations in interest rates), the potential for the need to use
borrowings to make distributions necessary for us to qualify as a real estate
investment trust, dependence on the primary market in which our properties are
located, the existence of complex regulations relating to our status as a real
estate investment trust, the failure of our company and entities we do business
with to make necessary modifications and conversions to Year 2000 compliant
software in a timely manner and the potential adverse impact of the market
interest rates on the cost of borrowings by us and on the market price for our
securities.
We undertake no obligation to update or revise any forward looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward looking
events discussed in this prospectus supplement and discussed in or incorporated
by reference in the accompanying prospectus may not occur.
------------------------
You should rely only on the information included or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not, and the underwriter has not, authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriter is not, making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted.
S-2
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS SUPPLEMENT AND
ACCOMPANYING PROSPECTUS, AS WELL AS THE DOCUMENTS INCORPORATED BY REFERENCE IN
THE PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION. UNLESS INDICATED OTHERWISE,
THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT IS PRESENTED AS OF MARCH
31, 1999. ALL REFERENCES TO "WE", "CENTERPOINT", "OUR COMPANY" OR THE "COMPANY"
IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS MEAN CENTERPOINT
PROPERTIES TRUST AND ALL ENTITIES OWNED OR CONTROLLED BY CENTERPOINT PROPERTIES
TRUST, EXCEPT WHERE IT IS MADE CLEAR THAT THE TERM MEANS ONLY THE PARENT
COMPANY.
CENTERPOINT
CenterPoint is a self-managed real estate investment trust focused on the
acquisition, development, redevelopment, management and ownership of
warehouse/industrial property. Substantially all of our properties are located
within a 150-mile radius of Chicago, including Milwaukee, Wisconsin and South
Bend, Indiana ("Greater Chicago"). Between completion of our initial public
offering in 1993 and March 31, 1999, we have increased the size of our owned
warehouse/industrial portfolio by 19.6 million square feet or 376.9% by
acquiring (net of dispositions) 93 warehouse/industrial properties.
As of March 31, 1999, our investment and management portfolio consisted of
128 warehouse/ industrial properties containing approximately 24.8 million
square feet. We also are developing ten build-to-suit projects. We believe we
are the largest owner and operator of warehouse/industrial property in Greater
Chicago. As of March 31, 1999, our warehouse/industrial properties, excluding
properties under development or redevelopment, were 95% leased to over 200
tenants in diverse industries. No tenant accounted for more than 3.3% of our
total revenues during 1998. Substantially all of our properties have been
constructed or renovated during the past ten years.
THE OFFERING
<TABLE>
<S> <C>
Securities........................ 1,000,000 7.50% Series B Convertible Cumulative
Redeemable Preferred Shares.
Dividends......................... If you purchase the Series B Preferred Shares, you are
entitled to receive cumulative cash dividends at an
annual rate of 7.50% of the liquidation preference
(equivalent to $3.75 per Series B Preferred Share).
Dividends will accumulate from the date we issue the
shares and will be paid quarterly in arrears on or about
the last day of March, June, September and December of
each year, beginning September 30, 1999, to the extent
funds are available.
Ranking........................... With respect to the payment of dividends and payments
upon liquidation, the Series B Preferred Shares will
rank equally with any other preferred shares which are
not by their terms junior to the Series B Preferred
Shares and will rank senior to our common shares and any
other shares which by their terms rank junior to the
Series B Preferred Shares.
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
We have 3,000,000 other preferred shares outstanding
which rank equally with the Series B Preferred Shares,
with an aggregate liquidation value of $75 million.
Liquidation Preference............ The Series B Preferred Shares will have a liquidation
preference of $50 per share, plus an amount equal to
accrued and unpaid dividends.
Redemption at Our Option.......... We may redeem some or all of the Series B Preferred
Shares at their liquidation value at any time on or
after June 30, 2004 solely from the proceeds of an
offering of our capital shares. No other source of funds
may be used to redeem the shares.
Limited Right of Redemption Upon
Death of Shareholder............ We must redeem Series B Preferred Shares tendered by
estates of deceased shareholders at their liquidation
value. We will not, however, redeem in any 12-month
period more than 500 Series B Preferred Shares from any
one estate. We will redeem up to an aggregate of 30,000
Series B Preferred Shares from all estates in any year.
We may make the estate redemptions in cash or in our
common shares, in which latter case the redemption price
wil be $50.50 per share. See "Description of the Series
B Preferred Shares--Limited Right of Redemption upon
Death of a Shareholder by the Estate of the Shareholder"
beginning on page S-19.
Conversion........................ The Series B Preferred Shares are convertible at any
time into our common shares at a conversion price of
$43.50 per common share (which is equivalent to a
conversion rate of 1.1494 common shares for each Series
B Preferred Share), subject to certain adjustments.
NYSE Listing...................... The Series B Preferred Shares have been approved for
listing on the New York Stock Exchange, subject to
notice of issuance, under the symbol "CPT-PRB." There
can be no assurance as to the liquidity of the trading
market for the Series B Preferred Shares or that an
active public market will develop or be maintained.
Book Entry........................ The Series B Preferred Shares will be represented by a
global security that will be deposited with and
registered in the name of The Depository Trust Company,
New York, New York. This means you will not receive a
certificate for your Series B Preferred Shares.
Use of Proceeds................... We will use the net proceeds from the offering
(approximately $47.6 million) to reduce amounts
outstanding under our unsecured revolving credit
agreement which is used to fund acquisition and
development of additional properties and our working
capital needs.
Ratio of Earnings to Combined
Fixed Charges and Preferred
Share Dividends................. Our ratio of earnings to combined fixed charges and
preferred share dividends for the three months ended
March 31, 1999 was 2.11 and for the year ended December
31, 1998 was 2.16.
</TABLE>
S-4
<PAGE>
THE COMPANY
CenterPoint is a self-managed real estate investment trust focused on the
acquisition, development, redevelopment, management and ownership of
warehouse/industrial property. Our properties are located within Greater
Chicago.
Founded in 1984, we completed our initial public offering of securities in
December 1993. CenterPoint's senior management averages over 20 years of
experience in the industry. Between completion of our initial public offering
and March 31, 1999, we have increased the size of our owned warehouse/
industrial portfolio by 19.6 million square feet or 376.9% by acquiring (net of
dispositions) 93 warehouse/ industrial properties.
As of March 31, 1999, our investment and management portfolio consisted of
128 warehouse/ industrial properties containing approximately 24.8 million
square feet. We also are developing ten build-to-suit projects. Based on
published statistics regarding square feet of space owned and managed by other
firms and publicly available information filed with the SEC, as well as our
knowledge and experience in the market, we believe we are the largest owner and
operator of warehouse/industrial property in Greater Chicago. As of March 31,
1999, our warehouse/industrial properties, excluding properties under
development or redevelopment, were 95% leased to over 200 tenants in diverse
industries. No tenant accounted for more than 3.3% of our total revenues during
1998. Substantially all of our properties have been constructed or renovated
during the past ten years.
We believe that Greater Chicago offers significant opportunities for
investment in and ownership of warehouse/industrial property. Greater Chicago
supports a diverse industrial and service industry base, due to its central
location and extensive air, roadway, rail, and water transportation
infrastructure.
We believe 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. We believe that
cash flow from warehouse/industrial property investments is generally more
predictable than cash flow from other property types because: (1) relatively
short construction periods discourage speculative building; (2) lower capital
expenditures are required to sustain rental income due to the adaptable
character of warehouse/ industrial property; and (3) 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. Such leases are generally
structured as net leases, providing for the pass through to tenants of all
operating and real estate tax expenses.
Our business objective is to maximize shareholder value by pursuing a growth
strategy consisting of (1) intensive management of our existing properties and
(2) the acquisition of existing leased properties, build-to-suit projects and
properties suitable for redevelopment.
Our principal executive office is located at 1808 Swift Road, Oak Brook,
Illinois 60523, and our telephone number is (630) 586-8000.
S-5
<PAGE>
RISK FACTORS
Investors should consider the following risks in determining whether to
invest in the Series B Preferred Shares in addition to the other information
included in this prospectus supplement and the accompanying prospectus, as well
as the documents incorporated by reference in the prospectus.
REAL ESTATE INVESTMENT RISKS
CENTERPOINT IS SUBJECT TO THE GENERAL RISKS OF INVESTING IN REAL
ESTATE. The business of owning and investing in real estate is highly
competitive. Several factors may adversely affect the economic performance and
value of our properties. These factors include:
- adverse changes in general or local economic conditions affecting real
estate values, rental rates, interest rates, real estate tax rates and
other operating expenses;
- competitive overbuilding;
- our inability to keep high levels of occupancy in our properties;
- tenant defaults;
- unfavorable changes in governmental rules and fiscal policies (including
rent control legislation); and
- acts of God and other factors which are beyond our control.
In addition, these and other factors may affect our ability to sell our
properties.
WE REDEVELOP AND IMPROVE PROPERTIES AND ARE SUBJECT TO RISKS AS A
RESULT. We are subject to risks when we redevelop and improve properties,
including (1) the risk that the properties may operate at a cash deficit during
the redevelopment and/or lease-up period and (2) the risk that a contractor will
be unable to control costs or conform to the original plans and timetables. The
contractor's ability to control costs or conform to plans and timetables may be
affected by strikes, weather, government regulations and other conditions beyond
the contractor's control. As a result, we may not realize the projected benefits
from the redevelopment and improvement of properties.
WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACE. When our tenants decide
not to renew their leases upon their expiration, we may not be able to relet the
space. Even if our tenants do renew or we are able to relet the space, the terms
of renewal or reletting (including the cost of renovations, if necessary) may be
less favorable than current lease terms. Through the end of 2003, leases will
expire on a total of 59% of the gross leasable area of our current properties.
If we are unable to promptly renew our leases or relet space, or if the rental
rates upon such renewal or reletting are significantly lower than current rates,
then our profitability will be adversely affected.
WE ARE NOT DIVERSIFIED GEOGRAPHICALLY OR BY PROPERTY TYPE. Substantially
all of our properties are located in the Greater Chicago area, and substantially
all of our properties are warehouse/industrial properties. While we believe that
our focus on this geographical area and property type is an advantage, adverse
economic developments in the Greater Chicago area may adversely affect our
properties and, therefore, our profitability.
WE FACE COMPETITION IN OUR MARKETS. Our properties are located in areas
that have other warehouse/ industrial properties which may be more attractive to
potential tenants. Competition from other warehouse/industrial properties may
adversely affect our ability to lease our properties and to increase the rentals
charged on our leases.
UNINSURED LOSS. We carry comprehensive liability, fire, flood (where
appropriate), extended coverage and rental loss insurance on all of our
properties. We believe the policy specifications and insured
S-6
<PAGE>
limits of these policies are adequate and appropriate. There are certain types
of losses that are generally not insured, such as losses relating to
earthquakes, riots or acts of war or losses relating to contract or lease
claims. If an uninsured loss occurred, we could lose both our investment in and
anticipated profits and cash flow from a property and we would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property.
DEBT FINANCING RISKS
WE REGULARLY BORROW MONEY TO FINANCE OUR BUSINESS. As a result, our
business is subject to the risks normally associated with debt financing,
including the risks that (1) we will be unable to meet required payments of
principal and interest, (2) we will not be able to refinance our existing
indebtedness or, if we are able to refinance our existing indebtedness, the
terms of such refinancing will not be as favorable as the original terms of such
indebtedness or (3) we will not be able to finance necessary capital
expenditures for renovations and other improvements or, if financed, we will not
be able to finance such capital expenditures on favorable terms. If we have
mortgaged a property to secure payment of indebtedness and we are unable to meet
the mortgage payments, the lender may foreclose on the property and we will lose
the income and asset value of such property.
WE COULD INCUR HIGHER LEVELS OF DEBT. We intend to continue our policy of
maintaining a ratio of debt to total market capitalization of less than 50%.
However, our Declaration of Trust does not contain any limitations on the ratio
of debt to total market capitalization. Accordingly, our Board of Trustees could
alter or eliminate the current limitation on borrowing without the approval of
our shareholders. If this policy were changed, we could become more highly
leveraged. A higher degree of leverage will increase our debt service, and, as a
result, could adversely affect our ability to make expected distributions to
shareholders, including dividends on the Series B Preferred Shares, and increase
the risk of default on our indebtedness. In addition, the degree of leverage
could adversely affect our ability to obtain additional financing in the future
as well as the terms of any financing.
WE WOULD BE ADVERSELY EFFECTED BY RISING INTEREST RATES. Advances under our
$250 million credit facility bear interest at variable rates based on LIBOR or
prime. Increases in interest rates would increase our interest expense which
could adversely affect our profitability and our ability to service our debt.
REGULATORY RISKS
OWNERSHIP OF PROPERTIES INVOLVES ENVIRONMENTAL RISKS. Federal, state and
local laws and regulations to protect the environment may require a current or
previous owner or operator of real estate to investigate and clean up hazardous
or toxic substances or petroleum product releases at such property. The owner or
operator may have to pay a governmental entity or third parties for property
damage and for investigation and clean-up costs incurred by such parties in
connection with the contamination. Such laws typically impose clean-up
responsibility and liability without regard to whether the owner or operator
knew of or caused the presence of the contaminants. Even if more than one person
may have been responsible for the contamination, each person covered by the
environmental laws may be held responsible for all of the clean-up costs
incurred. In addition, third parties may sue the owner or operator of a site for
damages and costs resulting from environmental contamination arising from that
site.
Environmental laws also govern the presence, maintenance and removal of
asbestos. Such laws require that owners or operators of buildings containing
asbestos (1) properly manage and maintain the asbestos, (2) notify and train
those who may come into contact with asbestos and (3) undertake special
precautions, including removal or other abatement, if asbestos would be
disturbed during renovation or demolition of a building. Such laws may impose
fines and penalties on building owners or operators who fail to comply with
these requirements. Such laws may allow third parties to seek recovery from
owners or operators for personal injury associated with exposure to asbestos
fibers.
S-7
<PAGE>
Independent consultants have conducted Phase I environmental site
assessments at all of our properties and will conduct Phase I environmental site
assessments at all properties acquired by us in the future. The Phase I
environmental assessments include, at a minimum, (1) a visual inspection of the
properties and the surrounding areas, (2) a walk-through survey for suspected
asbestos or other toxic materials, (3) an examination of current and historical
uses of the properties and the surrounding areas, and (4) a review of relevant
state, federal and historical documents. Where appropriate, on a property by
property basis, these consultants have conducted additional testing, including
sampling for asbestos, for lead in drinking water, for soil contamination where
underground storage tanks are or were located or where other past site usages
create a potential environmental problem, and for contamination in groundwater.
Environmental assessments of our properties to date have not revealed any
environmental condition on any of our existing properties that we believe could
materially adversely affect our business or assets. However, environmental
assessments may not reveal all potentially negative environmental conditions
that may exist. Unidentified environmental liabilities could arise and could
adversely affect our financial condition and performance.
WE MAY INCUR COSTS TO COMPLY 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. Non-compliance
could result in the imposition of fines by the federal government or an award of
damages to private litigants.
CERTAIN RISKS RELATED TO REIT STATUS
We elected to be taxed as a REIT for federal income tax purposes effective
January 1, 1994. We believe we have qualified for taxation as a REIT for all
subsequent periods, and we plan to continue to meet the requirements for REIT
status. The rules for maintaining REIT status are highly technical and complex.
Some of the requirements depend on factors that are not entirely within our
control. For example, at least 95% of our gross income must come from sources
itemized in the REIT tax laws. We are also required to distribute to our
shareholders at least 95% of our REIT taxable income (excluding capital gains).
Even a technical or inadvertent failure to meet all the requirements could
jeopardize our REIT status.
Changes in the tax law could make it more difficult for us to maintain REIT
status (although we are not aware of any currently pending or proposed changes
that would have this effect). A provision in President Clinton's Fiscal Year
2000 Budget Proposal contains a provision which could make it more difficult for
us to maintain REIT status. Under current law one of the requirements for REIT
status is that a REIT generally must not own securities of any one
non-governmental issuer representing more than 10% of the outstanding voting
securities of such issuer. President Clinton's proposal would modify the 10%
requirement so a REIT generally would be prohibited from owning more than 10% of
the vote OR value of any issuer (the "Clinton Budget Proposal"). Since we
currently own non-voting stock in a separate corporation representing more than
90% of the value of such corporation as described below under "--Lack of Control
of Certain Subsidiary Corporations," our REIT status will be difficult to
maintain if this budget proposal is enacted.
In addition, a version of the Clinton Budget Proposal has been incorporated
into a pending bill (H.R. 1616). H.R. 1616 would allow a REIT to own more than
10% of the vote and/or value of certain companies without invalidating its REIT
status, but only if such company meets the definition of a "Taxable REIT
Subsidiary." The amounts received by a REIT from a Taxable REIT Subsidiary would
be subject to federal income tax. It is not certain at this time whether H.R.
1616 or the Clinton Budget
S-8
<PAGE>
Proposal will be enacted into law or, if enacted, whether (1) the corporation in
which we own stock would qualify as a Taxable REIT Subsidiary, (2) we would
elect to comply with the requirements of H.R. 1616, or (3) if we would choose to
divest or restructure our interest in the corporation. Also, the effective date
of H.R. 1616 would grandfather our present ownership of stock, although the bill
could be amended to change or even eliminate an effective date provision prior
to its enactment into law.
If we fail to qualify as a REIT, we would be subject to federal income tax
at corporate rates. We would be disqualified as a REIT for a period of five
years (including the year of disqualification) unless the IRS granted relief
from this waiting period. During any period we did not qualify as a REIT, we
would have to pay income taxes and would therefore have significantly less money
available for investments, for distributions to shareholders, or for payments to
creditors. In addition, we would no longer be required to make distributions to
shareholders. These consequences would likely have an adverse effect on the
value of our securities. See "Certain Federal Income Tax Considerations" in this
prospectus supplement.
Even if we qualify as a REIT, we have to pay certain federal, state and
local taxes on our income and property. In addition, we hold interests in
entities that are required to pay federal and state income tax on their net
taxable income.
LACK OF CONTROL OF CERTAIN SUBSIDIARY CORPORATIONS
To permit us to obtain income from certain activities (such as management of
properties owned by third parties) in excess of the amounts we could earn
directly without jeopardizing our REIT status, we own a small, non-controlling
interest in the voting stock of CenterPoint Realty Services Corporation ("CRS")
but receive substantially all of the economic interest in CRS. Several officers
of CenterPoint own substantially all of the voting stock of CRS and exercise
voting and management control of CRS. CRS and its subsidiaries, among other
things, provide services and commodities to our tenants, develop and improve
real property and manage properties owned by third parties.
LIMITATIONS ON A CHANGE IN CONTROL OF OUR COMPANY
WE HAVE A SHAREHOLDER RIGHTS PLAN. The Board of Trustees has adopted a
Shareholder Rights Plan under which we granted a dividend distribution of one
preferred share purchase right on each of our outstanding common shares. The
preferred share purchase rights generally become exercisable (1) if a person
becomes an "acquiring person" by acquiring 15% or more of our outstanding common
shares or (2) if a person commences a tender offer that would result in that
person owning 15% or more of our outstanding common shares. The Shareholder
Rights Plan may delay or prevent a change in control of the Company or other
transaction that could provide shareholders with a premium over the
then-prevailing market price of the common shares.
BECAUSE OF OUR REIT STATUS, THERE ARE LIMITATIONS ON OWNERSHIP OF OUR
SHARES. In order for us to qualify as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), not more than 50% in value of our outstanding
shares of beneficial interest may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities). Due to
this limitation on the concentration of ownership of shares of beneficial
interest in a REIT, the Declaration of Trust restricts ownership of more than
9.8% of the value of the outstanding shares of beneficial interest by any single
shareholder, except for the ownership of common shares by our former parent
company, CRP-London.
In connection with such ownership concentration limitation, shares held by
certain domestic pension trusts are treated under the Code as held by the
beneficiaries of such trusts. However, we do not intend to rely on this rule to
maintain compliance with such limitation. Under the Declaration of Trust,
domestic pension funds are subject to the restriction on ownership of more than
9.8% of the value of the outstanding shares of beneficial interest.
S-9
<PAGE>
These ownership limits, as well as our ability to issue additional common
shares and preferred shares, may discourage a change of control of CenterPoint.
The ownership limits may also (1) deter tender offers for the common shares,
which offers may be advantageous to shareholders, and (2) limit the opportunity
for shareholders to receive a premium over then prevailing market prices for
their common shares.
YEAR 2000 COMPLIANCE
In response to the Year 2000 issue, we initiated a project in early 1997 to
identify, evaluate and implement a new computerized real estate management
system. We are addressing the issue through a combination of modifications to
existing programs and conversion to Year 2000 compliant software. In addition,
we are discussing with our tenants, vendors, and other service providers the
possibility of any interface difficulties relating to the Year 2000 issue which
may affect us. If we and those we conduct business with do not make
modifications or conversions in a timely manner, the Year 2000 issue may have a
material adverse effect on our business, financial condition, and results of
operations. The total cost associated with the required modifications is not
expected to be material to our consolidated results of operations, liquidity and
financial position, and is being expensed as incurred.
USE OF PROCEEDS
We expect to receive net proceeds from the sale of the Series B Preferred
Shares of approximately $47.6 million. We will use the net proceeds to reduce
the outstanding balance under our unsecured revolving credit agreement which is
used to fund development and acquisition of additional properties and our
working capital needs. Our unsecured revolving credit agreement had an aggregate
of $156.6 million outstanding as of June 8, 1999, bearing interest at a weighted
average rate of 5.98% per year.
S-10
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 and
as adjusted to give effect to the issuance of the 1,000,000 Series B Preferred
Shares and application of the estimated net proceeds therefrom. The table should
be read together with our consolidated financial statements which are
incorporated by reference in the accompanying prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
Debt:
Mortgage Notes...................................................................... $ 103,256 $ 103,256
Senior Unsecured Debt............................................................... 200,000 200,000
Unsecured Revolving Credit Borrowings............................................... 52,900 5,300
Tax-exempt Debt..................................................................... 75,540 75,540
Convertible Subordinated Debentures................................................. 7,878 7,878
---------- -----------
Total Debt............................................................................ $ 439,574 $ 391,974
---------- -----------
---------- -----------
Shareholders' Equity:
Preferred Shares ($.001 par value), 10,000,000 shares authorized:
8.48% Series A Cumulative Redeemable Preferred Shares, liquidation preference $25
per share; 3,000,000 shares issued and outstanding.............................. 3 3
7.50% Series B Convertible Cumulative Redeemable Preferred Shares, liquidation
preference $50 per share; no shares issued and outstanding, 1,000,000 shares
issued and outstanding as adjusted.............................................. -- 1
Common Shares ($.001 par value), 47,727,273 shares authorized; 20,095,058 shares
issued and outstanding(1)......................................................... 20 20
Class B Common Shares ($.001 par value), 2,727,727 shares authorized; 76,802 shares
issued and outstanding............................................................ 0 0
Additional Paid in Capital.......................................................... 449,612 497,211
Retained Earnings (Deficit)......................................................... (38,742) (38,742)
Unearned Compensation--Restricted Stock............................................. (284) (284)
---------- -----------
Total Shareholders' Equity............................................................ $ 410,609 $ 458,209
---------- -----------
Total Capitalization.................................................................. $ 850,183 $ 850,183
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Does not include 1,547,678 shares reserved for issuance upon the exercise of
stock options, 76,802 shares reserved for issuance upon conversion of Class
B Common Shares or 430,849 shares reserved for issuance upon conversion of
Convertible Subordinated Debentures.
S-11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial and operating information
for CenterPoint on a historical basis. The information was derived from our
financial statements, which are incorporated by reference in the accompanying
prospectus.
The following selected financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements incorporated by reference in the
accompanying prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA, RATIOS AND
NUMBER OF PROPERTIES)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues..................................... $ 31,234 $ 27,317 $ 113,108 $ 85,958 $ 63,330 $ 46,952 $ 33,633
Expenses:
Operating expenses excluding depreciation
and amortization(1)...................... (10,146) (9,490) (35,700) (29,182) (20,751) (14,774) (11,442)
Depreciation and other amortization........ (5,997) (4,696) (21,418) (15,278) (10,648) (8,456) (6,176)
General and administrative................. (905) (990) (4,041) (3,105) (2,567) (2,150) (1,573)
Interest expense:
Interest incurred, net..................... (4,359) (2,928) (13,659) (10,071) (9,865) (11,562) (11,073)
Amortization of deferred financing costs... (458) (486) (1,817) (800) (1,127) (1,150) (976)
--------- --------- --------- --------- --------- --------- ---------
Operating income........................... 9,369 8,727 36,473 27,522 18,372 8,860 2,393
Other income (expense)(2).................. (20) (16) (15) 108 (100) (16) (34)
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary item........... 9,349 8,711 36,458 27,630 18,272 8,844 2,359
Extraordinary item......................... (3,331) (632)
--------- --------- --------- --------- --------- --------- ---------
Net income................................. 9,349 8,711 36,458 27,630 14,941 8,212 2,359
Preferred dividend......................... (1,590) (1,590) (6,360) (901) (947) (1,002)
--------- --------- --------- --------- --------- --------- ---------
Net income available to common
shareholders............................. 7,759 7,121 30,098 26,729 13,994 7,210 2,359
Per share net income available to common
shareholders before extraordinary item:
Basic.................................... 0.38 0.37 1.51 1.43 1.25 0.85 0.41
Diluted.................................. 0.38 0.37 1.50 1.41 1.22 0.84 0.41
Per share net income available to common
shareholders:
Basic.................................... 0.38 0.37 1.51 1.43 1.01 0.78 0.41
Diluted.................................. 0.38 0.37 1.50 1.41 0.99 0.77 0.41
BALANCE SHEET DATA (END OF PERIOD):
Investment in real estate (before
accumulated depreciation)................ $ 783,308 $ 633,469 $ 747,733 $ 641,646 $ 429,034 $ 317,460 $ 248,281
Net investment in real estate.............. 715,487 586,632 685,476 597,294 398,828 295,884 234,825
Total assets............................... 896,883 711,128 821,936 699,275 451,206 334,866 254,073
Total debt................................. 439,574 275,958 364,718 270,768 177,349 145,271 179,492
Shareholders' equity....................... 410,609 399,298 412,039 388,126 248,114 168,320 59,016
OTHER DATA:
Funds from Operations(3)................... $ 13,925 $ 12,064 $ 52,337 $ 42,968 $ 30,445 $ 20,492 $ 13,138
EBITDA(4).................................. 20,163 16,821 73,352 53,779 39,912 30,013 20,584
Net cash flow:
Operating activities..................... 16,117 13,167 61,444 39,411 29,552 16,473 8,976
Investing activities..................... (35,079) (21,956) (122,346) (245,336) (111,554) (82,556) (65,311)
Financing activities..................... 64,064 7,774 59,725 206,507 80,194 68,541 52,837
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA, RATIOS AND
NUMBER OF PROPERTIES)
<S> <C> <C> <C> <C> <C> <C> <C>
Distributions.............................. $ 11,175 $ 9,856 $ 41,233 $ 32,046 $ 24,065 $ 15,953 $ 8,775
Return of capital portion of
distribution........................... 406 1,279 3,711 3,916 12,280 8,554 4,320
Number of properties included in operating
results.................................. 128 99 125 100 76 69 53
Ratio of earnings to fixed charges......... 2.77 3.03 2.94 3.27 2.33 1.63 1.19
Ratio of earnings to combined fixed charges
and preferred dividends.................. 2.11 2.17 2.16 3.04 2.15 1.51 1.19
</TABLE>
- --------------------------
(1) Operating expenses include real estate taxes, repairs and maintenance,
insurance and utilities and exclude interest, depreciation and amortization
and general and administrative expenses.
(2) Other income (expense) includes gains and losses on property dispositions in
1998, 1997 and 1996, and other miscellaneous operating and non-operating
items.
(3) Funds from Operations represents net income available to common
shareholders, excluding extraordinary items, sales of (or adjustments to
basis of) properties plus depreciation and amortization, convertible
subordinated debenture interest and amortization of deferred financing costs
on convertible subordinated debentures. Dividends on Convertible Preferred
Shares for 1996 and 1995 are not excluded from net income as such shares
were automatically converted to common shares in 1996. Funds from Operations
is computed as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income available to common
Shareholders............................. $ 7,759 $ 7,121 $ 30,098 $ 26,729 $ 14,941 $ 8,212 $ 2,359
Extraordinary item......................... 3,331 632 --
Depreciation and amortization.............. 5,997 4,696 21,418 15,278 10,648 8,456 6,176
Amortization of deferred financing costs,
Debentures............................... 8 11 38 48 67 135 267
Convertible subordinated debenture
interest................................. 161 233 783 999 1,385 3,057 4,336
(Gain) Loss on disposition of properties... 3 -- (86) 73 -- --
--------- --------- --------- --------- --------- --------- ---------
Funds from Operations...................... $ 13,925 $ 12,064 $ 52,337 $ 42,968 $ 30,445 $ 20,492 $ 13,138
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
Management believes that Funds from Operations is helpful to investors as a
measure of the performance of equity REIT shares because, along with cash
flows from operating activities, financing activities and investing
activities, it provides investors an understanding of our ability to incur
and service debt and to make capital expenditures. Funds from Operations
does not represent cash flow from operations as defined by generally
accepted accounting principles ("GAAP"), should not be considered by the
reader as an alternative to net income as an indicator of our operating
performance or to cash flows as a measure of liquidity, and is not
indicative of cash available to fund all cash flow needs. Investors are
cautioned that Funds from Operations, as calculated by us, may not be
comparable to similarly titled but differently calculated measures for other
REITs.
The National Association of Real Estate Investment Trusts (NAREIT) defines
funds from operations as net income before extraordinary items plus
depreciation and amortization less the amortization of deferred financing
costs.
(4) Earnings before interest, income taxes, depreciation and amortization.
Management believes that EBITDA is helpful to investors as an indication of
property operations, because it excludes costs of financing and non-cash
depreciation and amortization amounts. EBITDA does not represent cash flows
from operations as defined by GAAP, should not be considered by the reader
as an alternative to net income as an indicator of our operating
performance, and is not indicative of cash available to fund all cash flow
needs.
S-13
<PAGE>
PRICE RANGE OF COMMON SHARES AND DIVIDEND HISTORY
Prior to June 12, 1996, our common shares were listed and traded on the
American Stock Exchange under the symbol "CNT." Since June 12, 1996, our common
shares have been listed and traded on the New York Stock Exchange under the
symbol "CNT." The following table sets forth, for the periods indicated, the
high and low sale prices of the common shares (as reported by the AMEX prior to
June 12, 1996 and as reported by the NYSE on and after June 12, 1996) and the
cash distributions paid per common share in such periods.
<TABLE>
<CAPTION>
QUARTERLY PERIOD ENDING HIGH LOW CASH DISTRIBUTION/SHARE
- ---------------------------------------------------------------------- --------- --------- -----------------------
<S> <C> <C> <C>
March 31, 1997........................................................ $ 32.88 $ 30.25 $ 0.420
June 30, 1997......................................................... 31.88 28.50 0.420
September 30, 1997.................................................... 36.31 31.88 0.420
December 31, 1997..................................................... 37.06 31.25 0.420
March 31, 1998........................................................ 36.06 32.75 0.438
June 30, 1998......................................................... 35.63 31.44 0.438
September 30, 1998.................................................... 36.44 30.69 0.438
December 31, 1998..................................................... 36.88 32.25 0.438
March 31, 1999........................................................ 34.06 31.06 0.475
June 30, 1999 (through June 17, 1999)................................. 37.63 31.25 0.475
</TABLE>
We also have outstanding Class B common shares which are convertible on a
share-for-share basis into common shares. The Class B common shares are
privately held and there is no established public trading market for them. As of
June 7, 1999, there were 76,802 Class B common shares outstanding. We paid
dividends on the Class B shares in 1997 and 1998 and thus far in 1999 of $1.73
per share, $1.80 per share and $0.97 per share, respectively. As of June 7,
1999, there were approximately 160 holders of record of the common shares and
one holder of record of the Class B common shares.
Since our initial public offering in 1993, we have paid regular and
uninterrupted dividends. We intend to continue to declare quarterly dividends on
our common shares. However, we cannot be sure about the amounts of future
dividends because they depend on our cash flow from operations, earnings,
financial condition, capital requirements and other factors that our Board of
Trustees believes are important.
S-14
<PAGE>
DESCRIPTION OF THE SERIES B PREFERRED SHARES
This description of the particular terms of the Series B Preferred Shares
supplements, and to the extent inconsistent replaces, the description of the
general terms and provisions of the preferred shares set forth in the
accompanying prospectus, which you should consult for further information.
GENERAL
We are authorized to issue up to 60,000,000 shares of beneficial interest in
the Company, of which 47,727,273 are common shares, par value $.001 per share
("common shares"); 2,272,727 are Class B common shares, par value $.001 per
share ("Class B common shares"); and 10,000,000 are preferred shares of
beneficial interest, $.001 par value per share. The preferred shares are
issuable in one or more series, with such terms, preferences, conversion or
other rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption, in each
case, if any, as are permitted by Maryland law and as our Board of Trustees may
determine by adoption of Articles Supplementary to our Declaration of Trust,
without any further vote or action by our shareholders. See "Description of
Shares of Beneficial Interest--Preferred Shares" in the accompanying prospectus.
Prior to the completion of the offering of the Series B Preferred Shares, we
will adopt Articles Supplementary specifying a series of preferred shares,
designated 7.50% Series B Convertible Cumulative Redeemable Preferred Shares of
Beneficial Interest. The following summary of the terms and provisions of the
Series B Preferred Shares is not complete and is qualified in its entirety by
reference to the pertinent sections of the Articles Supplementary designating
the Series B Preferred Shares, which is available from us.
The transfer agent and dividends disbursing agent for the common shares and
the Series B Preferred Shares will be First Chicago Trust Company of New York,
Jersey City, New Jersey.
We intend to file an application to list the Series B Preferred Shares on
the New York Stock Exchange. If the application is approved, trading of the
Series B Preferred Shares on the NYSE is expected to begin within a 30-day
period after the date of initial delivery of Series B Preferred Shares. See
"Underwriting."
Title 8 of the Corporations and Associations Article of the Annotated Code
of Maryland, the statute governing Maryland real estate investment trusts, and
the Declaration of Trust provide that no shareholder shall be personally liable
for any obligation of the Company. However, with respect to tort claims, claims
for taxes and certain statutory liabilities, shareholders may, in some
jurisdictions, be personally liable to the extent such claims are not satisfied
by the Company. Because the Company has public liability insurance in amounts
that it considers adequate, any risk of personal liability to shareholders would
be limited to situations in which the Company's assets, together with its
insurance coverage, would be insufficient to satisfy the claims against the
Company.
SERIES A PREFERRED SHARES
We currently have outstanding 3,000,000 shares of 8.48% Series A Cumulative
Redeemable Preferred Shares of Beneficial Interest. Holders of the Series A
Preferred Shares are entitled to receive, when and as authorized by the Board of
Trustees, out of funds legally available for the payment of dividends,
cumulative cash dividends at the rate of 8.48% per annum of their $25
liquidation preference (equivalent to a fixed annual rate of $2.12 per share).
Such dividends are cumulative from the date of original issue and are payable
quarterly in arrears on or about the 30(th) day of January, April, July and
October or, if not a business day, the next business day. The Series A Preferred
Shares are not redeemable prior to October 30, 2002. On and after October 30,
2002, we may, at our option, redeem the Series A Preferred Shares, in whole or
in part, at any time or from time to time, for cash at a redemption price of $25
per share, plus all accrued and unpaid dividends thereon to the date fixed for
redemption. The Series B Preferred Shares will
S-15
<PAGE>
rank on parity with the Series A Preferred Shares with respect to the payment of
dividends and payments upon liquidation.
RANKING
The Series B Preferred Shares will, with respect to dividend rights and
rights upon liquidation, dissolution or winding up of the Company, rank (a)
senior to all classes or series of common shares and to all equity securities
ranking junior to such Series B Preferred Shares; (b) on a parity with the
Series A Preferred Shares and all equity securities issued by the Company the
terms of which specifically provide that such equity securities rank on a parity
with the Series B Preferred Shares; and (c) junior to all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank senior to the Series B Preferred Shares. The term "equity
securities" does not include convertible debt securities for this purpose.
DIVIDENDS
Holders of the Series B Preferred Shares will be entitled to receive, when
and as authorized by the Board of Trustees, out of funds legally available for
the payment of dividends, cumulative preferential cash dividends at the rate of
7.50% of the liquidation preference per annum (equivalent to $3.75 per annum per
share). Dividends on the Series B Preferred Shares will accrue and be cumulative
from the date of original issue and will be payable quarterly in arrears on or
about the 30th day of each March, June, September and December or, if not a
business day, the next business day (each, a "Dividend Payment Date"). The first
dividend on the Series B Preferred Shares, which will be paid on or about
September 30, 1999, will be for more than a full quarter. That dividend and any
dividend payable on the Series B Preferred Shares for a partial dividend period
will be computed on the basis of a 360-day year consisting of twelve 30-day
months. We will pay dividends to holders of record as they appear in our share
records at the close of business on the applicable record date designated by our
Board of Trustees for the payment of dividends that is not more than 30 nor less
than 10 days prior to such dividend payment date.
No dividends on the Series B Preferred Shares will be authorized by our
Board of Trustees or be paid or set apart for payment at such time as the terms
and provisions of any of our agreements, including any agreement relating to our
indebtedness, prohibits such authorization, payment or setting apart for payment
or provides that such authorization, payment or setting apart for payment would
constitute a breach of or a default under such agreement, or if such
authorization or payment is restricted or prohibited by law.
Notwithstanding the foregoing, dividends on the Series B Preferred Shares
will accrue whether or not the Company has earnings, whether or not there are
funds legally available for the payment of such dividends, whether or not any
agreement of the Company prohibits payment of such dividends, and whether or not
such dividends are authorized. Accrued but unpaid dividends on the Series B
Preferred Shares will accumulate as of the Dividend Payment Date on which they
first become payable. Except as set forth in the next sentence, no dividends
will be authorized or paid or set apart for payment on any shares of beneficial
interest of the Company or any other series of preferred shares ranking, as to
dividends, on a parity with or junior to the Series B Preferred Shares (other
than a dividend paid in the common shares or in shares of any other class of
shares of beneficial interest ranking junior to the Series B Preferred Shares as
to dividends and upon liquidation) for any period unless full cumulative
dividends for all past dividend periods and the then current dividend period
have been or contemporaneously are (i) authorized and paid or (ii) authorized
and a sum sufficient for the payment thereof is set apart for such payment on
the Series B Preferred Shares. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Series B
Preferred Shares and the shares of any other series of preferred shares ranking
on a parity as to dividends with the Series B Preferred Shares, all dividends
authorized upon the Series B Preferred Shares and any other series of preferred
shares ranking on a parity as to dividends with the Series B Preferred Shares
(such as the Series A Preferred Shares) shall be authorized pro rata so that the
amount of dividends authorized per share of Series B Preferred Shares and such
other series of
S-16
<PAGE>
preferred shares shall in all cases bear to each other the same ratio that
accrued dividends per share on the Series B Preferred Shares and such other
series of preferred shares (which shall not include any accrual in respect of
unpaid dividends on such other series of preferred shares for prior dividend
periods if such other series of preferred shares does not have a cumulative
dividend) bear to each other. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on the Series B
Preferred Shares which may be in arrears.
Unless full cumulative dividends on the Series B Preferred Shares have been
or contemporaneously are authorized and paid or a sum sufficient for the payment
thereof is set apart for payment for all past dividend periods and the then
current dividend period, no common shares, or any other shares of beneficial
interest of the Company ranking junior to or on a parity with the Series B
Preferred Shares as to dividends or upon liquidation, shall 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 shares of
beneficial interest of the Company ranking junior to the Series B Preferred
Shares as to dividends and upon liquidation and except for the acquisition of
Excess Shares (as defined in the accompanying prospectus)). See "Description of
Shares of Beneficial Interest--Restrictions on Transfer" in the accompanying
prospectus. Holders of Series B Preferred Shares shall not be entitled to any
dividend, whether payable in cash, property or shares of beneficial interest, in
excess of full cumulative dividends on the Series B Preferred Shares as provided
above. Any dividend payment made on the Series B Preferred Shares shall first be
credited against the earliest accrued but unpaid dividend due with respect to
such shares which remains payable.
If, for any taxable year, we elect to designate as "capital gain dividends"
(as defined in Section 857 of the Code) any portion of the dividends paid or
made available for the year to holders of all classes of shares, then the
portion of the dividends so designated that is allocable to the holders of
Series B Preferred Shares will be the amount that the total dividends paid or
made available to the holders of the Series B Preferred Shares for the year
bears to the total dividends paid or made available for the year to holders of
all classes of shares.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of our affairs,
the holders of the Series B Preferred Shares are entitled to be paid out of our
assets legally available for distribution to our shareholders liquidating
distributions in cash or property at its fair market value as determined by our
Board of Trustees in the amount of a liquidation preference of $50.00 per share
plus an amount equal to any accrued and unpaid dividends to the date of such
liquidation, dissolution or winding up, before any distribution of assets is
made to holders of common shares or any other class or series of beneficial
interest that rank junior to the Series B Preferred Shares as to liquidation
rights.
In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the available assets of the Company are insufficient
to pay the amount of the liquidating distributions on all outstanding Series B
Preferred Shares and the corresponding amounts payable on all shares of other
classes or series of shares of beneficial interest of the Company ranking on a
parity with the Series B Preferred Shares in the distribution of assets (such as
the Series A Preferred Shares), then the holders of the Series B Preferred
Shares and all other such classes or series of shares of beneficial interest
shall share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled. Holders of Series B Preferred Shares will be entitled to written
notice of any such liquidation. After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Series B
Preferred Shares will have no right or claim to any of the remaining assets of
the Company. The consolidation or merger of the Company with or into any other
corporation, trust or entity or of any other corporation, trust or other entity
with or into the Company, or the sale, lease or conveyance of all or
substantially all of the property or business of the Company shall not be deemed
to constitute a liquidation, dissolution or winding up of the Company.
S-17
<PAGE>
For further information regarding the rights of the holders of the Series B
Preferred Shares upon our liquidation, dissolution or winding up, see
"Description of Shares of Beneficial Interest--Preferred Shares--Liquidation
Preference" in the accompanying prospectus.
REDEMPTION BY THE COMPANY
The Series B Preferred Shares are not redeemable prior to June 30, 2004.
However, in order to ensure that the Company remains a qualified REIT for
federal income tax purposes, Series B Preferred Shares will be subject to
provisions of the Declaration of Trust, pursuant to which Series B Preferred
Shares owned by a shareholder in excess of the Ownership Limit (as defined in
the accompanying prospectus) will constitute Excess Shares, and the Company will
have the right to purchase Excess Shares from the holder. See "Description of
Shares of Beneficial Interest--Restrictions on Transfer" in the accompanying
prospectus. On and after June 30, 2004, at our option upon not less than 30 nor
more than 60 days' written notice, we may redeem the Series B Preferred Shares,
in whole or in part, at any time or from time to time, at a redemption price of
$50.00 per share plus all accrued and unpaid dividends thereon to the date fixed
for redemption, without interest, to the extent we will have funds legally
available therefor. The redemption price of the Series B Preferred Shares (other
than any portion consisting of accrued and unpaid dividends) shall be paid
solely from the sale proceeds of other shares of beneficial interest of the
Company, which may include other series of preferred shares, and not from any
other source. For purposes of the preceding sentence, "shares of beneficial
interest" means any equity securities (including common shares and preferred
shares), shares, depositary shares, participations, or other ownership interests
(however designated) and any rights (other than debt securities convertible into
or exchangeable for equity securities) or options to purchase any of the
foregoing. Holders of Series B Preferred Shares to be redeemed shall surrender
such Series B Preferred Shares at the place designated in such notice and shall
be entitled to the redemption price and any accrued and unpaid dividends payable
upon such redemption following such surrender. If notice of redemption of any
Series B Preferred Shares has been given and if the funds necessary for such
redemption have been set aside by us in trust for the benefit of the holders of
any Series B Preferred Shares so called for redemption, then from and after the
redemption date dividends will cease to accrue on such Series B Preferred
Shares, such Series B Preferred Shares 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 plus accrued and unpaid dividends to such
redemption date. If fewer than all of the outstanding Series B Preferred Shares
are to be redeemed, the Series B Preferred Shares to be redeemed will be
selected pro rata (as nearly as may be practicable without creating fractional
shares) or by any other equitable method we determine to use. See "Description
of Shares of Beneficial Interest--Preferred Shares--Redemption" in the
accompanying prospectus.
Unless full cumulative dividends on all Series B Preferred Shares or any
other securities ranked on parity as to dividends or upon liquidation with the
Series B Preferred Shares (such as the Series A Preferred Shares) (collectively,
"Parity Preferred") shall have been or contemporaneously are authorized and paid
or authorized and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the then current dividend period, no Series B
Preferred Shares shall be redeemed unless all outstanding Series B Preferred
Shares and all Parity Preferred are simultaneously redeemed and the Company
shall not purchase or otherwise acquire directly or indirectly any Series B
Preferred Shares (except by exchange for shares of beneficial interest of the
Company ranking junior to the Series B Preferred Shares as to dividends and upon
liquidation); PROVIDED, HOWEVER, that the foregoing shall not prevent the
purchase by the Company of Excess Shares in order to ensure the Company remains
qualified as a REIT for federal income tax purposes, as described under
"Description of Shares of Beneficial Interest--Restrictions on Transfer" in the
accompanying prospectus, or the purchase or acquisition of Series B Preferred
Shares pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding Series B Preferred Shares.
S-18
<PAGE>
We will give notice of redemption by publication in a newspaper of general
circulation in the City of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days prior to
the redemption date. A similar notice will be mailed by us, postage prepaid, not
less than 30 nor more than 60 days prior to the redemption date, addressed to
the respective holders of record of the Series B Preferred Shares to be redeemed
at their respective addresses as they appear on our share transfer records. A
failure to give such notice or any defect in the notice or in its mailing will
not affect the validity of the proceedings for the redemption of any Series B
Preferred Shares except as to the holder to whom notice was defective or not
given. Each notice shall state:
- the redemption date;
- the redemption price;
- the number of Series B Preferred Shares to be redeemed;
- the place or places where the Series B Preferred Shares are to be
surrendered for payment of the redemption price; and
- that dividends on the shares to be redeemed will cease to accrue on such
redemption date.
If fewer than all the Series B Preferred Shares held by any holder are to be
redeemed, the notice mailed to such holder shall also specify the number of
Series B Preferred Shares to be redeemed from such holder.
Immediately prior to any redemption of Series B Preferred Shares, the
Company shall pay, in cash, any accumulated and unpaid dividends through the
redemption date, unless a redemption date falls after a dividend record date and
prior to the corresponding dividend payment date, in which case each holder of
Series B Preferred Shares at the close of business on a dividend record date
will be entitled to receive the dividend declared and payable with respect to
the Series B Preferred Shares on the corresponding dividend payment date
notwithstanding the redemption of the Series B Preferred Shares between such
dividend record date and the corresponding dividend payment date or our default
in the payment of the dividend due. Except as provided above, we will make no
payment or allowance for unpaid dividends, whether or not in arrears, on Series
B Preferred Shares to be redeemed.
The Series B Preferred Shares will have no stated maturity and will not be
subject to any sinking fund or mandatory redemption. However, in order to ensure
that the Company remains a qualified REIT for federal income tax purposes,
Series B Preferred Shares owned by a shareholder in excess of the Ownership
Limit will constitute Excess Shares, and the Company will have the right to
purchase Excess Shares from the holder. Excess Shares may be redeemed, in whole
or in part, and, if in part, pro rata from the holders of record of such shares
in proportion to the number of such shares held by such holders (with
adjustments to avoid redemption of fractional shares) or by any other equitable
method determined by the Company. See "Description of Shares of Beneficial
Interest--Restrictions on Transfer" in the accompanying prospectus.
LIMITED RIGHT OF REDEMPTION FOLLOWING DEATH OF A SHAREHOLDER BY THE ESTATE OF
THE SHAREHOLDER
On the 30(th) day of each March, June, September and December of each year
or, if not a business day, the next business day, commencing September 30, 1999,
we will, following the death of any registered holder of the Series B Preferred
Shares, redeem the Series B Preferred Shares held by such registered owner upon
presentation of the documentation described below by such registered owner's
personal representative or surviving joint tenant(s). Series B Preferred Shares
will not be redeemed during any period in which full cumulative dividends on all
Series B Preferred Shares and Parity Preferred have not been paid. Our
obligation to redeem the shares is subject to the following limitations:
- We will only redeem 500 Series B Preferred Shares per owner per
twelve-month period.
S-19
<PAGE>
- In any twelve-month period, we will only redeem up to an aggregate of
30,000 Series B Preferred Shares.
To redeem the shares under these circumstances, our transfer agent must
receive:
- written request for redemption in form satisfactory to the transfer agent,
signed by the personal representative or surviving joint tenant(s) of the
registered owner;
- the Series B Preferred Shares to be redeemed if certificated, or, if not,
notice of the number of shares to be redeemed;
- appropriate evidence of death and ownership of such shares at the time of
death; and
- appropriate evidence of the authority of such personal representative or
surviving joint tenant(s).
In order for the Series B Preferred Shares to be eligible for the redemption
on any of the dates listed above, the material specified above must be presented
for redemption in full compliance with the provisions set forth above, at least
20 days preceding such dates and must be deemed acceptable by the transfer agent
at least 10 days prior to the applicable redemption date. Any shares not
redeemed in any period because of the aggregate limitation described above or
the individual limitation described above will be held for redemption in
subsequent periods until redeemed. Any shares not redeemed because such
redemption would violate the prohibition against redemptions when cumulative
dividends are outstanding on Series B Preferred Shares or Parity Preferred will
be held for redemption at the time such redemption is no longer prohibited and
until redeemed in full. Redemption requests will be prioritized on a first-come,
first-served basis.
Any redemption by us may be made either in cash or in our common shares. For
redemptions made in cash, the redemption price will be $50 per Series B
Preferred Share (plus accrued and unpaid dividends). If the redemption is made
in common shares, we must notify you that the redemption will be made in common
shares at least seven days prior to the redemption settlement date. For
redemptions made in common shares, the redemption price will be $50.50 per
Series B Preferred Share based on the market price of our common shares on the
trading day prior to the redemption date (plus cash in an amount equal to
accrued and unpaid dividends). No fractional common shares will be issued. In
lieu of any fractional shares, we will pay cash in an amount equal to the
product of such fraction multiplied by the closing price of one common share on
the trading day prior to the redemption date.
The death of a person who, during his lifetime, was entitled to
substantially all of the beneficial interest of ownership (including as joint
tenant) of Series B Preferred Shares will be deemed the death of a registered
owner, regardless of the registered owner, if such beneficial interest can be
established to the satisfaction of the transfer agent. Such beneficial interest
shall be deemed to exist in typical cases of street name or nominee ownership,
ownership under the Uniform Transfers to Minors Act or similar statute,
community property or other joint ownership arrangements between husband and
wife, and certain other arrangements where one person has substantially all of
the beneficial ownership interest in the Series B Preferred Shares during his
lifetime. In the case of Series B Preferred Shares registered in the name of
banks, trust companies or broker-dealers who are members of a national
securities exchange or the National Association of Securities Dealers, Inc.
("Qualified Institutions"), the redemption limitations described above apply to
each beneficial owner of Series B Preferred Shares held by any Qualified
Institution. In connection with the redemption request, each Qualified
Institution must submit evidence, satisfactory to the transfer agent, that it
holds the Series B Preferred Shares subject to request on behalf of such
beneficial owner and must certify the aggregate amount of redemption requests
made on behalf of such beneficial owner.
In the case of a redemption request which is presented on behalf of a
deceased beneficial owner and which has not been fulfilled at the time we give
notice of our election to redeem the Series B Preferred Shares, the shares which
are the subject of such pending redemption request shall be redeemed prior to
any other Series B Preferred Shares.
S-20
<PAGE>
Any redemption request may be withdrawn upon delivery of a written request
for such withdrawal given to the transfer agent at least 10 days prior to
payment for redemption of the shares by reason of the death of a beneficial
owner. Any party withdrawing its redemption request will forfeit its right to
require us to redeem the Series B Preferred Shares upon the death of a
shareholder.
VOTING RIGHTS
Holders of Series B Preferred Shares will not have any voting rights, except
as set forth below or as otherwise required by law.
Whenever dividends on any Series B Preferred Shares shall be in arrears for
six or more consecutive or non-consecutive quarterly periods (a "Preferred
Dividend Default"), the holders of such Series B Preferred Shares (voting
separately as a class with all other series of Parity Preferred upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of a total of two additional trustees of the Company (the
"Preferred Shares Trustees") at a special meeting called by the holders of
record of at least 20% of the outstanding Series B Preferred Shares or the
holders of shares of any series of Parity Preferred so in arrears, unless such
request is received less than 90 days before the date fixed for the next annual
or special meeting of the shareholders, in which case the voting for such
additional trustees shall be at the next annual or special meeting of
shareholders, and at each subsequent annual meeting until all dividends
accumulated on such Series B Preferred Shares for the past dividend periods and
the accrued dividend for the then current dividend period shall have been fully
paid or a sum sufficient for the payment thereof set aside for payment in full.
If and when all accumulated dividends and the accrued dividend for the then
current dividend period on the Series B Preferred Shares shall have been paid in
full or set aside for payment in full, the holders thereof shall be divested of
the foregoing voting rights (subject to revesting in the event of each and every
subsequent Preferred Dividend Default) and, if all accumulated dividends and the
accrued dividend for the current dividend period have been paid on all series of
Parity Preferred upon which like voting rights have been conferred and are
exercisable, the term of office of each Preferred Shares Trustee so elected
shall terminate. Any Preferred Shares Trustee may be removed at any time with or
without cause by, and shall not be removed otherwise than by the vote of, the
holders of record of a majority of the outstanding Series B Preferred Shares
(voting separately as a class with all series of Parity Preferred upon which
like voting rights have been conferred and are exercisable). So long as a
Preferred Dividend Default shall continue, any vacancy in the office of a
Preferred Shares Trustee may be filled by written consent of the Preferred
Shares Trustee remaining in office, or if none remains in office, by a vote of
the holders of record of a majority of the outstanding Series B Preferred Shares
when they have the voting rights described above (voting separately as a class
with all series of Parity Preferred upon which like voting rights have been
conferred and are exercisable). Each of the Preferred Shares Trustees shall be
entitled to one vote on any matter.
So long as any Series B Preferred Shares remain outstanding, the Company
shall not, without the affirmative vote or consent of the holders of at least
two-thirds of the Series B Preferred Shares outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class): (a) authorize or create, or increase the authorized or
issued amount of, any class or series of shares of beneficial interest ranking
prior to the Series B Preferred Shares with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or winding up or
reclassify any authorized shares of beneficial interest 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; (b) amend, alter or
repeal the provisions of the Articles Supplementary establishing the Series B
Preferred Shares, whether by merger, consolidation or otherwise, so as to
materially and adversely affect any right, preference, privilege or voting power
of the Series B Preferred Shares or the holders thereof; or (c) enter into a
consolidation or merger in which another entity is the surviving entity, unless
the holders of the Series B Preferred Shares receive a preference security the
rights, preferences, privileges and voting power of which do not differ from
those of the Series B Preferred Shares in any manner which is material and
adverse to the holder of the Series B Preferred Shares; PROVIDED, HOWEVER, that
with respect to the
S-21
<PAGE>
occurrence of any event set forth in (b) or (c) above, so long as the Series B
Preferred Shares remain outstanding with the terms thereof materially unchanged,
or the terms of the securities issued in exchange for the Series B Preferred
Shares in the consolidation or merger are not materially different from those of
the Series B Preferred Shares, the occurrence of any such event shall not be
deemed to materially and adversely affect such rights, preferences, privileges
or voting powers of the holders of the Series B Preferred Shares and PROVIDED
FURTHER that any increase in the amount of the authorized preferred shares or
the creation or issuance of any other series of preferred shares, or any
increase in the amount of authorized shares of such series, in each case ranking
on a parity with or junior to the Series B Preferred Shares with respect to
payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding Series B Preferred Shares shall have been redeemed
or called for redemption upon proper notice and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION
Subject to the restrictions on ownership and transfer of our common shares
described in "Description of Shares of Beneficial Interest--Restrictions on
Transfer" in the accompanying prospectus, holders of Series B Preferred Shares
may convert such shares into common shares at a conversion price of $43.50 per
common share (equivalent to a conversion rate of 1.1494 common shares for each
Series B Preferred Share), subject to adjustment as described below. The right
to convert Series B Preferred Shares called for redemption will terminate at the
close of business on a redemption date. For information about notices of
redemption, see "--Redemption by the Company" above.
The holder of Series B Preferred Shares may convert all or a portion of such
shares by delivering Series B Preferred Shares together with written notice of
conversion and a proper assignment of such certificates to the office of the
transfer agent. Currently, such office is as follows:
First Chicago Trust Company of New York
A Division of EquiServe
525 Washington Boulevard
P.O. Box 2500
Jersey City, NJ 07303
Each conversion will be deemed to have been effected immediately prior to
the close of business on the date on which the Series B Preferred Shares are
surrendered and we receive notice of conversion (and, if applicable, we have
received payment of an amount equal to the dividend payable on such shares, as
described below). The conversion will be at the conversion price in effect at
such time and on such date.
Holders of Series B Preferred Shares at the close of business on a dividend
record date will be entitled to receive the dividend payable on such shares on
the corresponding dividend payment date notwithstanding the conversion of such
shares following such dividend record date and prior to such dividend payment
date. However, Series B Preferred Shares surrendered for conversion during the
period between the close of business on any dividend record date and ending with
the opening of business on the corresponding dividend payment date (except
shares converted after the issuance of a notice of redemption with respect to a
redemption date during such period or coinciding with such dividend payment
date, which will be entitled to such dividend) must be accompanied by payment of
an amount equal to the dividend payable on such shares on such dividend payment
date. A holder of Series B Preferred Shares on a dividend record date who (or
whose transferee) tenders any such shares for conversion into common shares on
such dividend payment date will receive the dividend payable by us on such
Series B Preferred Shares on such date, and the converting holder need not
include payment of the amount of such dividend upon surrender
S-22
<PAGE>
of Series B Preferred Shares for conversion. Except as provided above, we will
make no payment or allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on the common shares that are issued upon such
conversion.
Fractional common shares will not be issued upon conversion but, instead, we
will pay a cash adjustment based on the current market price of the common
shares on the trading day prior to the conversion date. For a further discussion
of the common shares to be received upon conversion of Series B Preferred
Shares, see "Description of Shares of Beneficial Interest--Common Shares" in the
accompanying prospectus.
CONVERSION PRICE ADJUSTMENTS
The conversion price is subject to adjustment upon certain events, including
the following:
- the payment of distributions payable in common shares on any class of our
shares;
- the issuance to all holders of common shares of certain rights or warrants
entitling them to subscribe for or purchase common shares at a price per
share less than the fair market value per share of common shares;
- subdivisions, combinations and reclassifications of common shares; and
- distributions to all holders of common shares of evidences of our
indebtedness or assets (including securities, but excluding those
dividends, rights, warrants and distributions referred to above and
dividends and distributions paid in cash out of equity, including
revaluation equity, applicable to common shares).
In addition to the foregoing adjustments, we will be permitted to make such
reductions in the conversion price as we consider to be advisable in order that
any event treated for federal income tax purposes as a dividend of stock or
stock rights will not be taxable to the holders of the common shares.
In case we are a party to any transaction (including, without limitation, a
merger, consolidation, statutory share exchange, tender offer for all or
substantially all of our common shares or sale of all or substantially all of
our assets), in each case as a result of which our common shares will be
converted into the right to receive securities or other property (including cash
or any combination thereof), each Series B Preferred Share, if convertible after
the consummation of the transaction, will thereafter be convertible into the
kind and amount of shares of stock and other securities and property receivable
(including cash or any combination thereof) upon the consummation of such
transaction by a holder of that number of common shares or fraction thereof into
which one Series B Preferred Share was convertible immediately prior to such
transaction (assuming such holder of common shares failed to exercise any rights
of election and received per share the kind and amount received per share by a
plurality of non-electing shares). We may not become a party to any such
transaction unless its terms are consistent with the foregoing.
We are not required to make any adjustment of the conversion price in any
case until cumulative adjustments amount to 1% or more of the conversion price.
Any adjustments not so required to be made will be carried forward and taken
into account in subsequent adjustments.
RESTRICTIONS ON TRANSFER
To help insure that the Company qualifies as a REIT, transfer of the Series
B Preferred Shares is restricted and ownership by any person is limited to 9.8%
of the outstanding shares of beneficial interest, subject to certain
restrictions. For information regarding restrictions on transfer of the Series B
Preferred Shares, see "Description of Shares of Beneficial
Interest--Restrictions on Transfer" in the accompanying prospectus.
S-23
<PAGE>
BOOK-ENTRY-ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY
The Series B Preferred Shares will be represented by one global security
that will be deposited with and registered in the name of The Depository Trust
Company ("DTC") or its nominee. This means that we will not issue certificates
to you for the shares. One global security will be issued to DTC, who will keep
a computerized record of its participants (for example, your broker) whose
clients have purchased the shares. Each participant will then keep a record of
its clients. Unless it is exchanged in whole or in part for a certificated
security, a global security may not be transferred. However, DTC, its nominees,
and their successors may transfer a global security as a whole to one another.
Beneficial interests in the global security will be shown on, and transfers of
the global security will be made only through, records maintained by DTC and its
participants.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the United States Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered under the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC holds securities that its participants (direct
participants) deposit with DTC. DTC also records the settlement among direct
participants of securities transactions, such as transfers and pledges, in
deposited securities through computerized records for direct participants'
accounts. This eliminates the need to exchange certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations.
DTC's book-entry system is also used by other organizations such as
securities brokers and dealers, banks and trust companies that work through a
direct participant. The rules that apply to DTC and its participants are on file
with the Securities and Exchange Commission.
DTC is owned by a number of its direct participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc.
When you purchase shares through the DTC system, the purchases must be made
by or through a direct participant, who will receive credit for the shares on
DTC's records. Since you actually own the shares, you are the beneficial owner
and your ownership interest will only be recorded on the direct (or indirect)
participants' records. DTC has no knowledge of your individual ownership of the
Series B Preferred Shares. DTC's records only show the identity of the direct
participants and the amount of the shares held by or through them. You will not
receive a written confirmation of your purchase or sale or any periodic account
statement directly from DTC. You will receive these from your direct (or
indirect) participant. Thus, the direct (or indirect) participants are
responsible for keeping accurate account of the holdings of their customers like
you.
We will wire dividend payments to DTC's nominee and we will treat DTC's
nominee as the owner of the global security for all purposes. Accordingly, we
will have no direct responsibility or liability to pay amounts due on the global
security to you or any other beneficial owners in the global security.
Any redemption notices will be sent by us directly to DTC, who will in turn
inform the direct participants, who will then contact you as a beneficial
holder.
It is DTC's current practice, upon receipt of any payment of dividends or
liquidation amount, to credit direct participants' accounts on the payment date
based on their holdings of beneficial interests in the global securities as
shown on DTC's records. In addition, it is DTC's current practice to assign any
consenting or voting rights to direct participants whose accounts are credited
with preferred securities on a record date, by using an omnibus proxy. Payments
by participants to owners of beneficial interests in the global securities, and
voting by participants, will be based on the customary practices between the
participants and owners of beneficial interests, as is the case with the shares
held for the account of customers registered in "street name." However, payments
will be the responsibility of the participants and not of DTC or us.
S-24
<PAGE>
Series B Preferred Shares represented by a global security will be
exchangeable for certificated securities with the same terms in authorized
denominations only if:
- DTC is unwilling or unable to continue as depositary or if DTC ceases to
be clearing agency registered under applicable law and a successor
depositary is not appointed by us within 90 days; or
- We determine not to require all of the Series B Preferred Shares to be
represented by a global security.
If the book-entry-only system is discontinued, the transfer agent will keep
the registration books for the Series B Preferred Shares at its corporate
office.
SHAREHOLDER RIGHTS PLAN
On July 30, 1998, the Board of Trustees of the Company adopted a Preferred
Share Purchase Rights Agreement and declared a dividend distribution of one
Preferred Share Purchase Right (a "Right") on each outstanding share of the
Company's common shares of beneficial interest.
Each Right entitles the holder to purchase from the Company one
one-thousandth of a Junior Participating Preferred Share of Beneficial Interest,
Series A (a "Rights Preferred Share"), at a price of $120, subject to
adjustment. The Rights Preferred Shares (1) are non-redeemable, (2) are entitled
to a minimum preferential quarterly dividend payment equal to the greater of $25
per share or 1,000 times the Company's common share dividend, (3) have a minimum
liquidation preference equal to the greater of $100 per share or 1,000 times the
liquidation payment made per common share and (4) are entitled to vote with the
common shares with each Rights Preferred Share having 1,000 votes.
The Rights trade together with the Company's common shares of beneficial
interest and do not become exercisable until the "distribution date." A
distribution date will occur ten days after any person (including a group)
becomes an "acquiring person" by acquiring 15% or more of the Company's
outstanding common shares or if a person commences a tender offer that would
result in that person owning 15% or more of the Company's outstanding common
shares. On the distribution date, (1) the Rights will be traded separately from
the Company's common shares and (2) a holder of the Rights (other than an
"acquiring person"), instead of purchasing Rights Preferred Shares, may exercise
the Rights for a number of common shares having a market value equal to two
times the exercise price of the Rights.
At any time after a person becomes an "acquiring person," if the Company is
involved in any merger, consolidation or other transaction in which the Company
is not the survivor, if common shares of the Company are exchanged, or if 50% or
more of the Company's consolidated assets or earning power are sold, the holder
of the Rights (other than an "acquiring person") may exercise the Rights to
purchase a number of shares of common stock of the acquiring corporation having
a market value equal to two times the exercise price of the Rights. In addition,
at any time after a person becomes an "acquiring person" but before such person
has acquired 50% or more of the Company's common shares, the Company may elect
to exchange any or all of the Rights (other than those held by an "acquiring
person") for common shares of beneficial interest of the Company on a
one-for-one basis.
The Company may generally redeem the Rights, in whole but not in part, at a
price of $.01 per right. If not exercised or redeemed, the Rights will expire on
the close of business on July 30, 2008.
A complete description of the terms of the Rights is set forth in the
Preferred Share Purchase Rights Agreement, dated as of July 30, 1998 between the
Company and First Chicago Trust Company of New York, as agent, which is an
exhibit to a Form 8-K of the Company filed with the Securities and Exchange
Commission on August 3, 1998. See "Risk Factors--Limitations on a Change in
Control of our Company" in this prospectus supplement.
S-25
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
For a discussion of material federal income tax consequences applicable to
distributions to shareholders and our election to be taxed as a REIT, see
"Federal Income Tax Considerations" in the accompanying prospectus.
GENERAL
The following discussion summarizes certain Federal income tax consequences
to an investor in Series B Preferred Shares. Such discussion is based upon
current law. The discussion does not address all tax considerations applicable
to prospective investors, nor does the discussion give a detailed description of
any state, local, or foreign tax considerations and assumes classification of
the Company as a REIT. For a discussion of the risks related to the Company's
REIT status, see "--Certain Risks Related to REIT status." This discussion does
not describe all of the aspects of Federal income taxation that may be relevant
to a prospective shareholder in light of his or her particular circumstances or
to certain types of shareholders (including insurance companies, tax-exempt
entities, financial institutions or broker dealers, foreign corporations and
persons who are not citizens or residents of the United States) subject to
special treatment under the Federal income tax laws. As used in this section,
the term "Company" refers solely to CenterPoint Properties Trust.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF DEPOSITARY SHARES REPRESENTING PREFERRED STOCK IN AN
ENTITY ELECTING TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND
ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
CONVERSION OF SERIES B PREFERRED SHARES. The discussion in this paragraph
assumes that Series B Preferred Shares will not be converted at a time when
there are distributions in arrears. In general, no gain or loss will be
recognized for federal income tax purposes upon the conversion of the Series B
Preferred Shares at the option of the holder solely into common shares. The
basis that a holder will have for tax purposes in the common shares received
upon the conversion will be equal to the adjusted basis the holder had in the
Series B Preferred Shares converted and, provided that the Series B Preferred
Shares were held as a capital asset, the holding period for the common shares
received will include the holding period for the Series B Preferred Shares
converted. A holder, however, will generally recognize gain or loss on the
receipt of cash in lieu of a fractional common share in an amount equal to the
difference between the amount of cash received and the holder's adjusted basis
in the fractional share.
ADJUSTMENTS TO CONVERSION PRICE. Adjustments in the conversion price
pursuant to the anti-dilution provisions of the Series B Preferred Shares,
described above in "Description of Series B Preferred Shares--Conversion Price
Adjustments" or otherwise may result in constructive distributions to the
holders of Series B Preferred Shares that could, under certain circumstances, be
taxable to them as dividends pursuant to Section 305 of the Internal Revenue
Code of 1986, as amended (the "Code"). If such a constructive distribution were
to occur, a holder of Series B Preferred Shares could be required to recognize
ordinary income for tax purposes without receiving a corresponding distribution
of cash.
REDEMPTION OF SERIES B PREFERRED SHARES. A redemption of Series B Preferred
Shares, will be treated under Section 302 of the Code as a distribution taxable
as a dividend (to the extent of the Company's current and accumulated earnings
and profits) at ordinary income rates unless the redemption satisfies one of the
tests set forth in Section 302(b) of the Code and is therefore treated as a sale
or exchange of the redeemed shares. None of these dividend distributions will be
eligible for the dividends received deduction for corporate shareholders. The
redemption will be treated as a sale or exchange if it (i) is "substantially
disproportionate" with respect to the holder, (ii) results in a "complete
termination" of the holder's share
S-26
<PAGE>
interest in the Company, or (iii) is "not essentially equivalent to a dividend"
with respect to the holder, all within the meaning of Section 302(b) of the
Code. In determining whether any of these tests have been met, Series B
Preferred Shares considered to be owned by the holder by reason of certain
constructive ownership rules set forth in the Code, as well as Series B
Preferred Shares actually owned by the holder, must generally be taken into
account. If a particular holder of Series B Preferred Shares owns (actually or
constructively) no Series B Preferred Shares, or an insubstantial percentage of
the outstanding Series B Preferred Shares, a redemption of Series B Preferred
Shares of that holder is likely to qualify for sale or exchange treatment
because the redemption would not be "essentially equivalent to a dividend."
However, because the determination as to whether any of the alternative tests of
Section 302(b) of the Code will be satisfied with respect to any particular
holder of Series B Preferred Shares depends upon the facts and circumstances at
the time that the determination must be made, prospective holders of Series B
Preferred Shares are advised to consult their own tax advisors to determine such
tax treatment.
If a redemption of Series B Preferred Shares is not treated as a
distribution taxable as a dividend to a particular holder, it will be treated as
to that holder as a taxable sale or exchange. As a result, such holder will
recognize gain or loss for Federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received (less any portion thereof attributable to accumulated and
declared but unpaid dividends, which will be taxable as a dividend to the extent
of the Company's current and accumulated earnings and profits), and (ii) the
holder's adjusted basis in the Series B Preferred Shares for tax purposes. Such
gain or loss will be capital gain or loss if the Series B Preferred Shares have
been held as a capital asset, and will be long-term gain or loss if such Series
B Preferred Shares have been held for more than one year.
If a redemption of Series B Preferred Shares is treated as a distribution
taxable as a dividend, the amount of the distribution will be measured by the
amount of cash and the fair market value of any property received by the holder.
The holder's adjusted basis in the redeemed Series B Preferred Shares for tax
purposes will be transferred to the holder's remaining shares of the Company. If
the holder owns no other shares of the Company, such basis may, under certain
circumstances, be transferred to a related person or it may be lost entirely.
TAXATION OF DISTRIBUTIONS. As used herein, the term "U.S. Shareholder"
means a holder of the Series B Preferred Shares that for United States federal
income tax purposes (A) is (1) a citizen or resident of the United States; (2) a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof; (3) an estate,
the income of which is subject to United States federal income taxation
regardless of source; or (4) a trust, if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all substantial
decisions of the trust and (B) is not an entity that has a special status under
the Code (such as an insurance company, a financial institution, a tax-exempt
organization or a dealer in securities).
As long as the company qualifies as a REIT, distributions made to taxable
U.S. Shareholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by such U.S.
Shareholders as ordinary income and will not be eligible for the dividends
received deduction generally available to corporations. Subject to the
provisions of applicable law, the current and accumulated earnings and profits
of the Company will be allocated first to distributions to the Series B
Preferred Shares and then to distributions with respect to the Company's common
shares. Subject to the discussion below regarding changes to the capital gain
rates, distributions that are designated as capital gain dividends will be taxed
as long-term capital gains (to the extent they do not exceed our actual net
capital gain for the taxable year) without regard to the period for which the
shareholder has held his or her Series B Preferred Shares. However, corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and accumulated
earnings and profits will not be taxable to a shareholder to the extent that
they do not exceed the adjusted basis of the shareholder's Series B Preferred
Shares, but rather will reduce the adjusted basis of such
S-27
<PAGE>
Series B Preferred Shares. To the extent that such distributions in excess of
current and accumulated earnings and profits exceed the adjusted basis of a
shareholder's Series B Preferred Shares, such distributions will be included in
income as long-term capital gain (or short-term capital gain if the Series B
Preferred Shares have been held for one year or less), assuming the Series B
Preferred Shares are a capital asset in the hands of the shareholder. In
addition, any distribution we declare in October, November or December of any
year and payable to a shareholder of record on a specified date in any such
month shall be treated as both paid by the payor and received by the shareholder
on December 31 of such year, provided that the distribution is actually paid by
us during January of the following calendar year.
We may retain and pay income tax on our net long-term capital gains
recognized during the taxable year. If we so elect for a taxable year, the
holders of the Series B Preferred Shares would include in income as capital gain
their proportionate share of such portion of our net capital gains as we may
designate. Such retained capital gains may be further designated by us as 20%
rate gain, or unrecaptured Section 1250 gain, or 28% rate gain, as discussed
below. Shareholders must account for their share of such retained capital gains
in accordance with such further designation; if no such further designation is
made, the retained capital gains are treated as 20% rate gain. A shareholder
would be deemed to have paid its share of the tax paid by us, which would be
credited or refunded to the shareholder. The shareholder's basis in its shares
would be increased by the amount of undistributed capital gains (less the
capital gains tax paid by us) included in the shareholder's capital gains.
Shareholders may not include in their individual income tax returns any of
our net operating losses or capital losses. Instead, such losses would be
carried over by us for potential offset against future income (subject to
certain limitations). Taxable distributions from the Company and gain from the
disposition of its shares will not be treated as passive activity income and,
therefore, shareholders generally will not be able to apply any "passive
activity losses" (such as losses from certain types of limited partnerships in
which a shareholder is a limited partner) against such income. In addition,
taxable distributions from the Company generally will be treated as investment
income for purposes of the investment interest limitations. Capital gains from
the disposition of the Company's shares (or distributions treated as such),
however, will be treated as investment income only if the shareholder so elects,
in which case such capital gains will be taxed at ordinary income rates. We will
notify shareholders after the close of our taxable year as to the portions of
the distributions attributable to that year that constitute ordinary income,
return of capital and capital gain.
The Internal Revenue Service Restructuring Reform Act of 1998 (the "1998
Act") altered the taxation of capital gain income. Under the 1998 Act,
individuals, trust and estates that hold certain investments for more than one
year may be taxed at a maximum long-term capital gain rate of 20% on the sale or
exchange of those investments. The Taxpayer Relief Act of 1997 (the "Relief
Act") also provided for a maximum rate of 25% for "unrecaptured Section 1250
gain" for individuals, trust and estates, special rules for "qualified 5-year
gain," as well as other changes to prior law. The Relief Act allows the IRS to
prescribe regulations on how the Relief Act's new capital gain rates will apply
to sales of capital asset by (or interest in) "pass-thru entities," including
REITs such as the Company. In general, the notice provides that a REIT must
determine the maximum amounts which may be designated in each class of capital
gain dividends as if the REIT were an individual whose ordinary income is
subject to a marginal tax rate of at least 28%. Similar rules will apply in the
case of designated retained capital gains (see above discussion). We will notify
shareholders after the close of our taxable year as to the portions of the
distributions attributable to that year that constitute ordinary income, return
or capital, and capital gain (and, with respect to capital gain dividends, the
portions constituting 20% rate gain distributions or unrecaptured Section 1250
gain distributions). We also will notify shareholders of the amounts of any
designated retained capital gains (including the amounts thereof constituting
20% rate gain or unrecaptured Section 1250 gain) and our taxes with respect to
any designated retained capital gains. Final regulations when issued may alter
current IRS administrative pronouncements. In addition, the IRS has not
prescribed regulations regarding the application of the new rates to the sale of
shares in REITs such as the Company, and it remains unclear
S-28
<PAGE>
how the new rules will affect such sales (if at all). Investors are urged to
consult their own tax advisors with respect to the rules contained in the Relief
Act.
TAXATION ON THE DISPOSITION OF THE SERIES B PREFERRED SHARES. In general,
any gain or loss realized upon a taxable disposition of the Series B Preferred
Shares by a shareholder who is not a dealer in securities will be treated as a
capital gain or loss. Lower marginal tax rates for individuals may apply in the
case of capital gains, depending on the holding period of the Series B Preferred
Shares that are sold. See "--Taxation of Distributions" above. Generally, a
shareholder who disposes of Series B Preferred Shares held less than twelve
months will be taxed at ordinary income rates. However, any loss upon a sale or
exchange by a shareholder who has held such Series B Preferred Shares for six
months or less (after applying certain holding period rules), will be treated as
a long-term capital loss to the extent distributions from the Company are
required to be treated by such shareholder as long-term capital gain. All or a
portion of any loss realized upon a taxable disposition of the Series B
Preferred Shares may be disallowed if other shares of the Company are purchased
within 30 days before or after the disposition. In addition, capital losses not
offset by capital gains may be deducted from an individual's ordinary income
only up to a maximum of $3,000 per year. Unused capital losses may be carried
forward. A corporate taxpayer may deduct capital losses only to the extent of
capital gains, but may carry unused capital losses back three years and forward
five years.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
We will report to our shareholders and to the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
holder (1) is a United States corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (2) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with the applicable requirements of the
backup withholding rules. A shareholder who does not provide us with his, her or
its correct taxpayer identification number also may be subject to penalties
imposed by the IRS. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. In addition, we may be required
to withhold a portion of capital gain distributions to any shareholders who fail
to certify to us their nonforeign status.
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. However, they are subject to taxation
on their unrelated business taxable income ("UBTI"). Amounts distributed by us
to Exempt Organizations generally should not constitute UBTI. However, if an
Exempt Organization finances its acquisition of shares with "acquisition
indebtedness," a portion of its income from distributions on such shares will
constitute UBTI pursuant to the "debt-financed property" rules. Furthermore,
social clubs, voluntary employee benefit associations, supplemental unemployment
benefit trusts and qualified group legal service plans that are exempt from
taxation under paragraphs (7), (9), (17) and (20), respectively, of Code Section
501(c) are subject to different UBTI rules, which generally will require them to
characterize distributions from us as UBTI.
S-29
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement,
we have agreed to sell to Edward D. Jones & Co., L.P., as underwriter, and the
underwriter has agreed to purchase from us, all of the Series B Preferred
Shares. The obligations of the underwriter are subject to certain conditions.
The underwriter must purchase all of the Series B Preferred Shares if it
purchases any.
The underwriter proposes to offer the Series B Preferred Shares directly to
the public at the initial price to investors set forth on the cover page of this
prospectus supplement, and to certain dealers at such price less a concession
not in excess of $1.375 per share. After the Series B Preferred Shares are
released for sale to the public, the offering price and other selling terms may
be varied from time to time by the underwriter.
The table below shows the underwriting discounts on a per share and
aggregate basis. The proceeds we will receive as shown in the table below do not
reflect estimated expenses of $400,000 payable by us.
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- -------------
<S> <C> <C>
Price to Investors................................................. $ 50.00 $ 50,000,000
Underwriting Discount.............................................. $ 2.00 $ 2,000,000
Proceeds, before expenses, to Company.............................. $ 48.00 $ 48,000,000
</TABLE>
We have agreed to indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, or if indemnification is
not allowed, to contribute to payments the underwriter may be required to make
because of those liabilities.
In connection with the offering, the underwriter may purchase and sell the
Series B Preferred Shares in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover short
positions created in connection with the offering. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or retarding
a decline in the market price of the Series B Preferred Shares, and short
positions involve the sale by the underwriter of a greater number of securities
than it is required to purchase from us in the offering. These activities may
stabilize, maintain or otherwise affect the price of the Series B Preferred
Shares, which may be higher than the price that might otherwise prevail in the
open market. These activities, if commenced, may be discontinued at any time.
These transactions may be effected on the NYSE, in the over-the-counter market
or otherwise.
The underwriter may also impose a penalty bid on certain selling group
members. This means that if the underwriter purchases Series B Preferred Shares
in the open market to reduce the underwriter's short position, if any, or to
stabilize the price of the Series B Preferred Shares, it may reclaim the amount
of the selling concession from the selling group members who sold those shares
as part of the offering. The imposition of a penalty bid might have an effect on
the price of the security to the extent that it were to discourage resales of
the security.
The Series B Preferred Shares have been approved for listing on the NYSE,
subject to notice of issuance, under the symbol "CPT-PRB." There can be no
assurance as to the liquidity of the trading market for the Series B Preferred
Shares or that an active public market will develop or be maintained.
LEGAL MATTERS
Certain legal matters will be passed upon for CenterPoint by Kirkland &
Ellis (a partnership including professional corporations), Chicago, Illinois.
Kirkland & Ellis will rely upon the opinion of Gordon, Feinblatt, Rothman,
Hoffberger & Hollander, LLC, Baltimore, Maryland, as to certain matters of
Maryland law. Certain legal matters will be passed upon for the underwriter by
Chapman and Cutler, Chicago, Illinois.
S-30
<PAGE>
PROSPECTUS
$500,000,000
CENTERPOINT PROPERTIES TRUST
DEBT SECURITIES, COMMON SHARES, PREFERRED SHARES, SECURITIES WARRANTS
----------------
CenterPoint Properties Trust (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 shares of beneficial interest, $.001
par value per share ("Common Shares"), (iv) preferred shares of beneficial
interest, par value $.001 per share ("Preferred Shares"), and (v) warrants
exercisable for Debt Securities, Common Shares or Preferred Shares ("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
Shares, Preferred Shares 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 $500,000,000 (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 Shares, any initial public offering
price; (iii) in the case of Preferred Shares, 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 5 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.
---------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
April 13, 1998
<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
Citicorp 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,
1997;
2. The Company's Current Report on Form 8-K/A No. 1 filed with the
Commission on February 27, 1998;
3. The Company's Current Report on Form 8-K filed with the Commission on
March 27, 1998;
4. The Company's Current Report on Form 8-K filed with the Commission on
April 3, 1998; and
5. The description of the Company's Common Shares set forth in the
Company's Pre-Effective Amendment No. 1 to Form S-4 registration
statement filed with the Commission on August 28, 1997 (File No.
333-33515).
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.
2
<PAGE>
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 directed to CenterPoint Properties Trust, 401 North
Michigan, 30th Floor, Chicago, Illinois 60611; Attention: Paul S. Fisher,
Secretary; telephone (312) 346-5600.
THE COMPANY
The Company is a self administered and self managed real estate investment
trust 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 real estate investment trust, 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, 1997, the Company has
increased the size of its warehouse/industrial portfolio by 16.9 million square
feet or 325% by acquiring (net of dispositions) 60 fully-leased
warehouse/industrial properties. On October 15, 1997, the Company completed a
corporate reorganization pursuant to which the Company was converted from a
Maryland corporation to a Maryland real estate investment trust.
As of December 31, 1997, the Company's investment and management portfolio
consisted of 95 warehouse/industrial properties containing approximately 22.1
million square feet. 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 Greater Chicago. The Company also owns and manages three retail
properties, one parking lot and one apartment property, holds mortgages on two
warehouse/industrial properties, and is developing eight build-to-suit projects.
As of December 31, 1997, the Company's properties were 97% leased, excluding
properties which are currently being redeveloped and not leasable, with the
warehouse/industrial properties occupied by 178 tenants in diverse industries.
No tenant accounts for more than 5% of the Company's total revenues.
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
3
<PAGE>
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.
4
<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 to
total market capitalization of the Company of less than 50%. However, the
Declaration of Trust does not contain any limitations on the ratio of debt to
total market capitalization. Accordingly, the Board of Trustees could alter or
eliminate the current limitation on borrowing without the approval of the
Company's shareholders. 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 shareholders, 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 shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). Due to this limitation on the concentration of ownership of
shares of beneficial interest in a REIT, ownership of more than 9.8% of the
value of the outstanding shares of beneficial interest by any single shareholder
has been restricted in the Declaration of Trust, with the exception of the
ownership of the Common Shares by the Company's former parent company,
CRP-London.
In connection with the limitation described in the preceding paragraph,
shares held by certain domestic pension trusts are treated as held by the
beneficiaries of such trusts. The Company does not intend to rely on this rule
to maintain compliance with such limitation. Under the Declaration of Trust,
domestic pension funds are subject to the restriction on ownership of more than
9.8% of the value of the outstanding shares of beneficial interest.
These ownership limits, as well as the ability of the Company to issue
additional Common Shares and Preferred Shares, may discourage a change of
control of the Company and may also (i) deter tender offers
5
<PAGE>
for the Common Shares, which offers may be advantageous to shareholders, and
(ii) limit the opportunity for shareholders to receive a premium over then
prevailing market prices for their Common Shares that might otherwise exist if
an investor were attempting to assemble a block of Common Shares or otherwise
effect a change of control of the Company. See "Description of Shares of
Beneficial Interest--Restrictions on Transfer."
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 Trustees. Although the Board of Trustees 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, shareholders 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.
6
<PAGE>
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.
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 shareholders because of the additional tax liability to the Company for the
years involved. In addition, distributions to shareholders would no longer be
required to be made.
7
<PAGE>
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.
CERTAIN RATIOS
The Company's ratios of earnings to fixed charges for the years ended
December 31, 1997, 1996, 1995 and 1994 were 3.27, 2.33, 1.63 and 1.19,
respectively. The ratio of earnings to fixed charges for the year ended December
31, 1993 was less than one-to-one.
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 2,272,727 shares of Series A Preferred Stock in
September, 1995, which was converted into 2,272,727 shares of Class B Common
Stock in May, 1996, and issued 3,000,000 8.48% Series A Cumulative Redeemable
Preferred Shares of Beneficial Interest in November, 1997. The Company's ratios
of earnings to combined fixed charges and Preferred Share dividends for the
years ended December 31, 1997, 1996 and 1995 were 3.04, 2.15 and 1.51. 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
8
<PAGE>
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 Trustees 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).
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;
9
<PAGE>
(5) If convertible in whole or in part into Common Shares or Preferred
Shares, 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 Shares or Preferred Shares 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;
(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;
10
<PAGE>
(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 Shares and Preferred Shares are
designed to preserve its status as a REIT and, therefore, may act to prevent or
hinder a change of control. See "Description of Shares of Beneficial
Interest--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).
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
11
<PAGE>
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).
12
<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
13
<PAGE>
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 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
14
<PAGE>
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 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 Shares or
Preferred Shares of the Company; (viii) to provide for the acceptance of
appointment by a successor Trustee or
15
<PAGE>
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 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
16
<PAGE>
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
17
<PAGE>
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the Holder
of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
Holder of such depository receipt from any amount received by the custodian in
respect of the Government Obligation or the specific payment of interest on or
principal of the Government Obligation evidenced by such depository receipt
(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 of 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 Shares or Preferred Shares will be set
forth in the applicable Prospectus Supplement relating thereto. Such terms will
include whether such Debt Securities are convertible into Common Shares or
Preferred Shares, 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
18
<PAGE>
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).
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
19
<PAGE>
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 Shares, dividends and any redemption payments on Preferred
Shares 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.
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
20
<PAGE>
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).
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
21
<PAGE>
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 other than 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).
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following is a summary of the terms of the shares of beneficial interest
in the Company. This summary does not purport to be complete and is subject to
and qualified in its entirety by reference to the Company's Declaration of Trust
and the By-laws. See "Available Information."
GENERAL
The Declaration of Trust authorizes the issuance of up to 60,000,000 shares
of beneficial interest in the Company, of which 47,727,273 are common shares,
par value $.001 per share ("Common Shares"),
22
<PAGE>
2,272,727 are Class B Common Shares, par value $.001 per share ("Class B Common
Shares"), and 10,000,000 are shares of Series Preferred Shares, par value $.001
per share ("Preferred Shares") of which 3,000,000 are 8.48% Series A Cumulative
Redeemable Preferred Shares ("Series A Preferred Shares"). As of March 25, 1998,
there were 16,923,565 Common Shares, 2,272,727 Class B Common Shares and
3,000,000 Series A Preferred Shares issued and outstanding, all of which are
fully-paid and non-assessable.
Title 8 of the Corporations and Associations Article of the Annotated Code
of Maryland (the "Maryland Real Investment Trust Law") and the Company's
Declaration of Trust provide that no shareholder shall be personally liable for
any obligation of the Company. However, with respect to tort claims, claims for
taxes and certain statutory liabilities, shareholders may, in some
jurisdictions, be personally liable to the extent such claims are not satisfied
by the Company. Because the Company has public liability insurance in amounts
that it considers adequate, any risk of personal liability to shareholders would
be limited to situations in which the Company's assets, together with its
insurance coverage, would be insufficient to satisfy the claims against the
Company and its shareholders.
COMMON SHARES
Holders of Common Shares are entitled to receive dividends when and as
declared by the Board of Trustees out of funds legally available therefor after
payment of any preferential dividends to the holders of any series of Preferred
Shares that may then be issued and outstanding. Upon any liquidation,
dissolution or winding up of the Company, holders of Common Shares 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 Preferred Shares.
The holders of Common Shares are entitled to one vote per share on all matters
voted on by shareholders, including elections of trustees, and, except as
otherwise required by law with respect to class voting rights, or as granted to
the holders of Class B Common Shares, or provided in any resolution adopted by
the Board of Trustees with respect to any series of Preferred Shares
establishing the powers, designations, preferences and relative, participating,
optional or other special rights of such series, the holders of Common Shares
possess all voting powers. Holders of Common Shares do not possess preemptive
rights to subscribe for additional securities of the Company or the right to
cumulate their shares in the election of trustees or in any other matter. All
Common Shares offered by the Company will be, and all issued and outstanding
Common Shares are, fully paid and non-assessable.
The current transfer agent and registrar for the Common Shares is First
Chicago Trust Company of New York, Jersey City, New Jersey.
PREFERRED SHARES
GENERAL. Preferred Shares may be issued from time to time, in one or more
series, as authorized by the Board of Trustees. 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 Declaration of Trust, 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 Trustees or
a duly authorized committee thereof. The Board could authorize the issuance of
Preferred Shares with terms and conditions which could have the effect of
discouraging a takeover or other transaction which holders of some, or a
majority of, Common Shares might believe to be in their best interests, or in
which holders of some, or a majority of, Common Shares might receive a premium
for their Common Shares over the then market price of such shares. The Preferred
Shares will, when issued, be fully-paid and non-assessable and will have no
preemptive rights.
The Prospectus Supplement relating to any Preferred Shares offered thereby
will contain the specific terms, including:
(1) The title and stated value of such Preferred Shares;
23
<PAGE>
(2) The number of such Preferred Shares offered, the liquidation preference
per share and the offering price of such Preferred Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares will accumulate,
if applicable.
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for a sinking fund, if any, for such Preferred Shares;
(7) The provisions for redemption, if applicable, of such Preferred Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Common Shares of the Company, including
the conversion price (or manner of calculation thereof);
(10) A discussion of federal income tax considerations applicable to such
Preferred Shares;
(11) The relative ranking and preferences of such Preferred Shares 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 Shares ranking
senior to or on a parity with such series of Preferred Shares 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 Shares, 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 Shares.
The Registrar and Transfer Agent for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
The description of the provisions of the Preferred Shares as will be set
forth in the related Prospectus Supplement is only a summary, does not purport
to be complete and is subject to, and is qualified in its entirety by, reference
to the definitive Articles Supplementary to the Company's Declaration of Trust
relating to such series of Preferred Shares. In connection with any offering of
Preferred Shares, such Certificate of Amendment will be filed with the
Commission as an exhibit or incorporated by reference in the Registration
Statement.
RANK. Unless otherwise specified in the Prospectus Supplement, the
Preferred Shares 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 Shares of the Company, and to all Equity Shares
(defined below) ranking junior to such Preferred Shares; (ii) on a parity with
all Equity Shares issued by the Company the terms of which specifically provide
that such Equity Shares rank on a parity with the Preferred Shares; and (iii)
junior to all Equity Shares issued by the Company the terms of which
specifically provide that such Equity Shares rank senior to the Preferred
Shares. The term "Equity Shares" includes Common Shares and Preferred Shares and
does not include convertible debt securities.
DIVIDENDS. Holders of the Preferred Shares of each series will be entitled
to receive, when, as and if declared by the Board of Trustees 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 Trustees of the
Company.
24
<PAGE>
Dividends on any series of Preferred Shares 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 Trustees of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are non-cumulative, then the holders of
such series of the Preferred Shares 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 Shares of any series are outstanding, no full dividends
will be declared or paid or set apart for payment on any Preferred Shares of the
Company of any other series ranking, as to dividends, on a parity with or junior
to the Preferred Shares of such series for any period unless (i) if such series
of Preferred Shares 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 Shares of
such series for all past dividend periods and the then current dividend period
or (ii) if such series of Preferred Shares 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 Shares 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 Shares of any series and the
shares of any other series of Preferred Shares ranking on a parity as to
dividends with the Preferred Shares of such series, all dividends declared upon
the Preferred Shares of such series and any other series of Preferred Shares
ranking on a parity as to dividends with such Preferred Shares will be declared
pro rata so that the amount of dividends declared per share on Preferred Shares
of such series and such other series of Preferred Shares will in all cases bear
to each other the same ratio that accrued dividends per share on the Preferred
Shares of such series (which will not include any accumulation in respect of
unpaid dividends for prior dividend periods if such Preferred Shares do not have
a cumulative dividend) and such other series of Preferred Shares 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 Shares of such series
which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred 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 all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred 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 dividends (other than in Common Shares or other shares of beneficial
interest ranking junior to the Preferred Shares 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 Shares, or any other shares of beneficial interest
in the Company ranking junior to or on a parity with the Preferred Shares of
such series as to dividends or upon liquidation, nor will any Common Shares, or
any other shares of beneficial interest of the Company ranking junior to or on a
parity with the Preferred Shares 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 shares of beneficial interest of the Company ranking junior
to the Preferred Shares of such series as to dividends and upon liquidation).
Any dividend payment made on a series of Preferred Shares will first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remains payable.
25
<PAGE>
REDEMPTION. If so provided in the applicable Prospectus Supplement, the
Preferred Shares 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 Shares that is
subject to mandatory redemption will specify the number of Preferred Shares, 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 Shares do 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 Shares of any series is payable only from the net proceeds
of the issuance of shares of beneficial interest in the Company, the terms of
such Preferred Shares may provide that if no such shares of beneficial interest
have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Shares will automatically and mandatorily be converted into the
applicable shares of beneficial interest in the Company pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all Preferred Shares 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 Shares 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 Preferred Shares of such series will be
redeemed unless all outstanding Preferred Shares of such series are
simultaneously redeemed; provided, however, that the foregoing will not prevent
the purchase or acquisition of Preferred Shares 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 Shares of such series. In
addition, unless (i) if such series of Preferred Shares has a cumulative
dividend, full cumulative dividends on all outstanding Preferred Shares 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 then current dividend period, and (ii) if such series
of Preferred Shares does not have a cumulative dividend, full dividends on all
shares of such series of Preferred Shares 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 Shares of
such series (except by conversion into or exchange for shares of beneficial
interest of the Company ranking junior to the Preferred Shares of such series as
to dividends and upon liquidation); provided, however, that the foregoing will
not prevent the purchase or acquisition of Preferred Shares 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 Shares of
such series.
If fewer than all of the outstanding Preferred Shares 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 Shares 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 Shares to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Shares are
to be surrendered for payment of the redemption prices;
26
<PAGE>
(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 Preferred Shares
of any series are to be redeemed, the notice mailed to each such holder thereof
will also specify the number of Preferred Shares to be redeemed from each such
holder. If notice of redemption of any Preferred Shares 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 Preferred Shares so
called for redemption, then from and after the redemption date dividends will
cease to accrue on such Preferred Shares, such Preferred Shares 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.
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 Shares or any
other class or series of shares of beneficial interest in the Company ranking
junior to the Preferred Shares in the distribution of assets upon any
liquidation, dissolution or winding up of the Company, the holders of each
series of Preferred Shares 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 Shares do not
have a cumulative dividend). After payment of the full amount for the
liquidating distributions to which they are entitled, the holders of Preferred
Shares 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 Shares and the corresponding amounts payable on all shares
of other classes or series of shares of beneficial interest in the Company
ranking on a parity with the Preferred Shares in the distribution of assets,
then the holders of the Preferred Shares and all other such classes or series of
shares of beneficial interest 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 Shares, the remaining assets of the Company will be
distributed among the holders of any other classes or series of shares of
beneficial interest ranking junior to the Preferred Shares 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
trust, corporation 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 Shares 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 Shares, so long as any
Preferred Shares 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 Shares 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 shares of beneficial interest ranking prior to such series of
Preferred Shares with respect to the payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up or reclassify any authorized
shares of beneficial interest in 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 Declaration of Trust, 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 Shares or the
holders thereof; provided, however, with respect to the occurrence of any of the
Events set
27
<PAGE>
forth in (ii) above, so long as the Preferred Shares 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 Shares and provided further that (x) any increase in the amount of the
authorized Preferred Shares or the creation or issuance of any other series of
Preferred Shares, or (y) any increase in the amount of authorized shares of such
series or any other series of Preferred Shares, in each case ranking on a parity
with or junior to the Preferred Shares 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 Shares 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 Shares is convertible into Common Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of Common Shares into which the Preferred Shares are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Shares 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 Shares.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, Common Shares 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 beneficial interest 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 Declaration of Trust contains provisions restricting the
ownership and acquisition of shares of beneficial interest in the Company,
including any Preferred Shares of the Company.
The Declaration of Trust, subject to an exception in favor of Capital and
Regional Properties, plc ("CRP-London"), provides 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 Common
Shares or Preferred Shares (collectively, "Equity Shares"). The constructive
ownership rules are complex and may cause Equity Shares 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 Shares (or the acquisition of an
interest in an entity which owns Equity Shares) 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 Shares, and thus subject such
Equity Shares to the Ownership Limit. In addition, for these purposes, Common
Shares that may be acquired upon conversion or exchange of convertible Debt
Securities directly or constructively held by an investor, but not necessarily
Common Shares 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 Shares held by
that investor. The Board of Trustees 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.
28
<PAGE>
Recent tax legislation relaxed the rules concerning ownership of stock in a
REIT by certain domestic pension trusts. The Declaration of Trust does not
implement this change in the tax law. Under the Declaration of Trust, domestic
pension funds are subject to the restriction on ownership of more than 9.8% of
the value of the outstanding shares of beneficial interest.
The Declaration of Trust contains a provision which limits the right of any
shareholder to transfer or otherwise dispose of his Equity Shares in a manner
which is contrary to the Ownership Limit. If any shareholder 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 shareholder will be deemed not to have transferred his
shares. Moreover, if any person holds shares in excess of the Ownership Limit
("Excess Shares"), such person will be deemed to hold such Excess 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 Excess 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 Trustees 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
shareholders of record holding more than a specified percentage of the Company's
shares of beneficial interest, in which the shareholders set out information
with respect to their actual and constructive ownership of the Equity Shares and
the Debentures. In addition, each shareholder 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 shareholder's direct, indirect and
constructive ownership of such shares on the Company's status as a REIT.
All certificates representing Common Shares and/or Preferred Shares 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 Equity Shares
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 Shares or Common Shares. 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
"Securities 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,
29
<PAGE>
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 Shares or
Common Shares, 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 Shares, the designation, aggregate number and terms of
the series of Preferred Shares with which such Securities Warrants are being
offered and the number of such Securities Warrants being offered with such
Preferred Shares; (iii) the date, if any, on and after which such Securities
Warrants and the related series of Preferred Shares or Common Shares 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 Shares or Common Shares, holders of such Securities Warrants
will not have any rights of holders of such Preferred Shares or Common Shares,
including the right to receive payments of dividends, if any, on such Preferred
Shares or Common Shares, or to exercise any applicable right to vote.
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase such
principal amount of Debt Securities or number of Preferred Shares or Common
Shares, 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 Shares 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 Shares purchasable upon such exercise. If fewer than all of
the Securities
30
<PAGE>
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 SHARES WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of Common Shares covered by, a Common Shares
Warrant are subject to adjustment in certain events, including (i) payment of a
dividend on the Common Shares payable in shares of beneficial interest and stock
splits, combinations or reclassification of the Common Shares; (ii) issuance to
all holders of Common Shares of rights or warrants to subscribe for or purchase
Common Shares at less than their current market price (as defined in the Warrant
Agreement for such series of Common Shares 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 Shares) or of subscription
rights and warrants (excluding those referred to above).
No adjustment in the exercise price of, and the number of Common Shares
covered by, a Common Shares 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 Common Shares covered by, a
Common Shares Warrant will not be adjusted for the issuance of Common Shares or
any securities convertible into or exchangeable for Common Shares, 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 Common
Shares); (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 Shares (other than solely a change in par value or from
par value to no par value), then any holder of a Common Shares Warrant will be
entitled, on or after the occurrence of any such event, to receive on exercise
of such Common Shares Warrant the kind and amount of shares of beneficial
interest 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 Shares Warrant immediately prior to the occurrence of such
event. If the consideration to be received upon exercise of the Common Shares
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 Shares 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 Shares.
CERTAIN PROVISIONS OF THE COMPANY'S DECLARATION OF TRUST AND BYLAWS
The following paragraphs summarize certain provisions of the Company's
Declaration of Trust and Bylaws. The summary does not purport to be complete and
is subject to and qualified in its entirety by reference to the Declaration of
Trust and Bylaws. See "Available Information."
31
<PAGE>
THE BOARD OF TRUSTEES
The Company's Bylaws provide that the number of trustees 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 shareholders 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 Declaration of Trust, each trustee will hold
office for a one-year term expiring at the annual meeting of shareholders 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
trustees.
AMENDMENT TO THE DECLARATION OF TRUST
The Company's Declaration of Trust 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 Declaration of Trust establishes an advance notice procedure
for shareholders to make nominations of candidates for election as trustees or
bring other business before an annual meeting of shareholders ("Shareholder
Notice Procedures").
The Shareholder Notice Procedures provide that (1) only persons who are
nominated by or at the direction of the Board of Trustees, or by a shareholder
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 trustees 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 Trustees or by a shareholder
who has given timely written notice to the Secretary of such shareholder's
intention to bring such business before the meeting. In general, to be
considered timely, notice of shareholder 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 shareholders is to provide
the Board of Trustees 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 Trustees, to inform
shareholders and make recommendations about such qualifications or business, as
well as to provide a more orderly procedure for conducting meetings of
shareholders. Although the Company's Declaration of Trust do not give the Board
of Trustees any power to disapprove of shareholder nominations or proposals for
action, they may have the effect of precluding a contest for the election of
trustees or the consideration of shareholder proposals if the proper procedures
are not followed. In addition, the Declaration of Trust may discourage or deter
a third party from conducting a solicitation of proxies to elect its own slate
of trustees 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 shareholders. The provisions in the Company's
Declaration of Trust 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 Common Shares 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.
32
<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 SHAREHOLDERS 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 shareholders, partners or beneficiaries.
Accordingly, shares
33
<PAGE>
held by CRP-London will be considered as being owned proportionately by the
individual shareholders of CRP-London. In addition, pursuant to the Taxpayer
Relief Act of 1997, compliance with certain procedural requirements may protect
the Company from loss of REIT status by reason of an inadvertent violation of
this rule. The Declaration of Trust provides certain restrictions on ownership
of shares designed to assure compliance with this requirement.
Domestic pension funds generally are not 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, 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
Declaration of Trust, pension funds are subject to the same ownership
restrictions as other persons, without regard to this rule.
SHAREHOLDER 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 shareholders of record holding more than a specified percentage
of the Company's shares of beneficial interest, in which the shareholders set
out information with respect to their actual and constructive ownership of the
Common Shares and the Debentures. In addition, each shareholder must on demand
disclose to the Company in writing such additional information as the Company
requests in order to determine the effect of such shareholder'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.
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.
34
<PAGE>
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.
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 and interest income,
certain hedging income and 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 "impermissible tenant
service income," which is generally income from providing "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." If
impermissible tenant service income with respect to
35
<PAGE>
a property exceeds 1% of all amounts received or accrued with respect to
such property, then all such amounts are treated as impermissible tenant
service income. 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 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.
DISTRIBUTIONS TO SHAREHOLDERS
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 shareholders 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.
36
<PAGE>
"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 as of the close of the third taxable year following the
taxable year in which 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 or income from cancellation of
indebtedness, 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 shareholders on a quarterly
basis sufficient to meet the 95% distribution requirement. However, because of
the possible receipt of income without corresponding cash receipts, 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.
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 shareholders in computing its taxable income. Assets of the Company
and distributions to shareholders 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 shareholders 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 shareholders 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
shareholders. Distributions to shareholders 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
37
<PAGE>
shareholder 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 shareholders.
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 shareholders. 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 shareholders, 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
shareholders.
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 shareholders.
EXCISE TAX ON FAILURE TO MEET 75% OR 95% INCOME TESTS. Regardless of
distributions to shareholders, 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).
38
<PAGE>
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 shareholders 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
39
<PAGE>
may be deemed to be underwriting discounts and commissions, under the Securities
Act. Underwriters, dealers and agents may be entitled, under agreements entered
into with the Company, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act.
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 consolidated balance sheets of the Company as of December 31, 1997 and
1996 and the consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997
included in the Company's Annual Report on Form 10-K and the combined statement
of revenues and certain expenses of the Other Acquisition II Properties for the
year ended December 31, 1996 included in the Company's Current Report on Form
8-K/A No. 1 filed with the Commission on February 27, 1998, both incorporated by
reference in this Prospectus, have been incorporated herein in reliance on the
reports of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only on the information provided in or incorporated by
reference in this prospectus supplement and prospectus. Neither we nor the
underwriter have authorized anyone to provide you with different information.
You should not assume that the information in this prospectus supplement and
prospectus is accurate as of any date other than the date on the front of this
document. If it is against the law in any state or other jurisdiction to make an
offer to sell these securities (or to solicit an offer to sell these
securities), then this prospectus supplement and prospectus do not apply to any
person in that state, and this prospectus supplement and prospectus make no
offer or solicitation to any such person.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
PROSPECTUS SUPPLEMENT
Forward Looking Statements....................... S-2
Prospectus Supplement Summary.................... S-3
The Company...................................... S-5
Risk Factors..................................... S-6
Use of Proceeds.................................. S-10
Capitalization................................... S-11
Selected Consolidated Financial Data............. S-12
Price Range of Common Shares and Dividend
History........................................ S-14
Description of the Series B Preferred Shares..... S-15
Certain Federal Income Tax Considerations........ S-26
Underwriting..................................... S-30
Legal Matters.................................... S-30
PROSPECTUS
Available Information............................ 2
Incorporation of Certain Documents by
Reference...................................... 2
The Company...................................... 3
Risk Factors..................................... 5
Use of Proceeds.................................. 8
Certain Ratios................................... 8
Description of Debt Securities................... 8
Description of Shares of Beneficial Interest..... 22
Description of Securities Warrants............... 29
Certain Provisions of the Company's Declaration
of Trust and Bylaws............................ 31
Federal Income Tax Considerations Relating to the
Company's REIT Status.......................... 33
Plan of Distribution............................. 39
Legal Matters.................................... 40
Experts.......................................... 40
</TABLE>
1,000,000 SHARES
[LOGO]
7.50% SERIES B CONVERTIBLE
CUMULATIVE REDEEMABLE
PREFERRED SHARES
(LIQUIDATION PREFERENCE
$50.00 PER SHARE)
-------------------
PROSPECTUS SUPPLEMENT
-------------------
EDWARD D. JONES & CO., L.P.
June 17, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
